-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TghYEMBrTCoICxXGfWt7FLwPU4HG7anB0BEuZ9oukWc4vJ/GyZ8ZdFRM5xgtziQI LhQzhkGR7WQd/bMcmqdPiQ== 0000796912-99-000004.txt : 19990623 0000796912-99-000004.hdr.sgml : 19990623 ACCESSION NUMBER: 0000796912-99-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990622 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAYERS INTERNATIONAL INC /NV/ CENTRAL INDEX KEY: 0000796912 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 954175832 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14897 FILM NUMBER: 99650324 BUSINESS ADDRESS: STREET 1: 1300 ATLANTIC AVENUE STREET 2: SUITE 800 CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 6094497777 MAIL ADDRESS: STREET 1: 1300 ATLANTIC AVE STREET 2: STE 800 CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 FORMER COMPANY: FORMER CONFORMED NAME: PLAYERS CLUB INTERNATIONAL INC DATE OF NAME CHANGE: 19861020 10-K 1 38 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number: 0-14897 PLAYERS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Nevada 95-4175832 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Suite 800, 1300 Atlantic Avenue, Atlantic City, New Jersey (Address of principal executive offices) 08401 (Zip Code) (609) 449-7777 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.005 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 18, 1999, the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrants was not less than $180,000,000. As of June 18, 1999, there were 32,032,737 shares of the registrant's Common Stock outstanding. Documents Incorporated by Reference: None. -1- PART I Item 1. Business _______ ________ General Players International, Inc. (the "Company") is a multi-jurisdictional gaming company with operations in Illinois, Louisiana, Missouri and Kentucky. The Company operates a cruising riverboat casino in Metropolis, Illinois, two cruising riverboat casinos in Lake Charles, Louisiana, two dockside riverboat casinos in Maryland Heights, Missouri and the Players Bluegrass Downs horse racetrack in Paducah, Kentucky. The Metropolis riverboat, which is the only riverboat operating in southern Illinois, attracts patrons from its target markets in Illinois, Indiana, Kentucky, Missouri and Tennessee. The Lake Charles riverboats serve the Houston, Texas and southwest Louisiana markets. The Company and Harrah's Entertainment, Inc. each operate two dockside riverboat casinos and jointly own a landside hotel and entertainment facility in Maryland Heights, Missouri. The Maryland Heights casino serves the St. Louis, Missouri market. The Company's marketing and operational strategy is designed to provide its guests with superior customer service and entertainment value for their gaming dollar and focuses on the more profitable, mid-level drive-in customers who live within a 150-mile radius of the Company's facilities. The Company's sites are conveniently located near frequently traveled interstate highways and have easy access and parking to satisfy the demands of local and frequent visitors. On-site customer service efforts are intended to establish personal relationships with patrons that result in ongoing loyalty to, and repeat patronage of, the Company's casinos. The Company has developed extensive employee training programs designed to improve customer service and better prepare its personnel to communicate with and reward its in-house guests. Player tracking systems record gaming activity and corresponding complimentary expenses in a player database from which each property targets its best players with special offers through cost effective direct mail programs. In February, 1999, the Company entered into a definitive agreement and plan of merger with Jackpot Enterprises, Inc. ("Jackpot"). Pursuant to the terms of the agreement, Jackpot will acquire the Company for $8.25 per share, consisting of $6.75 per share in cash and $1.50 in Jackpot's common stock, subject to adjustment under certain circumstances, for each share of the Company's outstanding common stock. The completion of the merger is subject to a number of conditions, including approval by the stockholders of both companies, receipt of all necessary regulatory approvals (including the approvals of the Illinois, Louisiana, Missouri and Kentucky gaming authorities) and the financing of the transaction. The merger is anticipated to close in the second half of calendar 1999. Metropolis Operations The Metropolis facility commenced operations on February 23, 1993, and is the only riverboat casino operating in southern Illinois. The Company holds one of ten statutorily authorized gaming licenses in Illinois. Under Illinois law, licenses are renewed annually after the first three years of operation. The Metropolis gaming license was conditionally renewed for a one-year period in February, 1999, subject to the outcome of a special investigation. See "Gaming Regulation; Illinois Gaming Regulation" below. The Metropolis facility offers a four deck historical replica of a paddlewheel riverboat. The riverboat features a fully-equipped Las Vegas style casino that contains approximately 22,000 square feet of gaming space. The casino is equipped with 915 slot machines and 40 table games for a total of approximately 1,040 gaming positions as defined by Illinois regulation. The docking site at the Metropolis facility includes a dining and entertainment facility which was added in December, 1997. This 27,000 square foot barge has a tropical theme and offers a 300-seat buffet facility, a 140-seat fine dining facility, an entertainment lounge, a queuing and guest services area and a VIP area. The Metropolis facility has approximately 1,400 automobile and bus parking spaces. The Company also holds a 12.5% limited partnership interest in a joint venture which constructed a 120-room hotel adjacent to the Metropolis facility. The hotel opened in March, 1994. The Company is entitled to a discounted rate for a specified number of hotel rooms used for casino guests. The Company also leases, under a ten-year agreement, a 350-seat cabaret style theater adjacent to the hotel, which is used for special events and promotions. The Metropolis facility is located approximately three miles from U.S. Interstate 24, a major highway through Illinois, Kentucky and Tennessee. Passenger counts are higher during warmer weather (from late spring through early fall) than during the winter months. The Company anticipates that this seasonal passenger count trend will continue in the future. -2- Lake Charles Operations The Lake Charles facility commenced operations in the City of Lake Charles, Louisiana on December 8, 1993, with one riverboat casino, the Players Lake Charles Riverboat. In January, 1995, the Company acquired all interests in a partnership that owned another fully-equipped Las Vegas style riverboat casino, the Star Riverboat, which previously operated for one and one-half years on Lake Pontchartrain near New Orleans. The Company relocated the Star Riverboat to Lake Charles and reopened it in April, 1995. The Company presently holds two of a current maximum of fifteen statutorily authorized riverboat casino licenses in Louisiana. Under Louisiana law, licenses are initially issued for a term of five years and then considered for renewal annually thereafter. The initial Players Lake Charles Riverboat license was to expire on December 6, 1998, but was conditionally renewed, subject to a full suitability investigation and approval by the Louisiana Gaming Control Board, on October 20, 1998. The initial Star Riverboat license was to expire on August 9, 1998, but was conditionally renewed, subject to a full suitability investigation and approval by the Louisiana Gaming Control Board, on July 21, 1998. See "Gaming Regulation; Louisiana Gaming Regulation" below. The Players Lake Charles Riverboat and the Star Riverboat are docked at a common docking site. The Players Lake Charles Riverboat is a fully-equipped three deck Las Vegas style casino that has approximately 29,200 square feet of gaming space and is equipped with 947 slot machines and 60 table games for a total of approximately 1,300 gaming positions. The Star Riverboat is a fully-equipped three deck Las Vegas style casino that has approximately 21,730 square feet of gaming space and is equipped with 710 slot machines and 36 table games for a total of approximately 926 gaming positions. Both the Players Lake Charles Riverboat and the Star Riverboat operate staggered three-hour cruises up to 24 hours a day. While each riverboat is required by state law to cruise, the staggered cruise schedules allow the Company to offer patrons the equivalent of dockside gaming, since a riverboat is almost continually available for boarding by patrons at the docking site. The Lake Charles facility features a 60,000 square foot floating entertainment "Island." Riverboat casino passengers walk through the Island, which is connected to the Company parking garage by a covered walkway, to board the Players Lake Charles Riverboat and the Star Riverboat. The Island offers a tropical theme with lush foliage, waterfalls and rockscapes. The Island includes a gift shop, a 150-seat upscale restaurant, a 350-seat buffet restaurant, a 145-seat sports bar, and a 50-seat Asian restaurant. The Company also maintains a permanently moored barge of approximately 10,000 square feet adjacent to the Island, which houses an employee breakroom, administrative offices and mechanical rooms. In January, 1998, the Company acquired a 269-room hotel formerly operated as the Lake Charles Holiday Inn. This acquisition has allowed the Company to enhance its Lake Charles gaming operations by offering better quality hotel rooms as part of its marketing programs and increasing the length of stay of traveling patrons, thereby increasing traffic to the casinos. The hotel, which is located adjacent to the Company's Lake Charles property, is not operated as a Holiday Inn-franchised hotel. As a result of this acquisition and in response to a need for additional parking, the Company demolished the former Players Hotel to accommodate increased surface parking. Parking facilities at the Lake Charles facility consist of a 500 space, on-site multi-story parking garage, a 270-space surface parking area and several off-site surface parking facilities that provide approximately 900 additional automobile and bus parking spaces. Construction of approximately 250 additional paved surface parking spaces on the site of the former Players Hotel adjacent to the Island was substantially completed by Memorial Day weekend, 1999, with the balance of the work to be completed by the end of June, 1999. The City of Lake Charles and the surrounding area have a population of approximately 300,000 adults of legal gaming age within a 50-mile radius. The Lake Charles facility's primary market area also includes such population centers as Houston, Beaumont, Galveston, Orange and Port Arthur, Texas and Lafayette and Baton Rouge, Louisiana. Approximately 4.4 million adults of legal gaming age reside within 150 miles of the Lake Charles facility. The Lake Charles facility is situated immediately adjacent to U.S. Interstate 10 ("I-10") which connects Houston, Beaumont and Lake Charles and provides easy access to the casinos. The Lake Charles riverboats draw more than 70% of their patrons from Texas, due in large part to the current absence of legalized casino gaming in Texas. The facility faces direct competition from the Isle of Capri casino, situated approximately one mile from the Lake Charles facility, and the land-based Coushatta Indian casino situated in Kinder, Louisiana, approximately 35 miles away. Road construction is underway on I-10 near the Company's Lake Charles facility. The construction has resulted in lanes of I-10 being closed for periods of time, although the Company has been advised that, whenever possible, one eastbound lane and one westbound lane will remain open, permitting access to and from the casino. Traffic delays and inconvenience caused by road construction have negatively impacted patronage to the Company's facility and may continue to do so through, and perhaps beyond, the completion of this project. The first phase of I-10 road construction has been completed, and the second phase is expected to be completed by October 1, 1999. In April, 1997, a federal investigation of former Louisiana Governor Edwin Edwards, his son Stephen Edwards, Richard D. Shetler and others with respect to their involvement in the riverboat gaming industry and other matters became public. Upon -3- learning of the investigation, the Company immediately began cooperating with the federal authorities. (Stephen Edwards is a former outside attorney and Richard D. Shetler is a former consultant to and lobbyist for the Company in Louisiana.) In August, 1998, the Company was advised in writing by the United States Attorney that neither the Company nor its current or former employees were subjects or targets of the federal investigation. On October 9, 1998, Richard D. Shetler pleaded guilty to conspiracy to commit extortion of the Company. On November 6, 1998, a grand jury of the United States District Court for the Middle District of Louisiana returned an indictment against Edwin Edwards, Stephen Edwards, and four other defendants for matters relating to the riverboat casino industry. The indictment charges Edwin Edwards and Stephen Edwards with extorting and conspiring to extort the Company in violation of the Racketeer Influenced Corrupt Organizations Act, or RICO Act, and interstate travel in aid of racketeering. On November 12, 1998, the defendants pleaded not guilty to the allegations set forth in the indictment. The Missouri Gaming Commission, the Illinois Gaming Board and the Louisiana Gaming Control Board are each aware of and are each investigating the involvement of the Company in the Shetler and Edwards cases to determine the suitability of the Company and its subsidiaries for continued licensure. See "Gaming Regulation" below. The Company has and will continue to cooperate with the gaming regulatory authorities in their investigations. To date, none of the gaming regulatory authorities has commenced any disciplinary action against the Company or any of its employees as a result of the Shetler and Edwards cases or other related matters. The Company is unable at this stage to determine the likely outcome of these gaming regulatory investigations or estimate the amount or range of potential loss, if any. Maryland Heights Operations On March 11, 1997, the Company and Harrah's opened a riverboat casino entertainment facility in Maryland Heights, Missouri, a suburb of St. Louis. The Maryland Heights facility offers four permanently moored, dockside riverboat casinos totaling approximately 120,000 square feet of gaming space. The four casinos at the Maryland Heights facility are permanently moored to a land-based 95,000 square foot entertainment facility, which has a turn-of-the-century St. Louis theme and includes retail shops, two 125-seat specialty restaurants (the Company and Harrah's each operate one of the specialty restaurants), a 540-seat buffet, a 125-seat entertainment lounge, a variety of retail stores, a child care facility, 10,000 square feet of convention/meeting space, a 9,000 square-foot sports bar and a 1,850 space parking garage and 2,650 surface parking spaces. The Maryland Heights facility also offers a 291-room hotel with 12 luxury suites. The hotel and the entertainment facility are referred to together as the landside facility. The Company and Harrah's each individually manage, operate and market two of the four permanently moored, dockside casinos pursuant to separate gaming licenses. The Company's Maryland Heights casinos have total gaming space of approximately 60,000 square feet and are equipped with, in the aggregate, 1,608 slot machines and 48 table games for a total of approximately 1,900 gaming positions. The Company's Maryland Heights casinos feature a tropical island theme with lush foliage, waterfalls and rockscape. In accordance with Missouri gaming regulations, one of the Company's two casinos remains open for patron boarding for a 45 minute period while the other casino is closed to boarding, and only one casino facility is open for boarding at any given time. Only one of the Harrah's casinos at the Maryland Heights Facility is likewise open for boarding at any given time. The Company's Maryland Heights casinos pay Harrah's a ground lease payment based upon a percentage of their annual net gaming revenue. Both the Company and Harrah's are 50% owners of the Maryland Heights joint venture, the entity which (i) owns the Maryland Heights entertainment facility and the Maryland Heights hotel and (ii) owns the dockside barges that house each of Harrah's and the Company's casino operations at the Maryland Heights facility. Under the agreement governing the Maryland Heights joint venture, each of the Company and Harrah's (i) is entitled to 50% of all profits, and is responsible for 50% of all losses, from the landside properties (excluding profits and losses from each entity's separately operated specialty restaurant), (ii) was responsible for the fit-out, furnishings and equipment at its own specialty restaurant and casinos, and (iii) derives all profits, and is responsible for all losses, from its separately operated specialty restaurant and casinos. Pursuant to a separate management agreement, an affiliate of Harrah's manages the Maryland Heights hotel and the Maryland Heights entertainment facility, with the exception of the Company's specialty restaurant and retail space. The management agreement has a basic term that expires on December 31, 2005, with fourteen renewal terms of five years each. The Maryland Heights facility is strategically located to attract patrons from a local population base of approximately 2.3 million in the greater St. Louis metropolitan region. The site features easy accessibility, a high level of drive-by traffic, and is located adjacent to the Riverport Amphitheater, which currently attracts 500,000 visitors per year. The Company maintains separate riverboat casino licenses, issued by the Missouri Gaming Commission, for each of its two casinos. The licenses were renewed effective March 11, 1999, for terms of two years. See "Gaming Regulation; Missouri Gaming Regulation" below. Missouri gaming regulations limit patron gaming to $500 per two hour cruise session. In addition, while the Company's two riverboat casinos are permanently moored, state law requires the Company to simulate two hour cruises. -4- Players Bluegrass Downs Operations Players Bluegrass Downs, a racetrack located in Paducah, Kentucky, was acquired by the Company in 1993 and holds live racing meets each fall as well as year-round simulcasting of horse racing events. During the year when live race meets are not scheduled, the racetrack facilities are leased for special events and activities. During fiscal 1999, the Company began operating Players Bluegrass Downs as a harness racetrack and discontinued the thoroughbred racing that previously had been conducted. Competition The casino gaming industry includes land-based casinos, dockside casinos, cruising riverboat casinos and land-based casinos on Indian reservations. The gaming industry is highly competitive and is composed of a large number of companies. Numerous states have legalized gaming and several other states are considering the legalization of gaming in designated areas. Indian gaming on tribal land also continues to expand. As a result of the proliferation of gaming, the Company's operations have been adversely affected. New gaming facilities that have opened in markets served by the Company's facilities have diluted the market by competing for existing patrons of the Company's facilities. The Company anticipates this trend will continue as new competition comes on line and existing competitors enhance their facilities. In addition, many of the Company's direct competitors have significantly greater resources as compared to those of the Company. Competitors with greater resources than the Company enjoy a competitive advantage since they have more flexibility in the manner in which they manage, operate and expand their facilities. The Metropolis facility's closest gaming competitor is the City of Evansville riverboat casino, located approximately 110 miles away in Evansville, Indiana. Another competing riverboat casino, the City of Caruthersville, operates in Caruthersville, Missouri, which is approximately 120 miles southwest of the Metropolis facility. Caesars opened the Glory of Rome riverboat casino in November, 1998, in Corydon, Indiana, across from Louisville, Kentucky, approximately 200 miles from Metropolis, and has announced plans for a hotel and other resort facilities at that location. While to date the Caesar's facility has had limited direct impact on Metropolis, the introduction of additional capacity could intensify competition among existing gaming operators in southern Illinois and Indiana for patrons residing in common shared outer markets, specifically patrons residing in Tennessee. The Metropolis facility faces further competition as additional riverboats become licensed in southern Indiana and Missouri. Metropolis also experiences significant competition for Tennessee patrons, as well as some Illinois and Missouri patrons, from ten dockside casinos in Tunica, Mississippi. Casinos operating in Tunica, Mississippi enjoy a competitive advantage over the Company's Metropolis facility since they offer permanently moored, dockside facilities while the Company's riverboat is currently required to cruise by state law. The Lake Charles facility faces direct competition from Isle of Capri, which opened with one Las Vegas style riverboat casino on July 29, 1995, in Westlake, Louisiana, approximately one mile from the Company's facility. In May, 1996, the Isle of Capri opened a 105,000 square foot pavilion which offers a 489-seat buffet, a live entertainment facility, retail operations and a 1,400 space parking garage. In July, 1996, the Isle of Capri opened a second Las Vegas style riverboat casino. The first of the Isle of Capri's two riverboat casinos presently offers approximately 24,700 square feet of gaming space with 892 slot machines and 43 table games, while the other riverboat casino offers approximately 24,200 square feet of gaming space with 944 slot machines and 48 table games. A 241-room hotel and a restaurant constructed by Isle of Capri opened in September, 1997. Construction of a 250-room deluxe hotel, at a cost of approximately $35 million, has also been announced. Eastbound travelers from Texas and western Louisiana on Interstate 10 are able to access the Isle of Capri prior to reaching the Company's facility. The Lake Charles facility also faces direct competition from the land-based Coushatta Indian casino facility in Kinder, Louisiana. The Coushatta facility, which opened in January, 1995, and expanded in August, 1995, is a Las Vegas style casino that currently offers approximately 100,000 square feet of gaming space, 3,000 slot machines and 75 table games. Grand Casinos, Inc. manages the facility, which also includes a buffet, an upscale restaurant and a 200-pad RV park. The facility also includes a 260-room hotel and an event center. Two additional restaurants are expected to open in the summer of 1999. Plans for construction of a golf course and an additional 400-room hotel have also been announced. In addition to the Coushatta facility, the Lake Charles facility competes to a lesser degree with riverboat operators in Baton Rouge, approximately 125 miles east of Lake Charles, the New Orleans area, approximately 200 miles east of Lake Charles, and the Shreveport/Bossier City area, which is approximately 180 miles north of Lake Charles. In the 1997 Regular Session of the Louisiana Legislature, a law was passed authorizing the operation of slot machines at three horse racing tracks in Louisiana, including a racetrack situated in Calcasieu Parish (the same Parish as the Company's Lake Charles facility), Delta Downs. Under the law, before slot machines can be operated at Delta Downs (i) voter approval is required through a local referendum election in Calcasieu Parish and (ii) companion legislation must be passed by the Louisiana Legislature to establish the tax rate to be levied on slot machine revenues. In the Fall of 1997, voters in Calcasieu Parish voted not to authorize the operation of slot machines at Delta Downs. In addition, the Louisiana Legislature, in its 1998 Fiscal Session, failed to pass the required companion tax legislation. However, the law provides that another local referendum may be conducted every two years, and companion tax legislation may be considered in any future session of the Louisiana Legislature. -5- The Company's Maryland Heights casinos compete with all of the gaming operators in the greater St. Louis market, including the Company's joint venture partner, Harrah's; the nearby St. Charles Station in St. Charles, Missouri; the President Riverboat in downtown St. Louis, Missouri; the Alton Belle in Alton, Illinois; and the Casino Queen in East St. Louis, Illinois. The riverboats operated by the Company's joint venture partner, Harrah's, have a total of 1,676 slot machines and 48 table games. The President facility operates a single gaming facility with 1,230 slot machines and 62 table games. The St. Charles facility consists of two riverboat gaming facilities with 1,860 slot machines and 76 table games. Additionally, St. Charles has announced a $190 million expansion project, for which construction has been temporarily halted. Casino Queen operates a single riverboat with 1,066 slots and 64 table games. Alton Belle has 700 slots and 32 table games. As Illinois operators, neither the Casino Queen nor the Alton Belle are subject to the same loss limits per passenger imposed in Missouri. The Company's Maryland Heights casinos may compete with additional riverboats in the St. Louis metropolitan area to the extent that additional licenses, if any, are granted by the Missouri Gaming Commission. Employees As of June 12, 1999, the Company had approximately 3,500 employees, including 817 employed in Metropolis, 1,580 employed in Lake Charles, 985 employed in Maryland Heights, 42 employed at Players Bluegrass Downs and 34 employed in the Company's corporate and administrative offices. In Lake Charles, the Company also contracts with a third party for its maritime operations (approximately 89 employees) and its valet operations (approximately 90 employees). The Company believes its relations with its employees are generally good. Gaming Regulation The Company is subject to state and Federal laws which regulate businesses generally and the gaming business specifically. Below is a description of some of the more significant regulations to which the Company is subject. All laws are subject to change and different interpretations. This is especially true with respect to current laws regulating the gaming industry, since in many cases these laws and the regulatory agencies applying them are relatively new. Changes in laws or their interpretation may result in the imposition of more stringent, burdensome and expensive requirements, or the outright prohibition of an activity. Illinois Gaming Regulation The Riverboat Gambling Act of Illinois (the "Illinois Riverboat Act") currently authorizes a five-member Illinois Gaming Board to issue up to ten riverboat gaming licenses. Nine licensees are currently operating in Illinois. A tenth license was not renewed by the Board. The status of this license renewal remains pending until final action by the Board after administrative procedures are completed. On May 25, 1999, the Illinois General Assembly passed legislation to allow dockside gaming, to remove the Cook County site prohibition and relocate the tenth license there and to allow licensees to have more than 10% ownership in a second license, among other changes. This legislation is subject to the approval of the Governor. Each owner's license entitles the licensee to own and operate up to two riverboats (with a combined maximum of 1,200 "gaming positions," as such term is defined under Illinois law) and equipment thereon from a specified dock site. The duration of the license initially runs for a period of three years. Thereafter, the license is subject to renewal on an annual basis upon, among other things, a determination by the Illinois Gaming Board that the licensee continues to meet all of the requirements of the Illinois Riverboat Act and the Illinois Gaming Board's Rules, including continued suitability of the licensee, parent/holding company and key persons in light of their conduct in other jurisdictions. The Illinois Gaming Board issued an owner's license to a wholly-owned subsidiary of the Company for its Metropolis facility in February, 1993. All licensees have a continuing duty to maintain suitability for licensure. The Illinois Riverboat Act and Illinois Gaming Board Rules grant the Illinois Gaming Board extensive jurisdiction and specific powers and duties for the purposes of administering, regulating and enforcing the system of riverboat gaming. These powers are far reaching and include the power to limit, proscribe or effectively rescind the payment of dividends or the repayment of indebtedness to the Company in certain circumstances, including any adverse financial condition, default, non-compliance or insolvency of the Company or any of its subsidiaries. The Illinois Gaming Board may revoke, suspend or place conditions on licenses or fine licensees, in any case as the Illinois Gaming Board may see fit and in compliance with applicable laws of the State of Illinois regarding administrative procedures and may suspend an owner's license, without notice or hearing, upon a determination that the safety or health of patrons or employees is jeopardized by continuing a riverboat's operation. The suspension may remain in effect until the Illinois Gaming Board determines that the cause for suspension has been abated. The Illinois Gaming Board may revoke the owner's license upon a determination that the owner has not made satisfactory progress toward abating the hazard. A holder of an owner's license is required to obtain all licenses from the Illinois Gaming Board necessary for the operation of a riverboat, including a liquor license, a license to prepare and serve food, and all other necessary licenses. All sales, use, occupation and excise taxes which apply to food and beverages apply to sales aboard riverboats. All riverboats must be accessible to disabled persons, must be either a replica of a 19th century Illinois riverboat or be of a casino cruise ship design, and must comply with applicable Federal and state laws, including U.S. Coast Guard regulations. A person employed at a riverboat gaming operation must hold an occupation license from the Illinois Gaming Board, which permits the holder to perform only activities included within such holder's level of occupation license or any lower level of occupation license. The Illinois -6- Gaming Board also requires that officers, directors and other key persons of a gaming operation be licensed. In addition, a riverboat licensee can purchase or lease gaming equipment or supplies only from a supplier who has been issued a supplier's license by the Illinois Gaming Board. As a condition to maintaining an owner's license, the licensee must, among other things, submit detailed financial information and other information to the Illinois Gaming Board including an annual audit by an independent certified public accountant, selected by the Administrator of the Illinois Gaming Board, of the financial transactions and conditions of the total operations of a holder of an owner's license, including the condition of the licensee and its internal control system. The holder of an owner's license must prepare and send to the Administrator, and the independent certified public accountant selected by the Administrator, a written response to issues raised by such accountant's reports on: (i) the procedures required to be performed by such accountant on a quarterly basis with respect to certain aspects of the licensee's operations; and (ii) the annual audit referred to above. Among other continuing obligations, the holder of an owner's license has a duty to promptly disclose any material changes in the information it provides to the Illinois Gaming Board. The holder of an owner's license must report promptly to the Administrator of the Illinois Gaming Board any facts which the holder has reasonable grounds to believe indicate a violation of law (other than minor traffic violations), an Illinois Gaming Board Rule, or a holder's internal controls committed by suppliers or licensed employees including, without limitation, the performance of licensed activities different than those permitted under their license. The duty to disclose changes in information previously provided to the Illinois Gaming Board continues throughout the period of licensure. A duty exists to promptly disclose the identity of a compensated agent acting on behalf of the holder of an owner's license with regard to action by the Illinois Gaming Board. A holder of an owner's license is subject to the imposition of fines, suspension or revocation of its license for any act or failure to act on the part of the licensee or its agents or employees that is injurious to the public health, safety, morals, good order or general welfare of the people of the State of Illinois or that would discredit or tend to discredit the Illinois gaming industry or the State of Illinois, including, without limitation: (i) failing to comply with or make provision for compliance with applicable legal requirements including the Illinois Riverboat Act, the rules promulgated thereunder or any other applicable Federal, state or local law or regulation or order or failure by the holder of an owner's license to comply with or make provisions for complying with the holder's internal controls; (ii) failing to comply with any rule, order or ruling of the Illinois Gaming Board or its agents pertaining to gaming; (iii) receiving goods or services from a person or business entity which does not hold any required supplier's license; (iv) being suspended or ruled ineligible for a gaming license or having a gaming license revoked or suspended in any state or gaming jurisdiction; (v) associating with, either socially or in business affairs, or employing persons of notorious or unsavory reputation or who have extensive police records or who have failed to cooperate with any officially constituted investigatory or administrative body, if public confidence and trust in gaming would thereby be adversely affected; and (vi) employing in any Illinois riverboat gaming operation any person known to have been found guilty of cheating or using any improper device in connection with any game. The Illinois Gaming Board has taken the position that conduct that may not violate a statute or rule in other jurisdictions may nevertheless be grounds for revocation, suspension, disciplinary fines and/or failure to renew a license in Illinois. Minimum and maximum wagers on games are not established by regulation but are left to the discretion of the licensee; however, wagering may not be conducted with money or other negotiable currency. Riverboat cruises are limited to a duration of four hours, and pursuant to the language of the Illinois Riverboat Act, no gaming may be conducted while the riverboat is docked. Illinois Gaming Board Rule, Section 3000.500, currently permits gaming during the 30-minute time periods at the beginning and end of a cruise while the passengers are embarking and disembarking (total gaming time per cruise is limited to four hours, however, including the pre- and post-docking periods). In addition, pursuant to Illinois Gaming Board Rule, Section 3000.510, dockside gaming is permitted if the captain of the riverboat reasonably determines that it is unsafe to cruise due to inclement weather, mechanical or structural problems or river icing. In such event, the riverboat must be cleared at least once every four hours, at which time a new gaming session may commence; patrons may leave the vessel at any time but may only board the vessel during the first 30 minutes of the gaming session. Pronouncements by the Illinois Gaming Board indicate that the explanations for failure to cruise pursuant to Illinois Gaming Board Rule, Section 3000.510 will be closely scrutinized and that any abuse of the rule will result in disciplinary actions, which may include, among other things, any of the following: cancellation of future cruises, penalties, fines and suspensions or revocation of license. No person under the age of 21 is permitted to wager, and wagers may only be taken from a person present on a licensed riverboat. With respect to electronic gaming devices, the payout percentage may not be less than 80% nor more than 100%. Effective January 1, 1998, the Illinois Riverboat Act enacted a graduated wagering tax, from 15% to 35% of adjusted gross receipts from gaming. The tax is calculated at the following rates per calendar year: 15% up to and including $25 million; 20% in excess of $25 million but not exceeding $50 million; 25% in excess of $50 million but not exceeding $75 million; 30% in excess of $75 million but not exceeding $100 million; and 35% in excess of $100 million. The tax imposed is to be paid by the licensed owner to the Illinois Gaming Board on the day after the gaming day when the wagers were made. Prior to 1998, the wagering tax rate was a flat 20% of adjusted gross receipts from gaming. The Illinois legislation also requires that licensees pay a $2.00 admission tax for each person admitted to a gaming cruise. An ownership interest in a business entity (other than a publicly traded corporation) which has an interest in a holder of an owner's license may only be transferred or pledged as collateral with the permission of the Illinois Gaming Board. Any person or entity who or which, individually or in association with others, acquires directly or indirectly, beneficial ownership of more than 5% of any class of voting securities or non-voting securities convertible into voting securities of a publicly traded corporation which holds an ownership interest or a beneficial interest in the holder of an owner's license is required to file a Personal Disclosure Form 1. The Illinois Gaming Board, however, takes the position that it may require any individual or entity seeking a transfer of an ownership interest -7- in an owner's license to file a Personal Disclosure Form 1 and the Business Entity Form 1. The Personal Disclosure Form 1 and the Business Entity Form 1 form the basis of investigation by the Illinois Gaming Board to determine suitability of the person or entity seeking transfer of an ownership interest. If the Illinois Gaming Board denies an application for such a transfer, commencing as of the date the Illinois Gaming Board issues a notice that it denies such application, it will be unlawful for such applicant to receive any dividends or interest on his shares, to exercise, directly or indirectly, any right conferred by such shares, or to receive any remuneration from any person or entity holding any license under the Illinois Riverboat Act for services rendered. If the Illinois Gaming Board denies an application for such a transfer and if no hearing is requested or if the Illinois Gaming Board issues a final order of disqualification, the holder of an owner's license shall purchase all of the disqualified person's or entity's shares at the lesser of either the market price or the purchase price for such shares. A holder of an owner's license can only make distributions to stockholders to the extent such distributions wold not impair the financial viability of the gaming operation. Factors to be considered should include, but not be limited to, the following: (i) working capital requirements; (ii) debt service requirements; (iii) repairs and maintenance requirements; and (iv) capital expenditure requirements. Holders of an owner's license must immediately inform the Illinois Gaming Board and obtain formal approval from the Illinois Gaming Board whenever a change is proposed in the following areas: key persons; type of entity; equity and debt capitalization of entity; investors and/or debt holders; sources of funds; applicant's economic development plan; riverboat capacity or significant design change; gaming positions; anticipated economic impact; or pro forma budgets and financial statements. The Illinois Gaming Board renewed the gaming license for the Company's Illinois subsidiary which operates the Metropolis facility on February 16, 1999, but, as a condition of renewal of the license, commenced a special investigation pursuant to Illinois Gaming Board Rule Section 3000.155 regarding the Shetler and Edwards cases in Louisiana. The purpose of the special investigation is to determine whether the Company and certain key persons of its Illinois subsidiary can demonstrate their continued suitability in light of the Shetler and Edwards cases in Louisiana. The Illinois Gaming Board, in deciding upon the Illinois subsidiary's license renewal, did not waive or in any way limit its ability to revoke, not renew or otherwise take action against the Company's owner's license due to conclusions reached as a result of the special investigation. Louisiana Gaming Regulation In July, 1991, the Louisiana legislature adopted legislation permitting riverboat casinos on certain rivers and waterways in Louisiana (the "Riverboat Act"). In addition to riverboat casinos, there are many other forms of legalized gaming in Louisiana including the lottery, racetracks and video lottery terminals ("VLTs") at various types of facilities in the state, including bars, truckstops, racetracks and off-track betting parlors. The Riverboat Act authorizes the issuance of up to 15 licenses to conduct gaming activities on a riverboat of new construction in accordance with applicable law. However, no more than six licenses may be granted to riverboats operating from any one parish. Pursuant to legislation passed in a Special Session of the Louisiana Legislature in March, 1996, authority to supervise riverboat gaming activities is vested in the Louisiana Gaming Control Board, the successor regulatory agency to the Louisiana Riverboat Gaming Commission. The Louisiana Gaming Control Board, by regulation, has delegated certain responsibilities relating to investigations, issuance and renewal of certain licenses and permits, audits and enforcement of Louisiana riverboat gaming laws to the Riverboat Gaming Enforcement Division of the Louisiana State Police (the "Louisiana Enforcement Division"). The Louisiana Enforcement Division has broad powers over licensees and such powers, together with the provisions of the Riverboat Act, could operate to limit, proscribe or effectively rescind the payment of dividends or the repayment of indebtedness to the Company in certain circumstances, including any adverse financial condition, default, non-compliance or insolvency of any subsidiary or the Company. In issuing a license, the Louisiana Gaming Control Board must find that the applicant is a person of good character, honesty and integrity and a person whose prior activities, criminal record, if any, reputation, habits, and associations do not pose a threat to the public interest of the State of Louisiana or to the effective regulation and control of gaming, or create or enhance the dangers of unsuitable, unfair or illegal practices, methods and activities in the conduct of gaming or the carrying on of business and financial arrangements in connection therewith. The Louisiana Gaming Control Board cannot grant a license unless it finds that: (i) the applicant is capable of conducting gaming operations, which means that the applicant can demonstrate the capability, either through training, education, business experience, or a combination of the above, to operate a gaming casino; (ii) the proposed financing of the riverboat and the gaming operation is adequate for the nature of the proposed operation and from a source suitable and acceptable to the Louisiana Gaming Control Board; (iii) the applicant demonstrates a proven ability to operate a vessel of comparable size, capacity and complexity to the proposed riverboat so as to ensure the safety of its passengers; (iv) the applicant submits a detailed plan of design of the riverboat in its application for a license; (v) the applicant designates the docking facilities to be used by the riverboat; (vi) the applicant shows adequate financial ability to construct and maintain a riverboat; and (vii) the applicant has a good faith plan to recruit, train and upgrade minorities in all employment classifications. Certain persons affiliated with a riverboat gaming licensee, including directors and officers of the licensee, directors and officers of any holding company of the licensee involved in gaming operations, persons holding 5% or greater interests in the licensee, and persons exercising influence over a licensee, including key gaming employees ("Affiliated Gaming Persons"), are -8- subject to the application and suitability requirements of the Riverboat Act and the rules and regulations adopted pursuant thereto ("Louisiana Gaming Law") and approval by the Louisiana Gaming Control Board. The Louisiana Gaming Law specifies certain restrictions and conditions relating to the operation of riverboat gaming, including the following: (i) gaming is not permitted while a riverboat is docked, other than the forty-five minutes between excursions, and during times when dangerous weather or water conditions exist; (ii) each round-trip riverboat cruise may not be less than three nor more than eight hours in duration, subject to specified exceptions; (iii) agents of the Louisiana Gaming Control Board and the Louisiana Enforcement Division are permitted on board at any time during gaming operations; (iv) gaming devices, equipment and supplies may only be purchased or leased from permitted suppliers; (v) gaming may only take place in the designated gaming area while the riverboat is upon a designated river or waterway; (vi) gaming equipment may not be possessed, maintained or exhibited by any person on a riverboat except in the specifically designated gaming area, or a secure area used for inspection, repair or storage of such equipment; (vii) wagers may be received only from a person present on a licensed riverboat; (viii) persons under 21 are not permitted in designated gaming areas; (ix) except for slot machine play, wagers may be made only with tokens, chips or electronic cards purchased from the licensee aboard a riverboat; (x) licensees may only use docking facilities and routes for which they are licensed and may only board and discharge passengers at the riverboat's licensed berth; (xi) licensees must have adequate protection and indemnity insurance; (xii) licensees must have all necessary Federal and state licenses, certificates and other regulatory approvals prior to operating a riverboat; and (xiii) gaming may only be conducted in accordance with the terms of the license and the Louisiana Gaming Law. An initial license to conduct riverboat gaming operations is valid for a term of five years, with annual renewals thereafter. A subsidiary of the Company was issued an initial operator's license by the Louisiana Enforcement Division for the Players Lake Charles Riverboat on December 6, 1993. Another subsidiary of the Company holds an operator's license for the Star Riverboat (which was acquired by the Company in 1995) which was issued on August 9, 1993. The Louisiana Gaming Law provides that a renewal application for each one year period succeeding the initial five year term of the operator's license must be made to the Louisiana Enforcement Division. The application for renewal consists of a statement under oath of any and all changes in information, including financial information, provided in the previous application. The Louisiana Gaming Control Board conditionally renewed the Star Riverboat license on July 21, 1998 and the Players Lake Charles Riverboat license on October 20, 1998, in each case subject to full suitability investigation and approval. As part of that investigation, the Louisiana Gaming Control Board is conducting an investigation of the suitability of the Company in light of the Shetler and Edwards cases. If the Louisiana Gaming Control Board determines to do so, it has the authority to take disciplinary action against the Company and seek sanctions, including license revocation. While the Company is prepared to vigorously defend any disciplinary action that may be commenced, no assurances can be given that the Louisiana Gaming Control Board will not take disciplinary action against the Company or impose sanctions upon the Company, either before or after the Jackpot merger is approved, or that the Louisiana Gaming Control Board will approve the Jackpot merger. The transfer of a license or permit is prohibited and the transfer of an interest in a license or permit is prohibited absent prior approval. The sale, purchase, assignment, transfer, pledge or other hypothecation, lease, disposition or acquisition (a "Transfer") by any person of securities which represent 5% or more of the total outstanding shares issued by a corporation that holds a license is subject to prior approval by the Louisiana Gaming Control Board. A security issued by a corporation that holds a license must generally disclose these restrictions. Prior approval of the Louisiana Gaming Control Board is required for the Transfer of any ownership interest of 5% or more in any non-corporate licensee or for the Transfer of any "economic interest" of 5% or more in any licensee or Affiliated Gaming Person. An "economic interest" is defined for purposes of a Transfer as any interest whereby a person receives or is entitled to receive, by agreement or otherwise, a profit, gain, thing of value, loan, credit, security interest, ownership interest or other economic benefit. Riverboat gaming licensees and their Affiliated Gaming Persons are required to notify the Louisiana Gaming Control Board 60 days prior to the receipt by any such persons of any loans or extensions of credit, or modifications thereof on behalf of the licensees. The Louisiana Gaming Control Board is required to investigate the reported loan, extension of credit or modification thereof and to determine whether an exemption exists from the requirement of prior written approval and, if no exclusion applies, to either approve or disapprove the transaction. If disapproved, the transaction cannot be entered into by the licensee or Affiliated Gaming Person. The Company is an Affiliated Gaming Person of its Louisiana subsidiaries that are the licensees of the Players Lake Charles Riverboat and the Star Riverboat. Fees for conducting gaming activities on a riverboat include: (i) $50,000 per riverboat for the first year of operation and $100,000 per year per riverboat thereafter; (ii) 18 1/2% of net gaming proceeds; plus (iii) certain investigative costs. The Company reached an agreement with the City of Lake Charles (the "City") both to settle litigation and to establish a permanent method of calculating the City admission fee on Players' riverboats. Under the new agreement, which commenced March 1, 1998, the payments to the City will be calculated as a percentage of gaming revenue in lieu of a passenger admission -9- fee. In addition, the settlement calls for a payment of $544,000 per year for ten years. The present value of the fixed annual payments, including expenses, was accounted for as a one- time charge of $4.2 million in the fourth quarter of 1998. In the 1996 Special Session of the Louisiana Legislature, legislation was enacted providing for local option elections in November, 1996, on a parish-by-parish basis which gave voters in communities across the state the opportunity to decide the fate of certain forms of gaming in their parishes. In Calcasieu Parish, where the Company's Lake Charles facility is located, the referendum determined whether VLTs and riverboat gaming would continue to be permitted. In November, 1996, voters in Calcasieu Parish voted favorably to permit the continuation of both forms of gaming. Another election requested by petition in Calcasieu Parish on the issue of continuation of riverboat gaming cannot be held for at least three years following an earlier election concerning that issue. In the 1996 Special Session, legislation was also enacted placing a constitutional amendment on the October, 1996, election ballot to limit the expansion of gaming in Louisiana. In October, 1996, voters favorably passed the constitutional amendment. The constitutional amendment requires local option elections before new forms of gaming can be brought into a parish. The measure also requires a local option referendum before a riverboat can move into a parish that has not already authorized riverboat gaming. In the 1997 Regular Session of the Louisiana Legislature, a law was passed authorizing the operation of slot machines at three horse racing tracks in Louisiana, including Delta Downs, a racetrack situated in Calcasieu Parish (the same Parish as the Company's Lake Charles facility). Under the law, before slot machines can be operated at Delta Downs both voter approval is required through a local referendum election in Calcasieu Parish and the passage of companion legislation by the Louisiana Legislature to establish the tax rate to be levied on slot machine revenues. In the Fall of 1997, voters in Calcasieu Parish voted not to authorize the operation of slot machines at Delta Downs. In addition, the Louisiana Legislature, in its 1998 Fiscal Session, failed to pass the required companion tax legislation. However, the law provides that another local referendum may be conducted every two years, and companion tax legislation may be considered in any future session of the Louisiana Legislature. Missouri Gaming Regulation In November, 1992, the voters of Missouri approved a referendum authorizing riverboat gaming in Missouri. In 1993, the Missouri Legislature enacted legislation which substantially revised the referendum legislation regarding riverboat gaming and its regulation (the "Missouri Gaming Act"). The Missouri Gaming Act established the Missouri Gaming Commission, which has broad jurisdiction over and supervisory powers concerning gaming operations conducted under the Missouri Gaming Act. These powers are far reaching and include the power to limit, proscribe or effectively rescind the payment of dividends or the repayment of indebtedness to the Company in certain circumstances, including any adverse financial condition, default, non-compliance or insolvency of any subsidiary or the Company. Following a challenge to legislation authorizing riverboat casino gaming, a January, 1994, Missouri Supreme Court ruling created uncertainties regarding the extent to which casino gaming is constitutional in Missouri. In February, 1994, the Missouri Legislature passed legislation which permitted voters to amend the State Constitution to permit legislation reauthorizing riverboat casino gaming consistent with the State Constitution. The vote on the proposed State Constitutional amendment was held in April, 1994, to permit games of chance on riverboat casinos. In the April, 1994, vote, the State Constitutional amendment was narrowly defeated. As a result of the Missouri legislature's actions in February, 1994, several municipalities in Missouri which had previously approved local ordinances permitting gaming, including the City of Maryland Heights, resubmitted the local gaming activities ordinances to the voters in April, 1994, as well. The Maryland Heights ordinance was approved by municipal voters in the April, 1994, vote. Subsequently, at the statewide general election held November 8, 1994, a second proposal to amend the Missouri Constitution to permit games of chance on riverboats and floating facilities on the Missouri and Mississippi Rivers was adopted. As a result thereof, effective December 8, 1994, reel slot machines and other games of chance were authorized for use in Missouri casinos. The Missouri Gaming Act calls for licensure of casino operators (Class A license), suppliers and gaming-related occupations. On March 11, 1997, a subsidiary of the Company received two licenses in Maryland Heights to operate its two permanently moored riverboat casinos. In addition, the Maryland Heights Joint Venture was issued four Class A licenses, one for each of the four riverboat casinos permanently moored at Maryland Heights, Missouri. The Missouri Gaming Act provides a maximum loss limit of $500 per individual player per gaming excursion. Gaming excursions are required by regulation to be no less than two hours and no more than four hours in duration. Excursion gaming boats are required to cruise, unless the Missouri Gaming Commission determines under applicable criteria to permit gaming at a continuously docked boat. Such criteria include, among other items, danger to the boat's passengers because of the location of the dock or excursion cruising conditions, disruption of interstate commerce, violation of another state's laws or Federal law, or possible interference with railway or barge transportation. On March 11, 1997, the Missouri Gaming Commission authorized the Company's Maryland Heights casinos to remain continuously docked at its present Maryland Heights location. In accordance with Missouri gaming regulations, one of the Company's two casinos is open for patron boarding at different times than the other Players casino, so that only one of the Company's casino is boarding at any given time. Harrah's casinos at the Maryland Heights facility operate in a similar manner. -10- Under the Missouri Gaming Act, gaming is permitted in Missouri only on the Missouri and Mississippi Rivers. There is no statewide numerical limit to the number of licenses which may be granted to permit riverboat casino operations. Under the May, 1994, amendments to the Missouri Gaming Act, any city or county may be granted more than one license if the "home dock" city or county has authorized more than one excursion gaming boat. However, within all cities and counties in Missouri, the Missouri Gaming Commission has the ultimate responsibility for setting the number, location and type of licensed boats. Excursion gaming boats also must be authorized by the local home dock city or county. Licensees must establish financial responsibility sufficient to meet adequately the requirements of the proposed enterprise. Additionally, the Missouri Gaming Commission's regulations prohibit withdrawals of capital by, or the making of loans, advances, or distributions of any type of assets to its owner(s), in excess of 5% of such entity's accumulated earnings without Missouri Gaming Commission approval. The Missouri Gaming Act also requires that the excursion gaming boat resemble historic Missouri riverboats, encourages use of Missouri resources, goods and services in the operation of the boat, and requires that the boat provide for non-gaming areas, food service and a Missouri theme gift shop. There is no size limit on Missouri gaming boats and no minimum or maximum space prescribed for gaming areas. The Missouri Gaming Act directly subjects the gaming enterprises to various Missouri taxes. An admission fee of $2.00 per ticket per excursion must be paid to the Missouri Gaming Commission. Licensees may charge any admission fee they desire. Gaming enterprises in Missouri are also subject to an "adjusted gross receipts tax" equal to 20% of the gross receipts from licensed gaming games and devices less winnings paid to wagerers. Licensees are subject to all other income taxes, sales taxes, earnings taxes, use taxes, property taxes or any other tax or fee levied by local, state or Federal governments. Transfer of a Class A gaming license (the type of license obtained in connection with the operation of the Maryland Heights facility) is not permitted without approval of the Missouri Gaming Commission, nor may such interests be pledged as collateral without the approval of the Missouri Gaming Commission. No transfer of an interest of 5% or greater, directly or indirectly, in a publicly traded company holding a Class A license may occur without notice to the Missouri Gaming Commission. Additionally, the Missouri Gaming Commission may require a licensee to maintain cash or cash equivalents, in an amount sufficient to protect patrons against defaults in gaming debts owed by the licensee. Application fees are based upon costs of investigation and approval of licenses. The minimum nonrefundable application fee is $50,000. Initial Class A licenses are granted for a term of one year, with one 1-year renewal. License renewals are thereafter granted for a term of two years. The annual fee for licensure is $25,000. On February 23, 1999, the Missouri Gaming Commission renewed the two riverboat casino licenses of the Company for terms of two years effective March 11, 1999. The Missouri Gaming Commission is conducting an investigation of the suitability of the Company in light of the Shetler and Edwards cases. If the Missouri Gaming Commission determines to do so, it has the authority to take disciplinary action against the Company and seek sanctions, including license revocation. While the Company is prepared to vigorously defend any disciplinary action that may be commenced, no assurances can be given that the Missouri Gaming Commission will not take disciplinary action against the Company or impose sanctions upon the Company, either before or after the Jackpot merger is approved, or that the Missouri Gaming Commission will approve the Jackpot merger. Kentucky Gaming Regulation The Company presently owns and operates Players Bluegrass Downs. Pursuant to the Kentucky statutes governing horse racing, the Kentucky Racing Commission (the "Racing Commission") has plenary power to promulgate administrative regulations prescribing conditions under which all legitimate horse racing and wagering thereon is conducted. The Racing Commission issues race track licenses on an annual basis and awards racing dates subsequent to an annual application required to be filed with the Racing Commission. The Racing Commission may revoke or suspend a license if the Racing Commission has reason to believe that any provision of the Kentucky statutes, administrative regulations, or conditions established by the Racing Commission has not been satisfied. Proposed Texas Gaming Legislation Since the original Players Lake Charles Riverboat began operating on December 8, 1993, more than half of its patrons have come from Texas, with a significant portion coming from the metropolitan Houston area. Although casino gaming is not currently permitted in Texas, and the Attorney General of Texas has issued an opinion that gaming in Texas would require an amendment to the State's Constitution, the Texas legislature has considered various proposals to authorize casino gaming. To date, no bill authorizing casino gaming has passed. Bills may be introduced from time to time, however, whenever the legislature is in session. Since the Texas legislature (which meets every two years in odd-numbered years) did not pass legislation to amend the Texas State Constitution during the 1997 regular session, any such legislation will have to await the next regular session in 1999, or a special session of the legislature. Special sessions can only be called by the Governor for matters that were pending in the regular legislative session. Governor George Bush has -11- taken a public position against legalized casino gaming in Texas. A constitutional amendment requires a two-thirds vote of those present and voting in each house of the Texas state legislature and approval by the electorate at a referendum. National Gambling Impact Study Commission In August, 1996, President Clinton signed legislation creating the National Gambling Impact Study Commission (the "NGISC") to study the economic and social impact of all forms of gambling in the United States. The NGISC is composed of both individuals who are associated with the gaming industry and individuals opposed to it. The NGISC commenced its hearings in June, 1997, and issued its report in June, 1999. The recommenda- tions from this report, which are non-binding, were generally considered neutral with respect to their impact on gaming. However, it is possible that legislation could develop as a result of this report which, if enacted into law, could adversely impact the gaming industry and have a material adverse effect on the Company's business or results of operations. U.S. Coast Guard Each cruising riverboat also is regulated by the U.S. Coast Guard, whose regulations affect boat design and stipulate on-board facilities, equipment and personnel (including requirements that each vessel be operated by a minimum complement of licensed personnel) in addition to restricting the number of persons who can be aboard the boat at any one time. All vessels operated by the Company must hold, among other things, a valid Certificate of Inspection and a valid Certificate of Documentation. Loss of either Certificate would preclude a vessel's use as an operating riverboat. Cruising vessels such as those operated by the Company must be inspected every five years at a U.S. Coast Guard-approved dry-dock facility, which could cause a temporary loss of service that could last one month or longer, unless the U.S. Coast Guard determines that an alternative to drydocking is acceptable. The next such inspection is scheduled to occur in the Fall of 2000 for the Metropolis Riverboat, the Fall of 2000 for the Players Lake Charles Riverboat and the Fall of 2003 for the Lake Charles Star Riverboat. Less stringent rules apply to permanently moored vessels such as the dockside barges used by the Company in Maryland Heights, Missouri. The Company believes that these regulations, and the requirements of operating and managing cruising gaming vessels generally, make it more difficult to conduct riverboat gaming than to operate land-based casinos. Employees of navigable vessels, even those who have nothing to do with the actual operation of the vessel, such as dealers, cocktail hostesses and security personnel, may be able to claim the benefit of seamen status under the Jones Act, 46 U.S.C. 688 et seq., which, among other things, provides such employees with a claim for negligence against the employer for injuries sustained in the course of their employment and exempts those employees from state limits on worker's compensation awards. The Company believes that it has adequate insurance to cover employee claims. Shipping Act of 1916 In order for the Company's vessels to have United States flag registry, the Company must maintain "United States citizenship" as defined in the Shipping Act of 1916, as amended (the "Shipping Act"), and other applicable statutes. A corporation operating any vessel between points within the United States, such as the Company, is not considered a United States citizen unless, among other things, United States citizens own 75% of its outstanding capital stock. Company Repurchase Rights with Respect to Company Securities There are various regulations on the ownership of the Company's common stock. The Company's articles of incorporation provide that if any governmental commission, regulatory authority, entity, agency or instrumentality (collectively, an "Authority") having jurisdiction over the Company or any affiliate of the Company or that has granted a license, certificate of authority, franchise or similar approval (collectively, a "License") to the Company or any affiliate of the Company, orders or requires any stockholder to divest any or all of the shares of the Company common stock (or options, convertible securities or warrants to purchase common stock (collectively, together with common stock, "Securities")) owned by such stockholder (a "Divestiture Order") and the stockholder fails to do so by the date required by the Divestiture Order (unless the Divestiture Order is stayed), The Company will have the right to acquire the Securities from the stockholder that the stockholder failed to divest as required by such Divestiture Order. If, after reasonable notice and an opportunity for affected parties to be heard, any Authority determines that continued ownership of the Company's Securities by any stockholder shall be grounds for the revocation, cancellation, non-renewal, restriction or withholding of any License granted to or applied for by the Company or any affiliate of the Company, or shall be grounds for limiting the activities of such entity, such stockholder shall divest the Securities that provide the basis for such determination, and if such stockholder fails to divest Securities within 10 days after the date the Authority's determination becomes effective (unless the determination is stayed), the Company shall have the right to acquire such Securities from the stockholder. If the Company determines that persons who are not citizens of the United States as determined under the Shipping Act or other applicable statutes own more than 25% of the Company outstanding common stock, the Company may require the foreign citizen(s) who most recently acquired the shares that bring total foreign citizen ownership to more than 25% of the outstanding common stock to divest the excess shares to persons who are United States citizens. If the foreign citizen(s) so directed fail to divest the excess shares to United States citizens within 30 days after the date on which the -12- Company gives a written notice to the foreign citizen(s) to divest the excess shares, the Company shall have the right to acquire the shares that the foreign citizen(s) failed to divest as required by the Company's notice. Whenever the Company has the right to acquire Securities from a stockholder pursuant to the provisions described in the preceding paragraph, the Company will pay the stockholder $.10 per share or such higher price as may be required by applicable legal requirements. Some state gaming regulations require a purchase price equal to the fair market value of the Securities under certain circumstances described above. If there is no other applicable legal requirement, any amount payable to the stockholder in excess of $.10 per share will be paid in five equal annual installments with interest at the lower of the prime rate or the LIBOR rate, as published from time to time in the Wall Street Journal. Forward Looking Information Certain information included in this section and elsewhere in this Annual Report on Form 10-K contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain or will contain or include, forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements address, among other things, the approval and subsequent closing of the merger between the Company and Jackpot, the effects of competition, the resolution of pending or threatened litigation or regulatory proceedings, plans for future riverboat hull inspections, I-10 road construction in Lake Charles, dockside gaming in Illinois, the bill-to-meter initiative in Missouri, regulatory approval of the Patron Fee Buy- Out Agreements, Year 2000 compliance efforts and costs, future borrowing and capital costs, plans for future expansion and property enhancements, business development activities, capital expenditure programs and requirements, financing sources and the effects of legislation and regulation (including possible gaming legislation, gaming licensure and regulation, state and local regulation, tax regulation, and the potential for regulatory reform). Forward looking statements can generally be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "believe", or "continue" or the negative thereof or variations thereon or similar terminology. See Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operation". Such forward-looking information is based upon management's current plans or expectations and is subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions, and the Company's future financial condition and results of operations. These uncertainties and risks include, but are not limited to, those relating to the approval and subsequent closing of the merger between the Company and Jackpot, those relating to conducting operations in an increasingly competitive environment, conducting operations at a newly or recently developed site or in a jurisdiction for which gaming has recently been permitted, changes in state and local laws and regulations, development and construction activities, leverage and debt service requirements (including sensitivity to fluctuation in interest rates), general economic conditions, the results of various gaming regulatory authorities' investigations as to the Company's suitability for continued licensure, the U.S. Coast Guard's acceptance of underwater hull inspections as an alternative to dry docking and inspection, changes in federal and state tax laws, the disruption to Lake Charles operations caused by road construction, the approval of bill-to-meter initiative in Missouri, dockside gaming in Illinois, regulatory approval of the Patron Fee Buy-Out Agreements, Year 2000 compliance efforts and costs, action taken under applications for licenses (including renewals) and approvals under applicable laws and regulations (including gaming laws and regulations), and the legalization of gaming in certain jurisdictions. As a consequence, current plans, anticipated actions, and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the Company and no assurance can be given that such statements will prove to be correct. -13- Item 2. Properties _______ __________ Metropolis, Illinois The Company leases its docking facilities in Metropolis, which cover 1,810 linear feet of riverfront, from the city of Metropolis pursuant to a 20-year lease with a 20-year renewal option at an annual rent of approximately $7,000. Under a separate 20-year lease with the city of Metropolis, the Company leases additional riverfront property immediately adjacent to its docking facilities for surface parking at an annual rate of $2,500. The Company also owns several parcels of land in Metropolis, some with buildings, aggregating approximately eight acres, and leases an additional two acres. The owned or leased area is used primarily for customer parking or as office space. Some of the land is being held for development, and some of the current parking area may be developed, in which event the Company believes suitable replacement parking space could be obtained. The Ohio River occasionally overflows its banks at the Metropolis facility, most often during late winter and early spring. Such flooding may cover a portion of the Company's closest parking location, although the Company believes that it still has adequate available parking within reasonable walking distance of its landing during typical flooding periods. If flooding is especially severe, it may be impractical for passengers to board the riverboat at its normal dock site. The Company has developed an emergency plan that would permit gaming activities to continue in such circumstances. Any use of an alternate landing because of flooding may result in some loss of service. Lake Charles, Louisiana On August 16, 1995, the Company entered into an agreement with the Beeber Corporation ("Beeber") to purchase the former Players Hotel and approximately three acres of real estate comprising the landside facility for the Players Lake Charles Riverboat and the Star Riverboat. Under this agreement, as amended, the Company paid a total consideration of $6.7 million. As additional consideration, the Company was required to continue making certain payments to Beeber and a third party, which payments were related to a lease agreement dated May 19, 1993 between the Company and Beeber, as amended. In furtherance of this arrangement, the Company and such parties entered into an agreement, dated July 27, 1995, whereby the Company became obligated to pay a total of $2.95 for each passenger who patronizes the Company's Lake Charles riverboats, subject to certain conditions (the "Patron Fee"). Subsequently, rights to receive a portion of the Patron Fee were assigned to certain individuals, with the Company's permission and in accordance with the provisions of the said agreement. Pursuant to the terms of two agreements (the "Patron Fee Buy- Out Agreements"), each dated as of March 1, 1999, with Beeber (together with certain individuals affiliated with Beeber) and Karl Boellert ("Boellert"), respectively, the Company has agreed to acquire those portions of the Patron Fee owned by Beeber and Boellert, such portions together comprising approximately 48% of the Company's total Patron Fee payment obligation. Under the Patron Fee Buy-Out Agreements, the Company is obligated to pay approximately $16.8 million (subject to adjustment as provided in the respective Patron Fee Buy-Out Agreements), in the aggregate, for the portions of the Patron Fee being purchased. The Company's obligations under the Patron Fee Buy-Out Agreements are contingent upon receipt of regulatory approval for the transactions described therein. Each of Beeber, Boellert and the individuals who are parties to the Patron Fee Buy-Out Agreements is required to deliver to the Company a release and non-compete agreement at the time of closing of the above-described transactions. Upon closing, the Patron Fee will decrease to approximately $1.53 for each passenger who patronizes the Company's Lake Charles riverboats. In January, 1998, the Company acquired a 269-room hotel formerly operated as the Lake Charles Holiday Inn. The hotel, which is located adjacent to the Company's Lake Charles property, is not operated as a Holiday Inn-franchised hotel. As a result of this acquisition and in response to a need for additional parking, the Company recently demolished the former Players Hotel to accommodate increased surface parking. Parking facilities at the Lake Charles facility consist of a 500 space on-site multi-story parking garage, a 270-space surface parking area and several off-site surface parking facilities that provide approximately 900 additional automobile and bus parking spaces. Construction of 250 additional paved surface parking spaces on the site of the former Players Hotel was recently completed. Maryland Heights, Missouri On November 2, 1995, the Company entered into the Maryland Heights joint venture agreement with Harrah's to form a joint venture and co-develop the Maryland Heights facility on an approximately 215 acre site in Maryland Heights, Missouri. An affiliate of Harrah's owns the property underlying the Maryland Heights facility. The Maryland Heights joint venture agreement provides for joint decision making with respect to major decisions for the Maryland Heights joint venture, such as matters relating to the approval of the annual operating budgets and annual plans, the incurrence of debt beyond amounts set forth in the operating budget and the construction of improvements to the Maryland Heights joint venture. Each of the Company and Harrah's have an eighty (80) year lease with the Harrah's affiliate for the property underlying their respective casinos. The leases for the Company and Harrah's are substantially identical, except that the Company pays rent and Harrah's does not pay rent. The Company's rent consists of a percentage rent equal to the -14- following specified percentages multiplied by the relevant specified incremental levels of annual net gaming revenues at the Company's Maryland Heights casinos: 2% of annual net gaming revenue up to $50 million, 3% of annual net gaming revenue between $50 million and $100 million, and 4% of annual net gaming revenue in excess of $100 million. Pursuant to the management agreement, a Harrah's affiliate manages the Maryland Heights hotel and the Maryland Heights entertainment facility except for the Company's specialty restaurant and retail operations. Bluegrass Downs, Kentucky In November, 1993, the Company acquired Players Bluegrass Downs located in Paducah, Kentucky, in anticipation that the Kentucky legislature would enact legislation to authorize casino-type gaming, such as slot machines and table games, at licensed racetracks. If any legislation is adopted permitting additional forms of gaming at racetracks, the Company will consider development of its track into a facility that would offer all permitted forms of gaming. To date, there has been no such legislation created, and there can be no assurance any such legislation will be enacted. The racetrack is approximately ten miles from the Company's Metropolis facility. The next closest Kentucky racetrack to the Metropolis facility is Ellis Park, which is approximately 100 miles from each of Paducah and Metropolis. Players Bluegrass Downs consists of approximately 69.6 acres. The Company owns 58.3 acres and leases the remaining 11.3 acres. Players Bluegrass Downs includes a 5/8 mile oval harness racetrack, an enclosed 17,000 square foot clubhouse housing dining and wagering facilities, administrative areas, barns and related buildings that can accommodate 725 horses, and a parking area for more than 1,400 cars. -15- Item 3. Legal Proceedings _______ _________________ Poulos, Ahern and Schreier Litigation The Company, certain suppliers and distributors of video poker and electronic slot machines and over forty other casino operators have been named as defendants in a class action suit filed April 26, 1994 in the United States District Court, Middle District of Florida, by William Ahern and William H. Poulos. The plaintiffs allege common law fraud and deceit, mail fraud, wire fraud and Rico Act violations in the marketing and operation of video poker games and electronic slot machines. The suit seeks unspecified damages and recovery of attorney's fees and costs. On December 9, 1994, an order was entered by the District Court in Florida transferring the consolidated action to the United States District Court for the District of Nevada. On or about October 27, 1995, the Company was served with a purported class action captioned Schreier, et. al. v. Players International, et al. in the United States District Court for the District of Nevada, which is essentially identical to the Poulos and Ahern litigation, except for certain variations in the definition of the purported class. The matter has also been consolidated with the Poulos and Ahern litigation. These matters are currently in the discovery stage, after which substantive motions for dismissal will be filed by the defendants. The Company believes that the plaintiffs' claims are wholly without merit and does not expect that the lawsuit will have a material adverse effect on the Company's financial position or results of operations. J.A. Miller, et. al. v. Showboat Star Partnership, et al. Showboat Star Partnership, a subsidiary of the Company, was served with a petition captioned J.A. Miller, et. al. v. Showboat Star Partnership, et. al. on or about February 27, 1997, Docket No. 10-14544, in the 38th Judicial District Court, Parish of Cameron, State of Louisiana. The plaintiffs, a group of oyster fishermen, allege in the petition that on or about February 2, 1997, the Star Riverboat discharged raw sewage and other hazardous and toxic substances from the bilge of the vessel into Lake Charles. Plaintiffs further allege that, since 1994, the Star Riverboat and the Players Lake Charles Riverboat have discharged raw sewage and other hazardous and toxic substances into Lake Charles which is part of the Calcasieu Estuary. Plaintiffs claim that alleged acts of the Company have resulted in great damage to natural oyster beds forty-three (43) miles down river in Cameron Parish, resulting in oysters situated thereon to become dangerous and unfit for human consumption and/or preventing the oyster fishermen from harvesting oysters. The oyster fishermen are claiming both compensatory and punitive damages. The matter is in the early stages of litigation. The Company has filed several motions in response to the petition including motions to dismiss the action. The Company has also requested certain discovery in connection with the motions. The Company intends to vigorously defend this action. Douglas Joseph McNeely v. Showboat Star Partnership, et al. The Company's Louisiana operating subsidiaries and several other casino operators (collectively, the "Casino Operators") have been named in a lawsuit filed on August 13, 1997 by Douglas J. McNeely in U.S. District Court for the Eastern District of Louisiana (Civil Action No. 97-2518(B)(4)). In his original and amended complaints, Mr. McNeely alleges that (1) for at least approximately 20 years, he has suffered from a psychological condition that includes "compulsive gambling" as one of its manifestations, (2) the Casino Operators knew of such condition after August 15, 1996, (3) after August 15, 1996, the Casino Operators exploited such condition by enticing and allowing him to gamble in their casinos, and (4) as a consequence of the foregoing, Mr. McNeely suffered significant financial and emotional damages, including direct gambling losses, business losses, the collapse of his marriage and an unfavorable result in the distribution of the marital estate in the attendant divorce action. The Company disputes many of the aspects of Mr. McNeely's complaint, both as to the facts alleged and the amount of damages allegedly incurred by Mr. McNeely. In addition, the Company has raised as a defense Mr. McNeely's failure to follow the statutory "self-exclusion" process available by the filing of an affidavit with the Louisiana gaming regulators (La.R.S. 27:60). The Company intends to vigorously defend this action. Item 4. Submission of Matters to a Vote of Security Holders _______ ___________________________________________________ During the fourth quarter ended March 31, 1999, no matter was submitted to a vote of the Company's stockholders. -16- PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ______ _____________________________________________________ The Company's Common Stock is traded on the Nasdaq National Market under the symbol "PLAY". The following table sets forth the high and low prices of the Company's Common Stock, as reported by the Nasdaq National Market, during the periods indicated. High Low ____ ___ Fiscal 1998 First Quarter $4 -13/16 $2 - 7/8 Second Quarter $4 - 9/16 $2 -21/64 Third Quarter $4 - 5/8 $2 - 7/16 Fourth Quarter $5 - 1/8 $ 3 Fiscal 1999 First Quarter $5 - 3/4 $4 - 3/8 Second Quarter $5 -15/32 $3 - 5/16 Third Quarter $6 - 7/16 $3 - 3/16 Fourth Quarter $6 -57/64 $5 - 3/8 Fiscal 2000 First Quarter (through June 18, 1999) $6 -27/32 $5 -15/16 The last reported sales price of the Common Stock on the Nasdaq National Market on June 18, 1999, was $6.75 per share. On that date, there were approximately 473 holders of record of the Company's Common Stock. The Company has never declared or paid cash dividends on its Common Stock. Under the terms of the covenants of its Senior Notes and its Credit Line, the Company cannot pay cash dividends to the holders of its Common Stock. The Company presently intends to retain earnings to finance the operation and expansion of its business. See "Gaming Regulation" and "Business-Company Repurchase Rights with Respect to Company Securities" with regard to certain regulations and provisions affecting the Company's securities. -17- Item 6. Selected Financial Data _______ ________________________ Selected financial data for, and as of the end of, each of the years in the five-year period ended March 31, 1999, are presented below. 1999 1998 1997 1996 1995 ________ ________ ________ ________ ________ (dollars in thousands, except per share data) Operations Data: Total revenues $331,078 $323,218 $291,210 $291,395 $223,695 Operating income (loss) $ 24,275 $ 26,612 $(56,028) $ 43,871 $ 70,549 Net income (loss) $ 1,570 $ 1,951 $(46,298) $ 22,320 $ 45,755 Per Share Data: Basic earnings (loss) per common share $ .05 $ .06 $ (1.56) $ .75 $ 1.68 Diluted earnings (loss) per common share $ .05 $ .06 $ (1.56) $ .70 $ 1.47 Dividends on common stock $ - $ - $ - $ - $ - Balance Sheet Data: Cash, cash equivalents and marketable securities,net $ 25,687 $ 17,223 $ 20,567 $ 23,247 $ 50,332 Total assets $389,135 $409,587 $421,289 $ 413,432 $223,790 Long term debt, net of current portion $155,000 $180,541 $187,500 $ 153,000 $ 5,532 Total stockholders' equity $159,812 $157,914 $155,881 $ 193,627 $176,143 Other Data: Net cash provided by operating activities $ 43,943 $ 53,265 $ 28,458 $ 20,748 $ 52,104 Net cash used in investing activities $ 8,565 $ 37,877 $ 73,224 $ 155,054 $ 49,970 Net cash used in (provided by) financing activities $ 26,914 $ 18,732 $(46,547) $(129,206)$ (7,795) Capital expenditures $ 9,416 $ 40,216 $ 46,499 $ 147,119 $ 62,419 -18- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation _______ _____________________________________________________ The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of Players (the "Company") and its subsidiaries. The Company owns and operates riverboat gaming and entertainment facilities. These include one riverboat casino in Metropolis, Illinois (the "Metropolis facility"), two riverboat casinos in Lake Charles, Louisiana (the "Lake Charles facility") and two contiguous, permanently moored, dockside riverboat casinos in Maryland Heights, Missouri (the "Maryland Heights facility"). The Company operated a land-based casino resort in Mesquite, Nevada (the "Mesquite facility") until June 30, 1997. The Company also owns and operates a harness horseracing track in Paducah, Kentucky ("Bluegrass Downs"). Since the Company's fiscal year ends on March 31, references to the years 1999, 1998, and 1997, mean the twelve month periods ended March 31, 1999, March 31, 1998, and March 31, 1997, respectively, unless otherwise noted. Agreement and Plan of Merger ____________________________ In February 1999, the Company entered into a definitive agreement and plan of merger with Jackpot Enterprises, Inc. ("Jackpot"). Pursuant to the terms of the agreement, Jackpot will acquire the Company for $8.25 per share, consisting of $6.75 per share in cash and $1.50 in Jackpot's common stock, subject to adjustment under certain circumstances, for each share of the Company's outstanding common stock. The completion of the merger is subject to a number of conditions, including approval by the stockholders of both companies, receipt of all necessary regulatory approvals (including the approvals of the Illinois, Louisiana, Missouri and Kentucky gaming authorities) and the financing of the transaction. The merger is anticipated to close in the second half of calendar 1999. Results of Operations Financial Highlights %Increase/(Decrease) ____________________ Years ended March 31, 1999 1998 1997 99 vs. 98 98 vs. 97 _____________________________________________________________________________ (Dollars in thousands, except per share amounts) Casino Revenues Metropolis $ 78,177 $ 80,225 $ 76,373 (2.6) 5.0 Lake Charles 144,917 149,099 159,039 (2.8) (6.3) Maryland Heights 91,341 68,575 3,876 33.2 (c) Mesquite - 4,438 23,372 (d) (d) ___________________________________________________________________________ $314,435 $302,337 $262,660 4.0 15.1 ___________________________________________________________________________ Total Revenues Metropolis $ 81,146 $ 83,430 $ 79,501 (2.7) 4.9 Lake Charles 153,933 157,102 167,107 (2.0) (6.0) Maryland Heights 95,114 73,127 4,383 30.1 (c) Mesquite - 8,700 38,945 (d) (d) Other 885 859 1,274 3.0 (32.6) ___________________________________________________________________________ $331,078 $323,218 $291,210 2.4 11.0 ___________________________________________________________________________ Operating Income (Loss) Metropolis $ 18,302 $ 22,030 $ 21,619 (16.9) 1.9 Lake Charles 26,075 24,692 25,828 5.6 (4.4) Maryland Heights (a) 5,896 (4,309) (10,545) 236.8 (c) Mesquite - (528) (8,073) (d) (d) Corporate, development, preopening and other (15,204) (11,691) (18,453) (30.0) 36.6 Loss on demolition of hotel (6,095) - - - - Patron fee buy-out agreements (4,699) - - - - City of Lake Charles agreement - (4,153) - - - Loss on sale of Mesquite - 571 (57,397) (e) (e) Restructuring charge - - (9,007) - - ____________________________________________________________________________ $ 24,275 $ 26,612 $(56,028) (8.8) 147.5 ____________________________________________________________________________ Other Information Depreciation and amortization (b) $ 19,699 $ 20,806 $ 21,806 (5.3) (4.6) Interest expense (net) $ 21,158 $ 23,466 $ 15,761 (9.8) 48.9 Net income (loss) $ 1,570 $ 1,951 $(46,298) 19.5 104.2 Net income (loss) per share assuming dilution $ 0.05 $ 0.06 $ (1.56) (16.7) 103.8 -19- %Increase/(Decrease) ____________________ Years ended March 31, 1999 1998 1997 99 vs. 98 98 vs. 97 ____________________________________________________________________________ (Dollars in thousands, except per share amounts) Operating Margin (operating income/total revenues)(f) Metropolis 22.6% 26.4% 27.2% (3.8)pts (0.8)pts Lake Charles 16.9% 15.7% 15.5% 1.2 pts 0.2 pts Maryland Heights 6.2% (5.9%) (240.6%) 12.1 pts (c) Mesquite - (6.1%) (20.7%) (d) (d) Consolidated 7.3% 8.2% (19.2%) (0.9)pts 27.4 pts (a) Amount includes the Company's 50% share of the Maryland Heights joint venture operating losses, which include depreciation and amortization. Such joint venture operating losses were $10.7 million, $11.2 million and $1.9 million for 1999, 1998 and 1997, respectively. (b) Amount excludes the Company's share of the Maryland Heights joint venture depreciation and amortization of approximately $4.8 million, $4.5 million, and $400,000 for 1999, 1998 and 1997, respectively, which are included in the joint venture operating losses as shown above. (c) The Maryland Heights facility opened on March 11, 1997, and was operational for less than one month in 1997. (d) The Mesquite facility was sold during the fourth quarter of 1997, however, the Company operated the facility until the close of the transaction on June 30, 1997. (e) The 1998 amount represents reversals of accruals taken with respect to the 1997 loss on sale of Mesquite. (f) The "% Increase/(Decrease)" for operating margin represents the absolute difference in percentage points (pts) between the two periods. Results of Operations Revenues Increases in casino and total revenues in 1999 as compared to 1998 resulted from substantial revenue growth at the Company's Maryland Heights facility. Revenue increases from this facility more than offset year-to-year decreases in revenues at the Company's Metropolis and Lake Charles facilities and the absence of any revenues from Mesquite after the sale/transfer of the facility on June 30, 1997. The revenue decrease in 1999 as compared to 1998 at the Metropolis facility was a result of lower table games play due in part to tighter credit issuance standards. This decrease was partially offset by increased year-over-year slot win. Competition for Metropolis customers has also intensified during 1999, contributing to revenue decreases. The revenue decrease experienced at the Lake Charles facility during 1999 was primarily a result of lost patronage due to U.S. Interstate 10 ("I-10") road construction. The construction has resulted in lanes of I-10 being closed for periods of time, although the Company has been advised that, whenever possible, one eastbound lane and one westbound lane will remain open, permitting access to and from the casino. Traffic delays and inconvenience caused by the road construction have negatively impacted patronage and resulting revenues at the facility. The first phase of I-10 road construction has been completed and the second phase is expected to be completed by October 1, 1999. In addition, 1999 revenues were impacted by severe weather during the second quarter of 1999. The significant revenue increase at the Maryland Heights facility in 1999 as compared to 1998 was due to continued growth in the St. Louis gaming market. Year-over-year growth, from 1998 to 1999, was approximately 12% for the overall St. Louis gaming market and approximately 33% for the Company's facility. The facility also benefited throughout 1999 from technology, approved by the Missouri Gaming Commission in March, 1998, that allows customers to purchase gaming tokens directly at the slot machine rather than requiring them to purchase gaming tokens from a slot attendant, thereby reducing customer wait time and increasing slot play while still allowing accurate tracking of the $500 per cruise loss limitation. Total food and beverage ("F&B") revenues have decreased each year, over the three-year period, as a result of the sale of the Mesquite facility which was partially offset by F&B revenues generated from the opening of the Maryland Heights facility. F&B revenues were approximately $6.5 million, $1.6 million and $0 in Mesquite in 1997, 1998 and 1999, respectively, while in Maryland Heights, F&B revenues were approximately $260,000, $3.3 million and $3.0 million in 1997, 1998 and 1999, respectively. -20- Increases in casino and total revenues in 1998 as compared to 1997 resulted primarily from the opening of the Company's Maryland Heights facility in March, 1997. Revenues from this facility more than offset decreases experienced at the Company's Lake Charles facility and the absence of a full year of revenues from the Mesquite facility. The year over year increase in revenues at the Metropolis facility was due to the new dining and entertainment complex which was placed in service during December, 1997, the mild winter experienced in 1998, and the absence of flooding which adversely impacted Metropolis results in March, 1997. In Lake Charles, the Company experienced year over year revenue decreases from 1998 as compared to 1997, due to the opening of a second riverboat by its primary Lake Charles competitor in July, 1996, bringing the total number of riverboats in the Lake Charles market to four. In addition, the Company significantly curtailed its bus programs at the Lake Charles facility in the last quarter of 1998 to eliminate programs which did not contribute to operating income. Hotel revenues increased in the last quarter of 1998 due to the Company's acquisition of the former Lake Charles Holiday Inn. The Maryland Heights facility opened on March 11, 1997, and contributed revenues for three weeks in 1997 versus an entire year in 1998. The mild winter in 1998 and the continued growth of the St. Louis gaming market have resulted in sequential quarterly increases in revenues. The Mesquite facility operated for three months in 1998 prior to its sale on June 30, 1997, compared to an entire year in 1997. Operating Income (Loss) Decreases in total operating income in 1999 as compared to 1998 were attributable to decreases in operating income at the Metropolis facility, a loss related to the demolition of the former Players Hotel in Lake Charles, a charge relating to the anticipated buy-out of a portion of the Lake Charles per Patron Fee payment obligation (as defined and explained below) and an increase in corporate expenses primarily due to merger and acquisition ("M & A") related expenses. The effect of these items was partially offset by improved operating performance in Maryland Heights and Lake Charles in 1999 as compared to 1998. The decline in operating income at the Metropolis facility in 1999 versus 1998 was a result of increased operating expenditures necessary to prevent further revenue erosion in light of increased competition. In addition, gaming taxes paid by the facility were higher in 1999 due to a new graduated wagering tax, which became effective January 1, 1998. For 1999, the Company's effective tax rate was 20.9% as compared to the pre- January, 1998 flat rate of 20%. The increase in operating income experienced at the Lake Charles facility during 1999 was a result of operating expense reductions despite an increase in the Lake Charles city gaming tax. Lake Charles operating income excludes the effect of certain one-time charges taken in 1999 and 1998, as noted above and described below. During the fourth quarter of 1999, the former Players Hotel located in Lake Charles was demolished to make way for a 250 space surface parking lot. This resulted in a $6.1 million charge to earnings which represented the net book value of the hotel. In August 1995, the Company acquired the former Players Hotel in Lake Charles for $6.7 million plus future payments based on the number of passengers boarding the riverboat casinos contiguous to it over the ensuing 28 years (the "Patron Fee"). The estimated future payments were discounted at 11% and recorded at their net present value of $25.6 million (the "Payment Obligation"). Actual annual payments in excess of the amortization of the net present value of the Payment Obligation are expensed as incurred. On March 1, 1999, the Company entered into agreements (the "Patron Fee Buy-Out Agreements") with two of the parties receiving approximately 48% of the Patron Fee. The Company will terminate its obligation to make future Patron Fee payments to these parties through a one-time lump sum payment. The Payment Obligation related to the Patron Fee Buy-Out Agreements was $12.1 million. Under the Patron Fee Buy-Out Agreements, the Company is obligated to pay $16.8 million in the aggregate, subject to adjustments. The excess of the payment amount over the proportionate Payment Obligation approximates $4.7 million, and has been charged to earnings in 1999. On March 1, 1998, the Company reached an agreement with the City of Lake Charles (the "City") both to settle litigation and to establish a permanent method of calculating the City admission fee on Players' riverboats. Under the new agreement, the admission fee payments to the City will be calculated as a percentage of gaming revenue in lieu of a passenger admission fee. In addition, the settlement calls for a payment of $544,000 per year for ten years. The present value of the fixed annual payments, including expenses, was accounted for as a one-time charge of $4.2 million in the fourth quarter of 1998. -21- The Maryland Heights facility's operating income for 1999 and operating loss for 1998 include the Company's casino and food and beverage operating results and the Company's 50% share in the operating losses of the Maryland Heights joint venture. The year-over-year improvement is primarily due to increased casino revenue and a reduction in the operating loss of the joint venture. 1999 and 1998 comparative information is as follows (dollars in thousands): 1999 1998 ____ ____ Players Maryland Heights: Operating income $16,582 $ 6,903 50% Share of Joint Venture: Operating loss (10,686) (11,212) ________ ________ Total operating income (loss)(a) $ 5,896 $(4,309) ======== ======== (a) The 1999 and 1998 total operating income (loss) include depreciation and amortization of approximately $4.1 million and $3.9 million, respectively, attributable to the Company's casino and food and beverage operations at Maryland Heights and approximately $4.8 million and $4.5 million, respectively, of depreciation and amortization attributable to the Company's share of the Maryland Heights joint venture. Increases in operating income in 1998 as compared to 1997, excluding the loss on the sale of Mesquite and restructuring charge, were primarily attributable to decreased losses for Maryland Heights, the absence of operating losses for Mesquite after June 30, 1997, and a significant reduction in corporate, development, pre-opening and other expenses. The Metropolis facility's operating income for 1998 as compared to 1997 remained stable. Although revenues increased during the comparable periods, increases in promotional and other expenses reduced operating margins in 1998 as compared to 1997. The Lake Charles facility's operating income for 1998 was $24.7 million as compared to $25.8 million resulting in operating margins of 15.7% and 15.5%, respectively. The year-over-year operating margin increase was the result of cost containment efforts and the elimination of certain marketing programs. The Maryland Heights facility commenced operations in the last month of 1997. The operating loss for 1997 included the first three weeks results of the Company's casino and food and beverage operations, the first three weeks results of the Company's 50% share in the operations of the joint venture, pre- opening costs, and the write-down of land contributed to the joint venture. In 1997, the Company entered into a definitive agreement to sell the assets comprising the Mesquite facility for a total purchase price of $30.5 million. The agreement was structured to take place in two closings. The initial closing was completed on March 18, 1997, at which time the Company received $22.0 million in cash for the non-gaming property and equipment. The closing for the gaming and other furniture and equipment of the property was consummated on June 30, 1997, at which time the Company received $7.0 million in cash and a two-year promissory note for $1.5 million. The Company entered into a lease agreement with the purchaser in which the Company leased the property between the first and the second closings and absorbed any income or loss related to the operation of the facility during such period. As a result of this sale transaction, the Company recorded a pre-tax loss approximating $57.4 million in 1997. In 1997, the Company made the decision to significantly reduce its pursuit of development opportunities in new or emerging jurisdictions, and concentrate instead on improving its existing operations. This decision resulted in the sale of assets used in development activities or held for future development and the downsizing of corporate personnel engaged in developmental activities. As a result, a one-time charge of approximately $9.0 million, consisting of the net loss on disposal of assets and the cost of employee severance arrangements, was recorded in 1997. Corporate, development, pre-opening & other expenses increased in 1999 as compared to 1998 principally due to M & A related initiatives. In 1999, M & A related expenses totaled approximately $3.7 million. In addition, the Company incurred expenses of approximately $900,000 related to its successful efforts in conjunction with the "Boat-in-a-Moat" referendum in Missouri. In 1998 as compared to 1997, corporate, development, pre-opening and other expenses decreased substantially due to the absence of development activities in 1998 (approximately $2.0 million of development related expense was incurred in 1997), a $1.3 million decrease in corporate administrative expenses, the absence in 1998 of a $2.6 million write-down for the impairment of Bluegrass Downs, and a difference of $1.3 million in 1998 as compared to 1997 in the amount of unamortized financing costs written off. Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, ("SFAS 121") Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed. During the fourth quarter of fiscal 1997, the Company reevaluated its investment in Bluegrass Downs and committed to a plan to remove from service and replace the -22- Metropolis dining and entertainment barge. In accordance with SFAS 121, impairment losses for Bluegrass Downs and the Metropolis barge of $2.6 million and $700,000 respectively, were recorded in 1997. The decrease in depreciation and amortization expense in 1999 as compared to 1998 was primarily a result of a reduction in amortization expense. In 1998, $1.3 million in unamortized financing costs were written off in conjunction with the closing of a new credit facility. In 1998 as compared to 1997, depreciation and amortization expense decreased due to the absence of Mesquite depreciation in 1998 which was partially offset by a full year of depreciation in Maryland Heights. This was coupled with a decrease in unamortized financing costs written off of $1.4 million between the two periods. Interest Expense (Net) Interest expense, net of interest income, decreased in 1999 as compared to 1998 due to reductions in the Company's bank borrowings and average borrowing rate. The lower interest rates are contained in a new $80 million, five year bank credit agreement that closed in March, 1998. Interest expense, net of interest income, increased in 1998 as compared to 1997 due to additional borrowings to complete the Maryland Heights facility and to acquire the former Lake Charles Holiday Inn, an increase in the Company's average borrowing rate, and a decrease in the amount of capitalized interest. The interest rate increase resulted from revisions to the Company's bank credit agreement in December, 1996. There was no capitalized interest in 1999, and in 1998 and 1997, capitalized interest totaled $381,000 and $6.7 million, respectively. Effective Income Tax Rate The effective income tax rate increased in 1999 to 49.6% as compared to 38% in 1998. This increase is primarily the result of the non-deductibility of expenses related to the "Boat-in-a- Moat" referendum, as previously described. In 1997, the Company recorded a significant loss related to the sale of the Mesquite facility resulting in a tax benefit of 36%. Additional Factors Affecting Future Operating Income Road construction is underway on I-10 near the Company's Lake Charles facility. The construction has resulted in lanes of 1-10 being closed for periods of time, although the Company has been advised that, whenever possible, one eastbound lane and one westbound lane will remain open, permitting access to and from the casino. Traffic delays and inconvenience caused by road construction have negatively impacted patronage to the Company's facility and may continue to do so through, and perhaps beyond, the completion of this project. The first phase of I-10 road construction has been completed, and the second phase is expected to be completed by October 1, 1999. On May 25, 1999, the Illinois State Legislature approved a bill that would allow dockside gaming for all Illinois casinos. Dockside gaming would, in effect, allow continuous entry and exit from riverboat casinos and eliminate current cruising requirements. If approved by the Governor, dockside gaming could go into effect during the second quarter of fiscal 2000. On May 15, 1999, the Missouri State Legislature approved a bill that would permit gaming patrons to play slot machines using credits received in exchange for currency inserted into slot machine bill acceptors. Currently, Missouri gaming regulations require tokens to be dispensed when bills are inserted for play. The bill has been sent to the Governor for approval. If approved, this change could go into effect during the second quarter of fiscal 2000. Investments and Capital Expenditures During the fourth quarter of 1999, the Company demolished the former Players Hotel in Lake Charles. Construction of approximately 250 additional paved parking spaces on the site of the former hotel was substantially completed by Memorial Day weekend, 1999, with the balance of the work to be completed by the end of June, 1999. The cost of the demolition and the surface parking lot is estimated to approximate $2.3 million, of which $312,000 was incurred as of March 31, 1999. In January, 1998, the Company acquired a 269-room hotel, formerly operated as the Lake Charles Holiday Inn, for a total purchase price of approximately $19.2 million. In December, 1997, the Company opened a new dining and entertainment barge at the Metropolis facility. The total project cost, excluding capitalized interest, was approximately $9.6 million. In March, 1997, the Company opened its Maryland Heights facility. The Company's share of the total project cost, excluding capitalized interest, approximated $141.0 million. -23- Capital Resources and Liquidity The Company's balance sheet at March 31, 1999, as compared to March 31, 1998, reflects normal maintenance capital expenditures and a decrease in bank debt funded from cash provided by operations. The balance sheet at March 31, 1998, as compared to March 31, 1997, reflects capital expenditures in Maryland Heights and Metropolis, the acquisition of the former Lake Charles Holiday Inn, the associated increase in bank debt, and tax refunds received in 1998 related to the loss on the sale of Mesquite. During 1999, cash generated by operations was primarily used to reduce bank borrowings. The bank credit facility's outstanding balance on March 31, 1999, and March 31, 1998, was $5.0 million and $30.0 million, respectively. During 1998, cash generated by operations, cash from the sale of the Mesquite facility and the associated tax refund, net bank borrowings, and equipment financing were the sources of funds for investments in Maryland Heights, the construction of the new dining and entertainment facility in Metropolis, and the acquisition of the former Lake Charles Holiday Inn. In July 1997, the Company received approximately $7.0 million in cash from the completion of the sale of the Mesquite facility and $23.8 million from a Federal income tax refund for the fiscal year ended March 31, 1997. In March, 1998, the Company closed an $80 million five year bank credit agreement with Wells Fargo and a group of participating banks. The terms of this agreement specify current borrowing rates of 2.10% over LIBOR or 0.60% over the prime rate. Applicable borrowing rates are based on the Company's financial performance against bank benchmarks. Maximum borrowing rates under this agreement are 2.50% over LIBOR or 1.00% over prime. The Company makes the decision to borrow at either prime or LIBOR- based rates in view of pricing and flexibility considerations. The agreement contains covenants that, among other things, place restrictions on additional indebtedness, dividends, capital expenditures, and limit share repurchases to $10 million plus 50% of net income during the term of the facility. The Company believes that expected cash flow from operations will be sufficient to meet working capital requirements (including the buy-out of the per Patron Fee obligation) through March 31, 2000. Cash requirement needs beyond what is available from operating cash flow, such as significant capital expenditure projects, if any, can be met through the Company's $80.0 million bank credit facility of which $5.0 million was outstanding as of March 31, 1999. The Company currently has no plans for significant capital expenditures beyond its normal maintenance capital expenditures. Contingencies In April, 1997, a federal investigation of former Louisiana Governor Edwin Edwards, his son Stephen Edwards, Richard D. Shetler and others with respect to their involvement in the riverboat gaming industry and other matters became public. Upon learning of the investigation, the Company immediately began cooperating with the federal authorities. (Stephen Edwards is a former outside attorney and Richard D. Shetler is a former consultant to and lobbyist for the Company in Louisiana.) In August, 1998, the Company was advised in writing by the United States Attorney that neither the Company nor its current or former employees were subjects or targets of the federal investigation. On October 9, 1998, Richard D. Shetler pleaded guilty to conspiracy to commit extortion of the Company. On November 6, 1998, a grand jury of the United States District Court for the Middle District of Louisiana returned an indictment against Edwin Edwards, Stephen Edwards, and four other defendants for matters relating to the riverboat casino industry. The indictment charges Edwin Edwards and Stephen Edwards with extorting and conspiring to extort the Company in violation of the Racketeer Influenced Corrupt Organizations Act, or RICO Act, and interstate travel in aid of racketeering. On November 12, 1998, the defendants pleaded not guilty to the allegations set forth in the indictment. The Missouri Gaming Commission, the Illinois Gaming Board and the Louisiana Gaming Control Board are each aware of and are each investigating the involvement of the Company in the Shetler and Edwards cases to determine the suitability of the Company and its subsidiaries for continued licensure. The Company has and will continue to cooperate with the gaming regulatory authorities in their investigations. To date, none of the gaming regulatory authorities has commenced any disciplinary action against the Company or any of its employees as a result of the Shetler and Edwards cases or other related matters. The Company is unable at this stage to determine the likely outcome of these gaming regulatory investigations or estimate the amount or range of potential loss, if any. The U.S. Coast Guard regulates each cruising riverboat. U.S. Coast Guard regulations require that hulls of vessels of the type being operated by the Company in Lake Charles and Metropolis be inspected every five years at a U.S. Coast Guard approved dry docking facility which will cause a temporary loss of service that could last one month or longer, unless the U.S. Coast Guard determines that an alternative to dry docking is acceptable. The next inspections scheduled to occur are in the fall of calendar 2000 for the Metropolis Riverboat, the fall of calendar 2000 for the Lake Charles Players III Riverboat, and the fall of calendar 2003 for the Lake Charles Star Riverboat. In the fall of calendar 1998, the Company received approval from the U.S. Coast Guard to conduct an underwater onsite inspection of the hull of the Lake Charles Star Riverboat as an alternative to dry docking. However, after conducting an analysis of the options, the Company chose dry docking, which lasted approximately one week. Circumstances and the option to perform an underwater inspection may differ at the time inspection is required for the Metropolis Riverboat and the Players III Riverboat. An underwater hull inspection would likely involve a minimal disruption in operations, however, no assurance can be given that dry docking will not be required. If underwater inspection is not approved -24- for future inspections and dry docking is necessary, the resultant loss of service of the respective riverboat could have a material adverse effect on the Company's results of operations. Year 2000 The "Year 2000" problem refers to the inability of computer hardware, software, and embedded chips to recognize and properly process data fields containing a two digit year. As a result, date sensitive systems may recognize dates using "00" as the year 1900 rather than the year 2000. A system which is not Year 2000 compliant would not be able to correctly process date-based information, and in extreme situations, could cause entire systems to be disabled. In its initiative to become Year 2000 compliant, the Company has conducted a comprehensive review of its hardware, software, systems relying on embedded chips, and its vendor affiliates. For purposes of this process, the Company identified five phases in its Year 2000 Readiness Plan, which include awareness, assessment, renovation, testing and implementation. The awareness and assessment phases have been completed and the Company is now in the process of completing the upgrade cycle for its major Information Technology ("IT") systems. The Company does not rely on internally developed, proprietary systems, but rather on "canned" software solutions purchased from third party vendors. As part of the upgrade process, testing and implementation of new IT systems will be completed. All critical operating systems have been updated and deemed compliant with the exception of the Company's slot accounting system at its Lake Charles facility. The Lake Charles facility is currently installing a new Year 2000 compliant slot accounting system as part of its planned change in operating platforms. A complete inventory and identification of embedded systems and vendor affiliates has been completed. The Company is currently in the process of testing its embedded systems for Year 2000 compliance and performing follow-up communication with its critical vendors to assess their respective Year 2000 compliance status. The Company's current focus is on the testing phase and any necessary renovation of assets identified as critical. The Company anticipates completing its testing as well as its overall Year 2000 readiness by mid-1999. The Company has initiated the design of a comprehensive contingency plan to address alternative solutions for any remaining potential Year 2000 exposure or possible unforeseen system failures. Critical operating systems are backed up by detailed manual procedures that are initiated during periods of system malfunctions. Nonetheless, the Company believes there are a number of external risk factors that are out of the Company's control, which could have a material effect on operations and the financial results thereto. The most serious of these external risk factors include, but are not limited to, the failure of utility providers to continue service (including electricity, gas, water, sewer and similar services), the disruption of banking services (including the Company's access to cash and the ability of customers to access cash through the use of automated teller machines), and the U.S. Coast Guard imposed waterway closures. Like all other businesses, the Company's ability to predict the eventual outcome of the Year 2000 problem is hampered by the breadth and the depth of the issue and the unprecedented nature of the problem. However, the Company believes it is taking the necessary steps within its power to mitigate any potential disruption in operations and financial losses that could result. As of March 31, 1999, the Company had either expended or committed approximately $550,000 on its Year 2000 compliance efforts and expects to expend no more than $1.0 million in the aggregate. Estimated completion dates and total costs are reflective of management's best estimates; however, actual results could differ. Effects of Recent Accounting Pronouncements The Financial Accounting Standards Board has issued Statement on Financial Accounting Standards ("SFAS") No. 131, Disclosure about Segments of an Enterprise and Related Information, and was adopted for 1999. The Company presently has one reportable segment, riverboat casinos. The horse racetrack facility is not considered to be material to the operations of the Company. The adoption of SFAS 131 did not affect the Company's results of operations or financial position. In April, 1998, the American Institute of Certified Public Accountants' Accounting Standards Committee issued Statement of Position No. 98-5, Reporting on the Costs of Start-Up Activities, which is effective for fiscal years beginning after December 15, 1998. This standard provides guidance on the financial reporting of start-up activities and organization costs. It requires these costs to be expensed as incurred. The Company's accounting policy has always been and will continue to be to expense start- up and organization costs as incurred; therefore, Statement of Position 98-5 will not have an effect on the Company's financial position or results of operations. Forward Looking Information Certain information included in this section and elsewhere in this Annual Report on Form 10-K contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain or will contain or include, forward-looking -25- statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements address, among other things, the approval and subsequent closing of the merger between the Company and Jackpot, the effects of competition, the resolution of pending or threatened litigation or regulatory proceedings, plans for future riverboat hull inspections, I-10 road construction in Lake Charles, dockside gaming in Illinois, the bill-to-meter initiative in Missouri, regulatory approval of the Patron Fee Buy- Out Agreements, Year 2000 compliance efforts and costs, future borrowing and capital costs, plans for future expansion and property enhancements, business development activities, capital expenditure programs and requirements, financing sources and the effects of legislation and regulation (including possible gaming legislation, gaming licensure and regulation, state and local regulation, tax regulation, and the potential for regulatory reform). Forward looking statements can generally be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "believe", or "continue" or the negative thereof or variations thereon or similar terminology. Such forward-looking information is based upon management's current plans or expectations and is subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions, and the Company's future financial condition and results of operations. These uncertainties and risks include, but are not limited to, those relating to the approval and subsequent closing of the merger between the Company and Jackpot, conducting operations in an increasingly competitive environment, conducting operations at a newly or recently developed site or in a jurisdiction for which gaming has recently been permitted, changes in state and local gaming laws and regulations, development and construction activities, leverage and debt service requirements (including sensitivity to fluctuation in interest rates), general economic conditions, the results of various gaming regulatory authorities' investigations as to the Company's suitability for continued licensure, the U.S. Coast Guard's acceptance of underwater hull inspections as an alternative to dry docking and inspection, changes in federal and state tax laws, the disruption to Lake Charles operations caused by road construction, dockside gaming in Illinois, the approval of bill-to-meter in Missouri, regulatory approval of the Patron Fee Buy-Out Agreements, Year 2000 compliance efforts and costs, action taken under applications for licenses (including renewals) and approvals under applicable laws and regulations (including gaming laws and regulations), and the legalization of gaming in certain jurisdictions. As a consequence, current plans, anticipated actions, and future financial condition and results from operations may differ from those expressed in any forward- looking statements made by or on behalf of the Company and no assurance can be given that such statements will prove to be correct. Item 7A. Quantitative and Qualitative Disclosures about Market Risk _________ ______________________________________________________ Except for the Company's bank credit agreement, under which $5.0 million was outstanding at March 31, 1999, all of the Company's other long-term debt bears interest at fixed rates. At March 31, 1999, the average interest rate applicable to the bank credit agreement was 7.29%. An increase of one percentage point in the average interest rate applicable to the bank credit agreement outstanding at March 31, 1999, would increase the Company's annual interest costs by approximately $50,000. Although the Company manages its short-term cash assets with a view to maximizing return with minimal risk, the Company does not invest in market rate sensitive instruments for trading or other purposes, including so-called derivative securities, and the Company is not exposed to foreign currency exchange risks or commodity price risks in its portfolio transactions. -26- Item 8. Financial Statements and Supplementary Data _______ ___________________________________________ PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Auditors 28 Consolidated Balance Sheets as of March 31, 1999 and 1998 29 Consolidated Statements of Operations for the Years Ended March 31, 1999, 1998 and 1997 30 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1999, 1998 and 1997 31 Consolidated Statements of Cash Flows for the Years Ended March 31, 1999, 1998 and 1997 32 Notes to Consolidated Financial Statements 34 -27- REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Players International, Inc. We have audited the accompanying consolidated balance sheets of Players International, Inc. and Subsidiaries as of March 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Players International, Inc. and Subsidiaries at March 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Philadelphia, Pennsylvania May 19, 1999 -28- PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except par value) ASSETS March 31, _____________________ 1999 1998 _________ _________ Current assets: Cash and cash equivalents $ 25,687 $ 17,223 Accounts receivable, net of allowance for doubtful accounts of $461 at March 31, 1999 and $786 at March 31, 1998 1,882 3,559 Inventories 1,164 1,476 Notes receivable 1,500 - Deferred income tax 3,281 2,010 Income taxes refundable 634 6,580 Prepaid expenses and other current assets 2,081 2,285 __________ _________ Total current assets 36,229 33,133 __________ _________ Property and equipment, net of accumulated depreciation and amortization of $59,846 at March 31, 1999 and $44,405 at March 31, 1998 222,437 237,478 _________ _________ Notes receivable - 1,500 _________ _________ Intangibles, net of accumulated amortization of $4,535 at March 31, 1999 and $3,572 at March 31, 1998 34,344 35,302 _________ _________ Investment in joint venture 91,034 96,587 _________ _________ Other assets 5,091 5,587 _________ _________ Total assets $389,135 $409,587 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 541 $ 2,008 Accounts payable 3,627 4,590 Accrued liabilities 31,197 29,600 Other liabilities 19,555 3,007 ________ ________ Total current liabilities 54,920 39,205 ________ ________ Deferred income tax 2,959 2,930 _________ _________ Long-term debt, net of current portion 155,000 180,541 _________ _________ Other long-term liabilities 16,444 28,997 _________ _________ Commitments and contingencies (Note 19) Stockholders' equity: Preferred stock, no par value, Authorized - - 10,000,000 shares, Issued - none Common stock, $.005 par value, Authorized-- 90,000,000 shares, Issued- 32,704,837 shares at March 31, 1999 and 32,613,498 shares at March 31, 1998 163 163 Additional paid-in capital 132,666 132,338 Treasury stock, at cost; 672,100 shares (7,294) (7,294) Retained earnings 34,277 32,707 _________ _________ Total stockholders' equity 159,812 157,914 _________ _________ Total liabilities and stockholders' equity $389,135 $409,587 ========= ========= The accompanying notes are an integral part of these consolidated statements. -29- PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Years ended March 31, _____________________________ 1999 1998 1997 ________ ________ ________ Revenues: Casino $314,435 $302,337 $262,660 Food and beverage 9,799 11,978 14,139 Hotel 3,042 3,159 6,608 Other 3,802 5,744 7,803 ________ ________ ________ 331,078 323,218 291,210 ________ ________ ________ Costs and expenses: Casino 142,155 141,755 122,250 Food and beverage 8,426 10,654 14,185 Hotel 1,279 1,208 3,144 Other operating expenses 41,958 41,076 37,895 Selling, general and administrative 59,307 58,531 56,246 Corporate and other non-operating costs 12,499 7,782 9,102 Allocated amounts of joint venture 10,686 11,212 1,934 Patron fee buy-out agreements 4,699 - - Loss on demolition of hotel 6,095 - - City of Lake Charles agreement - 4,153 - Loss on sale of Mesquite property - (571) 57,397 Restructuring charge - - 9,007 Impairment and write-down of assets - - 7,357 Pre-opening and gaming development costs - - 6,915 Depreciation and amortization 19,699 20,806 21,806 _______ ________ ________ 306,803 296,606 347,238 _______ ________ ________ Income (loss) before other income (expense) and provision (benefit) for income taxes 24,275 26,612 (56,028) _______ ________ _________ Other income (expense): Interest income 438 651 237 Interest expense (21,596) (24,117) (15,998) ________ ________ _________ (21,158) (23,466) (15,761) ________ ________ ________ Income (loss) before provision (benefit) for income taxes 3,117 3,146 (71,789) Provision (benefit) for income taxes 1,547 1,195 (25,491) _______ _______ __________ Net income (loss) $ 1,570 $ 1,951 $ (46,298) ======= ======= ========== Earnings (loss) per common share Basic and diluted $0.05 $0.06 ($1.56) The accompanying notes are an integral part of these consolidated statements. -30- PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED MARCH 31, 1999 (dollars in thousands) Additional Common Stock Paid-In Unrealized Treasury Stock Retained Shares Amount Capital Loss Shares Amount Earnings ______ ______ _______ __________ ________ ______ ________ Balance, March 31, 1996 29,187,480 $149 $123,719 $ (1) 672,100 $7,294 $77,054 Shares issued for warrants exercised 2,100,000 11 5,590 - - - - Shares issued pursuant to retirement agreement 603,768 3 2,996 - - - - Expired put options - - (49) - - - - Change in unrealized loss on marketable securities, net of tax - - - 1 - - - Net loss - - - - - - (46,298) __________ ____ ________ ________ _______ ______ ________ Balance, March 31, 1997 31,891,248 163 132,256 - 672,100 7,294 30,756 Shares issued under stock option plans 50,150 - 82 - - - - Net income - - - - - - 1,951 __________ ____ ________ ________ _______ ______ ________ Balance, March 31, 1998 31,941,398 163 132,338 - 672,100 7,294 32,707 Shares issued under stock option plans 91,375 - 287 - - - - Stock option compensation - - 41 - - - - Other (36) - - - - - - Net income - - - - - - 1,570 __________ ____ ________ ________ _______ ______ ________ Balance, March 31, 1999 32,032,737 $163 $132,666 $ - 672,100 $7,294 $34,277 ========== ==== ======== ======== ======= ====== ======= The accompanying notes are an integral part of these consolidated statements. -31- PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Years ended March 31, __________________________ 1999 1998 1997 ________ _______ ________ Cash flows from operating activities: Net income (loss) $ 1,570 $ 1,951 $(46,298) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 19,699 20,806 21,806 Loss (gain) on disposition of property and equipment 6,515 (98) 60,321 Impairment and write-down of assets - - 7,357 Equity in allocated amounts of joint venture 4,806 4,497 1,934 City of Lake Charles agreement - 4,000 - Patron fee buy-out agreements 4,699 - - Stock issued pursuant to retirement agreements - - 3,000 Deferred income taxes (1,242) 7,455 1,332 Other 413 1,059 924 Changes in assets and liabilities: Accounts and notes receivable 1,302 (1,476) 3,551 Inventories 312 479 (1,269) Income taxes payable (refundable) 5,946 20,954 (27,462) Prepaid expenses and other current assets 204 1,712 975 Other assets (183) 159 1,141 Accounts payable (963) (1,876) (270) Accrued liabilities 1,597 (4,369) 80 Other liabilities (732) (1,988) 1,336 ________ _______ ________ Net cash provided by operating activities 43,943 53,265 28,458 ________ ________ ________ Cash flows from investing activities: Purchases of property and equipment (9,416) (40,216) (46,499) Proceeds from disposal of property and equipment 76 7,718 30,749 Proceeds from sale of marketable securities - - 4,401 Investment in joint venture 775 (5,379) (61,875) ________ ________ ________ Net cash used in investing activities (8,565) (37,877) (73,224) ________ ________ ________ Cash flows from financing activities: Proceeds from issuance of long-term debt 20,000 48,000 65,500 Repayments of long-term debt (47,008) (65,356) (22,500) Debt issuance costs (193) (1,458) (2,051) Proceeds from exercise of stock options and warrants 287 82 5,598 ________ ________ ________ Net cash provided by (used in) financing activities (26,914) (18,732) 46,547 ________ ________ ________ Net increase (decrease) in cash and cash equivalents 8,464 (3,344) 1,781 Cash and cash equivalents at beginning of year 17,223 20,567 18,786 _________ ________ ________ Cash and cash equivalents at end of year $ 25,687 $ 17,223 $ 20,567 ========= ======== ======== The accompanying notes are an integral part of these consolidated statements. -32- PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Supplemental cash flow disclosure: Years ended March 31, _________________________ 1999 1998 1997 _______ _______ _______ Interest paid $21,283 $24,507 $22,637 Income taxes paid 1,835 9 4,159 Debt incurred to purchase land and equipment - 3,905 - Note receivable on sale of Mesquite property - 1,500 - Assets acquired through capital leases - 715 - The accompanying notes are an integral part of these consolidated statements. -33- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Fiscal Year Players International, Inc. (the "Company") has a fiscal year that ends on March 31. References to 1999, 1998 or 1997 refer to the fiscal year ending March 31, 1999, 1998 or 1997 respectively. Basis of Presentation The Company, through wholly owned subsidiaries, operates five riverboat casinos, a horse racetrack facility and, through a joint venture, a riverboat casino entertainment complex. All operations include food and beverage facilities and a retail gift shop. Two of the facilities include hotel operations. During 1997, the majority of the assets comprising the Mesquite, Nevada facility ("Mesquite") were sold. The remaining assets of that facility were sold in the first quarter of 1998. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The investment in joint venture is accounted for by the equity method. Reclassifications Certain reclassifications have been made to the consolidated financial statements as previously presented to conform to the current classifications. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash includes the minimum cash balances required to be maintained by certain state gaming commissions, which totaled approximately $6,030,000 and $3,872,000 at March 31, 1999 and 1998, respectively. Cash equivalents are highly liquid investments with a maturity of less than three months and are stated at the lower of cost or market value which approximates fair value. Revenues and Promotional Allowances Casino revenues are the net of gaming wins less losses. Revenues exclude the retail value of complimentary admissions, food and beverage, hotel and other items furnished to customers, which totaled approximately $23,308,000, $24,616,000 and $27,238,000 for the years ended March 31, 1999, 1998 and 1997, respectively. The estimated costs of providing such complimentary services are included in casino costs and expenses through inter- department allocations from the department granting the services as follows: Years ended March 31, ___________________________ (dollars in thousands) 1999 1998 1997 ________ ________ ________ Food and beverage $ 16,353 $ 17,661 $ 20,736 Hotel 945 767 1,281 Other 564 778 1,527 ________ ________ ________ $ 17,862 $ 19,206 $ 23,544 ======== ======== ======== Pre-opening and Gaming Development Costs The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants has issued Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that the costs of all start-up activities, as defined in the SOP, be expensed as incurred. The SOP is effective for fiscal years beginning after December 15, 1998. This SOP will have no effect on the Company because all pre-opening and development costs are expensed as incurred. -34- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Credit Risk Historically, credit losses have not been material to the results of operations. The financial instruments that subject the Company to credit risk consist principally of accounts receivable. Ongoing credit evaluations are performed and potential credit losses are expensed at the time a receivable is deemed to be uncollectible. Inventories Inventories consisting of food, beverage and retail items are stated at the lower of cost (first-in, first-out) or market. Property, Equipment, Depreciation and Amortization Property and equipment are stated at cost. Improvements and extraordinary repairs that extend the life of the asset are capitalized. Maintenance and repairs are expensed as incurred. Interest expense is capitalized on major construction projects. Capitalized interest amounted to $381,000 and $6,714,000 in 1998 and 1997, respectively. There was no capitalized interest in 1999. The Company computes depreciation for property and equipment using primarily the straight-line method over the estimated useful life of the assets. Amortization of leasehold and land improvements is computed using the straight-line method over the lesser of the estimated useful life or the lease term. The following estimated useful lives are used: Riverboats and barges 30 - 40 years Buildings 20 - 40 years Furniture, fixtures and equipment 5 - 7 years Leasehold and land improvements Lesser of useful life or lease term Depreciation expense of $17,868,000, $17,181,000 and $16,405,000 was recorded for the fiscal years ended March 31, 1999, 1998 and 1997, respectively. Amortization expense amounted to $1,831,000, $3,625,000 and $5,401,000 in 1999, 1998 and 1997, respectively. The Company periodically assesses the recoverability of property and equipment and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount. Intangibles Costs in excess of fair value of tangible assets acquired are recorded as intangibles on the accompanying consolidated balance sheets and are being amortized using the straight-line method. Unamortized Loan Costs Costs incurred in connection with the issuance of debt are being amortized using the straight-line method over the term of the related debt issue or loan. Earnings Per Share Basic earnings per share is computed by dividing net income (loss) by the number of weighted average common shares outstanding during the year. Diluted earnings per share is computed by dividing net income (loss) by the number of weighted average common shares outstanding during the year, including common stock equivalents (see Note 17). Recently Issued Accounting Standard The Financial Accounting Standards Board has issued Statement on Financial Accounting Standards ("SFAS") No. 131, Disclosure about Segments of an Enterprise and Related Information, and was adopted for 1999. The Company presently has one reportable segment, riverboat casinos. The horse racetrack facility is not considered to be material to the operations of the Company. The adoption of SFAS 131 did not affect the Company's results of operations or financial position. -35- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 - Agreement and Plan of Merger In February, 1999, the Company entered into a definitive agreement and plan of merger with Jackpot Enterprises, Inc. ("Jackpot"). Pursuant to the terms of the agreement, Jackpot will acquire the Company for $8.25 per share, consisting of $6.75 per share in cash and $1.50 in Jackpot's common stock, subject to adjustment under certain circumstances, for each share of the Company's outstanding common stock. The completion of the merger is subject to a number of conditions, including approval by the stockholders of both companies, receipt of all necessary regulatory approvals (including the approvals of the Illinois, Louisiana, Missouri and Kentucky gaming authorities) and the financing of the transaction. The merger is anticipated to close in the second half of calendar 1999. Note 3 - Patron Fee Buy-Out Agreements In August 1995, the Company acquired the former Players Hotel in Lake Charles for $6,700,000 plus future payments based on the number of passengers boarding the riverboat casinos contiguous to it over the ensuing 28 years (the "Patron Fee"). The estimated future payments were discounted at 11% and recorded at their net present value of $25,568,000 (the "Payment Obligation"). Actual annual payments in excess of the amortization of the net present value of the Payment Obligation are expensed as incurred. On March 1, 1999, the Company entered into agreements (the "Patron Fee Buy-Out Agreements") with two of the parties receiving approximately 48% of the Patron Fee. The Company will terminate its obligation to make future Patron Fee payments to these parties through a one-time lump sum payment. The Payment Obligation related to the Patron Fee Buy-Out Agreements was $12,060,000. Under the Patron Fee Buy-Out Agreements, the Company is obligated to pay $16,760,000 in the aggregate, subject to adjustments. The excess of the payment amount over the proportionate Payment Obligation approximates $4,700,000, and has been charged to earnings in 1999. Note 4 - Accrued Liabilities A summary of accrued liabilities is as follows: March 31, ______________________ (dollars in thousands) 1999 1998 _________ _________ Insurance claims $ 1,555 $ 1,404 Accrued payroll and related expenses 9,162 9,814 Accrued interest expense 7,556 7,476 Accrued bonus points 2,544 1,831 Accrued gaming taxes 1,833 2,142 Progressive jackpot liabilities 1,010 843 Other accruals 7,537 6,090 _________ _________ $ 31,197 $ 29,600 ========= ========= Note 5 - Other Liabilities A summary of other liabilities is as follows: March 31, ______________________ (dollars in thousands) 1999 1998 _________ __________ Patron Fee Buy-Out Agreement obligation (See Note 3) $ 16,760 $ - Other 2,795 3,007 _________ __________ $ 19,555 $ 3,007 ========= ========== -36- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Property and Equipment A summary of property and equipment is as follows: March 31, _______________________ (dollars in thousands) 1999 1998 __________ __________ Land and buildings $ 84,183 $ 91,144 Riverboats and barges 125,922 124,277 Furniture, fixtures and equipment 65,470 60,143 Leasehold and land improvements 4,109 4,089 Construction in progress 2,599 2,230 Less - accumulated depreciation (59,846) (44,405) __________ __________ $ 222,437 $ 237,478 ========== ========== Included in furniture, fixtures and equipment at March 31, 1999, is $715,000 of computer equipment related to a capital lease obligation with accumulated depreciation of $267,000. In 1999, the Company demolished a hotel to accommodate additional parking. The net book value of the demolished hotel was approximately $6,095,000. Note 7 - City of Lake Charles Agreement On March 1, 1998, the Company reached an agreement with the City of Lake Charles (the "City") both to settle litigation and to establish a permanent method of calculating the City admission fee on Players' riverboats. Under the new agreement, the admission fee payments to the City will be calculated as a percentage of gaming revenue in lieu of a passenger admission fee. In addition, the settlement calls for a payment of $544,000 per year for ten years. The present value of the fixed annual payments, including expenses, was accounted for as a one-time charge of $4,153,000 in the fourth quarter of 1998. Note 8 - Sale of Mesquite Property In 1997, the Company entered into a definitive agreement to sell the assets comprising the Mesquite casino resort for a total purchase price of $30,500,000. The agreement was structured to take place in two closings. The initial closing was completed on March 18, 1997, at which time the Company received $22,000,000 in cash for primarily the non-gaming property and equipment. The closing for the gaming and other furniture and equipment of the property was consummated on June 30, 1997, at which time the Company received $7,000,000 in cash and a two-year promissory note for $1,500,000. The Company entered into a lease with the purchaser pursuant to which the Company leased the property for the period between the first and second closings and absorbed any income or loss related to the operation of the facility during such period. As of March 31, 1997, the Company recorded a loss on the sale of Mesquite totaling $57,397,000. Such loss included a write-down to fair value of the assets which were sold in the second closing. The loss is summarized as follows (dollars in thousands): Carrying value of property and equipment, net $ 84,232 Inventories and other assets 2,208 Expenses related to sale 1,457 Proceeds from sale (30,500) __________ $ 57,397 ========== During 1998, the estimated remaining liabilities associated with the Mesquite facility were re-evaluated and reduced by $571,000. For the years ended March 31, 1998 and 1997, revenues for Mesquite were $8,700,000 and $38,945,000, respectively and income (losses) before other income (expense) were $43,000 and ($65,473,000), respectively, inclusive of the loss on sale. -37- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 9 - Impairment and Write-down of Assets During 1997, the Company re-evaluated its investment in its horse racetrack facility, committed to a plan to remove from service and replace a barge utilized by one of its riverboat facilities and wrote-down to fair value land that was contributed to the joint venture. Impairment losses and the write-down of assets totaling $7,357,000 were recorded in the year ended March 31, 1997, and are detailed below. The Company incurred losses operating the racetrack since its acquisition, and determined that due to flat or declining demand for both live and simulcast pari-mutuel race wagering that such operating losses would continue in the future in the absence of additional forms of gaming at the facility. Due to this and the continued lack of consensus within the State of Kentucky governing body relating to the expansion of legalized gaming, the Company determined that its investment in the racetrack was impaired. Prior to the impairment, the book value of the property and equipment of the racetrack was $3,142,000. Based on an April, 1997 appraisal, the land was valued at $475,000. It is management's opinion that this represented the approximate fair value of the property. The barge at the Metropolis riverboat facility was removed from service and replaced in 1998. A replacement barge was purchased in 1997. The book value for the barge prior to the impairment was $676,000. It was estimated that, net of disposal costs, the fair value of the barge was zero. In 1995, Players contributed land with a carrying value of $4,944,000 to the joint venture. The land was originally purchased as the potential gaming site for the Company. In the fourth quarter of 1997, an audit of the joint venture was completed which included an appraisal of the land determining its fair market value to be $930,000. This value was used as the basis for recording the contribution of the land in the joint venture records. As a result, the Company reduced its investment in the joint venture by $4,014,000 in the fourth quarter of 1997. The reduction in value of the land by the joint venture did not affect the 50% interest the Company holds in the joint venture. Note 10 - Allocated Amounts of Joint Venture In 1995, the Company formed a joint venture to co-develop a riverboat casino complex, which includes a hotel and other entertainment and dining facilities, with Harrah's in Maryland Heights, Missouri. The facility opened in March, 1997. The Company holds a 50% interest in the joint venture. The investment in the joint venture portion of the project is accounted for using the equity method of accounting. Summary condensed financial information for the joint venture is as follows (dollars in thousands): Years ended March 31, ____________________________ (unaudited) 1999 1998 1997 ________ ________ ________ Net revenues $ 20,570 $ 18,520 $ 952 Depreciation and amortization $ 9,613 $ 8,996 $ 847 Net loss $ 21,372 $ 22,424 $ 3,869 March 31, __________________________ (unaudited) 1999 1998 _________ _________ Current assets $ 5,127 $ 10,481 Current liabilities $ 4,640 $ 5,948 Total assets $ 188,333 $ 200,917 Partners' capital $ 183,693 $ 194,960 -38- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 11 - Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: Years ended March 31, _____________________ (dollars in thousands) 1999 1998 ________ _________ Deferred tax assets: Contribution carryforward $ 121 $ - Excess capital loss over capital gain 253 10 Net operating loss carryforwards 3,732 1,051 Excess intangible assets basis 420 447 Pre-opening, development and other costs 1,068 3,412 Accrued liabilities and prepaid expenses 6,624 5,107 Deferred revenue 223 215 Accrual of directors' option expense 443 428 Alternative minimum tax credits 5,234 2,133 ________ _________ Total deferred tax assets 18,118 12,803 Valuation allowance (1,463) (1,149) _________ _________ Deferred tax assets, net of valuation allowance 16,655 11,654 Deferred tax liabilities: Excess tax depreciation (15,930) (11,262) Prepaid expenses (403) (1,312) _________ _________ Total deferred tax liabilities (16,333) (12,574) _________ _________ Net deferred tax assets (liabilities) $ 322 $ (920) ========= ========= The Company has state net operating losses available, which if fully utilized, would reduce state income taxes payable by approximately $1,600,000, for various states that will expire between the years 2004 and 2019. The Company has a Federal net operating loss available to offset future taxable income of approximately $5,900,000 that will expire in the year 2019. The Company has an Alternative Minimum Tax credit carryforward of approximately $5,234,000, which can be used to reduce future Federal tax liabilities. This tax credit does not have an expiration date. The valuation allowance on the deferred tax assets consists primarily of an allowance for state tax net operating loss carryforwards and deferred tax assets related to various states. Significant components of the provision for (benefit of) income taxes attributable to operations are as follows: Years ended March 31, ______________________________ (dollars in thousands) 1999 1998 1997 _________ _________ _________ Current: Federal $ 2,913 $ (5,441) $ (25,777) State (124) (819) (1,045) _________ _________ _________ Total current 2,789 (6,260) (26,822) Deferred: Federal (1,301) 6,776 624 State 59 679 707 _________ _________ _________ Total deferred (1,242) 7,455 1,331 _________ _________ _________ Total provision (benefit) $ 1,547 $ 1,195 $ (25,491) ========= ========= ========= The 1998 and 1997 net tax losses have been carried back to previous tax years and result in refunds of taxes previously paid. -39- Players Inernational, Inc. and Subsidiaries Notes to Consolidated Financial Statements The reconciliation of income tax attributable to continuing operations computed at the Federal statutory rates to income tax expense is: Years ended March 31, _____________________________ 1999 1998 1997 ______ ______ _______ Federal statutory rate (benefit) 35.0% 35.0% (35.0%) State taxes on income, net of Federal income tax benefit (1.4%) (3.0%) (1.0%) Non-deductible expenses 14.5% 2.0% - Other 1.5% 4.0% - ______ ______ _______ Financial statement provision rate (benefit) 49.6% 38.0% (36.0%) ====== ====== ======= In 1999, the non-deductible expenses included approximately $900,000 in lobbying expenses related to the Company's successful efforts in conjunction with the "Boat in a Moat" referendum in Missouri. Note 12 - Restructuring Charge The restructuring charge in 1997 reflects the Company's decision to significantly reduce its pursuit of development opportunities in new or emerging jurisdictions and instead concentrate on improving its existing operations. The one-time charge consists principally of the net loss on the disposal of assets held for or used in development activities and the cost of employee severance arrangements. This resulted from the sale of the Players I riverboat, which was previously held for future deployment, and a corporate aircraft, the closure of two development offices and the retirement or termination of 21 senior management and staff. The affected employees included those specifically responsible for the Company's developmental activities and others affected by the Company's revised business plan. In 1999, 1998 and 1997, approximately $67,000, $800,000 and $7,800,000, respectively, were charged against the reserve established by the restructuring. As of March 31, 1999, $337,000 remained in the restructuring liability. This liability relates entirely to future medical care benefits for certain retired executives. Note 13 - Other Long-Term Liabilities A summary of other long-term liabilities follows: March 31, ______________________ (dollars in thousands) 1999 1998 _________ _________ Net present value of Patron Fee obligation (See Note 3) $ 12,738 $ 24,990 Long-term portion of agreement with the City of Lake Charles 3,696 3,696 Capital lease related to the purchase of computer equipment - 252 Other 10 59 _________ _________ $ 16,444 $ 28,997 ========= ========= Note 14 - Long-Term Debt A summary of long-term debt is as follows: March 31, _______________________ (dollars in thousands) 1999 1998 __________ __________ Senior Notes, interest at 10-7/8% payable semi- annually on April 15 and October 15, due 2005 (fair value based on quoted market price is approximately $159,750 and $163,500 as of March 31, 1999 and 1998, respectively) $ 150,000 $ 150,000 Note payable under bank credit agreement, weighted average interest rate of 7.29% and 9.5% as of March 31, 1999 and 1998, respectively (carrying amount approximates fair value) 5,000 30,000 Note payable, secured by slot machines, interest at 12%, due June 23, 1999 (carrying amount approximates fair value) 541 2,549 _________ _________ 155,541 182,549 Less current portion (541) (2,008) _________ _________ $ 155,000 $ 180,541 ========= ========= In March, 1998, the Company closed an $80,000,000 five year bank credit agreement with Wells Fargo and a group of participating banks. The terms of this agreement specify current borrowing rates of 2.10% over LIBOR or 0.60% over the prime rate. Applicable borrowing rates are based on the Company's financial performance against bank benchmarks. Maximum -40- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements borrowing rates under this agreement are 2.50% over LIBOR or 1.00% over prime. The Company makes the decision to borrow at either prime or LIBOR-based rates in view of pricing and flexibility considerations. The agreement contains covenants that, among other things, place restrictions on additional indebtedness, dividends, capital expenditures, and limit share repurchases to $10,000,000 plus 50% of net income during the term of the facility. The Company wrote-off loan costs related to its prior bank credit agreements in the amount of $1,078,000 and $2,744,000 in 1998 and 1997, respectively. As of March 31, 1999, aggregate annual principal maturities were (dollars in thousands): 2000 $ 541 2003 $ 5,000 Thereafter $ 150,000 Note 15 - Stockholders' Equity On January 27, 1997, the Company announced that its Board of Directors had approved the adoption of a Stockholders' Rights Plan ("Rights Agreement"). The Rights Agreement is designed to ensure that all stockholders of the Company receive fair value for their Common Shares in the event of any proposed takeover and to guard against the use of partial tender offers or other coercive tactics to gain control of the Company without offering fair value to stockholders. Pursuant to the Rights Agreement, holders of record as of October 27, 1997, received one Right for each Common Share, with each Right representing the right to purchase one one-hundredth of a preferred share or, upon the happening of certain events, Common Shares or other securities and property. The Company amended the Rights Agreement on February 8, 1999, to provide that Jackpot would not be considered an acquiring person under the Rights Agreement and that the merger with Jackpot would not trigger any of the provisions of the Rights Agreement. For this reason, the Company's stock purchase rights will not become exercisable as a result of the contemplated merger with Jackpot. Note 16 - Common Stock Options and Warrants The Company has three stock option plans, the 1990 Incentive Stock Option and Non-Qualified Option Plan covering 1,200,000 shares of common stock ("1990 Plan"), the 1993 Incentive Stock Option and Non-Qualified Option Plan covering 3,000,000 shares of common stock ("1993 Plan"), and the 1994 Directors Stock Incentive Plan ("1994 Plan") covering 900,000 shares of common stock. As of March 31, 1999, the Company had 295,049 shares under the 1990 Plan, 1,528,000 shares under the 1993 Plan and 257,500 shares under the 1994 Plan available for issuance in connection with future stock options that may be granted. Although options are available for issuance under the various plans, the merger agreement with Jackpot limits the future issuance of stock options. Options granted are generally exercisable between three and ten years from date of grant. -41- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements In addition to the foregoing plans, 164,127 other options and 150,000 warrants were outstanding as of March 31, 1999. Summarized information for all stock options and warrants is as follows: 1999 1998 1997 ___________________ ___________________ __________________ Weighted- Weighted- Weighted- Average Average Average Options/ Exercise Options/ Exercise Options/ Exercise Warrants Price Warrants Price Warrants Price _________ ________ _________ _________ _________ ________ Outstanding at beginning of year 2,946,802 $ 7.90 3,278,278 $ 9.58 6,335,502 $ 9.54 Granted: Exercise price equals market price 609,000 $ 5.53 709,000 $ 3.20 491,750 $ 7.65 Exercise price exceeds market price - - - - 1,082,300 $ 8.17 Exercised (91,375) $ 3.15 (50,150) $ 1.63 (2,100,000) $ 2.67 Expired or cancelled (481,900) $10.21 (990,326) $10.41 (2,531,274) $14.24 Outstanding at end of year 2,982,527 $ 7.19 2,946,802 $ 7.90 3,278,278 $ 9.58 Options exercisable at end of year 1,899,157 $ 8.00 1,854,522 $ 9.07 2,076,351 $10.04 During 1999, options to certain directors were amended by the Company to extend the expiration date of said options to no later than February 28, 2000. In total, 539,127 options with an average exercise price of $7.26 were extended. Of these options, 164,127 with an exercise price of $6.25 were extended when the market price of the Company's common stock was $6.50, resulting in a charge to earnings of approximately $41,000. Options granted and cancelled during 1997 include the activity resulting from a special program approved by the Company which enabled certain option holders to consent to the cancellation of certain outstanding options, whether vested or unvested, in exchange for a grant of new stock options with an option price based on a minimum of 110% of the current market price of the Company's stock. The new options vest in five equal annual installments commencing September 19, 1996. In total, 1,442,900 options with an average exercise price of $13.59 per share were cancelled in exchange for 842,300 new options with an average exercise price of $7.91 per share. The following table summarizes information regarding stock options and warrants outstanding at March 31, 1999. OPTIONS OUTSTANDING OPTIONS EXERCISABLE _________________________________ ___________________ Weighted Average Weighted Weighted Range of Remaining Average Number Average Exercise Number Contractual Exercise Exercis- Exercise Prices Outstanding Life Price able Price _____________ ___________ ___________ ________ _________ ________ $3.13 - $4.31 738,000 8.33 $ 3.45 344,500 $ 3.41 $4.88 - $6.00 443,000 9.22 $ 5.98 137,000 $ 5.98 $6.25 - $7.70 1,086,027 1.73 $ 7.37 842,807 $ 7.35 $8.47 -$19.33 715,500 1.42 $ 11.53 574,850 $ 12.19 _________ _________ 2,982,527 1,899,157 ========= ========= The Company adopted Statement of Financial Accounting Standards No. 123-Accounting for Stock Based Compensation ("SFAS 123") on April 1, 1996. SFAS 123 provides, among other things, that companies may elect to account for employee stock options using a fair value method or continue to apply the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"). The Company applies APB 25, and related interpretations in accounting for its plans. Accordingly, no material compensation expense has been recognized for its stock option plans. The following table discloses the Company's pro forma net income (loss) and net income (loss) per share assuming compensation cost for employee stock options had been determined using the fair value-based method prescribed by SFAS 123. The table also discloses the weighted-average assumptions used in estimating the fair value of each option grant on the date of -42- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements grant using the Black-Scholes option pricing model. The model assumes no expected future dividend payments on the Company's common stock for the options granted in 1999, 1998 and 1997. Years ended March 31, ________________________________ (Dollars in thousands, except per share data) 1999 1998 1997 ________ ________ _________ Net income (loss) As reported $ 1,570 $ 1,951 $ (46,298) Pro forma $ 248 $ 1,159 $ (48,156) Basic earnings (loss) per share As reported $ 0.05 $ 0.06 $ (1.56) Pro forma $ 0.01 $ 0.04 $ (1.62) Diluted earnings (loss) per share As reported $ 0.05 $ 0.06 $ (1.56) Pro forma $ 0.01 $ 0.04 $ (1.62) Weighted-average assumptions Expected stock price volatility 57.57% 60.20% 57.48% Risk-free interest rate 5.21% 5.70% 6.38% Expected option lives 4.0 years 6.6 years 3.4 years Estimated fair value of options granted equal to market price $ 3.50 $ 2.01 $ 3.82 Estimated fair value of options granted greater than market price$ 0.66 $ - $ 2.75 Estimated fair value of options granted less than market price $ 1.60 $ - $ - Because the provisions of SFAS 123 have not been applied to options granted prior to April 1, 1995, and due to the issuance in fiscal year 1997 of a large option grant under the special program discussed above, the resulting pro forma compensation cost for the years presented may not be representative of that to be expected in future years. Note 17 - Earnings Per Share There are no adjustments required to be made to net income (loss) for purposes of computing basic and diluted earnings per share ("EPS"). The following is a reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding: Years ended March 31, __________________________________ 1999 1998 1997 __________ __________ __________ Weighted average common shares outstanding for basic EPS calculation 31,964,578 31,904,658 29,765,483 Dilutive effect of stock options and warrants 164,838 44,970 - __________ __________ __________ Weighted average common shares outstanding for diluted EPS 32,129,416 31,949,628 29,765,483 ========== ========== ========== The calculation of diluted earnings per share excludes certain options to purchase common stock. These options have been excluded as they would be antidilutive to the diluted earnings per share calculation. The weighted average number of options excluded were 2,104,235, 2,901,451, and 5,302,425 for the years ended March 31, 1999, 1998 and 1997, respectively. Note 18 - Employee Benefit Plans The Company has a defined contribution plan that provides retirement benefits for participating employees. Eligible employees may elect to participate by contributing a percentage of their pre-tax earnings to the plan. Employee contributions to the plan, up to certain limits, are matched at 25% by the Company. The Company's contribution expense for the plan was $421,000, $269,000 and $385,000 for the years ended March 31, 1999, 1998 and 1997, respectively. -43- Players International, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 19 - Commitments and Contingencies The Company leases office space, land and equipment under operating and capital leases expiring at various dates through December 2015. The minimum annual payments under non-terminable lease agreements at March 31, 1999 are as follows (dollars in thousands): Years ending March 31, Capital Lease Operating Leases ______________________ _____________ ________________ 2000 $ 282 $ 1,790 2001 - 754 2002 - 378 2003 - 375 2004 - 215 Thereafter - 819 _____________ ________________ Total minimum lease payments 282 $ 4,331 ================ Less: Amount representing interest at 11% (15) _____________ Present value of minimum capital lease payments 267 Less: Current installments (267) _____________ Obligations under capital leases- less current liabilities $ 0 ============= Rent expense for all operating leases and contingent payments was as follows: Years ended March 31, ____________________________ (Dollars in thousands) 1999 1998 1997 _________ _________ ________ Minimum rentals $ 4,662 $ 4,569 $ 2,016 Contingent payments (See Note 3) 1,819 2,447 3,807 _________ _________ ________ $ 6,481 $ 7,016 $ 5,823 ========= ========= ======== The Company and its subsidiaries are defendants in certain litigation. In the opinion of management, based upon the advice of counsel, the aggregate liability, if any, arising from such other litigation will not have a material adverse effect on the accompanying consolidated financial statements. In April, 1997, a federal investigation of former Louisiana Governor Edwin Edwards, his son Stephen Edwards, Richard D. Shetler and others with respect to their involvement in the riverboat gaming industry and other matters became public. Upon learning of the investigation, the Company immediately began cooperating with the federal authorities. (Stephen Edwards is a former outside attorney and Richard D. Shetler is a former consultant to and lobbyist for the Company in Louisiana.) In August, 1998, the Company was advised in writing by the United States Attorney that neither the Company nor its current or former employees were subjects or targets of the federal investigation. On October 9, 1998, Richard D. Shetler pleaded guilty to conspiracy to commit extortion of the Company. On November 6, 1998, a grand jury of the United States District Court for the Middle District of Louisiana returned an indictment against Edwin Edwards, Stephen Edwards, and four other defendants for matters relating to the riverboat casino industry. The indictment charges Edwin Edwards and Stephen Edwards with extorting and conspiring to extort the Company in violation of the Racketeer Influenced Corrupt Organizations Act, or RICO Act, and interstate travel in aid of racketeering. On November 12, 1998, the defendants pleaded not guilty to the allegations set forth in the indictment. The Missouri Gaming Commission, the Illinois Gaming Board and the Louisiana Gaming Control Board are each aware of and are each investigating the involvement of the Company in the Shetler and Edwards cases to determine the suitability of the Company and its subsidiaries for continued licensure. The Company has and will continue to cooperate with the gaming regulatory authorities in their investigations. To date, none of the gaming regulatory authorities has commenced any disciplinary action against the Company or any of its employees as a result of the Shetler and Edwards cases or other related matters. The Company is unable at this stage to determine the likely outcome of these gaming regulatory investigations or estimate the amount or range of potential loss, if any. Note 20 - Transactions with Related Parties The Company purchased promotional items from a company owned by Edward Fishman, former Chairman of the Company. During the year ended March 31, 1997, the Company paid $312,000 for such items. There were no purchases in 1999 or 1998. -44- Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ________ _____________________________________________________ None. PART III Item 10. Directors and Executive Officers of the Registrant ________ __________________________________________________ The directors and executive officers of the Company are as follows: PRESENT POSITION DIRECTOR NAME WITH THE COMPANY SINCE AGE _______________ ____________________________ ________ ___ Howard Goldberg Chairman of the Board 1986 53 (Acting), President and Chief Executive Officer John Groom Executive Vice President, 1997 54 Chief Operating Officer and Director Marshall S. Geller Director 1989 60 Lee Seidler Director 1987 64 Charles Masson Director 1996 46 Earl Webb Director 1996 42 Lawrence Cohen Director 1996 40 Vincent J. Naimoli Director 1997 61 Alan R. Buggy Director 1997 50 Raymond A. Spera, Jr.Vice President, Chief - 42 Financial Officer, Treasurer and Secretary Howard Goldberg became President and Chief Operating Officer of the Company in May, 1993, and then became Chief Executive Officer in December, 1995. Upon the resignation of Mr. Edward Fishman on September 1, 1998, Mr. Goldberg became acting Chairman of the Board of Directors of the Company. Prior to joining the Company as an officer, Mr. Goldberg was a director, and was the managing shareholder practicing law in the Atlantic City, New Jersey law firm of Horn, Goldberg, Gorny, Plackter, Weiss & Perskie (now known as Fox, Rothschild, O'Brien & Frankel, LLP), which has represented the Company since its inception. Since the advent of casino gaming in Atlantic City, Mr. Goldberg specialized in representing casinos in New Jersey and other jurisdictions for development and regulatory matters. Mr. Goldberg currently serves as a director of iMall, Inc. John Groom joined the Company as Executive Vice President, Operations in January, 1996, and became Chief Operating Officer of the Company in September, 1996. From 1979 until 1995, Mr. Groom served in various executive management positions within the Caesars organization at Caesars Atlantic City and Caesars Palace Las Vegas. Marshall S. Geller is the Chairman and Chief Executive Officer of Geller & Friend Capital, a merchant banking investment company. He was formerly interim President and Chief Operating Officer of the Company from November, 1992, through April, 1993. From 1991 through 1995, Mr. Geller was the Senior Managing Partner and founder of Golenberg & Geller, Inc., a merchant banking investment company. Mr. Geller served as Vice Chairman of Gruntal & Co. Inc., an investment banking firm, from 1988 to 1990. From 1967 until 1988, he was a Senior Managing Director of Bear Stearns & Co. Inc., an investment banking firm ("Bear Stearns"). He is currently a director, and was formerly the interim Co-Chairman, of Hexcel Corporation. Mr. Geller is a director of Value Vision International, Inc. and serves as Chairman of its Investment Committee. He also serves on the Boards of Ballantyne of Omaha, Inc., iMall, Inc., Cabletel Communications Corporation and Stroud's, Inc. Lee Seidler is a private investor. He is affiliated with Bear Stearns as Managing Director Emeritus. From 1981 to 1989, he was a Senior Managing Director of Bear Stearns. He is a director of Synthetic Industries, Inc., The Shubert Organization, Inc. and The Shubert Foundation. Mr. Seidler was a Professor of Accounting and Price Waterhouse Professor of Auditing at New York University from 1965 to 1985. Charles M. Masson is a Partner of Leary, Masson & Associates, a consulting firm that assists clients in improving recovery from their underperforming or distressed investments. -45- Prior to forming Leary, Masson & Associates, from 1993 through 1998, Mr. Masson was President of McCloud Partners, a private advisory firm based in New York City. He served as the Chairman of the Board of Directors of Cadillac Fairview Corporation Limited, a real estate management and development company from 1994 to 1995, as a director of Salomon Brothers Inc from 1991 to, 1993, and as Vice President of Salomon Brothers Inc from 1990 to 1993. Mr. Masson served as a director of Griffin Gaming & Entertainment, Inc. ("GG&E") (formerly Resorts International, Inc.) from 1993 until 1996. Mr. Masson served as a director of Color Tile, Inc. from 1996 until 1997. He currently serves on the Board of Directors of Maidenform, Inc. Earl E. Webb is the Chief Executive Officer of Jones Lang LaSalle's Americas region. Jones Lang LaSalle is the preeminent provider of services to owners and occupiers of real estate on a global basis. He serves on the Board of Directors of Jones Lang LaSalle and is a member of its European and Hotel Boards and its Management Committee. Lawrence Cohen has served as President and Chief Executive Officer of The Griffin Group, Inc. since July 1, 1997. From 1988 to 1997, he served as Executive Vice President and Chief Financial Officer of The Griffin Group, Inc. From 1986 to 1988, he was Assistant Corporate Controller of Columbia Pictures Entertainment, Inc. Prior to 1986, Mr. Cohen was with the accounting firm of Paneth, Haber & Zimmerman. He also served as a director of Resorts International Hotel, Inc. from 1994 to 1996. From 1994 until 1996, Mr. Cohen served as a director of Liberty Broadcasting, Inc., a privately held broadcasting company. Vincent J. Naimoli has served as Chairman, President and Chief Executive Officer of Anchor Industries International, Inc., a multi-industry, operating, holding and financial services company since 1989 and as the Managing General Partner and Chief Executive Officer of the Tampa Bay Devil Rays since 1995. Mr. Naimoli served as a director of GG&E from 1994 to 1996, as Chairman, President and Chief Executive Officer of Doehler- Jarvis, Inc., a designer and manufacturer of precision aluminum castings, from 1991 to 1995, as Chairman, President and Chief Executive Officer of Harvard Industries, Inc., an automotive components company, from 1993 to 1997, and as Chairman, President and Chief Executive Officer of Ladish Company, Inc., a manufacturer of forged titanium and other metal components, from 1993 to 1995. He serves on the Board of Directors of Florida Progress Corporation and Russell-Stanley Corporation. Alan R. Buggy has served as the President and Chief Executive Officer of The Chalfont Group, an investment company, since 1997. From 1994 to 1997, Mr. Buggy served as Managing Director of Price Waterhouse. From 1990 to 1993, Mr. Buggy served as Executive Chairman of ITC Entertainment Group. Mr. Buggy also served as Managing Director of Samuel Montagu, Inc., a merchant banking firm, from 1983 to 1990. From 1982 to 1983, he served as Senior Vice President of American Scandinavian Bank, managing the corporate finance and treasury divisions. Raymond A. Spera, Jr. joined the Company in April, 1998 as Vice President of Finance - Operations. In January, 1999, Mr. Spera was appointed Vice President, Chief Financial Officer and Treasurer to the Company and became Secretary in April, 1999. From December 1989 to September 1997, Mr. Spera served as Chief Financial Officer of the Claridge Casino Hotel in Atlantic City, New Jersey. Howard Goldberg and Lee Seidler are brothers-in-law. Section 16(a) - Beneficial Ownership Reporting Compliance Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires the Company's executive officers and directors to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Executive officers and directors are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company's executive officers and directors, the Company believes that none of its executive officers and directors failed to comply with Section 16(a) reporting requirements in fiscal year 1999 except that Messrs. Buggy, Cohen, Geller, Goldberg, Groom, Madamba, Masson, Naimoli, Seidler and Webb did not timely file Form 5's with respect to stock options granted during fiscal 1999 and, in the case of Mr. Groom, with respect to a stock option exercise effected during fiscal 1999 and Mr. Spera did not file a Form 3 upon becoming an executive officer. -46- Item 11. Executive Compensation ________ ______________________ Summary Compensation Table The following summary compensation table sets forth, for the Company's last three fiscal years, the cash compensation paid by the Company, as well as certain other compensation paid or accrued for those years, to Howard Goldberg, the Company's Chief Executive Officer and to each of the Company's other most highly compensated executive officers and former executive officers as of March 31, 1999 (collectively, the "Named Executives"): Summary Compensation Table Annual Long-Term Compensation Compensation ____________ ____________ Fiscal Year Securities Name and Ending Underlying All Other Principal Position March 31, Salary Bonus Options/SARs Compensation __________________ _________ ________ ________ ____________ ____________ Howard Goldberg 1999 $506,250 $350,000 230,000(1) - President, Chief 1998 $462,500 $476,250 230,000(2) - Executive Officer 1997 $475,000 - 600,000(3) - and Acting Chairman of the Board John Groom 1999 $364,500 $330,000 140,000(1) - Executive Vice 1998 $315,000 $300,000 140,000(2) - President, Chief 1997 $300,000 - 100,000(4) - Operating Officer and Director Raymond A. Spera 1999 $130,822(5) $ 40,000 12,000(6) - Vice President, 1998 - - - - Chief Financial 1997 - - - - Officer, Treasurer and Secretary Peter J. Aranow 1999 $293,425(7) $120,000 - $150,000(8) Former Executive 1998 $262,500 $150,000 40,000(2) - Vice President 1997 $300,000 - 150,000(9) - Patrick Madamba, Jr. 1999 $175,000 $100,000 30,000(1) $87,500(10) Former Vice President 1998 $156,250 $110,000 30,000(2) - and General Counsel 1997 $139,829 - 15,000(11) - ______________ (1) Relates to options granted on November 12, 1998, with an exercise price of $6.00 per share. The options vest 25% on the date of the grant and on each of the first through third anniversaries of the date of the grant. (2) Relates to options granted on November 19, 1997, with an exercise price of $3.125 per share. The options vest 25% on the date of the grant and on each of the first through third anniversaries of the date of the grant. (3) Includes 375,000 shares subject to options granted on September 19, 1996, with an exercise price of $7.70 per share which vests 100% on date of issuance and 225,000 shares subject to options granted on September 19, 1996, with an exercise price of $8.47 which vests 20% on date of the grant and on each of the first through fourth anniversaries of the date of grant. (4) Includes 100,000 shares subject to options granted on September 19, 1996, with an exercise price of $7.00 per share. The options vest 20% on each of the first through fifth anniversaries of the date of the grant. (5) Reflects fiscal year compensation following April 20, 1998, the date of Mr. Spera's employment. (6) Includes 4,000 options granted on April 27, 1998, with an exercise price of $4.875 per share and 8,000 options granted on September 10, 1998, with an exercise price of $4.313 per share. The options vest 25% on the date of the grant and on each of the first through third anniversaries of the date of the grant. (7) Reflects fiscal year compensation through March 23, 1999, the date Mr. Aranow's employment terminated. (8) Reflects six months severance pay in accordance with Mr. Aranow's employment agreement, as amended. -47- (9) Includes 50,000 shares subject to options and 100,000 Stock Appreciation Rights ("SARs") granted on September 19, 1996, with an exercise price of $7.70 per share. The options vest 20% on the date of the grant and on each of the first through fourth anniversaries of the date of the grant. The SARs vest upon a change of control. (10) Mr. Madamba's employment with the Company terminated on April 7, 1999. Other compensation reflects six months severance pay in accordance with Mr. Madamba's employment agreement, as amended. (11) Includes 15,000 shares subject to options granted on September 19, 1996, with an exercise price of $7.70 per share. The options vest 20% on date of the grant and on each of the first through fourth anniversaries of the date of grant. No other annual compensation or long-term incentive plan payouts were paid during the fiscal year ending March 31, 1999. Stock Option Grants The following table relates to options granted to the Named Executives during the fiscal year ended March 31, 1999. Option Grants in Last Fiscal Year Individual Grants Potential _________________ Realizable Value at Assumed % of Total Annual Rates of Options Stock Price Granted to Exercise Appreciation for Employees Price Expir- Option Terms Options in Fiscal Per ation ____________________ Name Granted (1) Year Share Date 5% 10% ____ ___________ __________ _______ ________ ________ __________ Howard Goldberg 230,000 40.07 $6.00 11/12/08 $867,875 $2,199,365 John Groom 140,000 24.39 $6.00 11/12/08 $528,271 $1,338,744 Raymond A. 4,000 .70 $4.88 04/27/08 $ 12,263 $ 31,078 Spera 8,000 1.39 $4.31 09/10/08 $ 21,699 $ 54,990 Patrick Madamba, Jr. 30,000 5.23 $6.00 11/12/08 $113,201 $ 286,874 (1) The options in this table were granted in fiscal year 1999 and have an exercise price equal to the fair market value of the Company's common stock on the date of grant. Stock Option Exercises The following table relates to options exercised during the fiscal year ended March 31, 1999, and options outstanding at year end. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values Number of Value of Unexercised Unexercised In-the-Money Options at Options at March 31, March 31, 1999 1999(1) ______________ __________________ Shares Acquired on Value Exercisable/ Exercisable/ Name Exercise Realized Unexercisable Unexercisable ____ ________ ________ ______ _______ ________ ________ Howard Goldberg - - 738,750 377,500 $373,750 $402,500 John Groom 70,000 $214,410 135,000 275,000 $ 8,750 $245,000 Raymond A. Spera - - 3,000 9,000 $ 5,249 $ 15,747 Peter J. Aranow - - 137,500 100,000 $125,000 - Patrick Madamba, Jr. 7,500 $ 14,063 24,000 43,500 $ 25,313 $ 52,500 (1) Based upon the aggregate sum of the positive difference between the Nasdaq National Market closing quotation for the Common Stock on March 31, 1999, and the exercise price for each option. -48- COMPENSATION OF DIRECTORS Each director not employed by the Company ("Non-Employee Director") is paid a retainer at an annual rate of $25,000, payable in quarterly installments. Each Non-Employee Director who is a Chairman of a Board Committee is paid a Chairman's fee at an annual rate of $5,000, also payable in quarterly installments. In addition, directors are paid an attendance fee of $1,000 for actual attendance at Board or Committee meetings and $250 for attendance by telephone at any such meetings. Fees for Committee meetings are limited to one fee per day, in addition to any fee for attendance at a Board meeting on that day. The Company reimburses the directors for reasonable expenses incurred in attending Board or Committee meetings. Upon election to the Board, Non-Employee Directors receive an initial stock option grant of 22,500 shares, exercisable at a price equal to the fair market value per share of common stock on the date of grant. Fifty percent (50%) of the initial grant will vest as of the date of the grant with the balance vesting upon the first re-election to the Board after completion of the first full year of service as a director. Subsequent future annual grants ("Future Annual Grant") of 5,000 stock options are granted upon each re-election to the Board. Future Annual Grants are immediately exercisable as of the date of the grant. In 1999, 107,877 options to certain Non-Employee Directors that would have otherwise expired on March 31, 1999, were extended. These options will now expire on the earliest of the closing of the merger with Jackpot, the date the Board of Directors determines that the merger will not occur, or February 28, 2000. EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS The Company has an employment agreement in effect with Howard A. Goldberg. The Company had in effect employment agreements with two other executives who are no longer with the Company, Peter J. Aranow and Patrick Madamba, Jr. The Company has entered into change in control agreements with two executives, John Groom and Raymond A. Spera, Jr. Employment Agreement for Howard A. Goldberg. Howard A. Goldberg's employment with the Company extends to September 30, 1999, provided that if a change in control occurs, the term of employment will continue for 24 months beyond the month in which the change in control occurs. During the term of the employment agreement, Mr. Goldberg will serve as Chief Executive Officer and his base compensation will be not less than $450,000 per year. The Board may grant discretionary bonuses and stock-based compensation. Mr. Goldberg and his spouse and dependents will be provided with welfare and retirement benefit coverages pursuant to the employment agreement. If the Company terminates Mr. Goldberg's employment without cause, for a reason other than death or disability, or in the event of constructive termination, Mr. Goldberg will be entitled to receive severance compensation upon his execution of a release of the Company as to all matters arising in connection with his employment and termination. If the employment agreement expires at the end of its present term or at the expiration of any renewal and the Company has not given six months prior notice of its intention not to renew, Mr. Goldberg will receive severance compensation upon execution of a release of the Company. The severance compensation payable upon expiration of Mr. Goldberg's employment agreement on September 30, 1999, will consist of continued base compensation for a period of six months, less the number of months of non-renewal notice provided by the Company. The severance compensation payable in the other circumstances described above will consist of continued base compensation and performance bonuses for a period of 12 months following his termination of employment or, if longer, to the end of the term of the employment agreement. Mr. Goldberg may elect to have the present value of the base compensation payments paid in a lump sum after his termination of employment. In addition, Mr. Goldberg will immediately vest in all stock options previously granted to him and may exercise the options for 12 months following his date of termination, but in no event beyond the expiration of the option term. Mr. Goldberg will continue to participate in the Company's applicable employee benefit programs during the period for which he receives severance compensation (without regard to whether payments are made in a lump sum), unless the Company provides him with a payment equal to the cost of such coverage. If a change in control (such as the proposed Jackpot merger) occurs and Mr. Goldberg's employment is terminated without cause (including constructive termination), or if Mr. Goldberg terminates employment within 180 days following a change in control because there has been a change in circumstances that affects his position or responsibilities such that he is no longer able to discharge his duties and responsibilities effectively, Mr. Goldberg will be entitled to receive severance compensation. In addition, if a change in control occurs and Mr. -49- Goldberg's employment is terminated without cause (including constructive termination), or upon expiration of his employment agreement, within six months before the change in control, Mr. Goldberg will be entitled to receive severance compensation. As severance compensation in connection with a change in control, Mr. Goldberg will receive a lump sum payment equal to the present value of the base compensation that would be due him for a period of 36 months following his termination of employment, based on his average annual base compensation for the 36-month period preceding his termination, and a lump sum payment equal to the present value of the aggregate performance bonuses that he received for the 36-month period preceding his termination, or, if greater, 150% of the largest performance bonus paid to him during the 36-month period. Mr. Goldberg will immediately vest in all stock options previously granted to him and may exercise the options for 12 months following his date of termination, but in no event beyond the expiration of the option term. Mr. Goldberg will continue to participate in applicable employee benefit programs during the period for which he receives severance compensation (without regard to whether payments are made in a lump sum), unless the Company provides him with a payment equal to the cost of such coverage. The benefits provided under the employment agreement in the event of a change in control will be limited by the Internal Revenue Code ("Code") parachute provisions. If and to the extent that the benefits to be provided under the agreement are considered "excess parachute payments" under section 280G of the Code, the benefits will be reduced to the maximum amount that may be paid under section 280G without resulting in the imposition of penalties on "excess parachute payments." For purposes of the employment agreement, the occurrence of any of the following events will be considered a change in control: (i) any person (except The Griffin Group, Inc., the Company's management as of the effective date of the agreement, the Company or any employee benefit plan of the Company), will become the beneficial owner of 30% or more of the Company's voting stock; (ii) consummation by the Company of a merger or similar transaction with respect to which the persons who were the beneficial owners of the Company voting stock immediately before the transaction do not, following the transaction, beneficially own more than 50% of the then outstanding shares of voting stock in substantially the same proportion as their ownership before the transaction; (iii) a complete liquidation or dissolution of the Company; (iv) a sale or other disposition of all or substantially all the assets of the Company other than to a corporation with respect to which, following such sale or disposition, more than 50% of the voting stock is owned beneficially by the persons who were the beneficial owners of the Company's voting stock immediately before such sale or disposition in substantially the same proportion as their ownership before the sale or disposition; (v) individuals who, as of the beginning of any 24-month period, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual who becomes a director after the beginning of such period and whose election or nomination was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened Board election contest; or (vi) a "change in control" (as defined in the form of indenture governing any indebtedness of the Company) will have occurred. The proposed merger of the Company with Jackpot will constitute a change in control for purposes of the employment agreement. It is expected that Mr. Goldberg's employment will terminate upon the consummation of the Jackpot merger and that Mr. Goldberg will be entitled to receive the change in control severance benefits described above. If the Company terminates Mr. Goldberg's employment because of the termination of his license to take part in the casino and gaming business in any state in which the Company conducts business, Mr. Goldberg will receive continued base compensation for six months after his termination (or 12 months if the loss of license was not the result of an activity that Mr. Goldberg knew or should have known would result in the loss of his license). If Mr. Goldberg voluntarily terminates employment or the Company terminates his employment for cause, Mr. Goldberg will be prohibited from engaging in competition with the Company for one year following such termination. If Mr. Goldberg is terminated on any other basis resulting in payments under the employment agreement (without regard to whether the payments are made in a lump sum), Mr. Goldberg will be prohibited from engaging in competition with the Company for a period equal to the payment period. The Company will indemnify Mr. Goldberg against liabilities reasonably incurred by him in connection with any proceeding relating to his employment with the Company. -50- Employment Agreement for Peter J. Aranow. Peter J. Aranow's employment with the Company terminated on March 23, 1999. In accordance with the terms of Mr. Aranow's employment agreement, as amended in 1998 and 1999, subject to Mr. Aranow executing a release and his compliance with the confidentiality and non-competition covenants of the employment agreement, upon his termination of employment, Mr. Aranow became entitled to receive (i) a lump sum payment equal to the base compensation that would have been paid for a period of six months following his termination of employment (this amount totals $150,000); (ii) $20,000, which represents the balance of the annual performance bonus for the Company's fiscal year ending March 31, 1999; (iii) immediate vesting of all unvested stock options held by Mr. Aranow, with the ability to exercise such options for a period of 12 months following his termination of employment (but not beyond the expiration of the option term); and (iv) continuation of coverage under applicable employee benefit programs through September 22, 1999 (except that, in lieu of continued coverage, the Company may elect to make a payment equal to the cost of such coverage). In addition, if the Company enters into an agreement on or before September 30, 1999, to effect a change in control transaction that received active consideration by the Board before March 23, 1999, Mr. Aranow will have the right to receive change in control benefits. The proposed Jackpot merger will constitute a pre-October 1999 agreement for this purpose. If Mr. Aranow is entitled to change in control benefits, he will receive the following payments upon a change in control: (i) a lump sum payment equal to the present value of the base compensation that would be due for a period of 36 months following his termination of employment, determined on the basis of the average base compensation paid for 36 months preceding his termination (reduced by any payments described under the foregoing paragraph); (ii) a lump sum payment equal to the present value of the aggregate performance bonuses received for the period of 36 months preceding his termination; (iii) the immediate vesting of all stock options (including related stock appreciation rights) then held by Mr. Aranow, with the ability to exercise the options for 12 months following the change in control, but in no event after the expiration of the option term; and (iv) continuation of coverage under applicable employee benefits plans during the 36-month period following the change in control, reduced by the period during which he receives continued coverage as described in the foregoing paragraph (except that, in lieu of continued coverage, the Company may elect to make a payment equal to the cost of such coverage). Upon a change in control, the Company may require that Mr. Aranow surrender for cancellation all of his outstanding options and stock appreciation rights in exchange for a payment equal to the amount (if any) by which the fair market value of the stock underlying his options and stock appreciation rights exceeds the applicable option price (or base price, in the case of stock appreciation rights). The benefits provided under Mr. Aranow's employment agreement in the event of a change in control are limited by the Code's parachute provisions, as described in the section above entitled "Employment Agreement for Howard A. Goldberg," and the term "change in control" has the meaning described in the section above entitled "Employment Agreement for Howard A. Goldberg." Mr. Aranow will provide consulting services to Players as requested by the Chief Executive Officer through the date of the special meeting of stockholders to approve the Jackpot merger. Mr. Aranow will receive $5,000 per month for his consulting services, with appropriate adjustment if he performs services for more than an average of two days per week. Mr. Aranow will remain entitled to indemnification by the Company under his employment agreement for matters relating to services performed for the Company. Employment Agreement for Patrick Madamba, Jr. Patrick Madamba, Jr.'s employment with the Company terminated on April 7, 1999. In accordance with the terms of his employment agreement, as amended in 1998 and 1999, Mr. Madamba became entitled to receive severance compensation, upon executing a release of the Company, which consists of (i) a lump sum payment of his base compensation that would be payable for six months after termination of employment (this amount totals $87,500), (ii) a $25,000 payment attributable to the balance of his annual performance bonus for the fiscal year ended March 31, 1999, (iii) the immediate vesting of all unvested stock options held by Mr. Madamba, with the ability to exercise such options for a period of 12 months following the date of his termination (but not beyond the expiration of the option term) and (iv) continuation of coverage under applicable employee benefit programs for six months following termination of employment (except that, in lieu of continued coverage, the Company may elect to make a payment equal to the cost of such coverage). In addition, if the proposed Jackpot merger is consummated or if the Company otherwise enters into an agreement on or before September 30, 1999, to effect a change in control transaction that received active consideration by the Board before April 7, 1999, Mr. Madamba will have the right to receive change in control benefits. If Mr. Madamba is entitled to receive change in control benefits, he will receive the following payments upon -51- a change in control: (i) a lump sum payment equal to the present value of the base compensation that would be due him for a period of 36 months following his termination of employment, based on his average annual base compensation for the 36-month period preceding his termination (reduced by any payments described in the foregoing paragraph), (ii) a lump sum payment equal to the present value of the aggregate performance bonuses that he received for the 36-month period preceding his termination, (iii) the immediate vesting of all stock options then held by Mr. Madamba, with the ability to exercise the options for 12 months following the change in control, but in no event after the expiration of the option term, (iv) continuation of coverage under applicable employee benefit programs during the 36-month period following the change in control, reduced by the period during which he receives continued coverage as described in the foregoing paragraph (except that, in lieu of continued coverage, the Company may elect to make a payment equal to the cost of such coverage). Upon a change in control, the Company may require that Mr. Madamba surrender for cancellation all of his outstanding options in exchange for a payment equal to an amount, if any, by which the fair market value of the stock underlying his options exceeds the applicable option price. The benefits provided under the employment agreement in the event of a change in control are limited by the Code's parachute provisions, as described in the section above entitled "Employment Agreement for Howard A. Goldberg," and the term "change in control" has the meaning described in the section above entitled "Employment Agreement for Howard A. Goldberg." The executive indemnification provisions of the Jackpot merger agreement, and any similar provisions in a subsequent agreement, will apply to Mr. Madamba, and the Company will continue to advance to Mr. Madamba amounts reasonably incurred by Mr. Madamba in defending civil, criminal and other proceedings relating to the Company's development and operation of riverboat casino complexes in Louisiana. Mr. Madamba will make himself available to the Company to advise on transition matters for one year after his termination of employment, without additional compensation. Change in Control Agreement for John Groom. The Company has entered into a change in control agreement with John Groom that will provide severance benefits in the event his employment is terminated as a result of a change in control of the Company. The proposed Jackpot merger will constitute a change in control under Mr. Groom's agreement. It is anticipated that Mr. Groom will be appointed Chief Operating Officer of Jackpot after the consummation of the Company's merger with Jackpot. If Mr. Groom's employment is terminated other than for cause within two years after a change in control or within six months before a change in control, or if Mr. Groom terminates employment for good reason within such period, Mr. Groom will be entitled to receive severance benefits. The severance benefits include (i) a lump sum payment equal to the present value of Mr. Groom's base compensation that would be due him for a period of 36 months following his termination of employment, based on Mr. Groom's average annual base compensation for the 36-month period preceding his termination, (ii) a lump sum payment equal to the present value of the aggregate performance bonuses that Mr. Groom received for the 36-month period preceding his termination, (iii) the immediate vesting of all stock options then held by Mr. Groom, with the ability to exercise the options for 12 months following the date of termination, but in no event after the expiration of the option term, and (iv) continuation of coverage under applicable employee benefit programs during the period for which Mr. Groom receives severance benefits (without regard to whether payments are made in a lump sum), unless the Company provides Mr. Groom with a payment equal to the cost of such coverage. The benefits under the agreement are limited by the Code's parachute provisions, as described in the section above entitled "Employment Agreement for Howard A. Goldberg," and the term "change in control" has the meaning described in the section above entitled "Employment Agreement for Howard A. Goldberg." Mr. Groom's agreement will continue through December 31, 1999, provided that if a change in control occurs during the term of the agreement, the agreement will automatically continue in effect for 24 months after the month in which the change in control occurs. Change in Control Agreement for Raymond A. Spera, Jr. The Company entered into a change in control agreement with Raymond A. Spera in 1999, which will provide benefits in the event of a change in control of the Company. The proposed Jackpot merger will constitute a change in control under Mr. Spera's agreement. If a change in control occurs and Mr. Spera continues to provide his customary service to the Company through the effective date of the change in control, or if Mr. Spera terminates employment without good reason and the Board determines to treat such termination as if it occurred after the change in control, Mr. Spera will be entitled to receive, at the time of the change of control, a lump sum payment equal to the base compensation that would be due him for a period of six -52- months following the effective date of the change in control. If Mr. Spera's employment is terminated other than for cause within two years after a change in control or within six months before a change in control, or if Mr. Spera terminates employment for good reason within such period, Mr. Spera will be entitled to receive severance benefits. The severance benefits include a lump sum payment equal to the base compensation that would be due him for a period of 12 months following his termination of employment (less any amounts paid to him as described above at the time of the change in control). For purposes of the agreement, the term "change in control" has the meaning described in the section above entitled "Employment Agreement for Howard A. Goldberg." The agreement will continue through December 31, 2000, provided that if a change in control occurs during the term of the agreement, the agreement will automatically continue in effect for 24 months after the month in which the change in control occurs. Item 12. Security Ownership of Certain Beneficial Owners and Management _________ ____________________________________________________ The following table sets forth, as of the close of business on June 18, 1999, certain information with respect to the beneficial ownership of Common Stock: (i) by each director and executive officer of the Company; (ii) by all executive officers and directors, as a group; and (iii) by each stockholder who was known to the Company to be the beneficial owner, as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Exchange Act"), of more than 5% of the Common Stock. As noted below, certain ownership information is presented as of December 31, 1998, the last date for reporting significant ownership positions by certain institutions under Securities and Exchange Commission ("SEC") rules. Each of the persons listed below has sole voting and investment power with respect to such shares, unless otherwise indicated. Number of Percent Shares of Class Beneficially Beneficially Name of Beneficial Owner (1) Owned Owned _____________________________ ____________ ____________ The Griffin Group, Inc. 4,367,350(2) 13.63% Howard Goldberg 1,104,330(3) 3.37% John Groom 346,500(4) 1.08% Lawrence Cohen 253,600(5) * Marshall S. Geller 194,127(6) * Lee Seidler 177,750(7) * Charles M. Masson 42,500(8) * Earl E. Webb 32,500(8) * Vincent Naimoli 29,500(9) * Alan Buggy 27,500(9) * Raymond A. Spera 4,000(10) * All directors and executive officers as a group (10 persons) 2,212,307 6.64% Legg Mason, Inc. 2,487,300(11) 7.76% Dimensional Fund Advisors, Inc. 2,046,100(12) 6.39% ___________ * Less than 1%. (1) The address of The Griffin Group, Inc. is 780 Third Avenue, Suite 1801, New York, New York 10017. The address for Legg Mason is 100 Light Street, Baltimore, Maryland 21202. The address for Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401. The address for all other persons is c/o Players International, Inc., 1300 Atlantic Avenue, Suite 800, Atlantic City, New Jersey 08401. (2) Based upon information contained in Amendment No. 5 to Schedule 13D, dated February 6, 1999, as filed with the SEC. The holdings do not include the holdings of Lawrence Cohen, President and Chief Executive Officer of The Griffin Group. (3) Includes 18,400 shares held in trust and in the name of Mr. Goldberg's family members and 738,750 shares that are subject to options that are exercisable within 60 days of June 18, 1999 ("currently exercisable"). Options to purchase -53- 56,250 shares and 375,000 shares which would have otherwise expired on March 31, 1999 and October 1, 1999, respectively, were extended by board action to expire on the earliest of the closing of the merger, the date on which the Players board determines that the merger will not occur, or February 28, 2000. (4) Includes 135,000 shares that are subject to currently exercisable options and 196,500 shares in which Mr. Groom has shared voting and investment power. (5) Includes 32,500 shares that are subject to currently exercisable options. (6) Includes 129,127 shares that are subject to currently exercisable options. Options to purchase 51,627 shares which would have otherwise expired on March 31, 1999, were extended by board action to expire on the earliest of the closing of the merger, the date on which the Players board determines that the merger will not occur, or February 28, 2000. (7) Includes 133,750 shares that are subject to currently exercisable options. Options to purchase 56,250 shares which would have otherwise expired on March 31, 1999, were extended by board action to expire on the earliest of the closing of the merger, the date on which the Players board determines that the merger will not occur, or February 28, 2000. (8) Includes 32,500 shares that are subject to currently exercisable options. (9) Includes 27,500 shares that are subject to currently exercisable options. (10) Includes 4,000 shares that are subject to currently exercisable options. (11) Reflects holdings as of December 31, 1998 reported in Schedule 13G filed with the SEC. 2,485,000 shares are held by Legg Mason Special Investment Trust, Inc., with Legg Mason Fund Advisor, Inc. having power to dispose thereof. The remainder are held by various clients of Legg Mason Wood Walker, Inc., which have power to dispose thereof. (12) Reflects holdings as of December 31, 1998 reported in Schedule 13G filed with the SEC. Dimensional Fund Advisors, Inc. ("Dimensional"), an investment advisor registered under the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other investment vehicles, including commingled group trusts. These investment companies and investment vehicles are referred to as the "Portfolios". In its role as investment advisor and investment manager, Dimensional possesses both voting and investment power over the securities of Players described in the Schedule 13G that are owned by the Portfolios. All securities reported are owned by the Portfolios, and Dimensional disclaims beneficial ownership of such securities. Item 13. Certain Relationships and Related Transactions ________ ______________________________________________ During fiscal year 1999, the Company had no transactions in which any director of the Company or any member of the immediate family of any such director had a material direct or indirect interest reportable under the applicable rules of the SEC. -54- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ________ ___________________________________________________ (a)(1) Financial Statements Players International, Inc. CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1999 AND 1998 FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 1999: CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a)(2) Financial Statement Schedules Riverside Joint Venture: Page ____ INDEPENDENT AUDITORS' REPORT............................ 62 BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997......... 63 STATEMENTS OF OPERATIONS-YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.......................................... 64 STATEMENTS OF PARTNERS' CAPITAL-YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.................................... 65 STATEMENTS OF CASH FLOWS-YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.......................................... 66 NOTES TO FINANCIAL STATEMENTS........................... 67 All other schedules have been omitted because they are not applicable or not required or the required information is included in the Consolidated Financial Statements or Notes thereto. (a)(3) Listing of Exhibits: Exhibit Number Description _______ ___________ 2.1(22) Agreement and Plan of Merger dated as of February 8, 1999 among Jackpot Enterprises, Inc., JEI Merger Corp. and Players International, Inc. 3.1(1) Articles of Incorporation, as amended, of Players International, Inc. (the "Company"). 3.2(2) By-laws of the Company, as amended. 4.1(1) Indenture among certain subsidiaries of the Company and First Fidelity Bank, National Association, as Trustee, including form of Note (the "Senior Note Indenture"). 4.2(1) Form of First Supplemental Indenture to the Senior Note Indenture. 4.3(1) Form of Second Supplemental Indenture to the Senior Note Indenture. 4.4(11) Form of Third Supplemental Indenture to the Senior Note Indenture. 4.5(17) Form of Fourth Supplemental Indenture to the Senior Note Indenture. -55- 4.6(17) Form of Fifth Supplemental Indenture to the Senior Note Indenture. 4.7(17) Form of Sixth Supplemental Indenture to the Senior Note Indenture. 4.8(21) Rights Agreement dated as of January 27, 1997, between Players International, Inc. and Interwest Transfer Company, Inc. as Rights Agent. 10.1(3) The Company's 1985 Incentive Stock Option Plan. 10.2(4) Amendment No. 1 to the Company's 1985 Incentive Stock Option Plan. 10.3(5) The Company's 1990 Incentive Stock Option and Non- Qualified Stock Option Plan, as amended. 10.4(2) The Company's 1993 Stock Incentive Plan. 10.5(2) Form of Registration Rights Agreement dated as of June 23, 1992 by and among the Company, Southern Illinois Riverboat/Casino Cruises, Inc., and the purchasers named therein. 10.6(2) Agreement dated February 12, 1993 by and between Jebaco, Inc. and the Company with respect to the assignment of an option agreement relating to the Downtowner Hotel (now known as the Players Hotel). 10.7(2) Option Agreement dated December 24, 1991 by and among The Beeber Corporation and Elisabeth S. Woodward and Jebaco, Inc. with respect to the Downtowner Hotel (now known as the Players Hotel). 10.8(2) Amendment to Option Agreement dated March 9, 1993 by and among The Beeber Corporation and Elisabeth S. Woodward and Players Lake Charles, Inc., a subsidiary of the Company, with respect to the Downtowner Hotel (now known as the Players Hotel). 10.9(2) License and Services Agreement dated December 8, 1992 by and among The Griffin Group, Inc., the Company and Southern Illinois Riverboat/Casino Cruises, Inc., as amended. 10.10(2) Joint Venture Agreement dated May 1993 between Amerihost and a subsidiary of the Company with respect to a hotel in Metropolis, Illinois adjacent to the Company's Metropolis riverboat. 10.11(6) Lease dated March 19, 1993 by and among the Beeber Corporation and Players Lake Charles, Inc., a subsidiary of the Company. 10.12(7) Agreement of Purchase and Sale dated June 16, 1994, between Gem Mesquite, Ltd. and Players Nevada, Inc., a subsidiary of the Company (including form of letter Agreement from the Company to Gem Mesquite, Ltd. relating to registration rights). 10.13(7) Transfer of Data Agreement dated June 16, 1994, between Gem Gaming, Inc. and Players Nevada, Inc. (including form of Promissory Note). 10.14(7) Development Consulting Agreement dated June 16, 1994, between Gem Gaming, Inc. and Players Nevada, Inc. (including form of 1994 Series G Warrant). 10.15(7) Option Transfer Agreement dated June 16, 1994, between Gem Gaming, Inc., Gem Mesquite, Ltd. and Players Nevada, Inc. 10.16(8) The Company's 1994 Directors Stock Incentive Plan, as adopted April 14, 1994, and as amended July 14, 1994. 10.17(9) Agreement for Sale of Partnership Interests among the Company and certain of its subsidiaries and Showboat, Inc. and certain of its subsidiaries. 10.18(1) Asset Purchase Agreement dated August 16, 1995 among the Company, Players Lake Charles, Inc. and the Beeber Corporation. -56- 10.19(1) Form of Credit Agreement ("Credit Agreement") among the Company, First Interstate Bank of Nevada, N.A., Bankers Trust Company, BT Securities Corporation, and certain other Lenders party thereto. 10.20(1) Form of Revolving Promissory Notes made by the Company in favor of the Lenders party to the Credit Agreement. 10.21(1) Form of Swing Line Promissory Note made by the Company in favor of First Interstate Bank of Nevada, N.A. 10.22(1) Form of Guaranty made by Players Lake Charles, Inc., Players Nevada, Inc., Southern Illinois Riverboat/Casino Cruises, Inc., Players Bluegrass Downs, Inc., Players Riverboat Management, Inc., Players Riverboat, Inc., Players Mesquite Golf Club, Inc., Players Indiana, Inc., Players Riverboat, LLC, Players Mesquite Land, Inc., Players Maryland Heights, Inc., River Bottom Inc. and Showboat Star Partnership in favor of First Interstate Bank of Nevada, N.A. 10.23(1) Form of Company Pledge Agreement between the Company and First Interstate Bank of Nevada, N.A. 10.24(1) Form of Company Pledge Agreement (Nevada) between the Company and First Interstate Bank of Nevada, N.A. 10.25(1) Form of First Amendment to Company Pledge Agreement (Nevada) between the Company and First Interstate Bank of Nevada, N.A. 10.26(1) Form of LLC Membership Interest Security Agreement between the Company and First Interstate Bank of Nevada, N.A. 10.27(1) Form of Company Security Agreement between the Company and First Interstate Bank of Nevada, N.A. 10.28(1) Form of Subsidiary Security Agreement (Nevada) among Players Nevada, Inc., Players Mesquite Golf Club, Inc., Players Mesquite Land, Inc. and First Interstate Bank of Nevada, N.A. 10.29(1) Form of Subsidiary Security Agreement (Louisiana) among Players Lake Charles, Inc., Showboat Star Partnership, Players Riverboat LLC and First Interstate Bank of Nevada, N.A. 10.30(1) Form of Subsidiary Security Agreement (Illinois) between Southern Illinois Riverboat/Casino Cruises, Inc. and First Interstate Bank of Nevada, N.A. 10.31(1) Form of Partnership Interest Security Agreement between Players Riverboat Management, Inc. and First Interstate Bank of Nevada, N.A. 10.32(1) Form of Collateral Account Agreement between the Company and First Interstate Bank of Nevada, N.A. 10.33(1) Form of Nevada Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents relating to the Credit Agreement. 10.34(1) Form of Louisiana Act of Mortgage, Fixture Filing and Security Agreement between Players Lake Charles, Inc. and First Interstate Bank of Nevada, N.A. 10.35(1) Form of Illinois Mortgage Fixture Filing and Security Agreement with Assignment of Rents relating to the Credit Agreement. 10.36(1) Form of First Preferred Ship Mortgage made by Showboat Star Partnership (an entity owned, directly or indirectly, by the Company and its subsidiaries) to First Interstate Bank of Nevada, N.A. 10.37(1) Form of Environmental Indemnity made by the Company to First Interstate Bank of Nevada, N.A. -57- 10.38(1) Form of Master Vessel and Collateral Trust Agreement between First Interstate Bank of Nevada, N.A. as Administrative Agent and First Interstate Bank of Nevada, N.A. as Trustee and acknowledged and accepted by the Company. 10.39(10) Partnership Agreement dated November 2, 1995, by and between Harrah's Maryland Heights Corporation and Players MH, L.P. 10.40(10) Guaranty of Players International, Inc. dated November 2, 1995. 10.41(10) Management Agreement dated November 2, 1995 by and between Riverside Joint Venture and Harrah's Maryland Heights Operating Company. 10.42(10) License Agreement dated November 2, 1995 by and among Players International, Inc., Riverside Joint Venture and Harrah's Maryland Heights Operating Company. 10.43(10) Ground Lease dated November 3, 1995 by and between Harrah's Maryland Heights LLC and Riverside Joint Venture. 10.44(10) Lease Agreement dated as of November 3, 1995 by and between Riverside Joint Venture and Players MH, L.P. 10.45(10) Parent Guaranty of Players International, Inc. dated November 3, 1995. 10.46(10) Right of First Refusal to Purchase dated November 3, 1995 by and between Harrah's Maryland Heights LLC and Players MH, L.P. 10.47(10) Option Agreement dated November 3, 1995 by and between Riverside Joint Venture and Harrah's Maryland Heights, L.L.C. 10.48(10) Development of Agreement (Earth City Expressway Extension) by and between the City of Maryland Heights and Riverside Joint Venture. 10.49(11) Form of Agreement between the Company and Lake Charles Construction Corporation dated November 15, 1995 for the Players Island-Entertainment Barge. 10.50(11) Agreement between the Company and Lake Charles Construction Corporation dated February 16, 1996 for the Players Island-Entertainment Barge. 10.51(13) Retirement Agreement and General Release dated September 9, 1996 between the Company and Edward Fishman. 10.52(13) Retirement Agreement and General Release dated September 9, 1996 between the Company and David Fishman. 10.53(14) Amended and Restated Credit Agreement, dated as of December 16, 1996, among the Company and the Lenders party thereto, Wells Fargo Bank, N.A., Bankers Trust Company and BT Securities Corporation. 10.54(15) Purchase Agreement by and among Players Nevada, Inc., Players Mesquite Land, Inc., Players Mesquite Golf Club, Inc. and RBG, LLC. 10.55(16) March 17, 1997 Letter Agreement to the Asset Purchase Agreement Extending Closing Date. 10.56(16) March 18, 1997 Letter Agreement to the Asset Purchase Agreement Regarding Application of Due of Due Diligence Fee. 10.57(16) March 18, 1997 Letter Agreement to the Asset Purchase Agreement Regarding Certain Matters Incident to Closing. 10.58(18) Asset Purchase Agreement dated as of September 30, 1997 by and between Lakeshore Hotels, Ltd. and Players International, Inc. 10.59(18) November 13, 1997 Amendment No. 1 to Asset Purchase Agreement. -58- 10.60(18) December 17, 1997 Amendment No. 2 to Asset Purchase Agreement. 10.61(17) January 9, 1998 Letter Agreement with Wells Fargo Bank regarding terms of Reducing Revolving Credit Agreement. 10.62(18) Second Amended and Restated Credit Agreement, dated as of March 11, 1998, among the Company and the Lenders party thereto and Wells Fargo Bank, N.A. 10.63(18) March 24, 1998 Letter Agreement regarding execution of the Settlement and Admission Fee Agreement. 10.64(18) Settlement and Admission Fee Agreement dated May 15, 1998 among Players Lake Charles, L.L.C., Showboat Star Partnership and the City of Lake Charles. 10.65(19) Howard A. Goldberg Employment Agreement dated October 1, 1996. 10.66(19) Peter J. Aranow Employment Agreement dated October 1, 1996. 10.67(19) Patrick Madamba Employment Agreement dated March 31, 1997. 10.68(19) John Groom Change of Control Agreement dated August 1, 1997. 10.69(20) Amendment to Peter J. Aranow Employment Agreement dated September 29, 1998. 10.70(21) Amended and Restated 1993 Stock Incentive Plan, as amended through November 12, 1998. 10.71(21) Amendment dated as of August 31, 1998, to Agreement dated as of August 1, 1997, between Players International, Inc. and John Groom. 10.72(21) Amendment dated as of August 31, 1998, to Employment Agreement dated as of March 31, 1997, between Players International, Inc. and Patrick Madamba, Jr. 10.73(21) Amendment dated November 12, 1998, to Employment Agreement dated October 1, 1996, between Players International, Inc. and Howard A. Goldberg. 10.74(21) Amendment dated as of November 12, 1998, to Employment Agreement dated as of March 31, 1997, between Players International, Inc. and Patrick Madamba, Jr. 10.75(21) Restated Amendment dated as of January 6, 1999, between Players International, Inc. and Peter J. Aranow. 10.76(21) Restated Amendment dated January 29, 1999, between Players International, Inc. and Peter J. Aranow. 10.77 Raymond A. Spera Change of Control Agreement dated April 12, 1999. 10.78 Purchase Agreement dated March 1, 1999, between The Beeber Corporation, William D. Woodward, Timothy J. Vaughan and Players Lake Charles, LLC. 10.79 Purchase Agreement dated March 1, 1999, between Karl E. Boellert and Players Lake Charles, LLC. 10.80 Letter Agreement with Peter J. Aranow dated March 23, 1999. 10.81 Amendment dated as of March 23, 1999, to Employment Agreement dated as of March 31, 1997, between Players International, Inc. and Patrick Madamba, Jr. 21 Subsidiaries of Players International, Inc. 27 Financial Data Schedule -59- (1) Filed as an exhibit to the Company's Registration Statement on Form S-4, File No. 33-60085, and incorporated herein by reference. (2) Filed as an exhibit to the Company's Registration Statement on Form S-3, File No. 33-61026, and incorporated herein by reference. (3) Filed as an exhibit to the Company's Registration Statement on Form 10 filed on August 13, 1986, File No. 0-14897, as amended on Form 8 filed October 17, 1987, and incorporated herein by reference. (4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1988, and incorporated herein by reference. (5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, and incorporated herein by reference. (6) Filed as an exhibit to the Company's Registration Statement on Form S-3, as amended by Form S-3, File No. 33-75006, and incorporated herein by reference. (7) Filed as an exhibit to the Company's Current Report on Form 8-K filed on June 24, 1994, and incorporated herein by reference. (8) Filed as an exhibit to the Company's Registration Statement on Form S-3 filed on July 24, 1994, and incorporated herein by reference. (9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995, and incorporated herein by reference. (10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, and incorporated herein by reference. (11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996, and incorporated herein by reference. (12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference. (13) Filed as an exhibit to the Company's Form 8-K dated September 17, 1996, and incorporated herein by reference. (14) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, and incorporated herein by reference. (15) Filed as an exhibit to the Company's Form 8-K/A. Filing dated March 18, 1997, and incorporated herein by reference. (16) Filed as an exhibit to the Company's Form 8-K. Filing dated March 18, 1997, and incorporated herein by reference. (17) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, and incorporated herein by reference. (18) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998, and incorporated herein by reference. (19) Filed as an exhibit to the Company's Annual Report on Form 10-K/A-2 for the fiscal year ended March 31, 1998, and incorporated herein by reference. (20) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference. (21) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, and incorporated herein by reference. (22) Filed as an exhibit to the Company's Current Report on Form 8-K filed on February 9, 1999, and incorporated herein by reference. ___________ (b) Reports on Form 8-K filed during the last quarter of the period covered by this report: On February 9, 1999, a Form 8-K was filed announcing the Agreement and Plan of Merger with Jackpot Enterprises, Inc. (c) Exhibits required by Item 601 of Regulation S-K: The exhibits incorporated by reference herein are set forth in Item 14(a)(3) above. (d) Included below are separate financial statements of subsidiaries not consolidated and 50% or less owned. -60- RIVERSIDE JOINT VENTURE Financial Statements December 31, 1998 and 1997 (With Independent Auditors' Report Thereon) -61- Independent Auditors' Report The Partners Riverside Joint Venture: We have audited the accompanying balance sheets of Riverside Joint Venture, a Missouri general partnership, as of December 31, 1998 and 1997 and the related statements of operations and partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Riverside Joint Venture as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Memphis, Tennessee March 12, 1999 -62- RIVERSIDE JOINT VENTURE BALANCE SHEETS ASSETS December 31, -------------------------- 1998 1997 ------------ ------------ Current assets: Cash and cash equivalents $ 3,292,181 $ 9,935,538 Receivables 2,636,831 3,151,091 Inventories 501,104 473,409 Prepaid expenses and other 73,297 69,565 ------------ ------------ Total current assets 6,503,413 13,629,603 ------------ ------------ Fixed assets, at cost: Land 10,406,453 10,996,224 Land improvements 30,059,486 28,549,609 Buildings 99,280,405 98,939,095 Boats 40,104,483 40,104,483 Furniture, fixtures and equipment 12,367,797 12,074,190 Construction in progress 309,800 - ------------ ------------ 192,528,424 190,663,601 Less: accumulated depreciation (16,183,597) (7,297,726) ------------ ------------ Total fixed assets 176,344,827 183,365,875 ------------ ------------ Other assets, net of accumulated amortization of $845,517 and $254,153 at December 31, 1998 and 1997, respectively 9,019,384 8,910,778 ------------ ------------ Total assets $191,867,624 $205,906,256 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable $ 1,179,409 $ 1,107,209 Accrued expenses 2,061,569 2,294,655 Due to partner 973,583 3,330,555 ------------ ------------ Total liabilities 4,214,561 6,732,419 ------------ ------------ Commitments and contingencies (notes 5 and 7) Partners' capital 187,653,063 199,173,837 ------------ ------------ Total liabilities and partners' capital $191,867,624 $205,906,256 ============ ============ See accompanying notes to financial statements. -63- RIVERSIDE JOINT VENTURE STATEMENTS OF OPERATIONS Years ended December 31, ------------------------------------------ 1998 1997 1996 ------------ ------------- ----------- Revenues: Property rental to partners $ 12,161,031 $ 11,830,054 $ - Food and beverage 11,299,958 8,283,773 - Lodging 5,936,506 3,818,375 - Other 3,085,597 2,316,231 - Interest income 399,835 800,001 1,241,954 Less: casino promotional allowances (569,876) (342,907) - ------------ ------------- ----------- Total revenues 32,313,051 26,705,527 1,241,954 ------------ ------------- ----------- Direct operating expenses: Food and beverage 10,561,045 8,257,157 - Lodging 3,052,996 2,112,214 - Other 2,000,449 1,715,204 - ------------ ------------- ----------- Total operating expenses 15,614,490 12,084,575 - ------------ ------------- ----------- Operating profit before undistributed expenses 16,698,561 14,620,952 1,241,954 ------------ ------------- ----------- Undistributed expenses: General and administrative 4,817,826 5,772,585 - Depreciation and amortization 9,502,975 7,567,189 - Property taxes and insurance 5,954,043 4,195,900 - Facility operations 5,230,013 3,939,158 - Management fees 346,532 119,487 - Entertainment 269,468 518,948 - Interest 78,140 51,866 - ------------ ------------- ----------- Total undistributed expenses 26,198,997 22,165,133 - ------------ ------------- ----------- Preopening costs - 3,774,139 - ------------ -------------- ----------- Net (loss) earnings $ (9,500,436) $ (11,318,320) $ 1,241,954 ============ ============== =========== See accompanying notes to financial statements. -64- RIVERSIDE JOINT VENTURE STATEMENTS OF PARTNERS' CAPITAL Years ended December 31, 1998, 1997 and 1996 Harrah's Maryland Heights Players Corp. MH, L.P. Total ------------ ------------ ------------ Balance, December 31, 1995 $ 21,022,058 $ 21,422,873 $ 42,444,931 Capital contributions 55,000,000 57,800,000 112,800,000 Net income 620,977 620,977 1,241,954 ------------ ------------ ------------ Balance, December 31, 1996 76,643,035 79,843,850 156,486,885 Capital contributions 29,415,689 24,589,583 54,005,272 Net loss (5,659,160) (5,659,160) (11,318,320) ----------- ------------ ------------ Balance, December 31, 1997 100,399,564 98,774,273 199,173,837 Capital contributions (1,010,169) (1,010,169) (2,020,338) Net loss (4,750,218) (4,750,218) (9,500,436) ----------- ------------ ------------ Balance, December 31, 1998 $94,639,177 $ 93,013,886 $187,653,063 =========== ============ ============ Ownership percentages 50% 50% 100% =========== ============ ============ See accompanying notes to financial statements. -65- RIVERSIDE JOINT VENTURE STATEMENTS OF CASH FLOWS Years ended December 31, ---------------------------------------- 1998 1997 1996 ------------ ------------- ------------ Cash flows from operating activities: Net income (loss) $(9,500,436) $(11,318,320) $ 1,241,954 Depreciation and amortization 9,502,975 7,567,189 - Changes in assets and liabilities: Receivables 514,260 (3,061,917) 8,286 Inventories (27,695) (473,409) - Prepayments and other (3,732) 2,834 (72,399) Preopening costs - 1,366,429 - Accounts payable and accrued expenses (160,886) (19,336,493) (53,403) Due to partner (2,356,972) 2,695,056 - ------------ ------------ ------------ Net cash (used in) provided by operating activities (2,032,486) (22,558,631) 1,124,438 ------------ ------------ ------------ Cash flows from investing activities: Fixed asset expenditures (1,890,563) (39,370,484) (102,218,122) Increase in other assets (699,970) (2,430,082) (1,030,159) Expenditures for other assets - - (681,751) ------------ ------------ ------------ Net cash used in investing activities (2,590,533) (41,800,566) (103,930,032) ------------ ------------ ------------ Cash flows from financing activities: Capital contributions - 54,005,272 112,800,000 Distributions (2,020,338) - - Payment of note payable - - (3,700,000) ----------- ------------- ------------ Net cash provided by (used in) financing activities (2,020,338) 54,005,272 109,100,000 ----------- ------------ ------------ Net increase (decrease) in cash and cash equivalents: (6,643,357) (10,353,925) 6,294,406 Cash and cash equivalents at beginning of year 9,935,538 20,289,463 13,995,057 ----------- ------------ ------------ Cash and cash equivalents at end of year $ 3,292,181 $ 9,935,538 $ 20,289,463 =========== ============ ============ See accompanying notes to financial statements. -66- Riverside Joint Venture Notes to Financial Statements (1) Organization Riverside Joint Venture, a Missouri general partnership (the Partnership), was formed on November 2, 1995 for the purpose of constructing, developing and owning Riverport Casino Center which includes a hotel, four riverboat casinos, restaurants and other entertainment offerings. The Partnership was considered a development stage enterprise prior to the commencement of operations in March 1997. The Partnership acquired certain rights, title and interest under all agreements, plans, drawings and studies relating to the development from its general partners, Harrah's Maryland Heights Corporation (HMHC) and Players MH, L.P. (PMHLP). Leasing Arrangements and Operation of the Riverboat Casinos HMHC is a wholly-owned indirect subsidiary of Harrah's Entertainment Inc. (Harrah's). PMHLP is a wholly-owned indirect subsidiary of Players International, Inc. (Players). Each parent has guaranteed certain obligations of each partner. Harrah's, through a subsidiary, owns the land upon which the facility, known as Riverport Casino Center, is located, and has leased the land to the Partnership under a Ground Lease. The Ground Lease has an eighty-year lease term. A subsidiary of Harrah's and PMHLP each sublease space from the Partnership for casino, specialty restaurant and office purposes. Each sub-tenant pays rent to the Partnership equal to 50% of the Partnership's monthly operating losses, as defined. PMHLP is additionally obligated to pay the Partnership a percentage of gaming revenues as percentage rent. The Partnership pays this percentage rent to Harrah's pursuant to the Ground Lease. The Partnership is not responsible for and does not assume any liability in connection with the activities and operations of the subleased premises. A subsidiary of Harrah's manages the operations of the hotel, restaurants and parking operations at Riverport Casino Center for the Partnership pursuant to a management contract. PMHLP manages the operation of retail shops at Riverport Casino Center for the Partnership pursuant to a management contract. (2) Summary of Significant Accounting Policies (a) Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting. During 1996, the Partnership financial statements were prepared as a development stage enterprise. (b) Cash and Cash Equivalents The Partnership considers all highly liquid investments purchased with an original term to maturity of three months or less to be cash equivalents. (c) Preopening Costs Preopening costs, representing primarily salaries and wages, advertising, training and other costs which were incurred prior to the opening of the Riverport Casino Center, were deferred as incurred and expensed upon the opening of the facility. (d) Fixed Assets Fixed assets are stated at cost and are depreciated using the straight-line method over their estimated useful lives. (e) Income Taxes No provision for state or federal income taxes has been made as the liability for such taxes is that of the individual partners rather than the Partnership. -67- (f) Inventories Inventories are stated at the lower of cost or market and consist primarily of food, beverage and operating supplies. (g) Revenue Recognition Food and beverage and lodging revenues include aggregate amounts generated by each department. (h) Promotional Allowances Promotional allowances consist principally of the retail value of complimentary food and beverage, lodging and entertainment provided to patrons of Riverport Casino Center. The estimated costs of providing such complimentary services are classified as direct operating expenses. (i) Management Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported balances of assets and liabilities as of the date of the statements of financial position and income and expenses for the period. Actual results could differ significantly from these estimates. (j) Reclassifications Certain prior year amounts have been reclassified to conform to the 1998 presentation. (3)Partnership Agreement The ownership percentage of each partner is 50%. In accordance with the partnership agreement and the first amendment to it dated June 28, 1996, each partner made an initial cash contribution of $20,000,000 and has made additional cash contributions pursuant to a Cost Budget. Each partner also contributed an agreed upon amount of pre- development costs consisting of land, lock-up costs for negative easements, land covenant payments and design and construction fees. These contributed assets were recorded at their estimated fair value at the date of contribution. The Partnership Agreement contains restrictions on "Transfer" of a partner's partnership interest and related property. These transfer restrictions are incorporated by reference in the Management Agreement and Operating Leases. For purposes of these restrictions, "Transfer" specifically excludes the sale of publicly traded capital stock of Harrah's and Players on a stock exchange or the sale or other disposition of all or substantially all of the assets of either of Harrah's or Players. Each partner is given a right of first refusal in connection with any proposed Transfer of the other partner's partnership interest and/or related property. Each partner is also given the option to purchase the other partner's partnership interest and related property, on the occurrence of specified events involving bankruptcy, insolvency, default under the agreement or certain adverse regulatory determinations by Missouri gaming regulators, in each case concerning the other partner. The agreement also provides for a "shotgun" buy-sell remedy where one partner reasonably determines that it will suffer, or might likely suffer, an adverse regulatory impact because of its affiliation with the other partner. If there is a transfer of HMHC's partnership interest and/or related property, or suffers one of the specified bankruptcy or insolvency events, and PMHLP does not exercise its right of first refusal, PMHLP nonetheless has the additional right to buy out the Management Agreement at its fair value. HMHC has an additional right, for five years expiring November 2, 2002, to acquire PMHLP's partnership interest and related property, if any of four specified parties acquires more than 49% of the capital stock or voting power in any Players entity. There are several remedies for defaults, which include enforcement against each partner and enforcement against parental guarantors. (4)Other Assets Included in other assets at December 31, 1998 is approximately $5,479,000 that represents payments to third parties to obtain restrictive covenants which were assigned to the Partnership from HMHC as part of the Partnership Agreement. These covenants are being amortized over a 30- year period commencing with the opening date of the Riverport Casino Center. The Partnership in 1998 completed its final payment of $650,000 as part of assuming the covenants from HMHC. -68- (5)Commitments and Contingencies The Partnership conditionally agreed to loan $2,250,000, purchase bonds, and guarantee for five years after issuance, gaming tax revenues to the City which would be used to fund the City's debt service for bonds issued for certain improvements to the Earth City Expressway. The agreement requires that the City satisfy certain conditions in order to obligate the Partnership. The City did not satisfy these conditions prior to the deadline established by the agreement. The City has not officially released Riverside Joint Venture from these obligations. The Partnership has agreed to pay the Howard Bend Levee District between $600,000 and $700,000 per year to fund debt service on bonds or costs to fund the second phase of off- site levee improvements beginning in 1997. Under this agreement with the Howard Bend Levee District, the Partnership shall pay no more than 20 annual installments of the Phase II installment assessments. The Partnership has made payments of $600,000 and $483,288 related to their 1998 and 1997 Phase II installment assessments, respectively. (6)Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 (SFAS 107), Disclosures about Fair Value of Financial Instruments, requires entities to disclose the fair value of all financial assets and liabilities for which it is practicable to estimate. Fair value is defined in SFAS 107 as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes the carrying amount of such financial assets and liabilities approximate their fair value at December 31, 1998 and 1997. (7)Litigation with Missouri Gaming Commission The Partnership was involved in certain litigation regarding the constitutionality of its Riverport Casino Center gaming facility, which is located upon artificial basins fed by the Missouri River. On November 25, 1997, the Missouri Supreme Court ruled that gaming may occur only in artificial basins that are contiguous to the surface stream of the Missouri and Mississippi Rivers. Subsequently, the Missouri Gaming Commission attempted to issue disciplinary resolutions that effectively would have amended the gaming licenses of the Partnership's casinos to preclude games of chance. The Partnership's casino partners filed countersuits seeking declaratory judgment that the Riverport Casino Center met the state constitutional mandates as established by the Missouri Supreme Court. On November 3, 1998, the voters of Missouri approved a referendum that amended their constitution to expressly permit gaming facilities in artificial basins within 1,000 feet of the Missouri and Mississippi Rivers. Subsequent to the November 1998 referendum, which constitutionally authorized the Riverport Casino Center, the disciplinary proceedings before the Missouri Gaming Commission and the suit by the Partnership's casino partners seeking a declaratory judgment have been dismissed and withdrawn. (8)Year 2000 (unaudited) The Partnership's Year 2000 ("Y2K") assessment and remediation plan is part of Harrah's company-wide Y2K assessment and remediation process. Harrah's Y2K assessment process includes a task force and support office responsible for implementing this company-wide process. Remediation efforts on business critical systems are scheduled for completion by July 1999 with related contingency plans scheduled for completion by December 1999. Harrah's is also evaluating the Y2K readiness of vendors and supplies that support business critical systems. The Partnership believes that its business critical systems are compliant or will be made compliant by mid-1999. -69- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Players International, Inc. Date: June 18, 1999 By: /s/ Howard Goldberg ---------------------------------- Howard Goldberg Acting Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below. This annual report may be signed in multiple identical counterparts all of which, taken together, shall constitute a single document. Dated: June 18, 1999 /s/ Howard Goldberg ---------------------------------------- Howard Goldberg Acting Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Dated: June 18, 1999 /s/ Raymond A. Spera, Jr. ---------------------------------------- Raymond A. Spera, Jr. Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) Dated: June 18, 1999 /s/ John Groom ---------------------------------------- John Groom Executive Vice President, Chief Operating Officer and Director Dated: June 18, 1999 /s/ Vincent J. Naimoli ---------------------------------------- Vincent J. Naimoli, Director Dated: June 18, 1999 /s/ Alan R. Buggy ---------------------------------------- Alan R. Buggy, Director Dated: June 18, 1999 /s/ Lawrence Cohen ---------------------------------------- Lawrence Cohen, Director Dated: June 18, 1999 /s/ Lee Seidler ---------------------------------------- Lee Seidler, Director Dated: June 18, 1999 /s/ Marshall S. Geller ---------------------------------------- Marshall S. Geller, Director Dated: June 18, 1999 /s/ Earl Webb ---------------------------------------- Earl Webb, Director Dated: June 18, 1999 /s/ Charles Masson ---------------------------------------- Charles Masson, Director -70- EX-27 2
5 1,000 YEAR MAR-31-1999 MAR-31-1999 25687 0 2343 461 1164 36229 282283 59846 389135 54920 155000 0 0 163 159649 389135 0 331078 0 151860 154943 0 21596 3117 1547 1570 0 0 0 1570 .05 .05
EX-21 3 Exhibit 21 PLAYERS INTERNATIONAL, INC. SUBSIDIARIES OF THE COMPANY Subsidiary State of Incorporation or Organization ---------- -------------------------------------- Metropolis, IL 1292 Limited Partnership Illinois PCI, Inc. Nevada Players Bluegrass Downs, Inc. Kentucky Players Development, Inc. Nevada Players Entertainment, Inc. Nevada Players Holding, Inc. Nevada Players International, Inc. Nevada Players Lake Charles, LLC Louisiana Players Lake Charles Riverboat, Inc. Louisiana Players LC, Inc. Nevada Players Maryland Heights, Inc. Missouri Players MH, L.P. Missouri Players Maryland Heights Nevada, Inc. Nevada Players Mesquite Golf Club, Inc. Nevada Players Mesquite Land, Inc. Nevada Players Nevada, Inc. Nevada Players Resources, Inc. Nevada Players Riverboat, LLC Louisiana Players Riverboat, Inc. Nevada Players Riverboat Management, Inc. Nevada Players Services, Inc. New Jersey Riverfront Realty Corporation Illinois Riverside Joint Venture Missouri Showboat Star Partnership Louisiana Southern Illinois Riverboat/Casino Cruises, Inc. Illinois EX-10 4 196347/2 Exhibit 10.77 AGREEMENT THIS AGREEMENT, dated as of April 12, 1999 among PLAYERS INTERNATIONAL, INC., a Nevada corporation ("PII"); PLAYERS SERVICES, INC., a New Jersey corporation (the "Company"), jointly and severally; and RAYMOND A. SPERA, JR., an individual (the "Executive"). W I T N E S S E T H: WHEREAS, the Company is a wholly-owned subsidiary of PII, a publicly held Nevada corporation; and WHEREAS, the Company and PII consider it essential to the best interest of their respective stockholders to foster the continuous employment of key management personnel; WHEREAS, the board of directors of the Company and the Board (as hereinafter defined) of PII recognize that, as is the case with many publicly held corporations and their subsidiaries, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of PII, the Company and their respective stockholders; WHEREAS, the board of directors of the Company and the Board of PII have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of certain members of PII's and the Company's management, including Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a "Change in Control" (as hereinafter defined) of PII and/or the Company; and WHEREAS, in order to induce Executive to remain in the employ of the Company and in consideration of Executive's undertakings set forth herein, PII and the Company agree that Executive shall receive the severance benefits set forth in this Agreement under the circumstances as described below. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, PII, the Company and Executive (individually a "Party" and together the "Parties") agree as follows: 1. Definitions. (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) "Base Compensation" shall mean the Executive's annual base compensation payable by PII or the Company. (c) "Beneficial Owner" of any securities shall mean: (i) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange; (ii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of any security under this subparagraph (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) where voting securities are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) above) or disposing of any voting securities of PII or the Company; provided, however, that nothing in this Paragraph 1(c) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. (d) "Board" shall mean the Board of Directors of PII. (e) "Cause" shall mean (i) Executive is convicted of a felony involving moral turpitude; (ii) Executive uses alcohol or any unlawful controlled substance to an extent that it interferes on a continuing and material basis with the performance of his or her duties under the Agreement; (iii) Executive engages in the willful, unauthorized disclosure of Confidential Information, as defined in Paragraph l(g), concerning PII, the Company or any Subsidiary, unless such disclosure was (A) believed in good faith by Executive to be appropriate in the course of properly carrying out his or her duties, or (B) required by an order of a court having jurisdiction over the subject matter or a summons, subpoena or order in the nature thereof of any legislative body (including any committee thereof) or any governmental or administrative agency; (iv) Executive, other than in the course of properly carrying out his or her duties as assigned by PII or the Company, performs services for any other corporation or Person that competes with PII or the Company or any Subsidiary; (v) Executive, in carrying out his or her duties as assigned by PII or the Company, engages in willful neglect or willful misconduct resulting, or reasonably likely to result, in either case, in material economic harm to PII or the Company, unless such act, or failure to act, resulted from Executive's reasonable belief that such act or failure to act was in the best interests of PII or the Company; or (vi) Executive is found disqualified or not suitable to hold a casino key employee license or other such license by a gaming authority in any jurisdiction where PII, the Company or any Subsidiary operates a casino and Executive is required to be found qualified, suitable or licensed, as the case may be. (f) "Change in Control" shall mean the occurrence of any one of the following events: (i) any Person (except the Griffin Group or its Affiliates and Associates, Company or PII management as of the Effective Date and their Affiliates and Associates or the Company or PII, or any employee benefit plan of the Company or PII, or of any Affiliate, any Person or entity organized, appointed or established by PII or the Company for or pursuant to the terms of any such employee benefit plan), together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 30% or more of the Voting Stock of PII or the Company then outstanding; provided, however, that no "Change in Control" shall be deemed to occur during any period in which any such Person, and its Affiliates and Associates, are bound by the terms of a standstill agreement under which such parties have agreed not to acquire more than 30% of the Voting Stock then outstanding or to solicit proxies; (ii) consummation by PII or the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective Beneficial Owners of the Voting Stock of PII or the Company outstanding immediately prior to such Business Combination do not, following such Business Combination, Beneficially Own, directly or indirectly, more than 50% of the then outstanding shares of Voting Stock of the corporation resulting from such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the outstanding Voting Stock; (iii) consummation of a complete liquidation or dissolution of PII or the Company; (iv) sale or other disposition of all or substantially all of the assets of PII or the Company other than to a corporation with respect to which, following such sale or disposition, more than 50% of the then outstanding shares of Voting Stock is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the outstanding Voting Stock immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Voting Stock immediately prior to such sale or disposition; (v) individuals who, as of the beginning of any twenty-four (24) month period, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the beginning of such period whose election or nomination for election by PII's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (vi) a "change of control" as defined in the form of indenture governing any indebtedness of PII shall have occurred. (g) "Confidential Information" shall include, but not be limited to, PII's or the Company's financial, real estate, marketing and promotional plans and strategies. Confidential Information does not include information that becomes available to the public other than through a breach of the Agreement on the part of Executive. (h) "Disability" shall mean if, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been absent from the full-time performance of Executive's duties with PII or the Company for six consecutive months and within thirty days after written notice of termination is given Executive shall not have returned to the full-time performance of Executive's duties. (i) "Good Reason" shall mean, without Executive's express written consent and without Cause, the occurrence within twenty-four (24) months after a Change in Control, or within six (6) months before a Change in Control, of any of the following: (i) The assignment to Executive of any duties inconsistent with Executive's status as an executive officer of PII or the Company or a substantial adverse alteration in the nature or status of Executive's responsibilities from those in effect immediately prior to the date that is six months before the Change in Control; (ii) Executive's Base Compensation is decreased by PII or the Company in other than an across-the-board salary adjustment of similarly situated executives, or Executive's benefits under any material employee benefit plan or program of PII or the Company, or Executive's incentive or equity opportunity under any material incentive or equity program of PII or the Company is or are reduced, after taking into account the discretion of the Board to determine the level at which Executive participates in any performance compensation program, on a basis not shared in common with other senior executives of PII or the Company as a group; or (iii) The failure of PII or the Company, as applicable, to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Paragraph 6 hereof; provided that (iv) Executive's termination of employment for Good Reason must occur within 90 days after Executive learns of the occurrence of the event constituting Good Reason and during the term of the Agreement. (j) "Person" shall mean any individual, firm, corporation, partnership or other entity. (k) "Subsidiary" shall mean any corporation in which PII or the Company owns 50% or more of the Voting Stock or any other venture in which it owns 50% or more of the equity. (l) "Termination Upon a Change in Control" shall mean that within twenty-four (24) months following a Change in Control, or within six (6) months prior to a Change in Control, and during the term of the Agreement, (i) PII or the Company terminates Executive's employment without Cause or (ii) Executive terminates Executive's employment for Good Reason, as described in Subparagraph 3(a). (m) "Voting Stock" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. Term of Agreement. This Agreement shall commence on and as of January 1, 1999 and shall continue in effect through December 31, 2000; provided that if a Change in Control occurs during the term of this Agreement, this Agreement shall automatically continue in effect for a period of twenty-four (24) months beyond the month in which such Change in Control occurs. 3. Change in Control. (a) Service Through Effective Date. Subject to the provisions of subsection (b) hereof, if a Change in Control (as defined in Subparagraph 1(f)) occurs, and Executive remains employed by and provides Executive's customary service to PII and the Company through and including the effective date of such Change in Control, then Executive shall be entitled to the benefits provided in Paragraph 4(a) hereof by reason of such employment and services through such effective date. For purposes of this Paragraph 3(a), if Executive terminates his or her employment without Good Reason before the effective date of the Change in Control, the Board may nevertheless, in its sole discretion, for purposes of this Agreement determine to treat such termination by the Executive as if it did not occur until after the effective date of the Change in Control. (b) Termination. If a Termination Upon a Change in Control occurs, then Executive shall be entitled to the benefits provided in Paragraph 4(b) hereof by reason of such Termination Upon a Change in Control. (c) Disability. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates on account of Disability, Executive shall be entitled to receive disability benefits under any disability program maintained by PII and/or the Company that covers Executive, and Executive shall not be considered to have terminated employment under this Agreement and shall not receive benefits pursuant to Paragraph 4 hereof. (d) Notice of Termination. Any purported termination of Executive's employment by PII or the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Paragraph 14 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. 4. Compensation Payable in the Event of Change in Control. (a) Employment Through Effective Date. If a Change in Control (as defined in Subparagraph 1(f)) occurs, and Executive remains employed by and provides Executive's customary service to PII and/or the Company through and including the effective date of such Change in Control, then Executive shall be entitled to receive promptly following the Change in Control, a lump-sum payment equal to Executive's Base Compensation that would be due him or her for a period of six (6) months following the effective date of the Change in Control, determined at the rate of the Executive's Base Compensation at the time of such Change in Control. (b) Termination. If a Termination Upon a Change in Control occurs, Executive shall be entitled to receive promptly following the later of Executive's termination of employment or the Change in Control, the amount of any unpaid Base Compensation earned or accrued through his or her date of termination and a lump-sum payment equal to Executive's Base Compensation that would be due him or her for a period of twelve (12) months following termination of his or her employment, determined at the rate of the Executive's Base Compensation at the time of his or her termination; less any amounts already paid or to be paid to Executive under Section 4(a), above. (c) Other Obligations of PII and Company. Nothing herein shall alter or impair, or constitute a waiver or accord and satisfaction of, any other obligations and/or liabilities of PII and/or the Company to Executive, and all compensation payable to Executive under this Agreement shall be in addition to and not in lieu of any bonuses, stock options or other payments or compensation granted by or due from PII and/or the Company to Executive. (d) No Mitigation; No Offset. In the event of any termination of Executive's employment under the Agreement, he or she shall be under no obligation to seek other employment, and there shall be no offset against amounts due him or her under the Agreement on account of any remuneration attributable to any subsequent employment that he or she may obtain. (e) Nature of Payments. Any amounts due Executive under the Agreement in the event of any termination of his or her employment with PII or the Company are in the nature of severance payments, or liquidated damages which contemplate both direct damages and consequential damages that may be suffered as a result of the termination of his or her employment, or both, and are not in the nature of a penalty. 5. Intentionally Omitted. 6. Successors, Binding Agreement. (a) Assumption. The Company and PII will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of PII or the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company and PII would be required to perform it if no such succession had taken place. Failure of the Company and/or PII to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from PII and the Company in the same amount and on the same terms as Executive would be entitled to hereunder if there occurred a Termination Upon a Change in Control with respect to the Executive, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. As used in this Agreement, "PII" shall mean PII as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) Successors and Assigns. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If Executive should die after Executive's termination of employment under circumstances entitling Executive to benefits hereunder and while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisees, legatees or other designee or, if there is no such designee, to Executive's estate. 7. Representation. The Company, PII and Executive respectively represent and warrant to each other that, subject to any approval that may be necessary from any pertinent regulatory authority, each respectively is fully authorized and empowered to enter into the Agreement and that its, her or his entering into this Agreement and the performance of its, her or his respective obligations under the Agreement will not violate any agreement between the Company, PII or Executive respectively and any other person, firm or organization or any law or governmental regulation. 8. Entire Agreement. The Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. 9. Amendment or Waiver. The Agreement cannot be changed, modified or amended without the consent in writing of all of Executive, PII and the Company. No waiver by any Party at any time of any breach by the other Party of any condition or provision of the Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same or at any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of PII or the Company, as the case may be. 10. Severability. In the event that any provision or portion of the Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of the Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 11. Survivorship. The respective rights and obligations of the Parties hereunder shall survive any termination of the Agreement to the extent necessary to the intended preservation of such rights and obligations. 12. Governing Law. The Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New Jersey without reference to principles of conflict of laws. 13. Settlement of Disputes. In the event of any dispute under the provisions of this Agreement other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in the Atlantic City, New Jersey in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. If Executive prevails on any material issue which is the subject of such arbitration or lawsuit, PII and the Company shall be responsible for all of the fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration and the Executive's reasonable legal fees and expenses. Otherwise, each party shall bear his, her or its own expenses relating to the conduct of the arbitration (including attorneys' fees and expenses) and shall share the fees of the American Arbitration Association. 14. Notices. Any notice given to either Party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to PII or the Company: Players International, Inc. 1300 Atlantic Avenue Suite 800 Atlantic City, NJ 08401 Attention: Chief Executive Officer If to Executive: Raymond A. Spera, Jr. 101 Flyatt Road Shamong, New Jersey 08088 15. Heading. The heading of the paragraphs contained in the Agreement are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 16. Counterparts. The Agreement may be executed in two or more counterparts. IN WITNESS WHEREOF, the undersigned have executed the Agreement as of the date first above. COMPANY Players Services, Inc. _________________________ By: Howard A. Goldberg Its: President PII: Players International, Inc. _________________________ By: Howard A. Goldberg Its: President EXECUTIVE: _________________________ Raymond A. Spera, Jr. EX-10 5 Exhibit 10.80 Mr. Peter J. Aranow March 23, 1999 [PLAYERS INTERNATIONAL, INC. LETTERHEAD] March 23, 1999 Mr. Peter J. Aranow Players International, Inc. Citicenter Building, Suite 800 1300 Atlantic Avenue Atlantic City, NJ 08401 Re: Employment Agreement Dear Peter: As you know, your Employment Agreement with Players International, Inc. (together with its successors in interest, the "Company") dated as of August 1, 1996, as amended by the Restated Amendment dated as of January 29, 1999 (collectively, the "Employment Agreement"), will not be extended beyond its expiration on March 23, 1999. This letter agreement supplements your Employment Agreement with respect to the payments and benefits which you are entitled to receive upon your termination of employment from the Company on March 23, and thereafter, if a Change in Control occurs with any entity referenced on Exhibit C to this letter (a "Completed Change of Control Transaction"). This letter also sets forth our agreement as to the terms and conditions on which you are being retained to provide consulting services to the Company following your termination of employment. Defined terms not otherwise defined in this letter shall have the same meaning as set forth in your Employment Agreement. A. Termination Arrangements We are confirming that, subject to your executing and not revoking the release attached as Exhibit A (the "Release") and subject to your compliance with the confidentiality and non- competition covenants of Paragraph 10 of the Employment Agreement, you will be entitled to the following payments under the Employment Agreement within three business days after the expiration of the revocation period for the Release unless otherwise indicated below: 1. Any unpaid base compensation, earned or accrued, through your date of termination. 2. A lump sum cash payment equal to your base compensation payments, at the rate in effect at the time of termination, that would have been paid for a period of six months following termination of your employment, with no reduction for present value. This amount totals $150,000. 3. A lump sum cash payment representing the balance of your annual performance bonus for the Company's fiscal year ended March 31, 1999, in an agreed amount of $20,000. 4. Reimbursement for expenses incurred but not yet reimbursed as of March 23, 1999 as provided in Paragraph 8 of your Employment Agreement. 5. The immediate vesting of all unvested Company stock options held by you, with the rights provided in Paragraph 9(c)(v) of the Employment Agreement and, if a Change in Control Transaction thereafter occurs, Paragraph 9(d) of your Employment Agreement. Notwithstanding the foregoing, you agree that upon a Change in Control (as defined in the Employment Agreement), the Company may, if required by the Change in Control agreement, require that you surrender for cancellation all of your outstanding options and stock appreciation rights in exchange for a cash payment equal to the amount (if any) by which the Change in Control Price of the stock underlying your options and stock appreciation rights exceeds the applicable option price (or base price, in the case of stock appreciation rights), and, in that event, all such options and stock appreciation rights will be canceled (without regard to whether the fair market value of the stock exceeds the option price or base price at such time). 6. Any other compensation and benefits to which you may be entitled with respect to your service before March 23, 1999 under applicable plans, programs and agreements of the Company. 7. Continuation of coverage under the employee benefit programs listed on Exhibit B through September 22, 1999 (except that, in lieu of continued coverage, the Company may elect to make a payment to you equal to the Company's cost of such coverage without regard to tax effect (a "Benefit Commutation Payment")). The COBRA health care continuation coverage period under Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"), shall commence, as applicable, on (i) September 23, 1999, (ii) such earlier date as the Company shall have made a Benefit Commutation Payment to you, or (iii) notwithstanding clause (ii) above, if a Completed Change in Control Transaction occurs, upon the expiration of the period for which continued Employee Benefits are required to be provided under Paragraph 9(d) of your Employment Agreement, or on such earlier date as the Company shall have made a Benefit Commutation Payment with respect to such Paragraph 9(d) benefits. 8. The Merger Agreement with Jackpot dated February 9, 1999 is a "Pre-October 1999 Agreement" for purposes of Paragraph 9(d) of the Restated Amendment. Thus, you will retain the right to receive the Change in Control benefits provided under Paragraph 9(d) of the Employment Agreement with respect to the Jackpot transaction if it occurs and any other Completed Change in Control Transaction if it does not. Thus, you will receive the following additional payments upon the occurrence of a Completed Change in Control Transaction: (a) A lump sum payment equal to the Present Value of the Base Compensation that would be due you for a period of 36 months following your termination of employment, determined on the basis of the average Base Compensation paid to you for 36 months preceding March 24, 1999, determined by treating the payment called for by paragraph 1 above as though it were made on March 23, 1999. This payment shall be reduced by any payments made to you under paragraph 2 above. (b) A lump sum payment equal to the Present Value of the aggregate performance bonus amounts that you received for the period of 36 months preceding March 24, 1999, determined by treating the payment called for by paragraph 3 above as through it were made on March 23, 1999. (c) The immediate vesting of all Company stock options then held by you, with the ability to exercise the options for the period set forth in Paragraphs 9(c)(v) and 9(d) of the Employment Agreement (subject to the inapplicability of the last sentence of Paragraph 5 above). (d) Continuation of coverage under the employee benefit programs described on Exhibit B during the 36-month period following the Change in Control, reduced by a period equal to the period with respect to which you receive continued coverage, or a Benefit Commutation Payment, under the first sentence of paragraph 7 above (except that, in lieu of continued coverage, the Company may elect to make a Benefit Commutation Payment to you). The COBRA health care continuation coverage period under Section 4980B of the Code shall commence upon the date determined in clause (iii) of the last sentence of paragraph 7 above. (e) The foregoing benefits will be limited as provided in Paragraph 9(d) of the Employment Agreement with respect to Section 280G of the Code. 9. All of the foregoing payments will be made subject to any required tax withholding. 10. Your rights under your Employment Agreement shall continue in effect for the period set forth in Paragraph 18 thereof. B. Consulting Arrangements The following paragraphs set forth our agreement as to the terms and conditions upon which you are being retained to provide consulting services to the Company (the "Consulting Arrangement"). The terms of your Consulting Arrangement are included in this letter as a matter of convenience and the Consulting Arrangement described below is separate and independent from your Employment Agreement and the preceding provisions of this letter which supplement your Employment Agreement. 1. Unless sooner terminated as provided in paragraph 4 below, you will provide consulting services on matters within your expertise from March 24, 1999 through the date of the Special Meeting of the Company's Stockholders to approve the Change in Control transaction with Jackpot Enterprises, Inc. (the "Stockholders Meeting"). The actual period over which consulting services are provided under the Consulting Arrangement is referred to below as the "Consulting Period". 2. Your services will be provided at the request of the Company's Chief Executive Officer. In general, your services during the Consulting Period will not exceed an average of two days per week. If at the end of the Consulting Period, you have performed consulting services for more than an average of two days per week, your compensation as provided in Paragraph 3 below will be appropriately adjusted. Except as provided in the following sentence, you may provide such services at times and places which are reasonably convenient to you so as not to interfere with any employment or self-employment which you may pursue following your termination of employment from the Company. However, provided the Company gives you reasonable advance notice, taking into account your actual obligations and prior commitments to employment and self-employment, you agree to use your best efforts to provide your services at such sites and times as are requested by the Chief Executive Officer. 3. Unless otherwise agreed in writing, you will be compensated at the rate of $5,000 per month, payable in arrears on the 30th day following your termination of employment and on the corresponding day of each succeeding month through the date of the Shareholder's Meeting, unless the Consulting Arrangement is terminated earlier as provided in Paragraph 4 below. If the Consulting Arrangement is terminated prior to a monthly payment date, the final payment will be pro-rated based on the number of days from the beginning of the most recent monthly payment period until the date of termination. All such payments will be made regardless of the number of days during any month that the Company requests that any services be provided. All such payments will be made without withholding for taxes, which shall be your sole responsibility. 4. Either you or the Company may terminate the Consulting Arrangement on 30 days prior written notice to the other, delivered in the same manner as provided under Paragraph 21 of your Employment Agreement. 5. You shall not be entitled to participate in any Company employee benefit plans as a result of payments for consulting services; provided, however, that this shall not affect your entitlement to Employee Benefits as set forth in Paragraphs 7 and 8(d) of Part A of this letter. 6. You shall be entitled to indemnification by the Company until the expiration of the Consulting Period on the same basis as set forth in Paragraph 12 of your Employment Agreement, notwithstanding that your employment will terminate on March 23, 1999. The foregoing provisions of this Paragraph 6 shall be in addition to and shall in no way limit any rights which you may have under (i) Nevada Revised Statutes, Title 7, Chapter 78.751, (ii) Article IX of the Company's Capital By-Laws, (iii) your Employment Agreement, (iv) the Agreement and Plan of Merger dated as of February 8, 1999 among the Company, Jackpot Enterprises, Inc. and JEI Merger Corp., and (v) all directors' and officers' and all other liability insurance policies maintained by the Company. 7. The Company will continue to reimburse you for all reasonable expenses which you incur prior to the termination of this Consulting Arrangement on matters relating to the Company on the same basis as was being done immediately prior to your termination of employment. Sincerely, PLAYERS INTERNATIONAL, INC. By:___________________________________ Chief Executive Officer Agreed and Accepted: _________________________ Date:_______________ Peter J. Aranow EX-10 6 Exhibit 10.81 Madamba Agreement -5- AMENDMENT THIS AMENDMENT, dated as of March 23, 1999, is between Players International, Inc. (together with its successors and assigns, the "Company") and Patrick Madamba, Jr. ("Executive"). W I T N E S S E T H: WHEREAS, the Company and Executive are parties to an Employment Agreement dated as of March 31, 1997 as amended by Amendments dated as of August 31, 1998 and November 12, 1998 (the "Employment Agreement"); and WHEREAS, the Company, Jackpot Enterprises, Inc. and JEI Merger Corp. are parties to an Agreement and Plan of Merger dated as of February 8, 1999 (the "Merger Agreement"), Section 5.11(d) of which calls for the resignation of Executive as of the effective date of the merger contemplated by the Merger Agreement (the "Merger"); WHEREAS, the Executive and the Company, with the consent of Jackpot Enterprises, Inc. and JEI Merger Corp. wish to accelerate the effective date of Executive's resignation to April 7, 1999, while preserving Executive's right to receive the compensation and benefits to which he would have been entitled had his employment continued through the effective date of the Merger; and WHEREAS, the Company and Executive now wish to amend the Employment Agreement to memorialize the arrangements that will apply to Executive's Termination of Employment from the Company. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and Executive agree to amend the Employment Agreement as follows: 1. The following new definition is added at the end of Paragraph 1: "(n) "Termination by Mutual Consent in Anticipation of a Change in Control" shall mean Executive's termination of employment from the Company in anticipation of the consummation of a merger transaction, with the consent of all parties to the operative merger agreement." 2. Paragraph 9(c) is amended in its entirety to read as follows: (a) (b) (c) Termination Without Cause; Constructive Termination without Cause; Termination by Mutual Consent in Anticipation of a Change in Control. In the event Executive's employment is terminated by the Company without Cause (which shall not include a termination pursuant to Paragraph 9(a) or 9(d)) or in the event of a Constructive Termination Without Cause, or in the event of a Termination by Mutual Consent in Anticipation of a Change in Control, Executive, upon executing and not revoking a release of the Company as to all matters arising in the course of his employment by the Company and the termination thereof, in the form attached as Exhibit A to this Amendment, shall be entitled to receive: (i) unpaid Base Compensation earned or accrued through his date of termination and an additional payment equal to the payments of Base Compensation that would have been made over the six month period immediately following termination of employment, had Executive's employment with the Company continued, at the rate in effect at the time of his termination, in a cash lump-sum, not later than three (3) days following the later of termination of Executive's employment or expiration of the Revocation Period provided for in paragraph 1(a) of the Release annexed hereto as Exhibit A; (ii) a lump sum cash payment representing the balance of your annual performance bonus for the Company's fiscal year ended March 31, 1999, in an agreed amount of $25,000, at the same time as the payment made under clause (i) above; (iii) reimbursement for expenses incurred but not yet reimbursed by the Company pursuant to Paragraph 8, promptly following submission of request for same; (iv) the immediate vesting of all stock options held by Executive, notwithstanding the terms of any such grant to the contrary, with the ability to exercise any such options for 12 months following the date of termination or, if there is a Pre-October 1999 Agreement, as hereinafter defined, for such longer or shorter period as is provided in Section 9(d) hereof, but in no event after the fifth anniversary of the date of grant; and (v) for a period of six months following termination of employment (or for any longer period provided under Paragraph 9(d) of the Employment Agreement, as herein amended, (the "Continuation Period")), continued payment or provision of all executive medical, dental and long-term disability benefits to which he would have been entitled had his employment with the Company continued (provided, however, that in the event the Company is precluded from providing coverage under any such program by applicable law or regulation, it may choose to provide Executive with a payment equal to the Company's cost of such coverage, without regard to tax effect (a "Benefit Commutation Payment")). The Company shall provide Executive with continuation coverage rights under the Federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, which shall commence, as applicable, on (i) October 6, 1999, (ii) such earlier date as the Company shall have made a Benefit Commutation Payment to Executive, or (iii) notwithstanding clause (ii) above, if a Completed Change in Control Transaction occurs, as hereinafter defined, upon the expiration of the period for which continued Employee Benefits are required to be provided under Paragraph 9(d) of Executive's Employment Agreement, or on such earlier date as the Company shall have made a Benefit Commutation Payment with respect to such Paragraph 9(d) benefits. Notwithstanding the foregoing, Executive agrees that upon a Change in Control (as defined in the Employment Agreement), the Company may, if required by the Change in Control agreement, require that Executive surrender for cancellation all of Executive's outstanding options in exchange for a cash payment equal to the amount (if any) by which the Change in Control Price of the stock underlying Executive's options exceeds the applicable option price, and, in that event, all such options will be canceled (without regard to whether the fair market value of the stock exceeds the option price at such time). 3. Paragraph 9(d) is amended by adding a new paragraph to the end to read as follows: If Executive's employment terminates by reason of a Termination by Mutual Consent in Anticipation of a Change in Control pursuant to Paragraph 9(c) and the Merger thereafter occurs, or if such Merger is not consummated and the Company has entered into a definitive merger agreement on or before September 30, 1999 to effect a Change in Control transaction with a party which received active consideration by the Board before April 7, 1999 (a "Pre-October 1999 Agreement"), a list of which parties is attached on Exhibit B to this Agreement, the consummation of any such Change in Control (a "Completed Change in Control Transaction") shall be considered a "Termination Upon a Change in Control" for purposes of this Agreement, and Executive shall be entitled to receive the payments and benefits described in this Paragraph 9(d) upon the Change in Control. The payments and benefits described in this Paragraph 9(d) shall be provided promptly following the consummation of the Change in Control and, unless otherwise agreed by the parties in writing, shall be determined by reference to the benefit that would have been paid assuming a Termination Upon a Change in Control had occurred on April 7, 1999. Any amounts previously paid to Executive upon his termination of employment under Paragraph 9(c)(i) relating to periods following his termination of employment, or under Paragraph (9)(c)(v) relating to continuation of certain benefits, shall be credited against the payments to be made under this Paragraph 9(d). For purposes of subparagraph (v) of this Paragraph 9(d) and subparagraph (iv) of Paragraph 9(c) above, all of Executive's outstanding stock options shall, notwithstanding any provision of the option agreements to the contrary, continue in effect and Executive shall, unless such options are sooner canceled in accordance with the provisions of the Merger Agreement (or any similar provision of any other merger agreement), have the ability to exercise his outstanding stock options until the date which is 12 months following the Change in Control, but in no event shall the options remain in effect after the fifth anniversary of the date of grant. 4. The Company shall extend to Executive the benefits of Section 5.9 of the Merger Agreement, provided the Merger occurs. If the Merger does not occur and a Pre-October 1999 Agreement is hereafter entered into and a merger pursuant to such agreement occurs, the Company shall extend to Executive the benefits of any provision that is included in such Pre-October 1999 Agreement that is similar to Section 5.9 of the Merger Agreement. The Company agrees that it will continue to advance promptly to Executive, following his termination of employment from the Company, all amounts reasonably incurred by Executive for attorney's fees and expenses in defending any and all civil, criminal, administrative or investigative actions, suits or proceedings, including grand jury proceedings, related to the Company's development and operation of riverboat casino complexes in Louisiana ("Proceedings"), until the final disposition of such Proceedings, in each case subject to Executive's Undertaking dated June 16, 1998 (the "Undertaking") to repay to the Company amounts so advanced in accordance with the terms thereof and Executive agrees to cooperate fully, at reasonable times and subject to reimbursement from the Company of all related expenses, with the Company and any governmental authority regarding the Proceedings until the final disposition of the Proceedings. The Company represents that the Executive has been debriefed by Company's outside counsel regarding all of his activities from January 1993 to date in connection with the Louisiana Riverboat Casino Complexes. The Company represents and warrants that, as of the date of this Amendment, (i) it has no knowledge that any wrongful acts have been committed by Executive and (ii) it has not filed, asserted or commenced any complaints, claims, actions or proceedings of any kind against Executive with any federal, state or local court, or with any administrative, regulatory or arbitration agency or body. The Company further agrees that it will not file, assert or commence any complaint, claim, action or proceeding of any kind against Executive with any federal, state or local court with or any administrative, regulatory or arbitration agency or body with respect to any matter from the beginning of the world to the date of his termination of employment, other than to enforce its rights under the provisions of the Release, the Undertaking, the Amendment or the Employment Agreement. The foregoing provisions of this Paragraph 4 shall be in addition to and shall in no way limit any rights which Executive may have under (i) Nevada Revised Statutes, Title 7, Chapter 78.751, (ii) Article IX of the Company's By-laws, (iii) the Employment Agreement, (iv) the Undertaking, (v) the Merger Agreement, and (vi) directors' and officers' and all other liability insurance policies maintained by the Company. 5. Executive shall continue to make himself reasonably available to the Company for a period of one year from Executive's termination of employment to advise on transition matters as to which Executive has knowledge; provided however that (i) Executive's services shall not exceed 15 hours per month and (ii) Executive may provide such services at reasonable times so as not to interfere with his obligations resulting from employment or self-employment activities following his termination of employment from the Company. In consideration of the performance by the Company of its obligations under this Agreement, Executive agrees to provide such services without additional compensation from the Company; provided, however, that the Company shall reimburse Executive for his reasonable out-of- pocket expenses incurred in the performances of services rendered hereunder. 6. Defined terms used in this Amendment and not otherwise defined shall have the same meanings as set forth in the Employment Agreement. 7. In all respects not amended, the Employment Agreement is hereby ratified and confirmed, including, without limitation, Paragraphs 9 through 22 thereof, inclusive. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written. PLAYERS INTERNATIONAL, INC. Howard A. Goldberg Chief Executive Officer Patrick Madamba, Jr. AGREED AND ACCEPTED: JACKPOT ENTERPRISES, INC. By: Don R. Kornstein Its: Chief Executive Officer JEI MERGER CORP. By: Don R. Kornstein Its: Chief Executive Officer Exhibit A RELEASE AGREEMENT 1. Representation by Counsel/Revocation. (a) By executing this Release, Executive acknowledges that: (i) he has been advised by the Company to consult with an attorney before executing this Agreement and has consulted and been represented by the law firm of Willkie Farr & Gallagher in connection therewith; (ii) he has been provided with at least a twenty-one (21) day period to review and consider whether to sign this Agreement and that by executing and delivering this Agreement to the Company, he is waiving any remaining portion of such twenty- one (21) day period; and (iii) he has been advised that he has seven (7) days following execution to revoke it (such seven day period being the "Revocation Period"). (b) This Agreement will not be effective or enforceable until the Revocation Period has expired. Such revocation shall only be effective if an originally executed written notice thereof is delivered to the Company on or before 5:00 p.m. on the seventh day after execution of this Release. If so revoked, this Agreement shall be deemed to be void ab initio and of no further force and effect. 2. Release. As a material inducement to the Company to enter into the Amendment to which this Release is annexed, and in consideration of its agreements and obligations under the Amendment dated as of March 23, 1999 to which this Release is attached (the "Amendment") and for other good and valuable consideration, the receipt of which is hereby acknowledged by Executive, Executive hereby irrevocably, unconditionally and generally releases, remises and forever discharges, as to all matters set forth below which are not within the "Release Exclusions" as defined in Paragraph 3 below, the Company and its subsidiaries and each of their respective affiliates, officers and directors, and the heirs, executors, administrators, receivers, successors and assigns of all of the foregoing (collectively, "Releasee"), from, and hereby waives and/or settles, any and all actions, causes of action, suits, debts, sums of money, agreements, promises, damages, or any liability, claims or demands, known or unknown and of any nature whatsoever and which Executive ever had, now has or hereafter can, shall or may have, for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of this release, to the extent not within the Release Exclusions (collectively, "Claims"), arising directly or indirectly pursuant to or out of his employment with the Company, the performance of services for the Company or any Releasee or the termination of such employment or services and, specifically, without limitation, any rights and/or Claims (a) arising under or pursuant to any contract, express or implied, written or oral, including, without limitation, the Employment Agreement; (b) for wrongful dismissal or termination of employment; (c) arising under any federal, state, local or other statutes, orders, laws, ordinances, regulations or the like that relate to the employment relationship and/or that specifically prohibit discrimination based upon age, race, religion, sex, national origin, disability, sexual orientation or any other unlawful bases, including, without limitation, the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. 621 et. seq. ("ADEA") the Civil Rights Act of 1991, as amended, the Civil Rights Acts of 1866 and 1871, as amended, the New Jersey labor and employment laws (including, without limitation, the New Jersey Law Against Discrimination), and applicable rules and regulations promulgated pursuant to or concerning any of the foregoing statutes; (d) for tort, tortious or harassing conduct, infliction of mental distress, interference with contract, fraud, libel, defamation or slander; and (e) for damages, including, without limitation, punitive or compensatory damages or for attorneys' fees, expenses, costs, wages, injunctive or equitable relief. 3. Release Exclusions. This Release shall not apply to any rights or Claims that Executive has or may have (I) to receive the benefits to which he is entitled under the Amendment, (II) arising under Paragraphs 7 through 9 and 13 through 20 of the Employment Agreement, (III) to indemnification pursuant to Nevada Revised Statutes, Title 7, Chapter 78.751 and Article IX of the Company's By-Laws, (IV) to seek coverage under directors' and officers' liability insurance policies maintained or required to be maintained by the Company and (V) to assert affirmative defenses, other defenses, rights of contribution, and other rights he may have in respect of claims asserted by any Releasee or any other person or entity against Executive (the matters referenced in this Paragraph 3 are referred to in Paragraph 2 as the "Release Exclusions"). 4. Notwithstanding Executive's termination of employment in consideration of Executive's execution of this Agreement, the Company shall pay or cause to be paid or provided to Executive, subject to applicable employment and income tax withholdings and deductions, all amounts and benefits required to be provided by the Amendment. 5. Executive agrees and acknowledges that the Company, on a timely basis, has paid, or agreed to pay, to Executive all amounts due and owing based on his prior services in accordance with the terms of the Employment Agreement and that the Company has no obligation, contractual or otherwise, to Executive, except as required to be provided by the Amendment, nor does it have any obligation to hire, rehire or re-employ Executive in the future. 6. Executive agrees and reaffirms that Paragraphs 10(c) and (d) of the Employment Agreement, as to Confidential Information, shall continue to apply notwithstanding the termination of Executive's employment, and that the Company shall be entitled to all remedies available under Paragraph 11 of the Employment Agreement in enforcing its rights hereunder as well as under Paragraphs 10(c) and (d) of the Employment Agreement. 7. Executive further agrees and reaffirms that Paragraphs 10(a), (b), (e), (f) and (g) of the Employment Agreement, as to Non-Competition, non-solicitation and other agreements shall continue to apply notwithstanding the termination of Executive's employment, and that the Company shall be entitled to all remedies available under Paragraph 11 of the Employment Agreement in enforcing its rights hereunder as well as under Paragraph 10 of the Employment Agreement. 8. Executive further agrees and covenants that, except as may be required to enforce his rights under the Release Exclusions, neither he, nor any person, organization or other entity on his behalf, will file, charge, claim, sue or cause or permit to be filed, charged, or claimed, any action, suit or legal proceeding for personal relief (including without limitation any action for damages, injunctive, declaratory, monetary or other relief) against the Company, involving any matter occurring at any time in the past up to and including the date of this Agreement, or involving any continuing effects of any actions or practices which may have arisen or occurred up to and including the date of this Agreement, including without limitation any charge of discrimination under ADEA, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 2000e et. seq., the Workers' Compensation Act or state or local laws. In addition, Executive further agrees and covenants that should he, or any other person, organization or entity on his behalf, file, charge, claim, sue or cause or permit to be filed, charged, or claimed, any action for damages, including injunctive, declaratory, monetary or other relief, despite his agreement not to do so hereunder, or should he otherwise fail to abide by any of the terms of this Agreement, the Employment Agreement or the Amendment, then the Company will be relieved of all further obligations owed hereunder, he will forfeit all monies paid to him hereunder and he will pay all of the costs and expenses of the Company (including without limitation reasonable attorneys' fees) incurred in the defense of any such action or undertaking. 9. Executive hereby agrees and acknowledges that, under this Agreement and the Amendment, the Company has agreed to provide him with compensation and benefits that are in addition to any amounts to which he otherwise would have been entitled under the Employment Agreement or otherwise in the absence of this Agreement, and that such additional compensation is sufficient to support the covenants and agreements by Executive herein. 10. Executive further agrees and acknowledges that the undertakings of the Company as provided in this Agreement are made to provide an amicable conclusion of Executive's employment by the Company and, further, that Executive will not require the Company to publicize anything to the contrary. Executive and the Company, its officers, employees and directors, covenant and agree that they will not disparage the name, business reputation or business practices of the other. 11. Executive hereby certifies that he has read the terms of this Agreement, that he has been advised by the Company to consult with an attorney and that the understands its terms and effects. Executive acknowledges, further, that he is executing this Agreement of his own volition, without any threat, duress or coercion and with a full understanding of its terms and effects and with the intention, as expressed in Section 2 hereof, of releasing all claims recited herein in exchange for the consideration described herein, which he acknowledges is adequate and satisfactory to him. The Company has made no representations to Executive concerning the terms or effects of this Agreement other than those contained in this Agreement. 12. Executive and the Company agree that if any part of this Agreement is determined to be invalid, illegal or otherwise unenforceable, the remaining provisions of this Agreement shall not be affected and will remain in full force and effect. 13. This Agreement shall be interpreted and enforced under the laws of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ATTEST: PLAYERS INTERNATIONAL, INC. BY: Secretary Witness Patrick Madamba, Jr. Exhibit B To pursue any and all rights or Claims, the following is a list of companies with respect to which a change in control transaction has received active consideration by the Board as of April 6, 1999: Apollo/Michael Ashner Aztar Boyd Gaming Corp. Colony Capital/Harvey's Harrah's Entertainment Hollywood Park Horseshoe Gaming, Inc./Binion Insignia Financial/Andrew Farkas Jackpot Enterprises, Inc. Jacobs Entertainment/Black Hawk Gaming Ladbroke Group/Colorado Gaming Thomas H. Lee Company MacAndrew & Forbes/Ronald Perelman North Star Capital Partners/Ed Sheetz & David Hamamoto Penn-National Gaming Sun International Note: For the purposes of this Amendment, a transaction with an affiliate of any of the above listed companies or entities will be treated in the same manner as a transaction with the Company itself. Exhibit C To pursue any and all rights or Claims, he following is a list of companies with respect to which a change in control transaction has received active consideration by the Board as of March 23, 1999: Apollo/Michael Ashner Aztar Boyd Gaming Corp. Colony Capital/Harvey's Harrah's Entertainment Hollywood Park Horseshoe Gaming, Inc./Binion Insignia Financial/Andrew Farkas Jackpot Enterprises, Inc. Jacobs Entertainment/Black Hawk Gaming Ladbroke Group/Colorado Gaming Thomas H. Lee Company MacAndrew & Forbes/Ronald Perelman North Star Capital Partners/Ed Sheetz & David Hamamoto Penn-National Sun International Note: For the purposes of this Letter, a transaction with an affiliate of any of the above listed companies or entities will be treated in the same manner as a transaction with the Company itself. EX-10 7 Exhibit 10.78 9 PURCHASE AGREEMENT This Purchase Agreement is made as of March 1, 1999, by and between: THE BEEBER CORPORATION, a Louisiana corporation (the "Corporation"), herein represented by William D. Woodward, its duly authorized president, whose mailing address is 718 Ryan Street, Lake Charles, Louisiana 70601; WILLIAM D. WOODWARD ("WW") and TIMOTHY J. VAUGHAN ("TV"), both persons of the age of majority and domiciled in Calcasieu Parish, Louisiana, whose mailing address is 718 Ryan Street, lake Charles, Louisiana 70601 (herein collectively referred to as the "Individuals"; while the Corporation and the Individuals are collectively referred to as "Beeber"); and PLAYERS LAKE CHARLES, LLC (successor in interest to Players Lake Charles, Inc.), a Louisiana limited liability company ("Players"), herein represented by Players Lake Charles Riverboat, Inc., its duly authorized managing member, which appears herein by and through Howard A. Goldberg, its duly authorized president, whose mailing address is 2333 Broad Street, Lake Charles, Louisiana 70601. BACKGROUND A. The Corporation is the holder of a Payment Interest under the terms of that certain Settlement Agreement dated as of the 27th day of July, 1995 (the "Settlement Agreement"), by and among Players Lake Charles, Inc. (predecessor in interest to Players), Beeber and certain other parties, pursuant to which Settlement Agreement, Players agreed, among other things, to pay to the Corporation the sum of $1.425 per Gaming Patron included in the Coast Guard Count in any Rental Year (the "Payment Interest"; each italicized term is used as defined in the Settlement Agreement). As referenced in the Settlement Agreement, the Payment Interest represents additional consideration for the transactions contemplated by that certain Asset Purchase Agreement dated August 16, 1995 by and between the Corporation and Players Lake Charles, Inc. B. On or after July 28, 1995, with the consent of Players, the Corporation assigned a portion of the Payment Interest, consisting of $0.25 per Gaming Patron included in the Coast Guard Count in any Rental Year, to Karl E. Boellert ("Boellert"). Said assignment reduced the Corporation's Payment Interest to $1.175 per Gaming Patron included in the Coast Guard Count in any Rental Year (the "Remaining Payment Interest"). Each month, Beeber receives payment from Players (the "Monthly Payments") in an amount determined by multiplying the Remaining Payment Interest by the number of Gaming Patrons included in the Coast Guard Count during the immediately preceding month. C. On or about February 8, 1999, Players' parent corporation, Players International, Inc. ("PII"), entered into a merger agreement with Jackpot Enterprises, Inc. ("Jackpot") pursuant to which, among other things, a subsidiary of Jackpot is to merge with and into PII (the "Merger Transactions"). D. Players has offered to purchase from Beeber and Beeber has agreed to sell and convey to Players the Remaining Payment Interest (including any and all interest of the Individuals in such Remaining Payment Interest by virtue of the Individuals' ownership of the stock of the Corporation), all subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Incorporation of Background. The Background provisions above are incorporated herein by this reference as if set forth at length. Players and Beeber hereby acknowledge the truth and accuracy of the Background provisions. 2. Purchase and Sale of Remaining Payment Interest. On the third business day of the month next following the receipt of Regulatory Approval (as hereinafter defined) (the "Closing Date"), Players shall purchase from Beeber, and Beeber shall sell to Players the Remaining Payment Interest. If the Closing Date does not occur on or before January 5, 2000, this Agreement and the rights and obligations of the parties hereunder shall terminate; provided, however, that if any of the parties shall have acted in bad faith in seeking Regulatory Approval, then this Agreement shall be deemed breached by any such party and the other parties hereto shall have such rights and remedies as may be available at law. 3. Purchase Price. (a) Subject to the receipt of Regulatory Approval, as of the date of this Agreement, and in consideration of the purchase of the Remaining Payment Interest, Players shall pay to the Corporation, or such of the Individuals as the Corporation may direct, the sum of Thirteen Million Five Hundred Thousand and No/100 Dollars ($13,500,000.00) (the "Purchase Price"), subject to adjustment in accordance with the terms of subparagraph 3(b). (b) From and after the date of this Agreement, (i) the Purchase Price shall accrue interest at the rate of seven percent (7%) per annum, and (ii) each Monthly Payment (from and after that accrued during February of 1999) shall be applied to the Purchase Price; first to the payment of accrued interest, and second to the reduction of the Purchase Price. On the Closing Date, the resultant balance of the Purchase Price (the "Adjusted Purchase Price") plus accrued but unpaid interest shall be paid by Players in immediately available funds. In the event that Closing occurs on the Closing Date, Players shall have no obligation to make any Monthly Payment or any pro rated portion thereof to Beeber for any portion of the month in which Closing occurs. 4. Release and Non-Compete Agreement. In consideration of the receipt of the Adjusted Purchase Price, Beeber shall execute and deliver to Players a Release and Non-Compete Agreement in substantially the form attached hereto as Exhibit "A" (the "Release and Non-Compete Agreement"). 5. Conditions Precedent. (a) Players' obligation to purchase the Remaining Payment Interest shall be contingent upon the earlier to occur of: (i) Players' receipt of approval of the transactions contemplated by this Agreement from the Louisiana Gaming Control Board or any other Louisiana gaming regulatory authorities having jurisdiction over the operations of Players (the "Louisiana Regulators"); and (ii) the failure of the Louisiana Regulators to respond within sixty (60) days after Players' submission to the Louisiana Regulators of a request for a determination of whether the transactions contemplated by this Agreement require the approval of the Louisiana Regulators; and (iii) Players' receipt of a written determination from the Louisiana Regulators to the effect that approval of the transactions contemplated by this Agreement is not required (the happening of any event described in subparagraph (i), (ii) or (iii) shall be referred to as "Regulatory Approval"). (b) Players shall diligently pursue Regulatory Approval in conjunction with its efforts to obtain approval of the Merger Transactions. However, if the Merger Transactions (and consequently, the transactions contemplated by this Agreement) have not been approved by the Louisiana Regulators on or before September 30, 1999, then Players, with the assistance and cooperation of the Corporation and the Individuals, as needed, shall make independent application for Regulatory Approval. Players shall diligently pursue all such approvals. 6. Time of Closing; Closing Deliveries. Closing of the purchase and sale of the Remaining Payment Interest ("Closing") shall take place on the Closing Date at a time and a place mutually convenient to the parties. At Closing, Players shall deliver to the Corporation, or such of the Individuals as the Corporation may direct, the Adjusted Purchase Price plus any accrued but unpaid interest, and Beeber shall deliver to Players the Release and Non-Compete Agreement. 7. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. 8. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Purchase Agreement before the undersigned, competent witnesses, and the notaries shown below, as of the date first above written. WITNESSES: THE BEEBER CORPORATION By:___________________________ William D. Woodward, President ____________________________ ____________________________ Notary Public WITNESSES: ____________________________ _____________________________ William D. Woodward ____________________________ ___________________________ Notary Public [SIGNATURES CONTINUE ON NEXT PAGE] WITNESSES: ____________________________ __________________________________ Timothy J. Vaughan ____________________________ ____________________________ Notary Public ATTEST: PLAYERS LAKE CHARLES, LLC By:Players Lake Charles Riverboat, Inc., Managing Member ____________________________ By:__________________________ Howard A. Goldberg, President ____________________________ ____________________________ Notary Public EXHIBIT "A" RELEASE AND NON-COMPETE AGREEMENT This Release and Non-compete Agreement is made on the _____ day of __________, _____, by and between THE BEEBER CORPORATION, a Louisiana corporation (the "Corporation"), William D. Woodward ("WW") and Timothy Vaughan ("TV"; WW and TV are collectively referred to as the "Individuals"; the Corporation and the Individuals are collectively referred to as "Beeber") and PLAYERS LAKE CHARLES, LLC (successor in interest to Players Lake Charles, Inc.), a Louisiana limited liability company ("Players"). BACKGROUND A. Pursuant to the terms of that certain Purchase Agreement dated as of the first (1st) day of March, 1999, by and between Players and Beeber (the "Purchase Agreement"), Players offered to purchase from Beeber and Beeber agreed to sell and convey to Players, Beeber's "Remaining Payment Interest" (as that term is defined in the Purchase Agreement) arising under that certain Settlement Agreement dated as of the 27th day of July, 1995, by and among Players Lake Charles, Inc. (predecessor in interest to Players), Beeber and certain other parties (the "Settlement Agreement"), all subject to the terms and conditions of the Purchase Agreement. As referenced in the Settlement Agreement, the Remaining Payment Interest represents additional consideration for the transactions contemplated by that certain Asset Purchase Agreement dated August 16, 1995 by and between the Corporation and Players Lake Charles, Inc. B. Beeber is entering into this Agreement with Players in consideration of its receipt of the consideration stated in the Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Incorporation of Background. The Background provisions above are incorporated herein by this reference as if set forth at length. Players and Beeber hereby acknowledge the truth and accuracy of the Background provisions. 2. Acknowledgment of Receipt of Funds. Beeber acknowledges that on even date herewith, Beeber received from Players the sum of _______________________________________________ ($______________________) (the "Purchase Price"), such sum paid to Beeber by Players in full and complete satisfaction of Players' obligations under the Purchase Agreement. 3. Release. (a) In full and complete settlement of (i) any and all obligations of Players to Beeber (and any party claiming under Beeber) arising under or out of the Settlement Agreement and (ii) any claims that Beeber may have against Players, and for and in consideration of the undertakings of Players described herein and in the Purchase Agreement, including the payment of the Purchase Price, Beeber does hereby REMISE, RELEASE AND FOREVER DISCHARGE Players, its affiliates and assigns, directors, shareholders, partners, employees and agents, and their respective successors and assigns, heirs, executors and administrators (hereinafter all included within the term "Players Parties"), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever at law or in equity, which it ever had, now has, or hereafter may have, or which its heirs, executors, administrators, successors or permitted assigns hereafter may have, by reason of any action, matter, cause or thing whatsoever from the beginning of time to the date of execution hereof; and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to the Settlement Agreement and the Purchase Agreement, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, and any common law claims now or hereafter recognized and all claims for counsel fees and costs, and any claims relating in any way to the Settlement Agreement or the Purchase Agreement. Notwithstanding the foregoing, nothing contained in this Paragraph 3(a) shall be deemed to limit the enforceability of any provision of this Agreement. (b) In full and complete settlement of (i) any and all obligations of Beeber to Players (and any party claiming under Players) arising under or out of the Settlement Agreement and (ii) any claims that Players may have against Beeber, and for and in consideration of the undertakings of Beeber described herein and in the Purchase Agreement, Players does hereby REMISE, RELEASE AND FOREVER DISCHARGE Beeber, its affiliates and assigns, directors, shareholders, partners, employees and agents, and their respective successors and assigns, heirs, executors and administrators (hereinafter all included within the term "Beeber Parties"), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever at law or in equity, which it ever had, now has, or hereafter may have, or which its heirs, executors, administrators, successors or permitted assigns hereafter may have, by reason of any action, matter, cause or thing whatsoever from the beginning of time to the date of execution hereof; and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to the Settlement Agreement and the Purchase Agreement, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, and any common law claims now or hereafter recognized and all claims for counsel fees and costs, and any claims relating in any way to the Settlement Agreement or the Purchase Agreement. Notwithstanding the foregoing, nothing contained in this Paragraph 3(b) shall be deemed to limit the enforceability of any provision of this Agreement. 4. Covenant Not to Sue. Beeber and Players further agree and covenant that, except as may be necessary to enforce their respective rights hereunder, neither will, directly or indirectly, file, charge, claim, sue or cause or permit to be filed, charged or claimed, any action for damages, including injunctive, declaratory, monetary or other relief against the other, involving any matter occurring at any time in the past up to the date hereof in connection with Beeber or Players, as the case may be, or involving any continuing effects of any actions or practices which may have arisen or occurred prior to the date hereof. Beeber and Players further agree and covenant that should either of them, directly or indirectly, file, charge, claim, sue or cause or permit to be filed, charged or claimed, any action for damages, including injunctive, declaratory, monetary or other relief, in each case as prohibited by the preceding sentence, despite such party's agreement not to do so hereunder, then such breaching party will repay to the other all amounts (or the value of benefits) paid hereunder, and pay all of the costs and expenses of the nonbreaching party (including reasonable attorneys' fees) incurred in the defense of any such action or undertaking. 5. Covenant Not to Compete. Beeber hereby agrees that for a term of two (2) years, it shall not, directly or indirectly (individually or for, with or through any other person, firm, joint venture, corporation or other entity), carry on or engage in any casino gaming business within Calcasieu Parish, or solicit customers of Players within Calcasieu Parish; provided, however, that subject to the terms of this Paragraph 5, nothing contained herein shall limit the ability of Beeber to distribute, own or operate, or to provide services to any manufacturer, distributor, or operator of, "Video Draw Poker Devices" as that term is defined in La.R.S. 33:4862.1(B)(15) ("VDPDs"). The phrase "carry on or engage in any casino gaming business within Calcasieu Parish" shall mean being or acting, in any capacity (whether legal or beneficial), as an owner, landlord of, broker of or for, operator, employee, agent, consultant, lobbyist, spokesperson or representative of the interests of any person, firm, joint venture, corporation or other entity engaged in, or preparing to engage in, gaming operations or other casino gaming enterprises within the geographical boundaries of Calcasieu Parish (any such person, firm, joint venture, corporation or other entity being referred to as a "Calcasieu Gaming Operator"). Notwithstanding the provisions of the first sentence of this Paragraph 5, and as a limited specific exception thereto, any party may (i) own or operate VDPDs, so long as the subject VDPDs are not owned or operated, directly or indirectly, with, for or on behalf of any Calcasieu Gaming Operator, and (ii) distribute VDPDs, or provide services to any person or entity who manufactures, distributes, or operates VDPDs, so long as such distributee or recipient of such services is not, now or in the future, a Calcasieu Parish Operator. If, after the execution of this Agreement, any party hereto is engaged in the distribution of VDPDs or the provision of services to any person or entity who manufactures, distributes, or operates VDPDs, and such distributee or recipient of services becomes a Calcasieu Parish Operator, such party(ies) shall immediately cease its(their) association with such Calcasieu Parish Operator to the extent of such Calcasieu Parish Operator's activities in Calcasieu Parish. 6. Indemnification. (a) Beeber agrees to indemnify, hold harmless and defend Players, and the Players Parties, from and against any losses, liabilities, damages, charges, expenses, costs (including, without limitation, attorneys' fees, court costs and other legal costs and expenses), penalties, fines, injunctions, suits, claims, judgments, or demands suffered by or made against or imposed at any time upon any of the Players Parties, directly or indirectly, arising as a result of or in connection with its breach of any term of this Agreement, including its violation of any of the terms and conditions of Paragraphs 4 or 5 of this Agreement. If Players shall incur any fees, costs, expenses, or charges (including, without limitation, attorneys' fees, court costs and other legal costs or expenses) in order to enforce the terms of this Agreement, Beeber agrees to pay directly, or at Players' option to reimburse Players for, such fees, costs, and expenses no later than thirty (30) days after receiving written notice of said fees, costs, expenses, or charges. (b) Players agrees to indemnify, hold harmless and defend Beeber, and the Beeber Parties, from and against any losses, liabilities, damages, charges, expenses, costs (including, without limitation, attorneys' fees, court costs and other legal costs and expenses), penalties, fines, injunctions, suits, claims, judgments, or demands suffered by or made against or imposed at any time upon any of the Beeber Parties, directly or indirectly, arising as a result of or in connection with its breach of any term of this Agreement, including its violation of any of the terms and conditions of Paragraph 4 of this Agreement. If Beeber shall incur any fees, costs, expenses, or charges (including, without limitation, attorneys' fees, court costs and other legal costs or expenses) in order to enforce the terms of this Agreement, Players agrees to pay directly, or at Beeber's option to reimburse Beeber for, such fees, costs, and expenses no later than thirty (30) days after receiving written notice of said fees, costs, expenses, or charges. 7. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. 8. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Release and Non-Compete Agreement as of the date first above written. WITNESSES: THE BEEBER CORPORATION ____________________________ By:_______________________________ William D. Woodward, President ____________________________ ____________________________ Notary Public WITNESSES: ____________________________ __________________________________ William D. Woodward ____________________________ ____________________________ Notary Public WITNESSES: ____________________________ __________________________________ Timothy Vaughan ____________________________ ____________________________ Notary Public [SIGNATURES CONTINUE ON NEXT PAGE] ATTEST: PLAYERS LAKE CHARLES, LLC By:Players Lake Charles Riverboat, Inc., Managing Member ____________________________ By:_______________________________ Howard A. Goldberg, President ____________________________ ____________________________ Notary Public EX-10 8 Exhibit 10.79 10 PURCHASE AGREEMENT This Purchase Agreement is made as of March 1, 1999, by and between: KARL E. BOELLERT, a person of the age of majority and domiciled in Calcasieu Parish, Louisiana, whose mailing address is P.O. Box 4385, Lake Charles, Louisiana 70606-4385 (the "Individual"); and PLAYERS LAKE CHARLES, LLC (successor in interest to Players Lake Charles, Inc.), a Louisiana limited liability company ("Players"), herein represented by Players Lake Charles Riverboat, Inc., its duly authorized managing member, which appears herein by and through Howard A. Goldberg, its duly authorized president, whose mailing address is 2333 Broad Street, Lake Charles, Louisiana 70601. BACKGROUND A. The Individual is the holder of a Payment Interest under the terms of that certain Settlement Agreement dated as of the 27th day of July, 1995 (the "Settlement Agreement"), by and among Players Lake Charles, Inc. (predecessor in interest to Players), The Beeber Corporation ("Beeber") and certain other parties, pursuant to which Settlement Agreement, Players agreed, among other things, to pay to Beeber the sum of $1.425 per Gaming Patron included in the Coast Guard Count in any Rental Year (the "Payment Interest"; each capitalized term is used as defined in the Settlement Agreement). B. On or after July 28, 1995, with the consent of Players, Beeber assigned a portion of the Payment Interest, consisting of $0.25 per Gaming Patron included in the Coast Guard Count in any Rental Year (the "Boellert Payment Interest"), to the Individual. Each month, the Individual receives payment from Players (the "Monthly Payments") in an amount determined by multiplying the Boellert Payment Interest by the number of Gaming Patrons included in the Coast Guard Count during the immediately preceding month. C. On or about February 8, 1999, Players' parent corporation, Players International, Inc. ("PII"), entered into a merger agreement with Jackpot Enterprises, Inc. ("Jackpot") pursuant to which, among other things, a subsidiary of Jackpot is to merge with and into PII (the "Merger Transactions"). D. Players has offered to purchase from Boellert and Boellert has agreed to sell and convey to Players the Boellert Payment Interest, all subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Incorporation of Background. The Background provisions above are incorporated herein by this reference as if set forth at length. Players and the Individual hereby acknowledge the truth and accuracy of the Background provisions. 2. Purchase and Sale of Boellert Payment Interest. On the third business day of the month next following the receipt of Regulatory Approval (as hereinafter defined) (the "Closing Date"), Players shall purchase from the Individual, and the Individual shall sell to Players the Boellert Payment Interest. If the Closing Date does not occur on or before January 5, 2000, this Agreement and the rights and obligations of the parties hereunder shall terminate; provided, however, that if any of the parties shall have acted in bad faith in seeking Regulatory Approval, then this Agreement shall be deemed breached by any such party and the other party hereto shall have such rights and remedies as may be available at law. 3. Purchase Price. In consideration of the purchase of the Boellert Payment Interest, on the Closing Date, Players shall (i) pay to the Individual the sum of One Hundred Thousand and No/100 Dollars ($100,000.00) in immediately available funds (the "Cash Obligation"), and (ii) purchase a fixed annuity contract for the benefit of the Individual (the "Annuity"), which Annuity shall provide for monthly payments in the amounts and at the times provided below: (a) monthly payments in the gross amount of Twenty Five Thousand and No/100 Dollars ($25,000.00) each, for a period of one hundred twenty (120) consecutive months commencing on the first day of the month immediately following the Closing Date (the "First Tier Payments"); (b) monthly payments in the gross amount of Fifteen Thousand and No/100 Dollars ($15,000.00) each, for a period of one hundred twenty (120) consecutive months commencing on the first day of the month immediately following the date of the last First Tier Payment (the "Second Tier Payments"); provided, however, that the Second Tier Payments shall be reduced in accordance with the following calculation: (1) For the purposes of this provision, the principal balance of Players' obligations to the Individual as of the date of this Agreement shall be deemed to be Three Million Two Hundred Sixty Thousand and No/100 Dollars ($3,260,000.00) (the "Principal Balance"). Interest shall accrue on the unpaid portion of the Principal Balance from and after the date of this Agreement at the rate of five and sixty one-hundredths percent (5.60%) per annum (the "Applicable Rate"). (2) Each Monthly Payment accrued from and after the date of this Agreement shall be applied first to pay interest accrued on the Principal Balance, and then to reduce the Principal Balance (such reduced Principal Balance referred to as the "Adjusted Principal Balance"). Provided that Closing occurs on the Closing Date, Players shall have no obligation to make any Monthly Payment or any pro rated portion thereof to the Individual for any portion of the month in which Closing occurs. (3) On the Closing Date, the Adjusted Principal Balance shall be subtracted from the Principal Balance, and the resultant sum shall be referred to as the "Amortized Principal". (4) The present value of the Second Tier Payments shall be determined using a discount rate equal to the Applicable Rate. (5) Second Tier Payments shall be eliminated until the present value of all Second Tier Payments so eliminated is equal to the Amortized Principal. As a condition to the Individual's obligation to sell the Boellert Payment Interest hereunder, Players must provide to the Individual the opinion of a tax advisor reasonably satisfactory to the Individual to the effect that, notwithstanding the purchase of the Annuity, the Individual shall not be deemed to have realized, as income, the principal amount of the Annuity. The terms of the Annuity shall be acceptable to the Individual in his reasonable discretion; provided, however, that there shall be no increase in the cost of the Annuity to Players as a result of any such terms. 4. Release and Non-Compete Agreement. In consideration of the receipt of the Cash Obligation and the purchase of the Annuity, the Individual shall execute and deliver to Players a Release and Non-Compete Agreement in substantially the form attached hereto as Exhibit "A" (the "Release and Non-Compete Agreement"). 5. Conditions Precedent. (a) Players' obligation to purchase the Boellert Payment Interest shall be contingent upon the earlier to occur of: (i) Players' receipt of approval of the transactions contemplated by this Agreement from the Louisiana Gaming Control Board or any other Louisiana gaming regulatory authorities having jurisdiction over the operations of Players (the "Louisiana Regulators"); and (ii) the failure of the Louisiana Regulators to respond within sixty (60) days after Players' submission to the Louisiana Regulators of a request for a determination of whether the transactions contemplated by this Agreement require the approval of the Louisiana Regulators; and (iii) Players' receipt of a written determination from the Louisiana Regulators to the effect that approval of the transactions contemplated by this Agreement is not required (the happening of any event described in subparagraph (i), (ii) or (iii) shall be referred to as "Regulatory Approval"). (b) Players shall diligently pursue Regulatory Approval in conjunction with its efforts to obtain approval of the Merger Transactions. However, if the Merger Transactions (and consequently, the transactions contemplated by this Agreement) have not been approved by the Louisiana Regulators on or before September 30, 1999, then Players, with the assistance and cooperation of the Individual, as needed, shall make independent application for Regulatory Approval. Players shall diligently pursue all such approvals. 6. Obligation to Renegotiate. If, at 5:00 p.m. EST on the first day of the month in which the Closing Date is to occur, there is a difference of greater than 100 basis points between the rate on the 30-year United States Treasury Bond then in effect and the Applicable Rate, then at the option of either party, this Agreement and the rights and obligations of the parties hereunder shall terminate; provided, however, that for a period of thirty (30) days thereafter, the parties shall have an obligation to negotiate in good faith toward an agreement that would provide the parties with the relative benefits and obligations described herein, while minimizing the economic impact of the change in interest rates. 7. Time of Closing; Closing Deliveries. Closing of the purchase and sale of the Boellert Payment Interest ("Closing") shall take place on the Closing Date at a time and a place mutually convenient to the parties. At Closing, Players shall deliver to the Individual the Cash Obligation, evidence of the purchase of the Annuity and the opinion of a tax adviser as referenced in paragraph 3, above, and the Individual shall deliver to Players the Release and Non-Compete Agreement. 8. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. 9. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Purchase Agreement before the undersigned, competent witnesses, and the notaries shown below, as of the date first above written. WITNESSES: ____________________________ __________________________________ Karl E. Boellert ____________________________ ___________________________ Notary Public ATTEST: PLAYERS LAKE CHARLES, LLC By:Players Lake Charles Riverboat, Inc., Managing Member ____________________________ By:__________________________ Howard A. Goldberg, President ____________________________ ____________________________ Notary Public EXHIBIT "A" RELEASE AND NON-COMPETE AGREEMENT This Release and Non-compete Agreement is made on the _____ day of __________, _____, by and between KARL E. BOELLERT, an individual (the "Individual") and PLAYERS LAKE CHARLES, LLC (successor in interest to Players Lake Charles, Inc.), a Louisiana limited liability company ("Players"). BACKGROUND A. Pursuant to the terms of that certain Purchase Agreement dated as of the first (1st) day of March, 1999, by and between Players and the Individual (the "Purchase Agreement"), Players offered to purchase from the Individual and the Individual agreed to sell and convey to Players, the "Boellert Payment Interest" (as that term is defined in the Purchase Agreement) arising under that certain Settlement Agreement dated as of the 27th day of July, 1995, by and among Players Lake Charles, Inc. (predecessor in interest to Players) and certain other parties (the "Settlement Agreement"), all subject to the terms and conditions of the Purchase Agreement. B. The Individual is entering into this Agreement with Players in consideration of its receipt of the consideration stated in the Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing, the mutual promises contained herein, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Incorporation of Background. The Background provisions above are incorporated herein by this reference as if set forth at length. Players and the Individual hereby acknowledge the truth and accuracy of the Background provisions. 2. Acknowledgment of Receipt of Funds. The Individual acknowledges that on even date herewith, the Individual received from Players (i) the Cash Obligation (as that term is defined in the Purchase Agreement) and (ii) evidence of Players' purchase of the Annuity (as that term is defined in the Purchase Agreement), in full and complete satisfaction of Players' obligations under the Purchase Agreement. 3. Release. (a) In full and complete settlement of (i) any and all obligations of Players to the Individual (and any party claiming under the Individual) arising under or out of the Settlement Agreement and (ii) any claims that the Individual may have against Players, and for and in consideration of the undertakings of Players described herein and in the Purchase Agreement, including the payment of the Cash Obligation and the purchase of the Annuity, the Individual does hereby REMISE, RELEASE AND FOREVER DISCHARGE Players, its affiliates and assigns, directors, shareholders, partners, employees and agents, and their respective successors and assigns, heirs, executors and administrators (hereinafter all included within the term "Players Parties"), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever at law or in equity, which it ever had, now has, or hereafter may have, or which its heirs, executors, administrators, successors or permitted assigns hereafter may have, by reason of any action, matter, cause or thing whatsoever from the beginning of time to the date of execution hereof; and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to the Settlement Agreement and the Purchase Agreement, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, and any common law claims now or hereafter recognized and all claims for counsel fees and costs, and any claims relating in any way to the Settlement Agreement or the Purchase Agreement. Notwithstanding the foregoing, nothing contained in this Paragraph 3(a) shall be deemed to limit the enforceability of any provision of this Agreement. (b) In full and complete settlement of (i) any and all obligations of the Individual to Players (and any party claiming under Players) arising under or out of the Settlement Agreement and (ii) any claims that Players may have against the Individual, and for and in consideration of the undertakings of the Individual described herein and in the Purchase Agreement, Players does hereby REMISE, RELEASE AND FOREVER DISCHARGE the Individual, its heirs, executors and administrators (hereinafter all included within the term "the Individual Parties"), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever at law or in equity, which it ever had, now has, or hereafter may have, or which its heirs, executors, administrators, successors or permitted assigns hereafter may have, by reason of any action, matter, cause or thing whatsoever from the beginning of time to the date of execution hereof; and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to the Settlement Agreement and the Purchase Agreement, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, and any common law claims now or hereafter recognized and all claims for counsel fees and costs, and any claims relating in any way to the Settlement Agreement or the Purchase Agreement. Notwithstanding the foregoing, nothing contained in this Paragraph 3(b) shall be deemed to limit the enforceability of any provision of this Agreement. 4. Covenant Not to Sue. The Individual and Players further agree and covenant that, except as may be necessary to enforce their respective rights hereunder, neither will, directly or indirectly, file, charge, claim, sue or cause or permit to be filed, charged or claimed, any action for damages, including injunctive, declaratory, monetary or other relief against the other, involving any matter occurring at any time in the past up to the date hereof in connection with the Individual or Players, as the case may be, or involving any continuing effects of any actions or practices which may have arisen or occurred prior to the date hereof. The Individual and Players further agree and covenant that should either of them, directly or indirectly, file, charge, claim, sue or cause or permit to be filed, charged or claimed, any action for damages, including injunctive, declaratory, monetary or other relief, in each case as prohibited by the preceding sentence, despite such party's agreement not to do so hereunder, then such breaching party will repay to the other all amounts (or the value of benefits) paid hereunder, and pay all of the costs and expenses of the nonbreaching party (including reasonable attorneys' fees) incurred in the defense of any such action or undertaking. 5. Covenant Not to Compete. The Individual hereby agrees that for a term of two (2) years, it shall not, directly or indirectly (individually or for, with or through any other person, firm, joint venture, corporation or other entity), carry on or engage in any casino gaming business within Calcasieu Parish, or solicit customers of Players within Calcasieu Parish; provided, however, that subject to the terms of this Paragraph 5, nothing contained herein shall limit the ability of the Individual to distribute, own or operate, or to provide services to any manufacturer, distributor, or operator of, "Video Draw Poker Devices" as that term is defined in La.R.S. 33:4862.1(B)(15) ("VDPDs"). The phrase "carry on or engage in any casino gaming business within Calcasieu Parish" shall mean being or acting, in any capacity (whether legal or beneficial), as an owner, landlord of, broker of or for, operator, employee, agent, consultant, lobbyist, spokesperson or representative of the interests of any person, firm, joint venture, corporation or other entity engaged in, or preparing to engage in, gaming operations or other casino gaming enterprises within the geographical boundaries of Calcasieu Parish (any such person, firm, joint venture, corporation or other entity being referred to as a "Calcasieu Gaming Operator"). Notwithstanding the provisions of the first sentence of this Paragraph 5, and as a limited specific exception thereto, any party may (i) own or operate VDPDs, so long as the subject VDPDs are not owned or operated, directly or indirectly, with, for or on behalf of any Calcasieu Gaming Operator, and (ii) distribute VDPDs, or provide services to any person or entity who manufactures, distributes, or operates VDPDs, so long as such distributee or recipient of such services is not, now or in the future, a Calcasieu Parish Operator. If, after the execution of this Agreement, any party hereto is engaged in the distribution of VDPDs or the provision of services to any person or entity who manufactures, distributes, or operates VDPDs, and such distributee or recipient of services becomes a Calcasieu Parish Operator, such party(ies) shall immediately cease its(their) association with such Calcasieu Parish Operator to the extent of such Calcasieu Parish Operator's activities in Calcasieu Parish. 6. Indemnification. (a) The Individual agrees to indemnify, hold harmless and defend Players, and the Players Parties, from and against any losses, liabilities, damages, charges, expenses, costs (including, without limitation, attorneys' fees, court costs and other legal costs and expenses), penalties, fines, injunctions, suits, claims, judgments, or demands suffered by or made against or imposed at any time upon any of the Players Parties, directly or indirectly, arising as a result of or in connection with its breach of any term of this Agreement, including its violation of any of the terms and conditions of Paragraphs 4 or 5 of this Agreement. If Players shall incur any fees, costs, expenses, or charges (including, without limitation, attorneys' fees, court costs and other legal costs or expenses) in order to enforce the terms of this Agreement, the Individual agrees to pay directly, or at Players' option to reimburse Players for, such fees, costs, and expenses no later than thirty (30) days after receiving written notice of said fees, costs, expenses, or charges. (b) Players agrees to indemnify, hold harmless and defend the Individual, and the Individual Parties, from and against any losses, liabilities, damages, charges, expenses, costs (including, without limitation, attorneys' fees, court costs and other legal costs and expenses), penalties, fines, injunctions, suits, claims, judgments, or demands suffered by or made against or imposed at any time upon any of the Individual Parties, directly or indirectly, arising as a result of or in connection with its breach of any term of this Agreement, including its violation of any of the terms and conditions of Paragraph 4 of this Agreement. If the Individual shall incur any fees, costs, expenses, or charges (including, without limitation, attorneys' fees, court costs and other legal costs or expenses) in order to enforce the terms of this Agreement, Players agrees to pay directly, or at the Individual's option to reimburse the Individual for, such fees, costs, and expenses no later than thirty (30) days after receiving written notice of said fees, costs, expenses, or charges. 7. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. 8. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Release and Non-compete Agreement as of the date first above written. WITNESSES: ____________________________ __________________________________ Karl E. Boellert ____________________________ ____________________________ Notary Public ATTEST: PLAYERS LAKE CHARLES, LLC By:Players Lake Charles Riverboat, Inc., Managing Member ____________________________ By:_______________________________ Howard A. Goldberg, President ____________________________ ____________________________ Notary Public -----END PRIVACY-ENHANCED MESSAGE-----