UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to___________________
Commission file no. 1-9728
JACKPOT ENTERPRISES, INC.
_____________________________________________________________________________
(Exact name of registrant as specified in its charter)
NEVADA 88-0169922
__________________________________ ___________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1110 Palms Airport Drive, Las Vegas, Nevada 89119
____________________________________________ __________
(Address of principal executive offices) (Zip Code)
702-263-5555
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
____ ____
There were 8,601,628 shares of the registrant's common stock outstanding as of
February 4, 2000.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and June 30, 1999
Condensed Consolidated Statements of Income -
Three and Six Months Ended December 31, 1999 and 1998
Condensed Consolidated Statement of Stockholders'
Equity - Six Months Ended December 31, 1999
Condensed Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
December 31, June 30,
ASSETS 1999 1999
______ ____________ ________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 70,209 $ 47,637
Short-term investments, at fair value - 7,292
Prepaid expenses 1,267 1,515
Other current assets 3,223 1,985
________ ________
Total current assets 74,699 58,429
________ ________
Property and equipment, at cost:
Land and buildings 435 435
Gaming equipment 29,854 29,418
Other equipment 4,690 4,546
Leasehold improvements 374 368
________ ________
35,353 34,767
Less accumulated depreciation (22,593) (21,010)
________ ________
12,760 13,757
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$1,420 and $3,404 1,604 3,119
Goodwill, net of accumulated
amortization of $2,962 and $2,879 3,659 3,743
Lease and other security deposits 110 1,242
Other non-current assets - 2,005
________ ________
Total assets $ 92,832 $ 82,295
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Concluded)
(Unaudited)
<TABLE>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999
____________________________________ ____________ ________
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,924 $ 1,794
Other current liabilities 4,719 3,000
________ ________
Total current liabilities 7,643 4,794
Deferred rent 3,000 2,554
Deferred income tax 166 333
________ ________
Total liabilities 10,809 7,681
________ ________
Commitments and contingencies
Stockholders' equity:
Preferred stock - authorized
1,000,000 shares of $1 par value;
none issued
Common stock - authorized
60,000,000 shares of $.01 par
value; 9,860,252 shares issued 99 99
Additional paid-in capital 66,462 66,465
Retained earnings 29,239 21,069
Less 1,258,624 and 1,243,714 shares of
common stock in treasury, at cost (13,777) (13,776)
Unrealized gain on available-for-sale
securities, net of tax - 757
________ ________
Total stockholders' equity 82,023 74,614
________ ________
Total liabilities and
stockholders' equity $ 92,832 $ 82,295
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
_________________ ________________
1999 1998 1999 1998
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenues:
Route operations $22,444 $23,399 $45,244 $45,252
Casino operations - 348 - 702
_______ _______ _______ _______
Totals 22,444 23,747 45,244 45,954
_______ _______ _______ _______
Costs and expenses:
Route operations 21,545 19,533 42,799 38,063
Casino operations - 361 - 694
Amortization 229 292 450 578
Depreciation 995 1,061 1,981 2,071
General and administrative 1,360 927 2,614 1,797
_______ _______ _______ _______
Totals 24,129 22,174 47,844 43,203
_______ _______ _______ _______
Operating income (loss) (1,685) 1,573 (2,600) 2,751
_______ _______ _______ _______
Other income:
Net fee from terminated merger 116 - 11,116 -
Gain on sale of short-term
investments 2,345 - 2,361 -
Interest and other income 495 357 964 718
_______ _______ _______ _______
Totals 2,956 357 14,441 718
_______ _______ _______ _______
Income before income tax 1,271 1,930 11,841 3,469
_______ _______ _______ _______
Provision (credit) for Federal
income tax:
Current 505 513 3,838 871
Deferred (111) 27 (167) 100
_______ _______ _______ _______
Totals 394 540 3,671 971
_______ _______ _______ _______
Net income $ 877 $ 1,390 $ 8,170 $ 2,498
======= ======= ======= =======
Basic earnings per share $ .10 $ .16 $ .95 $ .29
======= ======= ======= =======
Diluted earnings per share $ .10 $ .16 $ .95 $ .29
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1999
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
Accumu-
lated
Addi- Other
Common Stock tional Treasury Stock Compre-
_____________ Paid-In Retained ________________ hensive
Shares Amount Capital Earnings Shares Amount Income Totals
______ ______ _______ ________ ______ ________ _______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance July 1, 1999 9,860 $99 $66,465 $21,069 (1,244) $(13,776) $757 $74,614
Comprehensive income:
Net income 8,170 8,170
Other comprehensive income:
Unrealized gain on
available-for-sale
securities, net of tax
and reclassification
adjustment
(See Note 2 and
disclosure below) (757) (757)
______
Comprehensive income 7,413
Repurchases of common stock (15) (1) (1)
Other (3) (3)
_____ ___ _______ _______ ______ ________ ____ _______
Balance December 31, 1999 9,860 $99 $66,462 $29,239 (1,259) $(13,777) $ - $82,023
===== === ======= ======= ====== ======== ==== =======
</TABLE>
<PAGE>
Disclosure of reclassification amount:
Unrealized gain for the six months
ended December 31, 1999 $ 777
Less reclassification adjustment for gain
included in net income (1,534)
_______
Unrealized gain on available-for-sale
securities, net of tax $ (757)
=======
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
1999 1998
________ ________
<S> <C> <C>
Operating activities:
Net income $ 8,170 $ 2,498
Adjustments to reconcile net income to net
cash provided by operating activities:
Net fee from terminated merger (11,116) -
Depreciation and amortization 2,431 2,649
Deferred Federal income tax (167) 100
Gain on sale of short-term investments (2,361) -
Increase (decrease) from changes in:
Prepaid expenses and other current assets 80 863
Other non-current assets 36 171
Accounts payable and other current liabilities 4,465 (722)
Deferred rent and other liabilities 446 5
________ ________
Net cash provided by operating activities 1,984 5,564
________ ________
Investing activities:
Break-up fee from terminated merger 13,500 -
Proceeds from sale of short-term investments 8,488 -
Net proceeds from location operators 72 (10)
Proceeds from sales of property and equipment 11 58
Purchases of property and equipment (956) (3,401)
Increase in lease acquisition costs and other
intangible and non-current assets (1,942) (290)
Lease and other security deposits 1,416 -
________ ________
Net cash provided by (used in) investing
activities 20,589 (3,643)
________ ________
Financing activities:
Proceeds from issuance of common stock - 67
Repurchases of common stock (1) (1,706)
________ ________
Net cash used in financing activities (1) (1,639)
________ ________
Net increase in cash and cash equivalents 22,572 282
Cash and cash equivalents at beginning of period 47,637 50,275
________ ________
Cash and cash equivalents at end of period $ 70,209 $50,557
======== ========
Supplemental disclosures of cash flow data:
Cash paid during the period for:
Federal income tax $ 1,275 $ 400
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General:
The accompanying unaudited condensed consolidated financial
statements included herein have been prepared by Jackpot
Enterprises, Inc. ("Jackpot" or the "Company") pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures
are adequate to make the information presented not misleading.
Certain revenues previously classified as casino operations
revenues in the condensed consolidated statements of income for
the three and six months ended December 31, 1998 have been
reclassified to route operations revenues. Such
reclassifications were not material to total revenues.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly Jackpot's financial position as of December
31, 1999, the results of its operations for the three and six
months ended December 31, 1999 and 1998 and its cash flows for
the six months ended December 31, 1999 and 1998. The earnings
for the three and six months ended December 31, 1999 and 1998
are not necessarily indicative of results for a full year.
Information included in the condensed consolidated balance
sheet as of June 30, 1999 has been derived from Jackpot's
Annual Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended June 30, 1999 (the "1999 Form
10-K"). These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and disclosures included in the 1999 Form
10-K.
Jackpot accounts for investments in debt and equity securities
in accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). This statement addresses the
accounting and reporting for investments in equity securities
that have readily determinable fair values and for all
investments in debt securities, and requires such securities be
classified as either held to maturity, trading, or available-
for-sale. Management determines the appropriate classification
of its investments in securities at the time of purchase and
reevaluates such classification at each balance sheet date.
SFAS 115 requires that available-for-sale securities be carried
at fair value with unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity.
Unrealized gains and losses for available-for-sale securities
are excluded from earnings. Realized gains from sales of
investment securities for the three and six months ended
December 31, 1999 were $2,345,000 and $2,361,000. There were
no realized gains from sales of investment securities for the
three and six months ended December 31, 1998, or any realized
losses from the sale of investment securities for the three and
six months ended December 31, 1999 and 1998.
In April 1998, the American Institute of Certified Public
Accountants' Accounting Standards Executive Committee issued
Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities". This standard provides guidance on the
financial reporting for start-up costs and organization costs.
This standard requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective
for fiscal years beginning after December 15, 1998. The
Company adopted this statement on July 1, 1999. This statement
had no effect on the accompanying unaudited condensed
consolidated financial statements and will not have a
significant effect on Jackpot's financial position or results
of operations for the fiscal year ending June 30, 2000.
In June 1998, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which is effective for fiscal years
beginning after June 15, 2000. SFAS 133 establishes additional
accounting and reporting standards for derivative instruments
and hedging activities. Presently, Jackpot does not have any
derivative instruments, nor does the Company participate in
hedging activities. Accordingly, SFAS 133 is not expected to
have a significant effect on the results of operations or
related disclosures.
Note 2 - Comprehensive income (loss):
Comprehensive income (loss) for the three and six months ended
December 31, 1999 and 1998 is the following (dollars in
thousands):
<TABLE>
Three Months Six Months
Ended Ended
December 31, December 31,
_____________ _____________
1999 1998 1999 1998
_____ ______ ______ ______
<S> <C> <C> <C> <C>
Net income $ 877 $1,390 $8,170 $2,498
Other comprehensive income (892) - (757) -
_____ ______ ______ ______
Comprehensive income (loss) $ (15) $1,390 $7,413 $2,498
===== ====== ====== ======
</TABLE>
Note 3 - Earnings per share:
Basic earnings per share for the three and six months ended
December 31, 1999 and 1998 is computed by dividing net income
by the weighted average number of common shares outstanding.
Diluted earnings per share for the three and six months ended
December 31, 1999 and 1998 is computed by dividing net income
by the weighted average number of common and common equivalent
shares outstanding. Options and warrants to purchase common
stock, whose exercise price was greater than the average market
price for the respective period, have been excluded from the
computations of diluted earnings per share. Such antidilutive
options and warrants outstanding for the three months ended
December 31, 1999 and 1998 were 1,616,000 and 707,000,
respectively, and for the six months ended December 31, 1999
and 1998 were 1,645,000 and 495,000, respectively. The
following is the amount of income and number of shares used in
the basic and diluted earnings per share computations (dollars
and shares in thousands, except per share data):
<TABLE>
Three Months Six Months
Ended Ended
December 31, December 31,
_____________ ______________
1999 1998 1999 1998
_____ ______ ______ ______
<S> <C> <C> <C> <C>
Basic earnings per share:
Earnings:
Income available to
common stockholders $ 877 $1,390 $8,170 $2,498
===== ====== ====== ======
Shares:
Weighted average number
of common shares
outstanding 8,614 8,617 8,615 8,665
===== ====== ====== ======
Basic earnings per share $ .10 $ .16 $ .95 $ .29
===== ====== ====== ======
Diluted earnings per share:
Earnings:
Income available to
common stockholders $ 877 $1,390 $8,170 $2,498
Effect of dilutive
securities - - - -
_____ ______ ______ ______
Income, as adjusted $ 877 $1,390 $8,170 $2,498
===== ====== ====== ======
Shares:
Weighted average number
of common shares
outstanding 8,614 8,617 8,615 8,665
Common shares issuable
upon assumed exercise
of dilutive stock
options 1 1,047 12 1,268
Less common shares
assumed to be
repurchased by
application of the
treasury stock method
to the proceeds using
the average market
price for the period (1) (999) (12) (1,179)
_____ ______ ______ ______
Weighted average number
of common shares and
common share
equivalents outstanding 8,614 8,665 8,615 8,754
===== ====== ====== ======
Diluted earnings per share $ .10 $ .16 $ .95 $ .29
===== ====== ====== ======
</TABLE>
Note 4 - Stockholders' equity:
Authorized common stock:
On September 14, 1999, Jackpot's stockholders approved an
increase in the number of authorized shares of common stock
from 30,000,000 to 60,000,000.
The 1992 Incentive and Non-qualified Stock Option Plan:
On September 30, 1999, the exercise price of the June 30, 1999
grant of nonqualified stock options to purchase an aggregate of
110,000 shares of common stock (27,500 each to four directors)
was vested at $8.75 per share, the fair market value of the
stock on that date, pursuant to the terms of the 1992 Incentive
and Non-qualified Stock Option Plan (the "1992 Plan"). See Note
6 of Notes to Consolidated Financial Statements in the 1999 Form
10-K for further information regarding the 1992 Plan and option
grants.
Other nonqualified stock options:
On September 14, 1999, nonqualified stock options to purchase an
aggregate of 120,000 shares of common stock were granted to the
Company's Board of Directors (30,000 each to four directors) at
an exercise price of $9.00 per share, the fair market value on
the date of grant. The option granted to each director will
vest 50% on each of the first and second anniversary of the date
of grant and shall be subject to accelerated vesting under
certain circumstances. Such options expire ten years from date
of grant.
Note 5 - Other events:
On August 16, 1999, Jackpot received a notice from Players
International, Inc. ("Players") terminating the Agreement and
Plan of Merger dated February 8, 1999 (the "Players Agreement").
Such notice contained the terms of a merger offer for Players
from Harrah's Entertainment, Inc. On August 19, 1999, pursuant
to the terms of the Players Agreement, Jackpot received a break-
up fee of $13,500,000. As a result of the termination of the
Players Agreement, capitalized costs of $2,384,000 incurred in
connection with the proposed acquisition of Players were
expensed resulting in a net break-up fee of $11,116,000.
During the six months ended December 31, 1999, Jackpot sold
1,014,400 shares of Players common stock for $8,488,000 ($8.37
per share). As a result of the sale of such shares, which were
purchased on March 10, 1999 at a cost of $6,127,000 ($6.04 per
share), Jackpot realized a gain of $2,361,000.
Note 6 - Commitments and contingencies:
Litigation settlement:
In August 1998, Albertson's, Inc. ("Albertson's," a retail chain
in which Jackpot conducts gaming operations) and American Stores
Company ("American Stores") entered into a merger agreement that
provided for the acquisition of American Stores by Albertson's.
The merger of Albertson's and American Stores was completed on
June 23, 1999. As a condition to avoiding and/or settling legal
proceedings against the merger by the Federal Trade Commission
and the Attorneys General of California, Nevada and New Mexico,
Albertson's agreed to divest certain of its stores, including 19
stores in southern Nevada, fifteen of which were Jackpot
locations. In late September and early October 1999,
Albertson's sold those locations to Raley's, Inc. ("Raley's"),
and Raley's has operated them since.
On August 30, 1999, Jackpot commenced litigation in United
States District Court for the District of Nevada against
Albertson's and Raley's to enforce its rights to remain in the
fifteen locations under its agreement with Albertson's. On
September 14, 1999, Jackpot obtained a preliminary injunction to
prevent Albertson's and Raley's from interfering with its right
to occupy the subject premises and conduct gaming operations.
Albertson's and Raley's appealed the injunction and made motions
for summary judgment.
In connection with Raley's acquisition of the locations, United
Coin Machine Company ("United Coin"), the slot route operator
for Raley's northern Nevada stores, filed applications with the
Nevada Gaming Control Board to operate the gaming machines at
the fifteen stores. On September 23, 1999, United Coin
commenced an action in Nevada state court against Jackpot,
Albertson's, Raley's and Anchor Coin ("Anchor"), the slot route
operator at the four other Albertson's southern Nevada locations
seeking declaratory and injunctive relief and money damages.
On January 26, 2000, Jackpot entered into a Settlement Agreement
and Release (the "Settlement Agreement") with Albertson's,
Raley's, Anchor and United Coin. Pursuant to the terms of the
Settlement Agreement, the parties agreed to dismiss with
prejudice all litigation pending among them and to the takeover
of gaming operations by United Coin of the 19 stores in southern
Nevada, effective February 1, 2000. Of the 19 stores in
southern Nevada operated by Raley's, Jackpot had operated 246
gaming machines at 15 locations pursuant to its long-term
agreement with Albertson's. Jackpot believed it was in its best
interest to settle the case and thereby preserve and solidify
its long-term relationship with Albertson's, its largest
customer, pursuant to the terms of an amendment to its agreement
with Albertson's, which it had theretofore arranged and which is
described below in this note. It was also important to Jackpot
to avoid further litigation and fully resolve all claims among
and between the parties. All costs incurred in connection with
the litigation and settlement, including legal and settlement
costs aggregating approximately $950,000 have been recorded in
the six months ended December 31, 1999.
Settlement agreement with Albertson's:
Prior to the settlement described above, on November 18, 1999,
Jackpot and Albertson's had entered into a settlement agreement
(the "Agreement"). The Agreement amended the license agreement
entered in September 1998 between Jackpot and Albertson's (the
"Albertson's Agreement"). The Agreement also terminated
Jackpot's separate license agreements with Lucky Stores, Inc.
and American Drug Stores, Inc. and incorporates Jackpot's
exclusive rights in Nevada to operate gaming devices at the
locations (including any future locations) of those entities
into the Albertson's Agreement, as amended by the Agreement.
Under the Agreement, Jackpot has the exclusive option to extend
the agreements beyond the initial terms and will continue to
have exclusive gaming rights for new Albertson's locations. In
addition, Albertson's has granted Jackpot exclusive gaming
rights in all drug stores opened by Albertson's or any of its
affiliates in Nevada, and in future fuel center locations, a new
retailing concept that Albertson's will open, in which gaming
may be offered to customers. Further, pursuant to the terms of
the Agreement, Jackpot will receive substantial reductions in
certain license fees, which are effective from February 1, 2000
through the initial term of the Agreement, and certain immediate
credits toward license fees. Including 28 former Lucky Store
locations in southern Nevada, which have been operating under
the Albertson's name since November 1999, the Agreement
currently involves the operation of 1,012 gaming machines in 79
locations.
Future minimum lease payments (dollars in thousands) under
noncancelable operating leases or licenses, including the
Agreement described above, aggregated approximately $144,358 at
December 31, 1999, payable as follows: $48,030 in the
remainder of fiscal 2000 and fiscal 2001; $32,018 in fiscal
2002; $32,247 in fiscal 2003; $10,199 in fiscal 2004; $9,682
in fiscal 2005; and $12,182 thereafter.
The Rite Aid dispute:
On December 8, 1999, certain subsidiaries of Jackpot commenced
litigation in the United States District Court for the District
of Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit
is an action for rescission of two license agreements between
those subsidiaries and Rite Aid and for damages based upon Rite
Aid's fraud. Operations of said subsidiaries under said
agreements resulted in an operating loss of approximately $1.0
million and $2.0 million for the three and six months ended
December 31, 1999, respectively. On December 16, 1999, on
consent of the parties, the Court adjourned Jackpot's motion for
a preliminary injunction until March 10, 2000, subject to
certain terms and conditions. The outcome of this action cannot
be determined at this time. Subsequent to the adjournment,
Jackpot and Rite Aid have had preliminary discussions for the
purpose of amending the present agreements. If the amendment of
both license agreements is not completed, or if completed on
less than satisfactory economic terms required by Jackpot and
revenues do not increase significantly at these locations,
Jackpot will continue to incur significant operating losses at
the Rite Aid locations. Jackpot presently operates 311 gaming
devices at 30 Rite Aid locations.
Item 2. Management's Discussion and Analysis of Financial
_________________________________________________
Condition and Results of Operations
___________________________________
Capital Resources and Liquidity
_______________________________
Cash Flows:
Jackpot's principal sources of cash for the six months ended December
31, 1999 (the "1999 six months"), consisted principally of the cash flows
from investing activities and its available cash and cash equivalents which,
at June 30, 1999, was $47.6 million and at December 31, 1999 was $70.2
million. Net cash provided by operating activities decreased $3.6 million,
from $5.6 million for the six months ended December 31, 1998 (the "1998 six
months") to $2.0 million for the 1999 six months. The decrease of $3.6
million was due primarily to the decrease in operating income in the 1999
six months.
Net cash provided by investing activities increased $24.2 million, from
net cash used in investing activities of $3.6 million for the 1998 six
months to net cash provided by investing activities of $20.6 million for the
1999 six months. Such increase was due primarily to the receipt of the
break-up fee from the terminated merger and the proceeds from the sale of
the Players stock described below.
Liquidity:
On October 29, 1996, Jackpot's Board of Directors authorized management
to repurchase up to 500,000 shares of Jackpot's common stock at prevailing
market prices. Subsequently, on January 22, 1998, such authorization was
increased from 500,000 to 1,000,000 shares. From October 29, 1996 through
December 31, 1999, Jackpot repurchased 800,437 shares of common stock at a
cost of approximately $8.5 million.
On August 16, 1999, Jackpot received a notice from Players
International, Inc. ("Players") terminating the Agreement and Plan of Merger
dated February 8, 1999 (the "Players Agreement"). Such notice contained the
terms of a merger offer for Players from Harrah's Entertainment, Inc. On
August 19, 1999, pursuant to the terms of the Players Agreement, Jackpot
received a break-up fee of $13.5 million. As a result of the termination of
the Players Agreement, capitalized costs of $2,384,000 incurred in
connection with the proposed acquisition of Players were expensed resulting
in a net break-up fee of $11.1 million.
During the 1999 six months, Jackpot sold 1,014,400 shares of Players
common stock for $8,488,000 ($8.37 per share). As a result of the sale of
such shares, which were purchased on March 10, 1999 at a cost of $6,127,000
($6.04 per share), Jackpot realized a gain of $2,361,000.
Working capital increased $13.4 million, from $53.6 million at June 30,
1999 to $67.0 million at December 31, 1999. The increase in working capital
was due primarily to the receipt of the break-up fee and the sale of the
Players common stock described above.
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 for the remainder of the year
ending June 30, 2000 ("fiscal 2000"). With respect to planned capital
expenditures, management anticipates Jackpot will purchase approximately
$1.2 million of property and equipment, exclusive of business acquisitions,
if any, in the remainder of fiscal 2000 to be used in existing and currently
planned new locations.
Jackpot continues to explore additional opportunities, including
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 other opportunities or
potential acquisitions.
Recently Issued Accounting Standards:
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position No.
98-5, "Reporting on the Costs of Start-Up Activities." This standard
provides guidance on the financial reporting for start-up costs and
organization costs. This standard requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for fiscal
years beginning after December 15, 1998. The Company adopted this statement
on July 1, 1999. This statement had no effect on the accompanying unaudited
condensed consolidated financial statements and will not have a significant
effect on Jackpot's financial position or results of operations for fiscal
2000.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which is effective for fiscal years beginning
after June 15, 2000. SFAS 133 establishes additional accounting and
reporting standards for derivative instruments and hedging activities.
Presently, Jackpot does not have any derivative instruments, nor does the
Company participate in hedging activities. Accordingly, SFAS 133 is not
expected to have a significant effect on the results of operations or
related disclosures.
Results of Operations
_____________________
Special Factors Affecting Route Operations:
Albertson's-Raley's litigation. In August 1998, Albertson's, Inc.
______________________________
("Albertson's," a retail chain in which Jackpot conducts gaming operations)
and American Stores Company ("American Stores") entered into a merger
agreement that provided for the acquisition of American Stores by
Albertson's. Approximately 57% and 55% of Jackpot's total revenues for the
fiscal years ended June 30, 1999 and 1998, respectively, were generated at
the locations of those two entities. The merger of Albertson's and American
Stores was completed on June 23, 1999. As a condition to avoiding and/or
settling legal proceedings against the merger by the Federal Trade
Commission and the Attorneys General of California, Nevada and New Mexico,
Albertson's agreed to divest certain of its stores, including 19 stores in
southern Nevada, fifteen of which were Jackpot locations. In late
September and early October 1999, Albertson's sold those locations to
Raley's, Inc. ("Raley's"), and Raley's has operated them since.
On August 30, 1999, Jackpot commenced litigation in United States
District Court for the District of Nevada against Albertson's and Raley's to
enforce its rights to remain in the fifteen locations under its agreement
with Albertson's. On September 14, 1999, Jackpot obtained a preliminary
injunction to prevent Albertson's and Raley's from interfering with its
right to occupy the subject premises and conduct gaming operations.
Albertson's and Raley's appealed the injunction and made motions for summary
judgment.
In connection with Raley's acquisition of the locations, United Coin
Machine Company ("United Coin"), the slot route operator for Raley's
northern Nevada stores, filed applications with the Nevada Gaming Control
Board to operate the gaming machines at the fifteen stores. On September
23, 1999, United Coin commenced an action in Nevada state court against
Jackpot, Albertson's, Raley's and Anchor Coin ("Anchor"), the slot route
operator at the four other Albertson's southern Nevada locations seeking
declaratory and injunctive relief and money damages.
On January 26, 2000, Jackpot entered into a Settlement Agreement and
Release (the "Settlement Agreement") with Albertson's, Raley's, Anchor and
United Coin. Pursuant to the terms of the Settlement Agreement, the parties
agreed to dismiss with prejudice all litigation pending among them and to
the takeover of gaming operations by United Coin of the 19 stores in
southern Nevada, effective February 1, 2000. Of the 19 stores in southern
Nevada operated by Raley's, Jackpot had operated 246 gaming machines at 15
locations pursuant to its long-term agreement with Albertson's. These 15
locations generated approximately 16% of Jackpot's total revenues for the
1998 six months and the year ended June 30, 1999 ("fiscal 1999"),
respectively, and a significantly greater percentage of Jackpot's operating
income for the 1998 six months and fiscal 1999. Jackpot believed it was in
its best interest to settle the case and thereby preserve and solidify its
long-term relationship with Albertson's, its largest customer, pursuant to
the terms of an amendment to its agreement with Albertson's, which it had
theretofore arranged and which is described below. It was also important to
Jackpot to avoid further litigation and fully resolve all claims among and
between the parties. All costs incurred in connection with the litigation
and settlement, including legal and settlement costs aggregating
approximately $950,000 have been recorded in the six months ended December
31, 1999.
Settlement agreement with Albertson's: Prior to the settlement described
_____________________________________
above, on November 18, 1999, Jackpot and Albertson's had entered into a
settlement agreement (the "Agreement"). The Agreement amended the license
agreement entered in September 1998 between Jackpot and Albertson's (the
"Albertson's Agreement"). The Agreement also terminated Jackpot's separate
license agreements with Lucky Stores, Inc. and American Drug Stores, Inc.
and incorporates Jackpot's exclusive rights in Nevada to operate gaming
devices at the locations (including any future locations) of those entities
into the Albertson's Agreement, as amended by the Agreement. Under the
Agreement, Jackpot has the exclusive option to extend the agreements beyond
the initial terms and will continue to have exclusive gaming rights for new
Albertson's locations. In addition, Albertson's has granted Jackpot
exclusive gaming rights in all drug stores opened by Albertson's or any of
its affiliates in Nevada, and in future fuel center locations, a new
retailing concept that Albertson's will open, in which gaming may be offered
to customers. Further, pursuant to the terms of the Agreement, Jackpot will
receive substantial reductions in certain license fees, which are effective
from February 1, 2000 through the initial term of the Agreement, and certain
immediate credits toward license fees. Based upon the amended terms and
certain assumptions, management believes that the estimated cost savings
over the initial term of the Agreement will approximate $18 million.
Including 28 former Lucky Store locations in southern Nevada, which have
been operating under the Albertson's name since November 1999, the Agreement
currently involves the operation of 1,012 gaming machines in 79 locations.
While the loss of the 15 former Albertson's locations on February 1,
2000 will have a significant effect of the Company's future results of
operations, management believes that the estimated cost savings will
substantially offset the loss of the operating income, based on current
assumptions and contract terms, that would have been generated at these 15
locations over the initial term of the Agreement.
The Rite Aid dispute: On December 8, 1999, certain subsidiaries of Jackpot
____________________
commenced litigation in the United States District Court for the District of
Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit is an action
for rescission of two license agreements between those subsidiaries and Rite
Aid and for damages based upon Rite Aid's fraud. Operations of said
subsidiaries under said agreements resulted in an operating loss of
approximately $1.0 million and $2.0 million for the three and six
months ended December 31, 1999, respectively. On December 16, 1999, on
consent of the parties, the Court adjourned Jackpot's motion for a
preliminary injunction until March 10, 2000, subject to certain terms and
conditions. The outcome of this action cannot be determined at this time.
Subsequent to the adjournment, Jackpot and Rite Aid have had preliminary
discussions for the purpose of amending the present agreements. If the
amendment of both license agreements is not completed, or if completed on
less than satisfactory economic terms required by Jackpot and revenues do
not increase significantly at these locations, Jackpot will continue to
incur significant operating losses at the Rite Aid locations. Jackpot
presently operates 311 gaming devices at 30 Rite Aid locations.
Revenues:
Total revenues for the three months ended December 31, 1999 (the "1999
three months") decreased $1.3 million, from $23.7 million for the three
months ended December 31, 1998 (the "1998 three months") to $22.4 million
for the 1999 three months, while total revenues for the 1999 six months
decreased $.7 million, from $45.9 million for the 1998 six months to $45.2
million for the 1999 six months. The decrease in total revenues of $1.3
million for the 1999 three months was the net result of a decrease of $1.0
million (from $23.4 million for the 1998 three months to $22.4 million for
the 1999 three months) in gaming machine route operations ("route
operations") revenues and a decrease of $.3 million in casino operations
revenues. The decrease in total revenues of $.7 million for the 1999 six
months was due to the decrease of $.7 million in casino operations revenues.
The decrease in route operations revenues for the 1999 three months of
$1.0 million resulted from a combination of revenues generated from new
locations of $1.3 million, net of a decrease in revenues at existing
locations of $1.5 million and lost revenues from terminated locations of $.8
million. The decrease in route operations revenues of $1.0 million for the
1999 three months was due primarily to lower revenues generated at the 15
Raley's locations. Route operations revenues for the 1999 six months,
compared to the 1998 six months, remained constant at $45.2 million. While
new locations generated revenues of $2.6 million, such increase was offset
by the decrease in revenues at existing locations of $1.0 million and the
lost revenues from terminated locations of $1.6 million in the 1998 six
months.
Route operations revenues attributable to fixed payment leases and
revenue sharing contracts for the three and six months ended December 31,
1999 and 1998 are summarized below (dollars in thousands):
<TABLE>
Three Months Ended December 31,
__________________________________________
1999 1998
_____________________ ___________________
Percent Percent
of route of route
operations operations
Amount revenues Amount revenues
_______ __________ _______ __________
<S> <C> <C> <C> <C>
Route operations:
Fixed payment leases $16,364 72.9% $17,772 76.0%
Revenue sharing contracts 6,080 27.1 5,627 24.0
_______ _____ _______ _____
Totals $22,444 100.0% $23,399 100.0%
======= ===== ======= =====
Six Months Ended December 31,
__________________________________________
1999 1998
_____________________ ___________________
Percent Percent
of route of route
operations operations
Amount revenues Amount revenues
_______ __________ _______ __________
<S> <C> <C> <C> <C>
Route operations:
Fixed payment leases $33,288 73.6% $34,250 75.7%
Revenue sharing contracts 11,956 26.4 11,002 24.3
_______ _____ _______ _____
Totals $45,244 100.0% $45,252 100.0%
======= ===== ======= =====
</TABLE>
Costs and expenses:
Route operations expenses for the 1999 three months and 1999 six months
increased $2.0 million (from $19.5 million for the 1998 three months to
$21.5 million for the 1999 three months) and $4.7 million (from $38.1
million for the 1998 six months to $42.8 million for the 1999 six months)
and, as a percentage of route operations revenues, increased to 96.0% and
94.6% for the 1999 three months and 1999 six months, respectively, from
83.5% and 84.1% for the 1998 three months and 1998 six months, respectively.
With respect to route operations costs and expenses, location rent is the
single largest route operations expense.
In September 1998, Jackpot had entered into a long-term extension of
the Albertson's Agreement (the "Albertson's Extension"), which became
effective July 1, 1999. Pursuant to the terms of the Albertson's Extension,
location rent increased significantly over the previous agreement. Such
increase, which was principally related to the 15 former Albertson's
locations in southern Nevada discussed below, adversely affected the
Company's results of operations for the 1999 six months. For a further
description of the Company's lease and license agreements, see Item 1 -
Business - Gaming Machine Route Operations and Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview in the 1999 Form 10-K.
The increase in route operations expenses of $2.0 million for the 1999
three months resulted primarily from a combination of an increase of $1.3
million in location rent for new locations of existing chain store
customers, an increase of $.3 million in location rent associated with
revenue sharing contracts, a decrease of $.4 million in location rent for
all other customers, an increase of $.3 million in group health costs, and
an increase of $.5 million in other route operations expenses. The increase
in route operations expenses of $4.7 million for the 1999 six months
resulted primarily from a combination of an increase of $2.5 million in
location rent for new locations of existing chain store customers, an
increase of $.5 million in location rent for locations of existing chain
store customers, which was principally related to the 15 former Albertson's
locations in southern Nevada, an increase of $.8 million in location rent
associated with revenue sharing contracts, a decrease of $.5 million in
location rent for all other customers, an increase of $.4 million in group
health costs, and an increase of $1.0 million in all other route operating
expenses.
Depreciation expense in each of the 1999 three months and 1999 six
months decreased $.1 million, from $1.1 million for the 1998 three months to
$1.0 million for the 1999 three months, and from $2.1 million for the 1998
six months to $2.0 million for the 1999 six months. Amortization expense in
each of the 1999 three months and 1999 six months decreased $.1 million,
from $.3 million for the 1998 three months to $.2 million for the 1999 three
months, and from $.6 million for the 1998 six months to $.5 million for the
1999 six months.
General and administrative expense for the 1999 three months and 1999
six months increased $.4 million (from $.9 million for the 1998 three months
to $1.3 million for the 1999 three months) and $.8 million (from $1.8
million for the 1998 six months to $2.6 million for the 1999 six months).
The increases were due principally to legal costs associated with the
Albertson's and Raley's litigation.
Other income:
Other income for the 1999 three months and 1999 six months increased
$2.6 million (from $.4 million for the 1998 three months to $3.0 million for
the 1999 three months) and $13.7 million (from $.7 million for the 1998 six
months to $14.4 million for the 1999 six months). The increases in other
income were due principally to the net fee from the terminated merger of
$11.1 million and the gain on the sale of the Players common stock of $2.3
million previously discussed.
Federal income tax:
The effective tax rate for the 1999 three months and 1999 six months
was 31% and for the 1998 three months and 1998 six months such rate was 28%.
These rates were lower than the Federal Statutory rate of 35% primarily
because of the tax benefits realized from tax-exempt interest income.
General:
Operating income for the 1999 three months and 1999 six months
decreased $3.3 million (from $1.6 million for the 1998 three months to an
operating loss of $1.7 million for the 1999 three months) and $5.4 million
(from $2.8 million for the 1998 six months to an operating loss of $2.6
million for the 1999 six months). Such decreases were due principally to
three factors: (1) an operating loss of approximately $1.0 million and $2.0
million for the 1999 three months and 1999 six months, respectively,
incurred at the locations of Rite Aid, a large customer, resulting from the
failure of 17 new locations to achieve expected revenues, as well as from a
decrease in revenues at existing locations of such customer, (2) a
significant decline in operating income generated at 15 former Albertson's
locations in southern Nevada, which have been operated by Raley's since late
September and early October 1999. Such decline was due primarily to
significantly lower revenues generated at these locations, and (3) legal and
settlement costs incurred in connection with Jackpot's litigation against
Albertson's and Raley's.
Basic and diluted earnings per share for the 1999 three months and 1999
six months was $.10 and $.95 per share versus $.16 and $.29 per share for
the 1998 three months and 1998 six months. Net income for the 1999 six
months was $8.2 million compared to $2.5 million for the 1998 six months.
Such increase was due principally to an increase in other income relating to
the net fee from the terminated merger and the gain on the sale of the
Players common stock. Net income for the 1999 three months was $.9 million
compared to $1.4 million for the 1998 three months. The decrease was due
primarily to the decline in operating income described above.
Year 2000
_________
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result, date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This situation is generally referred to as the "Year
2000 Problem". If this situation occurs, the potential exists for computer
system failures or miscalculations by computer programs, which could disrupt
operations.
Jackpot conducted a review of its computer systems and other systems
for the purpose of assessing its potential Year 2000 Problem. In addition,
Jackpot communicated with its major vendors and suppliers to determine their
state of readiness relative to the Year 2000 Problem and Jackpot's possible
exposure to Year 2000 issues of such third parties. Jackpot, through
correspondence from its major vendors or statements obtained at Year 2000
disclosure sites of major vendors, has been advised that such vendors
software or products are either Year 2000 compliant or should be Year 2000
compliant before December 31, 1999.
Jackpot has modified or replaced its essential computer systems and
other systems. The Company's essential systems were Year 2000 compliant
prior to December 31, 1999. All costs related to the Year 2000 Problem have
been expensed as incurred, while the cost of new hardware is capitalized and
amortized over its expected useful life. As of December 31, 1999, the
Company had incurred approximately $280,000 of Year 2000 compliance costs,
principally for internal costs and system applications. Subsequent to
December 31, 1999, the Company has not experienced any significant
difficulties relating to the Year 2000 Problem, and continues to monitor its
essential computer systems and other systems for potential problems which
may occur.
Forward-looking statements
__________________________
Certain information included in this Form 10-Q 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, the consolidation or
disposition of selected locations as a result of the merger of Albertson's,
Inc. and American Stores Company (each of which was a significant customer
of the Company during the past three fiscal years), conditioning or
suspension of any gaming license, unfavorable changes in gaming regulations,
adverse results of significant litigation matters including, but not limited
to the litigation with Rite Aid Corporation, 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 3. Quantitative and Qualitative Disclosure About Market Risk
_________________________________________________________
During the six months ended December 31, 1999, the Company sold a total
of 1,014,400 shares of common stock of Players in open market transactions.
Such shares, which were purchased on March 10, 1999, were acquired because
the purchase price for those shares was significantly below the per share
consideration which the Company had agreed to pay for all outstanding shares
of Players pursuant to the Agreement and Plan of Merger dated as of February
8, 1999, which provided for the merger of Players into a wholly-owned
subsidiary of the Company. As of December 31, 1999, Jackpot did not own any
shares of Players common stock. For further information concerning the
termination of the merger with Players and the sale of Players common stock
by the Company, see Note 5 of Notes to Condensed Consolidated Financial
Statements in this Form 10-Q.
In all other respects, for the three and six months ended December 31,
1999, there were no changes to the information incorporated by reference in
Item 7A of the 1999 Form 10-K.
PART II. OTHER INFORMATION
_________________
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 - Articles of Incorporation of the Registrant, as amended.
10.12 - Settlement Agreement with Albertson's, Inc.
10.13 - First Amendment to Settlement Agreement with Albertson's,
Inc.
27.1 - Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K - No Form 8-K was filed for the three months
ended December 31, 1999.
Signature
_________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKPOT ENTERPRISES, INC.
_________________________
(Registrant)
By: /s/ Bob Torkar
_________________________
BOB TORKAR
Senior Vice President - Finance,
Treasurer and Chief Accounting Officer
Date: February 14, 2000
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CORRAL UNITED, INC.
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned do hereby associate themselves
into a corporation, under and by virtue of the Nevada Revised
Statutes, Title 7, Chapter 78, as amended, and do hereby certify
and adopt the following Articles of Incorporation:
ARTICLE I
_________
The name of the corporation is CORRAL UNITED, INC.
ARTICLE II
__________
The location of the principal office of the corporation
in the State of Nevada is 241 Ridge Street, Reno, Nevada. Branch
offices may hereafter be established at such other place or
places, either within or without the State of Nevada as may be
determined from time to time by the Board of Directors.
ARTICLE III
___________
The purpose for which said corporation is formed is to
engage in any lawful activity.
ARTICLE IV
__________
The amount of the authorized capital stock of this
corporation is 25,000,000 shares with $.001 par value.
Any and all shares of stock of this corporation of any
class shall be paid in as the Board of Directors may designate
and as provided by law, in cash, real or personal property,
option to purchase, or any other valuable right or thing, for the
uses and purposes of the corporation, and said shares of stock
when issued in exchange therefor shall thereupon and thereby
become and be fully paid, the same as though paid for in cash,
and shall be nonasssessable forever, and the judgment of the Board
of Directors of the corporation concerning the value of the
property, right or thing, acquired in purchase or exchange for
capital stock shall be conclusive. No stockholder shall have any
pre-emtive rights.
ARTICLE V
_________
Members of the governing board shall be known as
"Directors," and the number thereof shall not be less than three
(3) nor more than nine (9), the exact number to be fixed by the
Board of Directors of the corporation, provided that the number
so fixed by the Directors may be increased or decreased from time
to time.
ARTICLE VI
__________
The names and addresses of the first Board of Directors
of the corporation, which are three (3), are as follows:
Linda B. Eller
955 Eden Court
Reno, Nevada 89509
Betty E. Presley
2230 Roundhouse Road
Sparks, Nevada 89431
Shirley Littlejohns
435 Emerson Way
Sparks, Nevada 89431
ARTICLE VII
___________
The stock of this corporation, after the amount of the
subscription price, or par value has been fully paid in, shall be
nonassessable forever, and shall not be subject to pay the debts
of the corporation.
ARTICLE VIII
____________
The names and addresses of the subscribers signing
these Articles of Incorporation are as follows:
Linda E. Eller
955 Eden Court
Reno, Nevada 89509
Betty E. Presley
2230 Roundhouse Road
Sparks, Nevada 89431
Shirley Littlejohns
435 Emerson Way
Sparks, Nevada 89431
ARTICLE IX
__________
The corporation is to have perpetual existence.
ARTICLE X
_________
A resolution, in writing, signed by all of the members
of the Board of Directors of the corporation, shall be and
constitute action by the Board of Directors to the effect therein
expressed with the same force and effect as though such
resolution has been passed at a duly convened meeting, and it
shall be the duty of the Secretary to record every such
resolution in the Minute Book of the corporation under its proper
date.
ARTICLE XI
__________
The Directors shall have the power to make and alter
the By-laws of the corporation. By-laws so made by the Directors
under the power so conferred may be altered, amended or repealed
by the Directors or by the Stockholders at any meeting called and
held for that purpose.
IN WITNESS WHEREOF, we have hereunto set our hands and
executed these Articles of Incorporation this 4 day of June,
1980.
/s/ Linda B. Eller
_____________________________
Linda B. Eller
/s/ Betty E. Presley
_____________________________
Betty E. Presley
/s/ Shirley Littlejohns
_____________________________
Shirley Littlejohns
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 4 day of June, 1980, personally appeared before
the undersigned, a Notary Public in and for the County of Washoe,
State of Nevada, Linda B. Eller, Betty E. Presley, and Shirley
Littlejohns, known to me to be the persons described in and who
executed the foregoing instrument freely and voluntarily and for
the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunder set my hand and
affixed my official seal the day and year in this certificate
first above written.
/s/ Julia Braly
_____________________________
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
CORRAL UNITED, INC.
The undersigned hereby certify as follows:
1. That they are the original incorporators of CORRAL
UNITED, INC.
2. That the Articles of Incorporation were filed in
the Office of the Secretary of State, State of Nevada, on the
11th day of June, 1980.
3. That as of the date of this certificate, no part of
the capital of the corporation has been paid.
4. That at a meeting of the officers and directors of
said corporation duly held at 241 Ridge Street, Suite 440, Reno,
Nevada, on June 15, 1980, the following resolution was
unanimously adopted:
That the Articles of Incorporation shall be, and hereby
are, amended to read as follows:
ARTICLE I
_________
"The name of the corporation is JACKPOT, INC."
ARTICLE IV
__________
"The amount of the authorized capital stock of this
corporation is 15,000,000 shares with a par value of $.01 per
share."
"Any and all shares of stock of this corporation of any
class shall be paid in as the Board of Directors may designate
and as provided by law, in cash, real or personal property, option
to purchase, or any other valuable right or thing, for the uses
and purposes of the corporation, and said shares of stock when
issued in exchange therefore shall thereupon and thereby become
and be fully paid, the same as though paid for in cash, and shall
be nonassessable forever and the judgment of the Board of Directors
of the corporation concerning the value of the property, right or
thing, acquired in purchase or exchange for capital stock shall be
conclusive. No stockholder shall have any pre-emptive rights."
IN WITNESS WHEREOF, the undersigned have executed this
Amendment to Articles of Incorporation this 15th day of June,
1980.
/s/ Shirley Littlejohns
_______________________________
SHIRLEY LITTLEJOHNS
/s/ Linda B. Eller
_______________________________
LINDA B. ELLER
/s/ Betty Presley
_______________________________
BETTY PRESLEY
STATE OF NEVADA, )
) ss
COUNTY OF WASHOE. )
On this 15th day of June, 1980, personally appeared
before me, a Notary Public, Shirley Littlejohns, Linda B. Eller
and Betty Presley, who acknowledged that they executed the
foregoing Certificate of Amendment to Articles of Incorporation.
/s/ Sarah Jo Smithson
_______________________________
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
JACKPOT, INC.
The undersigned hereby certify as follows:
1. That they are the President and Assistant Secretary
of JACKPOT, INC.
2. That the sole stockholder of JACKPOT, INC., BRISTOL
GAMING CORPORATION, consented to the adoption of the resolution
below on February 4, 1981.
3. That at a meeting of the officers and directors of
said corporation duly held at 241 Ridge Street, Suite 440, Reno,
Nevada, on February 24, 1981, the following resolution was
unanimously adopted:
That Articles I and IV of the Articles of Incorporation
shall be, and hereby are, amended to read as follows:
ARTICLE I
_________
"The name of the corporation is JACKPOT ENTERPRISES,
INC."
ARTICLE IV
__________
"The amount of the authorized capital stock of this
corporation is 15,000,000 common shares with a par value of $.01
per share and 1,000,000 preferred shares with a par value of
$1.00 per share."
"The shares of preferred stock authorized hereby may,
when authorized for issuance by the Board of Directors of this
corporation, be issued in series having such designations,
powers, preferences, rights and limitations, and on such terms
and conditions as the Board of Directors may from time to time
determine including the rights, if any, of the holders thereof
with respect to voting, dividends, redemption, liquidation and
conversion."
"Any and all shares of stock of this corporation of
any class shall be paid as the Board of Directors may
designate and as provided by law, in cash, real or personal
property, option to purchase or any other valuable right or
thing, for the uses and purposes of the corporation, and said
shares of stock when issued in exchange therefore shall
thereupon and thereby become and be fully paid, the same as
though paid for in cash, and shall be nonassessable forever,
and the judgement of the Board of Directors of the
corporation concerning the value of the property, right or thing,
acquired in purchase or exchange for capital stock shall be
conclusive. No stockholder shall have any pre-emptive rights."
IN WITNESS WHEREOF, the undersigned have executed this
Amendment to Articles of Incorporation this 25th day of February,
1981.
/s/ Neil Rosenstein
___________________________________
NEIL ROSENSTEIN, President
/s/ Alvin J. Hicks
___________________________________
ALVIN J. HICKS, Assistant Secretary
State of Nevada, )
) ss.
County of Clark. )
On this 5 day of March, 1981, personally appeared
before me, a Notary Public, Neil Rosenstein, as President of the
above corporation, who acknowledged that he executed the
foregoing Certificate of Amendment to Articles of Incorporation.
/s/ Lillian Schneider
___________________________________
Notary Public
State of Nevada. )
) ss.
County of Washoe. )
On this 25 day of February, 1981, personally appeared
before me, a Notary Public, Alvin J. Hicks, as Assistant
Secretary of the above corporation, who acknowledged that he
executed the foregoing Certificate of Amendment to Articles of
Incorporation.
/s/ Sarah Jo Smithson
___________________________________
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
JACKPOT ENTERPRISES, INC
The undersigned hereby certify as follows:
1. That they are the President and Secretary of JACKPOT
ENTERPRISES, INC.
2. That the Articles of Incorporation were filed in
the Office of the Secretary of State of the State of Nevada on
the 11th day of June, 1980, and in the Office of the Washoe
County Clerk on the 17th day of July, 1980; and Certificates of
Amendment to Articles of Incorporation were filed on July 29,
1980 and March 25, 1981.
3. That at the Annual Meeting of Stockholders held on
the 9th day of December, 1987, the stockholders voted, either in
person or by proxy, to adopt the amendment as set forth and
recommended by the Board of Directors. The amendment to add
Article XII was adopted by 3,378,416 shares of common stock
voting in favor and 281,189 shares of common stock opposed. There
were a total of 4,579,278 shares of common stock outstanding and
entitled to vote at the Annual Meeting of Stockholders.
4. That Article XII be added to the Articles of
Incorporation as follows:
ARTICLE XII
___________
Directors and officers of the corporation shall not be
personally liable to the corporation or its stockholders for
damages for breach of fiduciary duty as a director or
officer, except for (i) acts or omissions which involve
intentional misconduct, fraud, or a knowing violation of
law; or (ii) the payment of dividends in violation of the
provisions of Chapter 78 of the Nevada Revised Statutes. If
the Nevada Revised Statutes are amended after approval by
the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal
liability of directors and officers, then the liability of a
director or officer of the corporation shall be eliminated
or limited to the full extent permitted by the Nevada
Revised Statutes, as so amended.
Any repeal or modification of all or any portion of the
provisions of this Article by the stockholders of the
corporation shall not adversely effect any right or
protection of a director or officer of the corporation with
respect to any acts or omissions occurring prior to the time
of such repeal or modification.
The provisions of this Article shall not be deemed to
limit or preclude indemnification of a director or officer
by the corporation for any liability of a director or
officer which has not been eliminated by the provisions of
this Article.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Amendment to Articles of Incorporation this 9th
day of December, 1987.
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 9th day of December, 1987, personally appeared a
Notary Public, NEIL ROSENSTEIN, as President of Jackpot
Enterprises, Inc., who acknowledged that he executed the
Certificate of Amendment to Articles of Incorporation of said
corporation.
/s/ Neil Rosenstein
_______________________________
NEIL ROSENSTEIN, President
/s/ Allan R. Tessler
_______________________________
ALLAN R. TESSLER, Secretary
/s/ Alvin J. Hicks
_______________________________
Notary Public
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 9th day of December, 1987, personally appeared
before me, a Notary Public, ALLAN R. TESSLER, as Secretary of
Jackpot Enterprises, Inc., who acknowledged that he executed the
foregoing Certificate of Amendment to Articles of Incorporation
on behalf of said corporation.
/s/ Alvin J. Hicks
_______________________________
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
JACKPOT ENTERPRISES, INC.
The undersigned certify as follows:
1. That they are the Executive Vice President and
Secretary, respectively, of JACKPOT ENTERPRISES, INC., a Nevada
corporation (the "Corporation").
2. That at a meeting of the Board of Directors of the
Corporation held on November 15, 1993, the Board of Directors
authorized the following amendment to the Corporation s Articles
of Incorporation:
RESOLVED, that ARTICLE IV of the Company s Articles of
Incorporation shall be amended such that the first paragraph
thereof shall be deleted in its entirety and replaced with the
following:
"The amount of the authorized capital stock of this
corporation is 30,000,000 common shares with a par
value of $.0l per share and 1,000,000 preferred shares
with a par value of $1.00."
3. That at a meeting of the stockholders of the Corporation
held on January 6, 1994, the stockholders voted to adopt the
foregoing amendment to the Corporation s Articles of
Incorporation. The amendment was approved by the holders of
7,547,494 shares of the Corporation s $.01 par value common
stock, representing approval of the amendment by the holders of
82 % of the shares entitled to vote with respect to such
amendment. The total number of outstanding shares of common
stock of Corporation having voting power with respect to such
amendment is 9,194,223.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Amendment to the Articles of Incorporation
effective as of the 6th day of January, 1994.
/s/ Jeffrey L. Gilbert
_________________________________
Jeffrey L. Gilbert
Executive Vice President
/s/ Alvin J. Hicks
_________________________________
Alvin J. Hicks
Secretary
STATE OF NEVADA, )
) ss.
COUNTY OF WASHOE.)
On this 5th day of January, 1994, personally appeared before
me, a Notary Public, Jeffrey L. Gilbert, Executive Vice President
of Jackpot Enterprises, Inc. who acknowledged that he executed
the foregoing Certificate of Amendment to Articles of
Incorporation on behalf of said corporation.
/s/ Laura J. Lucas
_________________________________
Notary Public
STATE OF NEVADA, )
) ss.
COUNTY OF WASHOE.)
On this 5th day of January, 1994, personally appeared before
me, a Notary Public, Alvin J. Hicks, Secretary of Jackpot
Enterprises, Inc., who acknowledged that he executed the
foregoing Certificate of Amendment to Articles of Incorporation
on behalf of said corporation.
/s/ Laura J. Lucas
_________________________________
Notary Public
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PREFERRED STOCK
OF
JACKPOT ENTERPRISES, INC.
We, Frederick Sandvick, Executive Vice President and
A. J. Hicks, Secretary of JACKPOT ENTERPRISES, INC., a
corporation organized and existing under the General
Corporation Law of Nevada (the "Company"), in accordance with the
provisions of Section 78.195 of such law, DO HEREBY CERTIFY that
pursuant to the authority conferred upon the Board of Directors
of the Company (the "Board") by the Articles of Incorporation of
the Company, the Board on July 11, 1994 adopted the following
resolution which creates a series of shares of Preferred Stock
designated as Series A Junior Preferred Stock, as follows:
RESOLVED, that pursuant to Section 78.195 of the General
Corporation Law of Nevada and the authority vested in the Board
of Directors of the Company in accordance with the
provisions of ARTICLE IV of the Articles of Incorporation of the
Company, a series of Preferred Stock of the Company be, and
hereby is, created, and the powers, designations, preferences and
relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations or
restrictions thereof, be, and hereby are, as follows:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series A Junior Preferred Stock"
(the "Series A Preferred Stock") and the number of shares
constituting such series shall be 150,000.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment
hereinafter set forth, the holders of shares of Series A
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board out of funds legally available for the
purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 100 times the aggregate per share
amount of all cash dividends declared or paid on the Common
Stock, $0.01 par value per share, of the Company (the "Common
Stock") and (ii) a preferential cash dividend (the "Preferential
Dividends"), if any, in preference to the holders of any class of
Common Stock, on the last day of March, June, September and
December of each year (each a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A
Preferred Stock, payable in an amount (except in the case of the
first Quarterly Dividend Payment if the date of the first
issuance of Series A Preferred Stock is a date other than a
Quarterly Dividend Payment date, in which case such payment shall
be a prorated amount of such amount) equal to $1.00 per share of
Series A Preferred Stock less the per share amount of all cash
dividends declared on the Series A Preferred Stock pursuant to
clause (i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the
event the Company shall, at any time after the issuance of any
share or fraction of a share of Series A Preferred Stock, make
any distribution on the shares of Common Stock of the Company,
whether by way of a dividend or a reclassification of stock, a
recapitalization, reorganization or partial liquidation of the
Company or otherwise, which is payable in cash or any debt
security, debt instrument, real or personal property or any other
property (other than cash dividends subject to the immediately
preceding sentence, a distribution of shares of Common Stock or
other capital stock of the Company or a distribution of rights or
warrants to acquire any such shares, including any debt security
convertible into or exchangeable for any such share, at a price
less than the Fair Market Value (as hereinafter defined) of such
share), then, and in each such event, the Company shall
simultaneously pay on each then outstanding share of Series A
Preferred Stock of the Company a distribution, in like kind, of
100 times such distribution paid on a share of Common Stock
(subject to the provisions for adjustment hereinafter set forth).
The dividends and distributions on the Series A Preferred Stock
to which holders thereof are entitled pursuant to clause (i) of
the first sentence of this paragraph and pursuant to the second
sentence of this paragraph are hereinafter referred to as
"Dividends" and the multiple of such cash and non-cash dividends
on the Common Stock applicable to the determination of the
Dividends, which shall be 100 initially but shall be adjusted
from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple." In the event the Company
shall at any time after July 15, 1994 declare or pay any dividend
or make any distribution on Common Stock payable in shares of
Common Stock, or effect a subdivision or split or a combination,
consolidation or reverse split of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common
Stock, then in each such case the Dividend Multiple thereafter
applicable to the determination of the amount of Dividends which
holders of shares of Series A Preferred Stock shall be entitled
to receive shall be the Dividend Multiple applicable immediately
prior to such event multiplied by a fraction the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Company shall declare each Dividend at the
same time it declares any cash or non-cash dividend or
distribution on the Common Stock in respect of which a Dividend
is required to be paid. No cash or non-cash dividend or
distribution on the Common Stock in respect of which a Dividend
is required to be paid shall be paid or set aside for payment on
the Common Stock unless a Dividend in respect of such dividend or
distribution on the Common Stock shall be simultaneously paid, or
set aside for payment, on the Series A Preferred Stock.
(C) Preferential Dividends shall begin to accrue on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of any
shares of Series A Preferred Stock. Accrued but unpaid
Preferential Dividends shall cumulate but shall not bear
interest. Preferential Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment
hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to 100 votes on all matters
submitted to a vote of the stockholders of the Company. The
number of votes which a holder of Series A Preferred Stock is
entitled to cast, as the same may be adjusted from time to time
as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Company shall at any time after July
15, 1994 declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the outstanding
shares of Common Stock into a greater or lesser number of shares
of Common Stock, then in each such case the Vote Multiple
thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series A Preferred Stock
shall be entitled after such event shall be the Vote Multiple
immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the
Articles of Incorporation or By-laws, the holders of shares of
Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Company.
(C) In the event that the Preferential dividends
accrued on the series A Preferred Stock for four or more
quarterly dividend periods, whether consecutive or not, shall not
have been declared and paid or irrevocably set aside for payment,
the holders of record of Preferred Stock of the Company of all
series (including the Series A Preferred Stock), other than any
series in respect of which such right is expressly withheld by
the Articles of Incorporation or the authorizing resolutions
included in any Certificate of Designation therefor, shall have
the right, at the next meeting of stockholders called for the
election of directors, to elect two members to the Board, which
directors shall be in addition to the number required by the By-
laws prior to such event, to serve until the next Annual Meeting
and until their successors are elected and qualified or their
earlier resignation, removal or incapacity or until such earlier
time as all accrued and unpaid Preferential Dividends upon the
outstanding shares of Series A Preferred Stock shall have been
paid (or irrevocably set aside for payment) in full. The holders
of shares of Series A Preferred Stock shall continue to have the
right to elect directors as provided by the immediately preceding
sentence until all accrued and unpaid Preferential Dividends upon
the outstanding shares of Series A Preferred Stock shall have
been paid (or set aside for payment) in full. Such directors may
be removed and replaced by such stockholders, and vacancies in
such directorships may be filled only by such stockholders (or by
the remaining director elected by such stockholders, if there be
one) in the manner permitted by law; provided, however, that any
such action by stockholders shall be taken at a meeting of
stockholders and shall not be taken by written consent thereto.
(D) Except as otherwise required by the Articles of
Incorporation or By-laws or set forth herein, holders of Series A
Preferred STock shall have no other special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein)
for the taking of any corporate action.
Section 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Dividends are
in arrears or the Company shall be in default of payment thereof,
thereafter and until all accrued and unpaid Preferential
Dividends and Dividends, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid or set
irrevocably aside for payment in full, and in addition to any and
all other rights which any holder of shares of Series A Preferred
Stock may have in such circumstances, the Company shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration, any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a
parity as to dividends with the Series A Preferred Stock,
unless dividends are paid ratably on the Series A Preferred
Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled if
the full dividends accrued thereon were to be paid;
(iii) except as permitted by subparagraph (iv) of
this paragraph 4(A), redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, provided that
the Company may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for
shares of any stock of the Company ranking junior (both as
to dividends and upon liquidation, dissolution or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock (either as to dividends or upon liquidation,
dissolution or winding up), except in accordance with a
purchase offer made to all holders of such shares upon such
terms as the Board, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Company shall not permit any Subsidiary (as
hereinafter defined) of the Company to purchase or otherwise
acquire for consideration any shares of stock of the Company
unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in
such manner. A "Subsidiary" of the Company shall mean any
corporation or other entity of which securities or other
ownership interests having ordinary voting power sufficient
to elect a majority of the board of directors of such corporation
or other entity or other persons performing similar functions are
beneficially owned, directly or indirectly, by the Company or by
any corporation or other entity that is otherwise controlled by the
Company.
(C) The Company shall not issue any shares of Series A
Preferred Stock except upon exercise of Rights issued pursuant to
that certain Rights Agreement dated as of July 11, 1994 between
the Company and Continental Stock Transfer & Trust Company, as
rights agent a copy of which is on file with the Secretary of the
Company at its principal executive office and shall be made
available to stockholders of record without charge upon written
request therefor addressed to said Secretary. Notwithstanding the
foregoing sentence, nothing contained in the provisions hereof
shall prohibit or restrict the Company from issuing for any
purpose any series of Preferred Stock with rights and privileges
similar to, different from, or greater than, those of the Series
A Preferred Stock.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Company in
any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares upon their
retirement and cancellation shall become authorized but unissued
shares of Preferred Stock, without designation as to series, and
such shares may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board.
Section 6. Liquidation, Dissolution or Winding Up. Upon
any voluntary or involuntary liquidation, dissolution or winding
up of the Company, no distribution shall be made (i) to the
holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless the holders of shares of Series A
Preferred Stock shall have received, subject to adjustment as
hereinafter provided, (A) $1.00 per one one-hundredth (1/100)
share plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of
such payment or, (B) if greater than the amount specified in
clause (i)(A) of this sentence, an amount equal to 100 times the
aggregate amount to be distributed per share to holders of Common
Stock, as the same may be adjusted as hereinafter provided and
(ii) to the holders of stock ranking on a parity upon
liquidation, dissolution or winding up with the Series A
Preferred Stock, unless simultaneously therewith
distributions are made ratably on the Series A Preferred Stock
and all other shares of such parity stock in proportion to the
total amounts to which the holders of shares of Series A
Preferred Stock are entitled under clause (i)(A) of this sentence
and to which the holders of such parity shares are entitled, in
each case upon such liquidation, dissolution or winding up. The
amount to which holders of Series A Preferred Stock may be
entitled upon liquidation, dissolution or winding up of the
Company pursuant to clause (i)(B) of the foregoing sentence is
hereinafter referred to as the "Participating Liquidation Amount"
and the multiple of the amount to be distributed to holders of
shares of Common Stock upon the liquidation, dissolution or
winding up of the Company applicable pursuant to said clause to
the determination of the Participating Liquidation Amount, as
said multiple may be adjusted from time to time as hereinafter
provided, is hereinafter referred to as the "Liquidation
Multiple." In the event the Company shall at any time after July
15, 1994 declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the outstanding
shares of Common Stock into a greater or lesser number of shares
of Common Stock, then, in each such case, the Liquidation
Multiple thereafter applicable to the determination of the
Participating Liquidation Amount to which holders of Series A
Preferred Stock shall be entitled after such event shall be the
Liquidation Multiple applicable immediately prior to such event
multiplied by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common
Stock of the Company receive after July 15, 1994 in respect of
their shares of Common Stock any share of capital stock of the
Company (other than any share of Common Stock of the Company),
whether by way of reclassification, recapitalization,
reorganization, dividend or other distribution or otherwise (a
"Transaction"), then, and in each such event, the dividend
rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Company of the shares of Series
A Preferred Stock shall be adjusted so that after such event the
holders of Series A Preferred Stock shall be entit1ed, in respect
of each share of Series A Preferred Stock held, in addition to
such rights in respect thereof to which such holder was entitled
immediately prior to such adjustment, to (i) such additional
dividends as equal the Dividend Multiple in effect immediately
prior to such Transaction multiplied by the additional dividends
which the holder of a share of Common Stock shall be entitled to
receive by virtue of the receipt in the Transaction of such
capital stock, (ii) such additional voting rights as equal the
Vote Multiple in effect immediately prior to such
Transaction multiplied by the additional voting rights which the
holder of a share of Common Stock shall be entitled to receive by
virtue of the receipt in the Transaction of such capital stock
and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Company as equal the Liquidation
Multiple in effect immediately prior to such Transaction
multiplied by the additional amount which the holder of a share
of Common Stock shall be entitled to receive upon liquidation,
dissolution or winding up of the Company by virtue of the receipt
in the Transaction of such capital stock, as the case may be, all
as provided by the terms of such capital stock.
(B) In the event that holders of shares of Common
Stock of the Company receive after July 15, 1994 in respect of
their shares of Common Stock any right or warrant to purchase
Common Stock (including as such a right, for all purposes of this
paragraph, any security convertible into or exchangeable for
Common Stock) at a purchase price per share less than the Fair
Market Value of a share of Common Stock on the date of issuance
of such right or warrant, then and in each such event the
dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Company of the shares of Series
A Preferred Stock shall each be adjusted so that after such event
the Dividend Multiple, the Vote Multiple and the Liquidation
Multiple shall each be the product of the Dividend Multiple, the
Vote Multiple and the Liquidation Multiple, as the case may be,
in effect immediately prior to such event multiplied by a
fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately before such issuance of
rights or warrants plus the maximum number of shares of Common
Stock which could be acquired upon exercise in full of all such
rights or warrants and the denominator of which shall be the
number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the number of shares of
Common Stock which could be purchased, at the Fair Market Value
of the Common Stock at the time of such issuance, by the maximum
aggregate consideration payable upon exercise in full of all such
rights or warrants.
(C) In the event that holders of shares of Common
Stock of the Company receive after July 15, 1994 in respect of
their shares of Common Stock any right or warrant to purchase
capital stock of the Company (other than shares of Common Stock),
including as such a right, for all purposes of this paragraph,
any security convertible into or exchangeable for capital stock
of the Company (other than Common Stock), at a purchase price per
share less than the Fair Market Value of such shares of capital
stock on the date of issuance of such right or warrant, then and
in each such event the dividend rights, voting rights and rights
upon liquidation, dissolution or winding up of the Company of the
shares of Series A Preferred Stock shall each be adjusted so that
after such event each holder of a share of Series A Preferred
Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect
thereof to which such holder was entitled immediately prior to
such event, to receive (i) such additional dividends as equal the
Dividend Multiple in effect immediately prior to such event
multiplied, first, by the additional dividends to which the
holder of a share of Common Stock shall be entitled upon exercise
of such right or warrant by virtue of the capital stock which
could be acquired upon such exercise and multiplied again by the
Discount Fraction (as hereinafter defined) and (ii) such
additional voting rights as equal the Vote Multiple in effect
immediately prior to such event multiplied, first, by the
additional voting rights to which the holder of a share of Common
Stock shall be entitled upon exercise of such right or warrant by
virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction and (iii)
such additional distributions upon liquidation, dissolution or
winding up of the Company as equal the Liquidation Multiple in
effect immediately prior to such event multiplied, first, by the
additional amount which the holder of a share of Common Stock
shall be entitled to receive upon liquidation, dissolution or
winding up of the Company upon exercise of such right or warrant
by virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction. For
purposes of this paragraph, the "Discount Fraction" shall be a
fraction the numerator of which shall be the difference between
the Fair Market Value of a share of the capital stock subject to
a right or warrant distributed to holders of shares of Common
Stock of the Company as contemplated by this paragraph
immediately after the distribution thereof and the purchase price
per share for such share of capital stock pursuant to such right
or warrant and the denominator of which shall be the Fair Market
Value of a share of such capital stock immediately after the
distribution of such right or warrant.
(D) For purposes of this Certificate of Designations,
the "Fair Market Value" of a share of capital stock of the
Company (including a share of Common Stock) on any date shall be
deemed to be the average of the daily closing price per share
thereof over the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided,
however, that, in the event that such Fair Market Value of any
such share of capital stock is determined during a period which
includes any date that is within 30 Trading Days after (i) the
ex-dividend date for a dividend or distribution on stock payable
in shares of such stock or securities convertible into shares of
such stock, or (ii) the effective date of any subdivision,
split, combination, consolidation, reverse stock split or
reclassification of such stock, then, and in each such case, the
Fair Market Value shall be appropriately adjusted by the Board to
take into account ex-dividend or post-effective date trading. The
closing price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way (in
either case, as reported in the applicable transaction reporting
system with respect to securities listed or admitted to trading
on the New York Stock Exchange), or, if the shares are not listed
or admitted to trading on the New York Stock Exchange, as
reported in the applicable transaction reporting system with
respect to securities listed on the principal national securities
exchange on which the shares are listed or admitted to trading
or, if the shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
or such other system then in use, or if on any such date the
shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional
market maker making a market in the shares selected by the Board.
The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares are listed or
admitted to trading is open for the transaction of business or,
if the shares are not listed or admitted to trading on any
national securities exchange, on which the New York Stock
Exchange or such other national securities exchange as may be
selected by the Board is open. if the shares are not publicly
held or not so listed or traded on any day within the period of
30 Trading Days applicable to the determination of Fair Market
Value thereof as aforesaid, "Fair Market Value" shall mean the
fair market value thereof per share as determined in good faith
by the Board. In either case referred to in the foregoing
sentence, the determination of Fair Market Value shall be
described in a statement filed with the Secretary of the
Company.
Section 8. Consolidation, Merger, etc. In case the
Company shall enter into any consolidation, merger, combination or
other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each outstanding
share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of
stock, securities, cash and/or other property (payable in like
kind), as the case may be, for which or into which or into which
each share of Common Stock is changed or exchanged multiplied by
the highest of the Vote multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.
Section 9. Effective Time of Adjustment.
(A) Adjustments to the Series A Preferred Stock
required by the provisions hereof shall be effective as of the
time at which the event requiring such adjustments occurs.
(B) The Company shall give prompt written notice to
each holder of a share of Series A Preferred Stock of the effect
of any adjustment to the voting rights, dividend rights or
rights upon liquidation, dissolution or winding up of the
Company of such shares required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the
Company to give such notice shall not affect the validity
of or the force or effect of or the requirement for such
adjustment.
Section 10. No Redemption. The shares of Series A
Preferred Stock shall not be redeemable at the option of the
Company or any holder thereof. Notwithstanding the foregoing
sentence of this Section, the Company may acquire shares of
Series A Preferred Stock in any other manner permitted by law,
the provisions hereof and the Articles of Incorporation of the
Company.
Section 11. Ranking. Unless otherwise provided in the
Certificate of Incorporation of the Company or a Certificate of
Designations relating to a subsequent series of Preferred stock of
the Company, the Series A Preferred Stock shall rank junior to
all other series of the Company s preferred stock as to the
payment of dividends and the distribution of assets on
liquidation, dissolution or winding up and senior to the Common
Stock.
Section 12. Amendment. The provisions hereof and
the Certificate of Incorporation of the Company shall not be
amended in any manner which would adversely affect the rights,
privileges or powers of the Series A Preferred Stock without,
in addition to any other vote of stockholders required by law,
the affirmative vote of the holders of two-thirds or more of
the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, the undersigned have executed
and subscribed this Certificate of Designations and do affirm
the foregoing as true under the penalties of perjury this
12th day of July, 1994.
JACKPOT ENTERPRISES, INC.
/s/ Frederick Sandvick
_______________________________
Name: Frederick Sandvick
Title: Executive Vice President
ATTEST:
/s/ A. J. Hicks
____________________________
A. J. Hicks, Secretary
CORPORATE ACKNOWLEDGMENT
STATE OF NEVADA )
) ss.:
COUNTY OF CLARK )
On this 12th day of July, 1994, before the undersigned,
a Notary Public in and for Clark County, Nevada, personally
appeared Frederick Sandvick, known to me to be the person who
executed the foregoing Certificate of Designations and known
to me to be Executive Vice President of Jackpot Enterprises,
Inc. and acknowledged to me that he executed the same as an
official and duly authorized act of such entity for the
purposes therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal in the state and County and on the day
and year first above written.
/s/ Sharon H. Bulloch
________________________________
Notary Public
(SEAL) My commission expires:
April 23, 1997
________________________________
CORPORATE ACKNOWLEDGMENT
STATE OF NEVADA )
) ss.:
COUNTY OF WASHOE )
On this 18th day of July, 1994, before the undersigned,
a Notary Public in and for Washoe County, Nevada, personally
appeared A. J. Hicks, known to me to be the person who
executed the foregoing Certificate of Designations and known
to me to be Secretary of Jackpot Enterprises, Inc. and
acknowledged to me that he executed the same as an
official and duly authorized act of such entity for the
purposes therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal in the state and County and on the day
and year first above written.
/s/ Sarah Jo Smithson
________________________________
Notary Public
(SEAL) My commission expires:
August 2, 1994
________________________________
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF
JACKPOT ENTERPRISES, INC.
The undersigned certify as follows:
1. That they are the President and Secretary, respectively,
of JACKPOT ENTERPRISES, INC., a Nevada corporation (the
"Corporation").
2. That by action taken by written consent of all of the
members, the Board of Directors of the Corporation on June 7,
1999, authorized the following amendment to the Corporation's
Articles of Incorporation:
RESOLVED: That Article IV of the Corporation's Articles
of Incorporation shall be amended such that the first paragraph
thereof shall be deleted in its entirety and replaced with the
following:
"The amount of the authorized capital stock of the
corporation is 60,000,000 common shares with a par value of $.01
per share and 1,000,000 preferred shares with a par value of
$1.00 per share."
3. That at a meeting of the stockholders of the Corporation
held on September 14, 1999, the stockholders voted to adopt the
foregoing amendment to the Corporation's Articles of
Incorporation. The amendment was approved by the holders of
6,773,756 shares of the Corporation's $.01 par value common
stock, representing approval of the amendment by the holders of
78.6% of the shares entitled to vote with respect to such
amendment. The total number of outstanding shares of common
stock of the Corporation having voting power with respect to such
amendment is 8,616,538.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Amendment to the Articles of Incorporation
effective as of the 6th day of October, 1999.
/s/ Don R. Kornstein
_____________________________
Don R. Kornstein, President
/s/ Alvin J.Hicks
_____________________________
Alvin J. Hicks, Secretary
STATE OF NEVADA, )
) ss.
COUNTY OF CLARK. )
This instrument was acknowledged before me on October 6th,
1999, by Don R. Kornstein, President of Jackpot Enterprises, Inc.
/s/ Christina L. Fleischmann
_____________________________
Notary Public
STATE OF NEVADA, )
) ss.
COUNTY OF WASHOE. )
This instrument was acknowledged before me on October 6th,
1999, by Alvin J. Hicks, Secretary of Jackpot Enterprises, Inc.
/s/ Sarah Jo Smithson
_____________________________
Notary Public
EXHIBIT 10.12
RCT = Requested Confidential Treatment
SETTLEMENT AGREEMENT made as of the 18 day of November, 1999 among
Cardivan Company, a Nevada corporation, Corral United, Inc. a Nevada
corporation, Jackpot Enterprises Inc., a Nevada corporation, and Albertson's
Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Cardivan Company ("Cardivan") and Corral United Inc.
("Corral") are each fully owned subsidiaries of Jackpot Enterprises Inc.
("Jackpot") and both Cardivan and Corral are licensees under certain license
agreements with Lucky Stores Inc., a Nevada corporation, and American Drug
Stores Inc., an Illinois corporation, both of which are wholly owned
subsidiaries of American Stores Company, a Delaware corporation;
WHEREAS, Albertson's Inc. ("Albertson's") and American Stores
Company merged on June 23, 1999, and Albertson's is now the successor to the
license agreements to which American Drug Stores Inc. and Lucky Stores Inc.
are a party with Cardivan and Corral;
WHEREAS, the license agreements which are affected by this
settlement agreement are as follows:
(1) License agreement made as of September 16, 1998 between
Albertson's and Cardivan (the "Albertson's Agreement");
(2) License agreement entered into as of April 24, 1997 between
Lucky Stores Inc. and Cardivan (the "Lucky Agreement");
(3)(i) License agreement entered as of April 24, 1997 between
American Drug Stores Inc. and Corral, and (ii) license agreement entered
into as of April 24, 1997 between American Drug Stores Inc. and Cardivan
(collectively, the "Sav-On Agreement");
WHEREAS, Albertsons and Raley's, a California corporation
("Raley's"), entered into an Asset Purchase Agreement dated as of May 17,
1999, by which Albertson's divested itself of 15 supermarkets that had
been covered by the Albertson's Agreement;
WHEREAS, Cardivan commenced a lawsuit against Albertson's and
Raley's, Case No. CV-S-99-1100-DWH-RJJ, in which Cardivan seeks declaratory
relief, injunctive relief, and damages and which action is pending in the
United States District Court, District of Nevada ("the Action");
WHEREAS, Cardivan and Albertson's wish to settle the dispute and
lawsuit as between them upon the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein and after set forth, the parties agree as follows:
1. Albertson's hereby represents and warrants that it has full
authority and ability to enter into this agreement, on behalf
of itself and on behalf of Lucky Stores Inc. and American Drug
Stores Inc.
2. The Lucky and Sav-On Agreements are hereby terminated except as
provided in Items 5 and 18 hereof, and the Albertson's Agreement
is hereby amended to grant Cardivan an exclusive for the operation
of gaming devices in all supermarkets, drug stores and convenience
stores (as hereinafter defined) operated in the State of Nevada
by Albertson's or any of its affiliates subject to the terms of
this agreement. The term of the Albertson's Agreement is revised
to end RCT; provided, however, that in the event Albertson's and/or
its affiliates, between RCT and RCT, have not opened at least RCT
new or replacement supermarkets in that area consisting
of the cities of Las Vegas, North Las Vegas, and Henderson, Nevada,
and the unincorporated area immediately adjacent thereto ("Las
Vegas metropolitan area") (net of any supermarkets which have been
permanently closed for business with no replacement in which
gaming is permitted, but without any deduction or adjustment for
stores sold to an unrelated third party or closed for reasons
beyond Albertson's reasonable control [e.g., condemnation and
change of law]), which calculation shall be made as of RCT
the date of expiration of such term shall be extended from
RCT to RCT. Cardivan shall have the right, in its sole and
absolute discretion, upon written notice to Albertson's
received at least RCT prior to expiration of the initial term
(which notice may be conditioned on (i) Albertson's and/or its
affiliates opening the RCT supermarkets on the terms set forth
above, or (ii) the absence of any material event beyond Cardivan's
reasonable control occurring prior to the date of expiration of
the initial term that could adversely affect the financial
benefits of Albertson's Agreement to Cardivan) to extend the
agreement through RCT.
3. RCT and limit Jackpot's guaranty in Albertson's Agreement to
Cardivan's obligations relating to the combo stores.
4. Delete Albertson's and Cardivan's options to terminate the
Albertson's Agreement effective RCT as set forth in Paragraph 2(c)
of the agreement.
5. License fees:
A. License fees will be based on store format. Fees in Lucky
Agreement will apply to all existing and future food stores
(excluding drug and convenience stores), operated under
any trade name by Albertson's or any of its affiliates
which do not have an in-store pharmacist ("traditional
stores"). Fees in Albertson's Agreement will apply to all
existing and future food stores, operated under any name
by Albertson's or any of its affiliates, which includes a
pharmacist ("combo stores"; the traditional stores and
combo stores being herein collectively referred to as
"supermarkets"). Fees in Sav-On Agreement will apply to
all drug stores operated under any trade name by Albertson's
or any of its affiliates. The term "drug store" shall not
include a drug or pharmacy department located within a combo
store.
Note: The fees for combo store #6046 Rainbow & Charleston (Lucky
#121-787) shall be determined by the Albertson's agreement
RCT.
B. License fees for the option term will be the same as
currently set forth in the agreements.
C. License fees for the period commencing RCT and ending
RCT will be adjusted as follows:
Northern Nevada: The fees for Albertson's #149, #151 and
#175 will be based on actual number of machines (15) in
each supermarket.
Fees for all supermarkets (with or without a pharmacy)
located or to be opened in Reno/Sparks/Carson City will be
reduced to RCT from the fee schedule set forth in the
Albertson's Agreement.
Fees for the supermarkets located or to be opened in Elko
and Winnemucca will be reduced RCT from the fee schedule set
forth in the Albertson's Agreement.
Southern Nevada: Fees for traditional stores located or to
be opened in Las Vegas metropolitan area will be based on
the fee schedule set forth in the Lucky's Agreement
subject to a RCT reduction in monthly fees for each store.
For all combo stores opened in the Las Vegas metropolitan
area on or after RCT, the license fee per machine per month
will be reduced RCT from the fees set forth in the
Albertson's Agreement for the balance of the initial term.
In the event Cardivan exercises its option to extend the
agreement for the option term, all amounts associated with
the RCT reduction in fees attributable to the new combo
stores (and without any reduction whatsoever for the RCT
adjustment in fees set forth in Items 1 and 2 of the
"Additional Provisions" described in Exhibit "C" to
Albertson's Agreement) will be repaid to Albertson's with
interest at an annual rate of RCT either (i) in a lump sum
on the first day of the option term, or (ii) over the
duration of the option term in accordance with terms
mutually agreed by the parties. In the event Cardivan fails
to exercise the option term, no repayment will be required.
Note: The RCT adjustment set forth above will not
affect the provision in Albertson's Agreement providing
for license fees during the RCT year of operation of
any combo store to be reduced to RCT of the stipulated
rate (as adjusted herein).
Sav-On: Fees for all drug stores located or to be opened
in the state of Nevada will be reduced to RCT per
machine per month. If the initial term is extended through
RCT, the license fee per machine per month for the
period RCT through RCT will be RCT.
D. Notwithstanding anything to the contrary in Items 5.A. -
5.C. above, in the event Cardivan or any of its affiliates
is party to any agreement with RCT which provides for the
payment of rent or license fees for combo stores located in
the Las Vegas metropolitan area greater than the license
fees set forth in this agreement for Albertson's combo
stores located in Las Vegas metropolitan area, the license
fees set forth in this agreement for such stores without
regard to temporary adjustment, reductions, or abatements
otherwise provided in either the Albertson's Agreement or
this agreement (e.g., the RCT reduction or RCT adjustment
in fees described in Item 5.C. above) shall be automatically
adjusted from time to time to equal the greater of (i)
the license fees set forth in this agreement for such
stores, and (ii) the rent or license fees paid to RCT.
6. Cardivan will have the right to reduce the number of machines in
each Sav-On drug store (new or existing) from RCT to a minimum of
RCT machines. Once a reduction is made, Cardivan will have no
right to increase the number of machines without Albertson's
consent and all excess space will be relinquished to Albertson's
for use in Albertson's operations.
7. Cardivan will have the right to close gaming operations in the
Sav-On drug stores during the "graveyard" shift (approximately
11:00 p.m. to 7:00 a.m.) with RCT adjustment in license fees.
8. In the event Albertson's in any RCT period during the period
starting RCT and ending RCT sells to an unrelated third party a
minimum of either RCT supermarkets or RCT drug stores in which
gaming is permitted and which are located in the state of Nevada
(net of any stores which are sold to an unrelated third party who
either [i] assumes Albertson's agreement with Cardivan for such
stores, [ii] enters into a new agreement with Cardivan for the
operation of gaming devices in such stores, or [iii] is party to an
agreement granting Cardivan or any of its affiliates the right to
operate gaming devices in such stores), Albertson's agrees to RCT
that would otherwise have been paid by Cardivan for such stores
had the stores remained open calculated from the date of
closing/sale to RCT.
9. In the event Albertson's elects to operate gaming devices in any
convenience stores associated with its fuel center facilities
located in the state of Nevada ("convenience stores"), Cardivan
shall have the exclusive right to such gaming operations during
the term of the Albertson's Agreement (as revised herein).
Cardivan will have the option to put a maximum of RCT machines in
each convenience store. The minimum number of machines permitted
in convenience stores located in the Reno/Sparks/Carson City area
will be RCT; for convenience stores located in the Las Vegas
metropolitan area, the minimum will be RCT; and for all other
areas, the minimum will be mutually determined by the parties.
Once a decision is made, Cardivan will have no right to increase
the number of machines without Albertson's consent and all excess
space will be relinquished to Albertson's for use in Albertson's
operations. The license fees for convenience stores will be
RCT per machine per month during the initial term and RCT
per machine per month during the option term. Albertson's will
provide all change people required for the operation of gaming
devices in such stores.
10. Effective RCT, the balance of the security deposits under both the
Lucky and Albertson's Agreements in the aggregate amount of
RCT will be applied to Albertson's/Lucky's/Sav-On's license fees.
11. The nonrefundable fee in the amount of RCT under the Albertson's
Agreement will be prorated from RCT, and the prorata amount for the
period attributable to the period after Cardivan vacates all of the
15 stores sold to Raley's shall be applied to
Albertson's/Lucky's/Sav-On's license fees effective as of the
vacating date. For the purpose of this Item 11, Cardivan shall not
be deemed to have vacated the stores during such period of time as
Cardivan or any of its affiliates have the right to operate gaming
devices in such stores pursuant to a separate agreement with
Raley's or any of its affiliates.
12. Effective RCT, Albertson's will credit to the
Albertson's/Lucky's/Sav-On license fees an amount equal to the
store closure allowance (approximately RCT) currently
allowed under Albertson's Agreement and attributable to the
period of closure for the 15 stores sold to Raley's subject to
Cardivan's agreement to repay, and indemnify Albertson's against,
any portion of such amount which the court orders be paid to
Raley's or any other party.
13. Albertson's agrees to give Cardivan a credit against the
Albertson's/Lucky/Sav-On license fees for any portion of the
license fees already paid to Albertson's (and not otherwise
paid or reimbursed to Cardivan) for the period after the date of
the sale to Raley's which the court orders (or absent an order
by the court, Cardivan, Raley's and Albertson's agree) are not
required to be paid to Raley's or to any other person on Raley's
behalf.
14. Effective as of the date Cardivan vacates the 15 stores sold to
Raley's, Albertson's agrees to credit Cardivan's license fees for
the Albertson's/Lucky/Sav-On stores with an amount, not to
exceed RCT, equal to the unamortized portion of the
license taxes/permit fees paid by Cardivan to local and/or state
governmental authorities prior to February 1, 2000 for the 15
stores sold to Raley's.
15. Cardivan shall vacate the 15 stores sold to Raley's by February 1,
2000 unless otherwise agreed in writing by Raley's on terms which
will not subject Albertson's to liability for any such extension
beyond February 1, 2000 (including any claim by United Coin against
Raley's which could be pursued against Albertson's under the terms
of the Asset Purchase Agreement or otherwise or any claim by
Raley's for amounts described in Items 10, 11, 13 or 14 which have
been credited to license fees due under Albertson's Agreement as
revised herein).
16. Cardivan agrees to dismiss the Action against Albertson's with
prejudice, with both parties to pay their respective costs and
attorneys' fees. Because both parties shared confidential
information with the other party's outside counsel in negotiating
the settlement of the Action, Cardivan will ensure that RCT, will
represent Anchor Coin against Albertson's regarding any claim made
or that could have been made in the Action or in United Coin
Machine Co. v. Cardivan Co., et al., Case #A408506, pending in
District Court, Clark County, Nevada; and Albertson's will ensure
that neither RCT will represent Raley's against Cardivan regarding
any claim made or that could have been made in the Action or in
United Coin Machine Co. v. Cardivan Co., Case #408506, pending in
District Court, Clark County, Nevada ("the United Action"). Upon
the execution of this Settlement Agreement by all parties, Cardivan
will prepare and execute a stipulation and order of dismissal of
its claims against Albertson's which will be held in escrow by
Albertson's counsel pending negotiations with Raley's, Anchor Coin
and United Coin. The stipulation may be filed under seal by
Albertson's counsel on 24 hours written notice to Cardivan's
counsel.
17. Albertson's and Cardivan will use reasonable efforts to encourage
Raley's to permit Cardivan to operate in Raley's stores in Clark
County, Nevada, and to encourage United Coin, Anchor Coin and
Raley's to settle all claims made or that could have been made in
the pending federal or state lawsuits.
18. Albertson's agrees not to assert, and hereby waives, any claims
against Cardivan arising out of the transactions or occurrences
stated in the Action or the United Action. Cardivan agrees not
to assert, and hereby waives, any claims against Albertson's
arising out of the transactions or occurrences stated in the
Action or the United Action. Neither Cardivan nor Albertson's
waive, release or settle any claims arising (a) out of this
Settlement Agreement; or (b) under the Albertson's Agreement,
the Lucky Agreement, or the Sav-On Agreement which do not arise
out of the transactions or occurrences stated in the Action or the
United Action.
19. The parties hereto agree to keep the terms of this agreement
confidential and not to disclose same except by reason of court
order or as required by statute or regulation after prior notice
to the other party. The parties further agree to keep the fact
of this settlement confidential to allow negotiations with
Raley's and United Coin and that before any party hereto discloses
the existence of this agreement they will give prior notice of
at least twenty-four hours to the other party.
ALBERTSON'S INC. JACKPOT ENTERPRISES INC.
By: /s/ William H. Arnold By: /s/ Don R. Kornstein
________________________ __________________________________
Name: William H. Arnold Name: Don R. Kornstein
Title: Vice President Title: President & Chief Executive
Officer
AMERICAN DRUG STORES CARDIVAN COMPANY
By: /s/ William H. Arnold By: /s/ George Congdon
________________________ _________________________________
Name: William H. Arnold Name: George Congdon
Title: Vice President Title: President
LUCKY STORES INC. CARDIVAN COMPANY
By: /s/ William H. Arnold By: /s/ George Congdon
________________________ _________________________________
Name: William H. Arnold Name: George Congdon
Title: Vice President Title: President
CAMPBELL & WILLIAMS
As to paragraph 16 only:
By: /s/ Donald Campbell
________________________
Donald Campbell
Partner
EXHIBIT 10.13
RCT = Requested Confidential Treatment
FIRST AMENDMENT TO SETTLEMENT AGREEMENT
THIS FIRST AMENDMENT TO SETTLEMENT AGREEMENT ("First Amendment") is made as
of this 22nd day of December, 1999, among Cardivan Company, a Nevada
corporation; Corral United, Inc., a Nevada corporation; Jackpot Enterprises
Inc., a Nevada corporation; and Albertson's, Inc., a Delaware corporation.
RECITALS
1. The parties to this First Amendment entered a Settlement Agreement as of
November 18, 1999, to resolve disputes arising from license agreements
and litigation identified therein; and now desire to amend the Settlement
Agreement to more accurately reflect their original intent.
AGREEMENT
1. Paragraph 13 of the Settlement Agreement is hereby omitted, and the
following substituted in its place:
13. Albertson's agrees to give Cardivan a credit against the license
fees it has paid to Albertson's on account of the 15 Las Vegas
stores, from the time that Raley's took possession until
Feb. 1, 2000, ("Paid License Fees") to the extent the Paid
License Fees exceed the amount that United agreed to pay to
Raley's. (The amount of excess is approximately RCT per
device per month reflecting a payment for the Southern Nevada
stores of RCT per device per month which amount constitutes
the total amount of lost fees that Raley's would have received
from United for all devices in Nevada.) This credit shall
automatically be reduced, and may be reduced to zero, by a) the
amount of the Paid License Fees, if any, that a court orders
that Raley's is entitled to; and/or by b) the amount of the
Paid License Fees, if any, that Albertson's, and Cardivan agree
should be paid to Raley's. This credit shall not be given
until both the Action and United Coin v. Cardivan, Albertson's,
et al. filed in District Court, Clark Co., Nevada, are dismissed
or otherwise finally adjudicated.
2. In all other respects, the Settlement Agreement remains unchanged
and in full force and effect.
ALBERTSON'S INC. JACKPOT ENTERPRISES INC.
By: /s/ Charles F. Cole By: /s/ Don R. Kornstein
_________________________________ __________________________
Name: Charles F. Cole Name: Don R. Kornstein
Title: Vice President, Litigation Title: President and Chief
and Regulatory Affairs Executive Officer
AMERICAN DRUG STORES INC. CARDIVAN COMPANY
By: /s/ Charles F. Cole By: /s/ George Congdon
__________________________________ __________________________
Name: Charles F. Cole Name: George Congdon
Title: Vice President Title: President
LUCKY STORES INC. CORRAL UNITED INC.
By: /s/ Charles F. Cole By: /s/ George Congdon
__________________________________ __________________________
Name: Charles F. Cole Name: George Congdon
Title: Vice President Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jackpot's
Condensed Consolidated Balance Sheets - December 31, 1999 and June 30, 1999
and its Condensed Consolidated Statements of Income - Three and Six Months
Ended December 31, 1999 and 1998 and is qualified in its entirety by
reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 70,209
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,699
<PP&E> 35,353
<DEPRECIATION> 22,593
<TOTAL-ASSETS> 92,832
<CURRENT-LIABILITIES> 7,643
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 81,924
<TOTAL-LIABILITY-AND-EQUITY> 92,832
<SALES> 0
<TOTAL-REVENUES> 45,244
<CGS> 0
<TOTAL-COSTS> 42,799
<OTHER-EXPENSES> 2,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,841
<INCOME-TAX> 3,671
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,170
<EPS-BASIC> .95
<EPS-DILUTED> .95
</TABLE>
