UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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 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
incorporation or organization) Identification No.)
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
______________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
____________________________________________ _______________________
Common Stock - Par value $.01 per share, New York Stock Exchange
which include certain preferred stock
purchase rights
Securities registered pursuant to Section 12(g) of the Act: None
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: x
___
As of September 1, 1997, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $92,916,033.
As of September 1, 1997, there were 9,082,035 shares of the
Registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Proxy Statement relating to the 1997 Annual Meeting
of Stockholders are incorporated by reference into Part III of this
Report.
<PAGE>
PART I
Item 1. Business
________
General
_______
Jackpot Enterprises, Inc., a Nevada corporation, ("Jackpot" or
the "Company") has been actively engaged, through its subsidiaries,
in the gaming industry for over 30 years. The Company is one of
the largest gaming machine route operators in the State of Nevada,
operating, as of June 30, 1997, 4,075 gaming machines in 419
locations. Jackpot is an established leader in the operation of
gaming machines in multiple retail locations ("gaming machine route
operations"). In addition to its gaming machine route operations,
Jackpot, as of June 30, 1997, operated two casinos with 184 gaming
machines. However, as part of its strategy to exit its remaining
casino operations, Jackpot continues to market such properties for
sale.
As of June 30, 1997, Jackpot operated 4,259 gaming machines in
421 locations. Approximately 96% of the gaming machines were video
poker and 4% were reel-type slot and other machines. For the
fiscal year ended June 30, 1997 ("1997"), 97% of total revenues
were derived from Jackpot's gaming machine route operations and 3%
from its casino operations. Because of the integrated nature of
such operations, Jackpot is considered to be engaged in one
industry segment.
Jackpot's gaming machine route operations are subject to
seasonal fluctuations. The gaming play for such operations is
generally greater in the second and fourth quarters of Jackpot's
fiscal year. Unless the context indicates otherwise, references to
"Jackpot" and the "Company" include its direct and indirect
subsidiaries.
Business Development Strategy
_____________________________
The Company's business strategy is to enhance its position as
a leader in the Nevada gaming machine route market both through
internal growth and acquisition and to apply its gaming management
expertise and its regulatory experience to pursue strategic gaming
activities and other value oriented nongaming opportunities.
Specifically, the Company's business strategy includes the
following:
Enhance Gaming Route Operations. The Company continually seeks
to enhance its position as a leader in the Nevada gaming
machine route business by providing high levels of service and
popular gaming products, cultivating its existing relationships
with major customers and expanding its gaming machine route
operations through the selective addition of new locations
and/or the consolidation of other route operators. The
expected continued economic and population growth in Nevada
should also benefit the Company. In addition, as appropriate,
the Company will explore the possibility of expanding its
gaming machine route business to other jurisdictions.
Pursue Other Strategic Gaming and Nongaming Opportunities.
Jackpot continually reviews and evaluates potential
opportunities, in both gaming and nongaming. The Company's
strong financial position and access to capital represent a
competitive advantage which will enable management to explore
potential acquisitions and strategic combinations. Jackpot is
committed to pursue all such opportunities in order to improve
future earnings and enhance shareholder value. In evaluating
such potential opportunities the Company is looking for
candidates with either a value orientation or sustainable rates
of growth.
Although Jackpot is exploring expansion and acquisition
opportunities, there can be no assurance that such opportunities
will be available on terms acceptable to Jackpot or that if
completed that such opportunities will be successful.
Gaming Machine Route Operations
_______________________________
Gaming machine route operations involve the installation,
operation and service of gaming machines owned by Jackpot in
licensed, leased or subleased space in retail stores
(supermarkets, drug stores, merchandise stores and convenience
stores), bars and restaurants throughout Nevada. With respect to
retail stores, Jackpot generally licenses, leases or subleases
space in stores which are part of a chain of stores and installs
gaming machines and a change booth near the store's entrance, where
customer traffic is greatest. The number of gaming machines per
store is determined by licensing limitations, available space and
license, lease or sublease negotiations.
In 1997, approximately 77% of Jackpot's gaming machine route
operations revenues were generated by southern Nevada operations
and 23% by northern Nevada operations. Management believes that
Jackpot has a substantial market share of gaming machine operations
in supermarkets, drug stores and merchandise stores in Nevada, and
that its customers are primarily local Nevada residents.
As of June 30, 1997, Jackpot operated in its gaming machine
route business 4,075 gaming machines at 419 locations; 129 of the
locations contained 15 gaming machines, 44 of the locations
contained more than 15 machines and 246 of the locations contained
fewer than 15 machines. Change booths are operated at retail store
locations with generally 15 gaming machines or more during all
store business hours by employees of Jackpot who provide coins and
tokens to players of the gaming machines in exchange for currency.
On a regular basis, coins and tokens are removed from the gaming
machines and the coin and token supply of the change booth is
replenished.
Gaming machines are routinely serviced, repaired, and
maintained by mechanics employed by Jackpot. In the opinion of
management, Jackpot's gaming machines and associated equipment are
well-maintained, adequately insured, and in good working condition.
The following table sets forth certain historical data
showing the changes to the number of machines and locations in
Jackpot's gaming machine route operations through June 30, 1997:
<TABLE>
As of June 30,
1997(a) 1996 1995 1994 1993
______ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C>
Number of machines
on location 4,075 4,211 4,284 4,072 4,488
Number of locations 419 439 452 434 486
</TABLE>
(a) Excludes 272 machines at 16 locations due to the expiration of
a contract with a store chain on June 30, 1997.
Jackpot's agreements for its locations generally are in the
form of written license, lease, sublease or revenue sharing
contract and generally give Jackpot the exclusive right to install
gaming machines at such locations. License, lease and sublease
agreements, which accounted for approximately 68% of total gaming
machine route operations revenues in 1997, require payments of
fixed monthly fees based upon the amount of space used and/or the
number of gaming machines placed at the location. The remainder
provide for the payment to the location owner of a rental fee or a
revenue sharing arrangement based upon a percentage of the revenues
generated by Jackpot's gaming machines at such location. A
location owner is not permitted to receive gaming machine revenues
(lease or otherwise) based upon a percentage of revenues unless
such owner is licensed by the Nevada Gaming Commission. The
renewal or extension of agreements at existing locations have
generally resulted in increased monthly fees. Licenses, leases and
subleases have a wide range of terms and maturities, with
expiration dates, including option periods, extending from 1997 to
2008. License, lease and sublease agreements representing
approximately 4% of 1997 gaming machine route operations revenues
have terms expiring in fiscal 1998.
Prior to negotiating licenses, leases and subleases and
installing machines, Jackpot performs a study of market potential,
customer base, and comparative route locations in order to
determine the appropriate type and denominations of gaming machines
to be installed in each new location. This evaluation is ongoing
at all locations and machine mix changes are made accordingly to
maximize the operating performance of each location.
Jackpot has a significant amount of its gaming machine route
operations at retail stores which are part of a group of affiliated
store chains. Gaming machine route operations from two groups of
affiliated store chains in fiscal 1997, 1996 and 1995 each
accounted for more than 10% of Jackpot's total revenues in such
fiscal years. The largest six store chains (Albertson's, Inc.,
American Drug Stores, Inc., Kmart Corporation, Lucky Stores, Inc.,
Thrifty PayLess, Inc. and Warehouse Markets, Inc.) accounted for
approximately 60% of Jackpot's total revenues in 1997.
Most of Jackpot's licenses, leases and subleases with major
retail chains cover a number of specified stores in Nevada and
usually provide Jackpot with an option to install gaming machines
at any new stores of the retail chain opened in Nevada. All of the
licenses, leases and subleases require Jackpot to pay all
installation, maintenance and insurance expenses and all taxes in
connection with Jackpot's operations at the location. Some of the
Company's license, lease or sublease agreements require fixed
periodic increases in monthly fees during the term of the contract.
Jackpot's license, lease and sublease agreements generally provide
that in the event that Jackpot fails to pay the required rental or
license fees under such license, lease or sublease or defaults in
the performance of any of its other obligations thereunder, the
store operator can terminate the license, lease or sublease,
usually after notice and a cure period of between 10 and 30 days.
These agreements generally also provide that if the store operator
terminates its business at a location, the license, lease or
sublease is automatically terminated as to that location. Jackpot
believes that it is not in default under any of its present
licenses, leases or subleases. See Note 7 of Notes to Consolidated
Financial Statements.
The renewal or extension of agreements with major retail
chains have generally resulted in increased monthly fees. These
contracts often require fixed periodic increases in monthly fees
during the term of the contract. In 1997, Jackpot entered into
agreements for long-term contract extensions, which became
effective July 1, 1997, with four of its largest retail chain
store customers, two of which were not due to expire on June 30,
1997. A very competitive pricing environment caused the Company to
offer significant increases in location rent over the existing
agreements. Such agreements provide Jackpot the continued right to
operate gaming machines at certain existing locations and future
locations, if any, of such customers. As of June 30, 1997, these
agreements involve the operation of approximately 1,174 gaming
machines in 76 locations.
Despite a long-term relationship with Warehouse Markets, Inc.
Jackpot was not willing to agree with the terms sought for a
contract extension, which management believed were uneconomic. The
agreement, which expired on June 30, 1997, involved the operation
of approximately 272 gaming machines in 16 locations. In 1997,
Jackpot generated approximately 6% of its total revenues and a
significant amount of operating income from operations at such
customer's locations.
With respect to fiscal 1998, the Company's results of
operations will be adversely affected compared to 1997 due to the
intensely competitive market conditions prevailing for gaming
machine route operators, the loss of a significant chain store
customer described above and to significant increases in location
rent, effective July 1, 1997, in connection with long-term contract
renewals with four of Jackpot's largest chain store customers.
However, management believes that the following may lessen the
adverse effects described above: (i) increased revenues at
existing locations as a result of the maturing of several recently
opened new chain store locations, (ii) additional revenues from new
locations scheduled to be opened by Jackpot's largest chain store
customers, (iii) increased revenues at existing locations due to
capital improvements or replacements of gaming machines, and (iv)
certain cost reductions based on potential improvements to current
operating information systems. While management believes that
these events will occur, they are, in part, based upon factors that
are outside the Company's control. Accordingly, no assurance can
be given that such benefits will occur.
Casino Operations
_________________
On August 13, 1996, Jackpot's Board of Directors approved a
plan to dispose of Jackpot Owl, Inc. ( the "Owl Club") and
Jackpot's Highway 93 Casino, Inc. (the "Pony Express Casino"),
Jackpot's two remaining casinos, as part of its strategy to exit
its casino operations. This decision was reached after considering
that these casino operations generated unacceptably low returns on
capital, possessed limited growth prospects and commanded a
disproportionately high amount of management time.
During 1997, Jackpot entered into definitive agreements to
sell the Owl Club and the Pony Express Casino, subject to the
potential purchaser obtaining Nevada gaming regulatory approvals
and licenses. However, as a result of such potential purchaser's
withdrawal of his gaming application with the Nevada gaming
authorities in August 1997, such transactions did not occur. The
Company continues to market its two remaining casinos for sale.
However, unless Jackpot is able to enter into agreements for the
sale of these properties, on terms acceptable to Jackpot, no
assurance can be given that such disposals will occur.
The Owl Club, as of June 30, 1997, operated 90 gaming machines
and two live table games in Battle Mountain, Nevada. The Owl Club
also has a beverage operation incident to the conduct of gaming
activities, a restaurant operation and an eighteen room motel.
Jackpot owns the land and buildings used in the Owl Club's casino
and motel operations. The Owl Club primarily serves local
residents and markets with its food and informal and congenial
atmosphere.
Jackpot manages the casino operations of the Pony Express
Casino in Jackpot, Nevada under a five-year space lease agreement,
which Jackpot may terminate after September 15, 1997 upon fifteen
days written notice to the lessor. As of June 30, 1997, Jackpot
operated 94 gaming machines in approximately 2,600 square feet of
casino space. The Pony Express Casino attracts hotel guests, local
residents and tourists, primarily from the Idaho market.
For additional information concerning Jackpot's operations, see
Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Suppliers
_________
Jackpot purchases a variety of models and styles of gaming
machines primarily from one manufacturer, International Game
Technology ("IGT"). Although the Company purchased approximately
90% of its gaming machines from IGT in 1997, Jackpot does not
believe it is dependent upon IGT for future purchases. Jackpot
does not have a contractual commitment for future purchases with
IGT, or any other manufacturer. Each gaming machine accepts only
one denomination of coin and, with minor exceptions, each location
will have a variety of machines requiring different denominations
of coins. Gaming machines operated by Jackpot are multiple coin
play. Multiple coin play allows a player to wager several coins of
the same denomination on each play. Jackpot continually tests, on
a trial basis, new machines from various gaming machine
manufacturers to determine which games and models will appeal to
its customers to enhance play levels.
Employees
_________
As of June 30, 1997, Jackpot employed approximately 875
persons, the substantial portion of whom are non-management
personnel. None of Jackpot's employees are covered by a collective
bargaining agreement and Jackpot believes that it has satisfactory
employee relations.
Competition
___________
Gaming machines and gaming of all types are available in
Nevada in casinos and hotel casinos, as well as in locations
similar to those of Jackpot, all of which compete directly or
indirectly with Jackpot. Jackpot has been and is subject to
substantial direct competition for the operation of gaming machines
in approved locations from numerous small gaming machine route
operators and some large operators, located principally in Las
Vegas, Reno and their surrounding areas. Management believes at
least one of these competitors has more gaming machines or
locations than Jackpot. In addition, a limited number of these
competitors manufacture gaming machines. The principal methods of
competition for gaming machine locations are the lease, sublease,
license or revenue sharing terms, the service provided by the route
operator and the experience, reputation and financial strength of
the route operator. In recent years Jackpot has faced increased
competition in its gaming machine route operations, and as certain
of its licenses, leases and subleases have begun to expire, it has
faced strong competition from other route operators who have
attempted or captured locations by offering more favorable terms to
retail store owners. As a result of such competition, along with
the Company's continual evaluation of leases and strict adherence
to management's pricing guidelines, revenues generated from route
operations, which are attributable to revenue sharing contracts,
have decreased from $33.5 million in 1995 to $28.8 million in 1997.
For additional information concerning Jackpot's operations, see
Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Regulation and Licensing Requirements
_____________________________________
Nevada
The ownership and operation of casino gaming facilities and
gaming routes in Nevada are subject to: (i) the Nevada Gaming
Control Act and the regulations promulgated thereunder
(collectively, "Nevada Act"); and (ii) various local regulations.
The Company's gaming machine operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission
("Nevada Commission"), the Nevada State Gaming Control Board
("Nevada Board"), and local regulatory authorities. The Nevada
Commission, the Nevada Board and the local regulatory authorities
are collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy
which are concerned with, among other things: (i) the prevention
of unsavory or unsuitable persons from having a direct or indirect
involvement with gaming at any time or in any capacity; (ii) the
establishment and maintenance of responsible accounting practices
and procedures; (iii) the maintenance of effective controls over
the financial practices of licensees, including the establishment
of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record
keeping and requiring the filing of periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and
local revenues through taxation and licensing fees. Change in such
laws, regulations and procedures could have an adverse effect on
the Company's gaming operations.
Corporations that operate casinos and gaming machine routes in
Nevada are required to be licensed by the Nevada Gaming
Authorities. A gaming license requires the periodic payment of
fees and taxes and is not transferable. The Company is registered
by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, it is required periodically
to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada
Commission may require. The Company has been found suitable by the
Nevada Commission to own the stock of Cardivan Company, Corral Coin, Inc.,
Corral Country Coin, Inc., and Corral United, Inc.
(the "Route Subsidiaries") and Jackpot Gaming, Inc. Jackpot
Gaming, Inc. is registered as a holding corporation and is approved
by the Nevada Gaming Authorities to own the stock of the Owl Club
and the Pony Express Casino (the "Casino Subsidiaries"). No person
may become a stockholder of, or receive any percentage of profits
from, the Route Subsidiaries, Jackpot Gaming, Inc., or the Casino
Subsidiaries without first obtaining licenses and approvals from
the Nevada Gaming Authorities. The Company, the Route
Subsidiaries, Jackpot Gaming, Inc. and the Casino Subsidiaries have
obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to
engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company or any of its subsidiaries in order to determine
whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and
certain key employees of the Route Subsidiaries and the Casino
Subsidiaries must file applications with the Nevada Gaming
Authorities and may be required to be licensed or be found suitable
by the Nevada Gaming Authorities. Officers, directors and key
employees of the Company who are actively and directly involved in
gaming activities of the Company or its subsidiaries may be
required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application
for licensing for any cause which they deem reasonable. A finding
of suitability is comparable to licensing, and both require
submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a
finding of suitability must pay all the costs of the investigation.
Changes in licensed positions must be reported to the Nevada Gaming
Authorities and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable to
continue having a relationship with the Company or any of its
subsidiaries, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission
may require the Company and its subsidiaries to terminate the
employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in
Nevada.
The Company, Jackpot Gaming, Inc., the Route Subsidiaries and
the Casino Subsidiaries are required to submit detailed financial
and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing
transactions by the Company and its subsidiaries must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the
Company or any of its subsidiaries, the gaming licenses and
approvals they hold could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company, the subsidiary
involved, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could
be appointed by the Nevada Commission to operate the Company's
gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the
reasonable rental value of the Company's gaming properties) could
be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor
could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have his suitability as a
beneficial holder of the Company's voting securities determined if
the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5%
of the Company's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners
of more than 10% of the Company's voting securities apply to the
Nevada Commission for a finding of suitability within thirty days
after the Chairman of the Nevada Board mails the written notice
requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company's
voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds
the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting
securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly
or indirectly, the election of a majority of the members of the
board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of
the Company, or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding
the Company's voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and
other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and (iii) such
other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within thirty days after being ordered to
do so by the Nevada Commission or the Chairman of the Nevada Board,
may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after requests, fails to identify the
beneficial owner. Any stockholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may
be prescribed by the Nevada Commission may be guilty of a criminal
offense. The Company is subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a stockholder
or to have any other relationship with the Company or any of its
subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or
otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash
at fair market value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the debt
security of a Registered Corporation. If the Nevada Commission
determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the
prior approval of the Nevada Commission, it: (i) pays to the
unsuitable person any dividend, interest, or any distribution
whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any
payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Gaming Authorities at
any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity
of the beneficial owner to the Nevada Gaming Authorities. A
failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render
maximum assistance in determining the identity of the beneficial
owner. The Nevada Commission has required that the Company's stock
certificates bear a legend indicating that the securities are
subject to the Nevada Act.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or the proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the
accuracy or adequacy of the prospectus or the investment merits of
the securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby he
obtains control, may not occur without the prior approval of the
Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada
Commission in a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may
also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licensees, and Registered Corporations that are affiliated with
those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of
these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability of
corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the
Company can make exceptional repurchases of voting securities above
the current market price thereof and before a corporate acquisition
opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by
the Company's Board of Directors in response to a tender offer made
directly to the Registered Corporation's stockholders for the
purposes of acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending
upon the type of gaming or activity involved, are payable to the
State of Nevada and to the local jurisdictions. Depending upon the
particular fee or tax involved, these fees and taxes are payable
either monthly, quarterly or annually and are based upon any of:
(i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games
operated. A casino entertainment tax is also paid by casino
operations where entertainment is furnished in connection with the
selling of food or refreshments. Nevada licensees that hold a
license as an operator of a slot route, or a manufacturer's or
distributor's license, also pay certain fees and taxes to the State
of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes to
become involved in a gaming venture outside of Nevada is required
to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or
decrease in the discretion of the Nevada Commission. Thereafter,
Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject
to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fail to conduct the foreign gaming
operation in accordance with the standards of honesty and integrity
required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming
taxes and fees, or employ a person in the foreign operation who has
been denied a license or finding of suitability in Nevada on the
ground of personal unsuitability.
The sale of alcoholic beverages at the Company's casinos is
subject to licensing, control and regulation by the applicable
local authorities. All licenses are revocable and are not
transferable. The agencies involved have full power to limit,
condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material
adverse effect upon the operations of the Company's casinos.
Federal Regulation
The Federal Gambling Devices Act of 1962 (the "Federal Act")
makes it unlawful, in general, for a person to manufacture,
deliver, or receive gaming machines, gaming machine type devices,
and components thereof across interstate lines or to operate gaming
machines unless that person has first registered with the Attorney
General of the United States. Jackpot's subsidiaries have so
registered and must renew their registration annually. In
addition, various record keeping and equipment identification
requirements are imposed by the Federal Act. Violation of the
Federal Act may result in seizure and forfeiture of equipment, as
well as other penalties.
Other Jurisdictions
Other jurisdictions also require various licenses, permits,
and approvals in connection with the ownership and operation of
gaming facilities. The operation of gaming devices and lottery
devices is subject to extensive licensing requirements and
regulatory compliance.
If Jackpot proceeds with expansion into any other state or
foreign jurisdiction, it will also be necessary for the appropriate
officers, employees, corporate subsidiaries and other persons or
entities to apply for and obtain all necessary gaming and
distributing licenses.
As in Nevada, state agencies and the local authorities having
jurisdiction over such activities have full power and discretion to
limit, condition, suspend and revoke such licenses or approvals and
any disciplinary action against Jackpot's affiliates in such
jurisdictions could (and revocation would) have a material adverse
effect on the operations of Jackpot in such states or local
jurisdictions.
Other
Jackpot maintains rigorous internal accounting controls in
accordance with the regulations of the Nevada Commission. Jackpot
carries insurance of such types and in such amounts as management
determines to be prudent from time to time.
Item 2. Properties
__________
Jackpot's corporate headquarters are located in Las Vegas,
Nevada with approximately 34,000 square feet of office, warehouse
and shop space under a lease which expires in 2006, with certain
options for renewal. Jackpot believes its properties are adequate
and suitable for its purposes. See Note 3 of Notes to Consolidated
Financial Statements for additional information as to Jackpot's
properties in Battle Mountain, Nevada and Jackpot, Nevada. The
following table sets forth the location, use, size, and percentage
utilization of Jackpot's properties:
<PAGE>
<TABLE>
Approximate Percentage
Location Use Size Utilization
________ ________________ _____________ ___________
<S> <C> <C> <C>
OWNED PROPERTIES:
Battle Mountain, Casino and motel 10,000 sq. ft. 100%
Nevada operations
LEASED PROPERTIES:
Las Vegas, Nevada Executive offices, 34,000 sq. ft. 100%
warehouse and shop
Reno, Nevada Offices and shop 10,000 sq. ft. 100%
Throughout Nevada Gaming machine various sq. ft. 100%
operations per location
Jackpot, Nevada Casino operations 2,600 sq. ft. 100%
</TABLE>
Item 3. Legal Proceedings
_________________
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
Not applicable.
Executive Officers of the Registrant
____________________________________
The executive officers of Jackpot are appointed by the Board
of Directors for an unspecified term and can be terminated at the
Board's discretion; however, Mr. Kornstein has an employment
agreement with Jackpot which currently expires on September 30,
2000. The agreement is automatically extended for additional one
year periods on each October 1 unless, not later than the March 31,
immediately preceding each October 1, notice is given by Jackpot or
Mr. Kornstein. The current executive officers of Jackpot (none of
whom has a family relationship with one another), their ages and
positions are as follows:
<PAGE>
<TABLE>
Year Became An
Name Age Position Executive Officer
________________ ___ _______________________ _________________
<S> <C> <C> <C>
Don R. Kornstein 45 President, 1994
Chief Executive Officer
and Director
George Congdon 48 Senior Vice President - 1995
Operations
Bob Torkar 46 Senior Vice President - 1991
Finance, Treasurer and
Chief Accounting Officer
</TABLE>
Don R. Kornstein was appointed President, Chief Executive
Officer and a director of Jackpot on September 8, 1994. Prior to
his appointment with Jackpot, Mr. Kornstein was a Senior Managing
Director of Bear, Stearns & Co. Inc., a leading worldwide
investment banking firm where he had been employed since 1977. Mr.
Kornstein was in such firm's Investment Banking Department and was
head of that firm's gaming industry group.
George Congdon was appointed Senior Vice President -
Operations of Jackpot on May 11, 1995. From October 1990 to May
1995, Mr. Congdon held various management positions with certain of
Jackpot's subsidiaries including Vice President of Route Operations
and Senior Vice President of Operations. Prior to October 1990,
Mr. Congdon was employed for over sixteen years in various
operating positions by Bally Manufacturing, Inc. and Bally
Distributing, Inc., gaming machine manufacturers and distributors.
Bob Torkar was appointed Vice President - Finance, Treasurer
and Chief Accounting Officer of Jackpot on July 1, 1991 and Senior
Vice President on October 15, 1993. From February 1991 to June
1991, Mr. Torkar was a financial consultant to Jackpot. Prior to
the consulting assignment with Jackpot, Mr. Torkar was Vice
President and Chief Financial Officer with Furnishings 2000, Inc.,
a publicly traded retail furnishings company in San Diego,
California, having spent seven years (1983-1990) with such
corporation.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
_________________________________________________
Jackpot's common stock, par value $.01 per share (the "Common
Stock"), is listed on the New York Stock Exchange (NYSE) with the
trading symbol "J". The following table sets forth the range of
high and low prices for shares of the Common Stock for the fiscal
quarters indicated, as furnished by the NYSE, and the per share
cash dividends paid during those fiscal quarters.
<TABLE>
JACKPOT COMMON STOCK
___________________________________________________________________
Dividends
High Low Paid
___________________________________________________________________
<S> <C> <C> <C>
Fiscal 1996
First Quarter $11.25 $ 9.38 $.08
Second Quarter 13.88 10.75 .08
Third Quarter 12.63 10.75 .08
Fourth Quarter 13.88 10.75 .08
___________________________________________________________________
Fiscal 1997
First Quarter $12.75 $ 9.63 $.08
Second Quarter 11.25 9.63 .08
Third Quarter 10.75 9.75 -
Fourth Quarter 12.75 9.63 -
___________________________________________________________________
</TABLE>
As of September 5, 1997 there were approximately 2,000 holders
of record of Common Stock. The number of holders of record of
Jackpot's Common Stock on September 5, 1997 was computed by a count
of record holders.
A policy of quarterly cash dividends, which had been effective
since July 1987, was suspended on October 29, 1996 by Jackpot's
Board of Directors. Future payment of quarterly cash dividends, if
any, is subject to periodic review and reconsideration. Jackpot
paid two quarterly cash dividends and four quarterly cash dividends
of $.08 per share to its stockholders of record in fiscal 1997 and
1996, respectively.
<PAGE>
Item 6. Selected Financial Data
_______________________
The following information has been derived from Jackpot's
consolidated financial statements:
<TABLE>
Years Ended June 30,
_______________________________________________
1997 1996 1995 1994 1993
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
(Dollars and shares in thousands, except per share data)
OPERATING DATA:
Total revenues $91,904 $91,108 $96,853 $98,335 $83,271
___________________________________________________________________
Operating income $ 9,822 $ 7,094(1) $ 8,968 $ 9,409(1) $11,251
___________________________________________________________________
Income (loss) from
continuing
operations $11,368 $ 8,610 $ 9,875 $(7,052)(2)$10,018
___________________________________________________________________
Net income (loss) $ 7,844 $ 5,855(3) $ 6,616 $(4,584)(3)$ 6,506
___________________________________________________________________
Earnings (loss)
per common and
common equivalent
share (4)(5):
Net income
(loss) $ .85 $ .63 $ .72 $ (.50) $ .80
___________________________________________________________________
Earnings (loss)
per common share -
assuming full
dilution (4)(6):
Net income
(loss) $ .85 $ .63 $ .72 $ (.50) $ .78
___________________________________________________________________
Dividends declared
per share (4) $ .16 $ .32 $ .32 $ .31 $ .38
___________________________________________________________________
Average primary
common equivalent
shares (4) 9,237 9,307 9,235 9,211 8,532
___________________________________________________________________
OTHER DATA:
EBITDA (7) $16,557 $17,093 $18,125 $18,896 $19,338
Net cash
provided by
operating
activities $14,584 $12,778 $18,068 $18,367 $17,707
Net cash used
in investing
activities $(1,557) $(3,091) $(4,330) $(9,689) $(8,338)
Net cash
provided by
(used in)
financing
activities $(4,106) $(3,579) $(4,365) $(4,128) $ 890
Capital
expenditures $ 3,393 $ 4,267 $ 4,044 $13,452(8) $ 3,187
Amortization $ 1,728 $ 2,199 $ 2,880 $ 2,916 $ 2,326
Depreciation $ 3,461 $ 4,284 $ 5,349 $ 5,813 $ 4,922
_____________________________________________________________________
BALANCE SHEET DATA
(at end of period):
Working capital $46,329 $40,336 $31,640 $22,022 $28,614
_____________________________________________________________________
Total assets $75,267 $70,742 $71,959 $73,459 $76,752
_____________________________________________________________________
Long-term debt,
net of
current portion $ $ $ 271 $ 1,403 $ 2,584
_____________________________________________________________________
Stockholders'
equity $67,281 $63,495 $60,216 $56,266 $63,361
_____________________________________________________________________
(See notes on following page)
(1) Operating income includes: in 1996, a pretax loss of $2.2
million from the write-down and sale of certain casino
properties (see Note 3 of Notes to Consolidated Financial
Statements); in 1994, a pretax cost of $1.3 million in
connection with the severance agreement with Jackpot's former
chief executive officer.
(2) Income (loss) from continuing operations includes: in 1994, a
pretax loss of $16.9 million ($11.0 million after tax, or
$1.20 per share) for Jackpot's share of the closing costs,
write-down of certain assets and operating loss in a dockside
casino facility in Tunica, Mississippi.
(3) Net income (loss) includes: in 1996, a pretax loss of $2.2
million from the write-down and sale of certain casino
properties (see Note 3 of Notes to Consolidated Financial
Statements); in 1994, a pretax loss of $16.9 million ($11.0
million after tax, or $1.20 per share) for Jackpot's share of
the closing costs, write-down of certain assets and operating
loss in a dockside casino facility in Tunica, Mississippi.
(4) All share and per share amounts have been retroactively
adjusted in 1993 for a 10% stock dividend declared July 1,
1993.
(5) Earnings per share calculations in 1993 have been based on
weighted average shares outstanding adjusted for the number
of common share equivalents attributable to stock options and
warrants.
(6) Earnings per share - assuming full dilution in 1993 includes
the assumed conversion of certain convertible subordinated
debentures. The average common and common equivalent shares
outstanding assuming full dilution was 10.0 million shares in
1993.
(7) EBITDA represents earnings before interest expense, income
tax, depreciation, amortization and other non-cash items.
EBITDA should not be construed as an alternative to operating
income or net income (as determined in accordance with
generally accepted accounting principles), as an indicator of
the Company's operating performance, as an alternative to
cash flows provided by operating activities (as determined in
accordance with generally accepted accounting principles), or
as a measure of liquidity. EBITDA is presented solely as a
supplemental disclosure because management believes that it
enhances the understanding of the financial performance of a
company with substantial amortization and depreciation
expense.
(8) Capital expenditures in 1994 includes purchases of $9.0
million of property in connection with a dockside casino
facility in Tunica, Mississippi.
Item 7. Management's Discussion and Analysis of Financial
_________________________________________________
Condition and Results of Operations
___________________________________
Capital Resources and Liquidity
_______________________________
Cash Flows:
Jackpot's principal sources of cash for the fiscal years
ended June 30, 1997, 1996 and 1995 (referred to herein as "1997",
"1996" and "1995", respectively), consisted of the cash flows from
operating activities and its available cash and cash equivalents.
Net cash provided by operating activities in 1997 increased
$1.8 million, from $12.8 million in 1996 to $14.6 million in 1997.
The increase of $1.8 million was due primarily to the increase
from the change in other current liabilities. Net cash used in
investing activities in 1997 was approximately $1.6 million which
included cash used of approximately $3.9 million and cash received
of approximately $2.3 million. The $3.9 million of cash used
included payments of approximately $3.4 million primarily for
purchases of property and equipment in connection with Jackpot's
gaming machine route operations ("route operations"). The $2.3
million of cash received from investing activities consisted
primarily of the proceeds from the sale of Jackpot's interest in
Jackpot City, Inc. (the "Nugget"), a casino operation located in
Reno, Nevada and aggregate proceeds from sales of other non-
current assets.
Net cash used in financing activities in 1997 was
approximately $4.1 million which resulted from payments for
repurchases of common stock and dividends of approximately $2.8
million and $1.5 million, respectively, net of approximately $.2
million of proceeds from the issuance of common stock upon the
exercise of stock options.
As a result of the combination of net cash provided by
operating activities of approximately $14.6 million less net cash
used in investing and financing activities of approximately $1.6
million and $4.1 million, respectively, cash and cash equivalents
in 1997 increased approximately $8.9 million.
Net cash provided by operating activities in 1996 decreased
$5.3 million, from $18.1 million in 1995 to $12.8 million in 1996.
The decrease of $5.3 million resulted primarily from a decrease of
$2.5 million in the route operations margin (from $21.6 million in
1995 to $19.1 million in 1996) and an increase of $1.8 million for
payments of Federal income tax. Net cash used in investing
activities in 1996 was approximately $3.1 million which included
cash used of approximately $4.7 million and cash received of
approximately $1.6 million. The $4.7 million of cash used
included payments of approximately $4.3 million primarily for
purchases of property and equipment in connection with Jackpot's
route operations. The $1.6 million of cash received from
investing activities consisted primarily of aggregate proceeds
from sales of other non-current assets.
Net cash used in financing activities in 1996 was
approximately $3.6 million which consisted primarily of the
repayment of approximately $.9 million of long-term debt, the
payment of approximately $3.0 million of dividends, net of
approximately $.3 million of proceeds from the issuance of common
stock upon the exercise of stock options.
As a result of the combination of net cash provided by
operating activities of approximately $12.8 million less net cash
used in investing and financing activities of approximately $3.1
million and $3.6 million, respectively, cash and cash equivalents
in 1996 increased approximately $6.1 million.
Net cash provided by operating activities in 1995 was
approximately $18.1 million. Net cash used in investing
activities in 1995 was approximately $4.3 million which included
cash used of approximately $6.0 million and cash received of
approximately $1.7 million. The $6.0 million of cash used
included payments of approximately $4.0 million primarily for
purchases of property and equipment in connection with Jackpot's
route operations and approximately $1.5 million 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. The $1.7 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 1995 was
approximately $4.4 million which consisted primarily of the
repayment of approximately $1.4 million of long-term debt and the
payment of approximately $3.0 million of dividends.
As a result of the combination of net cash provided by
operating activities of approximately $18.1 million less net cash
used in investing and financing activities of approximately $4.3
million and $4.4 million, respectively, cash and cash equivalents
in 1995 increased approximately $9.4 million.
Liquidity:
In 1997, Jackpot purchased approximately $3.4 million of
property and equipment, as described above. Approximately $3.0
million of the $3.4 million was associated with equipment
purchased for gaming locations. Management anticipates that
Jackpot will purchase approximately $8.5 million of property and
equipment, exclusive of business acquisitions, if any, for the
fiscal year ending June 30, 1998 ("1998").
At June 30, 1997, Jackpot had cash and cash equivalents of
approximately $47.9 million, an increase of approximately $8.9
million, or 23%, from the beginning of 1997. Jackpot had working
capital of approximately $46.3 million at June 30, 1997, which
increased from $40.3 million at June 30, 1996 primarily as a
result of the activities described above.
On October 29, 1996, Jackpot's Board of Directors announced
that it would suspend future payment of quarterly cash dividends,
subject to periodic review and reconsideration. Further, the
Board authorized Jackpot's management to repurchase up to 500,000
shares of its common stock, from time to time, at prevailing
market prices. Since such authorization, Jackpot has repurchased
283,771 shares of common stock at a cost of approximately $2.8
million.
On May 24, 1995, Jackpot notified Phar-Mor, Inc. ("Phar-
Mor"), a large chain store, that it was in default under the terms
of certain agreements. On July 25, 1995, Phar-Mor notified
Jackpot that it disagreed with Jackpot's position and asserted
that Jackpot was in default under the terms of an amended
agreement. On or about March 7, 1996, Phar-Mor filed a lawsuit
against Jackpot in the United States Bankruptcy Court for the
Northern District of Ohio, claiming it is owed approximately $1
million under the amended agreement. Jackpot has filed an answer
and counterclaim reflecting its position that under an original
agreement Jackpot is owed in excess of $3 million. All discovery
has been completed and the parties have filed cross motions for
summary judgment. The Court has not yet ruled upon such motions.
Jackpot, based upon discussions with counsel, does not believe it
is probable that Phar-Mor will prevail in this matter. If Phar-
Mor were to prevail, Jackpot could be liable for certain
obligations up to $1 million. If Jackpot were to prevail, it
would become an unsecured creditor of Phar-Mor in an amount in
excess of $3 million. For further information concerning this
matter, see Note 7 of Notes to Consolidated Financial Statements.
Management believes Jackpot's working capital and cash
provided by operations will be sufficient to enable Jackpot to
meet its planned capital expenditures and other cash requirements
in 1998. Jackpot continues to selectively explore expansion
opportunities, both in and outside Nevada, and various potential
acquisitions, both gaming and nongaming. Management believes
working capital and cash provided by operations will be sufficient
to enable Jackpot to pursue expansion opportunities; however,
Jackpot may seek additional debt or equity financing to facilitate
expansion opportunities and potential acquisitions.
Recently Issued Accounting Standards:
In March 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which is
effective for fiscal years beginning after December 15, 1995.
SFAS 121 requires that long-lived assets and certain identifiable
intangible assets to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The adoption of
SFAS 121, which was effective July 1, 1996, had no effect on the
consolidated financial statements.
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for fiscal years
beginning after December 15, 1995. Although SFAS 123 encourages
an entity to measure compensation by applying the fair value
method of accounting for employee stock-based compensation
arrangements, it permits an entity to continue to account for
employee stock-based compensation arrangements under the
provisions of Accounting Principles Board Opinion 25 ("APB 25").
Jackpot has elected to continue to account for stock-based compensation
in accordance with APB 25. The pro forma effect on net income and
earnings per share, as if the fair value recognition provisions
had been applied, is provided in a note to the consolidated
financial statements, as required by SFAS 123. See Note 5 of Notes
to Consolidated Financial Statements.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for periods, including interim periods, ending
after December 15, 1997. Earlier adoption of the statement is not
permitted. SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS"), including the replacement
of the presentation of primary EPS with the presentation of basic
EPS, as defined. Upon adoption of SFAS 128, all prior-period EPS
data presented shall be restated to conform with the provisions of
the statement. As required by SFAS 128, Jackpot will adopt this
statement for the three month period ending December 31, 1997.
Management believes that the implementation of SFAS 128 will not
have a significant impact on EPS.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129"), which is effective for periods
ending after December 15, 1997. SFAS 129 establishes standards
for disclosing information about an entity's capital structure.
Management intends to comply with the disclosure requirements of
this statement.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which is effective for fiscal years beginning after
December 15, 1997. SFAS 130 requires companies to classify items
of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. Management does not believe this statement
will have a material impact on the consolidated financial
statements.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131"), which is
effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes additional standards for segment reporting in
the financial statements. Management has not determined the
extent of the disclosure required by SFAS 131.
Overview
________
Jackpot has a significant amount of its route operations at
retail stores which are part of a group of affiliated store
chains. Route operations from two groups of affiliated store
chains in 1997, 1996 and 1995 each accounted for more than 10% of
Jackpot's total revenues in such fiscal years. The largest six
store chains (Albertson's, Inc., American Drug Stores, Inc., Kmart
Corporation, Lucky Stores, Inc., Thrifty PayLess, Inc. and
Warehouse Markets, Inc.) accounted for approximately 60% of
Jackpot's total revenues in 1997. The renewal or extension of
agreements with such customers have generally resulted in
increased monthly fees. These contracts often require fixed
periodic increases in monthly fees during the term of the
contract. With respect to the accounting treatment of fixed
periodic increases in monthly fees associated with these
contracts, the Company is required to average annual lease costs
over the term of the contract. As a result of such accounting
treatment, annual lease costs generally increase significantly in
the first year of an extended contract for the respective
locations covered by the contract and, thereafter, remain constant
for existing locations during the term of the contract.
In 1997, Jackpot entered into agreements for long-term
contract extensions, which became effective July 1, 1997, with
four of its largest retail chain store customers, two of which
were not due to expire on June 30, 1997. A very competitive
pricing environment caused the Company to offer significant
increases in location rent over the existing agreements. Such
agreements provide Jackpot the continued right to operate gaming
machines at certain existing locations and future locations, if
any, of such customers. As of June 30, 1997, these agreements
involve the operation of approximately 1,174 gaming machines in 76
locations.
Despite a long-term relationship with Warehouse Markets, Inc.
Jackpot was not willing to agree with the terms sought for a
contract extension, which management believed were uneconomic.
The agreement, which expired on June 30, 1997, involved
the operation of approximately 272 gaming machines in 16
locations. In 1997, Jackpot generated approximately 6% of its
total revenues and a significant amount of operating income from
operations at such customer's locations.
With respect to 1998, the Company's results of operations
will be adversely affected compared to 1997 due to the intensely
competitive market conditions prevailing for gaming machine route
operators, the loss of a significant chain store customer
described above and to significant increases in location rent,
effective July 1, 1997, in connection with long-term contract
renewals with four of Jackpot's largest chain store customers.
However, management believes that the following may lessen
the adverse effects described above: (i) increased revenues at
existing locations as a result of the maturing of several recently
opened new chain store locations, (ii) additional revenues from
new locations scheduled to be opened by Jackpot's largest chain
store customers, (iii) increased revenues at existing locations
due to capital improvements or replacements of gaming machines,
and (iv) certain cost reductions based on potential improvements
to current operating information systems. While management
believes that these events will occur, they are, in part, based
upon factors that are outside the Company's control. Accordingly,
no assurance can be given that such benefits will occur.
<PAGE>
Results of Operations
_____________________
The table below presents the changes in comparative financial data from
1995 to 1997 (dollars in thousands):
</TABLE>
<TABLE>
Years Ended June 30,
___________________________________________________________________
1997 1996 1995
________________________ __________________________ ______________
Percent Percent Percent Percent Percent
of Increase of Increase of
Amount Revenues(Decrease)Amount Revenues (Decrease) Amount Revenues
______ ________ ________ ______ ________ ________ ______ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Route
operations $88,895 96.7% 6.4% $83,533 91.7% (5.0)% $ 87,892 90.7%
Casino
operations 3,009 3.3 (60.3) 7,575 8.3 (15.5) 8,961 9.3
_______ _____ _____ _______ _____ _____ ________ _____
Totals 91,904 100.0 .9 91,108 100.0 (5.9) 96,853 100.0
_______ _____ _____ _______ _____ _____ ________ _____
Costs
and
expenses:
Route
operations 69,905 76.0 8.4 64,460 70.8 (2.8) 66,342 68.5
Casino
operations 2,835 3.1 (57.4) 6,661 7.3 (15.7) 7,904 8.1
Amortization 1,728 1.9 (21.4) 2,199 2.4 (23.6) 2,880 3.0
Depreciation 3,461 3.8 (19.2) 4,284 4.7 (19.9) 5,349 5.5
General and
admin-
istrative 4,153 4.5 (.2) 4,163 4.5 (23.0) 5,410 5.6
Loss from
write-down
and sale
of casino
properties 2,247 2.5
_______ _____ _____ _______ _____ _____ _______ _____
Totals 82,082 89.3 (2.3) 84,014 92.2 (4.4) 87,885 90.7
_______ _____ _____ _______ _____ _____ _______ _____
Operating
income 9,822 10.7 38.5 7,094 7.8 (20.9) 8,968 9.3
Other
income, net 1,546 1.6 2.0 1,516 1.7 67.1 907 .9
_______ _____ _____ _______ ____ _____ _______ _____
Income
before
income tax 11,368 12.3 32.0 8,610 9.5 (12.8) 9,875 10.2
Provision
for
income tax 3,524 3.8 27.9 2,755 3.1 (15.5) 3,259 3.4
_______ _____ _____ _______ ____ _____ _______ _____
Net income $ 7,844 8.5% 34.0% $ 5,855 6.4% (11.5)% $ 6,616 6.8%
======= ===== ===== ======= ==== ===== ======= =====
</TABLE>
Revenues generated from route operations are attributable to fixed
payment leases and revenue sharing contracts. Such revenues for 1997,
1996 and 1995 are summarized below (dollars in thousands):
<TABLE>
1997 1996 1995
___________________ ___________________ ____________________
Percent Percent Percent
of route of route of route
operations operation operations
Amount revenues Amount revenues Amount revenues
_______ ___________ _______ __________ _______ ____________
<S> <C> <C> <C> <C> <C> <C>
Route
operations:
Fixed
payment
leases $60,106 67.6% $53,258 63.8% $54,386 61.9%
Revenue
sharing
contracts 28,789 32.4 30,275 36.2 33,506 38.1
_______ _____ _______ _____ _______ _____
$88,895 100.0% $83,533 100.0% $87,892 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
1997 compared to 1996
_____________________
Revenues:
Total revenues in 1997 increased $.8 million, from $91.1
million in 1996 to $91.9 million in 1997. The increase in total
revenues of $.8 million was the net result of an increase of $5.4
million (from $83.5 million in 1996 to $88.9 million in 1997) in
route operations revenues and a decrease of $4.6 million (from
$7.6 million in 1996 to $3.0 million in 1997) in casino operations
revenues.
The increase in route operations revenues of $5.4 million,
which represented a 6.4% increase, resulted from a combination of
additional revenues generated from new and existing locations, net
of lost revenues from terminated locations. In 1997, new
locations generated revenues of $6.3 million and existing
locations generated additional revenues of $2.9 million.
Terminated locations had generated revenues of $3.8 million in
1996.
As described previously, a significant amount of Jackpot's
route operations revenues is derived from five retail chain store
customers pursuant to license or lease agreements. As of June 30,
1997, such agreements involved the operation of 1,539 machines in
98 locations.
The decrease in casino operations revenues in 1997 of $4.6
million was due primarily to the ceasing of operations at the
Debbie Reynolds' Hotel and Casino ("Debbie's Casino"), effective
March 31, 1996, and the sale of Jackpot's interest in the Nugget
on June 30, 1996. 1996 includes revenues of $4.3 million
generated at these two locations.
Costs and expenses:
Route operations expenses in 1997 increased $5.4 million
(from $64.5 million in 1996 to $69.9 million in 1997) and, as a
percentage of route operations revenues, increased to 78.6% in
1997 from 77.2% in 1996. The increase of $5.4 million in 1997 was
attributable to increases of $2.9 million in location rent
expense, which was principally related to new chain locations,
$1.3 million in workers' compensation and group health costs, $.4
million in payroll costs and $.8 million in other route operations
expenses. Route operations expenses in 1997 increased as a
percentage of route operations revenues primarily because of an
increase in location rent, as a percentage of revenues,
attributable to revenue sharing contracts and to increases in the
costs and expenses described above. In general, the costs
associated with revenues generated at new revenue sharing
locations have been greater as a percentage of revenues than have
the costs associated with the lost revenues.
Casino operations expenses in 1997 decreased $3.8 million,
from $6.6 million in 1996 to $2.8 million in 1997. With respect
to casino operations expenses, 1996 includes $3.8 million of costs
and expenses incurred by the Nugget and Jackpot's casino
operations at Debbie's Casino.
Amortization expense decreased $.5 million in 1997, from $2.2
million in 1996 to $1.7 million in 1997. The decrease in
amortization expense in 1997 was primarily attributable to
reductions in amortization expense related to lease acquisition
costs and prior service costs associated with the Jackpot
Retirement Plan for Directors. 1997 did not include any
amortization expense of prior service costs as all such costs have
been fully amortized at June 30, 1996.
Depreciation expense in 1997 decreased $.8 million, from $4.3
million in 1996 to $3.5 million in 1997. The decrease in
depreciation expense in 1997 was primarily attributable to gaming
machines acquired in connection with the purchase of a gaming
machine route business in 1992, which had become fully depreciated
in 1996.
General and administrative expenses in 1997 remained constant
at approximately $4.2 million compared to 1996.
Other income (expense):
Other income (expense) in 1997, which consists primarily of
tax-exempt interest income, remained constant at approximately
$1.5 million compared to 1996.
Other:
The effective tax rate in 1997 was approximately 31%, which
was slightly lower than the 32% rate in 1996 primarily because of
the increase in the tax benefit from tax-exempt interest income in
1997.
General:
Operating income in 1997 increased $2.7 million, from $7.1
million in 1996 to $9.8 million in 1997. Operating income in 1996
includes a charge of approximately $2.2 million, which consisted
primarily of the write-down of the carrying amount of certain
long-lived assets of Jackpot Owl, Inc. (the "Owl Club") to fair
value. The remainder of the increase in operating income of
approximately $.5 million resulted primarily from a decrease in
amortization and depreciation expenses of approximately $1.3
million, net of a decrease in the casino operations operating
margin of $.7 million. The decrease of $.7 million (from $.9
million in 1996 to $.2 million in 1997) was due primarily to the
ceasing of Jackpot's operations at Debbie's Casino and the sale of
Jackpot's interest in the Nugget, as previously described.
Net income in 1997 increased $2.0 million (from $5.8 million
in 1996 to a record $7.8 million in 1997) and earnings per share
in 1997 was a record $.85, versus earnings per share in 1996 of
$.63 due primarily to the results of the operations described
above.
1996 compared to 1995
_____________________
General:
On August 13, 1996, Jackpot's Board of Directors approved a
plan to dispose of the Owl Club and Jackpot's Highway 93 Casino,
Inc. (the "Pony Express Casino"), Jackpot's two remaining casinos,
as part of its strategy to exit its casino operations. This
decision was reached after considering that these casino
operations generated unacceptably low returns on capital,
possessed limited growth prospects and commanded a
disproportionately high amount of management time.
Prior to the Board's approval to dispose of Jackpot's two
remaining casinos, Jackpot sold its interest in the Nugget
effective June 30, 1996. As a result of Jackpot's decision to
dispose of its remaining casinos and the sale of the Nugget, a
charge of approximately $2.2 million was recorded in the fourth
quarter of 1996. The charge consisted primarily of the write-down
of the carrying amount of certain long-lived assets of the Owl
Club to fair value. Principally, as a result of this charge, net
income and earnings per share in 1996 decreased to $5.9 million
and $.63, respectively, from $6.6 million and $.72, respectively,
in 1995.
Revenues:
Total revenues in 1996 decreased $5.8 million, from $96.9
million in 1995 to $91.1 million in 1996. The decrease in total
revenues of $5.8 million was the net result of a decrease of $4.4
million (from $87.9 million in 1995 to $83.5 million in 1996) in
route operations revenues and a decrease of $1.4 million (from
$9.0 million in 1995 to $7.6 million in 1996) in casino operations
revenues.
The decrease in route operations revenues of $4.4 million was
due primarily to the closing or loss, based on management's
commitment to maintain pricing discipline, of certain non-chain
locations and to the loss of the Company's right to operate at all
three Phar-Mor locations in Nevada due to the permanent closing by
Phar-Mor of such locations in connection with Phar-Mor's
bankruptcy reorganization plan. The decrease in route operations
revenues resulted from a combination of additional revenues
generated from new locations, net of lost revenues from terminated
locations and a decrease in revenues at existing locations. In
1996, new locations generated revenues of approximately $4.4
million. Terminated locations had generated revenues of $6.7
million in 1995, while revenues at existing locations decreased
$2.1 million in 1996.
The decrease in casino operations revenues in 1996 of
approximately $1.4 million was due principally to the decline in
Jackpot's revenues generated at Debbie's Casino. Such decline was
due to the ceasing of Jackpot's casino operations at the location,
effective March 31, 1996, and also to a decrease in revenues for
the nine months ended March 31, 1996, versus the comparable prior
year period. Jackpot had operated approximately 175 gaming
machines at this location.
Costs and expenses:
Route operations expenses in 1996 decreased $1.9 million
(from $66.3 million in 1995 to $64.4 million in 1996) and, as a
percentage of route operations revenues, route operations expenses
increased to 77.2% in 1996 from 75.5% in 1995. The decrease of
$1.9 million was attributable to decreases of $.8 million in
location rent expense, $.2 million in payroll costs, $.4 million
in workers' compensation costs and $.5 million in other route
operations expenses. Route operations expenses in 1996 increased
as a percentage of route operations revenues primarily because of
the loss of the right to operate at the Phar-Mor locations, with
which route operations expenses were lower as a percentage of
route operations revenues than Jackpot's overall percentage, from
the decrease in revenues at existing fixed payment lease locations
and from the increase in location rent expense, as a percentage of
route operations revenues, attributable to revenue sharing
contracts. In general, 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.
Casino operations expenses in 1996 decreased $1.2 million
(from $7.9 million in 1995 to $6.7 million in 1996) and, as a
percentage of casino operations revenues, casino operations
expenses decreased to 87.9% in 1996 from 88.2% in 1995 due
primarily to the closing in February 1995 of operations of Water
Street Casino, Inc. dba the Post Office Casino (the "Post Office
Casino"). With respect to casino operations expenses, 1995
includes approximately $.9 million of costs and expenses incurred
by the Post Office Casino.
Amortization expense in 1996 decreased $.7 million, from $2.9
million in 1995 to $2.2 million in 1996. The decrease in
amortization expense in 1996 was primarily attributable to the
decrease in amortization expense related to the three Phar-Mor
locations. As a result of the permanent closing of Phar-Mor's
three locations in Nevada, Jackpot wrote off all remaining lease
acquisition costs related to Phar-Mor in the fourth quarter of
1995.
Depreciation expense in 1996 decreased $1.1 million, from
$5.4 million in 1995 to $4.3 million in 1996. The decrease in
depreciation expense in 1996 was primarily attributable to gaming
machines acquired in connection with the purchase of a gaming
machine route business in 1992, which had become fully depreciated
in 1996.
General and administrative expenses in 1996 decreased $1.2
million (from $5.4 million in 1995 to $4.2 million in 1996)
primarily as a result of decreases in payroll and other
compensation related costs in connection with a reduction in
personnel.
Other income (expense):
Other income (expense) in 1996 increased $.6 million (from
$.9 million in 1995 to $1.5 million in 1996) primarily from the
increase in the net gain on sales of certain non-operating assets
and from the increase in interest income as a result of the
increase in available cash and cash equivalents.
Other:
The effective tax rate in 1996 was approximately 32%, which
was slightly lower than the 33% rate in 1995 primarily because of
the increase in tax benefits from tax-exempt interest income in
1996.
Operating income in 1996 decreased $1.9 million, from $9.0
million in 1995 to $7.1 million in 1996. The decrease in
operating income of $1.9 million was due primarily to the loss
from the write-down and sale of casino properties of approximately
$2.2 million previously described.
Forward-looking statements:
Certain information included in this Form 10-K and other
materials filed or to be filed by the Company with the Securities
and Exchange Commission contains statements that may be considered
forward-looking. In addition, from time to time, the Company may
release or publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the terms
of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance,
development and results of the Company's business include, but are
not limited to, competitive pressures, the loss or nonrenewal of
any of Jackpot's significant contracts, conditioning or suspension
of any gaming license, adverse results of significant litigation
matters, possible future financial difficulties of a significant
customer and the continued growth of the gaming industry and
population in Nevada. Readers are cautioned not to place undue
reliance on any forward-looking statements, which speak only as of
the date thereof. The Company assumes no obligation to update or
supplement forward-looking statements as a result of new
circumstances or subsequent events.
Item 8. Financial Statements and Supplementary Data
___________________________________________
The Financial Statements and Supplementary Data required by
this Item 8 are set forth as indicated in Item 14(a)(1)(2).
Item 9. Changes in and Disagreements with Accountants on
________________________________________________
Accounting and Financial Disclosure
___________________________________
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
__________________________________________________
Item 11. Executive Compensation
______________________
Item 12. Security Ownership of Certain Beneficial Owners and
___________________________________________________
Management
__________
Item 13. Certain Relationships and Related Transactions
______________________________________________
The information required by items 10, 11, 12 and 13 are
incorporated by reference from the 1997 Proxy Statement to be
filed with the Securities and Exchange Commission within 120
days of the end of the fiscal year covered by this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
___________________
(a) (1) and (2) Consolidated Financial Statements and
Schedules
For a list of the consolidated financial
statements and consolidated financial
statement schedules filed as a part of this
annual report on Form 10-K, see "Index to
Financial Statements, Supplementary Data and
Financial Statement Schedules" on page F-1.
(a)(3) The exhibits filed and incorporated by
reference are listed in the index of Exhibits
required by Item 601 of Regulation S-K at Item
(c) below.
(b) Reports on Form 8-K
During the last quarter of the fiscal year
ended June 30, 1997, Jackpot filed no reports
on Form 8-K.
(c) Exhibits
3.1 Articles of Incorporation of the Registrant,
as amended (C)
3.2 By-laws of the Registrant, as amended (C)
3.3 Form of Amendment to Articles of Incorporation
of Registrant (J)
4.1 Stockholder Rights Agreement dated as of July
11, 1994 between the Registrant and
Continental Stock Transfer & Trust Company, as
Rights Agent (K)
10.1 Employment and consulting agreement with Neil
Rosenstein (B), as amended (E), and as further
amended (F)(N)
10.2 License agreement with Albertson's, Inc. (H)
10.3 License agreement with Thrifty PayLess, Inc.
(F)
10.4 License agreement with Safeway Stores, Inc.
(A)
10.5 1990 Incentive and Nonqualified Stock Option
Plan (D)(N)
10.6 Indemnification Agreement (Sample) (E)
10.7 Salary Continuation Plan for Executives (E)(N)
10.8 Form of Retirement Plan for Directors (F)
10.9 Amendment No. 2 to Employment Agreement with
Neil Rosenstein (E)(N)
10.10 1992 Incentive and Non-qualified Stock Option
Plan (G)(N)
10.11 Form of First Amendment to Retirement Plan for
Directors (I)
10.12 Employment Agreement with Don R. Kornstein
(L)(N)
10.13 License agreement with American Drug Stores,
Inc. (M)
10.14 License agreement with American Drug Stores,
Inc. (M)
10.15 License agreement with Kmart Corporation (M)
10.16 License agreement with Lucky Stores, Inc. (M)
10.17 Amendments to License agreement with Thrifty
PayLess, Inc. (M)
11.1 Computation of Earnings Per Common Share (M)
21.1 List of Registrant's subsidiaries (M)
23.1 Consent of Deloitte & Touche LLP (M)
27.1 Financial Data Schedule (EDGAR version only)
(A) Incorporated by reference to Registrant's
Registration Statement on Form S-2 dated
May 4, 1989 (Registration No. 33-27614).
(B) Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year
ended June 30, 1988.
(C) Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year
ended June 30, 1989.
(D) Incorporated by reference to Registrant's
Registration Statement on Form S-3 dated
December 12, 1990 (Registration No.
33-38210).
(E) Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year
ended June 30, 1991.
(F) Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year
ended June 30, 1992.
(G) Incorporated by reference to Registrant's
1992 Proxy Statement.
(H) Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year
ended June 30, 1993.
(I) Incorporated by reference to Registrant's
Form 10-Q for the quarter ended September
30, 1993.
(J) Incorporated by reference to Registrant's
1993 Proxy Statement.
(K) Incorporated by reference to Registrant's
Form 8-A dated July 12, 1994.
(L) Incorporated by reference to Registrant's
Form 10-Q for the quarter ended September
30, 1994.
(M) Included herein.
(N) Management contract or compensatory plan
or arrangement which is separately
identified in accordance with Item
14(a)(3) of Form 10-K.
(d) Schedules
For a list of the financial statement
schedules filed as a part of this annual
report on Form 10-K, see "Index to Financial
Statements, Supplementary Data and Financial
Statement Schedules" on page F-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: September 23, 1997 JACKPOT ENTERPRISES, INC.
(Registrant)
By: /s/ Don R. Kornstein
____________________
Don R. Kornstein
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
_________ _____ ____
/s/ Don R. Kornstein President, Chief September 23, 1997
___________________________ Executive Officer
Don R. Kornstein and Director
(Principal Executive
Officer)
/s/ Bob Torkar Senior Vice President- September 23, 1997
___________________________ Finance,
Bob Torkar Treasurer and Chief
Accounting Officer
(Principal Financial
and Accounting Officer)
/s/ Allan R. Tessler Chairman of the Board September 23, 1997
___________________________
Allan R. Tessler
/s/ David R. Markin Director September 23, 1997
___________________________
David R. Markin
/s/ Robert L. McDonald, Sr. Director September 23, 1997
___________________________
Robert L. McDonald, Sr.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA
AND FINANCIAL STATEMENT SCHEDULES
[ITEMS 8 AND 14(a)]
(1) FINANCIAL STATEMENTS:
Independent Auditors' Report
Consolidated Balance Sheets
June 30, 1997 and 1996
Consolidated Statements of Income
Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows
Years Ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) SUPPLEMENTARY DATA:
Quarterly Financial Information
Years Ended June 30, 1997 and 1996
(3) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because of the
absence of conditions under which they are required or
because the required information is provided in the
consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
Jackpot Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of
Jackpot Enterprises, Inc. and subsidiaries (the "Company") as of
June 30, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Jackpot Enterprises, Inc. and subsidiaries at June 30, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
August 1, 1997
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996
(Dollars in thousands)
<TABLE>
ASSETS 1997 1996
______ ________ ________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 47,945 $ 39,024
Prepaid expenses 1,438 1,740
Other current assets 1,728 3,515
________ ________
Total current assets 51,111 44,279
________ ________
Property and equipment, at cost:
Land and buildings 1,535 1,535
Gaming equipment 28,202 27,839
Other equipment 4,595 4,282
Leasehold improvements 339 336
________ ________
34,671 33,992
Less accumulated depreciation (21,582) (20,697)
________ ________
13,089 13,295
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$6,198 and $5,142 3,596 4,749
Goodwill, net of accumulated
amortization of $2,547 and
$2,382 4,074 4,240
Lease and other security deposits 2,959 3,436
Other non-current assets 438 743
________ ________
Total assets $ 75,267 $ 70,742
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996
(Dollars in thousands, except share data)
(Concluded)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
____________________________________ _______ _______
<S> <C> <C>
Current liabilities:
Accounts payable $ 375 $ 504
Other current liabilities 4,407 3,439
_______ _______
Total current liabilities 4,782 3,943
Deferred rent 2,510 3,025
Deferred income tax 633
Other liabilities 61 279
_______ _______
Total liabilities 7,986 7,247
_______ _______
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; 9,823,993 and 9,631,278
shares issued 98 96
Additional paid-in capital 66,033 64,129
Retained earnings 9,253 2,905
Less 741,958 and 293,748 shares of
common stock in treasury, at cost (8,103) (3,635)
_______ _______
Total stockholders' equity 67,281 63,495
_______ _______
Total liabilities and
stockholders' equity $75,267 $70,742
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Dollars in thousands, except per share data)
<TABLE>
1997 1996 1995
_______ _______ _______
<S> <C> <C> <C>
Revenues:
Route operations $88,895 $83,533 $87,892
Casino operations 3,009 7,575 8,961
_______ _______ _______
Totals 91,904 91,108 96,853
_______ _______ _______
Costs and expenses:
Route operations 69,905 64,460 66,342
Casino operations 2,835 6,661 7,904
Amortization 1,728 2,199 2,880
Depreciation 3,461 4,284 5,349
General and administrative 4,153 4,163 5,410
Loss from write-down and sale
of casino properties 2,247
_______ _______ _______
Totals 82,082 84,014 87,885
_______ _______ _______
Operating income 9,822 7,094 8,968
_______ _______ _______
Other income (expense):
Interest and other income 1,546 1,538 1,053
Interest expense (22) (146)
_______ _______ _______
Totals 1,546 1,516 907
_______ _______ _______
Income before income tax 11,368 8,610 9,875
_______ _______ _______
Provision (credit) for
Federal income tax:
Current 3,086 2,421 (588)
Deferred 438 334 3,847
_______ _______ _______
Totals 3,524 2,755 3,259
_______ _______ _______
Net income $ 7,844 $ 5,855 $ 6,616
======= ======= =======
Earnings per common share $ .85 $ .63 $ .72
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Dollars and shares in thousands, except per share data)
<TABLE>
Retained Treasury
Common Stock Additional Earnings 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) $56,266
Tax
benefit
from
stock
options 277 277
Cash
dividends
($.32
per share) (2,950) (2,950)
Issuance
and
receipt
of
shares on
exercise
of stock
options 250 3 1,764 (169) (1,760) 7
Net
income 6,616 6,616
_____ ___ _______ _______ ____ _______ _______
Balance
June 30,
1995 9,595 96 63,935 (180) (294) (3,635) 60,216
Tax
benefit
from
stock
options 54 54
Cash
dividends
($.32
per share) (201) (2,770) (2,971)
<PAGE>
Issuance
of shares
on
exercise
of stock
options 36 341 341
Net
income 5,855 5,855
_____ ___ _______ _______ ____ _______ _______
Balance
June 30,
1996 9,631 96 64,129 2,905 (294) (3,635) 63,495
Tax
benefit
from
stock
options 48 48
Cash
dividends
($.16
per share) (1,496) (1,496)
Issuance
and
receipt
of
shares on
exercise
of stock
options 193 2 1,856 (164) (1,665) 193
Repurchase
of common
stock (284) (2,803) (2,803)
Net
income 7,844 7,844
_____ ___ _______ _______ ____ _______ _______
Balance
June 30,
1997 9,824 $98 $66,033 $ 9,253 (742) $(8,103) $67,281
===== === ======= ======= ==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
1997 1996 1995
_______ _______ _______
<S> <C> <C> <C>
Operating activities:
Net income $ 7,844 $ 5,855 $ 6,616
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,189 6,483 8,229
Deferred Federal income tax 438 334 3,847
Write-down and sale of casino properties 2,247
Other, net (393) (410)
Increase (decrease) from changes in:
Prepaid expenses and other current assets 174 200 (384)
Other non-current assets (51) 69 108
Accounts payable and other current liabilities 1,585 (860) (1,269)
Deferred rent and other liabilities (595) (683) 1,331
Assets and liabilities of sold subsidiary, net (474)
_______ _______ _______
Net cash provided by operating activities 14,584 12,778 18,068
_______ _______ _______
Investing activities:
Proceeds from sales of short-term investments, net 509
Proceeds from sales of equipment and other
non-current assets 1,625 1,390 1,053
Purchases of property and equipment (3,393) (4,267) (4,044)
Increase in lease acquisition costs and other
intangible assets (524) (433) (501)
Lease and other security deposits 477 27
Advances to equity investee (1,498)
Other, net 258 219 124
_______ _______ _______
Net cash used in investing activities (1,557) (3,091) (4,330)
_______ _______ _______
Financing activities:
Repayments of long-term debt (949) (1,422)
Proceeds from issuance of common stock 193 341 7
Repurchases of common stock (2,803)
Dividends paid (1,496) (2,971) (2,950)
_______ _______ _______
Net cash used in financing activities (4,106) (3,579) (4,365)
_______ _______ _______
<PAGE>
Net increase in cash and cash equivalents 8,921 6,108 9,373
Cash and cash equivalents at beginning of year 39,024 32,916 23,543
_______ _______ _______
Cash and cash equivalents at end of year $47,945 $39,024 $32,916
======= ======= =======
Supplemental disclosures of cash flow data:
Cash paid during the year for:
Interest $ - $ 22 $ 146
Federal income tax $ 1,840 $ 1,800 $ -
Non-cash investing and financing activities:
Common stock surrendered on exercise of
stock options $ 1,665 $ - $ 1,760
Tax benefit from exercise of stock options $ 48 $ 54 $ 277
Reduction of debt upon sale of other
non-current asset $ - $ - $ 479
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant accounting policies and business:
Business:
Jackpot Enterprises, Inc., which was organized in 1980,
conducts business in the gaming industry and generates
revenues from gaming machine route operations and casino
operations (see Note 3). Gaming machine route operations
involve the installation, operation and service of gaming
machines owned by Jackpot that are located in licensed,
leased or subleased space in retail stores (supermarkets,
drug stores, merchandise stores and convenience stores), bars
and restaurants throughout Nevada.
Principles of consolidation:
The accompanying consolidated financial statements include
the accounts of Jackpot Enterprises, Inc. and its controlled
subsidiaries ("Jackpot"). All material intercompany accounts
and transactions are eliminated.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the accompanying consolidated financial
statements and notes. Actual results could differ from those
estimates.
Cash equivalents:
Cash equivalents are liquid investments with a maturity of
three months or less when acquired and are considered cash
equivalents for purposes of the consolidated statements of
cash flows. Cash equivalents are stated at cost which
approximates fair value due to their short maturity.
Revenue recognition:
In accordance with industry practice, Jackpot recognizes as
gaming revenues the net wins from gaming activities, which is
the difference between gaming wins and losses. Route
operations' revenues include the net wins generated under
revenue-sharing agreements. Revenues from casino operations
are gaming wins less losses. Complimentary food and beverage
furnished gratuitously by casino operations to customers is
not material.
Location rent expense:
Fixed rental payments (including scheduled increases) are
recorded on a straight-line basis over the agreement term
including any optional extension periods which are expected
to be exercised. Contingent payments are expensed in the
period incurred. Renewal agreements are considered new
agreements and accounted for as described above over the new
agreement term. Revenue-sharing payments to route locations
are recorded as location rent expense.
Preopening costs:
Certain costs incurred prior to and in connection with the
opening of a casino operation are capitalized and expensed
upon the opening of the casino.
Depreciation of property and equipment:
Depreciation is provided using the straight-line method for
property and equipment, including property held for rental.
Estimated useful lives, limited as to leasehold improvements
by the term of the lease, range as follows:
Buildings 30 to 40 years
Gaming equipment 4 to 7 years
Other equipment 3 to 7 years
Leasehold improvements 1 to 12 years
Lease acquisition costs and other intangible assets:
Significant incremental costs associated with the acquisition
of location leases are capitalized. Incremental costs
capitalized and amounts allocated to lease acquisition costs
are amortized on a straight-line basis over the term of the
related leases, including expected renewals, which range from
1 to 12 years. Lease acquisition costs and other intangible
assets include lease acquisition costs, net of accumulated
amortization, of $3,029,000 and $3,934,000 as of June 30,
1997 and 1996.
Goodwill:
Goodwill represents the excess of the costs of acquired
businesses over the fair value of their net assets when
acquired and is amortized on a straight-line basis over a
period of 40 years.
Income tax:
A deferred tax liability or asset is recognized at each
balance sheet date that represents the amount of tax expected
to be payable or refundable in future years as a result of
temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts, using
current tax rates and laws. The deferred portion of the tax
provision or benefit is the result of changes in the net
deferred tax asset or liability for the period.
Earnings per common share:
Earnings per common share are computed by dividing net income
by the weighted average number of common shares outstanding.
Stock options and warrants have been excluded from the
computations in 1997, 1996 and 1995 because they had no
effect on earnings per common share. The weighted average
number of common shares outstanding was 9,237,000, 9,307,000
and 9,235,000 in 1997, 1996 and 1995.
Recently issued accounting standards:
In March 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which is effective for fiscal years beginning after December
15, 1995. SFAS 121 requires that long-lived assets and
certain identifiable intangible assets to be held and used by
an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount
may not be recoverable. The adoption of SFAS 121, which was
effective July 1, 1996, had no effect on the consolidated
financial statements.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), which is effective for periods, including interim
periods, ending after December 15, 1997. Earlier adoption of
the statement is not permitted. SFAS 128 establishes
standards for computing and presenting earnings per share
("EPS"), including the replacement of the presentation of
primary EPS with the presentation of basic EPS, as defined.
Upon adoption of SFAS 128, all prior-period EPS data
presented shall be restated to conform with the provisions of
the statement. As required by SFAS 128, Jackpot will adopt
this statement for the three month period ending December 31,
1997. Management believes that the implementation of SFAS
128 will not have a significant impact on EPS.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129"), which is effective for
periods ending after December 15, 1997. SFAS 129 establishes
standards for disclosing information about an entity's
capital structure. Management intends to comply with the
disclosure requirements of this statement.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which is effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires
companies to classify items of other comprehensive income by
their nature in a financial statement and display the
accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the
equity section of a statement of financial position.
Management does not believe this statement will have a
material impact on the consolidated financial statements.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS 131"), which is
effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes additional standards for segment
reporting in the financial statements. Management has not
determined the extent of the disclosure required by SFAS 131.
Note 2 - Cash and cash equivalents:
Cash equivalents are comprised primarily of marketable
municipal bonds and money market accounts. Cash and cash
equivalents include cash equivalents of $34,499,000 and
$29,716,000 at June 30, 1997 and 1996.
Note 3 - Casino operations:
On August 13, 1996, Jackpot's Board of Directors (the "Board")
approved a plan to dispose of Jackpot Owl, Inc. (the "Owl Club")
and Jackpot's Highway 93 Casino, Inc. (the "Pony Express
Casino"), Jackpot's two remaining casinos, as part of
its strategy to exit its casino operations. This
decision was reached after considering that these casino
operations generated unacceptably low returns on capital,
possessed limited growth prospects and commanded a
disproportionately high amount of management time. Jackpot
continues to market such properties for sale. However,
unless Jackpot is able to enter into agreements for the sale
of these properties, on terms acceptable to Jackpot, no
assurance can be given that such disposals will occur.
The Owl Club, as of June 30, 1997, operated 90 gaming
machines and two live table games in Battle Mountain, Nevada.
The Owl Club also has a beverage operation incident to the
conduct of gaming activities, a restaurant operation and an
eighteen room motel. Jackpot owns the land and buildings
used in the Owl Club's casino and motel operations. Jackpot
manages the operations of the Pony Express Casino in Jackpot,
Nevada under a five-year space lease agreement, which Jackpot
may terminate after September 15, 1997 upon fifteen days
written notice to the lessor. As of June 30, 1997, Jackpot
operated 94 gaming machines at this location.
Prior to the Board's approval to dispose of Jackpot's
remaining two casinos, Jackpot sold its 88.9% interest in
Jackpot City, Inc. (the "Nugget"), a casino operation located
in Reno, Nevada, effective June 30, 1996. As a result of
Jackpot's decision to dispose of its two remaining casinos
and the sale of the Nugget, a charge of $2,247,000 was
recorded in the fourth quarter of fiscal 1996, which
consisted primarily of the write-down to fair value of
$1,978,000 for certain long-lived assets of the Owl Club,
including the remaining carrying value of $858,000 for
goodwill. As of June 30, 1997, the carrying value of assets
to be disposed of associated with the Owl Club and the Pony
Express Casino was approximately $1,500,000. The results of
operations of the Owl Club and the Pony Express Casino were
not material in 1997, 1996 and 1995.
Note 4 - Other current liabilities:
Other current liabilities consist of the following (dollars
in thousands):
<TABLE>
June 30,
________________
1997 1996
______ ______
<S> <C> <C>
Accrued employee benefits $1,740 $1,733
Accrued professional fees 468 244
Accrued progressive jackpots 528 454
Federal income tax payable 362
Accrued rent 258 283
Other 1,051 725
______ ______
Totals $4,407 $3,439
====== ======
</TABLE>
Note 5 - Stockholders' equity:
Preferred stock purchase rights:
In June 1994, the Board approved a Stockholder Rights Plan
and on July 11, 1994, declared a dividend distribution of
one Preferred Stock purchase right (the "Rights") payable
on each outstanding share of common stock, as of July 15, 1994.
On July 15, 1994, there were approximately 9,220,000 Rights to
purchase Series A Junior Preferred Stock outstanding.
The Rights become exercisable only in the event, with certain
exceptions, an acquiring party accumulates 15% or more of
Jackpot's voting stock, or if a party announces an offer to
acquire 30% or more of Jackpot's voting stock. The Rights
expire on July 15, 2004. Each Right will entitle the holder
to purchase one-hundredth of a share of a Series A Junior
Preferred Stock at a price of $30. In addition, upon the
occurrence of certain events, holders of the Rights will be
entitled to purchase either Jackpot's Preferred Stock or
shares in an "acquiring entity" at half of market value.
The Rights may be redeemed by Jackpot at $.01 per Right prior
to the close of business on the tenth day after a public
announcement that beneficial ownership of 15% or more of
Jackpot's shares of voting stock has been accumulated by a
single acquiror or a group (with certain exceptions), under
circumstances set forth in the Rights Agreement. At June 30,
1997 and 1996, 150,000 shares of Series A Junior Preferred
Stock were authorized, but unissued, and were reserved for
issuance upon exercise of the Rights. The issuance of the
Rights did not have a dilutive effect on earnings per share
in 1997, 1996 and 1995.
Stock option plans:
On December 7, 1990, Jackpot's stockholders approved the 1990
Incentive and Nonqualified Stock Option Plan (the "1990
Plan"), which became retroactively effective on June 27,
1990. Under the 1990 Plan, the Board may grant "incentive"
or "nonqualified" stock options up to 929,846 shares of
Jackpot's common stock (the "Common Stock"). On September
30, 1992, the Board adopted the 1992 Incentive and Non-
qualified Stock Option Plan (the "1992 Plan"), which was
approved by Jackpot's stockholders on January 12, 1993. The
1992 Plan is administered by a committee of the Board (the
"Committee"). On August 17, 1994, the Board adopted certain
amendments (the "Amendments") to the 1992 Plan which were
approved by Jackpot's stockholders on January 10, 1995. 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.
The 1992 Plan provides that each individual who is a member
of the Board on June 30 of any year, including any future
director on any such date, will automatically be granted
nonqualified stock options to purchase 27,500 shares of
Common Stock on each such June 30. The option price for each
June 30 grant will be 100% of the fair market value of the
Common Stock on the following September 30. Each option
granted to a director will become exercisable after September
30 of each year, and expire five years from the date of
grant. The exercise price of the June 30, 1997 option grants
will be determined September 30, 1997, at which time the
options become exercisable. At June 30, 1997, options
granted to Jackpot's directors to purchase an aggregate of
577,500 shares of Common Stock were outstanding, of which
467,500 were exercisable.
The 1990 Plan and 1992 Plan terminate on the earlier of (i)
when all shares subject to the 1990 Plan and 1992 Plan have
been issued pursuant to the exercise of options granted under
the 1990 Plan and 1992 Plan, or (ii) June 26, 2000 and
September 30, 2002, respectively, or on such earlier date as
the Board or the Committee may determine. Any option
outstanding at the respective Plan termination date remains
outstanding until it has either expired or has been
exercised.
Changes in options outstanding under the stock option plans
are summarized below (shares in thousands):
<TABLE>
Number of Shares
________________ Per Share
Incentive Nonqualified Exercise Price
_________ ____________ _________________
<S> <C> <C> <C>
Outstanding at
July 1, 1994 33 1,336 $ 5.79 to $20.88
Automatic grant
to directors 110 $10.75
Other grants 872 $ 8.50 to $ 9.25
Exercised (155) $ 6.10 to $ 8.50
Canceled (2) (525) $ 5.79 to $20.88
___ _____
Outstanding at
June 30, 1995 31 1,638 $ 6.10 to $20.88
Automatic grant
to directors 110 $10.00
Exercised (4) (36) $ 6.10 to $11.63
Canceled (18) (51) $ 6.10 to $11.63
___ _____
Outstanding at
June 30, 1996 9 1,661 $ 6.10 to $20.88
Automatic grant
to directors 110 (A)
Other grants 20 $11.00
Exercised (3) (190) $ 8.50 to $10.75
Canceled (6) (21) $ 6.10 to $11.63
___ _____
Outstanding at
June 30, 1997 0 1,580 $ 8.50 to $20.88
=== =====
(1,217 shares
exercisable)
</TABLE>
(A) To be determined on September 30, 1997.
Other nonqualified stock options:
The Board has granted other nonqualified stock options to
directors, certain officers, other employees and advisors at
exercise prices equal to or greater than the fair market value
of the underlying shares at the date of grant. Generally,
options become exercisable immediately and expire no later
than five years from the date of grant.
Changes in other nonqualified stock options are summarized
below (shares in thousands):
<TABLE>
Number Per Share
of Shares Exercise Price
_________ ________________
<S> <C> <C>
Outstanding at July 1, 1994 1,078 $ 6.28 to $20.91
Exercised (95) $ 6.28
Canceled (554) $10.87 to $20.91
_____
Outstanding at June 30, 1995 429 $ 9.19 to $15.00
Transactions -
_____
Outstanding at June 30, 1996 429 $ 9.19 to $15.00
Canceled (50) $15.00
_____
Outstanding and exercisable
at June 30, 1997 379 $ 9.19 to $10.63
=====
</TABLE>
Accounting for stock-based compensation:
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for fiscal
years beginning after December 15, 1995. Although SFAS 123
encourages an entity to measure compensation by applying the
fair value method of accounting for employee stock-based
compensation arrangements, it permits an entity to continue to
account for employee stock-based compensation arrangements
under the provisions of Accounting Principles Board Opinion 25
("APB 25").
Jackpot has elected to continue to account for stock-based
compensation in accordance with APB 25. Under APB 25,
generally only stock options that have intrinsic value at the
date of grant are considered compensatory. Intrinsic value
represents the excess, if any, of the market price of the
stock at the grant date over the exercise price of the option.
Under SFAS 123, all stock option grants are considered
compensatory. Compensation cost is measured at the date of
grant based on the estimated fair value of the options
determined using an option pricing model. The model takes
into account the stock price at the grant date, the exercise
price, the expected life of the option, the volatility of the
stock, expected dividends on the stock and the risk-free
interest rate over the expected life of the option.
The following table discloses Jackpot's pro forma net
income and net income per share for 1997 and 1996 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 grant using the Black-Scholes option
pricing model, and the estimated weighted average fair value
of the options granted. The model assumes no expected future
dividend payments on Jackpot's Common Stock for the
options granted in both 1997 and 1996 (dollars in thousands,
except per share data):
<TABLE>
1997 1996
______ ______
<S> <C> <C>
Net income:
As reported $7,844 $5,855
Pro forma 7,571 5,855
Net income per share:
As reported $ .85 $ .63
Pro forma .82 .63
Weighted average assumptions:
Expected stock price
volatility 35.0% 39.1%
Risk-free interest rate 6.1% 6.2%
Expected option lives
(in years) 2.5 2.5
Estimated fair value of
options granted $ 3.18 $ 3.04
</TABLE>
Because the accounting method prescribed by SFAS 123 is not
applicable to options granted prior to July 1, 1995, the
compensation cost reflected in the pro forma amounts shown
above may not be representative of that to be expected in
future years.
Shares reserved for issuance:
Shares of Common Stock were reserved for the exercise of the
following (in thousands):
<TABLE>
June 30,
________________
1997 1996
_____ _____
<S> <C> <C>
Stock option plans:
Outstanding 1,580 1,670
Available for grant 956 1,074
Other nonqualified
stock options 379 429
_____ _____
Totals 2,915 3,173
===== =====
</TABLE>
Common stock in treasury:
In 1997, Jackpot purchased 283,771 shares of its Common Stock
at the market price on the date of purchase for a total cost
of approximately $2,803,000, or an average of $9.88 per share.
Such purchases include 55,174 shares acquired from American
Country Insurance Company for approximately $545,000 (the
market price on the date of purchase). Two directors of
Jackpot were directors and indirect beneficial owners of an
aggregate of more than 51% of the common stock of such
insurance company at the time of such purchase.
Note 6 - Related party transactions:
One director of Jackpot is a partner in a law firm that has
provided various legal services for which Jackpot incurred
legal fees aggregating approximately $179,000, $110,000 and
$163,000 in 1997, 1996 and 1995. Also, see Note 5.
Note 7 - Commitments and contingencies:
Leases:
Jackpot has noncancelable location license, lease and sublease
agreements (referred to as "leases") for space at various
locations for its gaming machines with terms expiring at
various dates through 2004. Leases are generally at fixed
rentals, although certain leases require payments based on
percentages of revenues generated by gaming machines at the
leased locations. In addition, office and warehouse space is
utilized under noncancelable leases with terms expiring at
various dates through 2006.
In 1997, Jackpot entered into four agreements for long-
term contract extensions which became effective July 1, 1997.
Each agreement provides Jackpot the continued right to operate
at certain existing locations and future locations, if any, of
such customers. Presently, these agreements involve the
operation of approximately 1,174 gaming machines in 76
locations.
Future minimum payments (dollars in thousands) under such
noncancelable operating leases or licenses, including the
agreements mentioned above, aggregated approximately $168,595
at June 30, 1997, payable as follows: $32,614 in 1998;
$32,943 in 1999; $25,658 in 2000; $25,819 in 2001; $25,816 in
2002; and $25,745 thereafter.
Rent expense was comprised as follows (dollars in thousands):
<TABLE>
1997 1996 1995
_______ _______ _______
<S> <C> <C> <C>
Location leases:
Fixed rentals $28,125 $25,633 $24,986
Percentage rentals 19,994 20,243 21,920
Office and equipment leases 453 452 472
_______ _______ _______
Totals $48,572 $46,328 $47,378
======= ======= =======
</TABLE>
Employment and severance agreements:
Jackpot has an employment agreement with Don R. Kornstein,
President, Chief Executive Officer and Director which
currently expires on September 30, 2000. The agreement is
automatically extended for additional one year periods on each
October 1 unless, not later than March 31, immediately
preceding each October 1, notice is given by Jackpot or Mr.
Kornstein.
Mr. Kornstein's employment agreement provides for an annual
bonus based on various percentages of certain amounts by which
earnings before interest, taxes, depreciation, amortization
and certain other items, as defined in the agreement, exceed
certain levels for such fiscal year. Mr. Kornstein's bonus
was $169,000, $205,000 and $220,000 in 1997, 1996 and 1995.
The aggregate commitment for future salaries at June 30, 1997,
excluding bonuses, under Mr. Kornstein's agreement is
approximately $2,356,000. In the event of termination of Mr.
Kornstein's employment, as defined in the employment
agreement, Mr. Kornstein, or his beneficiary, would receive a
severance payment. The aggregate contingent liability at June
30, 1997 under Jackpot's employment and severance agreements
is approximately $2,900,000.
Financial instruments with concentration of credit risk:
The financial instruments that potentially subject Jackpot to
concentrations of credit risk consist principally of cash,
cash equivalents, certain receivables and lease and other
security deposits. Jackpot maintains cash and certain cash
equivalents with financial institutions in amounts, which at
times may be in excess of the FDIC insurance limits.
Jackpot's cash equivalents are invested in several high-grade
securities which limits Jackpot's exposure to concentrations
of credit risk.
A substantial portion of Jackpot's business activity is with
customers who frequent retail stores (supermarkets,
drugstores, merchandise stores and convenience stores) in
Nevada. Generally, Jackpot leases space in stores which are
part of a large chain of stores. At June 30, 1997, Jackpot
had unsecured lease and other security deposits of $2,959,000
held primarily by two publicly-held chain stores.
Legal matters:
On August 17, 1992, Phar-Mor, Inc. ("Phar-Mor"), a large chain
store, announced that it had filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. Jackpot had operated
51 gaming machines at three Phar-Mor store locations in Nevada
under a license agreement dated February 10, 1990 (the
"Original Agreement"). Under the Original Agreement, Jackpot
made certain advances to Phar-Mor. Thereafter, Jackpot and
Phar-Mor, subject to bankruptcy court approval, entered into
an amended license agreement, dated January 1, 1993 (the
"Amended Agreement"). If the Amended Agreement were to become
final, Jackpot would receive credits for certain prepaid sums
but would be required to pay certain additional obligations.
On May 12, 1995, Phar-Mor announced the closing of 41 stores,
including its three stores in Nevada. On May 24, 1995 Jackpot
notified Phar-Mor that it was in default under (i) the
Original Agreement, and (ii) the Amended Agreement to the
extent applicable. Jackpot has taken the position that the
Amended Agreement has not become operative and has not
replaced the Original Agreement. Jackpot has claimed monetary
damages in excess of several millions of dollars resulting
from Phar-Mor's alleged default, consisting of, but not
limited to certain refundable monies, prepaid license fees,
lost profits and other consequential and incidental damages.
On July 25, 1995, Phar-Mor notified Jackpot that it disagreed
with Jackpot's position that Phar-Mor has defaulted under the
terms of either the Original Agreement or the Amended
Agreement. Phar-Mor maintains that the Amended Agreement is
the operative agreement and is seeking to enforce its rights
thereunder. On or about March 7, 1996, Phar-Mor filed a
lawsuit against Jackpot in the United States Bankruptcy Court
for the Northern District of Ohio, claiming it is owed
approximately $1 million under the Amended Agreement. Jackpot
has filed an answer and counterclaim reflecting its position
that under the Original Agreement Jackpot is owed in excess of
$3 million. All discovery has been completed and the parties
have filed cross motions for summary judgment. The Court has
not yet ruled upon such motions. Jackpot, based upon
discussions with counsel, does not believe it is probable that
Phar-Mor will prevail in this matter. If Phar-Mor were to
prevail and the Amended Agreement is determined to be the
operative agreement, Jackpot could be liable for certain
obligations under the Amended Agreement up to approximately $1
million. If Jackpot were to prevail, it would become an
unsecured creditor with respect to its claims against Phar-Mor
which exceed $3 million.
As a result of Phar-Mor's announcement, Jackpot wrote-off all
remaining costs related to lease deposits, prepaid rent and
other lease connected expenditures for Phar-Mor and adjusted
certain amounts due Phar-Mor pursuant to terms of the Original
Agreement in the fourth quarter of fiscal 1995. The write-
down of the above mentioned assets, net of certain liability
adjustments did not have a material effect on Jackpot's
financial position or its fiscal 1995 results of operations.
Jackpot is a party to various other claims, legal actions and
complaints arising in the ordinary course of business or
asserted by way of defense or counterclaim in actions filed by
Jackpot. Management believes that its defenses are
substantial in each of these matters and that Jackpot's legal
position can be successfully defended without material adverse
effect on its consolidated financial statements.
Note 8 - Revenues derived from major locations:
Gaming machine operations at two groups of affiliated store
chains in 1997, 1996 and 1995 accounted for more than 10% of
Jackpot's total revenues. Revenues for Jackpot's top two
affiliated store chains were approximately $27,000,000 and
$15,000,000, respectively, in 1997, $23,000,000 and
$12,000,000, respectively in 1996, $22,000,000 and $12,000,000,
respectively in 1995. Each individual store chain included
in an affiliated group of store chains has a separate lease
with Jackpot.
Note 9 - Federal income tax:
A reconciliation of the Federal statutory income tax rate to
the effective income tax rate based on income before income
tax follows:
<TABLE>
1997 1996 1995
____ ____ ____
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in
tax resulting from:
Surtax exemption (1.0) (1.0) (1.0)
Tax-exempt interest (3.7) (4.0) (2.6)
Amortization of goodwill 0.4 0.7 0.6
Other, net 0.3 1.3 1.0
____ ____ ____
Effective rate 31.0% 32.0% 33.0%
==== ==== ====
</TABLE>
The tax items comprising Jackpot's net deferred tax asset
(liability) as of June 30, 1997, 1996 and 1995 are as follows
(dollars in thousands):
<TABLE>
1997 1996 1995
______ ______ ______
<S> <C> <C> <C>
Deferred tax assets:
Write-down of assets $ 381 $ 381 $ 105
Deferred rent 854 1,041 1,205
Other accrued liabilities 520 556 646
Retirement plans 9 73 663
Other 98 75 293
______ ______ ______
Totals 1,862 2,126 2,912
______ ______ ______
Deferred tax liabilities:
Difference between book and tax
basis of property 987 527 842
Economic performance accruals 481 491 500
Other 1,027 676 804
______ ______ ______
Totals 2,495 1,694 2,146
______ ______ ______
Net deferred tax asset (liability) $ (633) $ 432 $ 766
====== ====== ======
</TABLE>
Jackpot realized tax benefits of $48,000, $54,000 and $277,000
in 1997, 1996 and 1995 as a result of the exercise of certain
incentive and nonqualified stock options. The tax benefits
have been reflected as a decrease in current income tax
payable and an increase in additional paid-in capital.
Note 10 - Benefit plans:
Jackpot terminated a deferred profit sharing plan (the "Profit
Sharing Plan"), effective March 31, 1996. Contributions to
the Profit Sharing Plan, which covered substantially all
employees, were at the discretion of the Board, subject to
limitations based on profits as specified in the Profit
Sharing Plan. The Profit Sharing Plan expense in 1995 was
$100,000. The Profit Sharing Plan had no expense in 1997 and
1996.
On May 14, 1996, Jackpot terminated the Jackpot Retirement
Plan for Directors, as amended (the "Retirement Plan"). In
consideration for the termination of the Retirement Plan,
three directors received a lump sum distribution of accrued
benefits in an aggregate amount of $1,485,000 ($495,000 each)
in May 1996. Pursuant to the terms of the Retirement Plan,
the amount of each director's distribution was equal to the
aggregate of the annual base retainer paid to the respective
director for years of service on the Board, including service
prior to the implementation of the Retirement Plan on October
1, 1990, except for certain years that the directors waived
such benefit. Interest was added to the accounts of each
director quarterly, using the one-year Treasury bill rate.
The funding of the accrued benefits under the Retirement Plan
was made from a restricted trust. The amount of the
distributions approximated the fair value of the investments
in the trust. As a result of the termination of the
Retirement Plan and the lump sum distributions in May 1996,
there is no remaining obligations or liability under the
Retirement Plan.
On August 13, 1996, the Board approved the termination of the
Salary Continuation Plan for Executives (the "Continuation
Plan"). The Continuation Plan provides certain senior
executives with a retirement benefit, which is based on
compensation, to be paid over a period of up to 15 years
beginning at normal retirement age. The Continuation Plan
requires certain vesting periods and allows reduced benefits
at certain early retirement ages and pre-retirement survivors'
benefits. The Continuation Plan was unfunded at June 30,
1997 and 1996. The Company has entered into settlement
agreements with substantially all of the individuals covered
under the Continuation Plan. The accumulated and projected
benefit obligations for the remaining executives covered under
the Continuation Plan is not material at June 30, 1997.
The Board waived current service benefits that would have
accrued in 1997, 1996 and 1995 pursuant to the Retirement Plan
and the Continuation Plan, other than the interest earned on
accrued benefits. The Retirement Plan and the Continuation
Plan, both defined benefit plans, had no plan assets.
Interest cost on accrued benefits is included in general and
administrative costs and expenses and the amortization of
unrecognized prior service cost is included in amortization
expense in the accompanying consolidated statements of income.
The unrecognized prior service cost has been fully amortized
at June 30, 1996. The accrued pension liability under the
Continuation Plan was $279,000 at June 30, 1996 and was not
material at June 30, 1997. The pension expense for Jackpot's
defined benefit plans for 1997, 1996 and 1995 includes the
following components (dollars in thousands):
<TABLE>
1997 1996 1995
____ ____ ____
<S> <C> <C> <C>
Amortization of prior service cost $ - $253 $240
Interest cost on accrued benefits - 69 83
____ ____ ____
Net pension expense $ - $322 $323
==== ==== ====
</TABLE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
YEARS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands, except per share data)
(Unaudited)
Summarized quarterly financial information for 1997 and 1996
follows:
<TABLE>
Quarter
_______________________________
First Second Third Fourth
_______ _______ _______ _______
<S> <C> <C> <C> <C>
1997
____
Revenues $21,955 $22,560 $22,947 $24,442
Gross operating income (A) 3,050 3,521 3,553 4,435
Income before income tax 2,279 2,810 2,856 3,423
Net income 1,573 1,938 1,971 2,362
Earnings per share:
Primary .17 .21 .21 .26
Fully diluted .17 .21 .21 .26
1996
____
Revenues $22,801 $22,384 $22,846 $23,077
Gross operating income (A) 3,692 3,718 3,432 3,603
Income before income tax 2,650 2,752 2,708 500 (B)
Net income 1,802 1,871 1,842 340
Earnings per share:
Primary .19 .20 .20 .04
Fully diluted .19 .20 .20 .04
(A) Gross operating income is revenues less route and casino
operations' costs and expenses, deprecation associated with
route and casino operations and amortization associated with
lease acquisition costs.
(B) Includes a charge of $2.2 million from the write-down and sale
of certain casino properties. See Note 3 of Notes
to Consolidated Financial Statements.
</TABLE>
EXHIBIT 10.13
"RCT" means the material omitted has been filed with the
Securities & Exchange Commission with an application requesting
confidential treatment.
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 24th day of April 1997,
between American Drug Stores, Inc., an Illinois corporation
("Licensor"), and Cardivan Company, a Nevada corporation
("Licensee"). Licensee and Licensor are collectively referred to
as "the Parties".
1. Purpose. This Agreement sets forth the terms and conditions
under which the Licensee shall have the exclusive right to
operate certain gaming devices (the "Devices") (i) within each of
the stores operated by Licensor in the State of Nevada which are
designated on Exhibit "A" attached hereto and incorporated herein
by reference (the "Existing Locations"), and (ii) in any
additional stores opened or acquired by Licensor or an affiliate
of Licensor for business to the public in the state of Nevada
during the term of this Agreement which become subject to this
Agreement pursuant to Section 4(d) hereof (the "New Locations",
together with the Existing Locations, the "Licensed Locations").
Notwithstanding the foregoing, an off-site replacement of a
Licensed Location which constitutes a "replacement store" in
accordance with Licensor's internal policies, which opens
concurrently with the closing of the Licensed Location it is
replacing, and which is located not more than one mile from the
Licensed Location it is replacing, shall not constitute a New
Location for purposes of this Agreement.
2. License. Licensor hereby grants to Licensee the use of such
amount of space (the "Gaming Space") as is reasonably required to
set up the number of Devices currently permitted at such Licensed
Location. For purposes of illustration, the Gaming Space at a
Licensed Location in which 15 bill validator-equipped Devices are
located would not be required to contain more than 450 square
feet of space. The Gaming Space shall be located as close to the
entrance and checkstand of the Licensed Location as is reasonably
practicable with the exact location and square footage of the
Gaming Space to be determined by mutual agreement of the parties.
Licensee is also hereby granted an exclusive right to operate up
to the maximum number of Devices currently allowed by the State
of Nevada in each of the Licensed Locations. Notwithstanding the
foregoing, the size of the Gaming Space and the location of the
Devices in each of the Existing Locations shall be continued in
the same manner as at the time of the execution of this Agreement
except as changes thereto are made from time to time by mutual
agreement between Licensor and Licensee. Licensor agrees to use
its best efforts to expand the size of the Gaming Space at the
Existing Locations where such expansion is required in order to
replace the Devices currently located in such Existing Locations
with an equal number of Devices containing bill validators and
shall use its best efforts to complete any such required
expansions by April 30, 1998. In the event that Licensor is not
able to complete any such required expansions by April 30, 1998,
the parties shall negotiate in good faith to arrive at an
appropriate adjustment to the monthly fees payable hereunder;
provided, that in no event shall the fee for any Licensed
Location be reduced to an amount less than RCT per month.
3. Term. The term of the license for each Licensed Location
shall begin on July 1, 1997 and shall expire at midnight on RCT.
In addition, Licensee may, at its sole option, extend the term of
this Agreement for an additional period of RCT commencing on RCT
and expiring at RCT (the "Option Period") by giving written
notice to Licensor of its intention to do so no earlier than RCT
and no later than RCT; provided, that such option may only be
exercised if (i) Licensee concurrently exercises its option to
extend the term of that certain License Agreement between
Licensee and Lucky Stores, Inc. dated of even date herewith, and
(ii) Corral United, Inc. concurrently exercises its option to
extend the term of that certain License Agreement between Corral
United, Inc. and Licensor dated of even date herewith. Licensee
shall have no option to renew or extend this License Agreement
beyond RCT.
4. Fees.
a. During the initial term of this License Agreement, Licensee
agrees to pay Licensor the following amount per Licensed Location
per month:
Period Per Licensed Location Per Month
______ _______________________________
RCT RCT
b. During the Option Period the Licensee agrees to pay Licensor
the following amount per Licensed Location per month:
Option Period Per Licensed Location Per Month
_____________ _______________________________
RCT RCT
c. The monthly amounts set forth above shall be subject to
increase from time to time during the term of this Agreement and
any extension hereof as follows. During the one-month period
prior to RCT, Licensee shall determine the average monthly fee
per Device being paid by Licensee to other customers pursuant to
written contracts having a remaining duration of one year or
more, or which may be paid pursuant to contracts under
negotiation, for comparable store locations (the "Comparable
Rent"). If the Comparable Rent is greater than the fee provided
for above by more than 5%, the monthly fee shall be increased to
the Comparable Rent for the duration of the applicable period.
d. During the term of this Agreement, if Licensor opens or
acquires any New Location and Licensor determines to include
Devices at such New Location, Exhibit A hereto shall be amended
to include such New Location and the monthly fees payable
hereunder shall be adjusted accordingly. In the case of a New
Location opened or acquired on or after RCT, the fees due
pursuant to this Section 4 with respect to such New Location
shall be RCT fee during the RCT period following the date such
New Location is opened for business by Licensor; provided, that
if Licensor has not taken all steps required to be taken by it to
permit Licensee to commence operations at such New Location, the
RCT period shall not commence until all such actions have been
taken. In addition, in the event an Existing Location is closed
for renovation for a period of RCT or more, the Fees with respect
to such renovated Existing Location shall be RCT fee due pursuant
to this Section 4 during the RCT period following the date such
renovated Existing Location is reopened for business by Licensor;
provided, that if Licensor has not taken all steps required to be
taken by it to permit Licensee to recommence operations at such
Existing Location, the RCT period shall not commence until all
such actions have been taken.
e. The above fee shall be due and payable on the first day of
every month. If any of the above fees are not paid when due or
within fifteen (15) days thereafter, Licensee shall pay Licensor
interest on all amounts delinquent from the date of delinquency
until paid at a rate equal to 150 percent of the prime rate
charged preferred customers by Bank of America Nevada, determined
as of the first day of the month preceding such delinquency and
adjusted as of the first day of each month during the period of
such delinquency, but not to exceed the greater of 24 percent per
annum or the highest rate permitted by applicable law.
f. In the event that (i) Licensor should effect a material
reduction in the hours of operation of the Licensed Locations,
considered as a whole, from the hours of operation in effect on
the date of this Agreement, or (ii) there should be a change in
the laws or regulations applicable to the operation of gaming
devices in retail food and drug facilities which has the effect
of materially reducing the revenues received by Licensee from its
operation of the Devices hereunder, the parties shall negotiate
in good faith to arrive at an equitable adjustment to the terms
of the Agreement.
5. Taxes. Licensee agrees to pay all taxes (other than real
estate taxes) payable in connection with the conduct of its
business in the Licensed Locations, including personal property
taxes levied against the Devices, fixtures, and other personal
property of the Licensee in the Licensed Locations. Licensee
will pay all social security, unemployment, and old age benefit
taxes, state, federal, and local, or other similar taxes due with
respect to employees or wages paid to employees of the Licensee
in the Licensed Locations. Licensee will maintain and pay all
license fees, federal, state, county, or city, necessary for its
operations in the Licensed Locations.
6. Use and Operation. Licensee agrees to use the Gaming Space
within the Licensed Locations as a department for the sole
purpose of operating the Devices in such space and will at all
times conduct said department and all branches of its business in
a first-class business like and attractive high-grade and proper
manner, including, without limitation, (1) maintaining the
Devices in good condition and repair at its own expense and at no
expense to Licensor; (2) replacing any out of date Devices at its
own expense with modern, up-to-date Devices from time to time;
(3) employing a change cashier or installing money changing
devices so that the store cashiers in the Licensed Location will
not be required to make change for the operation of the Devices;
and (4) not employing any person or persons within the Licensed
Locations deemed objectionable by Licensor, Licensee agreeing
upon request of Licensor to remove any such objectionable
employee as quickly as reasonably possible under existing
federal, state, and local laws. Signs of such type and size as
may be mutually agreed upon by Licensor and Licensee shall be
placed by Licensee in a conspicuous place at each of the Licensed
Locations stating that Licensee is the owner and operator of the
Devices. Licensor shall not change the smoking policies in the
Gaming Spaces from those currently in effect without the prior
written consent of Licensee, unless and to the extent such change
is required by law or regulation.
7. Title to Property. All personal property (including,
without limitation, the Devices) placed on the Licensed Locations
by Licensee shall be and remain the personal property of Licensee
(except as provided in Section 12 with respect to default) and,
upon the expiration or earlier termination of this Agreement,
Licensee shall within ten (10) days thereafter and at its sole
expense, remove from the Licensed Locations all such personal
property and restore such Licensed Locations to their original
conditions, ordinary wear and tear excepted.
8. General Covenants. Licensee agrees to comply with all
applicable laws, ordinances, and governmental regulations now in
force or hereafter enacted relating to the business operations of
the Licensee in the Licensed Locations; to make any and all
alterations, repairs, and changes, at its expense, required by
any such laws, ordinances, or governmental regulations; to
maintain the Gaming Space occupied by Licensee within each of the
Licensed Locations in a clean state and in good condition and
repair; not to make any alterations in such space without the
prior written consent of Licensor; and at the expiration or
termination of this Agreement, to surrender peaceable possession
thereof to Licensor in as good condition as it received the same,
loss or damage by fire (except if caused by the act or neglect of
Licensee or its employees) and wear and tear resulting from
reasonable use excepted.
9. Indemnification and Insurance. Licensee agrees to indemnify
and hold Licensor harmless from all claims, demands, causes of
action, losses, damages, and liability, including costs and
expenses and reasonable attorneys' fees incurred by Licensor in
connection with any claim by third parties, including employees
of Licensee, for injury to or death or damage to property
occurring in or on or about the portions of the Licensed
Locations licensed to Licensee or arising out of operations
conducted by Licensee. Licensee, at its own cost and expense,
shall maintain commercial general liability and automobile
liability insurance with a limit of not less than $1,000,000
applicable to any one occurrence. Such insurance shall name
Licensor as an additional insured with respect to operations
conducted in connection with this Agreement. Licensee shall
maintain Workers' Compensation insurance for its employees in the
form required by the State of Nevada or provide Workers'
Compensation on a self-insured basis in compliance with
applicable Nevada regulations. Licensee shall, upon request,
provide Licensor with certificate(s) evidencing the foregoing
insurance coverages. Whether or not it elects to insure its
personal property at locations covered by this Agreement,
Licensee hereby waives any right of recovery from Licensor for
any loss or damage to such property resulting from any of the
perils insured against in the standard form fire insurance policy
with Extended Coverages and Vandalism and Malicious Mischief
Endorsements. To the extent that any insurance maintained by
Licensee includes coverage against additional perils, this waiver
shall apply with respect to loss damage resulting from such other
perils.
10. Termination of License. If Licensor ceases to do business
in any of the Licensed Locations for any reason whatsoever, this
License Agreement shall terminate as to the Licensed Locations
where such business is discontinued, effective at the time of
such discontinuance, and thereafter the license fees payable
under this Agreement will be reduced pro rata for the affected
Licensed Locations. This License Agreement will continue to
apply to all remaining Licensed Locations.
11. Interruption of Business. If the business of any Licensed
Locations subject to this Agreement is substantially interrupted
by reason of a major remodeling, fire, other casualty, or any
other cause not the fault of Licensee, and such interruption
substantially and adversely affects the business of Licensee in
such Licensed Location, then, from and after such interruption
and until the cause thereof has been corrected or eliminated, the
fees due Licensor hereunder for such Licensed Locations shall be
equitably reduced or abated to the extent agreed between the
parties.
12. Default. If Licensee (i) defaults in the payment of the
fees payable by it hereunder or fails to perform any other of its
obligations under this Agreement, and Licensee fails to cure such
default within a period of fifteen (15) days after written notice
from Licensor, or (ii) Licensee defaults in the payment of fees
or performance of its other obligations under that certain
License Agreement between Licensee and Lucky Stores, Inc. dated
of even date herewith, and such default is not cured within the
grace period provided therein, or (iii) Corral United, Inc., an
affiliate of Licensee, defaults in the payment of fees or
performance of its obligations under that certain License
Agreement between Corral United, Inc. and Licensor dated of even
date herewith and such default is not cured within the applicable
grace period provided therein, then, in any of such events,
Licensor shall have all rights and remedies now or hereafter
provided by law and, in addition, may do any one or more of the
following:
(a) Terminate this Agreement by giving written notice to
Licensee; resume possession of the space occupied by Licensee in
the Licensed Locations; retain all Devices, fixtures, and other
personal property of Licensee remaining on such space and full
right and authority to sell, lease, or otherwise dispose of the
same or to store the same, all at the expense of Licensee; and to
recover from Licensee all fees due under this Agreement had it
not been terminated, less the net amount realized by Licensor
from any such sale, lease, or other disposition.
(b) Without terminating this Agreement, reenter and assume
possession of the space so licensed and of all Devices, fixtures,
and other personal property of Licensee located therein and relet
the space and sell, lease, or otherwise dispose of the Devices,
fixtures, and other personal property, all on such terms and
conditions as Licensor deems advisable, and in any such event,
Licensee shall pay promptly upon demand the difference between
the fees due under this Agreement for the period of such
reletting (but not beyond the term of this Agreement) and the net
amount received by Licensor from such reletting and from such
sale, lease, or other disposition.
(c) To treat all amounts due and not paid by Licensee to the
date of such default, together with all amounts payable under
this Agreement during the remaining term of this Agreement
following such default, as an indebtedness of Licensee
immediately due and payable to Licensor and recover the same,
together with interest thereof at the rate of 150 percent of the
prime rate charged preferred customers by Bank of America Nevada,
determined as of the first day of the month preceding such
default and adjusted as of the first day of each month during the
period of such default, both before and after judgment from the
date of such default until paid, but not to exceed the greater of
24 percent per annum or the highest amount permitted by
applicable law.
In the event of any such default, Licensee shall have no right to
remove any Devices, fixtures, or other personal property of
Licensee from the space licensed, and Licensor shall have a lien
thereon as security for the payment of all amounts due Licensor
under the Agreement.
13. Assignment and Subletting, Successors and Assigns. Licensee
may not assign this Agreement or sublet any of the space within
any of the Licensed Locations covered by this Agreement, whether
by operation of law or otherwise without prior written approval
of Licensor, except that Licensee may assign this Agreement to a
wholly-owned subsidiary of Jackpot Enterprises, Inc. without such
prior written approval; provided, that such assignee agrees to be
bound by all of the terms and conditions of this Agreement and
Licensee guarantees the payment and performance by such assignee
of its obligations hereunder during the remaining term hereof.
Subject to such provision, this Agreement shall bind and its
benefits shall inure to the parties hereto, their successors, and
assigns.
14. Notices and Demands. All notices and demands made pursuant
to this Agreement shall be sufficient if made in writing and
delivered personally or by registered or certified mail to
American Drug Stores, Inc., C/O American Stores Properties, Inc.,
6565 Knott Avenue, Buena Park, California 90260-1158, Attention:
Dennis N. Palmer, Senior Vice President - Markets West, or to
Licensee at 1110 Palms Airport Drive, Las Vegas, Nevada 89119.
All notices mailed shall be deemed given when mailed.
15. Relationship Between the Parties. The relationship of
Licensor and Licensee shall be solely that of licensor and
licensee and nothing herein contained shall be construed to
constitute Licensor and Licensee as landlord and tenant,
sublandlord and subtenant, partners, joint venturers or any other
relationship whatsoever.
16. Confidentiality. This Agreement and the information
contained herein, including but not limited to the fees payable
to Licensor by Licensee, is confidential and shall not be
disclosed to any person except the gaming licensing authorities
of the State of Nevada upon proper request, unless and to the
extent required by laws or regulations applicable to the parties.
17. Prior Agreement. This Agreement shall supersede and
replaces the License Agreement dated October 31, 1991, as
amended, between Licensor and Licensee at the time the initial
term of this Agreement commences on July 1, 1997.
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
AMERICAN DRUG STORES, INC.
By /s/ Mark N. Schneider
______________________________
Mark N. Schneider
Vice President
CARDIVAN COMPANY
By /s/ George Congdon
______________________________
George Congdon
President
EXHIBIT A TO LICENSE AGREEMENT BETWEEN
AMERICAN DRUG STORES, INC. AND CARDIVAN COMPANY
DATED APRIL 24, 1997
<TABLE>
Location No. of Machines Store Hours
________ _______________ ___________
<S> <C> <C>
1. Savon Store No. 19-2022 16 7 a.m. to 10 p.m. (M-Sat.)
1812 E. Charleston 8 a.m. to 7 p.m. (Sun.)
Las Vegas, NV
2. Savon Store No. 19-2049
2011 E. Lake Mead
Las Vegas, NV 15 24 hours
3. Savon Store No. 19-2215
268 N. Jones Blvd.
Las Vegas, NV 16 7 a.m. to 10 p.m. (M-Sat.)
8 a.m. to 7 p.m. (Sun.)
4. Savon Store No. 19-2224
3550 W. Sahara
Las Vegas, NV 16 24 hours
5. Savon Store No. 19-2054
9100 W. Sahara
Las Vegas, NV 16 7 a.m. to 10 p.m. (M-Sat.)
8 a.m. to 7 p.m. (Sun.)
6. Savon Store No. 19-2121
4730 E. Flamingo
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
7. Savon Store No. 19-2081
154 N. Boulder Highway
Henderson, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
8. Savon Store No. 19-3042
2855 S. Nellis
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
9. Savon Store No. 19-2418
2560 E. Desert Inn
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
10. Savon Store No. 19-2416
3421 S. Jones
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
11. Savon Store No. 2415
3250 Las Vegas Blvd. No.
Las Vegas, NV 12 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
12. Savon Store No. 19-2417
160 S. Rainbow
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
13. Savon Store No. 19-2087
4410 E. Bonanza
Las Vegas, NV 15 24 hours
14. Savon Store No. 19-3082
6150 W. Lake Mead
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
15. Savon Store No. 19-3032
7251 S. Eastern
Las Vegas, NV 15 24 hours
16. Savon Store No. 19-2176
8320 W. Cheyenne
Las Vegas, NV 15 24 hours
17. Savon Store No. 19-3234
5985 W. Tropicana
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
18. Savon Store No. 19-3242
1408 Craig Road
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
19. Savon Store No. 19-2003
680 N. McCarran
Sparks, NV 20 24 hours
20. Savon Store No. 19-2006
285 E. Plumb Lane
Reno, NV 20 8 a.m. to 9 p.m. (M-Sat)
9 a.m. to 6 p.m. (Sun.)
21. Savon Store No. 19-2046
10550 N. McCarran
Reno, NV 10 8 a.m. to 9 p.m. (M-Sat.)
9 a.m. to 6 p.m. (Sun.)
22. Savon Store No. 19-2041
1250 W. Seventh
Reno, NV 17 8 a.m. to 9 p.m. (M-Sat.)
9 a.m. to 6 p.m. (Sun.)
23. Savon Store No. 19-2207
250 Fairview
Carson City, NV 15 8 a.m. to 9 p.m. (M-Sat.)
8 a.m. to 6 p.m. (Sun.)
24. Savon Store No. 19-2605
48 West Idaho Street
Elko, NV 5 8 a.m. to 9 p.m. (M-Sat.)
9:30 a.m. to 6 p.m. (Sun.)
</TABLE>
EXHIBIT 10.14
"RCT" means the material omitted has been filed with the
Securities & Exchange Commission with an application requesting
confidential treatment.
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 24th day of April 1997,
between American Drug Stores, Inc., an Illinois corporation
("Licensor"), and Corral United, Inc., a Nevada corporation
("Licensee"). Licensee and Licensor are collectively referred to
as "the Parties".
1. Purpose. This Agreement sets forth the terms and conditions
under which the Licensee shall have the exclusive right to
operate certain gaming devices (the "Devices") (i) within each of
the stores operated by Licensor in the State of Nevada which are
designated on Exhibit "A" attached hereto and incorporated herein
by reference (the "Existing Locations"), and (ii) in any
additional stores opened or acquired by Licensor or an affiliate
of Licensor for business to the public in the state of Nevada
during the term of this Agreement which become subject to this
Agreement pursuant to Section 4(d) hereof (the "New Locations",
together with the Existing Locations, the "Licensed Locations").
Notwithstanding the foregoing, an off-site replacement of a
Licensed Location which constitutes a "replacement store" in
accordance with Licensor's internal policies, which opens
concurrently with the closing of the Licensed Location it is
replacing, and which is located not more than one mile from the
Licensed Location it is replacing, shall not constitute a New
Location for purposes of this Agreement.
2. License. Licensor hereby grants to Licensee the use of such
amount of space (the "Gaming Space") as is reasonably required to
set up the number of Devices currently permitted at such Licensed
Location. For purposes of illustration, the Gaming Space at a
Licensed Location in which 15 bill validator-equipped Devices are
located would not be required to contain more than 450 square
feet of space. The Gaming Space shall be located as close to the
entrance and checkstand of the Licensed Location as is reasonably
practicable with the exact location and square footage of the
Gaming Space to be determined by mutual agreement of the parties.
Licensee is also hereby granted an exclusive right to operate up
to the maximum number of Devices currently allowed by the State
of Nevada in each of the Licensed Locations. Notwithstanding the
foregoing, the size of the Gaming Space and the location of the
Devices in each of the Existing Locations shall be continued in
the same manner as at the time of the execution of this Agreement
except as changes thereto are made from time to time by mutual
agreement between Licensor and Licensee. Licensor agrees to use
its best efforts to expand the size of the Gaming Space at the
Existing Locations where such expansion is required in order to
replace the Devices currently located in such Existing Locations
with an equal number of Devices containing bill validators and
shall use its best efforts to complete any such required
expansions by April 30, 1998. In the event that Licensor is not
able to complete any such required expansions by April 30, 1998,
the parties shall negotiate in good faith to arrive at an
appropriate adjustment to the monthly fees payable hereunder;
provided, that in no event shall the fee for any Licensed
Location be reduced to an amount less than RCT per month.
3. Term. The term of the license for each Licensed Location
shall begin on July 1, 1997 and shall expire at midnight on RCT.
In addition, Licensee may, at its sole option, extend the term of
this Agreement for an additional period of RCT commencing on RCT
and expiring at RCT (the "Option Period") by giving written
notice to Licensor of its intention to do so no earlier than RCT
and no later than RCT; provided, that such option may only be
exercised if Cardivan Company, an affiliate of Licensee
("Cardivan"), concurrently exercises its option to extend the
term of (i) that certain License Agreement between Cardivan and
Lucky Stores, Inc. dated of even date herewith and (ii) that
certain License Agreement between Cardivan and Licensor dated of
even date herewith. Licensee shall have no option to renew or
extend this License Agreement beyond RCT.
4. Fees.
a. During the initial term of this License Agreement, Licensee
agrees to pay Licensor the following amount per Licensed Location
per month:
Period Per Licensed Location Per Month
______ _______________________________
RCT RCT
b. During the Option Period the Licensee agrees to pay Licensor
the following amount per Licensed Location per month:
Option Period Per Licensed Location Per Month
_____________ _______________________________
RCT RCT
c. The monthly amounts set forth above shall be subject to
increase from time to time during the term of this Agreement and
any extension hereof as follows. During the one-month period
prior to RCT, Licensee shall determine the average monthly fee
per Device being paid by Licensee to other customers pursuant to
written contracts having a remaining duration of one year or
more, or which may be paid pursuant to contracts under
negotiation, for comparable store locations (the "Comparable
Rent"). If the Comparable Rent is greater than the fee provided
for above by more than 5%, the monthly fee shall be increased to
the Comparable Rent for the duration of the applicable period.
d. During the term of this Agreement, if Licensor opens or
acquires any New Location and Licensor determines to include
Devices at such New Location, Exhibit A hereto shall be amended
to include such New Location and the monthly fees payable
hereunder shall be adjusted accordingly. In the case of a New
Location opened or acquired on or after RCT, the fees due
pursuant to this Section 4 with respect to such New Location
shall be RCT fee during the RCT period following the date such
New Location is opened for business by Licensor; provided, that
if Licensor has not taken all steps required to be taken by it to
permit Licensee to commence operations at such New Location, the
RCT period shall not commence until all such actions have been
taken. In addition, in the event an Existing Location is closed
for renovation for a period of RCT or more, the Fees with respect
to such renovated Existing Location shall be RCT fee due pursuant to
this Section 4 during the RCT period following the date such
renovated Existing Location is reopened for business by Licensor;
provided, that if Licensor has not taken all steps required to be
taken by it to permit Licensee to recommence operations at such
Existing Location, the RCT period shall not commence until all
such actions have been taken.
e. The above fee shall be due and payable on the first day of
every month. If any of the above fees are not paid when due or
within fifteen (15) days thereafter, Licensee shall pay Licensor
interest on all amounts delinquent from the date of delinquency
until paid at a rate equal to 150 percent of the prime rate
charged preferred customers by Bank of America Nevada, determined
as of the first day of the month preceding such delinquency and
adjusted as of the first day of each month during the period of
such delinquency, but not to exceed the greater of 24 percent per
annum or the highest rate permitted by applicable law.
f. In the event that (i) Licensor should effect a material
reduction in the hours of operation of the Licensed Locations,
considered as a whole, from the hours of operation in effect on
the date of this Agreement, or (ii) there should be a change in
the laws or regulations applicable to the operation of gaming
devices in retail food and drug facilities which has the effect
of materially reducing the revenues received by Licensee from its
operation of the Devices hereunder, the parties shall negotiate
in good faith to arrive at an equitable adjustment to the terms
of the Agreement.
5. Taxes. Licensee agrees to pay all taxes (other than real
estate taxes) payable in connection with the conduct of its
business in the Licensed Locations, including personal property
taxes levied against the Devices, fixtures, and other personal
property of the Licensee in the Licensed Locations. Licensee
will pay all social security, unemployment, and old age benefit
taxes, state, federal, and local, or other similar taxes due with
respect to employees or wages paid to employees of the Licensee
in the Licensed Locations. Licensee will maintain and pay all
license fees, federal, state, county, or city, necessary for its
operations in the Licensed Locations.
6. Use and Operation. Licensee agrees to use the Gaming Space
within the Licensed Locations as a department for the sole
purpose of operating the Devices in such space and will at all
times conduct said department and all branches of its business in
a first-class business like and attractive high-grade and proper
manner, including, without limitation, (1) maintaining the
Devices in good condition and repair at its own expense and at no
expense to Licensor; (2) replacing any out of date Devices at its
own expense with modern, up-to-date Devices from time to time;
(3) employing a change cashier or installing money changing
devices so that the store cashiers in the Licensed Location will
not be required to make change for the operation of the Devices;
and (4) not employing any person or persons within the Licensed
Locations deemed objectionable by Licensor, Licensee agreeing
upon request of Licensor to remove any such objectionable
employee as quickly as reasonably possible under existing
federal, state, and local laws. Signs of such type and size as
may be mutually agreed upon by Licensor and Licensee shall be
placed by Licensee in a conspicuous place at each of the Licensed
Locations stating that Licensee is the owner and operator of the
Devices. Licensor shall not change the smoking policies in the
Gaming Spaces from those currently in effect without the prior
written consent of Licensee, unless and to the extent such change
is required by law or regulation.
7. Title to Property. All personal property (including, without
limitation, the Devices) placed on the Licensed Locations by
Licensee shall be and remain the personal property of Licensee
(except as provided in Section 12 with respect to default) and,
upon the expiration or earlier termination of this Agreement,
Licensee shall within ten (10) days thereafter and at its sole
expense, remove from the Licensed Locations all such personal
property and restore such Licensed Locations to their original
conditions, ordinary wear and tear excepted.
8. General Covenants. Licensee agrees to comply with all
applicable laws, ordinances, and governmental regulations now in
force or hereafter enacted relating to the business operations of
the Licensee in the Licensed Locations; to make any and all
alterations, repairs, and changes, at its expense, required by
any such laws, ordinances, or governmental regulations; to
maintain the Gaming Space occupied by Licensee within each of the
Licensed Locations in a clean state and in good condition and
repair; not to make any alterations in such space without the
prior written consent of Licensor; and at the expiration or
termination of this Agreement, to surrender peaceable possession
thereof to Licensor in as good condition as it received the same,
loss or damage by fire (except if caused by the act or neglect of
Licensee or its employees) and wear and tear resulting from
reasonable use excepted.
9. Indemnification and Insurance. Licensee agrees to indemnify
and hold Licensor harmless from all claims, demands, causes of
action, losses, damages, and liability, including costs and
expenses and reasonable attorneys' fees incurred by Licensor in
connection with any claim by third parties, including employees
of Licensee, for injury to or death or damage to property
occurring in or on or about the portions of the Licensed
Locations licensed to Licensee or arising out of operations
conducted by Licensee. Licensee, at its own cost and expense,
shall maintain commercial general liability and automobile
liability insurance with a limit of not less than $1,000,000
applicable to any one occurrence. Such insurance shall name
Licensor as an additional insured with respect to operations
conducted in connection with this Agreement. Licensee shall
maintain Workers' Compensation insurance for its employees in the
form required by the State of Nevada or provide Workers'
Compensation on a self-insured basis in compliance with
applicable Nevada regulations. Licensee shall, upon request,
provide Licensor with certificate(s) evidencing the foregoing
insurance coverages. Whether or not it elects to insure its
personal property at locations covered by this Agreement,
Licensee hereby waives any right of recovery from Licensor for
any loss or damage to such property resulting from any of the
perils insured against in the standard form fire insurance policy
with Extended Coverages and Vandalism and Malicious Mischief
Endorsements. To the extent that any insurance maintained by
Licensee includes coverage against additional perils, this waiver
shall apply with respect to loss damage resulting from such other
perils.
10. Termination of License. If Licensor ceases to do business
in any of the Licensed Locations for any reason whatsoever, this
License Agreement shall terminate as to the Licensed Locations
where such business is discontinued, effective at the time of
such discontinuance, and thereafter the license fees payable
under this Agreement will be reduced pro rata for the affected
Licensed Locations. This License Agreement will continue to
apply to all remaining Licensed Locations.
11. Interruption of Business. If the business of any Licensed
Locations subject to this Agreement is substantially interrupted
by reason of a major remodeling, fire, other casualty, or any
other cause not the fault of Licensee, and such interruption
substantially and adversely affects the business of Licensee in
such Licensed Location, then, from and after such interruption
and until the cause thereof has been corrected or eliminated, the
fees due Licensor hereunder for such Licensed Locations shall be
equitably reduced or abated to the extent agreed between the
parties.
12. Default. If Licensee (i) defaults in the payment of the
fees payable by it hereunder or fails to perform any other of its
obligations under this Agreement, and Licensee fails to cure such
default within a period of fifteen (15) days after written notice
from Licensor, or (ii) Cardivan Company, an affiliate of Licensee
("Cardivan"), defaults in the payment of fees or performance of
its other obligations under that certain License Agreement
between Cardivan and Lucky Stores, Inc. dated of even date
herewith, and such default is not cured within the grace period
provided therein, or (iii) Cardivan defaults in the payment of
fees or performance of its obligations under that certain License
Agreement between Cardivan and Licensor dated of even date
herewith and such default is not cured within the applicable
grace period provided therein, then, in any of such events,
Licensor shall have all rights and remedies now or hereafter
provided by law and, in addition, may do any one or more of the
following:
(a) Terminate this Agreement by giving written notice to
Licensee; resume possession of the space occupied by Licensee in
the Licensed Locations; retain all Devices, fixtures, and other
personal property of Licensee remaining on such space and full
right and authority to sell, lease, or otherwise dispose of the
same or to store the same, all at the expense of Licensee; and to
recover from Licensee all fees due under this Agreement had it
not been terminated, less the net amount realized by Licensor
from any such sale, lease, or other disposition.
(b) Without terminating this Agreement, reenter and assume
possession of the space so licensed and of all Devices, fixtures,
and other personal property of Licensee located therein and relet
the space and sell, lease, or otherwise dispose of the Devices,
fixtures, and other personal property, all on such terms and
conditions as Licensor deems advisable, and in any such event,
Licensee shall pay promptly upon demand the difference between
the fees due under this Agreement for the period of such
reletting (but not beyond the term of this Agreement) and the net
amount received by Licensor from such reletting and from such
sale, lease, or other disposition.
(c) To treat all amounts due and not paid by Licensee to the
date of such default, together with all amounts payable under
this Agreement during the remaining term of this Agreement
following such default, as an indebtedness of Licensee
immediately due and payable to Licensor and recover the same,
together with interest thereof at the rate of 150 percent of the
prime rate charged preferred customers by Bank of America Nevada,
determined as of the first day of the month preceding such
default and adjusted as of the first day of each month during the
period of such default, both before and after judgment from the
date of such default until paid, but not to exceed the greater of
24 percent per annum or the highest amount permitted by
applicable law.
In the event of any such default, Licensee shall have no right to
remove any Devices, fixtures, or other personal property of
Licensee from the space licensed, and Licensor shall have a lien
thereon as security for the payment of all amounts due Licensor
under the Agreement.
13. Assignment and Subletting, Successors and Assigns. Licensee
may not assign this Agreement or sublet any of the space within
any of the Licensed Locations covered by this Agreement, whether
by operation of law or otherwise without prior written approval
of Licensor, except that Licensee may assign this Agreement to a
wholly-owned subsidiary of Jackpot Enterprises, Inc. without such
prior written approval; provided, that such assignee agrees to be
bound by all of the terms and conditions of this Agreement and
Cardivan Company, an affiliate of Licensee, guarantees the
payment and performance by such assignee of its obligations
hereunder during the remaining term hereof. Subject to such
provision, this Agreement shall bind and its benefits shall inure
to the parties hereto, their successors, and assigns.
14. Notices and Demands. All notices and demands made pursuant
to this Agreement shall be sufficient if made in writing and
delivered personally or by registered or certified mail to
American Drug Stores, Inc., C/O American Stores Properties, Inc.,
6565 Knott Avenue, Buena Park, California 90260-1158, Attention:
Dennis N. Palmer, Senior Vice President - Markets West, or to
Licensee at 1110 Palms Airport Drive, Las Vegas, Nevada 89119.
All notices mailed shall be deemed given when mailed.
15. Relationship Between the Parties. The relationship of
Licensor and Licensee shall be solely that of licensor and
licensee and nothing herein contained shall be construed to
constitute Licensor and Licensee as landlord and tenant,
sublandlord and subtenant, partners, joint venturers or any other
relationship whatsoever.
16. Confidentiality. This Agreement and the information
contained herein, including but not limited to the fees payable
to Licensor by Licensee, is confidential and shall not be
disclosed to any person except the gaming licensing authorities
of the State of Nevada upon proper request, unless and to the
extent required by laws or regulations applicable to the parties.
17. Prior Agreement. This Agreement shall supersede and
replaces the License Agreement dated October 31, 1991, as
amended, between Licensor and Licensee at the time the initial
term of this Agreement commences on July 1, 1997.
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
AMERICAN DRUG STORES, INC.
By /s/ Mark N. Schneider
______________________________
Mark N. Schneider
Vice President
CORRAL UNITED, INC.
By /s/ George Congdon
_____________________________
George Congdon
President
EXHIBIT A TO LICENSE AGREEMENT BETWEEN
AMERICAN DRUG STORES, INC. AND CORRAL UNITED, INC.
DATED APRIL 24, 1997
Location No. of Machines Store Hours
________ _______________ ___________
[S] [C] [C]
1. Savon Store No. 19-3235
1360 E. Flamingo
Las Vegas, NV 15 24 hours
2. Savon Store No. 19-3237
562 N. Eastern
Las Vegas, NV 16 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
3. Savon Store No. 19-3247
3345 E. Tropicana
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
4. Savon Store No. 19-3249
4014 S. Rainbow
Las Vegas, NV 15 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
5. Savon Store No. 19-3289
4600 Meadow Lane
Las Vegas, NV 16 7 a.m. to 10 p.m. (M-Sat)
8 a.m. to 7 p.m. (Sun.)
EXHIBIT 10.15
"RCT" means the material omitted has been filed with the
Securities and Exchange Commission with an application requesting
confidential treatment.
AGREEMENT
THIS AGREEMENT entered into as of the 1st day of September 1997
by and between KMART CORPORATION, a Michigan corporation located
at 3100 West Big Beaver Road, Troy, Michigan 48084 (hereinafter
referred to as "Kmart") and CARDIVAN COMPANY, a Nevada
corporation, located at 1110 Palms Airport Drive, Las Vegas,
Nevada, 89119 (hereinafter referred to as "Cardivan").
WHEREAS, Kmart desires Cardivan to continue the installation,
operation, maintenance and servicing of gaming devices (the
"Devices") in all stores of Kmart in the State of Nevada; and
WHEREAS, Cardivan agrees to take all necessary steps to install,
operate and maintain Devices pursuant to the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1.Cardivan shall install, operate, service and remove subject to
the terms hereof, Devices at the Kmart store locations set forth
on the attached Exhibit A. Should Kmart open or acquire
additional stores within the State of Nevada during the term of
this Agreement, Kmart will use its best efforts to provide to
Cardivan adequate space for the installation and operation of the
maximum number of Devices allowable by law. Cardivan will accept
existing space allocations within existing Kmart stores. However
should Kmart reduce the space allocation in an existing store, a
per Device monthly rent adjustment will be required during the
term of this Agreement. The minimum number of Devices to be
installed and operated in each existing store is detailed on
Exhibit A. Cardivan may elect to reduce or add to the number of
Devices at any location subject to the terms of this Agreement.
Installation, maintenance, removal and replacement of said
Devices shall be performed only at the time specified by the
Kmart district manager of the store involved. The area in which
Devices shall be located in the stores shall be mutually agreed
upon between Kmart and Cardivan.
2.In full consideration for the rights hereby granted, Cardivan
shall pay to Kmart the amounts set forth in the attached Exhibit
B for each existing store as of September 1, 1997. All payments
will be made on the first day of each month for the previous
month. The minimum amount to be paid by Cardivan to Kmart for
each store shall be based on the minimum number of Devices listed
in Exhibit B for each store. The minimum monthly fees per store
will be paid by Cardivan even if Cardivan elects to reduce the
number of Devices in a store below the minimum number provided in
Exhibit B. Provided, if Cardivan elects to install additional
Devices in a store above the minimum number listed in Exhibit B
for a store, Cardivan agrees to pay to Kmart an additional amount
for each such Device based on the monthly fee per Device listed
in Exhibit B for the store in which the additional Device(s) is
installed and operated.
Should Kmart open or acquire additional stores in the State of
Nevada during the term of this Agreement, Cardivan shall have the
option within thirty (30) days of notification by Kmart to
Cardivan to exercise its exclusive right to operate Devices
within each of the stores under the terms and conditions of this
Agreement. During the term of this Agreement, the fees due with
respect to such new locations will be based on the actual number
of Devices at such locations at the then applicable monthly fee.
For the RCT period following the date such new location
is open for business by Kmart, the monthly fee per Device shall
be RCT; provided that if Kmart has not taken all steps required
to be taken by it to permit Cardivan to commence operations at
such New Location, the RCT period shall not commence until all
such actions have been taken.
In addition, upon the later of October 1, 1997 or the execution
of this Agreement by the parties, Cardivan agrees to prepay
RCT of fees due under the Agreement (based on the minimum number
of Devices per store) in the total amount of RCT to Kmart. This
figure excludes the Kmart store #3894 located in Elko, Nevada.
Upon receiving licensing for store #3894, Cardivan agrees to
prepay RCT of fees for said store due under this agreement.
3.Payments by Cardivan shall be mailed or delivered to Kmart
Corporation at 3100 West Big Beaver Road, Troy, MI 48084,
Accounts Receivable - Attn: D. Matyanowski. Kmart may direct
Cardivan to send payments to another address by giving Cardivan
written notice at least thirty days in advance of such address
change. All payments made by Cardivan hereunder shall be
accompanied by a report giving a breakdown by store of the amount
paid and the calendar month to which the payment relates.
Notification of the installation of any new Devices (except
Devices installed to replace old Devices) shall be given to Kmart
at the then current address for payments not less than thirty
(30) days prior to the installation.
4.All Devices installed by Cardivan hereunder and subject to this
Agreement, together with the contents of their cash boxes shall
remain the sole property of Cardivan and Kmart shall acquire no
ownership interest therein. All taxes and assessments of any
kind by reason of or as a condition precedent to the ownership or
operation of Devices by Cardivan in the stores shall be paid
promptly and in full by Cardivan, but Cardivan shall not be
liable for any tax measured by Kmart's income. Cardivan warrants
that prior to installation of any Device hereunder it shall have
paid the proper licensing agency or agencies the licensing fee or
fees necessary for operation of Devices and that it shall have
procured from said agency or agencies all licenses necessary for
operation of Devices. Cardivan agrees that it shall maintain in
force such licenses and pay any and all license fees as they
become due during the term of this Agreement.
Cardivan agrees to reimburse, indemnify, defend and hold Kmart
harmless from and against any damage, loss, expense or penalty or
any claim or action therefore: (1) by or on behalf of any taxing
authority arising out of Cardivan's payment or failure of payment
of any taxes and/or assessments (including license fees) imposed
by reason of or as a condition precedent to the ownership or
operation of the Devices covered hereunder, and (2) as a result
of Cardivan's failure to obtain and/or maintain in force any
licenses necessary for the operation of Devices covered
hereunder.
5.All costs and expenses incurred for the installing, maintaining
and removing of said Devices shall be paid by Cardivan, together
with the costs of restoring to their condition on the date of
installation, reasonable wear and tear excepted, the areas in the
stores occupied by said Devices, which restoration Cardivan
hereby agrees to perform promptly after the removal of any or all
of said Devices and/or upon termination of this Agreement. If
Cardivan fails or refuses to so remove and restore for more than
thirty (30) consecutive calendar days after termination of this
Agreement or its receipt of directions from Kmart to do so, Kmart
may so remove and restore and may place said removed Devices in
public storage in Clark County, Nevada for Cardivan's account and
at Cardivan's risk.
6.Cardivan shall, at its own expense, employ a sufficient number
of persons to supply change or coins (furnished by Cardivan) to
patrons of the Devices at each of the stores covered by this
Agreement. In the event that Kmart deems one or more of
Cardivan's Change Persons or other employees working at a
Location or Locations is conducting themselves in a manner that
is unsatisfactory to Kmart, Kmart may inform Cardivan verbally or
in writing of such conduct. Cardivan shall address the matter
within twenty-four (24) hours with the Affected Employee and
correct the violation. If Kmart notifies Cardivan, verbally or in
writing, of a second incident by the Affected Employee, Cardivan
shall replace the Affected Employee as quickly as possible
subject to existing federal, state and local laws.
7.Cardivan shall service said Devices, and its employees shall be
present to render change service, during the hours when said
store is open to the public.
8.In the event an Existing Location is closed for renovation for
a period of thirty (30) days or more, the Fees with respect to
such renovated Existing Location shall be RCT monthly fee RCT
following the date such renovated Existing Location is reopened
for business by Kmart; provided that if Kmart has not taken all
steps required to be taken by it to permit Cardivan to recommence
operations at such Existing Location, the RCT period shall not
commence until all such actions have been taken. Should Cardivan
decline to exercise such option Kmart may license another
operator of Devices for such new store.
9.Cardivan shall be responsible for and does represent that it
shall comply with all federal, state and local laws, rules and
regulations applicable to its operations under this Agreement.
10.Cardivan is and at all times shall be an independent
contractor in the performance of this Agreement. Cardivan will
exercise control over its employees and shall be solely
responsible for the payment of any wages, salaries or other
remuneration of its employees and for the payment of any payroll
taxes, contributions for unemployment insurance, social security,
pensions or annuities which are imposed as a result of the
employment of its employees.
11.The risk of loss, damage, destruction or disappearance of any
property of Cardivan on the premises shall, as between Kmart and
Cardivan, be exclusively that of Cardivan.
12.Cardivan shall not advertise the presence of the Devices
covered by this Agreement, except in accordance with Kmart's
prior written approval.
13.If Kmart decides to alter its smoking policies in the Gaming
Spaces from those currently in effect, Kmart agrees to discuss
the need for such change with Cardivan and to secure Cardivan's
prior written consent for such change, unless and to the extent
such change is required by law or regulation.
14.Cardivan shall reimburse, indemnify, defend and hold Kmart
harmless from and against any damage, loss, expense or penalty or
any claim, demand, action or proceeding therefor by or on behalf
of any person or entity (including Cardivan employees), arising
out of the installation, maintenance, service, existence,
operation, repair or removal of Devices including but not limited
to claims of libel, slander, assault, false arrest, bodily injury
or property damage (hereinafter "such claims"), provided Kmart
gives Cardivan reasonable notice of any such claims made or
brought against Kmart. Cardivan shall assume the defense or other
disposition of any such claims within a reasonable period of time
after notice of same.
15.Cardivan shall provide and maintain in effect during the term
hereof and any extension thereof workers' compensation insurance
covering all employees engaged in its business and in the
installation, maintenance, service, operation, repair or removal
of said Devices, or provide workers' compensation on a self-
insured basis in compliance with applicable Nevada regulations,
and shall likewise provide and maintain public liability
insurance with policy limits of $2,000,000 per occurrence and
aggregate combined for bodily injury and property damages. Kmart
shall be named as an additional insured under said policy or
policies. Such insurance shall specifically protect Cardivan and
Kmart as its interest may appear against the contractual
liability assumed by Cardivan hereunder, and certificates of such
insurance shall be promptly delivered to Kmart.
16.Cardivan will indemnify and save Kmart harmless from and
against all claims, demands or actions arising out of
infringement or alleged infringement of U.S. Patents, copyrights,
trademark or servicemark rights if such claims, demands or
actions are made or brought against Kmart as a result of the
presence of said Devices in its stores.
17.Notices hereunder for Cardivan shall be directed to it at 1110
Palms Airport Drive, Las Vegas, Nevada 89119, Attn: Senior Vice
President - Operations and notices for Kmart shall be directed to
it at 3100 West Big Beaver Road, Troy, Michigan 48084, Attn:
General Counsel or to such other addresses as either party may
hereafter specify in writing. Notices shall be effective on the
date recipient signs for receipt of said notice.
18.The entire understanding of the parties with relation to the
subject matter hereof is contained herein. No modification of
this Agreement shall be effective unless made in writing and
signed by both parties. Neither party shall assign this Agreement
or any interest in it or assign or subcontract the performance of
any obligation hereunder without the prior written consent of the
other party; subject to such prior written consent, this
Agreement shall bind the successors and assigns of both parties.
19.This Agreement shall become effective as of September 1, 1997
and shall expire on RCT. Either party may terminate this
Agreement at any time during the term if the other party breaches
or is in default of the performance of its obligations hereunder,
and such breach or default continues for thirty (30) consecutive
days after written notice thereof is mailed to the party
breaching or in default, such termination to be effective on said
thirtieth (30th) day. In the event any of the Kmart stores
covered by this Agreement close, Cardivan's gaming operations as
to such store only shall be suspended during such closing, if
temporary and, if permanent, Cardivan's gaming operations as to
such store only shall terminate effective as of the date of the
store closing. Termination shall not affect rights or
obligations accrued hereunder prior to the effective date of
termination. In addition, in the event that (i) Kmart should
effect a material reduction in the hours of operation of the
locations, from the hours of operation in effect on the date of
this Agreement, or (ii) there should be a change in the laws or
regulations applicable to the operation of gaming devices in
retail facilities which has the effect of materially reducing the
revenues received by Cardivan from its operation of the Devices
hereunder, the parties shall negotiate in good faith to arrive at
an equitable adjustment to the terms of the Agreement.
20.Both of the parties hereto agree that they will be bound by
and comply with any rule, regulation or statute of the State of
Nevada relating to Devices herein described; together with city
and county ordinance pertaining to Devices.
21.Notwithstanding the provisions of paragraph 19 above, this
Agreement shall terminate on the effective date of any law,
ordinance, regulations or final judicial decision which, directly
or in effect, renders operations hereunder unlawful, or requires
Kmart to meet the licensing of the Nevada Gaming Commission.
Should a new tax or a current tax increase be imposed on the
gaming operations (other than increases in rate of income, sales
or excise taxes which are of general application to persons in
addition to those dealing with Devices) during the term of this
Agreement that has the effect of materially reducing the
operating income earned by Cardivan from its operation of Devices
at Kmart stores, Kmart and Cardivan agree to negotiate in good
faith to arrive at an equitable adjustment to the terms of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of this 2nd day of September, 1997.
CARDIVAN COMPANY KMART CORPORATION
By: /s/ George Congdon By: /s/ Paul Hueber
_________________________ _____________________
Its: George Congdon, President Its: Paul Hueber
_________________________ _____________________
Senior Vice President
A:\XHIBIT10.15.wpd
August 26, 1997<PAGE>
EXHIBIT A
<TABLE>
Min. # of Hours of
Store # Location Devices Operation
________________________________________________________________________
<S> <C> <C>
Super Kmart
4933 4855 Summit Ridge, Reno, Nv 89503 15 24 hours
4943 3456 North Carson Street, Carson City, NV 89706 15 24 hours
Kmart
3095 2671 Las Vegas Blvd. N., N. Las Vegas, NV 89030 15 8a-10p
3110 3800 Kietzke Lane, Reno, NV 89502 16 8a-10p
3592 5050 E. Bonanza Road, Las Vegas, NV 89110 16 8a-10p
3680 3760 E. Sunset Road, Las Vegas, NV 89120 15 8a-10p
3719 4500 N. Rancho Drive, Las Vegas, NV 89130 16 8a-10p
3857 732 S. Racetrack Road, Henderson, NV 89015 15 8a-10p
3894 2450 Mountain City Hwy., Elko, NV 89801 15(A) 8a-10p M-Sa
8a-9p Sun.
4151 2125 Oddie Blvd., Sparks, NV 89431 16 8a-10p
4369 2975 E. Sahara Avenue, Las Vegas, NV 89104 15 8a-10p
7586 3455 S. Rainbow Blvd., Las Vegas, NV 89102 15 8a-10p
</TABLE>
(A) Subject to Cardivan obtaining all the necessary regulatory approvals
and licenses
August 15, 1997<PAGE>
EXHIBIT B
For the Period RCT
<TABLE>
Store Monthly Fee per Device # of Devices Total Due Per Month
_____ ______________________ ____________ ___________________
<S> <C> <C> <C>
Super Kmart
___________
Store #
_______
4933 RCT 15 RCT
4943 RCT 15 RCT
Kmart Store #
_____________
3095 RCT 15 RCT
3110 RCT 16 RCT
3592 RCT 16 RCT
3680 RCT 15 RCT
3719 RCT 16 RCT
3857 RCT 15 RCT
3894 RCT 15 RCT
4151 RCT 16 RCT
4369 RCT 15 RCT
7586 RCT 15 RCT
Total All: RCT
</TABLE>
(A) Subject to Cardivan obtaining all the necessary regulatory approvals
and licenses.<PAGE>
EXHIBIT B
For the Period RCT
<TABLE>
Store Monthly Fee per Device # of Devices Total Due Per Month
_____ ______________________ ____________ ___________________
<S> <C> <C> <C>
Super Kmart
___________
Store #
_______
4933 RCT 15 RCT
4943 RCT 15 RCT
Kmart Store #
_____________
3095 RCT 15 RCT
3110 RCT 16 RCT
3592 RCT 16 RCT
3680 RCT 15 RCT
3719 RCT 16 RCT
3857 RCT 15 RCT
3894 RCT 15 RCT
4151 RCT 16 RCT
4369 RCT 15 RCT
7586 RCT 15 RCT
Total All: RCT
</TABLE>
(A) Subject to Cardivan obtaining all the necessary regulatory approvals
and licenses.
<PAGE>
EXHIBIT B
For the Period RCT
<TABLE>
Store Monthly Fee per Device # of Devices Total Due Per Month
_____ ______________________ ____________ ___________________
<S> <C> <C> <C>
Super Kmart
___________
Store #
_______
4933 RCT 15 RCT
4943 RCT 15 RCT
Kmart Store #
_____________
3095 RCT 15 RCT
3110 RCT 16 RCT
3592 RCT 16 RCT
3680 RCT 15 RCT
3719 RCT 16 RCT
3857 RCT 15 RCT
3894 RCT 15 RCT
4151 RCT 16 RCT
4369 RCT 15 RCT
7586 RCT 15 RCT
Total All: RCT
</TABLE>
(A) Subject to Cardivan obtaining all the necessary regulatory approvals
and licenses.<PAGE>
EXHIBIT B
For the Period RCT
<TABLE>
Store Monthly Fee per Device # of Devices Total Due Per Month
_____ ______________________ ____________ ___________________
<S> <C> <C> <C>
Super Kmart
___________
Store #
_______
4933 RCT 15 RCT
4943 RCT 15 RCT
Kmart Store #
_____________
3095 RCT 15 RCT
3110 RCT 16 RCT
3592 RCT 16 RCT
3680 RCT 15 RCT
3719 RCT 16 RCT
3857 RCT 15 RCT
3894 RCT 15 RCT
4151 RCT 16 RCT
4369 RCT 15 RCT
7586 RCT 15 RCT
Total All: RCT
</TABLE>
(A) Subject to Cardivan obtaining all the necessary regulatory approvals
and licenses.
EXHIBIT 10.16
"RCT" means the material omitted has been filed with the
Securities & Exchange Commission with an application requesting
confidential treatment.
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 24th day of April 1997,
between Lucky Stores, Inc., a Nevada corporation ("Licensor"),
and Cardivan Company, a Nevada corporation ("Licensee").
Licensee and Licensor are collectively referred to as "the
Parties".
1. Purpose. This Agreement sets forth the terms and conditions
under which the Licensee shall have the exclusive right to
operate certain gaming devices (the "Devices") (i) within each of
the stores operated by Licensor in the State of Nevada which are
designated on Exhibit "A" attached hereto and incorporated herein
by reference (the "Existing Locations"), and (ii) in any
additional stores opened or acquired by Licensor or an affiliate
of Licensor for business to the public in the state of Nevada
during the term of this Agreement which become subject to this
Agreement pursuant to Section 4(d) hereof (the "New Locations",
together with the Existing Locations, the "Licensed Locations").
Notwithstanding the foregoing, an off-site replacement of a
Licensed Location which constitutes a "replacement store" in
accordance with Licensor's internal policies, which opens
concurrently with the closing of the Licensed Location it is
replacing, and which is located not more than one mile from the
Licensed Location it is replacing, shall not constitute a New
Location for purposes of this Agreement.
2. License. Licensor hereby grants to Licensee the use of such
amount of space (the "Gaming Space") as is reasonably required to
set up the number of Devices currently permitted at such Licensed
Location. For purposes of illustration, the Gaming Space at a
Licensed Location in which 15 bill validator-equipped Devices are
located would not be required to contain more than 450 square
feet of space. The Gaming Space shall be located as close to the
entrance and checkstand of the Licensed Location as is reasonably
practicable with the exact location and square footage of the
Gaming Space to be determined by mutual agreement of the parties.
Licensee is also hereby granted an exclusive right to operate up
to the maximum number of Devices currently allowed by the State
of Nevada in each of the Licensed Locations. Notwithstanding the
foregoing, the size of the Gaming Space and the location of the
Devices in each of the Existing Locations shall be continued in
the same manner as at the time of the execution of this Agreement
except as changes thereto are made from time to time by mutual
agreement between Licensor and Licensee. Licensor agrees to use
its best efforts to expand the size of the Gaming Space at the
Existing Locations where such expansion is required in order to
replace the Devices currently located in such Existing Locations
with an equal number of Devices containing bill validators and
shall use its best efforts to complete any such required
expansions by April 30, 1998. In the event that Licensor is not
able to complete any such required expansions by April 30, 1998,
the parties shall negotiate in good faith to arrive at an
appropriate adjustment to the monthly fees payable hereunder;
provided, that in no event shall the fee for any Licensed
Location be reduced to an amount less than RCT per month.
3. Term. The term of the license for each Licensed Location
shall begin on July 1, 1997 and shall expire at midnight on RCT.
In addition, Licensee may, at its sole option, extend the term of
this Agreement for an additional period of RCT commencing
on RCT and expiring at midnight on RCT (the "Option Period") by
giving written notice to Licensor of its intention to do so no
earlier than RCT and no later than RCT; provided, that such
option may only be exercised if (i) Licensee concurrently
exercises its option to extend the term of that certain License
Agreement between Licensee and American Drug Stores, Inc. ("ADS")
dated of even date herewith, and (ii) Corral United, Inc.
concurrently exercises its option to extend the term of that
certain License Agreement between Corral United, Inc. and ADS
dated of even date herewith. Licensee shall have no option to
renew or extend this License Agreement beyond RCT.
4. Fees.
a. During the initial term of this License Agreement, Licensee
agrees to pay Licensor the following amount per Licensed Location
per month:
Period Per Licensed Location Per Month
______ _______________________________
RCT RCT
RCT RCT
b. During the Option Period the Licensee agrees to pay Licensor
the following amount per Licensed Location per month:
Option Period Per Licensed Location Per Month
_____________ _______________________________
RCT RCT
RCT RCT
c. The monthly amounts set forth above shall be subject to
increase from time to time during the term of this Agreement and
any extension hereof as follows. During the one-month period
prior to each of RCT and RCT, respectively, Licensee shall
determine the average monthly fee per Device being paid by
Licensee to other customers pursuant to written contracts having
a remaining duration of one year or more, or which may be paid
pursuant to contracts under negotiation, for comparable store
locations (the "Comparable Rent"). If the Comparable Rent is
greater than the fee provided for above by more than 5%, the
monthly fee shall be increased to the Comparable Rent for the
duration of the applicable period.
d. During the term of this Agreement, if Licensor opens or
acquires any New Location and Licensor determines to include
Devices at such New Location, Exhibit A hereto shall be amended
to include such New Location and the monthly fees payable
hereunder shall be adjusted accordingly. In the case of a New
Location opened or acquired on or after RCT, the fees due
pursuant to this Section 4 with respect to such New Location
shall be RCT fee during the RCT period following the date such
New Location is opened for business by Licensor; provided, that
if Licensor has not taken all steps required to be taken by it to
permit Licensee to commence operations at such New Location, the
RCT period shall not commence until all such actions have been
taken. In addition, in the event an Existing Location is closed
for renovation for a period of RCT or more, the Fees with respect
to such renovated Existing Location shall be RCT fee due pursuant
to this Section 4 during the RCT period following the date such
renovated Existing Location is reopened for business by Licensor;
provided, that if Licensor has not taken all steps required to be
taken by it to permit Licensee to recommence operations at such
Existing Location, the RCT period shall not commence until all
such actions have been taken.
e. The above fee shall be due and payable on the first day of
every month. If any of the above fees are not paid when due or
within fifteen (15) days thereafter, Licensee shall pay Licensor
interest on all amounts delinquent from the date of delinquency
until paid at a rate equal to 150 percent of the prime rate
charged preferred customers by Bank of America Nevada, determined
as of the first day of the month preceding such delinquency and
adjusted as of the first day of each month during the period of
such delinquency, but not to exceed the greater of 24 percent per
annum or the highest rate permitted by applicable law.
f. Licensor and Licensee agree that as of June 30, 1997,
Licensor will hold a security deposit (the "Security Deposit") in
the amount of RCT pursuant to agreements previously entered into
between the parties, which amount consists of the principal
amount of the original security deposit together with interest
accrued thereon through June 30, 1997. Commencing July 1, 1997,
no further interest shall be payable by Licensor to Licensee with
respect to the Security Deposit and commencing June 1, 1998 and
on each June 1, thereafter, RCT of such Security Deposit shall be
applied as an offset against the monthly fees payable by Licensee
under this Agreement until such time as the Security Deposit has
been exhausted.
g. In the event that (i) Licensor should effect a material
reduction in the hours of operation of the Licensed Locations,
considered as a whole, from the hours of operation in effect on
the date of this Agreement, or (ii) there should be a change in
the laws or regulations applicable to the operation of gaming
devices in retail food and drug facilities which has the effect
of materially reducing the revenues received by Licensee from its
operation of the Devices hereunder, the parties shall negotiate
in good faith to arrive at an equitable adjustment to the terms
of the Agreement.
5. Taxes. Licensee agrees to pay all taxes (other than real
estate taxes) payable in connection with the conduct of its
business in the Licensed Locations, including personal property
taxes levied against the Devices, fixtures, and other personal
property of the Licensee in the Licensed Locations. Licensee
will pay all social security, unemployment, and old age benefit
taxes, state, federal, and local, or other similar taxes due with
respect to employees or wages paid to employees of the Licensee
in the Licensed Locations. Licensee will maintain and pay all
license fees, federal, state, county, or city, necessary for its
operations in the Licensed Locations.
6. Use and Operation. Licensee agrees to use the Gaming Space
within the Licensed Locations as a department for the sole
purpose of operating the Devices in such space and will at all
times conduct said department and all branches of its business in
a first-class business like and attractive high-grade and proper
manner, including, without limitation, (1) maintaining the
Devices in good condition and repair at its own expense and at no
expense to Licensor; (2) replacing any out of date Devices at its
own expense with modern, up-to-date Devices from time to time;
(3) employing a change cashier or installing money changing
devices so that the store cashiers in the Licensed Location will
not be required to make change for the operation of the Devices;
and (4) not employing any person or persons within the Licensed
Locations deemed objectionable by Licensor, Licensee agreeing
upon request of Licensor to remove any such objectionable
employee as quickly as reasonably possible under existing
federal, state, and local laws. Signs of such type and size as
may be mutually agreed upon by Licensor and Licensee shall be
placed by Licensee in a conspicuous place at each of the Licensed
Locations stating that Licensee is the owner and operator of the
Devices. Licensor shall not change the smoking policies in the
Gaming Spaces from those currently in effect without the prior
written consent of Licensee, unless and to the extent such change
is required by law or regulation.
7. Title to Property. All personal property (including,
without limitation, the Devices) placed on the Licensed Locations
by Licensee shall be and remain the personal property of Licensee
(except as provided in Section 12 with respect to default) and,
upon the expiration or earlier termination of this Agreement,
Licensee shall within ten (10) days thereafter and at its sole
expense, remove from the Licensed Locations all such personal
property and restore such Licensed Locations to their original
conditions, ordinary wear and tear excepted.
8. General Covenants. Licensee agrees to comply with all
applicable laws, ordinances, and governmental regulations now in
force or hereafter enacted relating to the business operations of
the Licensee in the Licensed Locations; to make any and all
alterations, repairs, and changes, at its expense, required by
any such laws, ordinances, or governmental regulations; to
maintain the Gaming Space occupied by Licensee within each of the
Licensed Locations in a clean state and in good condition and
repair; not to make any alterations in such space without the
prior written consent of Licensor; and at the expiration or
termination of this Agreement, to surrender peaceable possession
thereof to Licensor in as good condition as it received the same,
loss or damage by fire (except if caused by the act or neglect of
Licensee or its employees) and wear and tear resulting from
reasonable use excepted.
9. Indemnification and Insurance. Licensee agrees to indemnify
and hold Licensor harmless from all claims, demands, causes of
action, losses, damages, and liability, including costs and
expenses and reasonable attorneys' fees incurred by Licensor in
connection with any claim by third parties, including employees
of Licensee, for injury to or death or damage to property
occurring in or on or about the portions of the Licensed
Locations licensed to Licensee or arising out of operations
conducted by Licensee. Licensee, at its own cost and expense,
shall maintain commercial general liability and automobile
liability insurance with a limit of not less than $1,000,000
applicable to any one occurrence. Such insurance shall name
Licensor as an additional insured with respect to operations
conducted in connection with this Agreement. Licensee shall
maintain Workers' Compensation insurance for its employees in the
form required by the State of Nevada or provide Workers'
Compensation on a self-insured basis in compliance with
applicable Nevada regulations. Licensee shall, upon request,
provide Licensor with certificate(s) evidencing the foregoing
insurance coverages. Whether or not it elects to insure its
personal property at locations covered by this Agreement,
Licensee hereby waives any right of recovery from Licensor for
any loss or damage to such property resulting from any of the
perils insured against in the standard form fire insurance policy
with Extended Coverages and Vandalism and Malicious Mischief
Endorsements. To the extent that any insurance maintained by
Licensee includes coverage against additional perils, this waiver
shall apply with respect to loss damage resulting from such other
perils.
10. Termination of License. If Licensor ceases to do business
in any of the Licensed Locations for any reason whatsoever, this
License Agreement shall terminate as to the Licensed Locations
where such business is discontinued, effective at the time of
such discontinuance, and thereafter the license fees payable
under this Agreement will be reduced pro rata for the affected
Licensed Locations. This License Agreement will continue to
apply to all remaining Licensed Locations.
11. Interruption of Business. If the business of any Licensed
Locations subject to this Agreement is substantially interrupted
by reason of a major remodeling, fire, other casualty, or any
other cause not the fault of Licensee, and such interruption
substantially and adversely affects the business of Licensee in
such Licensed Location, then, from and after such interruption
and until the cause thereof has been corrected or eliminated, the
fees due Licensor hereunder for such Licensed Locations shall be
equitably reduced or abated to the extent agreed between the
parties.
12. Default. If Licensee (i) defaults in the payment of the
fees payable by it hereunder or fails to perform any other of its
obligations under this Agreement, and Licensee fails to cure such
default within a period of fifteen (15) days after written notice
from Licensor, or (ii) Licensee defaults in the payment of fees
or performance of its other obligations under that certain
License Agreement between Licensee and American Drug Stores, Inc.
("ADS") dated of even date herewith, and such default is not
cured within the grace period provided therein, or (iii) Corral
United, Inc., an affiliate of Licensee, defaults in the payment
of fees or performance of its obligations under that certain
License Agreement between Corral United, Inc. and ADS dated of
even date herewith and such default is not cured within the
applicable grace period provided therein, then, in any of such
events, Licensor shall have all rights and remedies now or
hereafter provided by law and, in addition, may do any one or
more of the following:
(a) Terminate this Agreement by giving written notice to
Licensee; resume possession of the space occupied by Licensee in
the Licensed Locations; retain all Devices, fixtures, and other
personal property of Licensee remaining on such space and full
right and authority to sell, lease, or otherwise dispose of the
same or to store the same, all at the expense of Licensee; and to
recover from Licensee all fees due under this Agreement had it
not been terminated, less the net amount realized by Licensor
from any such sale, lease, or other disposition.
(b) Without terminating this Agreement, reenter and assume
possession of the space so licensed and of all Devices, fixtures,
and other personal property of Licensee located therein and relet
the space and sell, lease, or otherwise dispose of the Devices,
fixtures, and other personal property, all on such terms and
conditions as Licensor deems advisable, and in any such event,
Licensee shall pay promptly upon demand the difference between
the fees due under this Agreement for the period of such
reletting (but not beyond the term of this Agreement) and the net
amount received by Licensor from such reletting and from such
sale, lease, or other disposition.
(c) To treat all amounts due and not paid by Licensee to the
date of such default, together with all amounts payable under
this Agreement during the remaining term of this Agreement
following such default, as an indebtedness of Licensee
immediately due and payable to Licensor and recover the same,
together with interest thereof at the rate of 150 percent of the
prime rate charged preferred customers by Bank of America Nevada,
determined as of the first day of the month preceding such
default and adjusted as of the first day of each month during the
period of such default, both before and after judgment from the
date of such default until paid, but not to exceed the greater of
24 percent per annum or the highest amount permitted by
applicable law.
In the event of any such default, Licensee shall have no right to
remove any Devices, fixtures, or other personal property of
Licensee from the space licensed, and Licensor shall have a lien
thereon as security for the payment of all amounts due Licensor
under the Agreement.
13. Assignment and Subletting, Successors and Assigns. Licensee
may not assign this Agreement or sublet any of the space within
any of the Licensed Locations covered by this Agreement, whether
by operation of law or otherwise without prior written approval
of Licensor, except that Licensee may assign this Agreement to a
wholly-owned subsidiary of Jackpot Enterprises, Inc. without such
prior written approval; provided, that such assignee agrees to be
bound by all of the terms and conditions of this Agreement and
Licensee guarantees the payment and performance by such assignee
of its obligations hereunder during the remaining term hereof.
Subject to such provision, this Agreement shall bind and its
benefits shall inure to the parties hereto, their successors, and
assigns.
14. Notices and Demands. All notices and demands made pursuant
to this Agreement shall be sufficient if made in writing and
delivered personally or by registered or certified mail to Lucky
Stores, Inc., C/O American Stores Properties, Inc., 6565 Knott
Avenue, Buena Park, California 90260-1158, Attention: Dennis N.
Palmer, Senior Vice President - Markets West, or to Licensee at
1110 Palms Airport Drive, Las Vegas, Nevada 89119. All notices
mailed shall be deemed given when mailed.
15. Relationship Between the Parties. The relationship of
Licensor and Licensee shall be solely that of licensor and
licensee and nothing herein contained shall be construed to
constitute Licensor and Licensee as landlord and tenant,
sublandlord and subtenant, partners, joint venturers or any other
relationship whatsoever.
16. Confidentiality. This Agreement and the information
contained herein, including but not limited to the fees payable
to Licensor by Licensee, is confidential and shall not be
disclosed to any person except the gaming licensing authorities
of the State of Nevada upon proper request, unless and to the
extent required by laws or regulations applicable to the parties.
17. Prior Agreement. This Agreement shall supersede and
replaces the License Agreement dated October 31, 1991, as
amended, between Licensor and Licensee at the time the initial
term of this Agreement commences on July 1, 1997.
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
LUCKY STORES, INC.
By /s/ Mark N. Schneider
_________________________
Mark N. Schneider
Vice President
CARDIVAN COMPANY
By /s/ George Congdon
_________________________
George Congdon
President
<PAGE>
EXHIBIT A TO LICENSE AGREEMENT BETWEEN
LUCKY STORES, INC. AND CARDIVAN COMPANY DATED APRIL 24, 1997
<TABLE>
Location No. of Machines Store Hours
________ _______________ ___________
<S> <C> <C>
1. Lucky Store No. 121-681
4500 East Tropicana
Las Vegas, NV 15 24 hours
2. Lucky Store No. 121-684
610 N. Nellis Blvd.
Las Vegas, NV 16 6 a.m. to 12 a.m.
3. Lucky Store No. 121-685
4801 W. Spring Mtn. Road
Las Vegas, NV 15 24 hours
4. Lucky Store No. 121-704
4120 South Rainbow
Las Vegas, NV 15 6 a.m. to 12 a.m.
5. Lucky Store No. 121-732
2400 East Bonanza
Las Vegas, NV 17 6 a.m. to 12 a.m.
6. Lucky Store No. 121-733
2747 S. Maryland Parkway
Las Vegas, NV 15 24 hours
7. Lucky Store No. 121-734
3736 East Desert Inn
Las Vegas, NV 15 6 a.m. to 12 a.m.
8. Lucky Store No. 121-735
1200 South Decatur
Las Vegas, NV 17 6 a.m. to 12 a.m.
9. Lucky Store No. 121-697
2021 E. Lake Mead Blvd.
Las Vegas, NV 15 6 a.m. to 12 a.m.
10. Lucky Store No. 121-739
1300 E. Flamingo Rd.
Las Vegas, NV 15 24 hours
11. Lucky Store No. 121-587
2300 E. Tropicana
Las Vegas, NV 15 24 hours
12. Lucky Store No. 121-784
2851 Green Valley Pkwy.
Las Vegas, NV 15 24 hours
13. Lucky Store No. 121-785
724 Boulder Hwy.
Las Vegas, NV 15 24 hours
14. Lucky Store No. 121-786
1760 E. Charleston
Las Vegas, NV 17 6 a.m. to 12 a.m.
15. Lucky Store No. 121-787
1001 S. Rainbow Blvd.
Las Vegas, NV 20 24 hours
16. Lucky Store No. 121-683
7271 S. Eastern Ave.
Las Vegas, NV 15 24 hours
17. Lucky Store No. 121-585
6850 W. Spring Mtn. Rd.
Las Vegas, NV 15 24 hours
18. Lucky Store No. 121-586
4420 E. Bonanza
Las Vegas, NV 20 24 hours
19. Lucky Store No. 121-687
2835 S. Nellis
Las Vegas, NV 15 24 hours
20. Lucky Store No. 121-788
6140 W. Lake Mead
Las Vegas, NV 15 24 hours
21. Lucky Store No. 121-590
2550 S. Fort Apache
Las Vegas, NV 15 6 a.m. to 12 a.m.
22. Lucky Store No. 121-589
8350 W. Cheyenne
Las Vegas, NV 15 24 hours
23. Lucky Store No. 121-721
5975 W. Tropicana
Las Vegas, NV 15 24 hours
24. Lucky Store No. 121-742
1324 W. Craig Rd.
Las Vegas, NV 15 6 a.m. to 12 a.m.
</TABLE>
EXHIBIT 10.17
"RCT" means the material omitted has been filed with the
Securities & Exchange Commission with an application requesting
confidential treatment.
April 9, 1997
Mr. Elliot Gerson
Senior Vice President
Assistant Chief Legal Counsel
Rite Aid Corporation
P. O. Box 3165
Harrisburg, PA 17105
Dear Mr. Gerson:
Reference is made to the License Agreement, dated as of April 14,
1992 (the "License Agreement"), between Payless Drug Stores
Northwest, Inc. now Thrifty Payless, Inc. ("Payless") and Corral
Coin, Inc., a Nevada corporation ("Corral"), a subsidiary of
Jackpot Enterprises, Inc. ("Jackpot"). This is to confirm that
following our discussions with you over the past several months,
Payless and Corral have agreed that the License Agreement is
hereby amended to reflect the term sheet attached hereto as
Exhibit A. If you are in agreement with the foregoing, please
execute a copy of this letter and return it to me.
AGREED AND ACCEPTED:
JACKPOT ENTERPRISES, INC. RITE AID CORPORATION
By: /s/ Don R. Kornstein By: /s/ Elliot Gerson
________________________ ________________________
Don R. Kornstein Elliot Gerson Sr. Vice President
CORRAL COIN, INC. THRIFTY PAYLESS, INC.
By: /s/ George Congdon By: /s/ Elliot Gerson
___________________________ ________________________
George Congdon Elliot Gerson Sr. Vice President
<PAGE>
EXHIBIT A
TERM SHEET BETWEEN JACKPOT ENTERPRISES, INC. AND RITE AID CORPORATION
Term: RCT Commencing July 1, 1997
Rent:
Existing Stores: See schedule below
New Stores: RCT
RCT
RCT
RCT
Existing Stores
___________________________________
Rent Rent Rent
RCT RCT RCT
Current Total ___________ ___________ ___________
# Stores Rent/Month Monthly Rent Store Total Store Total Store Total
________ __________ ____________ _____ _____ _____ _____ _____ _____
[S] [C] [C] [C] [C] [C] [C] [C] [C]
5 RCT RCT RCT RCT RCT RCT RCT RCT
1 RCT RCT RCT RCT RCT RCT RCT RCT
3 RCT RCT RCT RCT RCT RCT RCT RCT
1 RCT RCT RCT RCT RCT RCT RCT RCT
1 RCT RCT RCT RCT RCT RCT RCT RCT
1 RCT RCT RCT RCT RCT RCT RCT RCT
__
12 RCT RCT RCT RCT<PAGE>
April 24, 1997
Mr. Elliot Gerson
Senior Vice President
Assistant Chief Legal Counsel
Rite Aid Corporation
P. O. Box 3165
Harrisburg, PA 17105
Dear Mr. Gerson:
Reference is made to the License Agreement, dated as of June 19, 1990 (the
"License Agreement"), between Payless Drug Stores, Inc. now Thrifty
Payless, Inc. ("Payless") and Cardivan Company, a Nevada corporation
("Cardivan"), a subsidiary of Jackpot Enterprises, Inc. ("Jackpot"), and
the Letter Agreement dated as of April 9, 1997 (the "Letter Agreement")
between Payless and Corral Coin, Inc., a Nevada corporation and Jackpot.
This is to confirm that following our discussions with you over the past
several months, Payless and Cardivan have agreed that the License Agreement
is hereby amended to reflect the term sheet attached hereto as Exhibit A,
and that Rite Aid store #6121 (1327 Highway 395 South, Gardnerville,
Nevada) is deleted from and not covered by the Letter Agreement. If you
are in agreement with the foregoing, please execute a copy of this letter
and return it to me.
AGREED AND ACCEPTED:
JACKPOT ENTERPRISES, INC. RITE AID CORPORATION
By: /s/ Don R. Kornstein By: /s/ Elliot Gerson
________________________ ________________________
Don R. Kornstein Elliot Gerson Sr. Vice President
CARDIVAN COMPANY THRIFTY PAYLESS, INC.
By: /s/ George Congdon By: /s/ Elliot Gerson
___________________________ ________________________
George Congdon Elliot Gerson Sr. Vice President
<PAGE>
EXHIBIT A
TERM SHEET BETWEEN JACKPOT ENTERPRISES, INC. AND RITE AID CORPORATION
Company: Cardivan Company
Term: RCT commencing July 1, 1997
Store No.
________________ Current Rent Rent Rent
Rite Aid Payless Address Rent/Month RCT RCT RCT
________ _______ _________________________ __________ ____ ____ ____
6121 (None) 1327 S. Highway 395, RCT RCT RCT RCT
Gardnerville
EXHIBIT 11.1
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE (A)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Dollars and shares in thousands, except per share data)
<TABLE>
Years Ended June 30,
_________________________
1997 1996 1995
______ _______ _______
<S> <C> <C> <C>
Primary:
Earnings:
Net income $7,844 $ 5,855 $ 6,616
====== ======= =======
Shares:
Weighted average number of common
shares outstanding (B) 9,237 9,307 9,235
====== ======= =======
Primary earnings per share $ .85 $ .63 $ .72
====== ======= =======
Fully diluted (C):
Earnings:
Net income $7,844 $ 5,855 $ 6,616
Add after-tax interest, net (D) 171 813 1,762
______ _______ _______
Net income, as adjusted $8,015 $ 6,668 $ 8,378
====== ======= =======
Shares:
Weighted average number of common
shares outstanding 9,237 9,307 9,235
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 242 1,229 2,398
______ _______ _______
Weighted average number of common
shares and common share
equivalents outstanding 9,479 10,536 11,633
====== ======= =======
Fully diluted earnings per share $ .85 $ .63 $ .72
====== ======= =======
</TABLE>
________________________________
(A) See Notes 1 and 5 of Notes to Consolidated Financial
Statements.
(B) 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
have been excluded from the computations in 1997, 1996 and
1995 because they had no effect on primary earnings per
share.
(C) The calculations for 1997, 1996 and 1995 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 on earnings per share.
(D) 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).
EXHIBIT 21.1
SUBSIDIARIES OF JACKPOT ENTERPRISES, INC.
<TABLE>
STATE OF
COMPANY %OWNED INCORPORATION
<S> <C> <C>
1.Cardivan Company 100% Nevada
2.Corral Coin, Inc. 100% Nevada
3.Corral Country Coin, Inc. 100% Nevada
4.Corral United, Inc. 100% Nevada
5.Jackpot Gaming, Inc. 100% Nevada
6.Jackpot Owl, Inc. 100% Nevada
7.Jackpot's Highway 93 Casino, Inc. 100% Nevada
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-22990, 33-38210, 33-51588 and 33-61624 on Forms S-3 and in
Registration Statement Nos. 2-83273, 2-98984, 33-27288, 33-38209
and 33-86078 on Forms S-8 of Jackpot Enterprises, Inc. of our report
dated August 1, 1997, appearing in this Annual Report on Form 10-K of
Jackpot Enterprises, Inc. for the year ended June 30, 1997.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
September 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jackpot's
Consolidated Balance Sheets - June 30, 1997 and 1996 and its Consolidated
Statements of Income - years ended June 30, 1997, 1996 and 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 47,945
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,111
<PP&E> 34,671
<DEPRECIATION> 21,582
<TOTAL-ASSETS> 75,267
<CURRENT-LIABILITIES> 4,782
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 67,281
<TOTAL-LIABILITY-AND-EQUITY> 75,267
<SALES> 0
<TOTAL-REVENUES> 91,904
<CGS> 0
<TOTAL-COSTS> 72,740
<OTHER-EXPENSES> 4,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,368
<INCOME-TAX> 3,524
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,844
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
