-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JTK8RkbHplZWl9hmSlMhUSgPIXj+j6pYpUqFQ+VzVy60iWT0G/0f4XZxrRxRUmll 5gI9JFIeUXdgaClqJ8Yatw== 0000351903-00-000004.txt : 20000215 0000351903-00-000004.hdr.sgml : 20000215 ACCESSION NUMBER: 0000351903-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACKPOT ENTERPRISES INC CENTRAL INDEX KEY: 0000351903 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880169922 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09728 FILM NUMBER: 539092 BUSINESS ADDRESS: STREET 1: 1110 PALMS AIRPORT DR CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7022635555 MAIL ADDRESS: STREET 1: 1110 PALMS AIRPORT DRIVE STREET 2: 1110 PALMS AIRPORT DRIVE CITY: LAS VEGAS STATE: NV ZIP: 89119 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to___________________ Commission file no. 1-9728 JACKPOT ENTERPRISES, INC. _____________________________________________________________________________ (Exact name of registrant as specified in its charter) NEVADA 88-0169922 __________________________________ ___________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1110 Palms Airport Drive, Las Vegas, Nevada 89119 ____________________________________________ __________ (Address of principal executive offices) (Zip Code) 702-263-5555 ____________________________________________________ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ ____ There were 8,601,628 shares of the registrant's common stock outstanding as of February 4, 2000. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1999 and June 30, 1999 Condensed Consolidated Statements of Income - Three and Six Months Ended December 31, 1999 and 1998 Condensed Consolidated Statement of Stockholders' Equity - Six Months Ended December 31, 1999 Condensed Consolidated Statements of Cash Flows - Six Months Ended December 31, 1999 and 1998 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Part II. Other Information Item 6. Exhibits and Reports on Form 8-K JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) December 31, June 30, ASSETS 1999 1999 ______ ____________ ________ Current assets: Cash and cash equivalents $ 70,209 $ 47,637 Short-term investments, at fair value - 7,292 Prepaid expenses 1,267 1,515 Other current assets 3,223 1,985 ________ ________ Total current assets 74,699 58,429 ________ ________ Property and equipment, at cost: Land and buildings 435 435 Gaming equipment 29,854 29,418 Other equipment 4,690 4,546 Leasehold improvements 374 368 ________ ________ 35,353 34,767 Less accumulated depreciation (22,593) (21,010) ________ ________ 12,760 13,757 Lease acquisition costs and other intangible assets, net of accumulated amortization of $1,420 and $3,404 1,604 3,119 Goodwill, net of accumulated amortization of $2,962 and $2,879 3,659 3,743 Lease and other security deposits 110 1,242 Other non-current assets - 2,005 ________ ________ Total assets $ 92,832 $ 82,295 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Concluded) (Unaudited) December 31, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999 ____________________________________ ____________ ________ Current liabilities: Accounts payable $ 2,924 $ 1,794 Other current liabilities 4,719 3,000 ________ ________ Total current liabilities 7,643 4,794 Deferred rent 3,000 2,554 Deferred income tax 166 333 ________ ________ Total liabilities 10,809 7,681 ________ ________ Commitments and contingencies Stockholders' equity: Preferred stock - authorized 1,000,000 shares of $1 par value; none issued Common stock - authorized 60,000,000 shares of $.01 par value; 9,860,252 shares issued 99 99 Additional paid-in capital 66,462 66,465 Retained earnings 29,239 21,069 Less 1,258,624 and 1,243,714 shares of common stock in treasury, at cost (13,777) (13,776) Unrealized gain on available-for-sale securities, net of tax - 757 ________ ________ Total stockholders' equity 82,023 74,614 ________ ________ Total liabilities and stockholders' equity $ 92,832 $ 82,295 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998 (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, _________________ ________________ 1999 1998 1999 1998 _______ _______ _______ _______ Revenues: Route operations $22,444 $23,399 $45,244 $45,252 Casino operations - 348 - 702 _______ _______ _______ _______ Totals 22,444 23,747 45,244 45,954 _______ _______ _______ _______ Costs and expenses: Route operations 21,545 19,533 42,799 38,063 Casino operations - 361 - 694 Amortization 229 292 450 578 Depreciation 995 1,061 1,981 2,071 General and administrative 1,360 927 2,614 1,797 _______ _______ _______ _______ Totals 24,129 22,174 47,844 43,203 _______ _______ _______ _______ Operating income (loss) (1,685) 1,573 (2,600) 2,751 _______ _______ _______ _______ Other income: Net fee from terminated merger 116 - 11,116 - Gain on sale of short-term investments 2,345 - 2,361 - Interest and other income 495 357 964 718 _______ _______ _______ _______ Totals 2,956 357 14,441 718 _______ _______ _______ _______ Income before income tax 1,271 1,930 11,841 3,469 _______ _______ _______ _______ Provision (credit) for Federal income tax: Current 505 513 3,838 871 Deferred (111) 27 (167) 100 _______ _______ _______ _______ Totals 394 540 3,671 971 _______ _______ _______ _______ Net income $ 877 $ 1,390 $ 8,170 $ 2,498 ======= ======= ======= ======= Basic earnings per share $ .10 $ .16 $ .95 $ .29 ======= ======= ======= ======= Diluted earnings per share $ .10 $ .16 $ .95 $ .29 ======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED DECEMBER 31, 1999 (Dollars and shares in thousands) (Unaudited) Accumu- lated Addi- Other Common Stock tional Treasury Stock Compre- _____________ Paid-In Retained ________________ hensive Shares Amount Capital Earnings Shares Amount Income Totals ______ ______ _______ ________ ______ ________ _______ _______ Balance July 1, 1999 9,860 $99 $66,465 $21,069 (1,244) $(13,776) $757 $74,614 Comprehensive income: Net income 8,170 8,170 Other comprehensive income: Unrealized gain on available-for-sale securities, net of tax and reclassification adjustment (See Note 2 and disclosure below) (757) (757) ______ Comprehensive income 7,413 Repurchases of common stock (15) (1) (1) Other (3) (3) _____ ___ _______ _______ ______ ________ ____ _______ Balance December 31, 1999 9,860 $99 $66,462 $29,239 (1,259) $(13,777) $ - $82,023 ===== === ======= ======= ====== ======== ==== =======
Disclosure of reclassification amount: Unrealized gain for the six months ended December 31, 1999 $ 777 Less reclassification adjustment for gain included in net income (1,534) _______ Unrealized gain on available-for-sale securities, net of tax $ (757) ======= See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998 (Dollars in thousands) (Unaudited) 1999 1998 ________ ________ Operating activities: Net income $ 8,170 $ 2,498 Adjustments to reconcile net income to net cash provided by operating activities: Net fee from terminated merger (11,116) - Depreciation and amortization 2,431 2,649 Deferred Federal income tax (167) 100 Gain on sale of short-term investments (2,361) - Increase (decrease) from changes in: Prepaid expenses and other current assets 80 863 Other non-current assets 36 171 Accounts payable and other current liabilities 4,465 (722) Deferred rent and other liabilities 446 5 ________ ________ Net cash provided by operating activities 1,984 5,564 ________ ________ Investing activities: Break-up fee from terminated merger 13,500 - Proceeds from sale of short-term investments 8,488 - Net proceeds from location operators 72 (10) Proceeds from sales of property and equipment 11 58 Purchases of property and equipment (956) (3,401) Increase in lease acquisition costs and other intangible and non-current assets (1,942) (290) Lease and other security deposits 1,416 - ________ ________ Net cash provided by (used in) investing activities 20,589 (3,643) ________ ________ Financing activities: Proceeds from issuance of common stock - 67 Repurchases of common stock (1) (1,706) ________ ________ Net cash used in financing activities (1) (1,639) ________ ________ Net increase in cash and cash equivalents 22,572 282 Cash and cash equivalents at beginning of period 47,637 50,275 ________ ________ Cash and cash equivalents at end of period $ 70,209 $50,557 ======== ======== Supplemental disclosures of cash flow data: Cash paid during the period for: Federal income tax $ 1,275 $ 400
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General: The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Jackpot Enterprises, Inc. ("Jackpot" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. Certain revenues previously classified as casino operations revenues in the condensed consolidated statements of income for the three and six months ended December 31, 1998 have been reclassified to route operations revenues. Such reclassifications were not material to total revenues. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly Jackpot's financial position as of December 31, 1999, the results of its operations for the three and six months ended December 31, 1999 and 1998 and its cash flows for the six months ended December 31, 1999 and 1998. The earnings for the three and six months ended December 31, 1999 and 1998 are not necessarily indicative of results for a full year. Information included in the condensed consolidated balance sheet as of June 30, 1999 has been derived from Jackpot's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended June 30, 1999 (the "1999 Form 10-K"). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and disclosures included in the 1999 Form 10-K. Jackpot accounts for investments in debt and equity securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). This statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities, and requires such securities be classified as either held to maturity, trading, or available- for-sale. Management determines the appropriate classification of its investments in securities at the time of purchase and reevaluates such classification at each balance sheet date. SFAS 115 requires that available-for-sale securities be carried at fair value with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Unrealized gains and losses for available-for-sale securities are excluded from earnings. Realized gains from sales of investment securities for the three and six months ended December 31, 1999 were $2,345,000 and $2,361,000. There were no realized gains from sales of investment securities for the three and six months ended December 31, 1998, or any realized losses from the sale of investment securities for the three and six months ended December 31, 1999 and 1998. In April 1998, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities". This standard provides guidance on the financial reporting for start-up costs and organization costs. This standard requires costs of start-up activities and organization costs to be expensed as incurred, and is effective for fiscal years beginning after December 15, 1998. The Company adopted this statement on July 1, 1999. This statement had no effect on the accompanying unaudited condensed consolidated financial statements and will not have a significant effect on Jackpot's financial position or results of operations for the fiscal year ending June 30, 2000. In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes additional accounting and reporting standards for derivative instruments and hedging activities. Presently, Jackpot does not have any derivative instruments, nor does the Company participate in hedging activities. Accordingly, SFAS 133 is not expected to have a significant effect on the results of operations or related disclosures. Note 2 - Comprehensive income (loss): Comprehensive income (loss) for the three and six months ended December 31, 1999 and 1998 is the following (dollars in thousands): Three Months Six Months Ended Ended December 31, December 31, _____________ _____________ 1999 1998 1999 1998 _____ ______ ______ ______ Net income $ 877 $1,390 $8,170 $2,498 Other comprehensive income (892) - (757) - _____ ______ ______ ______ Comprehensive income (loss) $ (15) $1,390 $7,413 $2,498 ===== ====== ====== ======
Note 3 - Earnings per share: Basic earnings per share for the three and six months ended December 31, 1999 and 1998 is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share for the three and six months ended December 31, 1999 and 1998 is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Options and warrants to purchase common stock, whose exercise price was greater than the average market price for the respective period, have been excluded from the computations of diluted earnings per share. Such antidilutive options and warrants outstanding for the three months ended December 31, 1999 and 1998 were 1,616,000 and 707,000, respectively, and for the six months ended December 31, 1999 and 1998 were 1,645,000 and 495,000, respectively. The following is the amount of income and number of shares used in the basic and diluted earnings per share computations (dollars and shares in thousands, except per share data): Three Months Six Months Ended Ended December 31, December 31, _____________ ______________ 1999 1998 1999 1998 _____ ______ ______ ______ Basic earnings per share: Earnings: Income available to common stockholders $ 877 $1,390 $8,170 $2,498 ===== ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,614 8,617 8,615 8,665 ===== ====== ====== ====== Basic earnings per share $ .10 $ .16 $ .95 $ .29 ===== ====== ====== ====== Diluted earnings per share: Earnings: Income available to common stockholders $ 877 $1,390 $8,170 $2,498 Effect of dilutive securities - - - - _____ ______ ______ ______ Income, as adjusted $ 877 $1,390 $8,170 $2,498 ===== ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,614 8,617 8,615 8,665 Common shares issuable upon assumed exercise of dilutive stock options 1 1,047 12 1,268 Less common shares assumed to be repurchased by application of the treasury stock method to the proceeds using the average market price for the period (1) (999) (12) (1,179) _____ ______ ______ ______ Weighted average number of common shares and common share equivalents outstanding 8,614 8,665 8,615 8,754 ===== ====== ====== ====== Diluted earnings per share $ .10 $ .16 $ .95 $ .29 ===== ====== ====== ======
Note 4 - Stockholders' equity: Authorized common stock: On September 14, 1999, Jackpot's stockholders approved an increase in the number of authorized shares of common stock from 30,000,000 to 60,000,000. The 1992 Incentive and Non-qualified Stock Option Plan: On September 30, 1999, the exercise price of the June 30, 1999 grant of nonqualified stock options to purchase an aggregate of 110,000 shares of common stock (27,500 each to four directors) was vested at $8.75 per share, the fair market value of the stock on that date, pursuant to the terms of the 1992 Incentive and Non-qualified Stock Option Plan (the "1992 Plan"). See Note 6 of Notes to Consolidated Financial Statements in the 1999 Form 10-K for further information regarding the 1992 Plan and option grants. Other nonqualified stock options: On September 14, 1999, nonqualified stock options to purchase an aggregate of 120,000 shares of common stock were granted to the Company's Board of Directors (30,000 each to four directors) at an exercise price of $9.00 per share, the fair market value on the date of grant. The option granted to each director will vest 50% on each of the first and second anniversary of the date of grant and shall be subject to accelerated vesting under certain circumstances. Such options expire ten years from date of grant. Note 5 - Other events: On August 16, 1999, Jackpot received a notice from Players International, Inc. ("Players") terminating the Agreement and Plan of Merger dated February 8, 1999 (the "Players Agreement"). Such notice contained the terms of a merger offer for Players from Harrah's Entertainment, Inc. On August 19, 1999, pursuant to the terms of the Players Agreement, Jackpot received a break- up fee of $13,500,000. As a result of the termination of the Players Agreement, capitalized costs of $2,384,000 incurred in connection with the proposed acquisition of Players were expensed resulting in a net break-up fee of $11,116,000. During the six months ended December 31, 1999, Jackpot sold 1,014,400 shares of Players common stock for $8,488,000 ($8.37 per share). As a result of the sale of such shares, which were purchased on March 10, 1999 at a cost of $6,127,000 ($6.04 per share), Jackpot realized a gain of $2,361,000. Note 6 - Commitments and contingencies: Litigation settlement: In August 1998, Albertson's, Inc. ("Albertson's," a retail chain in which Jackpot conducts gaming operations) and American Stores Company ("American Stores") entered into a merger agreement that provided for the acquisition of American Stores by Albertson's. The merger of Albertson's and American Stores was completed on June 23, 1999. As a condition to avoiding and/or settling legal proceedings against the merger by the Federal Trade Commission and the Attorneys General of California, Nevada and New Mexico, Albertson's agreed to divest certain of its stores, including 19 stores in southern Nevada, fifteen of which were Jackpot locations. In late September and early October 1999, Albertson's sold those locations to Raley's, Inc. ("Raley's"), and Raley's has operated them since. On August 30, 1999, Jackpot commenced litigation in United States District Court for the District of Nevada against Albertson's and Raley's to enforce its rights to remain in the fifteen locations under its agreement with Albertson's. On September 14, 1999, Jackpot obtained a preliminary injunction to prevent Albertson's and Raley's from interfering with its right to occupy the subject premises and conduct gaming operations. Albertson's and Raley's appealed the injunction and made motions for summary judgment. In connection with Raley's acquisition of the locations, United Coin Machine Company ("United Coin"), the slot route operator for Raley's northern Nevada stores, filed applications with the Nevada Gaming Control Board to operate the gaming machines at the fifteen stores. On September 23, 1999, United Coin commenced an action in Nevada state court against Jackpot, Albertson's, Raley's and Anchor Coin ("Anchor"), the slot route operator at the four other Albertson's southern Nevada locations seeking declaratory and injunctive relief and money damages. On January 26, 2000, Jackpot entered into a Settlement Agreement and Release (the "Settlement Agreement") with Albertson's, Raley's, Anchor and United Coin. Pursuant to the terms of the Settlement Agreement, the parties agreed to dismiss with prejudice all litigation pending among them and to the takeover of gaming operations by United Coin of the 19 stores in southern Nevada, effective February 1, 2000. Of the 19 stores in southern Nevada operated by Raley's, Jackpot had operated 246 gaming machines at 15 locations pursuant to its long-term agreement with Albertson's. Jackpot believed it was in its best interest to settle the case and thereby preserve and solidify its long-term relationship with Albertson's, its largest customer, pursuant to the terms of an amendment to its agreement with Albertson's, which it had theretofore arranged and which is described below in this note. It was also important to Jackpot to avoid further litigation and fully resolve all claims among and between the parties. All costs incurred in connection with the litigation and settlement, including legal and settlement costs aggregating approximately $950,000 have been recorded in the six months ended December 31, 1999. Settlement agreement with Albertson's: Prior to the settlement described above, on November 18, 1999, Jackpot and Albertson's had entered into a settlement agreement (the "Agreement"). The Agreement amended the license agreement entered in September 1998 between Jackpot and Albertson's (the "Albertson's Agreement"). The Agreement also terminated Jackpot's separate license agreements with Lucky Stores, Inc. and American Drug Stores, Inc. and incorporates Jackpot's exclusive rights in Nevada to operate gaming devices at the locations (including any future locations) of those entities into the Albertson's Agreement, as amended by the Agreement. Under the Agreement, Jackpot has the exclusive option to extend the agreements beyond the initial terms and will continue to have exclusive gaming rights for new Albertson's locations. In addition, Albertson's has granted Jackpot exclusive gaming rights in all drug stores opened by Albertson's or any of its affiliates in Nevada, and in future fuel center locations, a new retailing concept that Albertson's will open, in which gaming may be offered to customers. Further, pursuant to the terms of the Agreement, Jackpot will receive substantial reductions in certain license fees, which are effective from February 1, 2000 through the initial term of the Agreement, and certain immediate credits toward license fees. Including 28 former Lucky Store locations in southern Nevada, which have been operating under the Albertson's name since November 1999, the Agreement currently involves the operation of 1,012 gaming machines in 79 locations. Future minimum lease payments (dollars in thousands) under noncancelable operating leases or licenses, including the Agreement described above, aggregated approximately $144,358 at December 31, 1999, payable as follows: $48,030 in the remainder of fiscal 2000 and fiscal 2001; $32,018 in fiscal 2002; $32,247 in fiscal 2003; $10,199 in fiscal 2004; $9,682 in fiscal 2005; and $12,182 thereafter. The Rite Aid dispute: On December 8, 1999, certain subsidiaries of Jackpot commenced litigation in the United States District Court for the District of Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit is an action for rescission of two license agreements between those subsidiaries and Rite Aid and for damages based upon Rite Aid's fraud. Operations of said subsidiaries under said agreements resulted in an operating loss of approximately $1.0 million and $2.0 million for the three and six months ended December 31, 1999, respectively. On December 16, 1999, on consent of the parties, the Court adjourned Jackpot's motion for a preliminary injunction until March 10, 2000, subject to certain terms and conditions. The outcome of this action cannot be determined at this time. Subsequent to the adjournment, Jackpot and Rite Aid have had preliminary discussions for the purpose of amending the present agreements. If the amendment of both license agreements is not completed, or if completed on less than satisfactory economic terms required by Jackpot and revenues do not increase significantly at these locations, Jackpot will continue to incur significant operating losses at the Rite Aid locations. Jackpot presently operates 311 gaming devices at 30 Rite Aid locations. Item 2. Management's Discussion and Analysis of Financial _________________________________________________ Condition and Results of Operations ___________________________________ Capital Resources and Liquidity _______________________________ Cash Flows: Jackpot's principal sources of cash for the six months ended December 31, 1999 (the "1999 six months"), consisted principally of the cash flows from investing activities and its available cash and cash equivalents which, at June 30, 1999, was $47.6 million and at December 31, 1999 was $70.2 million. Net cash provided by operating activities decreased $3.6 million, from $5.6 million for the six months ended December 31, 1998 (the "1998 six months") to $2.0 million for the 1999 six months. The decrease of $3.6 million was due primarily to the decrease in operating income in the 1999 six months. Net cash provided by investing activities increased $24.2 million, from net cash used in investing activities of $3.6 million for the 1998 six months to net cash provided by investing activities of $20.6 million for the 1999 six months. Such increase was due primarily to the receipt of the break-up fee from the terminated merger and the proceeds from the sale of the Players stock described below. Liquidity: On October 29, 1996, Jackpot's Board of Directors authorized management to repurchase up to 500,000 shares of Jackpot's common stock at prevailing market prices. Subsequently, on January 22, 1998, such authorization was increased from 500,000 to 1,000,000 shares. From October 29, 1996 through December 31, 1999, Jackpot repurchased 800,437 shares of common stock at a cost of approximately $8.5 million. On August 16, 1999, Jackpot received a notice from Players International, Inc. ("Players") terminating the Agreement and Plan of Merger dated February 8, 1999 (the "Players Agreement"). Such notice contained the terms of a merger offer for Players from Harrah's Entertainment, Inc. On August 19, 1999, pursuant to the terms of the Players Agreement, Jackpot received a break-up fee of $13.5 million. As a result of the termination of the Players Agreement, capitalized costs of $2,384,000 incurred in connection with the proposed acquisition of Players were expensed resulting in a net break-up fee of $11.1 million. During the 1999 six months, Jackpot sold 1,014,400 shares of Players common stock for $8,488,000 ($8.37 per share). As a result of the sale of such shares, which were purchased on March 10, 1999 at a cost of $6,127,000 ($6.04 per share), Jackpot realized a gain of $2,361,000. Working capital increased $13.4 million, from $53.6 million at June 30, 1999 to $67.0 million at December 31, 1999. The increase in working capital was due primarily to the receipt of the break-up fee and the sale of the Players common stock described above. Management believes Jackpot's working capital and cash provided by operations will be sufficient to enable Jackpot to meet its planned capital expenditures and other cash requirements for the remainder of the year ending June 30, 2000 ("fiscal 2000"). With respect to planned capital expenditures, management anticipates Jackpot will purchase approximately $1.2 million of property and equipment, exclusive of business acquisitions, if any, in the remainder of fiscal 2000 to be used in existing and currently planned new locations. Jackpot continues to explore additional opportunities, including potential acquisitions, both gaming and nongaming. Management believes working capital and cash provided by operations will be sufficient to enable Jackpot to pursue expansion opportunities; however, Jackpot may seek additional debt or equity financing to facilitate other opportunities or potential acquisitions. Recently Issued Accounting Standards: In April 1998, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities." This standard provides guidance on the financial reporting for start-up costs and organization costs. This standard requires costs of start-up activities and organization costs to be expensed as incurred, and is effective for fiscal years beginning after December 15, 1998. The Company adopted this statement on July 1, 1999. This statement had no effect on the accompanying unaudited condensed consolidated financial statements and will not have a significant effect on Jackpot's financial position or results of operations for fiscal 2000. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes additional accounting and reporting standards for derivative instruments and hedging activities. Presently, Jackpot does not have any derivative instruments, nor does the Company participate in hedging activities. Accordingly, SFAS 133 is not expected to have a significant effect on the results of operations or related disclosures. Results of Operations _____________________ Special Factors Affecting Route Operations: Albertson's-Raley's litigation. In August 1998, Albertson's, Inc. ______________________________ ("Albertson's," a retail chain in which Jackpot conducts gaming operations) and American Stores Company ("American Stores") entered into a merger agreement that provided for the acquisition of American Stores by Albertson's. Approximately 57% and 55% of Jackpot's total revenues for the fiscal years ended June 30, 1999 and 1998, respectively, were generated at the locations of those two entities. The merger of Albertson's and American Stores was completed on June 23, 1999. As a condition to avoiding and/or settling legal proceedings against the merger by the Federal Trade Commission and the Attorneys General of California, Nevada and New Mexico, Albertson's agreed to divest certain of its stores, including 19 stores in southern Nevada, fifteen of which were Jackpot locations. In late September and early October 1999, Albertson's sold those locations to Raley's, Inc. ("Raley's"), and Raley's has operated them since. On August 30, 1999, Jackpot commenced litigation in United States District Court for the District of Nevada against Albertson's and Raley's to enforce its rights to remain in the fifteen locations under its agreement with Albertson's. On September 14, 1999, Jackpot obtained a preliminary injunction to prevent Albertson's and Raley's from interfering with its right to occupy the subject premises and conduct gaming operations. Albertson's and Raley's appealed the injunction and made motions for summary judgment. In connection with Raley's acquisition of the locations, United Coin Machine Company ("United Coin"), the slot route operator for Raley's northern Nevada stores, filed applications with the Nevada Gaming Control Board to operate the gaming machines at the fifteen stores. On September 23, 1999, United Coin commenced an action in Nevada state court against Jackpot, Albertson's, Raley's and Anchor Coin ("Anchor"), the slot route operator at the four other Albertson's southern Nevada locations seeking declaratory and injunctive relief and money damages. On January 26, 2000, Jackpot entered into a Settlement Agreement and Release (the "Settlement Agreement") with Albertson's, Raley's, Anchor and United Coin. Pursuant to the terms of the Settlement Agreement, the parties agreed to dismiss with prejudice all litigation pending among them and to the takeover of gaming operations by United Coin of the 19 stores in southern Nevada, effective February 1, 2000. Of the 19 stores in southern Nevada operated by Raley's, Jackpot had operated 246 gaming machines at 15 locations pursuant to its long-term agreement with Albertson's. These 15 locations generated approximately 16% of Jackpot's total revenues for the 1998 six months and the year ended June 30, 1999 ("fiscal 1999"), respectively, and a significantly greater percentage of Jackpot's operating income for the 1998 six months and fiscal 1999. Jackpot believed it was in its best interest to settle the case and thereby preserve and solidify its long-term relationship with Albertson's, its largest customer, pursuant to the terms of an amendment to its agreement with Albertson's, which it had theretofore arranged and which is described below. It was also important to Jackpot to avoid further litigation and fully resolve all claims among and between the parties. All costs incurred in connection with the litigation and settlement, including legal and settlement costs aggregating approximately $950,000 have been recorded in the six months ended December 31, 1999. Settlement agreement with Albertson's: Prior to the settlement described _____________________________________ above, on November 18, 1999, Jackpot and Albertson's had entered into a settlement agreement (the "Agreement"). The Agreement amended the license agreement entered in September 1998 between Jackpot and Albertson's (the "Albertson's Agreement"). The Agreement also terminated Jackpot's separate license agreements with Lucky Stores, Inc. and American Drug Stores, Inc. and incorporates Jackpot's exclusive rights in Nevada to operate gaming devices at the locations (including any future locations) of those entities into the Albertson's Agreement, as amended by the Agreement. Under the Agreement, Jackpot has the exclusive option to extend the agreements beyond the initial terms and will continue to have exclusive gaming rights for new Albertson's locations. In addition, Albertson's has granted Jackpot exclusive gaming rights in all drug stores opened by Albertson's or any of its affiliates in Nevada, and in future fuel center locations, a new retailing concept that Albertson's will open, in which gaming may be offered to customers. Further, pursuant to the terms of the Agreement, Jackpot will receive substantial reductions in certain license fees, which are effective from February 1, 2000 through the initial term of the Agreement, and certain immediate credits toward license fees. Based upon the amended terms and certain assumptions, management believes that the estimated cost savings over the initial term of the Agreement will approximate $18 million. Including 28 former Lucky Store locations in southern Nevada, which have been operating under the Albertson's name since November 1999, the Agreement currently involves the operation of 1,012 gaming machines in 79 locations. While the loss of the 15 former Albertson's locations on February 1, 2000 will have a significant effect of the Company's future results of operations, management believes that the estimated cost savings will substantially offset the loss of the operating income, based on current assumptions and contract terms, that would have been generated at these 15 locations over the initial term of the Agreement. The Rite Aid dispute: On December 8, 1999, certain subsidiaries of Jackpot ____________________ commenced litigation in the United States District Court for the District of Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit is an action for rescission of two license agreements between those subsidiaries and Rite Aid and for damages based upon Rite Aid's fraud. Operations of said subsidiaries under said agreements resulted in an operating loss of approximately $1.0 million and $2.0 million for the three and six months ended December 31, 1999, respectively. On December 16, 1999, on consent of the parties, the Court adjourned Jackpot's motion for a preliminary injunction until March 10, 2000, subject to certain terms and conditions. The outcome of this action cannot be determined at this time. Subsequent to the adjournment, Jackpot and Rite Aid have had preliminary discussions for the purpose of amending the present agreements. If the amendment of both license agreements is not completed, or if completed on less than satisfactory economic terms required by Jackpot and revenues do not increase significantly at these locations, Jackpot will continue to incur significant operating losses at the Rite Aid locations. Jackpot presently operates 311 gaming devices at 30 Rite Aid locations. Revenues: Total revenues for the three months ended December 31, 1999 (the "1999 three months") decreased $1.3 million, from $23.7 million for the three months ended December 31, 1998 (the "1998 three months") to $22.4 million for the 1999 three months, while total revenues for the 1999 six months decreased $.7 million, from $45.9 million for the 1998 six months to $45.2 million for the 1999 six months. The decrease in total revenues of $1.3 million for the 1999 three months was the net result of a decrease of $1.0 million (from $23.4 million for the 1998 three months to $22.4 million for the 1999 three months) in gaming machine route operations ("route operations") revenues and a decrease of $.3 million in casino operations revenues. The decrease in total revenues of $.7 million for the 1999 six months was due to the decrease of $.7 million in casino operations revenues. The decrease in route operations revenues for the 1999 three months of $1.0 million resulted from a combination of revenues generated from new locations of $1.3 million, net of a decrease in revenues at existing locations of $1.5 million and lost revenues from terminated locations of $.8 million. The decrease in route operations revenues of $1.0 million for the 1999 three months was due primarily to lower revenues generated at the 15 Raley's locations. Route operations revenues for the 1999 six months, compared to the 1998 six months, remained constant at $45.2 million. While new locations generated revenues of $2.6 million, such increase was offset by the decrease in revenues at existing locations of $1.0 million and the lost revenues from terminated locations of $1.6 million in the 1998 six months. Route operations revenues attributable to fixed payment leases and revenue sharing contracts for the three and six months ended December 31, 1999 and 1998 are summarized below (dollars in thousands): Three Months Ended December 31, __________________________________________ 1999 1998 _____________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $16,364 72.9% $17,772 76.0% Revenue sharing contracts 6,080 27.1 5,627 24.0 _______ _____ _______ _____ Totals $22,444 100.0% $23,399 100.0% ======= ===== ======= ===== Six Months Ended December 31, __________________________________________ 1999 1998 _____________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $33,288 73.6% $34,250 75.7% Revenue sharing contracts 11,956 26.4 11,002 24.3 _______ _____ _______ _____ Totals $45,244 100.0% $45,252 100.0% ======= ===== ======= =====
Costs and expenses: Route operations expenses for the 1999 three months and 1999 six months increased $2.0 million (from $19.5 million for the 1998 three months to $21.5 million for the 1999 three months) and $4.7 million (from $38.1 million for the 1998 six months to $42.8 million for the 1999 six months) and, as a percentage of route operations revenues, increased to 96.0% and 94.6% for the 1999 three months and 1999 six months, respectively, from 83.5% and 84.1% for the 1998 three months and 1998 six months, respectively. With respect to route operations costs and expenses, location rent is the single largest route operations expense. In September 1998, Jackpot had entered into a long-term extension of the Albertson's Agreement (the "Albertson's Extension"), which became effective July 1, 1999. Pursuant to the terms of the Albertson's Extension, location rent increased significantly over the previous agreement. Such increase, which was principally related to the 15 former Albertson's locations in southern Nevada discussed below, adversely affected the Company's results of operations for the 1999 six months. For a further description of the Company's lease and license agreements, see Item 1 - Business - Gaming Machine Route Operations and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview in the 1999 Form 10-K. The increase in route operations expenses of $2.0 million for the 1999 three months resulted primarily from a combination of an increase of $1.3 million in location rent for new locations of existing chain store customers, an increase of $.3 million in location rent associated with revenue sharing contracts, a decrease of $.4 million in location rent for all other customers, an increase of $.3 million in group health costs, and an increase of $.5 million in other route operations expenses. The increase in route operations expenses of $4.7 million for the 1999 six months resulted primarily from a combination of an increase of $2.5 million in location rent for new locations of existing chain store customers, an increase of $.5 million in location rent for locations of existing chain store customers, which was principally related to the 15 former Albertson's locations in southern Nevada, an increase of $.8 million in location rent associated with revenue sharing contracts, a decrease of $.5 million in location rent for all other customers, an increase of $.4 million in group health costs, and an increase of $1.0 million in all other route operating expenses. Depreciation expense in each of the 1999 three months and 1999 six months decreased $.1 million, from $1.1 million for the 1998 three months to $1.0 million for the 1999 three months, and from $2.1 million for the 1998 six months to $2.0 million for the 1999 six months. Amortization expense in each of the 1999 three months and 1999 six months decreased $.1 million, from $.3 million for the 1998 three months to $.2 million for the 1999 three months, and from $.6 million for the 1998 six months to $.5 million for the 1999 six months. General and administrative expense for the 1999 three months and 1999 six months increased $.4 million (from $.9 million for the 1998 three months to $1.3 million for the 1999 three months) and $.8 million (from $1.8 million for the 1998 six months to $2.6 million for the 1999 six months). The increases were due principally to legal costs associated with the Albertson's and Raley's litigation. Other income: Other income for the 1999 three months and 1999 six months increased $2.6 million (from $.4 million for the 1998 three months to $3.0 million for the 1999 three months) and $13.7 million (from $.7 million for the 1998 six months to $14.4 million for the 1999 six months). The increases in other income were due principally to the net fee from the terminated merger of $11.1 million and the gain on the sale of the Players common stock of $2.3 million previously discussed. Federal income tax: The effective tax rate for the 1999 three months and 1999 six months was 31% and for the 1998 three months and 1998 six months such rate was 28%. These rates were lower than the Federal Statutory rate of 35% primarily because of the tax benefits realized from tax-exempt interest income. General: Operating income for the 1999 three months and 1999 six months decreased $3.3 million (from $1.6 million for the 1998 three months to an operating loss of $1.7 million for the 1999 three months) and $5.4 million (from $2.8 million for the 1998 six months to an operating loss of $2.6 million for the 1999 six months). Such decreases were due principally to three factors: (1) an operating loss of approximately $1.0 million and $2.0 million for the 1999 three months and 1999 six months, respectively, incurred at the locations of Rite Aid, a large customer, resulting from the failure of 17 new locations to achieve expected revenues, as well as from a decrease in revenues at existing locations of such customer, (2) a significant decline in operating income generated at 15 former Albertson's locations in southern Nevada, which have been operated by Raley's since late September and early October 1999. Such decline was due primarily to significantly lower revenues generated at these locations, and (3) legal and settlement costs incurred in connection with Jackpot's litigation against Albertson's and Raley's. Basic and diluted earnings per share for the 1999 three months and 1999 six months was $.10 and $.95 per share versus $.16 and $.29 per share for the 1998 three months and 1998 six months. Net income for the 1999 six months was $8.2 million compared to $2.5 million for the 1998 six months. Such increase was due principally to an increase in other income relating to the net fee from the terminated merger and the gain on the sale of the Players common stock. Net income for the 1999 three months was $.9 million compared to $1.4 million for the 1998 three months. The decrease was due primarily to the decline in operating income described above. Year 2000 _________ In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, date- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This situation is generally referred to as the "Year 2000 Problem". If this situation occurs, the potential exists for computer system failures or miscalculations by computer programs, which could disrupt operations. Jackpot conducted a review of its computer systems and other systems for the purpose of assessing its potential Year 2000 Problem. In addition, Jackpot communicated with its major vendors and suppliers to determine their state of readiness relative to the Year 2000 Problem and Jackpot's possible exposure to Year 2000 issues of such third parties. Jackpot, through correspondence from its major vendors or statements obtained at Year 2000 disclosure sites of major vendors, has been advised that such vendors software or products are either Year 2000 compliant or should be Year 2000 compliant before December 31, 1999. Jackpot has modified or replaced its essential computer systems and other systems. The Company's essential systems were Year 2000 compliant prior to December 31, 1999. All costs related to the Year 2000 Problem have been expensed as incurred, while the cost of new hardware is capitalized and amortized over its expected useful life. As of December 31, 1999, the Company had incurred approximately $280,000 of Year 2000 compliance costs, principally for internal costs and system applications. Subsequent to December 31, 1999, the Company has not experienced any significant difficulties relating to the Year 2000 Problem, and continues to monitor its essential computer systems and other systems for potential problems which may occur. Forward-looking statements __________________________ Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission contains statements that may be considered forward-looking. In addition, from time to time, the Company may release or publish forward- looking statements relating to such matters as anticipated financial performance, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, competitive pressures, the loss or nonrenewal of any of Jackpot's significant contracts, the consolidation or disposition of selected locations as a result of the merger of Albertson's, Inc. and American Stores Company (each of which was a significant customer of the Company during the past three fiscal years), conditioning or suspension of any gaming license, unfavorable changes in gaming regulations, adverse results of significant litigation matters including, but not limited to the litigation with Rite Aid Corporation, possible future financial difficulties of a significant customer and the continued growth of the gaming industry and population in Nevada. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. The Company assumes no obligation to update or supplement forward-looking statements as a result of new circumstances or subsequent events. Item 3. Quantitative and Qualitative Disclosure About Market Risk _________________________________________________________ During the six months ended December 31, 1999, the Company sold a total of 1,014,400 shares of common stock of Players in open market transactions. Such shares, which were purchased on March 10, 1999, were acquired because the purchase price for those shares was significantly below the per share consideration which the Company had agreed to pay for all outstanding shares of Players pursuant to the Agreement and Plan of Merger dated as of February 8, 1999, which provided for the merger of Players into a wholly-owned subsidiary of the Company. As of December 31, 1999, Jackpot did not own any shares of Players common stock. For further information concerning the termination of the merger with Players and the sale of Players common stock by the Company, see Note 5 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q. In all other respects, for the three and six months ended December 31, 1999, there were no changes to the information incorporated by reference in Item 7A of the 1999 Form 10-K. PART II. OTHER INFORMATION _________________ Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1 - Articles of Incorporation of the Registrant, as amended. 10.12 - Settlement Agreement with Albertson's, Inc. 10.13 - First Amendment to Settlement Agreement with Albertson's, Inc. 27.1 - Financial Data Schedule (EDGAR filing only). (b) Reports on Form 8-K - No Form 8-K was filed for the three months ended December 31, 1999. Signature _________ Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JACKPOT ENTERPRISES, INC. _________________________ (Registrant) By: /s/ Bob Torkar _________________________ BOB TORKAR Senior Vice President - Finance, Treasurer and Chief Accounting Officer Date: February 14, 2000 EX-3 2 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF CORRAL UNITED, INC. KNOW ALL MEN BY THESE PRESENTS: That the undersigned do hereby associate themselves into a corporation, under and by virtue of the Nevada Revised Statutes, Title 7, Chapter 78, as amended, and do hereby certify and adopt the following Articles of Incorporation: ARTICLE I _________ The name of the corporation is CORRAL UNITED, INC. ARTICLE II __________ The location of the principal office of the corporation in the State of Nevada is 241 Ridge Street, Reno, Nevada. Branch offices may hereafter be established at such other place or places, either within or without the State of Nevada as may be determined from time to time by the Board of Directors. ARTICLE III ___________ The purpose for which said corporation is formed is to engage in any lawful activity. ARTICLE IV __________ The amount of the authorized capital stock of this corporation is 25,000,000 shares with $.001 par value. Any and all shares of stock of this corporation of any class shall be paid in as the Board of Directors may designate and as provided by law, in cash, real or personal property, option to purchase, or any other valuable right or thing, for the uses and purposes of the corporation, and said shares of stock when issued in exchange therefor shall thereupon and thereby become and be fully paid, the same as though paid for in cash, and shall be nonasssessable forever, and the judgment of the Board of Directors of the corporation concerning the value of the property, right or thing, acquired in purchase or exchange for capital stock shall be conclusive. No stockholder shall have any pre-emtive rights. ARTICLE V _________ Members of the governing board shall be known as "Directors," and the number thereof shall not be less than three (3) nor more than nine (9), the exact number to be fixed by the Board of Directors of the corporation, provided that the number so fixed by the Directors may be increased or decreased from time to time. ARTICLE VI __________ The names and addresses of the first Board of Directors of the corporation, which are three (3), are as follows: Linda B. Eller 955 Eden Court Reno, Nevada 89509 Betty E. Presley 2230 Roundhouse Road Sparks, Nevada 89431 Shirley Littlejohns 435 Emerson Way Sparks, Nevada 89431 ARTICLE VII ___________ The stock of this corporation, after the amount of the subscription price, or par value has been fully paid in, shall be nonassessable forever, and shall not be subject to pay the debts of the corporation. ARTICLE VIII ____________ The names and addresses of the subscribers signing these Articles of Incorporation are as follows: Linda E. Eller 955 Eden Court Reno, Nevada 89509 Betty E. Presley 2230 Roundhouse Road Sparks, Nevada 89431 Shirley Littlejohns 435 Emerson Way Sparks, Nevada 89431 ARTICLE IX __________ The corporation is to have perpetual existence. ARTICLE X _________ A resolution, in writing, signed by all of the members of the Board of Directors of the corporation, shall be and constitute action by the Board of Directors to the effect therein expressed with the same force and effect as though such resolution has been passed at a duly convened meeting, and it shall be the duty of the Secretary to record every such resolution in the Minute Book of the corporation under its proper date. ARTICLE XI __________ The Directors shall have the power to make and alter the By-laws of the corporation. By-laws so made by the Directors under the power so conferred may be altered, amended or repealed by the Directors or by the Stockholders at any meeting called and held for that purpose. IN WITNESS WHEREOF, we have hereunto set our hands and executed these Articles of Incorporation this 4 day of June, 1980. /s/ Linda B. Eller _____________________________ Linda B. Eller /s/ Betty E. Presley _____________________________ Betty E. Presley /s/ Shirley Littlejohns _____________________________ Shirley Littlejohns STATE OF NEVADA ) ) ss. COUNTY OF WASHOE ) On this 4 day of June, 1980, personally appeared before the undersigned, a Notary Public in and for the County of Washoe, State of Nevada, Linda B. Eller, Betty E. Presley, and Shirley Littlejohns, known to me to be the persons described in and who executed the foregoing instrument freely and voluntarily and for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunder set my hand and affixed my official seal the day and year in this certificate first above written. /s/ Julia Braly _____________________________ Notary Public CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CORRAL UNITED, INC. The undersigned hereby certify as follows: 1. That they are the original incorporators of CORRAL UNITED, INC. 2. That the Articles of Incorporation were filed in the Office of the Secretary of State, State of Nevada, on the 11th day of June, 1980. 3. That as of the date of this certificate, no part of the capital of the corporation has been paid. 4. That at a meeting of the officers and directors of said corporation duly held at 241 Ridge Street, Suite 440, Reno, Nevada, on June 15, 1980, the following resolution was unanimously adopted: That the Articles of Incorporation shall be, and hereby are, amended to read as follows: ARTICLE I _________ "The name of the corporation is JACKPOT, INC." ARTICLE IV __________ "The amount of the authorized capital stock of this corporation is 15,000,000 shares with a par value of $.01 per share." "Any and all shares of stock of this corporation of any class shall be paid in as the Board of Directors may designate and as provided by law, in cash, real or personal property, option to purchase, or any other valuable right or thing, for the uses and purposes of the corporation, and said shares of stock when issued in exchange therefore shall thereupon and thereby become and be fully paid, the same as though paid for in cash, and shall be nonassessable forever and the judgment of the Board of Directors of the corporation concerning the value of the property, right or thing, acquired in purchase or exchange for capital stock shall be conclusive. No stockholder shall have any pre-emptive rights." IN WITNESS WHEREOF, the undersigned have executed this Amendment to Articles of Incorporation this 15th day of June, 1980. /s/ Shirley Littlejohns _______________________________ SHIRLEY LITTLEJOHNS /s/ Linda B. Eller _______________________________ LINDA B. ELLER /s/ Betty Presley _______________________________ BETTY PRESLEY STATE OF NEVADA, ) ) ss COUNTY OF WASHOE. ) On this 15th day of June, 1980, personally appeared before me, a Notary Public, Shirley Littlejohns, Linda B. Eller and Betty Presley, who acknowledged that they executed the foregoing Certificate of Amendment to Articles of Incorporation. /s/ Sarah Jo Smithson _______________________________ Notary Public CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF JACKPOT, INC. The undersigned hereby certify as follows: 1. That they are the President and Assistant Secretary of JACKPOT, INC. 2. That the sole stockholder of JACKPOT, INC., BRISTOL GAMING CORPORATION, consented to the adoption of the resolution below on February 4, 1981. 3. That at a meeting of the officers and directors of said corporation duly held at 241 Ridge Street, Suite 440, Reno, Nevada, on February 24, 1981, the following resolution was unanimously adopted: That Articles I and IV of the Articles of Incorporation shall be, and hereby are, amended to read as follows: ARTICLE I _________ "The name of the corporation is JACKPOT ENTERPRISES, INC." ARTICLE IV __________ "The amount of the authorized capital stock of this corporation is 15,000,000 common shares with a par value of $.01 per share and 1,000,000 preferred shares with a par value of $1.00 per share." "The shares of preferred stock authorized hereby may, when authorized for issuance by the Board of Directors of this corporation, be issued in series having such designations, powers, preferences, rights and limitations, and on such terms and conditions as the Board of Directors may from time to time determine including the rights, if any, of the holders thereof with respect to voting, dividends, redemption, liquidation and conversion." "Any and all shares of stock of this corporation of any class shall be paid as the Board of Directors may designate and as provided by law, in cash, real or personal property, option to purchase or any other valuable right or thing, for the uses and purposes of the corporation, and said shares of stock when issued in exchange therefore shall thereupon and thereby become and be fully paid, the same as though paid for in cash, and shall be nonassessable forever, and the judgement of the Board of Directors of the corporation concerning the value of the property, right or thing, acquired in purchase or exchange for capital stock shall be conclusive. No stockholder shall have any pre-emptive rights." IN WITNESS WHEREOF, the undersigned have executed this Amendment to Articles of Incorporation this 25th day of February, 1981. /s/ Neil Rosenstein ___________________________________ NEIL ROSENSTEIN, President /s/ Alvin J. Hicks ___________________________________ ALVIN J. HICKS, Assistant Secretary State of Nevada, ) ) ss. County of Clark. ) On this 5 day of March, 1981, personally appeared before me, a Notary Public, Neil Rosenstein, as President of the above corporation, who acknowledged that he executed the foregoing Certificate of Amendment to Articles of Incorporation. /s/ Lillian Schneider ___________________________________ Notary Public State of Nevada. ) ) ss. County of Washoe. ) On this 25 day of February, 1981, personally appeared before me, a Notary Public, Alvin J. Hicks, as Assistant Secretary of the above corporation, who acknowledged that he executed the foregoing Certificate of Amendment to Articles of Incorporation. /s/ Sarah Jo Smithson ___________________________________ Notary Public CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF JACKPOT ENTERPRISES, INC The undersigned hereby certify as follows: 1. That they are the President and Secretary of JACKPOT ENTERPRISES, INC. 2. That the Articles of Incorporation were filed in the Office of the Secretary of State of the State of Nevada on the 11th day of June, 1980, and in the Office of the Washoe County Clerk on the 17th day of July, 1980; and Certificates of Amendment to Articles of Incorporation were filed on July 29, 1980 and March 25, 1981. 3. That at the Annual Meeting of Stockholders held on the 9th day of December, 1987, the stockholders voted, either in person or by proxy, to adopt the amendment as set forth and recommended by the Board of Directors. The amendment to add Article XII was adopted by 3,378,416 shares of common stock voting in favor and 281,189 shares of common stock opposed. There were a total of 4,579,278 shares of common stock outstanding and entitled to vote at the Annual Meeting of Stockholders. 4. That Article XII be added to the Articles of Incorporation as follows: ARTICLE XII ___________ Directors and officers of the corporation shall not be personally liable to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, except for (i) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law; or (ii) the payment of dividends in violation of the provisions of Chapter 78 of the Nevada Revised Statutes. If the Nevada Revised Statutes are amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors and officers, then the liability of a director or officer of the corporation shall be eliminated or limited to the full extent permitted by the Nevada Revised Statutes, as so amended. Any repeal or modification of all or any portion of the provisions of this Article by the stockholders of the corporation shall not adversely effect any right or protection of a director or officer of the corporation with respect to any acts or omissions occurring prior to the time of such repeal or modification. The provisions of this Article shall not be deemed to limit or preclude indemnification of a director or officer by the corporation for any liability of a director or officer which has not been eliminated by the provisions of this Article. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment to Articles of Incorporation this 9th day of December, 1987. STATE OF NEVADA ) ) ss. COUNTY OF WASHOE ) On this 9th day of December, 1987, personally appeared a Notary Public, NEIL ROSENSTEIN, as President of Jackpot Enterprises, Inc., who acknowledged that he executed the Certificate of Amendment to Articles of Incorporation of said corporation. /s/ Neil Rosenstein _______________________________ NEIL ROSENSTEIN, President /s/ Allan R. Tessler _______________________________ ALLAN R. TESSLER, Secretary /s/ Alvin J. Hicks _______________________________ Notary Public STATE OF NEVADA ) ) ss. COUNTY OF WASHOE ) On this 9th day of December, 1987, personally appeared before me, a Notary Public, ALLAN R. TESSLER, as Secretary of Jackpot Enterprises, Inc., who acknowledged that he executed the foregoing Certificate of Amendment to Articles of Incorporation on behalf of said corporation. /s/ Alvin J. Hicks _______________________________ Notary Public CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF JACKPOT ENTERPRISES, INC. The undersigned certify as follows: 1. That they are the Executive Vice President and Secretary, respectively, of JACKPOT ENTERPRISES, INC., a Nevada corporation (the "Corporation"). 2. That at a meeting of the Board of Directors of the Corporation held on November 15, 1993, the Board of Directors authorized the following amendment to the Corporation s Articles of Incorporation: RESOLVED, that ARTICLE IV of the Company s Articles of Incorporation shall be amended such that the first paragraph thereof shall be deleted in its entirety and replaced with the following: "The amount of the authorized capital stock of this corporation is 30,000,000 common shares with a par value of $.0l per share and 1,000,000 preferred shares with a par value of $1.00." 3. That at a meeting of the stockholders of the Corporation held on January 6, 1994, the stockholders voted to adopt the foregoing amendment to the Corporation s Articles of Incorporation. The amendment was approved by the holders of 7,547,494 shares of the Corporation s $.01 par value common stock, representing approval of the amendment by the holders of 82 % of the shares entitled to vote with respect to such amendment. The total number of outstanding shares of common stock of Corporation having voting power with respect to such amendment is 9,194,223. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment to the Articles of Incorporation effective as of the 6th day of January, 1994. /s/ Jeffrey L. Gilbert _________________________________ Jeffrey L. Gilbert Executive Vice President /s/ Alvin J. Hicks _________________________________ Alvin J. Hicks Secretary STATE OF NEVADA, ) ) ss. COUNTY OF WASHOE.) On this 5th day of January, 1994, personally appeared before me, a Notary Public, Jeffrey L. Gilbert, Executive Vice President of Jackpot Enterprises, Inc. who acknowledged that he executed the foregoing Certificate of Amendment to Articles of Incorporation on behalf of said corporation. /s/ Laura J. Lucas _________________________________ Notary Public STATE OF NEVADA, ) ) ss. COUNTY OF WASHOE.) On this 5th day of January, 1994, personally appeared before me, a Notary Public, Alvin J. Hicks, Secretary of Jackpot Enterprises, Inc., who acknowledged that he executed the foregoing Certificate of Amendment to Articles of Incorporation on behalf of said corporation. /s/ Laura J. Lucas _________________________________ Notary Public CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PREFERRED STOCK OF JACKPOT ENTERPRISES, INC. We, Frederick Sandvick, Executive Vice President and A. J. Hicks, Secretary of JACKPOT ENTERPRISES, INC., a corporation organized and existing under the General Corporation Law of Nevada (the "Company"), in accordance with the provisions of Section 78.195 of such law, DO HEREBY CERTIFY that pursuant to the authority conferred upon the Board of Directors of the Company (the "Board") by the Articles of Incorporation of the Company, the Board on July 11, 1994 adopted the following resolution which creates a series of shares of Preferred Stock designated as Series A Junior Preferred Stock, as follows: RESOLVED, that pursuant to Section 78.195 of the General Corporation Law of Nevada and the authority vested in the Board of Directors of the Company in accordance with the provisions of ARTICLE IV of the Articles of Incorporation of the Company, a series of Preferred Stock of the Company be, and hereby is, created, and the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, be, and hereby are, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting such series shall be 150,000. Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock, $0.01 par value per share, of the Company (the "Common Stock") and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of any class of Common Stock, on the last day of March, June, September and December of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Series A Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated amount of such amount) equal to $1.00 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, make any distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence, a distribution of shares of Common Stock or other capital stock of the Company or a distribution of rights or warrants to acquire any such shares, including any debt security convertible into or exchangeable for any such share, at a price less than the Fair Market Value (as hereinafter defined) of such share), then, and in each such event, the Company shall simultaneously pay on each then outstanding share of Series A Preferred Stock of the Company a distribution, in like kind, of 100 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple." In the event the Company shall at any time after July 15, 1994 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Company. The number of votes which a holder of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Company shall at any time after July 15, 1994 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Articles of Incorporation or By-laws, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) In the event that the Preferential dividends accrued on the series A Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or irrevocably set aside for payment, the holders of record of Preferred Stock of the Company of all series (including the Series A Preferred Stock), other than any series in respect of which such right is expressly withheld by the Articles of Incorporation or the authorizing resolutions included in any Certificate of Designation therefor, shall have the right, at the next meeting of stockholders called for the election of directors, to elect two members to the Board, which directors shall be in addition to the number required by the By- laws prior to such event, to serve until the next Annual Meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or irrevocably set aside for payment) in full. The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law; provided, however, that any such action by stockholders shall be taken at a meeting of stockholders and shall not be taken by written consent thereto. (D) Except as otherwise required by the Articles of Incorporation or By-laws or set forth herein, holders of Series A Preferred STock shall have no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. (A) Whenever Preferential Dividends or Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any Subsidiary (as hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors of such corporation or other entity or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that is otherwise controlled by the Company. (C) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of July 11, 1994 between the Company and Continental Stock Transfer & Trust Company, as rights agent a copy of which is on file with the Secretary of the Company at its principal executive office and shall be made available to stockholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board. Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock shall have received, subject to adjustment as hereinafter provided, (A) $1.00 per one one-hundredth (1/100) share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple." In the event the Company shall at any time after July 15, 1994 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and Other Events. (A) In the event that holders of shares of Common Stock of the Company receive after July 15, 1994 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then, and in each such event, the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entit1ed, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares of Common Stock of the Company receive after July 15, 1994 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Company receive after July 15, 1994 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Certificate of Designations, the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board is open. if the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. Section 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. Section 9. Effective Time of Adjustment. (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Company shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Section 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Articles of Incorporation of the Company. Section 11. Ranking. Unless otherwise provided in the Certificate of Incorporation of the Company or a Certificate of Designations relating to a subsequent series of Preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company s preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and senior to the Common Stock. Section 12. Amendment. The provisions hereof and the Certificate of Incorporation of the Company shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, the undersigned have executed and subscribed this Certificate of Designations and do affirm the foregoing as true under the penalties of perjury this 12th day of July, 1994. JACKPOT ENTERPRISES, INC. /s/ Frederick Sandvick _______________________________ Name: Frederick Sandvick Title: Executive Vice President ATTEST: /s/ A. J. Hicks ____________________________ A. J. Hicks, Secretary CORPORATE ACKNOWLEDGMENT STATE OF NEVADA ) ) ss.: COUNTY OF CLARK ) On this 12th day of July, 1994, before the undersigned, a Notary Public in and for Clark County, Nevada, personally appeared Frederick Sandvick, known to me to be the person who executed the foregoing Certificate of Designations and known to me to be Executive Vice President of Jackpot Enterprises, Inc. and acknowledged to me that he executed the same as an official and duly authorized act of such entity for the purposes therein expressed. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the state and County and on the day and year first above written. /s/ Sharon H. Bulloch ________________________________ Notary Public (SEAL) My commission expires: April 23, 1997 ________________________________ CORPORATE ACKNOWLEDGMENT STATE OF NEVADA ) ) ss.: COUNTY OF WASHOE ) On this 18th day of July, 1994, before the undersigned, a Notary Public in and for Washoe County, Nevada, personally appeared A. J. Hicks, known to me to be the person who executed the foregoing Certificate of Designations and known to me to be Secretary of Jackpot Enterprises, Inc. and acknowledged to me that he executed the same as an official and duly authorized act of such entity for the purposes therein expressed. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the state and County and on the day and year first above written. /s/ Sarah Jo Smithson ________________________________ Notary Public (SEAL) My commission expires: August 2, 1994 ________________________________ CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF JACKPOT ENTERPRISES, INC. The undersigned certify as follows: 1. That they are the President and Secretary, respectively, of JACKPOT ENTERPRISES, INC., a Nevada corporation (the "Corporation"). 2. That by action taken by written consent of all of the members, the Board of Directors of the Corporation on June 7, 1999, authorized the following amendment to the Corporation's Articles of Incorporation: RESOLVED: That Article IV of the Corporation's Articles of Incorporation shall be amended such that the first paragraph thereof shall be deleted in its entirety and replaced with the following: "The amount of the authorized capital stock of the corporation is 60,000,000 common shares with a par value of $.01 per share and 1,000,000 preferred shares with a par value of $1.00 per share." 3. That at a meeting of the stockholders of the Corporation held on September 14, 1999, the stockholders voted to adopt the foregoing amendment to the Corporation's Articles of Incorporation. The amendment was approved by the holders of 6,773,756 shares of the Corporation's $.01 par value common stock, representing approval of the amendment by the holders of 78.6% of the shares entitled to vote with respect to such amendment. The total number of outstanding shares of common stock of the Corporation having voting power with respect to such amendment is 8,616,538. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment to the Articles of Incorporation effective as of the 6th day of October, 1999. /s/ Don R. Kornstein _____________________________ Don R. Kornstein, President /s/ Alvin J.Hicks _____________________________ Alvin J. Hicks, Secretary STATE OF NEVADA, ) ) ss. COUNTY OF CLARK. ) This instrument was acknowledged before me on October 6th, 1999, by Don R. Kornstein, President of Jackpot Enterprises, Inc. /s/ Christina L. Fleischmann _____________________________ Notary Public STATE OF NEVADA, ) ) ss. COUNTY OF WASHOE. ) This instrument was acknowledged before me on October 6th, 1999, by Alvin J. Hicks, Secretary of Jackpot Enterprises, Inc. /s/ Sarah Jo Smithson _____________________________ Notary Public EX-10 3 EXHIBIT 10.12 RCT = Requested Confidential Treatment SETTLEMENT AGREEMENT made as of the 18 day of November, 1999 among Cardivan Company, a Nevada corporation, Corral United, Inc. a Nevada corporation, Jackpot Enterprises Inc., a Nevada corporation, and Albertson's Inc., a Delaware corporation. WITNESSETH WHEREAS, Cardivan Company ("Cardivan") and Corral United Inc. ("Corral") are each fully owned subsidiaries of Jackpot Enterprises Inc. ("Jackpot") and both Cardivan and Corral are licensees under certain license agreements with Lucky Stores Inc., a Nevada corporation, and American Drug Stores Inc., an Illinois corporation, both of which are wholly owned subsidiaries of American Stores Company, a Delaware corporation; WHEREAS, Albertson's Inc. ("Albertson's") and American Stores Company merged on June 23, 1999, and Albertson's is now the successor to the license agreements to which American Drug Stores Inc. and Lucky Stores Inc. are a party with Cardivan and Corral; WHEREAS, the license agreements which are affected by this settlement agreement are as follows: (1) License agreement made as of September 16, 1998 between Albertson's and Cardivan (the "Albertson's Agreement"); (2) License agreement entered into as of April 24, 1997 between Lucky Stores Inc. and Cardivan (the "Lucky Agreement"); (3)(i) License agreement entered as of April 24, 1997 between American Drug Stores Inc. and Corral, and (ii) license agreement entered into as of April 24, 1997 between American Drug Stores Inc. and Cardivan (collectively, the "Sav-On Agreement"); WHEREAS, Albertsons and Raley's, a California corporation ("Raley's"), entered into an Asset Purchase Agreement dated as of May 17, 1999, by which Albertson's divested itself of 15 supermarkets that had been covered by the Albertson's Agreement; WHEREAS, Cardivan commenced a lawsuit against Albertson's and Raley's, Case No. CV-S-99-1100-DWH-RJJ, in which Cardivan seeks declaratory relief, injunctive relief, and damages and which action is pending in the United States District Court, District of Nevada ("the Action"); WHEREAS, Cardivan and Albertson's wish to settle the dispute and lawsuit as between them upon the following terms and conditions. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein and after set forth, the parties agree as follows: 1. Albertson's hereby represents and warrants that it has full authority and ability to enter into this agreement, on behalf of itself and on behalf of Lucky Stores Inc. and American Drug Stores Inc. 2. The Lucky and Sav-On Agreements are hereby terminated except as provided in Items 5 and 18 hereof, and the Albertson's Agreement is hereby amended to grant Cardivan an exclusive for the operation of gaming devices in all supermarkets, drug stores and convenience stores (as hereinafter defined) operated in the State of Nevada by Albertson's or any of its affiliates subject to the terms of this agreement. The term of the Albertson's Agreement is revised to end RCT; provided, however, that in the event Albertson's and/or its affiliates, between RCT and RCT, have not opened at least RCT new or replacement supermarkets in that area consisting of the cities of Las Vegas, North Las Vegas, and Henderson, Nevada, and the unincorporated area immediately adjacent thereto ("Las Vegas metropolitan area") (net of any supermarkets which have been permanently closed for business with no replacement in which gaming is permitted, but without any deduction or adjustment for stores sold to an unrelated third party or closed for reasons beyond Albertson's reasonable control [e.g., condemnation and change of law]), which calculation shall be made as of RCT the date of expiration of such term shall be extended from RCT to RCT. Cardivan shall have the right, in its sole and absolute discretion, upon written notice to Albertson's received at least RCT prior to expiration of the initial term (which notice may be conditioned on (i) Albertson's and/or its affiliates opening the RCT supermarkets on the terms set forth above, or (ii) the absence of any material event beyond Cardivan's reasonable control occurring prior to the date of expiration of the initial term that could adversely affect the financial benefits of Albertson's Agreement to Cardivan) to extend the agreement through RCT. 3. RCT and limit Jackpot's guaranty in Albertson's Agreement to Cardivan's obligations relating to the combo stores. 4. Delete Albertson's and Cardivan's options to terminate the Albertson's Agreement effective RCT as set forth in Paragraph 2(c) of the agreement. 5. License fees: A. License fees will be based on store format. Fees in Lucky Agreement will apply to all existing and future food stores (excluding drug and convenience stores), operated under any trade name by Albertson's or any of its affiliates which do not have an in-store pharmacist ("traditional stores"). Fees in Albertson's Agreement will apply to all existing and future food stores, operated under any name by Albertson's or any of its affiliates, which includes a pharmacist ("combo stores"; the traditional stores and combo stores being herein collectively referred to as "supermarkets"). Fees in Sav-On Agreement will apply to all drug stores operated under any trade name by Albertson's or any of its affiliates. The term "drug store" shall not include a drug or pharmacy department located within a combo store. Note: The fees for combo store #6046 Rainbow & Charleston (Lucky #121-787) shall be determined by the Albertson's agreement RCT. B. License fees for the option term will be the same as currently set forth in the agreements. C. License fees for the period commencing RCT and ending RCT will be adjusted as follows: Northern Nevada: The fees for Albertson's #149, #151 and #175 will be based on actual number of machines (15) in each supermarket. Fees for all supermarkets (with or without a pharmacy) located or to be opened in Reno/Sparks/Carson City will be reduced to RCT from the fee schedule set forth in the Albertson's Agreement. Fees for the supermarkets located or to be opened in Elko and Winnemucca will be reduced RCT from the fee schedule set forth in the Albertson's Agreement. Southern Nevada: Fees for traditional stores located or to be opened in Las Vegas metropolitan area will be based on the fee schedule set forth in the Lucky's Agreement subject to a RCT reduction in monthly fees for each store. For all combo stores opened in the Las Vegas metropolitan area on or after RCT, the license fee per machine per month will be reduced RCT from the fees set forth in the Albertson's Agreement for the balance of the initial term. In the event Cardivan exercises its option to extend the agreement for the option term, all amounts associated with the RCT reduction in fees attributable to the new combo stores (and without any reduction whatsoever for the RCT adjustment in fees set forth in Items 1 and 2 of the "Additional Provisions" described in Exhibit "C" to Albertson's Agreement) will be repaid to Albertson's with interest at an annual rate of RCT either (i) in a lump sum on the first day of the option term, or (ii) over the duration of the option term in accordance with terms mutually agreed by the parties. In the event Cardivan fails to exercise the option term, no repayment will be required. Note: The RCT adjustment set forth above will not affect the provision in Albertson's Agreement providing for license fees during the RCT year of operation of any combo store to be reduced to RCT of the stipulated rate (as adjusted herein). Sav-On: Fees for all drug stores located or to be opened in the state of Nevada will be reduced to RCT per machine per month. If the initial term is extended through RCT, the license fee per machine per month for the period RCT through RCT will be RCT. D. Notwithstanding anything to the contrary in Items 5.A. - 5.C. above, in the event Cardivan or any of its affiliates is party to any agreement with RCT which provides for the payment of rent or license fees for combo stores located in the Las Vegas metropolitan area greater than the license fees set forth in this agreement for Albertson's combo stores located in Las Vegas metropolitan area, the license fees set forth in this agreement for such stores without regard to temporary adjustment, reductions, or abatements otherwise provided in either the Albertson's Agreement or this agreement (e.g., the RCT reduction or RCT adjustment in fees described in Item 5.C. above) shall be automatically adjusted from time to time to equal the greater of (i) the license fees set forth in this agreement for such stores, and (ii) the rent or license fees paid to RCT. 6. Cardivan will have the right to reduce the number of machines in each Sav-On drug store (new or existing) from RCT to a minimum of RCT machines. Once a reduction is made, Cardivan will have no right to increase the number of machines without Albertson's consent and all excess space will be relinquished to Albertson's for use in Albertson's operations. 7. Cardivan will have the right to close gaming operations in the Sav-On drug stores during the "graveyard" shift (approximately 11:00 p.m. to 7:00 a.m.) with RCT adjustment in license fees. 8. In the event Albertson's in any RCT period during the period starting RCT and ending RCT sells to an unrelated third party a minimum of either RCT supermarkets or RCT drug stores in which gaming is permitted and which are located in the state of Nevada (net of any stores which are sold to an unrelated third party who either [i] assumes Albertson's agreement with Cardivan for such stores, [ii] enters into a new agreement with Cardivan for the operation of gaming devices in such stores, or [iii] is party to an agreement granting Cardivan or any of its affiliates the right to operate gaming devices in such stores), Albertson's agrees to RCT that would otherwise have been paid by Cardivan for such stores had the stores remained open calculated from the date of closing/sale to RCT. 9. In the event Albertson's elects to operate gaming devices in any convenience stores associated with its fuel center facilities located in the state of Nevada ("convenience stores"), Cardivan shall have the exclusive right to such gaming operations during the term of the Albertson's Agreement (as revised herein). Cardivan will have the option to put a maximum of RCT machines in each convenience store. The minimum number of machines permitted in convenience stores located in the Reno/Sparks/Carson City area will be RCT; for convenience stores located in the Las Vegas metropolitan area, the minimum will be RCT; and for all other areas, the minimum will be mutually determined by the parties. Once a decision is made, Cardivan will have no right to increase the number of machines without Albertson's consent and all excess space will be relinquished to Albertson's for use in Albertson's operations. The license fees for convenience stores will be RCT per machine per month during the initial term and RCT per machine per month during the option term. Albertson's will provide all change people required for the operation of gaming devices in such stores. 10. Effective RCT, the balance of the security deposits under both the Lucky and Albertson's Agreements in the aggregate amount of RCT will be applied to Albertson's/Lucky's/Sav-On's license fees. 11. The nonrefundable fee in the amount of RCT under the Albertson's Agreement will be prorated from RCT, and the prorata amount for the period attributable to the period after Cardivan vacates all of the 15 stores sold to Raley's shall be applied to Albertson's/Lucky's/Sav-On's license fees effective as of the vacating date. For the purpose of this Item 11, Cardivan shall not be deemed to have vacated the stores during such period of time as Cardivan or any of its affiliates have the right to operate gaming devices in such stores pursuant to a separate agreement with Raley's or any of its affiliates. 12. Effective RCT, Albertson's will credit to the Albertson's/Lucky's/Sav-On license fees an amount equal to the store closure allowance (approximately RCT) currently allowed under Albertson's Agreement and attributable to the period of closure for the 15 stores sold to Raley's subject to Cardivan's agreement to repay, and indemnify Albertson's against, any portion of such amount which the court orders be paid to Raley's or any other party. 13. Albertson's agrees to give Cardivan a credit against the Albertson's/Lucky/Sav-On license fees for any portion of the license fees already paid to Albertson's (and not otherwise paid or reimbursed to Cardivan) for the period after the date of the sale to Raley's which the court orders (or absent an order by the court, Cardivan, Raley's and Albertson's agree) are not required to be paid to Raley's or to any other person on Raley's behalf. 14. Effective as of the date Cardivan vacates the 15 stores sold to Raley's, Albertson's agrees to credit Cardivan's license fees for the Albertson's/Lucky/Sav-On stores with an amount, not to exceed RCT, equal to the unamortized portion of the license taxes/permit fees paid by Cardivan to local and/or state governmental authorities prior to February 1, 2000 for the 15 stores sold to Raley's. 15. Cardivan shall vacate the 15 stores sold to Raley's by February 1, 2000 unless otherwise agreed in writing by Raley's on terms which will not subject Albertson's to liability for any such extension beyond February 1, 2000 (including any claim by United Coin against Raley's which could be pursued against Albertson's under the terms of the Asset Purchase Agreement or otherwise or any claim by Raley's for amounts described in Items 10, 11, 13 or 14 which have been credited to license fees due under Albertson's Agreement as revised herein). 16. Cardivan agrees to dismiss the Action against Albertson's with prejudice, with both parties to pay their respective costs and attorneys' fees. Because both parties shared confidential information with the other party's outside counsel in negotiating the settlement of the Action, Cardivan will ensure that RCT, will represent Anchor Coin against Albertson's regarding any claim made or that could have been made in the Action or in United Coin Machine Co. v. Cardivan Co., et al., Case #A408506, pending in District Court, Clark County, Nevada; and Albertson's will ensure that neither RCT will represent Raley's against Cardivan regarding any claim made or that could have been made in the Action or in United Coin Machine Co. v. Cardivan Co., Case #408506, pending in District Court, Clark County, Nevada ("the United Action"). Upon the execution of this Settlement Agreement by all parties, Cardivan will prepare and execute a stipulation and order of dismissal of its claims against Albertson's which will be held in escrow by Albertson's counsel pending negotiations with Raley's, Anchor Coin and United Coin. The stipulation may be filed under seal by Albertson's counsel on 24 hours written notice to Cardivan's counsel. 17. Albertson's and Cardivan will use reasonable efforts to encourage Raley's to permit Cardivan to operate in Raley's stores in Clark County, Nevada, and to encourage United Coin, Anchor Coin and Raley's to settle all claims made or that could have been made in the pending federal or state lawsuits. 18. Albertson's agrees not to assert, and hereby waives, any claims against Cardivan arising out of the transactions or occurrences stated in the Action or the United Action. Cardivan agrees not to assert, and hereby waives, any claims against Albertson's arising out of the transactions or occurrences stated in the Action or the United Action. Neither Cardivan nor Albertson's waive, release or settle any claims arising (a) out of this Settlement Agreement; or (b) under the Albertson's Agreement, the Lucky Agreement, or the Sav-On Agreement which do not arise out of the transactions or occurrences stated in the Action or the United Action. 19. The parties hereto agree to keep the terms of this agreement confidential and not to disclose same except by reason of court order or as required by statute or regulation after prior notice to the other party. The parties further agree to keep the fact of this settlement confidential to allow negotiations with Raley's and United Coin and that before any party hereto discloses the existence of this agreement they will give prior notice of at least twenty-four hours to the other party. ALBERTSON'S INC. JACKPOT ENTERPRISES INC. By: /s/ William H. Arnold By: /s/ Don R. Kornstein ________________________ __________________________________ Name: William H. Arnold Name: Don R. Kornstein Title: Vice President Title: President & Chief Executive Officer AMERICAN DRUG STORES CARDIVAN COMPANY By: /s/ William H. Arnold By: /s/ George Congdon ________________________ _________________________________ Name: William H. Arnold Name: George Congdon Title: Vice President Title: President LUCKY STORES INC. CARDIVAN COMPANY By: /s/ William H. Arnold By: /s/ George Congdon ________________________ _________________________________ Name: William H. Arnold Name: George Congdon Title: Vice President Title: President CAMPBELL & WILLIAMS As to paragraph 16 only: By: /s/ Donald Campbell ________________________ Donald Campbell Partner EX-10 4 EXHIBIT 10.13 RCT = Requested Confidential Treatment FIRST AMENDMENT TO SETTLEMENT AGREEMENT THIS FIRST AMENDMENT TO SETTLEMENT AGREEMENT ("First Amendment") is made as of this 22nd day of December, 1999, among Cardivan Company, a Nevada corporation; Corral United, Inc., a Nevada corporation; Jackpot Enterprises Inc., a Nevada corporation; and Albertson's, Inc., a Delaware corporation. RECITALS 1. The parties to this First Amendment entered a Settlement Agreement as of November 18, 1999, to resolve disputes arising from license agreements and litigation identified therein; and now desire to amend the Settlement Agreement to more accurately reflect their original intent. AGREEMENT 1. Paragraph 13 of the Settlement Agreement is hereby omitted, and the following substituted in its place: 13. Albertson's agrees to give Cardivan a credit against the license fees it has paid to Albertson's on account of the 15 Las Vegas stores, from the time that Raley's took possession until Feb. 1, 2000, ("Paid License Fees") to the extent the Paid License Fees exceed the amount that United agreed to pay to Raley's. (The amount of excess is approximately RCT per device per month reflecting a payment for the Southern Nevada stores of RCT per device per month which amount constitutes the total amount of lost fees that Raley's would have received from United for all devices in Nevada.) This credit shall automatically be reduced, and may be reduced to zero, by a) the amount of the Paid License Fees, if any, that a court orders that Raley's is entitled to; and/or by b) the amount of the Paid License Fees, if any, that Albertson's, and Cardivan agree should be paid to Raley's. This credit shall not be given until both the Action and United Coin v. Cardivan, Albertson's, et al. filed in District Court, Clark Co., Nevada, are dismissed or otherwise finally adjudicated. 2. In all other respects, the Settlement Agreement remains unchanged and in full force and effect. ALBERTSON'S INC. JACKPOT ENTERPRISES INC. By: /s/ Charles F. Cole By: /s/ Don R. Kornstein _________________________________ __________________________ Name: Charles F. Cole Name: Don R. Kornstein Title: Vice President, Litigation Title: President and Chief and Regulatory Affairs Executive Officer AMERICAN DRUG STORES INC. CARDIVAN COMPANY By: /s/ Charles F. Cole By: /s/ George Congdon __________________________________ __________________________ Name: Charles F. Cole Name: George Congdon Title: Vice President Title: President LUCKY STORES INC. CORRAL UNITED INC. By: /s/ Charles F. Cole By: /s/ George Congdon __________________________________ __________________________ Name: Charles F. Cole Name: George Congdon Title: Vice President Title: President EX-27 5
5 This schedule contains summary financial information extracted from Jackpot's Condensed Consolidated Balance Sheets - December 31, 1999 and June 30, 1999 and its Condensed Consolidated Statements of Income - Three and Six Months Ended December 31, 1999 and 1998 and is qualified in its entirety by reference to such statements. 6-MOS JUN-30-2000 JUL-01-1999 DEC-31-1999 70,209 0 0 0 0 74,699 35,353 22,593 92,832 7,643 0 0 0 99 81,924 92,832 0 45,244 0 42,799 2,282 0 0 11,841 3,671 0 0 0 0 8,170 .95 .95
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