UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________to___________________
Commission File No. 1-9728
JACKPOT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0169922
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1110 Palms Airport Drive, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 263-5555
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
There were 9,249,803 shares of the registrant's common stock outstanding
as of May 5, 1995.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1995 and June 30, 1994
Condensed Consolidated Statements of Income -
Three and Nine Months Ended March 31, 1995 and 1994
Condensed Consolidated Statement of Stockholders'
Equity - Nine Months Ended March 31, 1995
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
March 31, June 30,
ASSETS 1995 1994
______ ________ _______
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,892 $ 23,543
Short-term investments 509
Prepaid expenses 1,391 2,057
Deferred Federal income tax 2,744 5,093
Other current assets 1,883 1,614
________ ________
Total current assets 36,910 32,816
________ ________
Property and equipment, at cost:
Land and buildings 2,656 2,656
Gaming equipment 26,172 25,138
Other equipment 4,098 4,248
Leasehold improvements 709 1,037
________ ________
33,635 33,079
Less accumulated depreciation (18,516) (16,360)
________ ________
15,119 16,719
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$6,708 and $6,241 8,944 10,278
Goodwill, net of accumulated
amortization of $2,294 and $2,150 5,336 5,480
Lease and other security deposits 3,663 3,689
Other non-current assets 2,715 4,477
________ ________
Total assets $ 72,687 $ 73,459
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
(Concluded)
<TABLE>
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
____________________________________ ________ _______
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 1,037 $ 1,447
Accounts payable 1,120 2,011
Due to equity investee 194 2,617
Other current liabilities 5,103 4,719
_______ _______
Total current liabilities 7,454 10,794
Long-term debt, less current portion 276 1,403
Deferred Federal income tax 471 471
Accrued rent 3,250 2,337
Accrued pension and other liabilities 2,326 2,188
_______ _______
Total liabilities 13,777 17,193
_______ _______
Commitments and contingencies
Stockholders' equity:
Preferred stock - authorized
1,000,000 shares of $1 par value;
none issued
Common stock - authorized
30,000,000 shares of $.01 par value;
9,441,580 and 9,345,240 shares issued 94 93
Additional paid-in capital 63,322 64,844
Accumulated deficit (2,031) (6,796)
Less 191,767 and 125,119 shares of common
stock in treasury, at cost (2,475) (1,875)
_______ _______
Total stockholders' equity 58,910 56,266
_______ _______
Total liabilities and
stockholders' equity $72,687 $73,459
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenues:
Route operations $22,141 $23,119 $65,063 $66,504
Casino operations 2,096 1,780 6,576 6,045
_______ _______ _______ _______
Totals 24,237 24,899 71,639 72,549
_______ _______ _______ _______
Costs and expenses:
Route operations 16,685 16,696 48,965 48,462
Casino operations 1,881 1,610 5,946 5,013
Amortization 750 755 2,074 2,411
Depreciation 1,342 1,562 4,007 4,250
General and administrative 1,375 1,585 4,128 4,475
_______ _______ _______ _______
Totals 22,033 22,208 65,120 64,611
_______ _______ _______ _______
Operating income 2,204 2,691 6,519 7,938
_______ _______ _______ _______
Other income (expense):
Interest and other income 315 116 720 550
Interest expense (22) (88) (125) (260)
Loss from investment in
equity investee (708) (2,450)
_______ _______ _______ _______
Totals 293 (680) 595 (2,160)
_______ _______ _______ _______
Income before income tax 2,497 2,011 7,114 5,778
_______ _______ _______ _______
Provision (credit) for Federal
income tax:
Current 1,344 2,997
Deferred 825 (640) 2,349 (975)
_______ _______ _______ ______
Totals 825 704 2,349 2,022
_______ _______ _______ _______
Net income $ 1,672 $ 1,307 $ 4,765 $ 3,756
======= ======= ======= =======
Earnings per common and
common equivalent share $ .18 $ .14 $ .52 $ .40
======= ======= ======= =======
Cash dividends per share of
common stock $ .08 $ .08 $ .24 $ .23
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1995
(Dollars and shares in thousands, except per share data)
(Unaudited)
<TABLE>
Treasury
Common Stock Additional Stock Total
_____________ Paid-in Accumulated _____________ Stockholders'
Shares Amount Capital Deficit Shares Amount Equity
______ ______ ________ __________ ______ ______ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
July 1, 1994 9,345 $93 $64,844 $(6,796) (125) $(1,875) $56,266
Tax benefit
from stock
options 86 86
Cash
dividends
($.24 per
share) (2,214) (2,214)
Issuance and
receipt of
shares on
exercise of
stock options 97 1 606 (67) (600) 7
Net income 4,765 4,765
_____ ___ _______ _______ ____ _______ _______
Balance
March 31,
1995 9,442 $94 $63,322 $(2,031) (192) $(2,475) $58,910
===== === ======= ======= ==== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars in thousands)
(Unaudited)
<TABLE>
1995 1994
________ ________
<S> <C> <C>
Operating activities:
Net income $ 4,765 $ 3,756
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,081 6,661
Deferred Federal income tax 2,349 (975)
(Gain) loss on sales, exchanges and retirements of
assets (133) 62
Loss from investment in equity investee 2,450
Other (200)
Increase (decrease) from changes in:
Prepaid expenses and other current assets 427 1,406
Other non-current assets 204 431
Accounts payable (891) (230)
Other current liabilities 134 (602)
Accrued rent 913 995
Other liabilities 138 (333)
_______ ________
Net cash provided by operating activities 13,787 13,621
_______ ________
Investing activities:
Purchases of short-term investments (8)
Proceeds from sales of short-term investments 509 10,590
Net proceeds (advances) to location operators 180 123
Proceeds from sale of other non-current assets 617
Proceeds from sales of property and equipment 204 395
Purchases of property and equipment (2,615) (11,849)
Advances to equity investee (1,498) (2,075)
Increase in lease acquisition costs and other
intangible assets (596) (2,489)
Lease and other security deposits 26 (2,180)
Increase in other assets related to casino facility (984)
Other (505)
_______ ________
Net cash used in investing activities (3,173) (8,982)
_______ ________
Financing activities:
Proceeds from long-term debt 275
Payments of long-term debt (1,058) (963)
Proceeds from issuance of common stock 7 355
Dividends paid (2,214) (2,142)
_______ ________
Net cash used in financing activities (3,265) (2,475)
_______ ________
Net increase in cash and cash equivalents 7,349 2,164
Cash and cash equivalents at beginning of period 23,543 18,993
_______ ________
Cash and cash equivalents at end of period $30,892 $ 21,157
======= ========
Supplemental disclosures of cash flow data:
Cash paid during the period for:
Interest $ 125 $ 247
Federal income tax $ 2,400
Non-cash financing activities:
Assumption of debt upon sale of other non-current asset $ 479
Common stock surrendered in exercise of stock options $ 600
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly Jackpot's financial position as of March 31, 1995, and
the results of its operations for the three and nine months
ended March 31, 1995 and 1994 and its cash flows for the nine
months ended March 31, 1995 and 1994. Information included
in the condensed consolidated balance sheet as of June 30, 1994
has been derived from Jackpot's Annual Report to the Securities
and Exchange Commission on Form 10-K for the year ended June 30,
1994 (the "1994 Form 10-K").
The earnings for the three and nine months ended March 31, 1995
and 1994 are not necessarily indicative of results for a full year.
Note 2 - Earnings per share:
Earnings per share for the three months ended March 31, 1995 and
1994 and the nine months ended March 31, 1995 are computed by
dividing net income of $1,672,000, $1,307,000 and $4,765,000,
respectively, by the weighted average number of common shares
outstanding of 9,247,000, 9,230,000 and 9,229,000, respectively.
Stock options and warrants have been excluded from those
computations because they had no effect or were antidilutive
on earnings per share. Earnings per share for the nine months
ended March 31, 1994 is computed by dividing (i) net income, as
adjusted (see Note 1 of Notes to Consolidated Financial Statements
in the 1994 Form 10-K for a description of the adjustments), by
(ii) the weighted average number of common shares outstanding
adjusted for the number of common share equivalents attributable
to stock options and warrants. The net income, as adjusted, used
for the computation for the nine months ended March 31, 1994 was
$4,027,000 and the weighted average number of common shares and
common share equivalents used in the computation for the nine
months ended March 31, 1994 was 9,947,000.
Note 3 - Stockholders' equity:
Cash dividends:
During the nine months ended March 31, 1995, Jackpot paid cash
dividends of approximately $2,214,000 ($.24 per common share).
On April 7, 1995, Jackpot's Board of Directors declared a
quarterly dividend of $.08 per common share (approximately
$740,000) for the quarter ended March 31, 1995 which was paid
on April 28, 1995 to stockholders of record on April 17,1995.
Note 3 - Stockholders' equity (continued):
The 1992 Incentive and Non-qualified Stock Option Plan:
On September 30, 1994, the exercise price of the June 30, 1994
grant of nonqualified stock options to purchase an aggregate
of 82,500 shares of common stock (27,500 each to three
directors) was vested at $9.50 per share, the fair market
value of the stock on that date, pursuant to the terms of
the 1992 Incentive and Non-qualified Stock Option Plan (the
"1992 Plan"). See Note 8 of Notes to Consolidated Financial
Statements in the 1994 Form 10-K for further information
regarding the 1992 Plan and option grants.
On August 17, 1994, a committee of the Board of Directors granted
non-qualified stock options to certain officers and employees
to purchase 171,000 shares of common stock at the then fair
market value of $8.50 per share. Such options are exercisable
for a period of five years from the date of the grant. See Note 6
for further information regarding the subsequent cancellation of
options held by two former officers. Also on August 17, 1994,
the Board approved certain amendments (the "Amendments") to the
1992 Plan which were approved by Jackpot's stockholders on
January 10, 1995 at the Annual Meeting of Stockholders. The
Amendments increased the number of shares of common stock
authorized for issuance pursuant to the 1992 Plan from 1,045,000
shares to 2,545,000 shares and allowed for the possibility of
extending the period of time under which options to purchase
common stock may be exercised under certain circumstances.
In connection with the employment of Don R. Kornstein (see
Note 4), as President, Chief Executive Officer and Director
effective September 8, 1994, Mr. Kornstein was granted
options to purchase up to 700,000 shares of Jackpot common
stock at $9.25 per share. The exercise price per share was
100% of the fair market value on September 8, 1994. These options
will vest in equal installments on each September 8 of 1995,
1996 and 1997, respectively, subject to earlier vesting upon the
achievement of certain earnings tests, or a certain stock price
test or upon a change in control, as defined in Mr. Kornstein's
employment agreement. Such options expire ten years from the
date of grant and remain exercisable for a period of 18 months
following the termination of Mr. Kornstein's contract under
certain circumstances.
Note 3 - Stockholders' equity (concluded):
Other nonqualified stock options:
On August 17, 1994, the Board of Directors extended from October
18, 1994 to October 18, 1999 at the same exercise price the
expiration date of options to purchase an aggregate of 220,617
shares of common stock originally granted on October 18, 1989
at $9.19 per share to three directors and an officer. The
exercise price was in excess of 100% of the fair market value
of the common stock on the date of the extension of the grants.
Common stock surrendered in exercise of nonqualified stock options:
In January 1995, as consideration for the issuance of common stock
pursuant to the exercise of nonqualified stock options, three
directors surrendered an aggregate of 66,642 shares (22,214 shares
each) of common stock with an aggregate fair market value of
$599,772 ($199,924 each), or $9.00 per share, the fair market
value of the common stock based on the closing market price on
the exercise date. Such shares were recorded as treasury stock
and the exchanges were treated as "non-cash" transactions in
January 1995.
Common stock warrants:
As of March 31, 1995, there were 1,588,195 warrants outstanding and
1,747,015 shares of common stock reserved for issuance upon exercise
of such warrants (see Note 8 of Notes to Consolidated Financial
Statements in the 1994 Form 10-K).
Note 4 - Commitments and contingencies:
Employment agreements:
Jackpot entered into an employment agreement with Mr. Kornstein
effective September 8, 1994 which expires on September 30, 1997 but
will automatically be extended for additional one year periods on
each October 1 commencing October 1, 1995 unless notice is given
by the Company or Mr. Kornstein. The aggregate commitment for
future salaries at March 31, 1995, excluding bonuses, under all of
Jackpot's employment agreements (see Note 10 of Notes to
Consolidated Financial Statements in the 1994 Form 10-K) is
approximately $2,200,000. Mr. Kornstein's employment agreement
provides for a bonus per fiscal year equal to (i) 2% of all
amounts up to the first $5 million by which earnings before
interest, taxes, depreciation and amortization, as defined
("EBITDA") for such fiscal year exceeds $10 million, (ii) 4% of
all amounts up to the first $5 million by which EBITDA for such
fiscal year exceeds $15 million, (iii) 5% of all amounts up to
the first $5 million by which EBITDA for such fiscal year
exceeds $20 million, (iv) 6% of all amounts up to the first $5
million by which EBITDA for such fiscal year exceeds $25 million,
plus (v) 7% of all amounts by which EBITDA for such fiscal year
exceeds $30 million. In addition, Mr. Kornstein's employment
agreement provides for the payment of amounts equal to three years
his annual compensation including bonuses if there is a
termination of his employment. The minimum contingent liability
at March 31, 1995 under all of Jackpot's employment and severance
agreements was approximately $2,800,000.
Note 4 - Commitments and contingencies (concluded):
Financial instruments with concentration of credit risk:
Phar-Mor, a large chain store, is currently under Chapter 11 of
the U.S. Bankruptcy Code (see Note 10 of Notes to Consolidated
Financial Statements in the 1994 Form 10-K). As of March 31,
1995, Jackpot had approximately $1,400,000 of costs related to
lease deposits, prepaid rent and other lease connected expenditures
for Phar-Mor.
Postemployment benefits:
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"), which is effective for
fiscal years beginning after December 15, 1993. This Statement
establishes accounting standards for employers who provide
postemployment benefits to former or inactive employees, their
beneficiaries and covered dependents, after employment but
before retirement and requires employers to accrue such benefits
if attributable to employees services previously rendered.
Effective July 1, 1994, Jackpot adopted the provisions of
SFAS 112. Since Jackpot does not provide any significant
postemployment benefits as described in SFAS 112, the cumulative
effect of adopting SFAS 112 for years prior to fiscal 1995 was
not material.
Letter of credit:
In November 1993, Jackpot and the Mississippi Power & Light Company
( MP&L ) entered into a one-year letter of credit whereby Jackpot
guaranteed that it would use $1 million of electric service in
connection with the dockside casino facility in Tunica County,
Mississippi (the "Tunica Facility"), which closed permanently on
July 8, 1994 (see Note 10 of Notes to Consolidated Financial
Statements in the 1994 Form 10-K). In December 1994, Jackpot and
MP&L entered into a settlement and release agreement pursuant to
which the letter of credit was terminated.
The settlement did not have a material effect on Jackpot's
financial position or its results of operations.
Note 5 - Other transactions:
Settlement agreement:
On February 28, 1995, Jackpot entered into a settlement agreement
with Winners Entertainment, Inc., formerly Excalibur Holding
Corporation ("Winners"). The agreement requires Winners to
issue and register shares of Winners' common stock equal in
value to $500,000, measured at the time of the effective date
of a future registration of the shares, subject to certain
limitations. In no event, however, shall Winners be required
to issue more than 250,000 shares (see Note 14 of Notes to
Consolidated Financial Statements in the 1994 Form 10-K).
Note 5 - Other transactions (concluded):
South Dakota:
As a result of further re-evaluation in the third quarter of
fiscal 1995 of market and gaming conditions in Deadwood,
South Dakota, management has determined that the value of
Jackpot's investments in property has been further impaired.
Accordingly, Jackpot wrote down its assets by $800,000 in
the third quarter of fiscal 1995. For further information, see
Note 5 of Notes to Consolidated Financial Statements in the
1994 Form 10-K.
Tunica, Mississippi dockside gaming facility:
In the third quarter of fiscal 1995, Jackpot sold certain assets
associated with the Tunica Facility (see Note 5 of Notes to
Consolidated Financial Statements in the 1994 Form 10-K).
The gain from the sale of such assets, net of the write-down of
the South Dakota properties described above was $75,000 and is
included in the third quarter of fiscal 1995 under the caption
"interest and other income" in the accompanying condensed
consolidated statements of income.
Note 6 - Subsequent Event:
On April 20, 1995, Jeffrey L. Gilbert and Frederick Sandvick
resigned as Executive Vice President and Chief Operating Officer
and Executive Vice President and Chief Financial Officer,
respectively. In connection with the termination of their
respective employment agreements, which was effective April
28, 1995, Jackpot paid Messrs. Gilbert and Sandvick an aggregate
of approximately $770,000 in consideration for the termination
of employment and the cancellation of certain nonqualified stock
options in full satisfaction of all rights under their respective
employment agreements including, but not limited to, severance
compensation and accrued vacation. Options to purchase an
aggregate of 475,085 shares of Jackpot common stock were
cancelled on April 28, 1995. All costs in connection with
the resignation of Messrs. Gilbert and Sandvick have been
accrued as of March 31, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Capital Resources and Liquidity
Cash Flows:
Jackpot's principal sources of cash in the nine months ended March 31,
1995 (the "1995 nine months") consisted of the cash flows from operating
activities and its available cash, cash equivalents and short-term investments
which, at June 30, 1994, approximated $24.1 million. Net cash provided by
operating activities approximated $13.8 million in the 1995 nine months,
which exceeded the net cash used by investing and financing activities
by approximately $7.3 million in the 1995 nine months.
Net cash used in investing activities in the 1995 nine months was
approximately $3.2 million which included cash used of approximately
$4.7 million and cash received of approximately $1.5 million. Of the
$4.7 million, $1.5 million was used for advances to the dockside casino
facility in Tunica County, Mississippi (the "Tunica Facility"), which
closed permanently on July 8, 1994. Such advances to the Tunica Facility
were used for payment toward Jackpot's share of unpaid liabilities and
estimated closing costs, which were fully accrued as of June 30, 1994.
Management has estimated that Jackpot will be required to advance an
additional amount of approximately $.2 million in the remainder of
fiscal 1995 in connection with Jackpot's share of remaining unpaid
liabilities and closing costs of the Tunica Facility, which amounts have also
been fully accrued (see Note 5 of Notes to Consolidated Financial Statements
in Jackpot's 1994 Form 10-K). The remaining $3.2 million of cash used in
investing activities consisted primarily of the purchase of equipment.
The $1.5 million of cash received from investing activities included
aggregate proceeds from sales of short-term investments and sales of certain
assets.
Net cash used in financing activities in the 1995 nine months was
approximately $3.3 million which resulted from the payment of approximately
$1.1 million of long-term debt and the payment of approximately $2.2 million
of dividends.
Liquidity:
At March 31, 1995, Jackpot had cash, cash equivalents and short-term
investments of approximately $30.9 million, an increase of approximately
$6.8 million from the beginning of the 1995 nine months. Primarily as a
result of that increase, as well as the investing and financing activities
described above, Jackpot's working capital and current ratio increased
to approximately $29.5 million and 5.0 to 1, respectively, at March 31, 1995,
from approximately $22.0 million and 3.0 to 1, respectively, at June 30, 1994.
Management believes Jackpot's working capital and cash generated from
operations will be sufficient to enable Jackpot to meet its planned capital
expenditures, meet its debt service requirements on its existing debt, pay
quarterly cash dividends pursuant to Jackpot's dividend policy and meet its
other ongoing cash requirements as they become due in the remainder of
fiscal 1995. With respect to planned capital expenditures, management
anticipates Jackpot will purchase approximately $1.0 million of property
and equipment, exclusive of business acquisitions, in the remainder of
fiscal 1995 to be used in existing and currently planned new locations.
Jackpot continues to selectively explore expansion opportunities, both in
and outside Nevada, and various potential acquisitions, both gaming and
non-gaming related. anagement believes working capital and cash generated
from operations will be sufficient to enable Jackpot to continue its expansion;
however, Jackpot may seek additional debt or equity financing to facilitate
such acquisitions and expansion.
Results of Operations
Revenues:
Total revenues in the three months ended March 31, 1995 (the "1995 three
months") decreased approximately $.7 million, from $24.9 million in the three
months ended March 31, 1994 (the "1994 three months") to $24.2 million in the
1995 three months, while total revenues in the 1995 nine months decreased
approximately $.9 million, from $72.5 million in the nine months ended
March 31, 1994 (the "1994 nine months") to $71.6 million in the 1995 nine
months. The decreases in total revenues of $.7 million and $.9 million
were the net result of decreases of $1.0 million (from $23.1 million in
the 1994 three months to $22.1 million in the 1995 three months) and $1.4
million (from $66.5 million in the 1994 nine months to $65.1 million in the
1995 nine months), respectively, in gaming route operations revenues and
increases of $.3 million (from $1.8 million in the 1994 three months to
$2.1 million in the 1995 three months) and $.5 million (from $6.1 million
in the 1994 nine months to $6.6 million in the 1995 nine months),
respectively, in casino operations revenues.
The decreases in gaming route operations revenues of $1.0 million and
$1.4 million resulted from a combination of additional revenues generated
from existing and new locations, net of lost revenues from terminated
locations. In the 1995 three months and 1995 nine months, new locations
generated approximately $1.7 million and $5.5 million, respectively, of
revenues, while existing locations generated approximately $.8 million
and $3.5 million, respectively, in additional revenues. Terminated locations
had generated $3.5 million and $10.4 million, in revenues in the 1994 three
months and 1994 nine months, respectively. The loss of the revenues generated
at the terminated locations was primarily due to the expiration of the
Company's right to operate at certain locations of a major retail chain
store customer (the "Customer") on June 30, 1994 (see Item 1 - Business -
Gaming Route Operations in the 1994 Form 10-K). Jackpot generated
approximately 9% of its total revenues and a significantly greater percentage
of its total operating income from operations at locations of the Customer
during the year ended June 30, 1994.
The increase in casino operations revenues in the 1995 three months was
primarily due to the commencement in January 1995 of operations of Jackpot's
Highway 93 Casino, Inc., dba the Pony Express Casino (the "Pony Express
Casino"). The increase in casino operations revenues in the 1995 nine months
was primarily due to the commencement in July 1994 of operations of Water
Street Casino, Inc. dba the Post Office Casino (the "Post Office Casino")
which was downsized and converted into a gaming route location in the 1995
nine months.
Cost and expenses:
Route operations expenses in the 1995 three months remained constant
at approximately $16.7 million compared to the 1994 three months and, as a
percentage of route operations revenues increased to 75.4% in the 1995 three
months from 72.2% in the 1994 three months. Route operations expenses in
the 1995 nine months increased approximately $.5 million (from $48.5 million
in the 1994 nine months to $49.0 million in the 1995 nine months) and, as
a percentage of route operations revenues, route operations expenses
increased to 75.3% in the 1995 nine months from 72.9% in the 1994 nine
months. The increase of $.5 million in the 1995 nine months over the
1994 nine months was primarily attributable to increases in payroll costs.
Route operations expenses increased as a percentage of route operations
revenues primarily because of the loss of the Customer, with which route
operations expenses were lower as a percentage of route operations
revenues than Jackpot's prior year overall percentage. Although Jackpot
was able to replace a substantial portion of the revenues lost with revenues
generated by new and existing locations, generally the costs associated
with revenues generated at new locations have been greater as a percentage
of revenues than have the costs associated with the lost revenues. With
respect to location rent, which is the single largest route operation expense,
no contract with a material effect on operating results expires in the
remainder of fiscal 1995. See Item 1 - Business - Gaming Route Operations
in the 1994 Form 10-K for a further description of the Company's lease
and license agreements.
Casino operations expenses in the 1995 three months increased
approximately $.3 million (from $1.6 million in the 1994 three months to
$1.9 million in the 1995 three months) and, as a percentage of casino
operations revenues decreased to 89.7% in the 1995 three months from 90.4%
in the 1994 three months due primarily to the operating results of the
Pony Express Casino. Casino operations expenses in the 1995 nine months
increased approximately $.9 million (from $5.0 million in the 1994 nine
months to $5.9 million in the 1995 nine months) and, as a percentage of
casino operations revenues, casino operations expenses increased to 90.4%
in the 1995 nine months from 82.9% in the 1994 nine months due to the lower
than expected revenues of the Post Office Casino. As a result of the
continuation of the poor operating performance of the Post Office Casino,
which generated an operating loss of approximately $.4 million in the
1995 nine months including a one-time charge of approximately $.2 million
in connection with the reduction in the size of gaming operations at the
location from 175 gaming machines to 70 gaming machines and the change in
operations from a casino location to a gaming route location in the three
months ended December 31, 1994, Jackpot terminated the operating agreement
and sublease with the lessor and ceased operations at the Post Office Casino
in the 1995 three months.
Amortization expense in the 1995 three months remained constant at
approximately $.8 million compared to the 1994 three months and in the 1995
nine months decreased by approximately $.3 million (from $2.4 million in the
1994 nine months to $2.1 million in the 1995 nine months). The decrease in
amortization expense in the 1995 nine months was primarily attributable to
the decrease in amortization expense related to certain locations whose
lease acquisitions costs were fully amortized as of June 30, 1994.
Depreciation expense in the 1995 three months and the 1995 nine months
decreased approximately $.3 million (from $1.6 million in the 1994 three
months to $1.3 million in the 1995 three months and from $4.3 million in the
1994 nine months to $4.0 million in the 1995 nine months). The decreases in
depreciation expense were primarily due to the reduction in depreciation
expense of certain assets associated with the Tunica Facility.
General and administrative expenses in the 1995 three months and the
1995 nine months decreased approximately $.2 million (from $1.6 million in
the 1994 three months to $1.4 million in the 1995 three months) and $.4
million (from $4.5 million in the 1994 nine months to $4.1 million in the
1995 nine months) primarily as a result of decreases in development and
certain overhead costs, offset by increases in severance costs.
Operating income decreased approximately $.5 million in the 1995 three
months (from $2.7 million in the 1994 three months to $2.2 million in the 1995
three months) and $1.4 million in the 1995 nine months (from $7.9 million in
the 1994 nine months to $6.5 million in the 1995 nine months). The decreases
in operating income of $.5 million and $1.4 million were due to the previously
described effect on gaming route operations of the expiration of the
Company's right to operate at certain locations of the Customer on June 30,
1994.
With respect to other non-operating income and expense, the 1994 three
months and the 1994 nine months included Jackpot's loss from the Tunica
Facility of approximately $.7 million and $2.4 million, respectively.
The 1995 periods do not have any losses from the Tunica Facility because, as
previously described, Jackpot permanently closed the Tunica Facility on
July 8, 1994 and had accrued as of June 30, 1994 an estimate for all
anticipated closing costs associated with the closure.
The effective tax rate was approximately 33% in the 1995 periods, which
was lower than the 35% rate in the 1994 periods primarily because of the
increase in estimated tax benefits from tax-exempt interest income.
Net income increased approximately $.4 million in the 1995 three months
(from $1.3 million in the 1994 three months to $1.7 million in the 1995
three months) and $1.0 million in the 1995 nine months (from $3.8 million
in the 1994 nine months to $4.8 million in the 1995 nine months) due to the
results of operations described above.
Earnings per share in the 1995 three months and the 1995 nine months were
$.18 and $.52 per share, respectively, compared to earnings per share in the
1994 three months and the 1994 nine months of $.14 and $.40 per share,
respectively.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.47 - Settlement Agreement by and among Winners
Entertainment, Inc. (formerly Excalibur Holding Corporation),
Mountaineer Park, Inc. and Jackpot Enterprises, Inc.
Exhibit 11.1 - Computation of Earnings Per Common Share for the three
and nine months ended March 31,1995 and 1994.
Exhibit 27.1 - Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K - No Form 8-K was filed for the three months
ended March 31, 1995.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKPOT ENTERPRISES, INC.
(Registrant)
By: /s/ Bob Torkar
_________________________
BOB TORKAR
Senior Vice President - Finance,
Treasurer and Chief Accounting Officer
Date: May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jackpot's
Condensed Consolidated Balance Sheets - March 31, 1995 and June 30, 1994 and its
Condensed Consolidated Statements of Income - Three and Nine Months ended March
31, 1995 and 1994 and is qualified in its entirety by reference to such
finanical statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,910
<PP&E> 33,635
<DEPRECIATION> 18,516
<TOTAL-ASSETS> 72,687
<CURRENT-LIABILITIES> 7,454
<BONDS> 276
<COMMON> 94
0
0
<OTHER-SE> 58,816
<TOTAL-LIABILITY-AND-EQUITY> 72,687
<SALES> 0
<TOTAL-REVENUES> 71,639
<CGS> 0
<TOTAL-COSTS> 54,911
<OTHER-EXPENSES> 5,189
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> 7,114
<INCOME-TAX> 2,349
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,765
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
SETTLEMENT AGREEMENT
This Settlement Agreement is entered as of
February 28, 1995 among Winners Entertainment, Inc., a
Delaware corporation formerly known as Excalibur
Holding Corporation ("Winners"), Mountaineer Park,
Inc., a West Virginia corporation wholly owned by
Winners ("Mountaineer"), and Jackpot Enterprises, Inc.,
a Nevada corporation ("Jackpot").
WHEREAS, on or about January 27, 1993 Winners and
Jackpot executed a letter agreement (the "Letter
Agreement") relating to certain actions that Winners
and Jackpot were to take with respect to the
development of Mountaineer Racetrack & Resort, a
Chester, West Virginia racetrack and resort complex
owned by Mountaineer; and
WHEREAS, on or about January 27, 1993, in
connection with the transactions contemplated by the
Letter Agreement, Winners delivered to Jackpot a Credit
Line Deed of Trust (which was recorded in Hancock
County, West Virginia), 30,000 shares of Winners'
common stock (the "Existing Shares"), a Guaranty of a
Note made and delivered by Mountaineer, and a
Registration Rights Agreement with respect to the
30,000 shares of common stock on a piggyback basis,
excluding the then current shelf registration; and
WHEREAS, the Letter Agreement contemplated the
simultaneous consummation of various transactions which
were not completed; and
WHEREAS, the Letter Agreement contemplated,
subject to certain conditions, the payment of certain
liquidated damages in the event the transactions were
not completed; and
WHEREAS, a dispute arose concerning the
obligations and performance of the parties with respect
to the payment of liquidated damages; and
WHEREAS, on April 12, 1994, Mountaineer commenced
Civil Action NO. 94-P-42-W against Jackpot in the
Circuit Court of Hancock County, West Virginia to
compel release of the Credit Line Deed of Trust and for
attorney's fees pursuant to West Virginia Code Chapter
38, Article 12, Section 10; and
WHEREAS, on May 6, 1994, Jackpot provided the
release of the Credit Line Deed of Trust (which has
been recorded in Hancock County, West Virginia) in
settlement of that action, which has been dismissed
with prejudice; and
WHEREAS, on May 6, 1994, Jackpot commenced Civil
Action NO. 94-C-819 against Winners in the Circuit
Court of Kanawha County, West Virginia to enforce its
rights under the Letter Agreement; and
WHEREAS, on or about June 25, 1994, the parties
agreed to settle the dispute in the following manner,
without admitting any liability whatsoever, but to
avoid the cost and uncertainty of litigation, the
parties now wish to resolve their differences amicably
pursuant to the terms of this Settlement Agreement.
NOW, THEREFORE, in consideration of the covenants,
promises and deliveries described below, the parties
hereto agree as follows:
1. Termination of Agreements. The parties
hereby formally terminate each and every obligation of
the Letter Agreement and each of the Registration
Rights Agreement, Note and Guaranty, as dated on or
about January 27, 1993 (collectively the "Collateral
Documents"). It is understood by the parties that the
consideration paid to Jackpot shall be allocable to its
equity interest in the Letter Agreement. No party in
this Settlement Agreement shall have any further rights
or obligations under either the Letter Agreement or any
of the Collateral Documents, all of which shall be of
no further force or effect.
2. Issuance of Stock; Registration. Winners
agrees to issue, or cause to be issued, to Jackpot a
number of shares of Winners' common stock that sold by
Jackpot, together with the Existing Shares on the
effective date of a registration statement filed by
Winners, would result in net sale proceeds to Jackpot
(including and limited to all normal costs of
registration such as legal, accounting and printing
fees, but excluding commissions attributable to the
sale of any shares held by Jackpot) of $512,500
excluding sale proceeds from the sale of any Late
Shares as defined below. Winners agrees promptly to
prepare and file a registration statement with the
Securities and Exchange Commission and to use its best
efforts to cause such registration statement to become
and remain effective pursuant to the terms of a
Registration Statement Agreement attached hereto as
Exhibit A which shall be executed and delivered by
Winners and Jackpot on the date hereof. Upon execution
of this Settlement Agreement, Winners shall issue, or
cause to be issued, to Jackpot 125,000 shares of
Winners' common stock (the "Interim Additional
Shares"). To the extent the market price of the
Existing Shares and the Interim Additional Shares, on
the effective date of the registration statement, is
less than $512,500, Winners shall issue, or cause to be
issued, to Jackpot and include in the registration
statement additional shares such that the net sale
proceeds to Jackpot, if sold by Jackpot on the
effective date of the registration statement, together
with the Existing Shares and the Interim Additional
Shares is equal to $512,500 (the "Deficiency Shares").
To the extent that market price of the Existing and
Interim Additional Shares on the effective date of the
registration statement is greater than $512,500, then
Winners shall have the option to reacquire from Jackpot
at par value the number of shares necessary to reduce
Jackpot's net sale proceeds, if such shares were sold
by Jackpot on the effective date of the registration
statement, to $512,500. Winners may exercise such
option by notifying Jackpot in writing and tendering
full payment within five (5) business days after the
effective date of the registration statement. However,
if Winners has not caused a registration statement
including the Existing Shares, the Interim Additional
Shares, and any Deficiency Shares to become effective
on or before April 29, 1995, Winners shall immediately
issue or cause to be issued, to Jackpot 12,500 shares
of Winners common stock ("Late Shares") and shall
immediately issue or cause to be issued Jackpot an
additional 12,500 Late Shares at the end of each
subsequent sixty (60) day period until such time as a
registration statement including the Existing Shares,
the Interim Additional Shares, any Deficiency Shares,
and any Late Shares becomes effective. In no event,
however, shall Winners be required to issue to Jackpot
in the aggregate more than 250,000 shares, excluding
the Existing Shares, of Winners Common Stock.
The certificate for the Interim Additional Shares
and any Deficiency Shares and any Late Shares shall
bear the following legends:
(1) THE SALE, TRANSFER, ASSIGNMENT, OR
HYPOTHECATION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE OR ANY INTEREST THEREIN OR RIGHT WITH
RESPECT THERETO MAY BE MADE ONLY IN ACCORDANCE WITH THE
SETTLEMENT AGREEMENT DATED AS OF JUNE 30, 1994 AMONG
JACKPOT ENTERPRISES, INC., MOUNTAINEER PARK, INC., AND
WINNERS ENTERTAINMENT, INC., AS IT MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH IS ON FILE WITH WINNERS
ENTERTAINMENT, INC.
(2) THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1993, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT OR WINNERS
ENTERTAINMENT, INC. RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO WINNERS ENTERTAINMENT, INC. THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
Jackpot agrees that it shall not transfer or sell
the common stock issued by Winners to Jackpot without
registration under the Securities Act of 1933 and
applicable state securities laws unless exemptions from
such registration requirements are available.
3. Acknowledgement by Jackpot. The original
Note made by Mountaineer and the original Guaranty have
been delivered to Winners by Jackpot. Jackpot hereby
acknowledges that the original Note has been satisfied
and the original Guaranty has been released.
4. Termination of Litigation. Upon the
execution of this Settlement Agreement, Jackpot shall
cause the civil action pending in Kanawha County, West
Virginia to be dismissed with prejudice.
5. Mutual Releases. Except for those
obligations expressly provided for in this Settlement
Agreement and the Registration Statement Agreement,
Winners and Mountaineer on the one hand, and Jackpot on
the other hand, hereby forever release and discharge
the other and each of the other's officers, directors,
shareholders, employees, agents, affiliates, attorneys,
successors, and assigns of and from any and all claims,
rights, duties, obligations, debts, liabilities,
damages, injuries, actions, and causes of action of
every kind and nature, foreseen, and unforeseen,
contingent and actual, liquidated and unliquidated,
suspected and unsuspected, disclosed and undisclosed,
whether direct or by way of indemnity, contribution, or
otherwise, including without limitation all claims
which either party has or might have arising from or
related to the Letter Agreement or one or more of the
Collateral Documents.
Each of the parties hereby acknowledges that it
has been advised and is aware of the provisions of
Section 1542 of the Civil Code of the State of
California, and does hereby expressly waive and
relinquish all rights and benefits which it has or may
have under said Section 1542, which reads as follows:
A general release does not extend to claims
which the creditor does not know or suspect
to exist in his favor at the time of
executing the release, which if known by him,
must have materially affected his settlement
with the debtor.
Each party also waives any similar law or rule.
6. Representations and Warranties of Winners.
Winners hereby represents and warrants to Jackpot that:
6.1 Organization; Good Standing;
Qualification. Winners is a corporation duly
organized, validly existing, and in good standing under
the laws of the State of Delaware, has all requisite
corporate power and authority to own and operate its
properties and assets and to carry on its business, to
execute and deliver this Settlement Agreement and the
Registration statement Agreement, to issue and sell the
shares of Winners' common stock contemplated hereunder,
and to carry out the provisions of this Settlement
Agreement and the Registration statement Agreement.
Winners is duly qualified to transact business and is
in good standing in each jurisdiction in which failure
to so qualify would have a material and adverse affect
on the business, properties, condition (financial or
otherwise) or operations of Winners or on the ability
of Winners or its subsidiaries to perform their
obligations under this Settlement Agreement and the
Registration Statement Agreement.
6.2 Authorization. All corporate action on
the part of Winners, its officers, directors and
stockholders necessary for the authorization, execution
and delivery of this Settlement Agreement and the
Registration Statement Agreement, the performance of
all obligations of Winners hereunder and thereunder,
the authorization, issuance (or reservation for
issuance), sale and delivery of the shares of common
stock being issued hereunder, has been taken prior to
the date hereof, and each of this Settlement Agreement
constitutes a valid and legally binding obligation of
Winners, enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and any other
laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance,
injunctive relief or other equitable remedies.
6.3 Valid Issuance of Common Stock. The
Shares of common stock that are being issued hereunder,
when delivered in accordance with the terms of this
Settlement Agreement, will be duly and validly issued,
fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on
transfer under this Settlement Agreement and under
applicable state and federal securities laws.
6.4 Governmental Consents. No consent,
approval, qualification, order or authorization of, or
filing with, any local, state or federal governmental
authority is required on the part of Winners in
connection with the offer, sale, or issuance of the
shares of common stock being issued or issuable
pursuant to the terms of this Settlement Agreement.
6.5 No Violation, Conflict or Default. The
execution, delivery and performance by Winners of this
Settlement Agreement and the Registration Statement
Agreement, and the consummation of the transactions
contemplated hereby and thereby, will not result in any
violation or default of any provision of Winners'
certification of incorporation or bylaws, any statute,
law, regulation, order or decree applicable to Winners,
or any contract, commitment, agreement, arrangement or
restriction of any kind to which Winners is a party or
by which Winners is bound.
7. Heirs, Successors and Assigns. This
Settlement Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, successors, and
assigns of the parties hereto as well as each party's
present and former affiliated corporations,
predecessors, parent corporations, subsidiaries,
divisions, operating companies, officers, directors,
agents, employees, administrators, representatives,
shareholders, accountants, and attorneys, individually
as well as in the capacity indicated. However, except
as expressly provided herein, this Settlement Agreement
is not for the benefit of any person not a party hereto
or specifically identified as a beneficiary herein, and
is not intended to constitute a third party beneficiary
contract.
8. Merger and Integration. This Settlement
Agreement, together with the Registration Statement
Agreement, constitutes a single, integrated written
contract expressing the entire agreement of the parties
hereto with respect to the subject matter hereof. No
covenants, agreements, representations or warranties of
any kind have been made by any party hereto, except as
specifically set forth in this Settlement Agreement and
the Registration Statement Agreement. All prior claims,
discussions and negotiations have been and are merged
and integrated into, and are superseded by this
Settlement Agreement and the Registration Statement
Agreement.
9. Governing Law; Forum Selection. This
Settlement Agreement shall be construed in accordance
with, and governed by, the laws of the State of
California. The parties hereto agree that any dispute
concerning this Settlement Agreement shall be litigated
in the state or federal courts in Los Angeles County,
California, and the parties hereto agree to submit to
the jurisdiction of such courts.
/s/ Thomas K. Russell
Thomas K. Russell
Secretary, Winners Entertainment, Inc.
Secretary, Mountaineer Park, Inc.
JACKPOT ENTERPRISES, INC.
By: /s/ Jeffrey L. Gilbert
Name:
Title:
REGISTRATION STATEMENT AGREEMENT
REGISTRATION STATEMENT AGREEMENT (the
"Agreement"), dated as of February 28, 1995 between
Winners Entertainment, Inc., a Delaware corporation
(the "Company"), and Jackpot Enterprises, Inc., a
Nevada corporation (the "Holder").
1. Introduction. Pursuant to a Settlement
Agreement (the "Settlement Agreement") dated as of the
date hereof between the Company, the Holder and
Mountaineer Park, Inc., a West Virginia corporation
wholly owned by Winners, the Company has agreed to
register Common Stock owned by the Holder on the terms
and conditions set forth herein.
2. Registration under Securities Act.
2.1 Registration of securities other than
registerable shares. Until after the effective date of
the registration statement, the Company shall not,
after the date hereof, grant to any Person the right to
request the Company to register any securities of the
Company under the Securities Act unless the rights so
granted are subject to the prior rights of the holder
of registrable shares set forth in, and are not in
conflict or inconsistent with the provisions of, this
Agreement or the Settlement Agreement.
2.2 Registration rights. The Company shall
after the date hereof, as expeditiously as possible:
(i) prepare and as soon thereafter as
possible file with the Commission a registration on
Form S-1 (or any successor long form registration
statement) or Form S-2 or S-3 (or any successor short
form registration statement) under the Securities Act,
as may be applicable, to effect a registration of the
Existing Shares, the Interim Additional Shares, any
Deficiency Shares and any Late Shares (including such
audited financial statements as may be required by the
Securities Act or the rules and regulations promulgated
thereunder) and thereafter use its best efforts to
cause such registration statement to become and remain
effective; provided that before filing such
registration statement or any amendments thereto, the
Company will furnish to counsel selected by the Holder
copies of all such documents proposed to be filed,
which documents will be subject to the review of such
counsel;
(ii) prepare and file with the
Commission such amendments and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective and to comply with the
provisions of the Securities Act with respect to the
disposition of all securities covered by such
registration statement until the earlier of such time
as all of such securities have been disposed of in
accordance with the intended methods of disposition by
the Holder thereof set forth in such registration
statement or the expiration of 120 days after such
registration statement becomes effective.
(iii) furnish to the Holder and each
underwriter, if any, of the securities being sold by
the Holder such number of conformed copies of such
registration statement and of each such amendment and
supplement thereto (in each case including all
exhibits), such number of copies of the prospectus
contained in such registration statement (including
each preliminary prospectus and any summary prospectus)
and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as the
Holder and underwriter, if any, may reasonably request
in order to facilitate the public sale or other
disposition of the Registerable Shares owned by the
Holder.
(iv) use its best efforts to register or
qualify all Registerable Shares under such other
securities laws or blue sky laws of the states of
California, Illinois, Michigan, Minnesota, Ohio and
Nevada, and to keep such registrations or
qualifications in effect for so long as such
registration statement remains in effect; the Company
shall also provide the Holder with a copy of a blue sky
memorandum prepared by the Law Firm of Hughes Hubbard &
Reed in connection with the filing of the Company's
registration statement on Form S-3 with the Securities
and Exchange Commission, and copies of the blue sky
opinion letters prepared by the Company's previous
securities counsel, Freer & Alagia, in connection with
earlier proposed registration statements.
(v) use its best efforts to cause all
Registerable Shares covered by such registration
statement to be registered with or approved by such
other governmental agencies or authorities as may be
necessary to enable the Holder to consummate the
disposition of such Registerable Shares;
(vi) in the case of underwritten
offerings only, furnish to the Holder a signed
counterpart of the opinions of counsel for the Company
and "comfort" letters from the Company's accountants as
such underwriters may reasonably request.
(vii) notify the Holder, at any time
when a prospectus relating thereto is required to be
delivered under the Securities Act, upon the Company's
discovery that, or upon the happening of any event as a
result of which, the prospectus included in such
registration statement, as therein effect, includes an
untrue statement of a material fact or omits to state
any material fact required to be stated therein or
necessary to make the statements therein not misleading
in the light of the circumstances under which they were
made, and at the request of the Holder promptly prepare
and furnish to the Holder and each underwriter, if any,
a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary to
that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not misleading
in the light of the circumstances under which they were
made;
(viii) otherwise use its best efforts
to comply with all applicable rules and regulations of
the Commission, and make available to its securities
holders, in the case of an underwritten offering under
a registration statement pursuant to this Section, as
soon as reasonably practicable following completion of
the offering pursuant to such registration statement,
an earnings statement covering the period of at least
12 months, but not more than 18 months, beginning with
the first full calendar month after the completion of
such underwritten offering pursuant to this Section,
which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act, and will
furnish to the Holders at least 5 business days prior
to the filing thereof a copy of any amendment or
supplement to such registration statement or
prospectus.
The Company may require the Holder of Registerable
Shares as to which any registration is being effected
to furnish the Company such information regarding the
Holder and the distribution of such securities as the
Company may for time to time reasonably request in
writing.
The Holder agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the
kind described in subdivision (vii) of this Section
2.2, the Holder will forthwith discontinue its
disposition of Registerable Shares pursuant to the
registration statement relating to such Registerable
Shares until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by
subdivision (vii) of this Section 2.2 and, if so
directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than
permanent file copies, then in the Holder's possession
of the prospectus relating to such Registerable Shares
current at the time of receipt of such notice. In the
event the Company shall give any such notice, the
period mentioned in paragraph (ii) of this Section 2.2
shall be extended by the length of the period from and
including the date the Holder of Registerable Shares
covered by such registration statement shall have
received such notice to the date on which the Holder
has received the copies of the supplemented or amended
prospectus contemplated by paragraph (vii) of this
Section 2.2.
2.3 Underwritten offerings. The Holder of
Registerable Shares to be distributed by underwriters
in a registration pursuant to this Section shall be
parties to the underwriting agreement (including any
holdback agreements) between the Company and such
underwriters and may require that any or all of the
conditions precedent to the obligations of such
underwriters under such underwriting agreement also be
conditions precedent to the obligations of the Holder
of Registerable Shares. The Holder of Registerable
Shares shall not be required to make any
representations or warranties to or agreements with the
Company or the underwriters other than such
representations, warranties or agreements regarding the
Holder, the Holder's Registerable Shares and the
Holder's intended method of distribution as are
customarily given to the underwriters and any other
representation required by law.
2.4 Preparation; reasonable investigation.
The Company will give the Holder of Registrable Shares,
their underwriters, if any, and up to one designated
counsel and one designated accounting firm to represent
the interest of Holder, copies of each draft of the
registration statement, each prospectus included
therein or filed with the Commission, and each
amendment thereof or supplement thereto. Although
Winners will consider any comments or revisions
provided by such underwriters or accounting firm,
Winners shall retain sole discretion to include or
exclude such proposed comments or revisions and under
no condition shall Winners be required to delay the
filing of any registration statement, prospectus,
amendment, supplement or other related document pending
such consideration of such comments or revisions.
2.5 Registration expenses. The Company
shall bear all Registration Expenses except fees and
expenses of the Holder's designated counsel and
designated accounting firm. The Holder's participation
in the registration shall not require that it pay a
portion of the Registration Expenses and all
underwriting discounts and commissions applicable to
shares sold by the Holder shall be paid by the Company.
3. Definitions. Terms defined in the Settlement
Agreement, unless otherwise defined herein, shall have
the meanings provided in the Settlement Agreement when
used herein. As used herein, unless the context
otherwise requires, the following terms have the
following respective meanings:
Commission: The Securities and Exchange
Commission or any other Federal agency at the time
administering the Securities Act.
Common Stock: The common stock, $0.00001 par
value, of the Company.
Company: As defined in the introductory
paragraph of this Agreement.
Holder: As defined in the introductory
paragraph to this Agreement.
Person: A corporation, an association, a
partnership, an organization, a business, an
individual, a governmental or political subdivision or
a governmental agency.
Registerable Shares: (a) All Existing
Shares, Interim Additional Shares, Deficiency Shares
and Late Shares, (b) any additional shares of Common
Stock receivable or received by the Holder upon the
payment of stock dividends thereon, and (c) any
securities issued or issuable with respect to the
Common Stock referred to in the foregoing subdivision
by way of stock dividend or stock split or in
connection with a combination of shares,
recapitalization, merger, consolidation or other
reorganization or otherwise. Any particular
Registerable Shares shall cease to be Registerable
Shares when a registration statement with respect to
the sale of such securities shall have become effective
under the Securities Act and such securities shall have
been disposed of in accordance with such registration
statement.
Registration Expenses: All expenses incident
to the Company's performance of or compliance with
Section 2, including without limitation, all
registration, filing and National Association of
Securities Dealers, Inc. fees, all fees and expenses of
complying with securities or blue sky laws, all word
processing, duplicating and printing expenses,
messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its
independent public accountants, including the expenses
of any special audits or "cold comfort" letters
required by or incident to such performance and
compliance, and any fees, commissions, discounts and
disbursements of underwriters.
Securities Act: The Securities Act of 1933,
or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as of the
same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall
include a reference to the comparable section, if any,
of any such similar Federal statute.
Settlement Agreement: As defined in Section
1 of this Agreement.
4. Rule 144. The Company shall timely file the
reports required to be filed by it under the Securities
Exchange Act of 1934 (including but not limited to the
reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(1) of Rule 144 adopted
by the Commission under the Securities Act) and the
rules and regulations adopted by the Commission
thereunder.
5. Amendments and Waivers. This Agreement may
be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required
to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action
or omission to act, of the Holder.
6. Nominees for Beneficial Owners. In the event
that any Registerable Shares are held by a nominee for
the beneficial owners thereof, the beneficial owner
thereof may, at its election, be treated as the Holder
of such Registerable Shares for purposes of any request
or other action by the Holder pursuant to this
Agreement. If the beneficial owner of any Registerable
Shares so elects, the Company may require assurances
reasonably satisfactory to it of such owner's
beneficial ownership of such Registerable Shares.
7. Notices. Any notice or other communication
required or permitted to be given hereunder shall be
deemed to have been given if delivered, or five (5)
days after mailing by certified or registered mail,
return receipt requested, first class postage prepaid,
or one business day after the time dispatched by
telecopy; in every case addressed as follows:
(a) If to the Company:
WINNERS ENTERTAINMENT, INC.
MOUNTAINEER PARK, INC.
30448 Rancho Viejo Road, Suite 110
San Juan Capistrano, California 92675
Attention: Thomas K. Russell, Secretary
& General Counsel
Telephone: (714) 222-2220
Telecopier: (714) 222-0806
(b) If to the Holder:
JACKPOT ENTERPRISES, INC.
1110 Palms Airport Drive
Las Vegas, Nevada 89119
Attention: William R. Sherman
Vice President & General Counsel
Telephone: (702) 263-5555
Telecopier: (702) 263-5500
or at such address as the party addressed may from time
to time designate in writing to the other parties in
like manner. Any communication dispatched by telecopy
shall be confirmed by letter.
8. Miscellaneous.
(a) No inconsistent agreements. Without the
written consent of the Holder of the then outstanding
Registerable Shares, the Company will not on or after
the date of this Agreement enter into any agreement
with respect to its securities which is inconsistent
with the rights granted to the Holder in this Agreement
or otherwise conflicts with the provisions hereof.
(b) Assignment. This Agreement shall be
binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective
successors and assigns.
(c) Descriptive headings. The descriptive
headings of the several sections and paragraphs of this
Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
(d) Governing law. This Agreement shall be
construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of
the State of California without reference to the
principles of conflicts of laws.
(e) Counterparts. This Agreement may be
executed simultaneously in any number of counterparts,
and may be executed in any number of counterparts, each
of which shall be deemed an original, but all such
counterparts shall together constitute one and the same
instrument.
(f) Entire agreement. This Agreement
together with the Settlement Agreement embodies the
entire agreement and understanding between the Company
and the Holder and supersedes all prior agreements and
understandings related to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused this
agreement to be executed and delivered as of the date
first above written.
JACKPOT ENTERPRISES, INC.
/s/ Thomas K. Russell By: /s/ Jeffrey L. Gilbert
Secretary, Winners Name:
Entertainment, Inc. Title:
Secretary, Mountaineer
Park, Inc.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE AND NINE MONTHS ENDED MARCH 31, 1995 and 1994
(Dollars and shares in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
<TABLE> _______ _______ _______ _______
<S> <C> <C> <C> <C>
Primary:
Earnings:
Net income $ 1,672 $ 1,307 $ 4,765 $ 3,756
Add after-tax interest, net (A) 271
_______ _______ _______ _______
Net income, as adjusted $ 1,672 $ 1,307 $ 4,765 $ 4,027
======= ======= ======= =======
Shares:
Weighted average number of common
shares outstanding 9,247 9,230 9,229 9,208
Common shares issuable upon
exercise of stock options
and warrants, net of common
shares assumed to be repurchased
from the proceeds at the average
market price for the period 739
_______ _______ ______ _______
Weighted average number of common
shares and common share
equivalents outstanding 9,247 9,230 9,229 9,947
======= ====== ====== ======
Primary earnings per share:
Net income $ .18 $ .14 $ .52 $ .40
======= ====== ====== ======
Fully diluted (B):
Earnings:
Net income $ 1,672 $ 1,307 $ 4,765 $ 3,756
Add after-tax interest,
net (A) 461 370 1,375 970
_______ _______ _______ _______
Net income, as adjusted $ 2,133 $ 1,677 $ 6,140 $ 4,726
======= ======= ======= =======
Shares:
Weighted average number
of common shares and
common share equivalents
outstanding 9,247 9,230 9,229 9,947
Common shares issuable
upon exercise of stock
options and warrants, net
of common shares assumed
to be repurchased from
the proceeds using the
greater of the average
market price for the
period or the period-end
price 2,571 2,159 2,485 1,466
_______ ______ ______ ______
Weighted average number of
common shares and common
share equivalents outstanding,
as adjusted 11,818 11,389 11,714 11,413
======= ======= ======= =======
Fully diluted earnings
per share:
Net income $ .18 $ .15 $ .52 $ .41
======= ======= ======= =======
</TABLE>
_____________________
(A) Amounts represent a decrease in interest expense and an increase in
interest income as a result of the assumed reduction in borrowings
and increase in investments in U. S. government securities from the
application of the portion of the proceeds from the assumed
exercise of stock options and warrants which were not applied
towards the repurchase of outstanding common shares (equivalent to
20% of the common shares outstanding at the end of the applicable
period).
(B) These calculations are submitted in accordance with Regulation S-K
Item 601 (b) (ii) although not required by Footnote 2 to
paragraph 14 of APB Opinion No. 15 because they had no effect
or were antidilutive on earnings per share.
