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 March 31, 2000
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 8,775,470 shares of the registrant's common stock outstanding as
of May 5, 2000.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2000 and June 30, 1999
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 2000 and 1999
Condensed Consolidated Statement of Stockholders'
Equity - Nine Months Ended March 31, 2000
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 2000 and 1999
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>
March 31, June 30,
ASSETS 2000 1999
______ _________ _________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 62,780 $ 47,637
Short-term investments, at fair value - 7,292
Prepaid expenses 1,055 1,515
Other current assets 1,811 1,985
________ ________
Total current assets 65,646 58,429
________ ________
Property and equipment, at cost:
Land and buildings - 435
Gaming equipment 29,261 29,418
Other equipment 4,234 4,546
Leasehold improvements 374 368
________ ________
33,869 34,767
Less accumulated depreciation (21,142) (21,010)
________ ________
12,727 13,757
Investments in internet-related businesses 7,969 -
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$1,484 and $3,404 1,528 3,119
Goodwill, net of accumulated
amortization of $3,003 and $2,879 3,618 3,743
Lease and other security deposits 65 1,242
Other non-current assets - 2,005
________ ________
Total assets $ 91,553 $ 82,295
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Concluded)
(Unaudited)
<TABLE>
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
____________________________________ _________ _________
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,131 $ 1,794
Other current liabilities 3,286 3,000
________ ________
Total current liabilities 4,417 4,794
Deferred rent 3,921 2,554
Deferred income tax 454 333
________ ________
Total liabilities 8,792 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; 10,034,094 and 9,860,252
shares issued 100 99
Additional paid-in capital 68,588 66,465
Retained earnings 27,850 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 82,761 74,614
________ ________
Total liabilities and
stockholders' equity $ 91,553 $ 82,295
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
__________________ _________________
2000 1999 2000 1999
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenues:
Route operations $21,445 $24,262 $66,689 $69,514
Casino operations - 314 - 1,016
_______ _______ _______ _______
Totals 21,445 24,576 66,689 70,530
_______ _______ _______ _______
Costs and expenses:
Route operations 19,371 19,964 62,170 58,027
Casino operations - 274 - 968
Amortization 152 299 602 877
Depreciation 975 1,003 2,956 3,074
General and administrative 3,845 867 6,459 2,664
_______ _______ _______ _______
Totals 24,343 22,407 72,187 65,610
_______ _______ _______ _______
Operating income (loss) (2,898) 2,169 (5,498) 4,920
Other income:
Net fee from terminated merger - - 11,116 -
Gain on sale of short-term
investments - - 2,361 -
Interest and other income 541 346 1,505 1,064
_______ _______ _______ _______
Totals 541 346 14,982 1,064
_______ _______ _______ _______
Income (loss) before income tax (2,357) 2,515 9,484 5,984
_______ _______ _______ _______
Provision (credit) for Federal
income tax:
Current (1,256) 1,211 2,582 2,082
Deferred 288 (507) 121 (407)
_______ _______ _______ _______
Totals (968) 704 2,703 1,675
_______ _______ _______ _______
Net income (loss) $(1,389) $ 1,811 $ 6,781 $ 4,309
======= ======= ======= =======
Basic earnings (loss) per share $ (.16) $ .21 $ .79 $ .50
======= ======= ======= =======
Diluted earnings (loss) per share $ (.16) $ .21 $ .78 $ .50
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 2000
(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 6,781 6,781
Other comprehensive income:
Unrealized gain on
available-for-sale
securities, net of tax
and reclassification
adjustment
(See Note 3 and
disclosure below) (757) (757)
______
Comprehensive income 6,024
Tax benefit from stock options 83 83
Issuance of shares on exercise
of stock options 28 295 295
Repurchases of common stock (15) (1) (1)
Issuance of shares for
investment in internet-
related business 146 1 1,745 1,746
______ ____ _______ _______ ______ ________ ____ _______
Balance March 31, 2000 10,034 $100 $68,588 $27,850 (1,259) $(13,777) $ - $82,761
====== ==== ======= ======= ====== ======== ==== =======
</TABLE>
<PAGE>
Disclosure of reclassification amount:
Unrealized gain for the nine months
ended March 31, 2000 $ 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
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
2000 1999
________ ________
<S> <C> <C>
Operating activities:
Net income $ 6,781 $ 4,309
Adjustments to reconcile net income to net
cash provided by operating activities:
Net fee from terminated merger (11,116) -
Depreciation and amortization 3,558 3,951
Deferred Federal income tax 121 (407)
Gain on sale of short-term investments (2,361) -
Increase (decrease) from changes in:
Prepaid expenses and other current assets 1,768 953
Other non-current assets (29) 12
Accounts payable and other current
liabilities 742 193
Deferred rent and other liabilities 1,367 50
________ ________
Net cash provided by operating activities
831 9,061
________ ________
Investing activities:
Purchase of marketable securities - (6,127)
Investments in internet-related businesses (6,183) -
Break-up fee from terminated merger 13,500 -
Proceeds from sale of short-term investments 8,488 -
Net proceeds from location operators 94 22
Proceeds from sales of property and equipment 482 1,676
Purchases of property and equipment (1,798) (4,216)
Increase in lease acquisition costs and other
intangible and non-current assets (2,031) (1,123)
Lease and other security deposits 1,466 -
________ ________
Net cash provided by (used in)
investing activities 14,018 (9,768)
________ ________
Financing activities:
Proceeds from issuance of common stock 295 67
Repurchases of common stock (1) (1,706)
________ ________
Net cash provided by (used in)
financing activities 294 (1,639)
________ ________
Net increase (decrease) in cash and
cash equivalents 15,143 (2,346)
Cash and cash equivalents at beginning of period 47,637 50,275
________ ________
Cash and cash equivalents at end of period $ 62,780 $ 47,929
======== ========
Supplemental disclosures of cash flow data:
Cash paid during the period for:
Federal income tax $ 1,275 $ 1,200
Non-cash investing and financing activities:
Issuance of common stock for investment in
internet-related business $ 1,746 -
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant accounting policies and business:
Business:
On March 8, 2000, Jackpot Enterprises, Inc. ("Jackpot" or the
"Company") announced a series of actions designed to transform
the Company from a gaming entity into a high growth, technology
Internet infrastructure provider and fund manager ("Internet-
Related Businesses"). On March 10, 2000, the Company formed J
Net Ventures I, LLC ("Venture I"), an entity that will invest
primarily in Internet-Related Businesses. In connection with
its change in business strategy, the Company has retained the
investment banking firm of Koffler & Company to advise the
Company on the disposition of its gaming machine route
operations ("Route Operations"). In addition, the Board of
Directors has unanimously adopted a resolution to change the
name of the Company to J Net Enterprises, Inc. Such change is
subject to the approval of the Company's stockholders.
Basis of presentation:
The accompanying unaudited condensed consolidated financial
statements included herein have been prepared by 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 operations
for the three and nine months ended March 31, 1999 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 the Company's financial position as of March
31, 2000, the results of its operations for the three and nine
months ended March 31, 2000 and 1999 and its cash flows for the
nine months ended March 31, 2000 and 1999. The results for the
three and nine months ended March 31, 2000 and 1999 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 the Company'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.
As of March 31, 2000, the Company had three investments in
Internet-Related Businesses (see Note 2). The various interests
that the Company acquires in Internet-Related Businesses will be
accounted for under three methods: consolidation, equity and
cost. The applicable accounting method is generally determined
based on the Company's ability to control operations and voting
interest in the Internet-Related Business.
Investments in debt and equity securities:
The Company 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 nine months ended March 31, 2000
were $2,361,000. There were no realized gains from sales of
investment securities for the nine months ended March 31, 1999.
There were no realized losses from sales of investment securities
for the three and nine months ended March 31, 2000
and 1999, or any realized gains from the sale of investment
securities for the three months ended March 31, 2000 and 1999.
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 condensed consolidated financial
statements and will not have a significant effect on the
Company'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, the Company 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 - Investments in Internet-Related Businesses:
Digital Boardwalk, LLC:
On March 1, 2000, the Company purchased a 35% ownership interest
and the right to purchase up to 139,256 Common Units at an
exercise price of $3.59 per Common Unit (the "Warrant") in
Digital Boardwalk, LLC ("Digital"), a privately-owned company,
for an aggregate purchase price of $4,746,000. The
consideration consisted of $3,000,000 in cash and $1,746,000 of
the Company's common stock (146,342 shares). The Warrant is
exercisable commencing on the closing date of Digital's next
round of equity or convertible debt financing and shall be
exercisable until the earlier of the consummation of a qualified
initial public offering, as defined in the purchase agreement
between the parties, or March 1, 2003. Digital is a developer
of internet applications and technologies. The Company accounts
for its investment in Digital under the equity method. The
Company's share of Digital's results of operations and other
comprehensive income from March 1, 2000 through March 31, 2000
did not have a significant effect on the Company's financial
position or results of operations for the three and nine months
ended March 31, 2000.
Meister Brothers Investments, LLC:
On March 1, 2000, the Company acquired a 1% membership interest
in Meister Brothers Investments, LLC ("MBI") for $40,000
pursuant to an agreement between MBI, the Company, Keith Meister
("KM") and Todd Meister ("TM"), Co-Presidents of J Net Venture
Partners, LLC, an affiliate of the Company. At the time of the
transaction, KM and TM each contributed 50% of the limited
partnership interests in Meister Brothers Investments, LP (the
"Partnership") to MBI II Investments, LLC ("MBI II"), a limited
liability company, the sole member of which is MBI. The general
partnership interest in the Partnership is held by MBI. As a
result of the transactions: (i) KM and TM each own 49.5% of the
membership interests in MBI; (ii) the Company owns a 1%
membership interest in MBI as a managing member; (iii) MBI owns
all of the membership interests in MBI II; and (iv) MBI and MBI
II own all of the general and limited partnership interests in
the Partnership.
In connection with the agreement described above, KM, TM and the
Company entered into a Call Agreement on March 1, 2000.
Pursuant to the terms of the Call Agreement, KM and TM granted
an option to the Company to purchase from KM and TM, and KM and
TM are each obligated to sell to the Company, upon proper
exercise, under such option (the "Call Option") all of their
membership interests in MBI. Upon exercise of the Call Option
by the Company, KM and TM will receive no less than 312,500 and
no more than 500,000 shares of the Company's common stock, as
calculated by a predetermined formula in the Call Agreement.
The Call Option may be exercised by the Company at any time
after March 1, 2002 and expires on March 1, 2004.
Also, on March 1, 2000, KM and TM and the Company entered into a
Put Agreement. Pursuant to the terms of the Put Agreement, the
Company granted an option to each of KM and TM to sell to the
Company and the Company shall be obligated to purchase from each
of KM and TM, upon proper exercise, under such option (the "Put
Option") any or all of the membership interests in MBI held by
each of them in exchange for a number of common shares of the
Company, as calculated by a predetermined formula in the Put
Option. The Put Option may be exercised at any time after the
first to occur of (i) September 1, 2001 or (ii) the date the
Portfolio Value, as defined in the Put Option, is fixed at
$4,000,000, but in no event shall the Put Option become
exercisable any earlier than March 1, 2001. The Put Option
expires on March 1, 2004.
If neither the Put Option nor the Call Option is exercised, KM
and TM have a further option to purchase, or cause MBI to
purchase, the Company's interest in MBI at its fair market value
as determined by appraisal. This option is exercisable on or
after April 1, 2004 and expires April 30, 2004.
Cyberbills, Inc.:
On March 10, 2000, the Company purchased 3,385,106 shares of
Series C Preferred Stock of Cyberbills, Inc. ("Cyberbills")
at a cost of $3,183,000. Of such purchase, $3,000,000 was made
on behalf of Venture I. Cyberbills offers a service to its
customers which allows them to view, pay and manage their bills
over the Internet. The Company accounts for this investment
under the cost method.
Note 3 - Comprehensive income (loss):
Comprehensive income (loss) for the three and nine months ended
March 31, 2000 and 1999 is the following (dollars in thousands):
<TABLE>
Three Months Nine Months
Ended Ended
March 31, March 31,
_______________ ______________
2000 1999 2000 1999
_______ ______ ______ ______
<S> <C> <C> <C> <C>
Net income (loss) $(1,389) $1,811 $6,781 $4,309
Other comprehensive income - 138 (757) 138
_______ ______ ______ ______
Comprehensive income (loss) $(1,389) $1,949 $6,024 $4,447
======= ====== ====== ======
</TABLE>
Note 4 - Earnings (loss) per share:
Basic earnings (loss) per share for the three and nine months
ended March 31, 2000 and 1999 is computed by dividing net income
(loss) by the weighted average number of common shares
outstanding. Diluted earnings (loss) per share for the
three and nine months ended March 31, 2000 and 1999 is computed by
dividing net income (loss) 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 March 31, 1999 were 1,738,000, and for
the nine months ended March 31, 2000 and 1999 were 712,000 and
721,000, respectively. The weighted average number of options
outstanding for the three months ended March 31, 2000 was
1,990,000. While the exercise prices for all such options were
less than the average market price for the period, these options
have been excluded from the diluted loss per share calculation
because the effect upon the assumed exercise of the options
would not be dilutive. The following is the amount of income
(loss) and number of shares used in the basic and diluted
earnings (loss) per share computations (dollars and shares in
thousands, except per share data):
<TABLE>
Three Months Nine Months
Ended Ended
March 31, March 31,
_______________ ______________
2000 1999 2000 1999
_______ ______ ______ ______
<S> <C> <C> <C> <C>
Basic earnings (loss) per share:
Earnings (loss):
Income (loss) available to
common stockholders $(1,389) $1,811 $6,781 $4,309
======= ====== ====== ======
Shares:
Weighted average number
of common shares
outstanding 8,631 8,617 8,620 8,649
======= ====== ====== ======
Basic earnings (loss) per share $ (.16) $ .21 $ .79 $ .50
======= ====== ====== ======
Diluted earnings (loss) per share:
Earnings (loss):
Income (loss) available to
common stockholders $(1,389) $1,811 $6,781 $4,309
Effect of dilutive
securities - - - -
_______ ______ ______ ______
Income (loss), as adjusted $(1,389) $1,811 $6,781 $4,309
======= ====== ====== ======
Shares:
Weighted average number
of common shares
outstanding 8,631 8,617 8,620 8,649
Common shares issuable
upon assumed exercise
of dilutive stock
options - 44 1,056 1,048
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 - (43)(1,005) (1,000)
_______ ______ ______ ______
Weighted average number
of common shares and
common share
equivalents outstanding 8,631 8,618 8,671 8,697
======= ====== ====== ======
Diluted earnings (loss) per share $ (.16) $ .21 $ .78 $ .50
======= ====== ====== ======
</TABLE>
Note 5 - 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"). On
January 31, 2000, a new director was added to the Company's
Board of Directors. In connection with the appointment, such
director was granted a nonqualified stock option to purchase
27,500 shares of common stock. On May 1, 2000, pursuant to the
terms of the grant, the exercise price was vested at $10.63 per
share, the fair market value of the stock on that date. Also,
on January 31, 2000, nonqualified stock options to purchase an
aggregate of 450,000 shares of common stock were granted to
three directors (150,000 each) at an exercise price of $10.13
per share, the fair market value on the date of grant. The
option granted to each director will vest in thirds on each of
the first, second and third anniversaries of the date of grant.
Such options expire ten years from date of grant. 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 anniversaries of the date
of grant and shall be subject to accelerated vesting under
certain circumstances. Such options expire ten years from date
of grant.
On January 31, 2000, nonqualified stock options to purchase an
aggregate of 150,000 shares of common stock were granted to the
Co-Presidents of J Net Venture Partners, LLC, an affiliate of
the Company, (75,000 each) at an exercise price of $10.13 per
share, the fair market value on the date of grant. Such options
will vest in thirds on each of the first, second and third
anniversaries of the date of grant and expire ten years from
date of grant.
Note 6 - 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 nine months ended March 31, 2000, 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 7 - 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, were 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 their initial terms and will continue to
have exclusive gaming rights for new Albertson's locations. In
addition, Albertson's 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 1,017 gaming machines in 80
locations.
Future minimum lease payments (dollars in thousands) under
noncancelable operating leases or licenses, including the
Agreement described above, aggregated approximately $137,010 at
March 31, 2000, payable as follows: $40,393 in the remainder of
fiscal 2000 and fiscal 2001; $32,162 in fiscal 2002; $32,392 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 Route Operations 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 alleged fraud. Operations of said
subsidiaries under said agreements resulted in an operating loss
of approximately $1.0 million and $3.0 million for the three and
nine months ended March 31, 2000, respectively.
On March 27, 2000, Jackpot entered into amendments to the two
license agreements with Rite Aid. Based on the number of
existing locations at which Jackpot currently operates gaming
machines, license fees payable to Rite Aid will be reduced by
approximately $2.5 million annually over the remaining term of
the amended agreements. The amendments are subject to certain
approvals from the Nevada Gaming Commission. If such approvals
are obtained, the reduction in license fees will be effective
March 1, 2000.
Additionally, upon approval, all disputes between the parties,
including Jackpot's lawsuit against Rite Aid, will be resolved
or settled. On April 26, 2000, the Court ordered that all
scheduling deadlines previously set in the case were stayed
pending the filing of a Stipulation and Order of Dismissal by
the parties. Further, because the amended agreements are
conditioned upon certain approvals by the Nevada Gaming
Commission, the parties shall be permitted to file the
Stipulation for Dismissal by September 15, 2000.
If the Company receives certain approvals from the Nevada Gaming
Commission and the amendments to the license agreements become
effective, the Company's operating losses at the Rite Aid
locations should decrease substantially. However, even with the
license fee reductions, management believes that the Company
will continue to incur losses, and such losses may be
significant, unless revenues increase significantly at these
locations. Jackpot presently operates 306 gaming machines at 30
Rite Aid locations.
Termination and Consulting Agreement:
On February 29, 2000, the Company and Don R. Kornstein,
President, Chief Executive Officer and Director, entered into a
Termination and Consulting Agreement (the "Termination
Agreement"). Pursuant to the terms of the Termination
Agreement, Mr. Kornstein and the Company mutually agreed that
his employment and position on the Board of Directors terminated
on February 29, 2000. On March 10, 2000, pursuant to the terms
of Mr. Kornstein's employment agreement and the Termination
Agreement, the Company paid $2,906,000 to Mr. Kornstein for
severance and accrued vacation costs. Of that amount, $2,835,000
has been recorded in the three months ended March 31, 2000, and
is included in the line captioned General and Administrative in
the accompanying condensed consolidated statements of operations
for the three and nine months ended March 31, 2000 and 1999.
Note 8 - Subsequent events:
Subsequent to March 31, 2000, the Company invested $2,350,000 in
Internet-Related Businesses. Such investments consisted of a
purchase, on behalf of Venture I, of 892,500 shares of Series B
Preferred Stock of Strategic Data Corp., at a cost of
approximately $850,000 and short-term loans aggregating
$1,300,000.
Item 2. Management's Discussion and Analysis of Financial
_________________________________________________
Condition and Results of Operations
___________________________________
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. All statements
other than statements of historical information provided herein may be deemed
to be forward-looking statements. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects", "should" and similar
expressions are intended to identify forward-looking statements. 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, certain
approvals from the Nevada Gaming Commission of the amendments to the Rite Aid
agreements, possible future financial difficulties of a significant customer
and the continued growth of the gaming industry and population in Nevada. In
addition, as discussed below, certain other factors may affect future
results. 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.
Recent Developments
___________________
On March 8, 2000, the Company announced a series of actions designed to
transform the Company from a gaming entity into a high growth, technology
internet infrastructure provider and fund manager ("Internet-Related
Businesses"). In connection with its change in business strategy, the
Company has retained the investment banking firm of Koffler & Company to
advise the Company on the disposition of its gaming machine route operations
("Route Operations"). In addition, the Board of Directors has unanimously
adopted a resolution to change the name of the Company to J Net Enterprises,
Inc. Such change is subject to the approval of the Company's stockholders.
On March 10, 2000, the Company formed J Net Ventures I, LLC ("Venture I"),
an entity that will invest primarily in Internet-Related Businesses. Management
anticipates raising approximately $80 million for Venture I. Of the $80
million, the Company has committed $55 million and believes that the
remaining $25 million will be funded by certain other investors, subject to
the completion of the agreement between such investors and Venture I. With
respect to the Company's $55 million commitment to Venture I, the Company
anticipates that it will contribute approximately $30 million of its cash and
expects to raise approximately $28 million from the issuance of convertible
debentures by the Company. Such issuance is subject to the completion of a
subscription agreement between the Company and certain investors. Venture I
will be managed by J Net Venture Partners, LLC (the "Manager"). Allan R.
Tessler, the Company's Chief Executive Officer is the Chairman of the Manager
and Keith Meister and Todd Meister are Co-Presidents of the Manager. The
Company will at all times own at least 51% of the Manager.
Venture I will make investments primarily in early stage ventures (first
and second round financing) exhibiting reasonable risk adjusted valuations.
Additionally, Venture I may invest in public companies when an opportunity
exists for value creation. It is anticipated that individual investments
will range from $1 million to $10 million and will consist of the following:
(1) New companies primarily in the business-to-business segment; (2)
Established "brick and mortar" companies who have established brand
identities but have not yet developed, deployed or migrated their businesses
to the Internet; (3) Technology and infrastructure opportunities which
capitalize on the growth of Internet traffic and the proliferation of
Internet ready devices; (4) Broadband technologies and related content driven
opportunities; and (5) Opportunistic turn-around situations.
Factors Which May Affect Future Results
_______________________________________
With its change in business strategy, the Company will be operating in a
significantly different environment that involves a number of risks and
uncertainties. By their very nature, the entities in which the Company will
be investing capital will be in an earlier stage of development and maturity,
and therefore a different level of risk and reward. Some factors including,
but not limited to the following may affect the Company's future results of
operations: (1) the Company's ability to successfully execute its new
business model; (2) the development of the Internet and the infrastructure
that supports it; (3) the Company's success may depend greatly on increased
use of the Internet by businesses and individuals; (4) the ability of the
Company's investees to compete against direct and indirect competitors; (5)
the Company's ability to acquire interests in additional Internet-Related
Businesses and (6) changes in the market for securities of Internet-Related
Businesses in general and for initial public offerings of Internet companies
in particular.
Capital Resources and Liquidity
_______________________________
Cash Flows:
The Company's principal sources of cash for the nine months ended March
31, 2000 (the "2000 nine 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 March 31, 2000 was $62.8 million.
Net cash provided by operating activities decreased $8.3 million, from
$9.1 million for the nine months ended March 31, 1999 (the "1999 nine months")
to $.8 million for the 2000 nine months. The decrease of $8.3
million was due primarily to the decrease in operating income in the 2000
nine months.
Net cash provided by investing activities increased $23.8 million, from
net cash used in investing activities of $9.8 million for the 1999 nine
months to net cash provided by investing activities of $14.0 million for the
2000 nine months. Such increase was due primarily to the receipt of the
break-up fee from the terminated merger agreement with Players International,
Inc. ("Players") and the proceeds from the sale of the Players stock
described below. In March 2000, the Company invested $7.9 million in
Internet-Related Businesses. Such outflows consisted of $6.2 million in cash
and $1.7 million of non-cash consideration.
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
March 31, 2000, 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 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
$2.4 million incurred in connection with the proposed acquisition of Players
were expensed resulting in a net break-up fee of $11.1 million.
During the 2000 nine months, Jackpot sold 1,014,400 shares of Players
common stock for $8.5 million. As a result of the sale of such shares, which
were purchased on March 10, 1999 at a cost of $6.1 million, Jackpot realized
a gain of $2.4 million.
Working capital increased $7.6 million, from $53.6 million at June 30,
1999 to $61.2 million at March 31, 2000. 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.
The Company is in the final stages of completing its offering of
approximately $28 million of Convertible Subordinated Promissory Notes (the
"Notes") to a small group of investors. Certain of such investors include
directors of the Company or entities controlled by such directors. The
issuance of the Notes was approved by the Company's Board of Directors
on January 31, 2000. The initial conversion price of $10.75 was set by the
Company in connection with the limited circulation of a Confidential
Memorandum prior to the public announcement of the Company's intention to
effect its business transformation and was equal to an 18% premium over the
then twenty day trailing average market price. The Notes will not be
convertible until after one year after issuance. Stockholder approval is
required with respect to the issuance of a portion of the Notes.
Subject to the successful completion of the financing discussed above,
management believes the Company's working capital and cash provided by
operations will be sufficient to enable Jackpot to fund its $55 million
commitment to Venture I, and to meet its planned capital expenditures and other
cash requirements for its Route Operations for the remainder of the year
ending June 30, 2000 ("Fiscal 2000"). With respect to planned capital
expenditures, management anticipates Jackpot will purchase approximately $.6
million of property and equipment in the remainder of Fiscal 2000 to be used
in existing and currently planned new locations.
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 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 1999 nine
months and the year ended June 30, 1999 ("Fiscal 1999"), respectively, and a
significantly greater percentage of Jackpot's operating income for the 1999
nine 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, were 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
their initial terms and will continue to have exclusive gaming rights for new
Albertson's locations. In addition, Albertson's 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 1,017 gaming machines in 80 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 Route Operations
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 alleged
fraud. Operations of said subsidiaries under said agreements resulted in an
operating loss of approximately $1.0 million and $3.0 million for the three
and nine months ended March 31, 2000, respectively.
On March 27, 2000, Jackpot entered into amendments to the two license
agreements with Rite Aid. Based on the number of existing locations at which
Jackpot currently operates gaming machines, license fees payable to Rite Aid
will be reduced by approximately $2.5 million annually over the remaining
term of the amended agreements. The amendments are subject to certain
approvals from the Nevada Gaming Commission. If such approvals are obtained,
the reduction in license fees will be effective March 1, 2000. Additionally,
upon approval, all disputes between the parties, including Jackpot's lawsuit
against Rite Aid, will be resolved or settled. On April 26, 2000, the Court
ordered that all scheduling deadlines previously set in the case were stayed
pending the filing of a Stipulation and Order of Dismissal by the parties.
Further, because the amended agreements are conditioned upon certain
approvals by the Nevada Gaming Commission, the parties shall be permitted to
file the Stipulation for Dismissal by September 15, 2000.
If the Company receives certain approvals from the Nevada Gaming
Commission and the amendments to the license agreements become effective, the
Company's operating losses at the Rite Aid locations should decrease
substantially. However, even with the license fee reductions, management
believes that the Company will continue to incur losses, and such losses may
be significant, unless revenues increase significantly at these locations.
Jackpot presently operates 306 gaming machines at 30 Rite Aid locations.
Revenues:
Total revenues for the three months ended March 31, 2000 (the "2000
three months") decreased $3.1 million, from $24.5 million for the three
months ended March 31, 1999 (the "1999 three months") to $21.4 million for
the 2000 three months, while total revenues for the 2000 nine months
decreased $3.8 million, from $70.5 million for the 1999 nine months to $66.7
million for the 2000 nine months. The decrease in total revenues of $3.1
million for the 2000 three months was the net result of a decrease of $2.8
million (from $24.2 million for the 1999 three months to $21.4 million for
the 2000 three months) in Route Operations revenues and a decrease of $.3
million in casino operations revenues. The decrease in total revenues of
$3.8 million for the 2000 nine months was the net result of a decrease of
$2.8 million (from $69.5 million for the 1999 nine months to $66.7 million
for the 2000 nine months) in Route Operations revenues and a decrease of $1.0
million in casino operations revenues.
The decrease in Route Operations revenues of $2.8 million for the 2000
three months resulted from a combination of revenues generated at new
locations of $1.5 million, net of a decrease in revenues at existing
locations of $1.0 million and lost revenues from terminated locations of $3.3
million. The lost revenues generated at terminated locations during the 1999
three months consisted principally of revenues generated at the 15 former
Albertson's locations. Such decrease was due to the loss of such locations
on February 1, 2000. The decrease in Route Operations revenues of $2.8
million for the 2000 nine months resulted from a combination of revenues
generated at new locations of $4.1 million, net of a decrease in revenues at
existing locations of $1.9 million and lost revenues from terminated
locations of $5.0 million. The decrease in existing locations revenues of
$1.9 million for the 2000 nine months was due primarily to lower revenues
generated at the Rite Aid locations and the 15 former Albertson's locations
in southern Nevada. The lost revenues generated at terminated locations
during the 1999 nine months consisted principally of revenues generated at
the 15 former Albertson's locations and lost revenue sharing locations.
Route Operations revenues attributable to fixed payment leases and
revenue sharing contracts for the three and nine months ended March 31, 2000
and 1999 are summarized below (dollars in thousands):
<TABLE>
Three Months Ended March 31,
__________________________________________
2000 1999
_____________________ ___________________
Percent Percent
of Route of Route
Operations Operations
Amount revenues Amount revenues
_______ __________ _______ __________
<S> <C> <C> <C> <C>
Route Operations:
Fixed payment leases $14,860 69.3% $18,131 74.7%
Revenue sharing contracts 6,585 30.7 6,131 25.3
_______ _____ _______ _____
Totals $21,445 100.0% $24,262 100.0%
======= ===== ======= =====
Nine Months Ended March 31,
__________________________________________
2000 1999
_____________________ ___________________
Percent Percent
of Route of Route
Operations Operations
Amount revenues Amount revenues
_______ __________ _______ __________
<S> <C> <C> <C> <C>
Route Operations:
Fixed payment leases $48,148 72.2% $52,381 75.4%
Revenue sharing contracts 18,541 27.8 17,133 24.6
_______ _____ _______ _____
Totals $66,689 100.0% $69,514 100.0%
======= ===== ======= =====
</TABLE>
Casino operations revenues for the 1999 three months and 1999 nine
months were generated at Jackpot Owl, Inc. (the "Owl Club"). The Owl Club, a
casino located in Battle Mountain, Nevada was closed on June 29, 1999. All
costs, including the write-down to fair value of certain long-lived assets
and estimated closing costs, were recorded as of June 30, 1999. The Owl Club
was sold on March 14, 2000. Such sale did not have a significant effect on
the results of operations for the 2000 three months and the 2000 nine months.
Costs and expenses:
Route Operations expenses for the 2000 three months decreased $.6
million (from $20.0 million for the 1999 three months to $19.4 million for
the 2000 three months) and for the 2000 nine months increased $4.2 million
(from $58.0 million for the 1999 nine months to $62.2 million for the 2000
nine months) and, as a percentage of Route Operations revenues, increased to
90.3% and 93.2% for the 2000 three months and 2000 nine months, respectively,
from 82.3% and 83.5% for the 1999 three months and 1999 nine 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, adversely affected the Company's results of operations for
the 2000 nine 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 decrease in Route Operations expenses of $.6 million for the 2000
three months was due primarily to a decrease in location rent of $.5 million.
Such decrease resulted primarily form a combination of an increase of $1.0
million in location rent for new locations of existing chain store customers,
an increase of $.4 million in location rent associated with revenue sharing
contracts, a decrease of $1.3 million in location rent for lost chain store
customers, which was principally related to the 15 former Albertson's
locations in southern Nevada, and a decrease of $.6 million in location rent
for all other customers. The increase in Route Operations expenses of $4.2
million for the 2000 nine months resulted primarily from a combination of an
increase of $2.9 million in location rent, an increase of $.6 million in
group health costs and an increase of $.7 million in all other Route
Operations expenses. The increase of $2.9 million in location rent resulted
primarily from an increase of $3.6 million in location rent for new locations
of existing chain store customers, an increase of $1.3 million in location
rent associated with revenue sharing contracts, a decrease of $1.8 million in
location rent for lost chain store customers and a decrease of $.2 million in
location rent for all other customers.
Depreciation expense for the 2000 three months, compared to the 1999
three months remained constant at $1.0 million, and for the 2000 nine months
decreased $.1 million, from $3.1 million for the 1999 nine months to $3.0
million for the 2000 nine months. Amortization expense for the 2000 three
months and the 2000 nine months decreased $.1 million (from $.3 million for the
1999 three months to $.2 million for the 2000 three months) and $.3 million
(from $.9 million for the 1999 nine months to $.6 million for the 2000 nine
months), respectively.
General and administrative expense for the 2000 three months and the 2000
nine months increased $2.9 million (from $.9 million for the 1999 three
months to $3.8 million for the 2000 three months) and $3.8 million (from $2.7
million for the 1999 nine months to $6.5 million for the 2000 nine months).
The increase of $2.9 million for the 2000 three months was due primarily to
$2.8 million of severance costs paid to the former Chief Executive Officer,
and the increase of $3.8 million for the 2000 nine months was due principally
to such severance costs and to legal costs associated with the
Albertson's/Raley's litigation and the Rite Aid dispute.
Other income:
Other income for the 2000 three months and 2000 nine months increased
$.2 million (from $.3 million for the 1999 three months to $.5 million for
the 2000 three months) and $13.9 million (from $1.1 million for the 1999 nine
months to $15.0 million for the 2000 nine months). The increase in other
income for the 2000 nine months was 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 $2.4 million previously discussed.
Federal income tax:
The effective tax rate for the 2000 nine months and the 1999 nine
months was 28.5% and 28%, respectively. 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 2000 three months and the 2000 nine months
decreased $5.1 million (from $2.2 million for the 1999 three months to an
operating loss of $2.9 million for the 2000 three months) and $10.4 million
(from $4.9 million for the 1999 nine months to an operating loss of $5.5
million for the 2000 nine months). Such decreases were due principally to
four factors: (1) 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 (i) significantly lower revenues generated at these locations
and (ii) the loss of such locations on February 1, 2000, (2) severance costs
of $2.8 million paid to the former Chief Executive Officer, (3) an operating
loss of approximately $1.0 million and $3.0 million for the 2000 three months
and the 2000 nine months, respectively, incurred at the locations of Rite
Aid, a large customer, resulting from the failure of 12 new locations to
achieve expected revenues, as well as from a decrease in revenues at existing
locations of such customer, and (4) legal and settlement costs incurred in
connection with Jackpot's litigation against Albertson's and Raley's.
Net income decreased $3.2 million, from $1.8 million for the 1999 three
months to a net loss of $1.4 million for the 2000 three months. Basic and
diluted earnings (loss) per share for the 2000 three months was $(.16) per
share versus $.21 per share for the 1999 three months. Such decreases were due
principally to the four factors described above. Net income increased $2.5
million, from $4.3 million for the 1999 nine months to $6.8 million for the
2000 nine months, and diluted earnings per share for the 2000 nine months was
$.78 versus $.50 per share for the 1999 nine months. The increases for the
2000 nine months were 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.
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 has been referred to as the "Year 2000
Problem". 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, or incurred any significant costs relating to the Year 2000
Problem, and continues to monitor its essential computer systems and other
systems for potential problems which may occur.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
_________________________________________________________
During the nine months ended March 31, 2000, 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 March 31, 2000, 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 6 of Notes to Condensed Consolidated Financial
Statements in this Form 10-Q.
In all other respects, for the three and nine months ended March 31,
2000, 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:
10.14 - First Amendment to License Agreement between Cardivan
Company and Rite Aid Corporation.
10.15 - First Amendment to License Agreement between Corral Coin,
Inc. and Rite Aid Corporation.
10.16 - Termination and Consulting Agreement between the Registrant
and Don R. Kornstein.
10.17 - Call Agreement, dated as of March 1, 2000, among Keith A.
Meister, Todd A. Meister and the Registrant.
10.18 - Put Agreement, dated as of March 1, 2000, among Keith A.
Meister, Todd A. Meister and the Registrant.
27.1 - Financial Data Schedule.
(b) Reports on Form 8-K - No Form 8-K was filed for the three months
ended March 31, 2000.
Signature
_________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKPOT ENTERPRISES, INC.
(Registrant)
By: /s/ Bob Torkar
___________________________________
BOB TORKAR
Senior Vice President - Finance,
Treasurer and Chief Accounting Officer
Date: May 15, 2000
EXHIBIT 10.14
RCT = Request Confidential Treatment
FIRST AMENDMENT TO CARDIVAN LICENSE AGREEMENT
This FIRST AMENDMENT TO LICENSE AGREEMENT ("First Amendment") made
as of this 27th day of March 2000, between RITE AID CORPORATION
("Licensor"), a Delaware Corporation, and CARDIVAN COMPANY ("Licensee"), a
Nevada corporation.
W I T N E S S E T H :
WHEREAS, Licensor and Licensee entered into a License Agreement
as of March 12, 1999 (the "License Agreement"); and
WHEREAS, disputes have arisen between Licensor and Licensee; and
WHEREAS, Licensor and Licensee wish to resolve all outstanding
disputes and for that purpose seek to amend and modify the License
Agreement upon the terms and provisions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing premises and
the covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged,
the parties hereto mutually covenant and agree that the License Agreement
is modified and amended as follows:
1. Effective Date. The Effective Date of this First Amendment
shall be the date upon which Licensee receives approval from the Nevada
Gaming Commission to remove the conditions on its presently issued
licenses to operate Devices at the Licensed Locations which require a
full-time change attendant to be present on the premises of each such
operation. Pending the Effective Date, the parties shall perform their
respective obligations under the License Agreement, as intended to be
modified by this First Amendment, to the extent permitted by law. From the
date hereof to the Effective Date, Licensee shall pay monthly fees
pursuant to the fee schedule set forth on the annexed exhibit. In the
event that prior to the Effective Date, Licensee fails to pay such fees
when due, otherwise fails to perform its obligations under the License
Agreement as intended to be amended hereby, to the extent consistent
herewith or in the event the Nevada Gaming Commission does not grant the
necessary approvals within RCT of the date hereof, the
parties shall be returned to their respective positions and status as of
February 29, 2000, including the revival of all claims by Licensee and
Licensor, without prejudice by reason of the passage of time or the
negotiation and execution of this First Amendment.
2. Definitions. All capitalized terms contained in this First
Amendment, unless otherwise hereinafter contained, shall have the same
meaning as in the License Agreement.
3. Purpose. Section 1 is hereby modified by adding the
following after the last sentence:
Licensee shall have the exclusive right, at its option, to
operate Devices in New Locations operated by Licensor at the
fees set forth in this First Amendment provided that, if
Licensee elects not to operate Devices in any New Location(s),
Licensee shall be released and discharged of its obligation to
pay any license fees to Licensor for such location(s) and
Licensor may contract with an alternative route operator to
operate Devices at the locations not accepted by Licensee.
Licensee shall make its election with respect to each
potential New Location within thirty (30) days of written notice
by Licensor of the availability of a New Location, provided
however that such notice by Licensor shall not be given more
than nine (9) months prior to the opening of any such location.
4. License. The next to the last sentence of Section 2 is
amended by adding the following at the beginning thereof: "Subject to the
provisions of Section 1".
5. The last sentence of Section 2 is deleted and replaced with
the following:
Licensee may determine the number of machines to operate at each
location but shall operate a minimum of RCT Devices at each
location. Subject to obtaining the approval of the Nevada Gaming
Commission, Licensee shall not be required to have a full time adult
change attendant at at Location having RCT or fewer Devices. In
all New Locations in which Licensee elects to operate Devices,
including the six (6) Rite Aid locations in which Licensee hereby
agrees to operate Devices (the "Six Locations")*, Licensee may, in
its sole discretion place up to RCT but no less than RCT Devices
at each such location. In the event that Licensee elects to place
Devices in any New Location, including the Six Locations, it shall
nevertheless have no obligation to do so until receipt of
appropriate approval by the Nevada Gaming Commission.
____________________________
*The Six Locations are:
Clark County
Rite Aid #6322 Rite Aid #6345
1920 North Las Vegas Blvd. North 1815 E. Flamingo Road
Las Vegas, NV 89030 Las Vegas, NV 89119
Rite Aid #6257 Rite Aid #6113
6685 East Lake Mead 5755 E. Charleston Blvd.
Las Vegas, NV 89115 Las Vegas, NV 89112
Non Clark County
Rite Aid #6354 Rite Aid #6364
1980 N. Carson 461 West Williams Ave.
Carson City, NV 89701 Fallon, NV 89406
6. Term. The first sentence of Section 3 is deleted and
replaced with the following:
The term of the License Agreement which began effective July
1, 1998, shall expire at midnight on the RCT.
7. Fees. Section 4 is modified by deleting Sections 4a and 4b,
in their entirety, including the fee amounts and increases there
scheduled, and substituting therefore the fee schedule attached hereto as
exhibit "Amendment A."
Section 4c is modified by deleting it in its entirety and
substituting therefore, the following:
During the term of this Agreement, as here amended, if Licensor
opens or acquires any New Location and Licensor determines to
include Devices at such New Location, and if Licensee elects to
exercise its right to place Devices in such New Location, then,
the fees due to be paid for each such New Location in which
Licensee in fact places Devices shall be RCT of the then
applicable monthly fee as set forth on Exhibit "Amendment A"
hereto during the RCT period following the date
any such New Location is opened for business by Licensor;
provided, that if Licensor has not taken all steps required to
be taken by it to permit Licensee to commence operations at a
New Location in which Licensee has elected to place Devices, the
RCT period shall not commence until all such actions have been
taken.
Section 4 is further modified by adding new Subsection 4(g) as
follows:
Notwithstanding anything contained herein to the contrary,
during the term of this Agreement as hereby amended, Licensee
shall pay a license fee of RCT per month for each of the Six
Locations, commencing with respect to each Location ont he date
on which Devices are installed and are allowed to operate pursuant
to all required gaming licenses and permits having been obtained
for each such Location. Such installation shall be made reasonably
promptly after approval. Prior to said commencement date, there
shall be no liability or obligation for any license fee for said
Six Locations. Fees for any partial month shalal be proprated.
Section 4 is further modified by adding new Subsection 4(h) as
follows:
On the date that monthly fees are next required to be paid after
the Effective Date, Licensee shall RCT due for the then existing
Licensed Locations for the next succeeding RCT.
8. Use and Operation. Section 7 is hereby modified by adding
the following after the last sentence:
With respect to any Licensed Location, (including the Six
Locations and any New Location in which Licensee elects to place Devices),
in which Licensee operates RCT or fewer Devices, Licensor's
employees will provide appropriate adult supervision, (over age 21) as
required by the Nevada Gaming Commission and will make change for adults
(persons over the age of 21) who wish to play the Devices. Licensee
agrees to provide suitable training for Licensor's employees, and will
remain liable for any fine, penalty or other governmental sanction arising
from any failure to supervise.
9. Default. Subsections 13(a) and 13(b) are hereby modified by
adding "together with all costs and attorneys' fees" to the last sentence
of each Subsection. Subsection 13(c) is deleted in its entirety, and is
replaced with the following:
To treat all amounts due and not paid by Licensee up to the date
of such default as an indebtedness of Licensee immediately due
and payable to Licensee and recover the same together with all
costs and reasonable attorney's fees incurred to collect such
amount.
10. Assignment. Section 14 is modified by (i) deleting the
first clause consisting of the language "Licensee may not assign this
Agreement without prior approval of Licensor" and (ii) substituting
therefore the following:
Upon the written approval of Licensor, which shall not be
unreasonably withheld, Licensee shall have the right to assign this
License Agreement, as amended, to another unaffiliated route operator or
other third party.
11. Successors and Assigns. The covenants, agreements, terms
and conditions contained in this First Amendment shall bind and inure to
the benefits of the parties hereto and their respective successors and
their respective assigns.
12. This First Amendment is integrated with the License
Agreement and, upon the Effective Date, the License Agreement will be
deemed to exist and will survive only as modified by the First Amendment.
Upon the Effective date the parties shall prepare and execute a
superceding global License Agreement incorporating the remaining relevant
portions of the Agreement and this First Amendment.
IN WITNESS WHEREOF, the parties hereto have executed the Lease
on the date first set forth hereinabove.
RITE AID CORPORATION
By: /s/ David R. Jessick
_______________________________
Name: David R. Jessick
Title: Sr. Ex. V.P. Chief Administrative
Officer
CARDIVAN COMPANY
By: /s/ Bob Torkar
_______________________________
Name: Bob Torkar
Title: Secretary
FEE SCHEDULE
CARDIVAN COMPANY
RCT RCT RCT
___ ___ ___
Monthly Monthly Monthly
# Stores Fee Fee Fee
________ _______ _______ _______
Stores - Clark County 15 RCT RCT RCT
TPI stores - Clark County 3 RCT RCT RCT
Stores - non-Clark County 4 RCT RCT RCT
Store - Gardnerville 1 RCT RCT RCT
__
23
Other stores - Clark County 4 RCT RCT RCT
Other stores - non-Clark County 2 RCT RCT RCT
__
6
__
Total stores 29
__
Stores - Clark County
Rite Aid #6193
1515 W. Craig Road
North Las Vegas, NV 89030
Rite Aid #6217
525 E. Windmill
Las Vegas, NV 89123
Rite Aid #6220
2513 South Nellis
Las Vegas, NV 89121
Rite Aid #6221
3845 E. Lake Mead Blvd.
N. Las Vegas, NV 89115
Rite Aid #6222
8500 South Eastern
Henderson, NV 89123
Rite Aid #6240
10 North Eastern
Las Vegas, NV 89101
Rite Aid #6245
7575 W. Vegas Drive
Las Vegas, NV 89128
Rite Aid #6250
5670 S. Rainbow
Las Vegas, NV 89118
Rite Aid #6260
8611 Spring Mountain Road
Las Vegas, NV 89117
Rite Aid #6261
3115 Las Vegas Blvd. North
Las Vegas, NV 89109
Rite Aid #6271
9350 West Sahara
Las Vegas, NV 89117
Rite Aid #6272
6100 W. Vegas Dr.
Las Vegas, NV 89108
Rite Aid #6277
4150 Las Vegas Blvd. North
Las Vegas, NV 89115
Rite Aid #6292
4975 E. Tropicana
Las Vegas, NV 89121
Rite Aid #6296
333 N. Sandhill
Mesquite, NV 89027
TPI Stores - Clark County
Rite Aid #6114
5991 W. Cheyenne
Las Vegas, NV 89108
Rite Aid #6115
2905 S. Maryland Parkway
Las Vegas, NV 89109
Rite Aid #6116
2950 E. Desert Inn
Las Vegas, NV 89121
Stores - Non Clark County
Rite Aid #6247
8485 Sun Valley Blvd.
Sun Valley, NV 89433
Rite Aid #6279
1410 E. Prater Way
Sparks, NV 89434
Rite Aid #6281
8005 S. Virginia
Reno, NV 89511
Rite Aid #6290
1695 Robb Drive
Reno, NV 89523
Store - Gardnerville
Rite Aid #6121
1327 Highway 395 South
Gardnerville, NV 89410
Other stores - Clark County
Rite Aid #6113
5755 E. Charleston Blvd.
Las Vegas, NV 89112
Rite Aid #6257
6685 East Lake Mead
Las Vegas, NV 89115
Rite Aid #6322
1920 Las Vegas Blvd. North
Las Vegas, NV 89030
Rite Aid #6345
1815 E. Flamingo Road
Las Vegas, NV 89119
Other stores - Non Clark County
Rite Aid #6354
1980 N. Carson
Carson City, NV 89701
Rite Aid #6364
461 West Williams Ave.
Fallon, NV 89406
EXHIBIT 10.15
RCT = Request for Confidential Treatment
FIRST AMENDMENT TO CORRAL COIN LICENSE AGREEMENT
This FIRST AMENDMENT TO LICENSE AGREEMENT ("First Amendment") made as
of this 27th day of March 2000, between RITE AID CORPORATION ("Licensor"), a
Delaware Corporation, and CORRAL COIN, INC. ("Licensee"), a Nevada corporation.
W I T N E S S E T H :
WHEREAS, Licensor and Licensee entered into a License Agreement as of
March 12, 1999 (the "License Agreement"); and
WHEREAS, disputes have arisen between Licensor and Licensee; and
WHEREAS, Licensor and Licensee wish to resolve all outstanding
disputes and for that purpose seek to amend and modify the License Agreement
upon the terms and provisions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing premises and the
covenants and agreements hereinafter set forth, and for other good and valuable
consideration the sufficiency of which is hereby acknowledged, the parties
hereto mutually covenant and agree that the License Agreement is modified and
amended as follows:
1. Effective Date. The Effective Date of this First Amendment shall
be the date upon which Licensee receives approval from the Nevada Gaming
Commission to remove the conditions on its presently issued licenses to operate
Devices at the Licensed Locations which require a full-time change attendant to
be present on the premises of each such operation. Pending the Effective Date,
the parties shall perform their respective obligations under the License
Agreement as intended to be modified by this First Amendment, to the extent
permitted by law. From the date hereof to the Effective Date, Licensee shall
pay monthly fees pursuant to the fee schedule set forth on the annexed exhibit.
In the event that prior to the Effective Date, Licensee fails to pay such fees
when due, otherwise fails to perform its obligations under the License Agreement
as intended to be amended hereby, to the extent consistent herewith, or in the
event the Nevada Gaming Commission does not grant the necessary approvals within
RCT of the date hereof, the parties shall be returned to their
respective positions and status as of February 29, 2000, including the revival
of all claims by Licensee and Licensor, without prejudice by reason of the
passage of time or the negotiation and execution of this First Amendment.
2. Definitions. All capitalized terms contained in this First
Amendment, unless otherwise hereinafter contained, shall have the same meaning
as in the License Agreement.
3. License. The last sentence of Section 2 is deleted and replaced
with the following:
Licensee may determine the number of machines to operate at each
Location but shall operate a minimum of RCT Devices at each
location. Subject to approval of the Nevada Gaming Commission,
Licensee shall not be required to have a full time adult change
attendant at any Location having RCT or fewer Devices.
4. Term. The first sentence of Section 3 is deleted and replaced
with the following:
The term of the License Agreement which began effective July 1, 1998
shall expire at midnight on the RCT.
5. Fees. Section 4 is modified by deleting Sections 4a, 4b, and 4c
in their entirety including the fee amounts and increases there scheduled, and
substituting therefore the fee schedule annexed hereto as exhibit
"Amendment-1."
Section 4 is further modified by adding New Subsection 4(g) as
follows:
On the date that monthly fees are next required to be paid after the
Effective Date, Licensee shall RCT due for the then existing Licensed
Locations for the next succeeding RCT period.
6. Use and Operation. Section 7 is hereby modified by adding the
following after the last sentence:
With respect to any Licensed Location, in which Licensee operates
RCT or fewer Devices, Licensor's employees will provide
appropriate adult supervision, (over age 21) as required by the Nevada
Gaming Commission and will make change for adults (persons over age
21) who wish to play the Devices. Licensee agrees to provide suitable
training for Licensor's employees, and will remain liable for any
fine, penalty or other governmental sanction arising from any failure
to supervise.
7. Default. Subsections 13(a) and 13(b) are hereby modified by
adding "together with all costs and attorneys' fees" to the last sentence of
each Subsection. Subsection 13(c) is deleted in its entirety, and is replaced
with the following:
To treat all amounts due and not paid by Licensee up to the date of
such default as an indebtedness of Licensee immediately due and
payable to Licensee and recover the same together with all costs and
reasonable attorney's fees incurred to collect such amount.
8. Assignment. Section 14 is modified by (i) deleting the first
clause consisting of the language "Licensee may not assign this Agreement
without prior approval of Licensor" and (ii) substituting therefore the
following:
Upon the written approval of Licensor, which shall not be unreasonably
withheld, Licensee shall have the right to assign this License
Agreement, as amended, to another unaffiliated route operator or other
third party.
9. Successors and Assigns. The covenants, agreements, terms and
conditions contained in this First Amendment shall bind and inure to the
benefits of the parties hereto and their respective successors and their
respective assigns.
10. This First Amendment is integrated with the License Agreement
and, upon the Effective Date, the License Agreement will be deemed to exist and
will survive only as modified by the First Amendment. Upon the Effective Date
the parties shall prepare and execute a superceding global License Agreement
incorporating the remaining relevant portions of the Agreement and this First
Amendment.
IN WITNESS WHEREOF, the parties hereto have executed the Lease on the
date heretofore set forth.
RITE AID CORPORATION
By: /s/ David R. Jessick
_______________________________
Name: David R. Jessick
Title: Sr. Ex. V.P. Chief Administrative
Officer
CARDIVAN COMPANY
By: /s/ Bob Torkar
_______________________________
Name: Bob Torkar
Title: Secretary
FEE SCHEDULE
CORRAL COIN, INC.
RCT RCT RCT
___ ___ ___
# Stores Monthly Monthly Monthly
Fee Fee Fee
________ _______ _______ _______
TPI stores - Clark County 7 RCT RCT RCT
Rite Aid #6109
2255 N. Green Valley Parkway
Henderson, NV 89014
Rite Aid #6110
716 S. Boulder Highway
Henderson, NV 89015
Rite Aid #6111
3852 W. Sahara
Las Vegas, NV 89102
Rite Aid #6112
4230 S. Rainbow
Las Vegas, NV 89103
Rite Aid #6117
911. S. Rainbow
Las Vegas, NV 89128
Rite Aid #6118
4911 W. Craig Road
Las Vegas, NV 89130
Rite Aid #6119
8530 W. Lake Mead
Las Vegas, NV 89128
EXHIBIT 10.16
EXECUTION COPY
TERMINATION AND CONSULTING AGREEMENT
____________________________________
This Termination and Consulting Agreement ("Agreement") entered
into as of the 29th day of February, 2000, by and between, JACKPOT
ENTERPRISES, INC. a Nevada corporation (inclusive of its subsidiaries and
affiliates, the "Company" or the "Employer"), and DON R. KORNSTEIN (the
"Executive").
WHEREAS, Executive is currently employed by the Employer as
President and Chief Executive Officer pursuant to an Employment Agreement,
dated as of September 8, 1994, as amended (the "Employment Agreement"), and
is currently serving as a member of the Board of Directors of Employer (the
"Board");
WHEREAS, Employer and Executive have mutually agreed that
Executive's employment with the Employer shall terminate effective as of
February 29, 2000 (the "Termination Date");
WHEREAS, Employer and Executive desire fully and finally to
settle all matters arising out of the employment of Executive by Employer,
including without limitation, any rights or obligations under the
Employment Agreement and under any employee benefit and executive
compensation plans of Employer, that have arisen or might arise between
them; and
WHEREAS, Employer desires to ensure Executive's continued
availability to the Employer during the Consulting Period (as hereinafter
defined) and Executive is desirous of providing consulting services to
Employer on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and of the
release, representations, mutual covenants and obligations herein
contained, the parties hereto agree as follows:
i. Termination of Employment, etc. Effective as of the
_______________________________
Termination Date, Executive shall step down as President and Chief
Executive Officer, hereby resigns as a member of the Board and shall cease
to be an employee of the Company.
ii. Compensation, etc. Upon Termination.
____________________________________
A. Employer and Executive acknowledge and agree that, for
purposes of the Employment Agreement, Executive's employment shall be
deemed to have been terminated under circumstances entitling him to
benefits pursuant to Section 6(c) of the Employment Agreement.
Accordingly, the parties agree that, in full settlement of Executive's
rights under the Employment Agreement, Employer shall pay or shall cause to
be paid to Executive and shall provide benefits to Executive, as set forth
in Section 6(c) of the Employment Agreement, as follows:
(i) Employer shall pay all Accrued Obligations (as defined
in Section 6(a)(i) of the Employment Agreement) to the
Termination Date.
Such Accrued Obligations, if any, shall be paid or provided in accordance
with the terms of the applicable plan or program of the Employer, provided,
however, that in accordance with Section 6(c)(3) of the Employment
Agreement, Executive shall be treated as if he had continued in employment
until the third anniversary of the Termination Date for purposes of
computing benefits payable to the Executive under all Benefits Plans (as
defined in the Employment Agreement) in which Executive currently
participates;
(ii) Employer shall pay to Executive on the Termination Date a
lump sum cash payment of $334,000, representing the Pro Rata Bonus (as
defined in the Employment Agreement); and a lump sum cash payment of
$71,419, representing Executive's earned but unused vacation pay;
(iii) Employer shall pay to Executive on the Termination Date a
lump sum cash payment of $2,501,000, representing the severance amount
of 36 months base salary and three times the "Average Bonus" payable
under Section 6(c)(2) of the Employment Agreement;
(iv) Executive shall be entitled to receive from Employer,
throughout the Consulting Period (as hereinafter defined) and for a
period of thirty-six (36) months thereafter, the same medical
coverage, disability coverage and life insurance as are currently in
effect for Executive and his dependents, subject, however, to
reduction to the extent Executive obtains similar coverage from a
subsequent employer, and Executive hereby acknowledges that the first
18 months of such medical coverage is in full satisfaction of all of
Employer's obligations under COBRA and, in consideration thereof,
whether or not reduced subsequently, Executive waives any and all
rights to COBRA from Employer;
(v) As of the Termination Date, all currently outstanding
options held by Executive to acquire shares of Common Stock of
Employer shall become fully vested and exercisable and shall remain
exercisable until the earlier of (1) 18 months from the end of the
Consulting Period or (2) the expiration date of the term of the
applicable stock option;
(vi) To the extent properly documented and substantiated in
accordance with Company policy, Employer shall promptly reimburse
Executive for all outstanding business expenses incurred by Executive,
in accordance with Section 4(e) of the Employment Agreement; and
(vii) In full satisfaction and discharge of Employer's
obligation to provide "outplacement" for Executive under
Section 6(c)(6) of the Employment Agreement, through December
31, 2000, Executive shall continue to be provided by Employer
with office space (although not necessarily his present
office), his current administrative assistant (although not on
an exclusive basis), office supplies, support services and
other facilities and services at the level currently provided
to Executive by Employer.
All of the foregoing payments and benefits shall be subject to any
applicable federal, state and local income tax withholding.
a. As further consideration for the covenants and
obligations of Executive under this Agreement, including
but not limited to Executive's "Release" of the Company
and its directors, officers, employers and affiliates (as
hereafter provided) and Executive's agreement to perform
the consulting services described in Section 3 hereof,
(i) Employer shall continue to provide to Executive the
leased automobile currently provided to Executive for the
remainder of the current lease term which terminates on March
7, 2001, and shall pay all costs and expenses for insurance
coverage of such automobile, subject to reimbursement by
Executive in accordance with current practice; and
(ii) Executive shall be entitled to retain the laptop
computer, cellular phone and personal organizer purchased by
Employer for his use, but Executive shall bear all costs
associated with maintaining such equipment and any computer
information services.
iii. Consulting Services.
(i) During the period commencing on the Termination Date
through and including April 30, 2000, Employer shall retain the
Executive for, and the Executive agrees to perform, such consulting services
relating to renegotiation of the Company's current contractual arrangement
with RiteAid Corporation as may be requested by the Board upon reasonable
advance notice to Executive; provided, that such services shall not
unreasonably interfere with other business endeavors of the Executive.
Following April 30, 2000, the Company may elect, by written notice to
Executive, to extend the aforementioned consulting period on a month-to-month
basis with the consent of the Executive. The initial two-month consulting
period, as such period may be extended, is referred to herein as the
"Consulting Period." Executive shall perform the consulting services personally
and shall not delegate them to another person without the express written
consent of the Board. The Executive agrees to cooperate with his successor
or successors and the Employer during the Consulting Period.
(ii) In consideration of the performance of consulting
services under this Section 3, Executive acknowledges receipt of a
consulting fee for the initial two-month consulting period, in the
amount of $60,417. Consulting fees to which Executive shall be
entitled with respect to the remainder of the Consulting Period
shall be mutually agreed upon by the Company and the Executive.
(iii) Executive shall be reimbursed, in accordance
with the standard Employer policy for employee expense
reimbursement, for travel expenses, including the costs of air fare,
car rental and overnight lodging, and other reasonable expenses
incurred by Executive in the performance of such consulting
services, so long as such expenses are substantiated by appropriate
documentation.
(iv) Employer shall, to the fullest extent permitted by law,
indemnify the Executive for all amounts (including, without limitation,
judgments, fines, settlement payments, losses, damage, costs and
expenses, including reasonable attorneys' fees) incurred or paid by Executive in
connection with any action, proceeding, suit or investigation arising out of or
relating to the performance by the Executive of the consulting services
hereunder.
4. Public Announcements, etc. Executive and the Employer
shall cooperate with each other in the preparation and issuance of
any press release or other public announcement pertaining to
Executive's termination of employment and shall keep the
negotiations and the terms of this Agreement completely confidential
(except as may be required (i) in the course of obtaining legal
advice with respect to the negotiation hereof or with respect to the
rights and obligations created hereby, (ii) in the preparation of
federal, state or local tax returns, (iii) in the course of
enforcing any right or obligation under this Agreement, or (iv) by
law or legal process).
5. Effect on Employment Agreement. (a) The provisions
of Sections 3(b) (Indemnification), 8 (Noncompetition and
Nondisclosure) and 9 (Return of Confidential Information and
Enforcement) of the Employment Agreement shall survive the
termination thereof and shall remain in full force and effect.
Except as otherwise contemplated hereby, Executive shall deliver all
Company property, records and other information, including those
referred to in Section 9 of the Employment Agreement, to the Company
as promptly as practicable following the Termination Date. In all
other respects, except as provided herein or as may be necessary to
implement the provisions hereof, the Employment Agreement shall
terminate and be of no further force and effect as of the
Termination Date. In the event the Company elects to seek
injunctive relief to enforce rights under Sections 8 or 9 of the
Employment Agreement, it may do so in the State courts of Nevada, or
in the United States District Court in Nevada, and Executive hereby
consents to personal jurisdiction and venue in any such Nevada court
for that purpose throughout the "Restricted Period", as defined in
the Employment Agreement.
(ii) The Executive and the Company agree that they will
not now or at any time in the future make any disparaging statements
relating to each other to the Company's directors, officers, and/or
employees, whether relating to the business of the Company, the
actions of either party to this Agreement, or in any other manner.
During the Restricted Period, Executive will cooperate with any
reasonable request of the Company for information or assistance with
respect to its "Route Business" (including but not limited to the
current dispute with RiteAid Corporation) to the extent it does not
interfere with Executive's then employment or other business
endeavors, and shall be promptly reimbursed for all reasonable out-
of-pocket costs and expenses incurred in connection herewith.
6. Release. (a) In consideration of the payments and
benefits provided pursuant to Section 2 of this Agreement and
subject to paragraph (b) hereof, Executive hereby agrees to and does
fully and completely release, discharge and waive any and all
claims, complaints, causes of action, actions, suits, debts, sums of
money, contracts, controversies, agreements, promises, or demands of
whatever kinds, in law or in equity, which he ever had, now has or
which he, his heirs, executors or administrators may have against
the Employer and its subsidiaries, predecessors, affiliates,
successors and assigns, and each and all of their officers and
directors, in their capacities as such (collectively, the
"Releasees"), by reason of any event, matter, cause or thing which
has occurred to the date of execution of this Agreement, relating in
any way to the Executive's employment relationship with the Employer
or to his termination thereof, whether for severance or based on
statutory or common law claims for employment discrimination,
wrongful discharge, breach of contract or any other theory, whether
legal or equitable, or arising under any statute or regulation,
including the Age Discrimination in Employment Act of 1967, Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991,
the Americans with Disabilities Act of 1990, the Employee Retirement
Income Security Act of 1974, and the Family Medical Leave Act of
1993, each as amended, or any other federal, state or local law,
regulation, ordinance or common law.
(ii) The Executive acknowledges and agrees that he has
twenty-one (21) calendar days from the date he first receives this
Agreement, as indicated by the date first written above, to obtain
the advice and counsel from the legal representative of his choice
and to decide whether to execute this Agreement.
(iii) The Executive understands that for seven (7) calendar days
after he signs this Agreement, he has the right to revoke it, and this
Agreement shall not become effective and enforceable until after the passage
of the seven-day period without his having revoked it. The other provisions of
this Agreement to the contrary notwithstanding, no money and/or benefits
payable solely by virtue of this Agreement shall be made until after the
passage of the seven-day period without the Executive having revoked it.
The Agreement may not be revoked after the seven-day period. Any revocation
shall be in writing and directed to the address referred to in Section 8 hereof.
(iv) Nothing herein shall be deemed to release (i) any of the
Executive's rights under this Agreement (including those rights under the
Employment Agreement which survive under, or are incorporated in, this
Agreement), (ii) any of the benefits that the Executive has accrued and to which
Executive is entitled under the Employer's various employee benefit plans,
programs and policies or (iii) any rights to indemnification or to directors and
officers liability insurance under the Certificate of Incorporation or By-laws
or the Employer or any affiliate or pursuant to the provisions of any plan or
agreement.
7. Successors; Binding Agreement.
(a) Employer will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of
Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Employer would be
required to perform it if no such succession had taken place. As
used in this Agreement, "Employer" shall mean the Employer as
hereinbefore defined and any successor to its business and/or assets
as aforesaid or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
8. Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when
delivered or (unless otherwise specified) mailed by United States
certified or registered mail, return receipt requested, postage pre-
paid, addressed as follows:
If to the Employer:
Jackpot Enterprises, Inc.
1110 Palms Airport Drive
Las Vegas, Nevada 89119
Attn: President
With a copy to:
Ronald D. Lefton
Camhy, Karlinsky & Stein LLP
1740 Broadway
New York, N.Y. 10019-4315
If to the Executive:
Don R. Kornstein
c/o Jackpot Enterprises, Inc.
1110 Palms Airport Drive
Las Vegas, Nevada 89119
With a copy to:
Stuart N. Alperin
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and such
officer of the Employer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or im-
plied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the state of Nevada with-
out regard to its conflicts of law principles.
10. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same
instrument.
12. Arbitration; Reimbursement of Expenses. Except as set
forth in Section 9(b) of the Employment Agreement, any dispute or
controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of
three arbitrators in Las Vegas, Nevada, or in such other location as
may be agreed upon by the parties, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdic-
tion. In the event of (a) any arbitration that is commenced by the
Executive in good faith pursuant to this Section 12 or (b) any
arbitration that is commenced by Employer pursuant to this Section
12 in which the Executive shall prevail, the Employer shall reim-
burse the Executive for all legal fees incurred by the Executive in
connection therewith. The Employer shall pay Executive's legal fees
incurred in connection with entering into this Agreement and shall
pay or reimburse Executive for all other expenses (including
regulatory-related expenses) incurred in connection with his
termination of employment or his activities pursuant to the
consulting arrangement described herein.
13. Entire Agreement. This Agreement and the applicable
provisions of the Employment Agreement set forth the entire
agreement of the parties hereto in respect of the subject matter
contained herein and supersede any and all other prior agreements,
promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto; and any prior agreement of the
parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled. Executive acknowledges that he has
not relied on any oral or written representations not explicitly
contained herein in entering into and executing this Agreement
IN WITNESS WHEREOF, the parties have executed this Agree-
ment as of the date and year first above written.
JACKPOT ENTERPRISES, INC.
By: /s/ Allan R. Tessler
__________________________
Name: Allan R. Tessler
Title: Chairman
/s/ Don R. Kornstein
__________________________
Don R. Kornstein
EXHIBIT 10.17
CALL AGREEMENT
______________
CALL AGREEMENT, dated as of March 1, 2000, (as amended, modified or
supplemented from time to time, this "Agreement") among Keith A. Meister
("KM"), Todd A. Meister ("TM") and Jackpot Enterprises, Inc., a Nevada
corporation (the "Company").
WHEREAS, KM and TM each own 49.5% of the membership interests (the
"Membership Interests") of Meister Brothers Investments LLC, a Delaware
limited liability company ("MBI");
WHEREAS, each of KM and TM desire to grant to the Company the
option to purchase from each of KM and TM their respective Membership
Interests in MBI in exchange for shares of the Company; and
WHEREAS, the Company desires to accept such option.
NOW THEREFORE, in consideration of the agreements, premises and
mutual covenants contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Call Option. KM and TM hereby grant to the Company an option
to purchase from KM and TM, and KM and TM are each obligated to sell to the
Company under such option (the "Call Option") all, but not less
than all, of the Membership Interests in MBI held by KM and TM in exchange
for the Option Shares (as defined below). The Call Option may be exercised
at any time after the second anniversary of the date of this Agreement.
The Call Option shall each expire on the fourth anniversary of the date of
this Agreement (the "Call Period").
2. Option Shares. If the Company exercises its Call Option
during the Call Period, KM and TM shall be entitled to receive from the
Company in exchange for the Membership Interests in MBI being sold by him
that number of shares of the Company's Common Stock, par value $0.01 per
share (the "Option Shares"), equal to fifty percent (50%) of the quotient
obtained by dividing (A) the Portfolio Value (as defined below) by (B) $8.00;
provided, however, that it is understood that the number of Option Shares
shall never be less than 312,500 nor greater than 500,000, appropriately
adjusted to reflect any stock split, dividend or similar transaction by the
Company occurring after the date hereof.
(a) For purposes of this Call Agreement, the "Portfolio
Value" shall be the sum of the Value (as calculated below), as of Portfolio
Valuation Date, of all of the portfolio company investments (each a
"Portfolio Company," and collectively the "Portfolio Companies") held by MBI
and Meister Brothers Investments LP, a Delaware limited partnership ("MBI
LP"), as of the date hereof; provided, however, that if at any time prior to
the Portfolio Valuation Date it is determined, in accordance with Section
2(b) hereof, that the Portfolio Value equals or exceeds $4 million, then the
Portfolio Value shall be fixed at $4 million.
The "Value" of a Portfolio Company, as of a given date, shall be determined
by multiplying the number of shares of common stock, preferred stock,
convertible securities or other equity like securities of a Portfolio Company
held by MBI and MBI LP as of the date hereof by one of the following (in the
following descending order of priority):
(1) in the case of a Portfolio Company Acquisition
(as defined below) and thereafter, the purchase price per share paid for MBI's
or MBI LP's interests in the Portfolio Company or the amount receivable per
share upon distribution by the Portfolio Company of the proceeds from the sale
of its assets, applying principles similar to those set forth in this Section
2(a) for purposes of determining the value of any third party securities
received in payment for the stock or assets;
(2) in the case of an initial public offering of a Portfolio
Company's common stock (an "IPO") and thereafter unless a subsequent
valuation is available as determined pursuant hereto, the price per share at
which the common stock of the Portfolio Company sold in such IPO was priced
by the Portfolio Company and its underwriters (utilizing the common
equivalent of the shares held by MBI or MBI LP);
(3) at anytime after the Portfolio Company's common stock begins
to be publicly traded following an IPO or any other event by which a public
market exists for its securities, by the twenty (20) day trailing average
closing price or closing bid price of the Portfolio Company's common stock on
the principal market on which such shares are traded so long as such shares
have been trading for a period of at least twenty (20) trading days
(utilizing the common equivalent of the shares held by MBI or MBI LP); or
(4) in the case of the consummation of a third party arms-length
equity financing of the Portfolio Company subsequent to the date hereof (a
"Third Party Financing") and thereafter unless a subsequent valuation is
available as determined pursuant hereto, by the effective price per share of
the Portfolio Company's common Stock, preferred stock, convertible securities
or other equity like securities upon consummation of such financing; or
(5) absence the occurrence of one or more of the valuation events
set forth in subclauses (1) (4) above, the Portfolio Value of a Portfolio
Company shall be equal to MBI's or MBI LP's original cost to invest in the
Portfolio Company.
A "Portfolio Company Acquisition" means (i) the acquisition of the Portfolio
Company by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation but excluding any merger effected exclusively for the purpose
of changing the domicile of the Portfolio Company), or (ii) any distribution
by the Portfolio Company, by dividend or otherwise, of any of the
proceeds to the stockholders of the company from a sale of all or
substantially all of the assets of the company.
(b) At anytime prior to the Portfolio Valuation Date when the
Portfolio Value is at least $4 million, KM or TM may send to the Company a
notice setting forth the Portfolio Value (a "Valuation Notice"), and
as soon as practicable after the Portfolio Valuation Date, and if the
Portfolio Value has not been fixed then prior to the Portfolio Valuation
Date, KM or TM shall send to the Company such a notice. If the Company
disputes such valuation, the Company shall have ten (10) days after the date
of delivery of the Valuation Notice to send a notice to KM and TM disputing
the Portfolio Value (the "Dispute Notice"). If the party who sent the
Valuation Notice does not receive a Dispute Notice within such ten (10) day
period, the Portfolio Value shall be fixed at the value set forth in the
Valuation Notice. If a Dispute Notice is received by KM and TM within such
period, the parties shall have an additional ten (10) day period in which to
resolve the dispute. If the parties have not agreed on the Portfolio Value
within such additional ten (10) day period, then the issues in dispute shall
be submitted to a big five firm of independent public accountants selected by
KM and TM (but not in any way associated with any of KM, TM or the Company)
and approved by the Company, which approval shall not be unreasonably
withheld. The determination by such firm of independent public accountants
regarding the Portfolio Value shall be final and binding upon the parties.
3. Exercise of Call Option. The Call Option may be exercised by
Company giving written notice to each of KM and TM of the Company's election
to exercise the option. The notice shall set forth the date of the
Option Closing (as defined below), which date shall be no more than 30 days
after the date of such notice.
4. Option Closing. The closing for the purchase and sale of all
of the MBI Membership Interests upon exercise of the Call Option shall take
place at the offices of the Company on the date specified in the notice of
exercise (the "Option Closing"). At an Option Closing, KM and TM shall each
deliver to the Company a certificate signed by him certifying that each of
the representations and warranties set forth in Section 5 below are true and
correct as of the date of the Option Closing. In consideration therefore,
the Company shall deliver to each of KM and TM (i) a certificate signed by an
authorized officer of the Company certifying that each of the representations
and warranties set forth in Section 6 below are true and correct as of the
date of the Option Closing and (ii) the certificate or certificates
evidencing the Option Shares.
5. Representations and Warranties by KM and TM. KM and TM each
represent and warrant to the Company, severally and not jointly, the
following:
Authorization. This Agreement has been duly executed and
delivered by him and (assuming the due authorization, execution and delivery
by the Company) constitutes the valid, legal and binding obligation of him,
enforceable against him in accordance with its terms, except as may be
limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and
similar laws of general application relating to or affecting the enforcement
of rights of creditors and subject to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
Defaults. Neither the execution and delivery of this
Agreement nor the consummation by him of the transactions contemplated hereby
will (i) result in the creation or imposition of any lien, charge or
encumbrance upon his Membership Interests or (ii) violate any law, statute,
judgment, decree, injunction, order, writ, rule or regulation applicable to
him.
Consents. No authorization, consent, approval, permit,
license of or filing with any governmental authority, any lender or lessor or
any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance by him of this
Agreement.
Title to the Membership Interests. He has good and marketable
title to his Membership Interests being sold, free and clear of all liens,
claims and encumbrances of any nature.
Acquisition of the Option Shares Entirely for Own Account.
The Option Shares to be issued to him upon the exercise of the Call Option
will be acquired for investment for his own account, not as a nominee or
agent, and not with a view to his distribution of any part thereof, and he
has no present intention of selling, granting any participation in, or
otherwise distributing the same. He does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any other person, with respect to any of
the Option Shares received hereunder.
Reliance Upon Representations. He understands that the Option
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any other federal or state securities laws,
and, in reliance on his representations set forth in this Agreement, the sale
provided for in this Agreement is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
Accredited Investor. He is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act, who by reason of his
business and financial experience has such knowledge, sophistication and
experience in business and financial matters as to be capable of evaluating
the merits and risks of the investment in the Option Shares and, having had
access to or having been furnished with all such information as it has
considered necessary (including, without limitation, the Company's most
recent Annual Report on Form 10-K (the "10-K") for the fiscal year ending
June 30, 1999), has concluded that he is able to bear those risks.
Knowledge and Experience; Receipt of Information. He has such
knowledge and experience in financial and business matters and has received
all the information it considers necessary or appropriate for deciding
whether to accept the Option Shares in exchange for his Membership Interests
in MBI. He further represents that he has had an opportunity to ask
questions and receive answers from the Company and its officers
and representatives regarding the business, properties, prospects and
financial condition of the Company and to obtain additional information
necessary to verify the accuracy of any information furnished to him or to
which he otherwise had access.
Restricted Securities. He understands that the Option Shares
may not be sold, transferred or otherwise disposed of without registration
under the Securities act or an exemption therefrom. In particular, he is
aware that the Option Shares may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are met.
Legends. Each certificate evidencing the Option Shares shall
be endorsed with the following legend and he covenants that, except to the
extent such restrictions are waived by the Company, he shall not transfer the
Option Shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such
certificate:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OR TRANSFER OF
SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS
MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT."
6. Representations and Warranties by the Company.
Organization. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nevada and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now conducted.
Authorization. The Company has full corporate power and authority
to execute and deliver this Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporation
action on the part of the Company. This Agreement has been duly executed
and delivered by the Company and (assuming the due authorization, execution
and delivery by KM and TM) constitutes the valid, legal and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by bankruptcy, reorganization,
fraudulent conveyance, insolvency and similar laws of general application
relating to or affecting the enforcement of rights of creditors and subject
to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in a proceeding at law or in equity).
Conflicts; Defaults. Neither the execution and delivery of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby will (i) result in a violation or breach of the Certificate of
Incorporation or the By-laws of the Company or, any agreement, indenture or
other instrument to which the Company is a party or under which the Company is
bound or (ii) violate any law, statute, judgment, decree, injunction, order,
writ, rule or regulation applicable to the Company.
Capitalization. The authorized capital stock of the Company
consists of (i) 60,000,000 shares of common stock, par value $0.01 per
share, of which 10,132,594 shares are issued and outstanding and 1,258,624
are held in treasury as of the date hereof, and (ii) 1,000,000 shares of
preferred stock, par value $1.00 per share, of which no shares are issued
and outstanding as of the date hereof. Other than outstanding stock option
agreements with certain of the Company's directors and employees and certain
outstanding warrants, there are no subscription, option, warrants, calls,
rights, agreements or commitments to which the Company is a party requiring
and there are no convertible securities of the Company outstanding which
upon conversion would require the issuance of any additional shares of the
Company's capital stock.
Litigation. There is no action, suit, or proceeding pending, or to
the knowledge of the officers of the Company threatened, against the Company
or its subsidiaries before any court
or arbitrator or governmental or
regulatory authority which questions the validity of, or threatens to enjoin,
any action taken or to be taken pursuant
to or in connection with this Agreement.
The Option Shares. The Option Shares have been duly authorized by
all necessary corporate action of the
Company, and when issued pursuant to the terms of this Agreement, will be
validly issued and fully paid and non-assessable. The Option Shares will be
free and clear of all pledges, liens and encumbrances, other than
restrictions
on transfer under this Agreement and applicable federal and state securities
laws.
Financial Statements. The Company has previously furnished to KM
and TM the Company's Form 10-K for the fiscal year ended June 30, 1999. The
financial statements fairly present the financial position of the Company
as of the date thereof and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP and applied in a manner
consistent with past practice.
Absence of Certain Changes or Events. Since June 30, 1999 there
has been no material adverse change in the business, assets or financial
condition of the Company.
7. Adjustment of Option Shares. In the event the Company shall
subdivide or split its outstanding common stock into a smaller or larger
number of shares or combine its outstanding common stock into a smaller
number of shares, the denominator used in Section 2 to determine the number
of Option Shares that KM and TM shall be entitled to receive upon the Company
exercising its Call Option shall be adjusted so that KM and TM thereafter
shall be entitled to receive upon the Company exercising its Call
Option that number of shares of the Company's common stock which it would
have been entitled to receive had such Call Option been exercised
immediately prior to the happening of such event.
8. Registration Rights. The Company hereby agrees to use its
best efforts to register any issued Option Shares under the Securities Act
immediately following the exercise of a Call Option.
9. Miscellaneous.
Expenses. Each party hereto shall pay all of its own expenses in
connection with the execution of and the transactions contemplated by this
Agreement, including, without limitation, the payment of all transfer
taxes and all fees and expenses of counsel and other advisers.
Reorganization Treatment. Absent a change in law, the Company
agrees that the exchange of any Membership Interests shall be treated by it
as a reorganization under section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Company shall not take any action
or fail to take any action that would cause the disqualification of such
exchange as a reorganization under Section 368(a) of the Code.
Termination. This Agreement shall continue until, and shall
terminate immediately upon the earlier of (i) the date a written agreement
of termination is executed by each of the Company, KM and TM or (b) the fourth
anniversary of the date of this Agreement.
Notices. All notices, requests and other communications under
this Agreement shall be in writing (including a writing delivered by facsimile
transmission) and shall be deemed to have been duly given if delivered
personally, or sent by either certified or registered mail, return receipt
requested, postage prepaid by overnight courier guaranteeing next day delivery,
or by telecopier (with telephonic or machine confirmation by the sender,
addressed as follows (or to such other address, including facsimile number,
as shall have been designated by the recipient in writing):
If to KM and/or TM:
Keith Meister
285 Lafayette Street
New York, NY 10012
Facsimile No.: 212-502-6201
With required copies to:
Jeffrey S. Klein, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: 212-310-8007
If to the Company:
Jackpot Enterprises, Inc.
1110 Palms Airport Drive
Las Vegas, Nevada 89119
Attn: President
Facsimile No.:
With required copies to:
Allan R. Tessler
3490 Clubhouse Drive
Box 7443
Wilson, Wyoming 83001
Facsimile No.: 307-733-4935
and
Alan I. Annex
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, NY 10019
Tel.: 212-830-5764
Facsimile No.: 212-977-8389
E-mail: [email protected]
All such notices, requests and other communications shall be deemed
to have been received on the date of delivery thereof (if delivered by hand),
on the third business day after the mailing thereof (if mailed), on the
next day after the sending thereof (if by overnight courier) and when receipt
is confirmed as provided above (if telecopied).
Complete Agreement; Amendment. This Agreement constitutes theplete
understanding of the parties with respect to its subject matter and supersedes
any other agreement or understanding relating thereto. No amendment, change or
modification of this Agreement shall be valid, binding or enforceable, unless
the same shall be in writing and signed by each of the parties hereto.
Waiver. No failure or delay on the part of KM, TM or the Company
or any of them in exercising any right, power or privilege hereunder, and no
course of dealing between KM, TM or the Company, shall operate as a waiver
thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the simultaneous or later exercise of any other
right, power or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights and remedies which
the parties hereto would otherwise have.
Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute but one and the same instrument.
Governing Law; Waivers. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the state of New York
without giving effect to the conflict of laws provisions thereof.
Each of the parties hereto submits to personal jurisdiction and waives any
objection as to venue in the State of New York. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 8(c) hereof.
The parties hereto waive all right to trial by jury in any action or
proceeding to enforce or defend any rights hereunder.
Benefit and Binding Effect; Assignment. All of the terms and
provisions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns. No parties
hereto shall assign (other than by will or bequest) his or its rights
hereunder or any interest herein without the prior written consent of each
of the other parties hereto.
Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
/s/ Keith A. Meister
_____________________________
Keith A. Meister
/s/ Todd A. Meister
_____________________________
Todd A. Meister
JACKPOT ENTERPRISES, INC.
By: /s/ Allan R. Tessler
______________________________
Name: Allan R. Tessler
Title: Chief Executive Officer
EXHIBIT 10.18
PUT AGREEMENT
_____________
PUT AGREEMENT, dated as of March 1, 2000, (as amended, modified or
supplemented from time to time, this "Agreement") among Keith A. Meister
("KM"), Todd A. Meister ("TM") and Jackpot Enterprises, Inc., a Nevada
corporation (the "Company").
WHEREAS, KM and TM each own 49.5% of the membership interests (the
"Membership Interests") of Meister Brothers Investments LLC, a Delaware
limited liability company ("MBI");
WHEREAS, the Company desires to grant to each of KM and TM the
option to sell to the Company their respective Membership Interests in MBI in
exchange for shares of the Company; and
WHEREAS, each of KM and TM desire to accept such option.
NOW THEREFORE, in consideration of the agreements, premises and
mutual covenants contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Put Option. The Company hereby grants to each of KM and TM an
option to sell to the Company, and the Company shall be obligated to purchase
from each of KM and TM under such option (each a "Put Option" and
collectively, the "Put Options"), any or all of the Membership Interests in
MBI held by each of them in exchange for the Option Shares (as defined
below). The Put Options may be exercised at any time, and from time to time,
after the first to occur of (i) September 1, 2001 (the "Portfolio Valuation
Date") or (ii) the date the Portfolio Value is fixed at $4 million pursuant
to Section 2 below, but in no event shall the Put Options become exercisable
any earlier than the first anniversary of the date of this Agreement. The
Put Options shall each expire on the fourth anniversary of the date of this
Agreement (the "Put Period").
2. Option Shares. If either KM or TM exercises his Put Option
during the Put Period (which may be exercised in whole or in part, and from
time to time), he shall be entitled to receive from the Company in exchange
for the Membership Interests in MBI being sold by him pursuant to such
exercise, that number of shares of the Company's Common Stock, par value
$0.01 per share (the "Option Shares"), equal to (i) his percentage ownership
interest in MBI being sold by him (as adjusted in the succeeding sentence)
multiplied by (ii) the quotient obtained by dividing (A) the Portfolio Value
(as defined below) by (B) $9.06; provided, however, that it is understood
that the number of Option Shares shall never be less than 275,938 nor greater
than 441,501, appropriately adjusted to reflect any stock split, dividend or
similar transaction by the Company occurring after the date hereof. For
purposes of the preceding sentence, the ownership percentage being sold shall
be divided by .99 (reflective of KM's and TM's combined ownership interest in
MBI LLC, and which amount will be further adjusted, as necessary, to take
into account the issuance of any additional equity interests in MBI).
(a) For purposes of this Put Agreement, the "Portfolio Value"
shall be the sum of the Value (as calculated below), as of Portfolio
Valuation Date, of all of the portfolio company investments (each a
"Portfolio Company," and collectively the "Portfolio Companies") held by MBI
and Meister Brothers Investments LP, a Delaware limited partnership ("MBI
LP"), as of the date hereof; provided, however, that if at any time prior to
the Portfolio Valuation Date it is determined, in accordance with Section
2(b) hereof, that the Portfolio Value equals or exceeds $4 million, then the
Portfolio Value shall be fixed at $4 million as of such date. The "Value" of
a Portfolio Company, as of a given date, shall be determined by multiplying
the number of shares of common stock, preferred stock, convertible securities
or other equity like securities of a Portfolio Company held by MBI and MBI LP
as of the date hereof by one of the following (in the following descending
order of priority):
(1) in the case of a Portfolio Company Acquisition (as defined
below) and thereafter, the purchase price per share paid for MBI's or MBI
LP's interests in the Portfolio Company or the amount receivable per share
upon distribution by the Portfolio Company of the proceeds from the sale of
its assets, applying principles similar to those set forth in this Section
2(a) for purposes of determining the value of any third party securities
received in payment for the stock or assets;
(2) in the case of an initial public offering of a Portfolio
Company's common stock (an "IPO") and thereafter unless a subsequent
valuation is available as determined pursuant hereto, the price per share at
which the common stock of the Portfolio Company sold in such IPO was priced
by the Portfolio Company and its underwriters
(utilizing the common equivalent of the shares held by MBI or MBI LP);
(3) at anytime after the Portfolio Company's common stock begins
to be publicly traded following an IPO or any other event by which a public
market exists for its securities, by the twenty (20) day trailing average
closing price or closing bid price of the Portfolio Company's common stock on
the principal market on which such shares are traded so long as such shares
have been trading for a period of at least twenty (20) trading days
(utilizing the common equivalent of the shares held by MBI or MBI LP); or
(4) in the case of the consummation of a third party arms-length
equity financing of the Portfolio Company subsequent to the date hereof and
thereafter unless a subsequent valuation is available as determined pursuant
hereto, by the effective price per share of the Portfolio Company's common
stock, preferred stock, convertible securities or other equity like
securities upon consummation of such financing; or
(5) absent the occurrence of one or more of the valuation events
set forth in subclauses (1) (4) above, the Portfolio Value of a Portfolio
Company shall be equal to MBI's or MBI LP's original cost to invest in the
Portfolio Company.
A "Portfolio Company Acquisition" means (i) the acquisition of the Portfolio
Company by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation but excluding any merger effected exclusively for the purpose
of changing the domicile of the Portfolio Company), or (ii) any distribution
by the Portfolio Company, by dividend or otherwise, of any of the proceeds to
the stockholders of the company from a sale of all or substantially all of
the assets of the company.
(b) At anytime prior to the Portfolio Valuation Date when the
Portfolio Value is at least $4 million, KM or TM may send to the Company a
notice setting forth the Portfolio Value (a "Valuation Notice"), and as soon
as practicable after the Portfolio Valuation Date, and if the Portfolio Value
has not been fixed then prior to the Portfolio Valuation Date, KM or TM shall
send to the Company such a notice. If the Company disputes such valuation,
the Company shall have ten (10) days after the date of delivery of the
Valuation Notice to send a notice to KM and TM disputing the Portfolio Value
(the "Dispute Notice"). If the party who sent the Valuation Notice does not
receive a Dispute Notice within such ten (10) day period, the Portfolio Value
shall be fixed at the value set forth in the Valuation Notice as of the close
of business on the last day of such period, subject to the proviso in Section
2(a) above. If a Dispute Notice is received by KM and TM within such period,
the parties shall have an additional ten (10) day period in which to resolve
the dispute. If the parties have not agreed on the Portfolio Value within
such additional ten (10) day period, then the issues in dispute shall be
submitted to a big five firm of independent public accountants selected by KM
and TM (but not in any way associated with any of KM, TM, or the Company) and
approved by the Company, which approval shall not be unreasonably withheld.
The determination by such firm of independent public accountants regarding
the Portfolio Value shall be final and binding upon the parties.
3. Exercise of Put Options. The Put Options may be exercised by
the exercising party giving written notice to the Company of the exercising
party's election to exercise the option. The notice shall set forth the date
of the Option Closing (as defined below), which date shall be no more than 30
days after the date of such notice.
4. Option Closing. The closing for the purchase and sale of MBI
Membership Interests upon exercise of a Put Option shall take place at the
offices of the Company on the date specified in the notice of exercise (the
"Option Closing"). At an Option Closing, the exercising party shall deliver
to the Company a certificate signed by him certifying that each of the
representations and warranties set forth in Section 5 below are true and
correct as of the date of the Option Closing. In consideration therefore,
the Company shall deliver to the exercising party (i) a certificate signed by
an authorized officer of the Company certifying that each of the
representations and warranties set forth in Section 6 below are true and
correct as of the date of the Option Closing and (ii) the certificate or
certificates evidencing the Option Shares.
5. Representations and Warranties by KM and TM. KM and TM each
represent and warrant to the Company, severally and not jointly, the
following:
Authorization. This Agreement has been duly executed and
delivered by him and (assuming the due authorization, execution and delivery
by the Company) constitutes the valid, legal and binding obligation of him,
enforceable against him in accordance with its terms, except as may be
limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and
similar laws of general application relating to or affecting the enforcement
of rights of creditors and subject to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
Defaults. Neither the execution and delivery of this
Agreement nor the consummation by him of the transactions contemplated hereby
will (i) result in the creation or imposition of any lien, charge or
encumbrance upon his Membership Interests or (ii) violate any law, statute,
judgment, decree, injunction, order, writ, rule or regulation applicable to
him.
Consents. No authorization, consent, approval, permit,
license of or filing with any governmental authority, any lender or lessor or
any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance by him of this
Agreement.
Title to the Membership Interests. He has good and marketable
title to his Membership Interests being sold, free and clear of all liens,
claims and encumbrances of any nature.
Acquisition of the Option Shares Entirely for Own Account.
The Option Shares to be issued to him upon the exercise of his Put Option
will be acquired for investment for his own account, not as a nominee or
agent, and not with a view to his distribution of any part thereof, and he
has no present intention of selling, granting any participation in, or
otherwise distributing the same. He does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any other person, with respect to any of
the Option Shares received hereunder.
Reliance Upon Representations. He understands that the Option
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any other federal or state securities laws, and,
in reliance on his representations set forth in this Agreement, the sale
provided for in this Agreement is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
Accredited Investor. He is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act, who by reason of his
business and financial experience has such knowledge, sophistication and
experience in business and financial matters as to be capable of evaluating
the merits and risks of the investment in the Option Shares and, having had
access to or having been furnished with all such information as it has
considered necessary (including, without limitation, the Company's most
recent Annual Report on Form 10-K (the "10-K") for the fiscal year ending
June 30, 1999, has concluded that he is able to bear those risks.
Knowledge and Experience; Receipt of Information. He has such
knowledge and experience in financial and business matters and has received
all the information it considers necessary or appropriate for deciding
whether to accept the Option Shares in exchange for his Membership Interests
in MBI. He further represents that he has had an opportunity to ask
questions and receive answers from the Company and its officers and
representatives regarding the business, properties, prospects and financial
condition of the Company and to obtain additional information necessary to
verify the accuracy of any information furnished to him or to which he
otherwise had access.
Restricted Securities. He understands that the Option
Shares may not be sold, transferred or otherwise disposed of without
registration under the Securities act or an exemption therefrom. In
particular, he is aware that the Option Shares may not be sold pursuant to
Rule 144 promulgated under the Securities Act unless all of the conditions of
that Rule are met.
Legends. Each certificate evidencing the Option Shares shall
be endorsed with the following legend and he covenants that, except to the
extent such restrictions are waived by the Company, he shall not transfer the
Option Shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such
certificate:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OR TRANSFER OF
SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT."
6. Representations and Warranties by the Company.
Organization. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nevada
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now conducted.
Authorization. The Company has full corporate power and authority
to execute and deliver this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporation action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and (assuming the due authorization,
execution and delivery by KM and TM) constitutes the valid, legal and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by bankruptcy, reorganization, fraudulent
conveyance, insolvency and similar laws of general application relating to or
affecting the enforcement of rights of creditors and subject to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Conflicts; Defaults. Neither the execution and delivery of this
Agreement nor the consummation by the Company of the transactions
contemplated hereby will (i) result in a violation or breach of the
Certificate of Incorporation or the By-laws of the Company or, any agreement,
indenture or other instrument to which the Company is a party or under which
the Company is bound or (ii) violate any law, statute, judgment, decree,
injunction, order, writ, rule or regulation applicable to the Company.
Capitalization. The authorized capital stock of the Company
consists of (i) 60,000,000 shares of common stock, of which 10,132,594 shares
are issued and outstanding and 1,258,624 are held in treasury as of the date
hereof, and (ii) 1,000,000 shares of preferred stock, par value $1.00 per
share, of which no shares are issued and outstanding as of the date hereof.
Other than outstanding stock option agreements with certain of the Company's
directors and employees and certain outstanding warrants, there are no
subscription, option, warrants, calls, rights, agreements or commitments to
which the Company is a party requiring and there are no convertible
securities of the Company outstanding which upon conversion would require the
issuance of any additional shares of the Company's capital stock.
Litigation. There is no action, suit, or proceeding pending, or to
the knowledge of the officers of the Company threatened, against the Company
or its subsidiaries before any court or arbitrator or governmental or
regulatory authority which questions the validity of, or threatens to enjoin,
any action taken or to be taken pursuant to or in connection with this
Agreement.
The Option Shares. The Option Shares have been duly authorized by
all necessary corporate action of the Company, and when issued pursuant to
the terms of this Agreement, will be validly issued and fully paid and non-
assessable. The Option Shares will be free and clear of all pledges, liens
and encumbrances, other than restrictions on transfer under this Agreement
and applicable federal and state securities laws.
Financial Statements. The Company has previously furnished to KM
and TM the Company's Form 10-K for the fiscal year ended June 30, 1999. The
financial statements fairly present the financial position of the Company as
of the date thereof and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP and applied in a
manner consistent with past practice.
Absence of Certain Changes or Events. Since June 30, 1999, there
has been no material adverse change in the business, assets or financial
condition of the Company.
7. Adjustment of Option Shares. In the event the Company shall
subdivide or split its outstanding common stock into a smaller or larger
number of shares or combine its outstanding common stock into a smaller
number of shares, the denominator used in Section 2 to determine the number
of Option Shares that KM and TM shall be entitled to receive upon exercising
their Put Options shall be adjusted so that KM and TM thereafter shall be
entitled to receive upon exercising their Put Options that number of shares
of the Company's common stock which it would have been entitled to receive
had such Put Option been exercised immediately prior to the happening of such
event.
8. Registration Rights. The Company hereby agrees to use its
best efforts to register any issued Option Shares under the Securities Act
immediately following the exercise of a Put Option.
9. Change in Control. In the event of a Change in Control (as
defined below) in the Company, the Put Options shall immediately become
exercisable and the Portfolio Value shall be fixed at $4 million. For
purposes of the preceding sentence, a "Change in Control" of the Company
shall be deemed to have occurred upon any of the following events:
(1) a change in control of the direction and administration of
the Company's business of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or;
(2) any person or other entity (other than any of the Company's
subsidiaries or any employee benefit plan sponsored by the Company or any of
its subsidiaries) including any person as defined in Section 13(d)(3) of the
Exchange Act) becomes the beneficial owner, as defined in Rule 13d-3 under
the Exchange Act, directly or indirectly, of more than fifty percent (50%) of
the total combined voting power of all classes of capital stock of the
Company normally entitled to vote for the election of directors of the
Company; or
(3) during any period of two (2) consecutive years, the
individuals who at the beginning of such period constitute the Company's
Board of Directors or any individuals who would be "Continuing Directors" (as
hereinafter defined) cease for any reason to constitute at least a majority
thereof; or
(4) the Company's common stock shall cease to be publicly
traded; or
(5) the Company's Board of Directors shall approve a sale of all
or substantially all of the assets of the Company, and such transaction shall
have been consummated; or
(6) the Company's Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of any
event described in (3) or (4) above, and such transaction shall have been
consummated.
For purposes hereof, "Continuing Directors" shall mean (x) the directors of
the Company in office as of the date of this Agreement and (y) any successor
to any such director and any additional director who after the date of this
Agreement was nominated or selected by a majority of the Continuing Directors
in office at the time of his or her nomination or selection.
10. Miscellaneous.
Expenses. Each party hereto shall pay all of its own expenses in
connection with the execution of and the transactions contemplated by this
Agreement, including, without limitation, the payment of all transfer taxes
and all fees and expenses of counsel and other advisers.
Reorganization Treatment. Absent a change in law, the Company
agrees that the exchange of any Membership Interests shall be treated by it
as a reorganization under section 368(a)(1)(B) of the Internal Revenue Code
of 1986, as amended (the "Code"), provided that immediately after such
exchange the Company owns at least 80% of the outstanding Membership
Interests of MBI. The Company shall not take any action or fail to take any
action that would cause the disqualification of such exchange as a
reorganization under Section 368(a) of the Code.
Termination. This Agreement shall continue until, and shall
terminate immediately upon the earlier of (i) the date a written agreement of
termination is executed by each of the Company, KM and TM or (b) the fourth
anniversary of the date of this Agreement.
Notices. All notices, requests and other communications under
this Agreement shall be in writing (including a writing delivered by facsimile
transmission) and shall be deemed to have been duly given if delivered
personally, or sent by either certified or registered mail, return receipt
requested, postage prepaid by overnight courier guaranteeing next day
delivery, or by telecopier (with telephonic or machine confirmation by the
sender, addressed as follows (or to such other address, including facsimile
number, as shall have been designated by the recipient in writing):
If to KM and/or TM:
Keith Meister
285 Lafayette Street
New York, NY 10012
Facsimile No.: 212-502-6201
With required copies to:
Jeffrey S. Klein, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: 212-310-8007
If to the Company:
Jackpot Enterprises, Inc.
1110 Palms Airport Drive
Las Vegas, Nevada 89119
Attn: President
Facsimile No.: 307-733-4935
With required copies to:
Alan I. Annex
Camby Karlinsky & Stein LLP
1740 Broadway
New York, NY 10019
Tel.: 212-830-5764
Facsimile No.: 212-977-8389
E-mail: [email protected]
All such notices, requests and other communications shall be deemed
to have been received on the date of delivery thereof (if delivered by hand),
on the third business day after the mailing thereof (if mailed), on the next
day after the sending thereof (if by overnight courier) and when receipt is
confirmed as provided above (if telecopied).
Complete Agreement; Amendment. This Agreement constitutes the
complete understanding of the parties with respect to its subject matter and
supersedes any other agreement or understanding relating thereto. No
amendment, change or modification of this Agreement shall be valid, binding
or enforceable, unless the same shall be in writing and signed by each of the
parties hereto.
Waiver. No failure or delay on the part of KM, TM or the Company
or any of them in exercising any right, power or privilege hereunder, and no
course of dealing between KM, TM or the Company, shall operate as a waiver
thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the simultaneous or later exercise of any other
right, power or privilege. The rights and remedies herein expressly provided
are cumulative and not exclusive of any rights and remedies which the parties
hereto would otherwise have.
Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute but one and the same instrument.
Governing Law; Waivers. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the state of New York
without giving effect to the conflict of laws provisions thereof. Each of
the parties hereto submits to personal jurisdiction and waives any objection
as to venue in the State of New York. Service of process on the parties in
any action arising out of or relating to this Agreement shall be effective if
mailed to the parties in accordance with Section 8(c) hereof. The parties
hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights hereunder.
Benefit and Binding Effect; Assignment. All of the terms and
provisions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns. No
parties hereto shall assign (other than by will or bequest) his or its rights
hereunder or any interest herein without the prior written consent of each of
the other parties hereto.
Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
/s/ Keith A. Meister
______________________________
Keith A. Meister
/s/ Todd A. Meister
______________________________
Todd A. Meister
JACKPOT ENTERPRISES, INC.
By: /s/ Allan R. Tessler
______________________________
Name: Allan R. Tessler
Title: Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jackpot's
Condensed Consolidated Balance Sheets - March 31, 2000 and June 30, 1999 and its
Condensed Consolidated Statements of Operations - three and nine months ended
March 31, 2000 and 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 62,780
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,646
<PP&E> 33,869
<DEPRECIATION> 21,142
<TOTAL-ASSETS> 91,553
<CURRENT-LIABILITIES> 4,417
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 82,661
<TOTAL-LIABILITY-AND-EQUITY> 91,553
<SALES> 0
<TOTAL-REVENUES> 66,689
<CGS> 0
<TOTAL-COSTS> 62,170
<OTHER-EXPENSES> 3,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,484
<INCOME-TAX> 2,703
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,781
<EPS-BASIC> .79
<EPS-DILUTED> .78
</TABLE>
