-----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, KWGYggg7shWXNOHA4a71f8vBwXtltiV3SgCYS3yy2TcbSB3dFvrL1VzIZ4EsY0w1 aRdicRwHLkPNbDmXZer0+Q== 0000351903-00-000009.txt : 20000516 0000351903-00-000009.hdr.sgml : 20000516 ACCESSION NUMBER: 0000351903-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633677 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 March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to___________________ Commission file no. 1-9728 JACKPOT ENTERPRISES, INC. _____________________________________________________________________ (Exact name of registrant as specified in its charter) NEVADA 88-0169922 _______________________________ ____________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1110 Palms Airport Drive, Las Vegas, Nevada 89119 ___________________________________________ __________ (Address of principal executive offices) (Zip Code) 702-263-5555 ____________________________________________________ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ___ There were 8,775,470 shares of the registrant's common stock outstanding as of May 5, 2000. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2000 and June 30, 1999 Condensed Consolidated Statements of Operations - Three and Nine Months Ended March 31, 2000 and 1999 Condensed Consolidated Statement of Stockholders' Equity - Nine Months Ended March 31, 2000 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 2000 and 1999 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Part II. Other Information Item 6. Exhibits and Reports on Form 8-K JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) March 31, June 30, ASSETS 2000 1999 ______ _________ _________ Current assets: Cash and cash equivalents $ 62,780 $ 47,637 Short-term investments, at fair value - 7,292 Prepaid expenses 1,055 1,515 Other current assets 1,811 1,985 ________ ________ Total current assets 65,646 58,429 ________ ________ Property and equipment, at cost: Land and buildings - 435 Gaming equipment 29,261 29,418 Other equipment 4,234 4,546 Leasehold improvements 374 368 ________ ________ 33,869 34,767 Less accumulated depreciation (21,142) (21,010) ________ ________ 12,727 13,757 Investments in internet-related businesses 7,969 - Lease acquisition costs and other intangible assets, net of accumulated amortization of $1,484 and $3,404 1,528 3,119 Goodwill, net of accumulated amortization of $3,003 and $2,879 3,618 3,743 Lease and other security deposits 65 1,242 Other non-current assets - 2,005 ________ ________ Total assets $ 91,553 $ 82,295 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (Concluded) (Unaudited) March 31, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 ____________________________________ _________ _________ Current liabilities: Accounts payable $ 1,131 $ 1,794 Other current liabilities 3,286 3,000 ________ ________ Total current liabilities 4,417 4,794 Deferred rent 3,921 2,554 Deferred income tax 454 333 ________ ________ Total liabilities 8,792 7,681 ________ ________ Commitments and contingencies Stockholders' equity: Preferred stock - authorized 1,000,000 shares of $1 par value; none issued Common stock - authorized 60,000,000 shares of $.01 par value; 10,034,094 and 9,860,252 shares issued 100 99 Additional paid-in capital 68,588 66,465 Retained earnings 27,850 21,069 Less 1,258,624 and 1,243,714 shares of common stock in treasury, at cost (13,777) (13,776) Unrealized gain on available-for-sale securities, net of tax - 757 ________ ________ Total stockholders' equity 82,761 74,614 ________ ________ Total liabilities and stockholders' equity $ 91,553 $ 82,295 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999 (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, __________________ _________________ 2000 1999 2000 1999 _______ _______ _______ _______ Revenues: Route operations $21,445 $24,262 $66,689 $69,514 Casino operations - 314 - 1,016 _______ _______ _______ _______ Totals 21,445 24,576 66,689 70,530 _______ _______ _______ _______ Costs and expenses: Route operations 19,371 19,964 62,170 58,027 Casino operations - 274 - 968 Amortization 152 299 602 877 Depreciation 975 1,003 2,956 3,074 General and administrative 3,845 867 6,459 2,664 _______ _______ _______ _______ Totals 24,343 22,407 72,187 65,610 _______ _______ _______ _______ Operating income (loss) (2,898) 2,169 (5,498) 4,920 Other income: Net fee from terminated merger - - 11,116 - Gain on sale of short-term investments - - 2,361 - Interest and other income 541 346 1,505 1,064 _______ _______ _______ _______ Totals 541 346 14,982 1,064 _______ _______ _______ _______ Income (loss) before income tax (2,357) 2,515 9,484 5,984 _______ _______ _______ _______ Provision (credit) for Federal income tax: Current (1,256) 1,211 2,582 2,082 Deferred 288 (507) 121 (407) _______ _______ _______ _______ Totals (968) 704 2,703 1,675 _______ _______ _______ _______ Net income (loss) $(1,389) $ 1,811 $ 6,781 $ 4,309 ======= ======= ======= ======= Basic earnings (loss) per share $ (.16) $ .21 $ .79 $ .50 ======= ======= ======= ======= Diluted earnings (loss) per share $ (.16) $ .21 $ .78 $ .50 ======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED MARCH 31, 2000 (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 6,781 6,781 Other comprehensive income: Unrealized gain on available-for-sale securities, net of tax and reclassification adjustment (See Note 3 and disclosure below) (757) (757) ______ Comprehensive income 6,024 Tax benefit from stock options 83 83 Issuance of shares on exercise of stock options 28 295 295 Repurchases of common stock (15) (1) (1) Issuance of shares for investment in internet- related business 146 1 1,745 1,746 ______ ____ _______ _______ ______ ________ ____ _______ Balance March 31, 2000 10,034 $100 $68,588 $27,850 (1,259) $(13,777) $ - $82,761 ====== ==== ======= ======= ====== ======== ==== =======
Disclosure of reclassification amount: Unrealized gain for the nine months ended March 31, 2000 $ 777 Less reclassification adjustment for gain included in net income (1,534) _______ Unrealized gain on available-for-sale securities, net of tax $ (757) ======= See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 2000 AND 1999 (Dollars in thousands) (Unaudited) 2000 1999 ________ ________ Operating activities: Net income $ 6,781 $ 4,309 Adjustments to reconcile net income to net cash provided by operating activities: Net fee from terminated merger (11,116) - Depreciation and amortization 3,558 3,951 Deferred Federal income tax 121 (407) Gain on sale of short-term investments (2,361) - Increase (decrease) from changes in: Prepaid expenses and other current assets 1,768 953 Other non-current assets (29) 12 Accounts payable and other current liabilities 742 193 Deferred rent and other liabilities 1,367 50 ________ ________ Net cash provided by operating activities 831 9,061 ________ ________ Investing activities: Purchase of marketable securities - (6,127) Investments in internet-related businesses (6,183) - Break-up fee from terminated merger 13,500 - Proceeds from sale of short-term investments 8,488 - Net proceeds from location operators 94 22 Proceeds from sales of property and equipment 482 1,676 Purchases of property and equipment (1,798) (4,216) Increase in lease acquisition costs and other intangible and non-current assets (2,031) (1,123) Lease and other security deposits 1,466 - ________ ________ Net cash provided by (used in) investing activities 14,018 (9,768) ________ ________ Financing activities: Proceeds from issuance of common stock 295 67 Repurchases of common stock (1) (1,706) ________ ________ Net cash provided by (used in) financing activities 294 (1,639) ________ ________ Net increase (decrease) in cash and cash equivalents 15,143 (2,346) Cash and cash equivalents at beginning of period 47,637 50,275 ________ ________ Cash and cash equivalents at end of period $ 62,780 $ 47,929 ======== ======== Supplemental disclosures of cash flow data: Cash paid during the period for: Federal income tax $ 1,275 $ 1,200 Non-cash investing and financing activities: Issuance of common stock for investment in internet-related business $ 1,746 -
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Significant accounting policies and business: Business: On March 8, 2000, Jackpot Enterprises, Inc. ("Jackpot" or the "Company") announced a series of actions designed to transform the Company from a gaming entity into a high growth, technology Internet infrastructure provider and fund manager ("Internet- Related Businesses"). On March 10, 2000, the Company formed J Net Ventures I, LLC ("Venture I"), an entity that will invest primarily in Internet-Related Businesses. In connection with its change in business strategy, the Company has retained the investment banking firm of Koffler & Company to advise the Company on the disposition of its gaming machine route operations ("Route Operations"). In addition, the Board of Directors has unanimously adopted a resolution to change the name of the Company to J Net Enterprises, Inc. Such change is subject to the approval of the Company's stockholders. Basis of presentation: The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. Certain revenues previously classified as casino operations revenues in the condensed consolidated statements of operations for the three and nine months ended March 31, 1999 have been reclassified to Route Operations revenues. Such reclassifications were not material to total revenues. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company's financial position as of March 31, 2000, the results of its operations for the three and nine months ended March 31, 2000 and 1999 and its cash flows for the nine months ended March 31, 2000 and 1999. The results for the three and nine months ended March 31, 2000 and 1999 are not necessarily indicative of results for a full year. Information included in the condensed consolidated balance sheet as of June 30, 1999 has been derived from the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended June 30, 1999 (the "1999 Form 10-K"). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and disclosures included in the 1999 Form 10-K. As of March 31, 2000, the Company had three investments in Internet-Related Businesses (see Note 2). The various interests that the Company acquires in Internet-Related Businesses will be accounted for under three methods: consolidation, equity and cost. The applicable accounting method is generally determined based on the Company's ability to control operations and voting interest in the Internet-Related Business. Investments in debt and equity securities: The Company accounts for investments in debt and equity securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). This statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities, and requires such securities be classified as either held to maturity, trading, or available- for-sale. Management determines the appropriate classification of its investments in securities at the time of purchase and reevaluates such classification at each balance sheet date. SFAS 115 requires that available-for-sale securities be carried at fair value with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Unrealized gains and losses for available-for-sale securities are excluded from earnings. Realized gains from sales of investment securities for the nine months ended March 31, 2000 were $2,361,000. There were no realized gains from sales of investment securities for the nine months ended March 31, 1999. There were no realized losses from sales of investment securities for the three and nine months ended March 31, 2000 and 1999, or any realized gains from the sale of investment securities for the three months ended March 31, 2000 and 1999. Recently issued accounting standards: In April 1998, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities". This standard provides guidance on the financial reporting for start-up costs and organization costs. This standard requires costs of start-up activities and organization costs to be expensed as incurred, and is effective for fiscal years beginning after December 15, 1998. The Company adopted this statement on July 1, 1999. This statement had no effect on the accompanying condensed consolidated financial statements and will not have a significant effect on the Company's financial position or results of operations for the fiscal year ending June 30, 2000. In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes additional accounting and reporting standards for derivative instruments and hedging activities. Presently, the Company does not have any derivative instruments, nor does the Company participate in hedging activities. Accordingly, SFAS 133 is not expected to have a significant effect on the results of operations or related disclosures. Note 2 - Investments in Internet-Related Businesses: Digital Boardwalk, LLC: On March 1, 2000, the Company purchased a 35% ownership interest and the right to purchase up to 139,256 Common Units at an exercise price of $3.59 per Common Unit (the "Warrant") in Digital Boardwalk, LLC ("Digital"), a privately-owned company, for an aggregate purchase price of $4,746,000. The consideration consisted of $3,000,000 in cash and $1,746,000 of the Company's common stock (146,342 shares). The Warrant is exercisable commencing on the closing date of Digital's next round of equity or convertible debt financing and shall be exercisable until the earlier of the consummation of a qualified initial public offering, as defined in the purchase agreement between the parties, or March 1, 2003. Digital is a developer of internet applications and technologies. The Company accounts for its investment in Digital under the equity method. The Company's share of Digital's results of operations and other comprehensive income from March 1, 2000 through March 31, 2000 did not have a significant effect on the Company's financial position or results of operations for the three and nine months ended March 31, 2000. Meister Brothers Investments, LLC: On March 1, 2000, the Company acquired a 1% membership interest in Meister Brothers Investments, LLC ("MBI") for $40,000 pursuant to an agreement between MBI, the Company, Keith Meister ("KM") and Todd Meister ("TM"), Co-Presidents of J Net Venture Partners, LLC, an affiliate of the Company. At the time of the transaction, KM and TM each contributed 50% of the limited partnership interests in Meister Brothers Investments, LP (the "Partnership") to MBI II Investments, LLC ("MBI II"), a limited liability company, the sole member of which is MBI. The general partnership interest in the Partnership is held by MBI. As a result of the transactions: (i) KM and TM each own 49.5% of the membership interests in MBI; (ii) the Company owns a 1% membership interest in MBI as a managing member; (iii) MBI owns all of the membership interests in MBI II; and (iv) MBI and MBI II own all of the general and limited partnership interests in the Partnership. In connection with the agreement described above, KM, TM and the Company entered into a Call Agreement on March 1, 2000. Pursuant to the terms of the Call Agreement, KM and TM granted an option to the Company to purchase from KM and TM, and KM and TM are each obligated to sell to the Company, upon proper exercise, under such option (the "Call Option") all of their membership interests in MBI. Upon exercise of the Call Option by the Company, KM and TM will receive no less than 312,500 and no more than 500,000 shares of the Company's common stock, as calculated by a predetermined formula in the Call Agreement. The Call Option may be exercised by the Company at any time after March 1, 2002 and expires on March 1, 2004. Also, on March 1, 2000, KM and TM and the Company entered into a Put Agreement. Pursuant to the terms of the Put Agreement, the Company granted an option to each of KM and TM to sell to the Company and the Company shall be obligated to purchase from each of KM and TM, upon proper exercise, under such option (the "Put Option") any or all of the membership interests in MBI held by each of them in exchange for a number of common shares of the Company, as calculated by a predetermined formula in the Put Option. The Put Option may be exercised at any time after the first to occur of (i) September 1, 2001 or (ii) the date the Portfolio Value, as defined in the Put Option, is fixed at $4,000,000, but in no event shall the Put Option become exercisable any earlier than March 1, 2001. The Put Option expires on March 1, 2004. If neither the Put Option nor the Call Option is exercised, KM and TM have a further option to purchase, or cause MBI to purchase, the Company's interest in MBI at its fair market value as determined by appraisal. This option is exercisable on or after April 1, 2004 and expires April 30, 2004. Cyberbills, Inc.: On March 10, 2000, the Company purchased 3,385,106 shares of Series C Preferred Stock of Cyberbills, Inc. ("Cyberbills") at a cost of $3,183,000. Of such purchase, $3,000,000 was made on behalf of Venture I. Cyberbills offers a service to its customers which allows them to view, pay and manage their bills over the Internet. The Company accounts for this investment under the cost method. Note 3 - Comprehensive income (loss): Comprehensive income (loss) for the three and nine months ended March 31, 2000 and 1999 is the following (dollars in thousands): Three Months Nine Months Ended Ended March 31, March 31, _______________ ______________ 2000 1999 2000 1999 _______ ______ ______ ______ Net income (loss) $(1,389) $1,811 $6,781 $4,309 Other comprehensive income - 138 (757) 138 _______ ______ ______ ______ Comprehensive income (loss) $(1,389) $1,949 $6,024 $4,447 ======= ====== ====== ======
Note 4 - Earnings (loss) per share: Basic earnings (loss) per share for the three and nine months ended March 31, 2000 and 1999 is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share for the three and nine months ended March 31, 2000 and 1999 is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding. Options and warrants to purchase common stock, whose exercise price was greater than the average market price for the respective period, have been excluded from the computations of diluted earnings per share. Such antidilutive options and warrants outstanding for the three months ended March 31, 1999 were 1,738,000, and for the nine months ended March 31, 2000 and 1999 were 712,000 and 721,000, respectively. The weighted average number of options outstanding for the three months ended March 31, 2000 was 1,990,000. While the exercise prices for all such options were less than the average market price for the period, these options have been excluded from the diluted loss per share calculation because the effect upon the assumed exercise of the options would not be dilutive. The following is the amount of income (loss) and number of shares used in the basic and diluted earnings (loss) per share computations (dollars and shares in thousands, except per share data): Three Months Nine Months Ended Ended March 31, March 31, _______________ ______________ 2000 1999 2000 1999 _______ ______ ______ ______ Basic earnings (loss) per share: Earnings (loss): Income (loss) available to common stockholders $(1,389) $1,811 $6,781 $4,309 ======= ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,631 8,617 8,620 8,649 ======= ====== ====== ====== Basic earnings (loss) per share $ (.16) $ .21 $ .79 $ .50 ======= ====== ====== ====== Diluted earnings (loss) per share: Earnings (loss): Income (loss) available to common stockholders $(1,389) $1,811 $6,781 $4,309 Effect of dilutive securities - - - - _______ ______ ______ ______ Income (loss), as adjusted $(1,389) $1,811 $6,781 $4,309 ======= ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,631 8,617 8,620 8,649 Common shares issuable upon assumed exercise of dilutive stock options - 44 1,056 1,048 Less common shares assumed to be repurchased by application of the treasury stock method to the proceeds using the average market price for the period - (43)(1,005) (1,000) _______ ______ ______ ______ Weighted average number of common shares and common share equivalents outstanding 8,631 8,618 8,671 8,697 ======= ====== ====== ====== Diluted earnings (loss) per share $ (.16) $ .21 $ .78 $ .50 ======= ====== ====== ======
Note 5 - Stockholders' equity: Authorized common stock: On September 14, 1999, Jackpot's stockholders approved an increase in the number of authorized shares of common stock from 30,000,000 to 60,000,000. The 1992 Incentive and Non-qualified Stock Option Plan: On September 30, 1999, the exercise price of the June 30, 1999 grant of nonqualified stock options to purchase an aggregate of 110,000 shares of common stock (27,500 each to four directors) was vested at $8.75 per share, the fair market value of the stock on that date, pursuant to the terms of the 1992 Incentive and Non-qualified Stock Option Plan (the "1992 Plan"). On January 31, 2000, a new director was added to the Company's Board of Directors. In connection with the appointment, such director was granted a nonqualified stock option to purchase 27,500 shares of common stock. On May 1, 2000, pursuant to the terms of the grant, the exercise price was vested at $10.63 per share, the fair market value of the stock on that date. Also, on January 31, 2000, nonqualified stock options to purchase an aggregate of 450,000 shares of common stock were granted to three directors (150,000 each) at an exercise price of $10.13 per share, the fair market value on the date of grant. The option granted to each director will vest in thirds on each of the first, second and third anniversaries of the date of grant. Such options expire ten years from date of grant. See Note 6 of Notes to Consolidated Financial Statements in the 1999 Form 10-K for further information regarding the 1992 Plan and option grants. Other nonqualified stock options: On September 14, 1999, nonqualified stock options to purchase an aggregate of 120,000 shares of common stock were granted to the Company's Board of Directors (30,000 each to four directors) at an exercise price of $9.00 per share, the fair market value on the date of grant. The option granted to each director will vest 50% on each of the first and second anniversaries of the date of grant and shall be subject to accelerated vesting under certain circumstances. Such options expire ten years from date of grant. On January 31, 2000, nonqualified stock options to purchase an aggregate of 150,000 shares of common stock were granted to the Co-Presidents of J Net Venture Partners, LLC, an affiliate of the Company, (75,000 each) at an exercise price of $10.13 per share, the fair market value on the date of grant. Such options will vest in thirds on each of the first, second and third anniversaries of the date of grant and expire ten years from date of grant. Note 6 - Other events: On August 16, 1999, Jackpot received a notice from Players International, Inc. ("Players") terminating the Agreement and Plan of Merger dated February 8, 1999 (the "Players Agreement"). Such notice contained the terms of a merger offer for Players from Harrah's Entertainment, Inc. On August 19, 1999, pursuant to the terms of the Players Agreement, Jackpot received a break- up fee of $13,500,000. As a result of the termination of the Players Agreement, capitalized costs of $2,384,000 incurred in connection with the proposed acquisition of Players were expensed resulting in a net break-up fee of $11,116,000. During the nine months ended March 31, 2000, Jackpot sold 1,014,400 shares of Players common stock for $8,488,000 ($8.37 per share). As a result of the sale of such shares, which were purchased on March 10, 1999 at a cost of $6,127,000 ($6.04 per share), Jackpot realized a gain of $2,361,000. Note 7 - Commitments and contingencies: Litigation settlement: In August 1998, Albertson's, Inc. ("Albertson's," a retail chain in which Jackpot conducts gaming operations) and American Stores Company ("American Stores") entered into a merger agreement that provided for the acquisition of American Stores by Albertson's. The merger of Albertson's and American Stores was completed on June 23, 1999. As a condition to avoiding and/or settling legal proceedings against the merger by the Federal Trade Commission and the Attorneys General of California, Nevada and New Mexico, Albertson's agreed to divest certain of its stores, including 19 stores in southern Nevada, fifteen of which were Jackpot locations. In late September and early October 1999, Albertson's sold those locations to Raley's, Inc. ("Raley's"), and Raley's has operated them since. On August 30, 1999, Jackpot commenced litigation in United States District Court for the District of Nevada against Albertson's and Raley's to enforce its rights to remain in the fifteen locations under its agreement with Albertson's. On September 14, 1999, Jackpot obtained a preliminary injunction to prevent Albertson's and Raley's from interfering with its right to occupy the subject premises and conduct gaming operations. Albertson's and Raley's appealed the injunction and made motions for summary judgment. In connection with Raley's acquisition of the locations, United Coin Machine Company ("United Coin"), the slot route operator for Raley's northern Nevada stores, filed applications with the Nevada Gaming Control Board to operate the gaming machines at the fifteen stores. On September 23, 1999, United Coin commenced an action in Nevada state court against Jackpot, Albertson's, Raley's and Anchor Coin ("Anchor"), the slot route operator at the four other Albertson's southern Nevada locations seeking declaratory and injunctive relief and money damages. On January 26, 2000, Jackpot entered into a Settlement Agreement and Release (the "Settlement Agreement") with Albertson's, Raley's, Anchor and United Coin. Pursuant to the terms of the Settlement Agreement, the parties agreed to dismiss with prejudice all litigation pending among them and to the takeover of gaming operations by United Coin of the 19 stores in southern Nevada, effective February 1, 2000. Of the 19 stores in southern Nevada operated by Raley's, Jackpot had operated 246 gaming machines at 15 locations pursuant to its long-term agreement with Albertson's. Jackpot believed it was in its best interest to settle the case and thereby preserve and solidify its long-term relationship with Albertson's, its largest customer, pursuant to the terms of an amendment to its agreement with Albertson's, which it had theretofore arranged and which is described below in this note. It was also important to Jackpot to avoid further litigation and fully resolve all claims among and between the parties. All costs incurred in connection with the litigation and settlement, including legal and settlement costs aggregating approximately $950,000, were recorded in the six months ended December 31, 1999. Settlement agreement with Albertson's: Prior to the settlement described above, on November 18, 1999, Jackpot and Albertson's had entered into a settlement agreement (the "Agreement"). The Agreement amended the license agreement entered in September 1998 between Jackpot and Albertson's (the "Albertson's Agreement"). The Agreement also terminated Jackpot's separate license agreements with Lucky Stores, Inc. and American Drug Stores, Inc. and incorporates Jackpot's exclusive rights in Nevada to operate gaming devices at the locations (including any future locations) of those entities into the Albertson's Agreement, as amended by the Agreement. Under the Agreement, Jackpot has the exclusive option to extend the agreements beyond their initial terms and will continue to have exclusive gaming rights for new Albertson's locations. In addition, Albertson's granted Jackpot exclusive gaming rights in all drug stores opened by Albertson's or any of its affiliates in Nevada, and in future fuel center locations, a new retailing concept that Albertson's will open, in which gaming may be offered to customers. Further, pursuant to the terms of the Agreement, Jackpot will receive substantial reductions in certain license fees, which are effective from February 1, 2000 through the initial term of the Agreement, and certain immediate credits toward license fees. Including 28 former Lucky Store locations in southern Nevada, which have been operating under the Albertson's name since November 1999, the Agreement currently involves the operation of 1,017 gaming machines in 80 locations. Future minimum lease payments (dollars in thousands) under noncancelable operating leases or licenses, including the Agreement described above, aggregated approximately $137,010 at March 31, 2000, payable as follows: $40,393 in the remainder of fiscal 2000 and fiscal 2001; $32,162 in fiscal 2002; $32,392 in fiscal 2003; $10,199 in fiscal 2004; $9,682 in fiscal 2005; and $12,182 thereafter. The Rite Aid dispute: On December 8, 1999, certain Route Operations subsidiaries of Jackpot commenced litigation in the United States District Court for the District of Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit is an action for rescission of two license agreements between those subsidiaries and Rite Aid and for damages based upon Rite Aid's alleged fraud. Operations of said subsidiaries under said agreements resulted in an operating loss of approximately $1.0 million and $3.0 million for the three and nine months ended March 31, 2000, respectively. On March 27, 2000, Jackpot entered into amendments to the two license agreements with Rite Aid. Based on the number of existing locations at which Jackpot currently operates gaming machines, license fees payable to Rite Aid will be reduced by approximately $2.5 million annually over the remaining term of the amended agreements. The amendments are subject to certain approvals from the Nevada Gaming Commission. If such approvals are obtained, the reduction in license fees will be effective March 1, 2000. Additionally, upon approval, all disputes between the parties, including Jackpot's lawsuit against Rite Aid, will be resolved or settled. On April 26, 2000, the Court ordered that all scheduling deadlines previously set in the case were stayed pending the filing of a Stipulation and Order of Dismissal by the parties. Further, because the amended agreements are conditioned upon certain approvals by the Nevada Gaming Commission, the parties shall be permitted to file the Stipulation for Dismissal by September 15, 2000. If the Company receives certain approvals from the Nevada Gaming Commission and the amendments to the license agreements become effective, the Company's operating losses at the Rite Aid locations should decrease substantially. However, even with the license fee reductions, management believes that the Company will continue to incur losses, and such losses may be significant, unless revenues increase significantly at these locations. Jackpot presently operates 306 gaming machines at 30 Rite Aid locations. Termination and Consulting Agreement: On February 29, 2000, the Company and Don R. Kornstein, President, Chief Executive Officer and Director, entered into a Termination and Consulting Agreement (the "Termination Agreement"). Pursuant to the terms of the Termination Agreement, Mr. Kornstein and the Company mutually agreed that his employment and position on the Board of Directors terminated on February 29, 2000. On March 10, 2000, pursuant to the terms of Mr. Kornstein's employment agreement and the Termination Agreement, the Company paid $2,906,000 to Mr. Kornstein for severance and accrued vacation costs. Of that amount, $2,835,000 has been recorded in the three months ended March 31, 2000, and is included in the line captioned General and Administrative in the accompanying condensed consolidated statements of operations for the three and nine months ended March 31, 2000 and 1999. Note 8 - Subsequent events: Subsequent to March 31, 2000, the Company invested $2,350,000 in Internet-Related Businesses. Such investments consisted of a purchase, on behalf of Venture I, of 892,500 shares of Series B Preferred Stock of Strategic Data Corp., at a cost of approximately $850,000 and short-term loans aggregating $1,300,000. Item 2. Management's Discussion and Analysis of Financial _________________________________________________ Condition and Results of Operations ___________________________________ Forward-Looking Statements __________________________ Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission contains statements that may be considered forward-looking. All statements other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", "should" and similar expressions are intended to identify forward-looking statements. In addition, from time to time, the Company may release or publish forward- looking statements relating to such matters as anticipated financial performance, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward- looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, competitive pressures, the loss or nonrenewal of any of Jackpot's significant contracts, the consolidation or disposition of selected locations as a result of the merger of Albertson's, Inc. and American Stores Company (each of which was a significant customer of the Company during the past three fiscal years), conditioning or suspension of any gaming license, unfavorable changes in gaming regulations, certain approvals from the Nevada Gaming Commission of the amendments to the Rite Aid agreements, possible future financial difficulties of a significant customer and the continued growth of the gaming industry and population in Nevada. In addition, as discussed below, certain other factors may affect future results. Readers are cautioned not to place undue reliance on any forward- looking statements, which speak only as of the date thereof. The Company assumes no obligation to update or supplement forward-looking statements as a result of new circumstances or subsequent events. Recent Developments ___________________ On March 8, 2000, the Company announced a series of actions designed to transform the Company from a gaming entity into a high growth, technology internet infrastructure provider and fund manager ("Internet-Related Businesses"). In connection with its change in business strategy, the Company has retained the investment banking firm of Koffler & Company to advise the Company on the disposition of its gaming machine route operations ("Route Operations"). In addition, the Board of Directors has unanimously adopted a resolution to change the name of the Company to J Net Enterprises, Inc. Such change is subject to the approval of the Company's stockholders. On March 10, 2000, the Company formed J Net Ventures I, LLC ("Venture I"), an entity that will invest primarily in Internet-Related Businesses. Management anticipates raising approximately $80 million for Venture I. Of the $80 million, the Company has committed $55 million and believes that the remaining $25 million will be funded by certain other investors, subject to the completion of the agreement between such investors and Venture I. With respect to the Company's $55 million commitment to Venture I, the Company anticipates that it will contribute approximately $30 million of its cash and expects to raise approximately $28 million from the issuance of convertible debentures by the Company. Such issuance is subject to the completion of a subscription agreement between the Company and certain investors. Venture I will be managed by J Net Venture Partners, LLC (the "Manager"). Allan R. Tessler, the Company's Chief Executive Officer is the Chairman of the Manager and Keith Meister and Todd Meister are Co-Presidents of the Manager. The Company will at all times own at least 51% of the Manager. Venture I will make investments primarily in early stage ventures (first and second round financing) exhibiting reasonable risk adjusted valuations. Additionally, Venture I may invest in public companies when an opportunity exists for value creation. It is anticipated that individual investments will range from $1 million to $10 million and will consist of the following: (1) New companies primarily in the business-to-business segment; (2) Established "brick and mortar" companies who have established brand identities but have not yet developed, deployed or migrated their businesses to the Internet; (3) Technology and infrastructure opportunities which capitalize on the growth of Internet traffic and the proliferation of Internet ready devices; (4) Broadband technologies and related content driven opportunities; and (5) Opportunistic turn-around situations. Factors Which May Affect Future Results _______________________________________ With its change in business strategy, the Company will be operating in a significantly different environment that involves a number of risks and uncertainties. By their very nature, the entities in which the Company will be investing capital will be in an earlier stage of development and maturity, and therefore a different level of risk and reward. Some factors including, but not limited to the following may affect the Company's future results of operations: (1) the Company's ability to successfully execute its new business model; (2) the development of the Internet and the infrastructure that supports it; (3) the Company's success may depend greatly on increased use of the Internet by businesses and individuals; (4) the ability of the Company's investees to compete against direct and indirect competitors; (5) the Company's ability to acquire interests in additional Internet-Related Businesses and (6) changes in the market for securities of Internet-Related Businesses in general and for initial public offerings of Internet companies in particular. Capital Resources and Liquidity _______________________________ Cash Flows: The Company's principal sources of cash for the nine months ended March 31, 2000 (the "2000 nine months"), consisted principally of the cash flows from investing activities and its available cash and cash equivalents which, at June 30, 1999, was $47.6 million and at March 31, 2000 was $62.8 million. Net cash provided by operating activities decreased $8.3 million, from $9.1 million for the nine months ended March 31, 1999 (the "1999 nine months") to $.8 million for the 2000 nine months. The decrease of $8.3 million was due primarily to the decrease in operating income in the 2000 nine months. Net cash provided by investing activities increased $23.8 million, from net cash used in investing activities of $9.8 million for the 1999 nine months to net cash provided by investing activities of $14.0 million for the 2000 nine months. Such increase was due primarily to the receipt of the break-up fee from the terminated merger agreement with Players International, Inc. ("Players") and the proceeds from the sale of the Players stock described below. In March 2000, the Company invested $7.9 million in Internet-Related Businesses. Such outflows consisted of $6.2 million in cash and $1.7 million of non-cash consideration. Liquidity: On October 29, 1996, Jackpot's Board of Directors authorized management to repurchase up to 500,000 shares of Jackpot's common stock at prevailing market prices. Subsequently, on January 22, 1998, such authorization was increased from 500,000 to 1,000,000 shares. From October 29, 1996 through March 31, 2000, Jackpot repurchased 800,437 shares of common stock at a cost of approximately $8.5 million. On August 16, 1999, Jackpot received a notice from Players terminating the Agreement and Plan of Merger dated February 8, 1999 (the "Players Agreement"). Such notice contained the terms of a merger offer for Players from Harrah's Entertainment, Inc. On August 19, 1999, pursuant to the terms of the Players Agreement, Jackpot received a break-up fee of $13.5 million. As a result of the termination of the Players Agreement, capitalized costs of $2.4 million incurred in connection with the proposed acquisition of Players were expensed resulting in a net break-up fee of $11.1 million. During the 2000 nine months, Jackpot sold 1,014,400 shares of Players common stock for $8.5 million. As a result of the sale of such shares, which were purchased on March 10, 1999 at a cost of $6.1 million, Jackpot realized a gain of $2.4 million. Working capital increased $7.6 million, from $53.6 million at June 30, 1999 to $61.2 million at March 31, 2000. The increase in working capital was due primarily to the receipt of the break-up fee and the sale of the Players common stock described above. The Company is in the final stages of completing its offering of approximately $28 million of Convertible Subordinated Promissory Notes (the "Notes") to a small group of investors. Certain of such investors include directors of the Company or entities controlled by such directors. The issuance of the Notes was approved by the Company's Board of Directors on January 31, 2000. The initial conversion price of $10.75 was set by the Company in connection with the limited circulation of a Confidential Memorandum prior to the public announcement of the Company's intention to effect its business transformation and was equal to an 18% premium over the then twenty day trailing average market price. The Notes will not be convertible until after one year after issuance. Stockholder approval is required with respect to the issuance of a portion of the Notes. Subject to the successful completion of the financing discussed above, management believes the Company's working capital and cash provided by operations will be sufficient to enable Jackpot to fund its $55 million commitment to Venture I, and to meet its planned capital expenditures and other cash requirements for its Route Operations for the remainder of the year ending June 30, 2000 ("Fiscal 2000"). With respect to planned capital expenditures, management anticipates Jackpot will purchase approximately $.6 million of property and equipment in the remainder of Fiscal 2000 to be used in existing and currently planned new locations. Recently Issued Accounting Standards: In April 1998, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position No. 98- 5, "Reporting on the Costs of Start-Up Activities." This standard provides guidance on the financial reporting for start-up costs and organization costs. This standard requires costs of start-up activities and organization costs to be expensed as incurred, and is effective for fiscal years beginning after December 15, 1998. The Company adopted this statement on July 1, 1999. This statement had no effect on the accompanying condensed consolidated financial statements and will not have a significant effect on Jackpot's financial position or results of operations for Fiscal 2000. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes additional accounting and reporting standards for derivative instruments and hedging activities. Presently, Jackpot does not have any derivative instruments, nor does the Company participate in hedging activities. Accordingly, SFAS 133 is not expected to have a significant effect on the results of operations or related disclosures. Results of Operations _____________________ Special Factors Affecting Route Operations: Albertson's-Raley's litigation. In August 1998, Albertson's, Inc. ("Albertson's," a retail chain in which Jackpot conducts gaming operations) and American Stores Company ("American Stores") entered into a merger agreement that provided for the acquisition of American Stores by Albertson's. Approximately 57% and 55% of Jackpot's total revenues for the fiscal years ended June 30, 1999 and 1998, respectively, were generated at the locations of those two entities. The merger of Albertson's and American Stores was completed on June 23, 1999. As a condition to avoiding and/or settling legal proceedings against the merger by the Federal Trade Commission and the Attorneys General of California, Nevada and New Mexico, Albertson's agreed to divest certain of its stores, including 19 stores in southern Nevada, fifteen of which were Jackpot locations. In late September and early October 1999, Albertson's sold those locations to Raley's, Inc. ("Raley's"), and Raley's has operated them since. On August 30, 1999, Jackpot commenced litigation in United States District Court for the District of Nevada against Albertson's and Raley's to enforce its rights to remain in the fifteen locations under its agreement with Albertson's. On September 14, 1999, Jackpot obtained a preliminary injunction to prevent Albertson's and Raley's from interfering with its right to occupy the subject premises and conduct gaming operations. Albertson's and Raley's appealed the injunction and made motions for summary judgment. In connection with Raley's acquisition of the locations, United Coin Machine Company ("United Coin"), the slot route operator for Raley's northern Nevada stores, filed applications with the Nevada Gaming Control Board to operate the gaming machines at the fifteen stores. On September 23, 1999, United Coin commenced an action in Nevada state court against Jackpot, Albertson's, Raley's and Anchor Coin ("Anchor"), the slot route operator at the four other Albertson's southern Nevada locations seeking declaratory and injunctive relief and money damages. On January 26, 2000, Jackpot entered into a Settlement Agreement and Release (the "Settlement Agreement") with Albertson's, Raley's, Anchor and United Coin. Pursuant to the terms of the Settlement Agreement, the parties agreed to dismiss with prejudice all litigation pending among them and to the takeover of gaming operations by United Coin of the 19 stores in southern Nevada, effective February 1, 2000. Of the 19 stores in southern Nevada operated by Raley's, Jackpot had operated 246 gaming machines at 15 locations pursuant to its long-term agreement with Albertson's. These 15 locations generated approximately 16% of Jackpot's total revenues for the 1999 nine months and the year ended June 30, 1999 ("Fiscal 1999"), respectively, and a significantly greater percentage of Jackpot's operating income for the 1999 nine months and Fiscal 1999. Jackpot believed it was in its best interest to settle the case and thereby preserve and solidify its long-term relationship with Albertson's, its largest customer, pursuant to the terms of an amendment to its agreement with Albertson's, which it had theretofore arranged and which is described below. It was also important to Jackpot to avoid further litigation and fully resolve all claims among and between the parties. All costs incurred in connection with the litigation and settlement, including legal and settlement costs aggregating approximately $950,000, were recorded in the six months ended December 31, 1999. Settlement agreement with Albertson's. Prior to the settlement described above, on November 18, 1999, Jackpot and Albertson's had entered into a settlement agreement (the "Agreement"). The Agreement amended the license agreement entered in September 1998 between Jackpot and Albertson's (the "Albertson's Agreement"). The Agreement also terminated Jackpot's separate license agreements with Lucky Stores, Inc. and American Drug Stores, Inc. and incorporates Jackpot's exclusive rights in Nevada to operate gaming devices at the locations (including any future locations) of those entities into the Albertson's Agreement, as amended by the Agreement. Under the Agreement, Jackpot has the exclusive option to extend the agreements beyond their initial terms and will continue to have exclusive gaming rights for new Albertson's locations. In addition, Albertson's granted Jackpot exclusive gaming rights in all drug stores opened by Albertson's or any of its affiliates in Nevada, and in future fuel center locations, a new retailing concept that Albertson's will open, in which gaming may be offered to customers. Further, pursuant to the terms of the Agreement, Jackpot will receive substantial reductions in certain license fees, which are effective from February 1, 2000 through the initial term of the Agreement, and certain immediate credits toward license fees. Based upon the amended terms and certain assumptions, management believes that the estimated cost savings over the initial term of the Agreement will approximate $18 million. Including 28 former Lucky Store locations in southern Nevada, which have been operating under the Albertson's name since November 1999, the Agreement currently involves the operation of 1,017 gaming machines in 80 locations. While the loss of the 15 former Albertson's locations on February 1, 2000 will have a significant effect of the Company's future results of operations, management believes that the estimated cost savings will substantially offset the loss of the operating income, based on current assumptions and contract terms, that would have been generated at these 15 locations over the initial term of the Agreement. The Rite Aid dispute. On December 8, 1999, certain Route Operations subsidiaries of Jackpot commenced litigation in the United States District Court for the District of Nevada against Rite Aid Corporation ("Rite Aid"). The lawsuit is an action for rescission of two license agreements between those subsidiaries and Rite Aid and for damages based upon Rite Aid's alleged fraud. Operations of said subsidiaries under said agreements resulted in an operating loss of approximately $1.0 million and $3.0 million for the three and nine months ended March 31, 2000, respectively. On March 27, 2000, Jackpot entered into amendments to the two license agreements with Rite Aid. Based on the number of existing locations at which Jackpot currently operates gaming machines, license fees payable to Rite Aid will be reduced by approximately $2.5 million annually over the remaining term of the amended agreements. The amendments are subject to certain approvals from the Nevada Gaming Commission. If such approvals are obtained, the reduction in license fees will be effective March 1, 2000. Additionally, upon approval, all disputes between the parties, including Jackpot's lawsuit against Rite Aid, will be resolved or settled. On April 26, 2000, the Court ordered that all scheduling deadlines previously set in the case were stayed pending the filing of a Stipulation and Order of Dismissal by the parties. Further, because the amended agreements are conditioned upon certain approvals by the Nevada Gaming Commission, the parties shall be permitted to file the Stipulation for Dismissal by September 15, 2000. If the Company receives certain approvals from the Nevada Gaming Commission and the amendments to the license agreements become effective, the Company's operating losses at the Rite Aid locations should decrease substantially. However, even with the license fee reductions, management believes that the Company will continue to incur losses, and such losses may be significant, unless revenues increase significantly at these locations. Jackpot presently operates 306 gaming machines at 30 Rite Aid locations. Revenues: Total revenues for the three months ended March 31, 2000 (the "2000 three months") decreased $3.1 million, from $24.5 million for the three months ended March 31, 1999 (the "1999 three months") to $21.4 million for the 2000 three months, while total revenues for the 2000 nine months decreased $3.8 million, from $70.5 million for the 1999 nine months to $66.7 million for the 2000 nine months. The decrease in total revenues of $3.1 million for the 2000 three months was the net result of a decrease of $2.8 million (from $24.2 million for the 1999 three months to $21.4 million for the 2000 three months) in Route Operations revenues and a decrease of $.3 million in casino operations revenues. The decrease in total revenues of $3.8 million for the 2000 nine months was the net result of a decrease of $2.8 million (from $69.5 million for the 1999 nine months to $66.7 million for the 2000 nine months) in Route Operations revenues and a decrease of $1.0 million in casino operations revenues. The decrease in Route Operations revenues of $2.8 million for the 2000 three months resulted from a combination of revenues generated at new locations of $1.5 million, net of a decrease in revenues at existing locations of $1.0 million and lost revenues from terminated locations of $3.3 million. The lost revenues generated at terminated locations during the 1999 three months consisted principally of revenues generated at the 15 former Albertson's locations. Such decrease was due to the loss of such locations on February 1, 2000. The decrease in Route Operations revenues of $2.8 million for the 2000 nine months resulted from a combination of revenues generated at new locations of $4.1 million, net of a decrease in revenues at existing locations of $1.9 million and lost revenues from terminated locations of $5.0 million. The decrease in existing locations revenues of $1.9 million for the 2000 nine months was due primarily to lower revenues generated at the Rite Aid locations and the 15 former Albertson's locations in southern Nevada. The lost revenues generated at terminated locations during the 1999 nine months consisted principally of revenues generated at the 15 former Albertson's locations and lost revenue sharing locations. Route Operations revenues attributable to fixed payment leases and revenue sharing contracts for the three and nine months ended March 31, 2000 and 1999 are summarized below (dollars in thousands): Three Months Ended March 31, __________________________________________ 2000 1999 _____________________ ___________________ Percent Percent of Route of Route Operations Operations Amount revenues Amount revenues _______ __________ _______ __________ Route Operations: Fixed payment leases $14,860 69.3% $18,131 74.7% Revenue sharing contracts 6,585 30.7 6,131 25.3 _______ _____ _______ _____ Totals $21,445 100.0% $24,262 100.0% ======= ===== ======= ===== Nine Months Ended March 31, __________________________________________ 2000 1999 _____________________ ___________________ Percent Percent of Route of Route Operations Operations Amount revenues Amount revenues _______ __________ _______ __________ Route Operations: Fixed payment leases $48,148 72.2% $52,381 75.4% Revenue sharing contracts 18,541 27.8 17,133 24.6 _______ _____ _______ _____ Totals $66,689 100.0% $69,514 100.0% ======= ===== ======= =====
Casino operations revenues for the 1999 three months and 1999 nine months were generated at Jackpot Owl, Inc. (the "Owl Club"). The Owl Club, a casino located in Battle Mountain, Nevada was closed on June 29, 1999. All costs, including the write-down to fair value of certain long-lived assets and estimated closing costs, were recorded as of June 30, 1999. The Owl Club was sold on March 14, 2000. Such sale did not have a significant effect on the results of operations for the 2000 three months and the 2000 nine months. Costs and expenses: Route Operations expenses for the 2000 three months decreased $.6 million (from $20.0 million for the 1999 three months to $19.4 million for the 2000 three months) and for the 2000 nine months increased $4.2 million (from $58.0 million for the 1999 nine months to $62.2 million for the 2000 nine months) and, as a percentage of Route Operations revenues, increased to 90.3% and 93.2% for the 2000 three months and 2000 nine months, respectively, from 82.3% and 83.5% for the 1999 three months and 1999 nine months, respectively. With respect to Route Operations costs and expenses, location rent is the single largest Route Operations expense. In September 1998, Jackpot had entered into a long-term extension of the Albertson's Agreement (the "Albertson's Extension"), which became effective July 1, 1999. Pursuant to the terms of the Albertson's Extension, location rent increased significantly over the previous agreement. Such increase, which was principally related to the 15 former Albertson's locations in southern Nevada, adversely affected the Company's results of operations for the 2000 nine months. For a further description of the Company's lease and license agreements, see Item 1 - Business - Gaming Machine Route Operations and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview in the 1999 Form 10-K. The decrease in Route Operations expenses of $.6 million for the 2000 three months was due primarily to a decrease in location rent of $.5 million. Such decrease resulted primarily form a combination of an increase of $1.0 million in location rent for new locations of existing chain store customers, an increase of $.4 million in location rent associated with revenue sharing contracts, a decrease of $1.3 million in location rent for lost chain store customers, which was principally related to the 15 former Albertson's locations in southern Nevada, and a decrease of $.6 million in location rent for all other customers. The increase in Route Operations expenses of $4.2 million for the 2000 nine months resulted primarily from a combination of an increase of $2.9 million in location rent, an increase of $.6 million in group health costs and an increase of $.7 million in all other Route Operations expenses. The increase of $2.9 million in location rent resulted primarily from an increase of $3.6 million in location rent for new locations of existing chain store customers, an increase of $1.3 million in location rent associated with revenue sharing contracts, a decrease of $1.8 million in location rent for lost chain store customers and a decrease of $.2 million in location rent for all other customers. Depreciation expense for the 2000 three months, compared to the 1999 three months remained constant at $1.0 million, and for the 2000 nine months decreased $.1 million, from $3.1 million for the 1999 nine months to $3.0 million for the 2000 nine months. Amortization expense for the 2000 three months and the 2000 nine months decreased $.1 million (from $.3 million for the 1999 three months to $.2 million for the 2000 three months) and $.3 million (from $.9 million for the 1999 nine months to $.6 million for the 2000 nine months), respectively. General and administrative expense for the 2000 three months and the 2000 nine months increased $2.9 million (from $.9 million for the 1999 three months to $3.8 million for the 2000 three months) and $3.8 million (from $2.7 million for the 1999 nine months to $6.5 million for the 2000 nine months). The increase of $2.9 million for the 2000 three months was due primarily to $2.8 million of severance costs paid to the former Chief Executive Officer, and the increase of $3.8 million for the 2000 nine months was due principally to such severance costs and to legal costs associated with the Albertson's/Raley's litigation and the Rite Aid dispute. Other income: Other income for the 2000 three months and 2000 nine months increased $.2 million (from $.3 million for the 1999 three months to $.5 million for the 2000 three months) and $13.9 million (from $1.1 million for the 1999 nine months to $15.0 million for the 2000 nine months). The increase in other income for the 2000 nine months was due principally to the net fee from the terminated merger of $11.1 million and the gain on the sale of the Players common stock of $2.4 million previously discussed. Federal income tax: The effective tax rate for the 2000 nine months and the 1999 nine months was 28.5% and 28%, respectively. These rates were lower than the Federal Statutory rate of 35% primarily because of the tax benefits realized from tax-exempt interest income. General: Operating income for the 2000 three months and the 2000 nine months decreased $5.1 million (from $2.2 million for the 1999 three months to an operating loss of $2.9 million for the 2000 three months) and $10.4 million (from $4.9 million for the 1999 nine months to an operating loss of $5.5 million for the 2000 nine months). Such decreases were due principally to four factors: (1) a significant decline in operating income generated at 15 former Albertson's locations in southern Nevada, which have been operated by Raley's since late September and early October 1999. Such decline was due primarily to (i) significantly lower revenues generated at these locations and (ii) the loss of such locations on February 1, 2000, (2) severance costs of $2.8 million paid to the former Chief Executive Officer, (3) an operating loss of approximately $1.0 million and $3.0 million for the 2000 three months and the 2000 nine months, respectively, incurred at the locations of Rite Aid, a large customer, resulting from the failure of 12 new locations to achieve expected revenues, as well as from a decrease in revenues at existing locations of such customer, and (4) legal and settlement costs incurred in connection with Jackpot's litigation against Albertson's and Raley's. Net income decreased $3.2 million, from $1.8 million for the 1999 three months to a net loss of $1.4 million for the 2000 three months. Basic and diluted earnings (loss) per share for the 2000 three months was $(.16) per share versus $.21 per share for the 1999 three months. Such decreases were due principally to the four factors described above. Net income increased $2.5 million, from $4.3 million for the 1999 nine months to $6.8 million for the 2000 nine months, and diluted earnings per share for the 2000 nine months was $.78 versus $.50 per share for the 1999 nine months. The increases for the 2000 nine months were due principally to an increase in other income relating to the net fee from the terminated merger and the gain on the sale of the Players common stock. Year 2000 _________ In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, date- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This situation has been referred to as the "Year 2000 Problem". The Company's essential systems were Year 2000 compliant prior to December 31, 1999. All costs related to the Year 2000 Problem have been expensed as incurred, while the cost of new hardware is capitalized and amortized over its expected useful life. As of December 31, 1999, the Company had incurred approximately $280,000 of Year 2000 compliance costs, principally for internal costs and system applications. Subsequent to December 31, 1999, the Company has not experienced any significant difficulties, or incurred any significant costs relating to the Year 2000 Problem, and continues to monitor its essential computer systems and other systems for potential problems which may occur. Item 3. Quantitative and Qualitative Disclosure About Market Risk _________________________________________________________ During the nine months ended March 31, 2000, the Company sold a total of 1,014,400 shares of common stock of Players in open market transactions. Such shares, which were purchased on March 10, 1999, were acquired because the purchase price for those shares was significantly below the per share consideration which the Company had agreed to pay for all outstanding shares of Players pursuant to the Agreement and Plan of Merger dated as of February 8, 1999, which provided for the merger of Players into a wholly-owned subsidiary of the Company. As of March 31, 2000, Jackpot did not own any shares of Players common stock. For further information concerning the termination of the merger with Players and the sale of Players common stock by the Company, see Note 6 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q. In all other respects, for the three and nine months ended March 31, 2000, there were no changes to the information incorporated by reference in Item 7A of the 1999 Form 10-K. PART II. OTHER INFORMATION _________________ Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.14 - First Amendment to License Agreement between Cardivan Company and Rite Aid Corporation. 10.15 - First Amendment to License Agreement between Corral Coin, Inc. and Rite Aid Corporation. 10.16 - Termination and Consulting Agreement between the Registrant and Don R. Kornstein. 10.17 - Call Agreement, dated as of March 1, 2000, among Keith A. Meister, Todd A. Meister and the Registrant. 10.18 - Put Agreement, dated as of March 1, 2000, among Keith A. Meister, Todd A. Meister and the Registrant. 27.1 - Financial Data Schedule. (b) Reports on Form 8-K - No Form 8-K was filed for the three months ended March 31, 2000. Signature _________ Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JACKPOT ENTERPRISES, INC. (Registrant) By: /s/ Bob Torkar ___________________________________ BOB TORKAR Senior Vice President - Finance, Treasurer and Chief Accounting Officer Date: May 15, 2000 EX-10 2 EXHIBIT 10.14 RCT = Request Confidential Treatment FIRST AMENDMENT TO CARDIVAN LICENSE AGREEMENT This FIRST AMENDMENT TO LICENSE AGREEMENT ("First Amendment") made as of this 27th day of March 2000, between RITE AID CORPORATION ("Licensor"), a Delaware Corporation, and CARDIVAN COMPANY ("Licensee"), a Nevada corporation. W I T N E S S E T H : WHEREAS, Licensor and Licensee entered into a License Agreement as of March 12, 1999 (the "License Agreement"); and WHEREAS, disputes have arisen between Licensor and Licensee; and WHEREAS, Licensor and Licensee wish to resolve all outstanding disputes and for that purpose seek to amend and modify the License Agreement upon the terms and provisions hereinafter set forth. NOW THEREFORE, in consideration of the foregoing premises and the covenants and agreements hereinafter set forth, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto mutually covenant and agree that the License Agreement is modified and amended as follows: 1. Effective Date. The Effective Date of this First Amendment shall be the date upon which Licensee receives approval from the Nevada Gaming Commission to remove the conditions on its presently issued licenses to operate Devices at the Licensed Locations which require a full-time change attendant to be present on the premises of each such operation. Pending the Effective Date, the parties shall perform their respective obligations under the License Agreement, as intended to be modified by this First Amendment, to the extent permitted by law. From the date hereof to the Effective Date, Licensee shall pay monthly fees pursuant to the fee schedule set forth on the annexed exhibit. In the event that prior to the Effective Date, Licensee fails to pay such fees when due, otherwise fails to perform its obligations under the License Agreement as intended to be amended hereby, to the extent consistent herewith or in the event the Nevada Gaming Commission does not grant the necessary approvals within RCT of the date hereof, the parties shall be returned to their respective positions and status as of February 29, 2000, including the revival of all claims by Licensee and Licensor, without prejudice by reason of the passage of time or the negotiation and execution of this First Amendment. 2. Definitions. All capitalized terms contained in this First Amendment, unless otherwise hereinafter contained, shall have the same meaning as in the License Agreement. 3. Purpose. Section 1 is hereby modified by adding the following after the last sentence: Licensee shall have the exclusive right, at its option, to operate Devices in New Locations operated by Licensor at the fees set forth in this First Amendment provided that, if Licensee elects not to operate Devices in any New Location(s), Licensee shall be released and discharged of its obligation to pay any license fees to Licensor for such location(s) and Licensor may contract with an alternative route operator to operate Devices at the locations not accepted by Licensee. Licensee shall make its election with respect to each potential New Location within thirty (30) days of written notice by Licensor of the availability of a New Location, provided however that such notice by Licensor shall not be given more than nine (9) months prior to the opening of any such location. 4. License. The next to the last sentence of Section 2 is amended by adding the following at the beginning thereof: "Subject to the provisions of Section 1". 5. The last sentence of Section 2 is deleted and replaced with the following: Licensee may determine the number of machines to operate at each location but shall operate a minimum of RCT Devices at each location. Subject to obtaining the approval of the Nevada Gaming Commission, Licensee shall not be required to have a full time adult change attendant at at Location having RCT or fewer Devices. In all New Locations in which Licensee elects to operate Devices, including the six (6) Rite Aid locations in which Licensee hereby agrees to operate Devices (the "Six Locations")*, Licensee may, in its sole discretion place up to RCT but no less than RCT Devices at each such location. In the event that Licensee elects to place Devices in any New Location, including the Six Locations, it shall nevertheless have no obligation to do so until receipt of appropriate approval by the Nevada Gaming Commission. ____________________________ *The Six Locations are: Clark County Rite Aid #6322 Rite Aid #6345 1920 North Las Vegas Blvd. North 1815 E. Flamingo Road Las Vegas, NV 89030 Las Vegas, NV 89119 Rite Aid #6257 Rite Aid #6113 6685 East Lake Mead 5755 E. Charleston Blvd. Las Vegas, NV 89115 Las Vegas, NV 89112 Non Clark County Rite Aid #6354 Rite Aid #6364 1980 N. Carson 461 West Williams Ave. Carson City, NV 89701 Fallon, NV 89406 6. Term. The first sentence of Section 3 is deleted and replaced with the following: The term of the License Agreement which began effective July 1, 1998, shall expire at midnight on the RCT. 7. Fees. Section 4 is modified by deleting Sections 4a and 4b, in their entirety, including the fee amounts and increases there scheduled, and substituting therefore the fee schedule attached hereto as exhibit "Amendment A." Section 4c is modified by deleting it in its entirety and substituting therefore, the following: During the term of this Agreement, as here amended, if Licensor opens or acquires any New Location and Licensor determines to include Devices at such New Location, and if Licensee elects to exercise its right to place Devices in such New Location, then, the fees due to be paid for each such New Location in which Licensee in fact places Devices shall be RCT of the then applicable monthly fee as set forth on Exhibit "Amendment A" hereto during the RCT period following the date any such New Location is opened for business by Licensor; provided, that if Licensor has not taken all steps required to be taken by it to permit Licensee to commence operations at a New Location in which Licensee has elected to place Devices, the RCT period shall not commence until all such actions have been taken. Section 4 is further modified by adding new Subsection 4(g) as follows: Notwithstanding anything contained herein to the contrary, during the term of this Agreement as hereby amended, Licensee shall pay a license fee of RCT per month for each of the Six Locations, commencing with respect to each Location ont he date on which Devices are installed and are allowed to operate pursuant to all required gaming licenses and permits having been obtained for each such Location. Such installation shall be made reasonably promptly after approval. Prior to said commencement date, there shall be no liability or obligation for any license fee for said Six Locations. Fees for any partial month shalal be proprated. Section 4 is further modified by adding new Subsection 4(h) as follows: On the date that monthly fees are next required to be paid after the Effective Date, Licensee shall RCT due for the then existing Licensed Locations for the next succeeding RCT. 8. Use and Operation. Section 7 is hereby modified by adding the following after the last sentence: With respect to any Licensed Location, (including the Six Locations and any New Location in which Licensee elects to place Devices), in which Licensee operates RCT or fewer Devices, Licensor's employees will provide appropriate adult supervision, (over age 21) as required by the Nevada Gaming Commission and will make change for adults (persons over the age of 21) who wish to play the Devices. Licensee agrees to provide suitable training for Licensor's employees, and will remain liable for any fine, penalty or other governmental sanction arising from any failure to supervise. 9. Default. Subsections 13(a) and 13(b) are hereby modified by adding "together with all costs and attorneys' fees" to the last sentence of each Subsection. Subsection 13(c) is deleted in its entirety, and is replaced with the following: To treat all amounts due and not paid by Licensee up to the date of such default as an indebtedness of Licensee immediately due and payable to Licensee and recover the same together with all costs and reasonable attorney's fees incurred to collect such amount. 10. Assignment. Section 14 is modified by (i) deleting the first clause consisting of the language "Licensee may not assign this Agreement without prior approval of Licensor" and (ii) substituting therefore the following: Upon the written approval of Licensor, which shall not be unreasonably withheld, Licensee shall have the right to assign this License Agreement, as amended, to another unaffiliated route operator or other third party. 11. Successors and Assigns. The covenants, agreements, terms and conditions contained in this First Amendment shall bind and inure to the benefits of the parties hereto and their respective successors and their respective assigns. 12. This First Amendment is integrated with the License Agreement and, upon the Effective Date, the License Agreement will be deemed to exist and will survive only as modified by the First Amendment. Upon the Effective date the parties shall prepare and execute a superceding global License Agreement incorporating the remaining relevant portions of the Agreement and this First Amendment. IN WITNESS WHEREOF, the parties hereto have executed the Lease on the date first set forth hereinabove. RITE AID CORPORATION By: /s/ David R. Jessick _______________________________ Name: David R. Jessick Title: Sr. Ex. V.P. Chief Administrative Officer CARDIVAN COMPANY By: /s/ Bob Torkar _______________________________ Name: Bob Torkar Title: Secretary FEE SCHEDULE CARDIVAN COMPANY RCT RCT RCT ___ ___ ___ Monthly Monthly Monthly # Stores Fee Fee Fee ________ _______ _______ _______ Stores - Clark County 15 RCT RCT RCT TPI stores - Clark County 3 RCT RCT RCT Stores - non-Clark County 4 RCT RCT RCT Store - Gardnerville 1 RCT RCT RCT __ 23 Other stores - Clark County 4 RCT RCT RCT Other stores - non-Clark County 2 RCT RCT RCT __ 6 __ Total stores 29 __ Stores - Clark County Rite Aid #6193 1515 W. Craig Road North Las Vegas, NV 89030 Rite Aid #6217 525 E. Windmill Las Vegas, NV 89123 Rite Aid #6220 2513 South Nellis Las Vegas, NV 89121 Rite Aid #6221 3845 E. Lake Mead Blvd. N. Las Vegas, NV 89115 Rite Aid #6222 8500 South Eastern Henderson, NV 89123 Rite Aid #6240 10 North Eastern Las Vegas, NV 89101 Rite Aid #6245 7575 W. Vegas Drive Las Vegas, NV 89128 Rite Aid #6250 5670 S. Rainbow Las Vegas, NV 89118 Rite Aid #6260 8611 Spring Mountain Road Las Vegas, NV 89117 Rite Aid #6261 3115 Las Vegas Blvd. North Las Vegas, NV 89109 Rite Aid #6271 9350 West Sahara Las Vegas, NV 89117 Rite Aid #6272 6100 W. Vegas Dr. Las Vegas, NV 89108 Rite Aid #6277 4150 Las Vegas Blvd. North Las Vegas, NV 89115 Rite Aid #6292 4975 E. Tropicana Las Vegas, NV 89121 Rite Aid #6296 333 N. Sandhill Mesquite, NV 89027 TPI Stores - Clark County Rite Aid #6114 5991 W. Cheyenne Las Vegas, NV 89108 Rite Aid #6115 2905 S. Maryland Parkway Las Vegas, NV 89109 Rite Aid #6116 2950 E. Desert Inn Las Vegas, NV 89121 Stores - Non Clark County Rite Aid #6247 8485 Sun Valley Blvd. Sun Valley, NV 89433 Rite Aid #6279 1410 E. Prater Way Sparks, NV 89434 Rite Aid #6281 8005 S. Virginia Reno, NV 89511 Rite Aid #6290 1695 Robb Drive Reno, NV 89523 Store - Gardnerville Rite Aid #6121 1327 Highway 395 South Gardnerville, NV 89410 Other stores - Clark County Rite Aid #6113 5755 E. Charleston Blvd. Las Vegas, NV 89112 Rite Aid #6257 6685 East Lake Mead Las Vegas, NV 89115 Rite Aid #6322 1920 Las Vegas Blvd. North Las Vegas, NV 89030 Rite Aid #6345 1815 E. Flamingo Road Las Vegas, NV 89119 Other stores - Non Clark County Rite Aid #6354 1980 N. Carson Carson City, NV 89701 Rite Aid #6364 461 West Williams Ave. Fallon, NV 89406 EX-10 3 EXHIBIT 10.15 RCT = Request for Confidential Treatment FIRST AMENDMENT TO CORRAL COIN LICENSE AGREEMENT This FIRST AMENDMENT TO LICENSE AGREEMENT ("First Amendment") made as of this 27th day of March 2000, between RITE AID CORPORATION ("Licensor"), a Delaware Corporation, and CORRAL COIN, INC. ("Licensee"), a Nevada corporation. W I T N E S S E T H : WHEREAS, Licensor and Licensee entered into a License Agreement as of March 12, 1999 (the "License Agreement"); and WHEREAS, disputes have arisen between Licensor and Licensee; and WHEREAS, Licensor and Licensee wish to resolve all outstanding disputes and for that purpose seek to amend and modify the License Agreement upon the terms and provisions hereinafter set forth. NOW THEREFORE, in consideration of the foregoing premises and the covenants and agreements hereinafter set forth, and for other good and valuable consideration the sufficiency of which is hereby acknowledged, the parties hereto mutually covenant and agree that the License Agreement is modified and amended as follows: 1. Effective Date. The Effective Date of this First Amendment shall be the date upon which Licensee receives approval from the Nevada Gaming Commission to remove the conditions on its presently issued licenses to operate Devices at the Licensed Locations which require a full-time change attendant to be present on the premises of each such operation. Pending the Effective Date, the parties shall perform their respective obligations under the License Agreement as intended to be modified by this First Amendment, to the extent permitted by law. From the date hereof to the Effective Date, Licensee shall pay monthly fees pursuant to the fee schedule set forth on the annexed exhibit. In the event that prior to the Effective Date, Licensee fails to pay such fees when due, otherwise fails to perform its obligations under the License Agreement as intended to be amended hereby, to the extent consistent herewith, or in the event the Nevada Gaming Commission does not grant the necessary approvals within RCT of the date hereof, the parties shall be returned to their respective positions and status as of February 29, 2000, including the revival of all claims by Licensee and Licensor, without prejudice by reason of the passage of time or the negotiation and execution of this First Amendment. 2. Definitions. All capitalized terms contained in this First Amendment, unless otherwise hereinafter contained, shall have the same meaning as in the License Agreement. 3. License. The last sentence of Section 2 is deleted and replaced with the following: Licensee may determine the number of machines to operate at each Location but shall operate a minimum of RCT Devices at each location. Subject to approval of the Nevada Gaming Commission, Licensee shall not be required to have a full time adult change attendant at any Location having RCT or fewer Devices. 4. Term. The first sentence of Section 3 is deleted and replaced with the following: The term of the License Agreement which began effective July 1, 1998 shall expire at midnight on the RCT. 5. Fees. Section 4 is modified by deleting Sections 4a, 4b, and 4c in their entirety including the fee amounts and increases there scheduled, and substituting therefore the fee schedule annexed hereto as exhibit "Amendment-1." Section 4 is further modified by adding New Subsection 4(g) as follows: On the date that monthly fees are next required to be paid after the Effective Date, Licensee shall RCT due for the then existing Licensed Locations for the next succeeding RCT period. 6. Use and Operation. Section 7 is hereby modified by adding the following after the last sentence: With respect to any Licensed Location, in which Licensee operates RCT or fewer Devices, Licensor's employees will provide appropriate adult supervision, (over age 21) as required by the Nevada Gaming Commission and will make change for adults (persons over age 21) who wish to play the Devices. Licensee agrees to provide suitable training for Licensor's employees, and will remain liable for any fine, penalty or other governmental sanction arising from any failure to supervise. 7. Default. Subsections 13(a) and 13(b) are hereby modified by adding "together with all costs and attorneys' fees" to the last sentence of each Subsection. Subsection 13(c) is deleted in its entirety, and is replaced with the following: To treat all amounts due and not paid by Licensee up to the date of such default as an indebtedness of Licensee immediately due and payable to Licensee and recover the same together with all costs and reasonable attorney's fees incurred to collect such amount. 8. Assignment. Section 14 is modified by (i) deleting the first clause consisting of the language "Licensee may not assign this Agreement without prior approval of Licensor" and (ii) substituting therefore the following: Upon the written approval of Licensor, which shall not be unreasonably withheld, Licensee shall have the right to assign this License Agreement, as amended, to another unaffiliated route operator or other third party. 9. Successors and Assigns. The covenants, agreements, terms and conditions contained in this First Amendment shall bind and inure to the benefits of the parties hereto and their respective successors and their respective assigns. 10. This First Amendment is integrated with the License Agreement and, upon the Effective Date, the License Agreement will be deemed to exist and will survive only as modified by the First Amendment. Upon the Effective Date the parties shall prepare and execute a superceding global License Agreement incorporating the remaining relevant portions of the Agreement and this First Amendment. IN WITNESS WHEREOF, the parties hereto have executed the Lease on the date heretofore set forth. RITE AID CORPORATION By: /s/ David R. Jessick _______________________________ Name: David R. Jessick Title: Sr. Ex. V.P. Chief Administrative Officer CARDIVAN COMPANY By: /s/ Bob Torkar _______________________________ Name: Bob Torkar Title: Secretary FEE SCHEDULE CORRAL COIN, INC. RCT RCT RCT ___ ___ ___ # Stores Monthly Monthly Monthly Fee Fee Fee ________ _______ _______ _______ TPI stores - Clark County 7 RCT RCT RCT Rite Aid #6109 2255 N. Green Valley Parkway Henderson, NV 89014 Rite Aid #6110 716 S. Boulder Highway Henderson, NV 89015 Rite Aid #6111 3852 W. Sahara Las Vegas, NV 89102 Rite Aid #6112 4230 S. Rainbow Las Vegas, NV 89103 Rite Aid #6117 911. S. Rainbow Las Vegas, NV 89128 Rite Aid #6118 4911 W. Craig Road Las Vegas, NV 89130 Rite Aid #6119 8530 W. Lake Mead Las Vegas, NV 89128 EX-10 4 EXHIBIT 10.16 EXECUTION COPY TERMINATION AND CONSULTING AGREEMENT ____________________________________ This Termination and Consulting Agreement ("Agreement") entered into as of the 29th day of February, 2000, by and between, JACKPOT ENTERPRISES, INC. a Nevada corporation (inclusive of its subsidiaries and affiliates, the "Company" or the "Employer"), and DON R. KORNSTEIN (the "Executive"). WHEREAS, Executive is currently employed by the Employer as President and Chief Executive Officer pursuant to an Employment Agreement, dated as of September 8, 1994, as amended (the "Employment Agreement"), and is currently serving as a member of the Board of Directors of Employer (the "Board"); WHEREAS, Employer and Executive have mutually agreed that Executive's employment with the Employer shall terminate effective as of February 29, 2000 (the "Termination Date"); WHEREAS, Employer and Executive desire fully and finally to settle all matters arising out of the employment of Executive by Employer, including without limitation, any rights or obligations under the Employment Agreement and under any employee benefit and executive compensation plans of Employer, that have arisen or might arise between them; and WHEREAS, Employer desires to ensure Executive's continued availability to the Employer during the Consulting Period (as hereinafter defined) and Executive is desirous of providing consulting services to Employer on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the promises and of the release, representations, mutual covenants and obligations herein contained, the parties hereto agree as follows: i. Termination of Employment, etc. Effective as of the _______________________________ Termination Date, Executive shall step down as President and Chief Executive Officer, hereby resigns as a member of the Board and shall cease to be an employee of the Company. ii. Compensation, etc. Upon Termination. ____________________________________ A. Employer and Executive acknowledge and agree that, for purposes of the Employment Agreement, Executive's employment shall be deemed to have been terminated under circumstances entitling him to benefits pursuant to Section 6(c) of the Employment Agreement. Accordingly, the parties agree that, in full settlement of Executive's rights under the Employment Agreement, Employer shall pay or shall cause to be paid to Executive and shall provide benefits to Executive, as set forth in Section 6(c) of the Employment Agreement, as follows: (i) Employer shall pay all Accrued Obligations (as defined in Section 6(a)(i) of the Employment Agreement) to the Termination Date. Such Accrued Obligations, if any, shall be paid or provided in accordance with the terms of the applicable plan or program of the Employer, provided, however, that in accordance with Section 6(c)(3) of the Employment Agreement, Executive shall be treated as if he had continued in employment until the third anniversary of the Termination Date for purposes of computing benefits payable to the Executive under all Benefits Plans (as defined in the Employment Agreement) in which Executive currently participates; (ii) Employer shall pay to Executive on the Termination Date a lump sum cash payment of $334,000, representing the Pro Rata Bonus (as defined in the Employment Agreement); and a lump sum cash payment of $71,419, representing Executive's earned but unused vacation pay; (iii) Employer shall pay to Executive on the Termination Date a lump sum cash payment of $2,501,000, representing the severance amount of 36 months base salary and three times the "Average Bonus" payable under Section 6(c)(2) of the Employment Agreement; (iv) Executive shall be entitled to receive from Employer, throughout the Consulting Period (as hereinafter defined) and for a period of thirty-six (36) months thereafter, the same medical coverage, disability coverage and life insurance as are currently in effect for Executive and his dependents, subject, however, to reduction to the extent Executive obtains similar coverage from a subsequent employer, and Executive hereby acknowledges that the first 18 months of such medical coverage is in full satisfaction of all of Employer's obligations under COBRA and, in consideration thereof, whether or not reduced subsequently, Executive waives any and all rights to COBRA from Employer; (v) As of the Termination Date, all currently outstanding options held by Executive to acquire shares of Common Stock of Employer shall become fully vested and exercisable and shall remain exercisable until the earlier of (1) 18 months from the end of the Consulting Period or (2) the expiration date of the term of the applicable stock option; (vi) To the extent properly documented and substantiated in accordance with Company policy, Employer shall promptly reimburse Executive for all outstanding business expenses incurred by Executive, in accordance with Section 4(e) of the Employment Agreement; and (vii) In full satisfaction and discharge of Employer's obligation to provide "outplacement" for Executive under Section 6(c)(6) of the Employment Agreement, through December 31, 2000, Executive shall continue to be provided by Employer with office space (although not necessarily his present office), his current administrative assistant (although not on an exclusive basis), office supplies, support services and other facilities and services at the level currently provided to Executive by Employer. All of the foregoing payments and benefits shall be subject to any applicable federal, state and local income tax withholding. a. As further consideration for the covenants and obligations of Executive under this Agreement, including but not limited to Executive's "Release" of the Company and its directors, officers, employers and affiliates (as hereafter provided) and Executive's agreement to perform the consulting services described in Section 3 hereof, (i) Employer shall continue to provide to Executive the leased automobile currently provided to Executive for the remainder of the current lease term which terminates on March 7, 2001, and shall pay all costs and expenses for insurance coverage of such automobile, subject to reimbursement by Executive in accordance with current practice; and (ii) Executive shall be entitled to retain the laptop computer, cellular phone and personal organizer purchased by Employer for his use, but Executive shall bear all costs associated with maintaining such equipment and any computer information services. iii. Consulting Services. (i) During the period commencing on the Termination Date through and including April 30, 2000, Employer shall retain the Executive for, and the Executive agrees to perform, such consulting services relating to renegotiation of the Company's current contractual arrangement with RiteAid Corporation as may be requested by the Board upon reasonable advance notice to Executive; provided, that such services shall not unreasonably interfere with other business endeavors of the Executive. Following April 30, 2000, the Company may elect, by written notice to Executive, to extend the aforementioned consulting period on a month-to-month basis with the consent of the Executive. The initial two-month consulting period, as such period may be extended, is referred to herein as the "Consulting Period." Executive shall perform the consulting services personally and shall not delegate them to another person without the express written consent of the Board. The Executive agrees to cooperate with his successor or successors and the Employer during the Consulting Period. (ii) In consideration of the performance of consulting services under this Section 3, Executive acknowledges receipt of a consulting fee for the initial two-month consulting period, in the amount of $60,417. Consulting fees to which Executive shall be entitled with respect to the remainder of the Consulting Period shall be mutually agreed upon by the Company and the Executive. (iii) Executive shall be reimbursed, in accordance with the standard Employer policy for employee expense reimbursement, for travel expenses, including the costs of air fare, car rental and overnight lodging, and other reasonable expenses incurred by Executive in the performance of such consulting services, so long as such expenses are substantiated by appropriate documentation. (iv) Employer shall, to the fullest extent permitted by law, indemnify the Executive for all amounts (including, without limitation, judgments, fines, settlement payments, losses, damage, costs and expenses, including reasonable attorneys' fees) incurred or paid by Executive in connection with any action, proceeding, suit or investigation arising out of or relating to the performance by the Executive of the consulting services hereunder. 4. Public Announcements, etc. Executive and the Employer shall cooperate with each other in the preparation and issuance of any press release or other public announcement pertaining to Executive's termination of employment and shall keep the negotiations and the terms of this Agreement completely confidential (except as may be required (i) in the course of obtaining legal advice with respect to the negotiation hereof or with respect to the rights and obligations created hereby, (ii) in the preparation of federal, state or local tax returns, (iii) in the course of enforcing any right or obligation under this Agreement, or (iv) by law or legal process). 5. Effect on Employment Agreement. (a) The provisions of Sections 3(b) (Indemnification), 8 (Noncompetition and Nondisclosure) and 9 (Return of Confidential Information and Enforcement) of the Employment Agreement shall survive the termination thereof and shall remain in full force and effect. Except as otherwise contemplated hereby, Executive shall deliver all Company property, records and other information, including those referred to in Section 9 of the Employment Agreement, to the Company as promptly as practicable following the Termination Date. In all other respects, except as provided herein or as may be necessary to implement the provisions hereof, the Employment Agreement shall terminate and be of no further force and effect as of the Termination Date. In the event the Company elects to seek injunctive relief to enforce rights under Sections 8 or 9 of the Employment Agreement, it may do so in the State courts of Nevada, or in the United States District Court in Nevada, and Executive hereby consents to personal jurisdiction and venue in any such Nevada court for that purpose throughout the "Restricted Period", as defined in the Employment Agreement. (ii) The Executive and the Company agree that they will not now or at any time in the future make any disparaging statements relating to each other to the Company's directors, officers, and/or employees, whether relating to the business of the Company, the actions of either party to this Agreement, or in any other manner. During the Restricted Period, Executive will cooperate with any reasonable request of the Company for information or assistance with respect to its "Route Business" (including but not limited to the current dispute with RiteAid Corporation) to the extent it does not interfere with Executive's then employment or other business endeavors, and shall be promptly reimbursed for all reasonable out- of-pocket costs and expenses incurred in connection herewith. 6. Release. (a) In consideration of the payments and benefits provided pursuant to Section 2 of this Agreement and subject to paragraph (b) hereof, Executive hereby agrees to and does fully and completely release, discharge and waive any and all claims, complaints, causes of action, actions, suits, debts, sums of money, contracts, controversies, agreements, promises, or demands of whatever kinds, in law or in equity, which he ever had, now has or which he, his heirs, executors or administrators may have against the Employer and its subsidiaries, predecessors, affiliates, successors and assigns, and each and all of their officers and directors, in their capacities as such (collectively, the "Releasees"), by reason of any event, matter, cause or thing which has occurred to the date of execution of this Agreement, relating in any way to the Executive's employment relationship with the Employer or to his termination thereof, whether for severance or based on statutory or common law claims for employment discrimination, wrongful discharge, breach of contract or any other theory, whether legal or equitable, or arising under any statute or regulation, including the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, and the Family Medical Leave Act of 1993, each as amended, or any other federal, state or local law, regulation, ordinance or common law. (ii) The Executive acknowledges and agrees that he has twenty-one (21) calendar days from the date he first receives this Agreement, as indicated by the date first written above, to obtain the advice and counsel from the legal representative of his choice and to decide whether to execute this Agreement. (iii) The Executive understands that for seven (7) calendar days after he signs this Agreement, he has the right to revoke it, and this Agreement shall not become effective and enforceable until after the passage of the seven-day period without his having revoked it. The other provisions of this Agreement to the contrary notwithstanding, no money and/or benefits payable solely by virtue of this Agreement shall be made until after the passage of the seven-day period without the Executive having revoked it. The Agreement may not be revoked after the seven-day period. Any revocation shall be in writing and directed to the address referred to in Section 8 hereof. (iv) Nothing herein shall be deemed to release (i) any of the Executive's rights under this Agreement (including those rights under the Employment Agreement which survive under, or are incorporated in, this Agreement), (ii) any of the benefits that the Executive has accrued and to which Executive is entitled under the Employer's various employee benefit plans, programs and policies or (iii) any rights to indemnification or to directors and officers liability insurance under the Certificate of Incorporation or By-laws or the Employer or any affiliate or pursuant to the provisions of any plan or agreement. 7. Successors; Binding Agreement. (a) Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. As used in this Agreement, "Employer" shall mean the Employer as hereinbefore defined and any successor to its business and/or assets as aforesaid or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 8. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage pre- paid, addressed as follows: If to the Employer: Jackpot Enterprises, Inc. 1110 Palms Airport Drive Las Vegas, Nevada 89119 Attn: President With a copy to: Ronald D. Lefton Camhy, Karlinsky & Stein LLP 1740 Broadway New York, N.Y. 10019-4315 If to the Executive: Don R. Kornstein c/o Jackpot Enterprises, Inc. 1110 Palms Airport Drive Las Vegas, Nevada 89119 With a copy to: Stuart N. Alperin Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036-6522 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Employer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or im- plied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the state of Nevada with- out regard to its conflicts of law principles. 10. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Arbitration; Reimbursement of Expenses. Except as set forth in Section 9(b) of the Employment Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Las Vegas, Nevada, or in such other location as may be agreed upon by the parties, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdic- tion. In the event of (a) any arbitration that is commenced by the Executive in good faith pursuant to this Section 12 or (b) any arbitration that is commenced by Employer pursuant to this Section 12 in which the Executive shall prevail, the Employer shall reim- burse the Executive for all legal fees incurred by the Executive in connection therewith. The Employer shall pay Executive's legal fees incurred in connection with entering into this Agreement and shall pay or reimburse Executive for all other expenses (including regulatory-related expenses) incurred in connection with his termination of employment or his activities pursuant to the consulting arrangement described herein. 13. Entire Agreement. This Agreement and the applicable provisions of the Employment Agreement set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede any and all other prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Executive acknowledges that he has not relied on any oral or written representations not explicitly contained herein in entering into and executing this Agreement IN WITNESS WHEREOF, the parties have executed this Agree- ment as of the date and year first above written. JACKPOT ENTERPRISES, INC. By: /s/ Allan R. Tessler __________________________ Name: Allan R. Tessler Title: Chairman /s/ Don R. Kornstein __________________________ Don R. Kornstein EX-10 5 EXHIBIT 10.17 CALL AGREEMENT ______________ CALL AGREEMENT, dated as of March 1, 2000, (as amended, modified or supplemented from time to time, this "Agreement") among Keith A. Meister ("KM"), Todd A. Meister ("TM") and Jackpot Enterprises, Inc., a Nevada corporation (the "Company"). WHEREAS, KM and TM each own 49.5% of the membership interests (the "Membership Interests") of Meister Brothers Investments LLC, a Delaware limited liability company ("MBI"); WHEREAS, each of KM and TM desire to grant to the Company the option to purchase from each of KM and TM their respective Membership Interests in MBI in exchange for shares of the Company; and WHEREAS, the Company desires to accept such option. NOW THEREFORE, in consideration of the agreements, premises and mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Call Option. KM and TM hereby grant to the Company an option to purchase from KM and TM, and KM and TM are each obligated to sell to the Company under such option (the "Call Option") all, but not less than all, of the Membership Interests in MBI held by KM and TM in exchange for the Option Shares (as defined below). The Call Option may be exercised at any time after the second anniversary of the date of this Agreement. The Call Option shall each expire on the fourth anniversary of the date of this Agreement (the "Call Period"). 2. Option Shares. If the Company exercises its Call Option during the Call Period, KM and TM shall be entitled to receive from the Company in exchange for the Membership Interests in MBI being sold by him that number of shares of the Company's Common Stock, par value $0.01 per share (the "Option Shares"), equal to fifty percent (50%) of the quotient obtained by dividing (A) the Portfolio Value (as defined below) by (B) $8.00; provided, however, that it is understood that the number of Option Shares shall never be less than 312,500 nor greater than 500,000, appropriately adjusted to reflect any stock split, dividend or similar transaction by the Company occurring after the date hereof. (a) For purposes of this Call Agreement, the "Portfolio Value" shall be the sum of the Value (as calculated below), as of Portfolio Valuation Date, of all of the portfolio company investments (each a "Portfolio Company," and collectively the "Portfolio Companies") held by MBI and Meister Brothers Investments LP, a Delaware limited partnership ("MBI LP"), as of the date hereof; provided, however, that if at any time prior to the Portfolio Valuation Date it is determined, in accordance with Section 2(b) hereof, that the Portfolio Value equals or exceeds $4 million, then the Portfolio Value shall be fixed at $4 million. The "Value" of a Portfolio Company, as of a given date, shall be determined by multiplying the number of shares of common stock, preferred stock, convertible securities or other equity like securities of a Portfolio Company held by MBI and MBI LP as of the date hereof by one of the following (in the following descending order of priority): (1) in the case of a Portfolio Company Acquisition (as defined below) and thereafter, the purchase price per share paid for MBI's or MBI LP's interests in the Portfolio Company or the amount receivable per share upon distribution by the Portfolio Company of the proceeds from the sale of its assets, applying principles similar to those set forth in this Section 2(a) for purposes of determining the value of any third party securities received in payment for the stock or assets; (2) in the case of an initial public offering of a Portfolio Company's common stock (an "IPO") and thereafter unless a subsequent valuation is available as determined pursuant hereto, the price per share at which the common stock of the Portfolio Company sold in such IPO was priced by the Portfolio Company and its underwriters (utilizing the common equivalent of the shares held by MBI or MBI LP); (3) at anytime after the Portfolio Company's common stock begins to be publicly traded following an IPO or any other event by which a public market exists for its securities, by the twenty (20) day trailing average closing price or closing bid price of the Portfolio Company's common stock on the principal market on which such shares are traded so long as such shares have been trading for a period of at least twenty (20) trading days (utilizing the common equivalent of the shares held by MBI or MBI LP); or (4) in the case of the consummation of a third party arms-length equity financing of the Portfolio Company subsequent to the date hereof (a "Third Party Financing") and thereafter unless a subsequent valuation is available as determined pursuant hereto, by the effective price per share of the Portfolio Company's common Stock, preferred stock, convertible securities or other equity like securities upon consummation of such financing; or (5) absence the occurrence of one or more of the valuation events set forth in subclauses (1) (4) above, the Portfolio Value of a Portfolio Company shall be equal to MBI's or MBI LP's original cost to invest in the Portfolio Company. A "Portfolio Company Acquisition" means (i) the acquisition of the Portfolio Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of the Portfolio Company), or (ii) any distribution by the Portfolio Company, by dividend or otherwise, of any of the proceeds to the stockholders of the company from a sale of all or substantially all of the assets of the company. (b) At anytime prior to the Portfolio Valuation Date when the Portfolio Value is at least $4 million, KM or TM may send to the Company a notice setting forth the Portfolio Value (a "Valuation Notice"), and as soon as practicable after the Portfolio Valuation Date, and if the Portfolio Value has not been fixed then prior to the Portfolio Valuation Date, KM or TM shall send to the Company such a notice. If the Company disputes such valuation, the Company shall have ten (10) days after the date of delivery of the Valuation Notice to send a notice to KM and TM disputing the Portfolio Value (the "Dispute Notice"). If the party who sent the Valuation Notice does not receive a Dispute Notice within such ten (10) day period, the Portfolio Value shall be fixed at the value set forth in the Valuation Notice. If a Dispute Notice is received by KM and TM within such period, the parties shall have an additional ten (10) day period in which to resolve the dispute. If the parties have not agreed on the Portfolio Value within such additional ten (10) day period, then the issues in dispute shall be submitted to a big five firm of independent public accountants selected by KM and TM (but not in any way associated with any of KM, TM or the Company) and approved by the Company, which approval shall not be unreasonably withheld. The determination by such firm of independent public accountants regarding the Portfolio Value shall be final and binding upon the parties. 3. Exercise of Call Option. The Call Option may be exercised by Company giving written notice to each of KM and TM of the Company's election to exercise the option. The notice shall set forth the date of the Option Closing (as defined below), which date shall be no more than 30 days after the date of such notice. 4. Option Closing. The closing for the purchase and sale of all of the MBI Membership Interests upon exercise of the Call Option shall take place at the offices of the Company on the date specified in the notice of exercise (the "Option Closing"). At an Option Closing, KM and TM shall each deliver to the Company a certificate signed by him certifying that each of the representations and warranties set forth in Section 5 below are true and correct as of the date of the Option Closing. In consideration therefore, the Company shall deliver to each of KM and TM (i) a certificate signed by an authorized officer of the Company certifying that each of the representations and warranties set forth in Section 6 below are true and correct as of the date of the Option Closing and (ii) the certificate or certificates evidencing the Option Shares. 5. Representations and Warranties by KM and TM. KM and TM each represent and warrant to the Company, severally and not jointly, the following: Authorization. This Agreement has been duly executed and delivered by him and (assuming the due authorization, execution and delivery by the Company) constitutes the valid, legal and binding obligation of him, enforceable against him in accordance with its terms, except as may be limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and similar laws of general application relating to or affecting the enforcement of rights of creditors and subject to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Defaults. Neither the execution and delivery of this Agreement nor the consummation by him of the transactions contemplated hereby will (i) result in the creation or imposition of any lien, charge or encumbrance upon his Membership Interests or (ii) violate any law, statute, judgment, decree, injunction, order, writ, rule or regulation applicable to him. Consents. No authorization, consent, approval, permit, license of or filing with any governmental authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance by him of this Agreement. Title to the Membership Interests. He has good and marketable title to his Membership Interests being sold, free and clear of all liens, claims and encumbrances of any nature. Acquisition of the Option Shares Entirely for Own Account. The Option Shares to be issued to him upon the exercise of the Call Option will be acquired for investment for his own account, not as a nominee or agent, and not with a view to his distribution of any part thereof, and he has no present intention of selling, granting any participation in, or otherwise distributing the same. He does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any other person, with respect to any of the Option Shares received hereunder. Reliance Upon Representations. He understands that the Option Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any other federal or state securities laws, and, in reliance on his representations set forth in this Agreement, the sale provided for in this Agreement is exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Accredited Investor. He is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act, who by reason of his business and financial experience has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment in the Option Shares and, having had access to or having been furnished with all such information as it has considered necessary (including, without limitation, the Company's most recent Annual Report on Form 10-K (the "10-K") for the fiscal year ending June 30, 1999), has concluded that he is able to bear those risks. Knowledge and Experience; Receipt of Information. He has such knowledge and experience in financial and business matters and has received all the information it considers necessary or appropriate for deciding whether to accept the Option Shares in exchange for his Membership Interests in MBI. He further represents that he has had an opportunity to ask questions and receive answers from the Company and its officers and representatives regarding the business, properties, prospects and financial condition of the Company and to obtain additional information necessary to verify the accuracy of any information furnished to him or to which he otherwise had access. Restricted Securities. He understands that the Option Shares may not be sold, transferred or otherwise disposed of without registration under the Securities act or an exemption therefrom. In particular, he is aware that the Option Shares may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met. Legends. Each certificate evidencing the Option Shares shall be endorsed with the following legend and he covenants that, except to the extent such restrictions are waived by the Company, he shall not transfer the Option Shares represented by any such certificate without complying with the restrictions on transfer described in the legend endorsed on such certificate: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OR TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT." 6. Representations and Warranties by the Company. Organization. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. Authorization. The Company has full corporate power and authority to execute and deliver this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporation action on the part of the Company. This Agreement has been duly executed and delivered by the Company and (assuming the due authorization, execution and delivery by KM and TM) constitutes the valid, legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and similar laws of general application relating to or affecting the enforcement of rights of creditors and subject to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Conflicts; Defaults. Neither the execution and delivery of this Agreement nor the consummation by the Company of the transactions contemplated hereby will (i) result in a violation or breach of the Certificate of Incorporation or the By-laws of the Company or, any agreement, indenture or other instrument to which the Company is a party or under which the Company is bound or (ii) violate any law, statute, judgment, decree, injunction, order, writ, rule or regulation applicable to the Company. Capitalization. The authorized capital stock of the Company consists of (i) 60,000,000 shares of common stock, par value $0.01 per share, of which 10,132,594 shares are issued and outstanding and 1,258,624 are held in treasury as of the date hereof, and (ii) 1,000,000 shares of preferred stock, par value $1.00 per share, of which no shares are issued and outstanding as of the date hereof. Other than outstanding stock option agreements with certain of the Company's directors and employees and certain outstanding warrants, there are no subscription, option, warrants, calls, rights, agreements or commitments to which the Company is a party requiring and there are no convertible securities of the Company outstanding which upon conversion would require the issuance of any additional shares of the Company's capital stock. Litigation. There is no action, suit, or proceeding pending, or to the knowledge of the officers of the Company threatened, against the Company or its subsidiaries before any court or arbitrator or governmental or regulatory authority which questions the validity of, or threatens to enjoin, any action taken or to be taken pursuant to or in connection with this Agreement. The Option Shares. The Option Shares have been duly authorized by all necessary corporate action of the Company, and when issued pursuant to the terms of this Agreement, will be validly issued and fully paid and non-assessable. The Option Shares will be free and clear of all pledges, liens and encumbrances, other than restrictions on transfer under this Agreement and applicable federal and state securities laws. Financial Statements. The Company has previously furnished to KM and TM the Company's Form 10-K for the fiscal year ended June 30, 1999. The financial statements fairly present the financial position of the Company as of the date thereof and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP and applied in a manner consistent with past practice. Absence of Certain Changes or Events. Since June 30, 1999 there has been no material adverse change in the business, assets or financial condition of the Company. 7. Adjustment of Option Shares. In the event the Company shall subdivide or split its outstanding common stock into a smaller or larger number of shares or combine its outstanding common stock into a smaller number of shares, the denominator used in Section 2 to determine the number of Option Shares that KM and TM shall be entitled to receive upon the Company exercising its Call Option shall be adjusted so that KM and TM thereafter shall be entitled to receive upon the Company exercising its Call Option that number of shares of the Company's common stock which it would have been entitled to receive had such Call Option been exercised immediately prior to the happening of such event. 8. Registration Rights. The Company hereby agrees to use its best efforts to register any issued Option Shares under the Securities Act immediately following the exercise of a Call Option. 9. Miscellaneous. Expenses. Each party hereto shall pay all of its own expenses in connection with the execution of and the transactions contemplated by this Agreement, including, without limitation, the payment of all transfer taxes and all fees and expenses of counsel and other advisers. Reorganization Treatment. Absent a change in law, the Company agrees that the exchange of any Membership Interests shall be treated by it as a reorganization under section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"). The Company shall not take any action or fail to take any action that would cause the disqualification of such exchange as a reorganization under Section 368(a) of the Code. Termination. This Agreement shall continue until, and shall terminate immediately upon the earlier of (i) the date a written agreement of termination is executed by each of the Company, KM and TM or (b) the fourth anniversary of the date of this Agreement. Notices. All notices, requests and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid by overnight courier guaranteeing next day delivery, or by telecopier (with telephonic or machine confirmation by the sender, addressed as follows (or to such other address, including facsimile number, as shall have been designated by the recipient in writing): If to KM and/or TM: Keith Meister 285 Lafayette Street New York, NY 10012 Facsimile No.: 212-502-6201 With required copies to: Jeffrey S. Klein, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Facsimile No.: 212-310-8007 If to the Company: Jackpot Enterprises, Inc. 1110 Palms Airport Drive Las Vegas, Nevada 89119 Attn: President Facsimile No.: With required copies to: Allan R. Tessler 3490 Clubhouse Drive Box 7443 Wilson, Wyoming 83001 Facsimile No.: 307-733-4935 and Alan I. Annex Camhy Karlinsky & Stein LLP 1740 Broadway New York, NY 10019 Tel.: 212-830-5764 Facsimile No.: 212-977-8389 E-mail: aannex@ckslaw.com All such notices, requests and other communications shall be deemed to have been received on the date of delivery thereof (if delivered by hand), on the third business day after the mailing thereof (if mailed), on the next day after the sending thereof (if by overnight courier) and when receipt is confirmed as provided above (if telecopied). Complete Agreement; Amendment. This Agreement constitutes theplete understanding of the parties with respect to its subject matter and supersedes any other agreement or understanding relating thereto. No amendment, change or modification of this Agreement shall be valid, binding or enforceable, unless the same shall be in writing and signed by each of the parties hereto. Waiver. No failure or delay on the part of KM, TM or the Company or any of them in exercising any right, power or privilege hereunder, and no course of dealing between KM, TM or the Company, shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude the simultaneous or later exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights and remedies which the parties hereto would otherwise have. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. Governing Law; Waivers. This Agreement shall be governed by, construed and enforced in accordance with the laws of the state of New York without giving effect to the conflict of laws provisions thereof. Each of the parties hereto submits to personal jurisdiction and waives any objection as to venue in the State of New York. Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in accordance with Section 8(c) hereof. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder. Benefit and Binding Effect; Assignment. All of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. No parties hereto shall assign (other than by will or bequest) his or its rights hereunder or any interest herein without the prior written consent of each of the other parties hereto. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ Keith A. Meister _____________________________ Keith A. Meister /s/ Todd A. Meister _____________________________ Todd A. Meister JACKPOT ENTERPRISES, INC. By: /s/ Allan R. Tessler ______________________________ Name: Allan R. Tessler Title: Chief Executive Officer EX-10 6 EXHIBIT 10.18 PUT AGREEMENT _____________ PUT AGREEMENT, dated as of March 1, 2000, (as amended, modified or supplemented from time to time, this "Agreement") among Keith A. Meister ("KM"), Todd A. Meister ("TM") and Jackpot Enterprises, Inc., a Nevada corporation (the "Company"). WHEREAS, KM and TM each own 49.5% of the membership interests (the "Membership Interests") of Meister Brothers Investments LLC, a Delaware limited liability company ("MBI"); WHEREAS, the Company desires to grant to each of KM and TM the option to sell to the Company their respective Membership Interests in MBI in exchange for shares of the Company; and WHEREAS, each of KM and TM desire to accept such option. NOW THEREFORE, in consideration of the agreements, premises and mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Put Option. The Company hereby grants to each of KM and TM an option to sell to the Company, and the Company shall be obligated to purchase from each of KM and TM under such option (each a "Put Option" and collectively, the "Put Options"), any or all of the Membership Interests in MBI held by each of them in exchange for the Option Shares (as defined below). The Put Options may be exercised at any time, and from time to time, after the first to occur of (i) September 1, 2001 (the "Portfolio Valuation Date") or (ii) the date the Portfolio Value is fixed at $4 million pursuant to Section 2 below, but in no event shall the Put Options become exercisable any earlier than the first anniversary of the date of this Agreement. The Put Options shall each expire on the fourth anniversary of the date of this Agreement (the "Put Period"). 2. Option Shares. If either KM or TM exercises his Put Option during the Put Period (which may be exercised in whole or in part, and from time to time), he shall be entitled to receive from the Company in exchange for the Membership Interests in MBI being sold by him pursuant to such exercise, that number of shares of the Company's Common Stock, par value $0.01 per share (the "Option Shares"), equal to (i) his percentage ownership interest in MBI being sold by him (as adjusted in the succeeding sentence) multiplied by (ii) the quotient obtained by dividing (A) the Portfolio Value (as defined below) by (B) $9.06; provided, however, that it is understood that the number of Option Shares shall never be less than 275,938 nor greater than 441,501, appropriately adjusted to reflect any stock split, dividend or similar transaction by the Company occurring after the date hereof. For purposes of the preceding sentence, the ownership percentage being sold shall be divided by .99 (reflective of KM's and TM's combined ownership interest in MBI LLC, and which amount will be further adjusted, as necessary, to take into account the issuance of any additional equity interests in MBI). (a) For purposes of this Put Agreement, the "Portfolio Value" shall be the sum of the Value (as calculated below), as of Portfolio Valuation Date, of all of the portfolio company investments (each a "Portfolio Company," and collectively the "Portfolio Companies") held by MBI and Meister Brothers Investments LP, a Delaware limited partnership ("MBI LP"), as of the date hereof; provided, however, that if at any time prior to the Portfolio Valuation Date it is determined, in accordance with Section 2(b) hereof, that the Portfolio Value equals or exceeds $4 million, then the Portfolio Value shall be fixed at $4 million as of such date. The "Value" of a Portfolio Company, as of a given date, shall be determined by multiplying the number of shares of common stock, preferred stock, convertible securities or other equity like securities of a Portfolio Company held by MBI and MBI LP as of the date hereof by one of the following (in the following descending order of priority): (1) in the case of a Portfolio Company Acquisition (as defined below) and thereafter, the purchase price per share paid for MBI's or MBI LP's interests in the Portfolio Company or the amount receivable per share upon distribution by the Portfolio Company of the proceeds from the sale of its assets, applying principles similar to those set forth in this Section 2(a) for purposes of determining the value of any third party securities received in payment for the stock or assets; (2) in the case of an initial public offering of a Portfolio Company's common stock (an "IPO") and thereafter unless a subsequent valuation is available as determined pursuant hereto, the price per share at which the common stock of the Portfolio Company sold in such IPO was priced by the Portfolio Company and its underwriters (utilizing the common equivalent of the shares held by MBI or MBI LP); (3) at anytime after the Portfolio Company's common stock begins to be publicly traded following an IPO or any other event by which a public market exists for its securities, by the twenty (20) day trailing average closing price or closing bid price of the Portfolio Company's common stock on the principal market on which such shares are traded so long as such shares have been trading for a period of at least twenty (20) trading days (utilizing the common equivalent of the shares held by MBI or MBI LP); or (4) in the case of the consummation of a third party arms-length equity financing of the Portfolio Company subsequent to the date hereof and thereafter unless a subsequent valuation is available as determined pursuant hereto, by the effective price per share of the Portfolio Company's common stock, preferred stock, convertible securities or other equity like securities upon consummation of such financing; or (5) absent the occurrence of one or more of the valuation events set forth in subclauses (1) (4) above, the Portfolio Value of a Portfolio Company shall be equal to MBI's or MBI LP's original cost to invest in the Portfolio Company. A "Portfolio Company Acquisition" means (i) the acquisition of the Portfolio Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of the Portfolio Company), or (ii) any distribution by the Portfolio Company, by dividend or otherwise, of any of the proceeds to the stockholders of the company from a sale of all or substantially all of the assets of the company. (b) At anytime prior to the Portfolio Valuation Date when the Portfolio Value is at least $4 million, KM or TM may send to the Company a notice setting forth the Portfolio Value (a "Valuation Notice"), and as soon as practicable after the Portfolio Valuation Date, and if the Portfolio Value has not been fixed then prior to the Portfolio Valuation Date, KM or TM shall send to the Company such a notice. If the Company disputes such valuation, the Company shall have ten (10) days after the date of delivery of the Valuation Notice to send a notice to KM and TM disputing the Portfolio Value (the "Dispute Notice"). If the party who sent the Valuation Notice does not receive a Dispute Notice within such ten (10) day period, the Portfolio Value shall be fixed at the value set forth in the Valuation Notice as of the close of business on the last day of such period, subject to the proviso in Section 2(a) above. If a Dispute Notice is received by KM and TM within such period, the parties shall have an additional ten (10) day period in which to resolve the dispute. If the parties have not agreed on the Portfolio Value within such additional ten (10) day period, then the issues in dispute shall be submitted to a big five firm of independent public accountants selected by KM and TM (but not in any way associated with any of KM, TM, or the Company) and approved by the Company, which approval shall not be unreasonably withheld. The determination by such firm of independent public accountants regarding the Portfolio Value shall be final and binding upon the parties. 3. Exercise of Put Options. The Put Options may be exercised by the exercising party giving written notice to the Company of the exercising party's election to exercise the option. The notice shall set forth the date of the Option Closing (as defined below), which date shall be no more than 30 days after the date of such notice. 4. Option Closing. The closing for the purchase and sale of MBI Membership Interests upon exercise of a Put Option shall take place at the offices of the Company on the date specified in the notice of exercise (the "Option Closing"). At an Option Closing, the exercising party shall deliver to the Company a certificate signed by him certifying that each of the representations and warranties set forth in Section 5 below are true and correct as of the date of the Option Closing. In consideration therefore, the Company shall deliver to the exercising party (i) a certificate signed by an authorized officer of the Company certifying that each of the representations and warranties set forth in Section 6 below are true and correct as of the date of the Option Closing and (ii) the certificate or certificates evidencing the Option Shares. 5. Representations and Warranties by KM and TM. KM and TM each represent and warrant to the Company, severally and not jointly, the following: Authorization. This Agreement has been duly executed and delivered by him and (assuming the due authorization, execution and delivery by the Company) constitutes the valid, legal and binding obligation of him, enforceable against him in accordance with its terms, except as may be limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and similar laws of general application relating to or affecting the enforcement of rights of creditors and subject to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Defaults. Neither the execution and delivery of this Agreement nor the consummation by him of the transactions contemplated hereby will (i) result in the creation or imposition of any lien, charge or encumbrance upon his Membership Interests or (ii) violate any law, statute, judgment, decree, injunction, order, writ, rule or regulation applicable to him. Consents. No authorization, consent, approval, permit, license of or filing with any governmental authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance by him of this Agreement. Title to the Membership Interests. He has good and marketable title to his Membership Interests being sold, free and clear of all liens, claims and encumbrances of any nature. Acquisition of the Option Shares Entirely for Own Account. The Option Shares to be issued to him upon the exercise of his Put Option will be acquired for investment for his own account, not as a nominee or agent, and not with a view to his distribution of any part thereof, and he has no present intention of selling, granting any participation in, or otherwise distributing the same. He does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any other person, with respect to any of the Option Shares received hereunder. Reliance Upon Representations. He understands that the Option Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any other federal or state securities laws, and, in reliance on his representations set forth in this Agreement, the sale provided for in this Agreement is exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Accredited Investor. He is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act, who by reason of his business and financial experience has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment in the Option Shares and, having had access to or having been furnished with all such information as it has considered necessary (including, without limitation, the Company's most recent Annual Report on Form 10-K (the "10-K") for the fiscal year ending June 30, 1999, has concluded that he is able to bear those risks. Knowledge and Experience; Receipt of Information. He has such knowledge and experience in financial and business matters and has received all the information it considers necessary or appropriate for deciding whether to accept the Option Shares in exchange for his Membership Interests in MBI. He further represents that he has had an opportunity to ask questions and receive answers from the Company and its officers and representatives regarding the business, properties, prospects and financial condition of the Company and to obtain additional information necessary to verify the accuracy of any information furnished to him or to which he otherwise had access. Restricted Securities. He understands that the Option Shares may not be sold, transferred or otherwise disposed of without registration under the Securities act or an exemption therefrom. In particular, he is aware that the Option Shares may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met. Legends. Each certificate evidencing the Option Shares shall be endorsed with the following legend and he covenants that, except to the extent such restrictions are waived by the Company, he shall not transfer the Option Shares represented by any such certificate without complying with the restrictions on transfer described in the legend endorsed on such certificate: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OR TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT." 6. Representations and Warranties by the Company. Organization. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. Authorization. The Company has full corporate power and authority to execute and deliver this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporation action on the part of the Company. This Agreement has been duly executed and delivered by the Company and (assuming the due authorization, execution and delivery by KM and TM) constitutes the valid, legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and similar laws of general application relating to or affecting the enforcement of rights of creditors and subject to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Conflicts; Defaults. Neither the execution and delivery of this Agreement nor the consummation by the Company of the transactions contemplated hereby will (i) result in a violation or breach of the Certificate of Incorporation or the By-laws of the Company or, any agreement, indenture or other instrument to which the Company is a party or under which the Company is bound or (ii) violate any law, statute, judgment, decree, injunction, order, writ, rule or regulation applicable to the Company. Capitalization. The authorized capital stock of the Company consists of (i) 60,000,000 shares of common stock, of which 10,132,594 shares are issued and outstanding and 1,258,624 are held in treasury as of the date hereof, and (ii) 1,000,000 shares of preferred stock, par value $1.00 per share, of which no shares are issued and outstanding as of the date hereof. Other than outstanding stock option agreements with certain of the Company's directors and employees and certain outstanding warrants, there are no subscription, option, warrants, calls, rights, agreements or commitments to which the Company is a party requiring and there are no convertible securities of the Company outstanding which upon conversion would require the issuance of any additional shares of the Company's capital stock. Litigation. There is no action, suit, or proceeding pending, or to the knowledge of the officers of the Company threatened, against the Company or its subsidiaries before any court or arbitrator or governmental or regulatory authority which questions the validity of, or threatens to enjoin, any action taken or to be taken pursuant to or in connection with this Agreement. The Option Shares. The Option Shares have been duly authorized by all necessary corporate action of the Company, and when issued pursuant to the terms of this Agreement, will be validly issued and fully paid and non- assessable. The Option Shares will be free and clear of all pledges, liens and encumbrances, other than restrictions on transfer under this Agreement and applicable federal and state securities laws. Financial Statements. The Company has previously furnished to KM and TM the Company's Form 10-K for the fiscal year ended June 30, 1999. The financial statements fairly present the financial position of the Company as of the date thereof and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP and applied in a manner consistent with past practice. Absence of Certain Changes or Events. Since June 30, 1999, there has been no material adverse change in the business, assets or financial condition of the Company. 7. Adjustment of Option Shares. In the event the Company shall subdivide or split its outstanding common stock into a smaller or larger number of shares or combine its outstanding common stock into a smaller number of shares, the denominator used in Section 2 to determine the number of Option Shares that KM and TM shall be entitled to receive upon exercising their Put Options shall be adjusted so that KM and TM thereafter shall be entitled to receive upon exercising their Put Options that number of shares of the Company's common stock which it would have been entitled to receive had such Put Option been exercised immediately prior to the happening of such event. 8. Registration Rights. The Company hereby agrees to use its best efforts to register any issued Option Shares under the Securities Act immediately following the exercise of a Put Option. 9. Change in Control. In the event of a Change in Control (as defined below) in the Company, the Put Options shall immediately become exercisable and the Portfolio Value shall be fixed at $4 million. For purposes of the preceding sentence, a "Change in Control" of the Company shall be deemed to have occurred upon any of the following events: (1) a change in control of the direction and administration of the Company's business of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or; (2) any person or other entity (other than any of the Company's subsidiaries or any employee benefit plan sponsored by the Company or any of its subsidiaries) including any person as defined in Section 13(d)(3) of the Exchange Act) becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of more than fifty percent (50%) of the total combined voting power of all classes of capital stock of the Company normally entitled to vote for the election of directors of the Company; or (3) during any period of two (2) consecutive years, the individuals who at the beginning of such period constitute the Company's Board of Directors or any individuals who would be "Continuing Directors" (as hereinafter defined) cease for any reason to constitute at least a majority thereof; or (4) the Company's common stock shall cease to be publicly traded; or (5) the Company's Board of Directors shall approve a sale of all or substantially all of the assets of the Company, and such transaction shall have been consummated; or (6) the Company's Board of Directors shall approve any merger, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in (3) or (4) above, and such transaction shall have been consummated. For purposes hereof, "Continuing Directors" shall mean (x) the directors of the Company in office as of the date of this Agreement and (y) any successor to any such director and any additional director who after the date of this Agreement was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection. 10. Miscellaneous. Expenses. Each party hereto shall pay all of its own expenses in connection with the execution of and the transactions contemplated by this Agreement, including, without limitation, the payment of all transfer taxes and all fees and expenses of counsel and other advisers. Reorganization Treatment. Absent a change in law, the Company agrees that the exchange of any Membership Interests shall be treated by it as a reorganization under section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), provided that immediately after such exchange the Company owns at least 80% of the outstanding Membership Interests of MBI. The Company shall not take any action or fail to take any action that would cause the disqualification of such exchange as a reorganization under Section 368(a) of the Code. Termination. This Agreement shall continue until, and shall terminate immediately upon the earlier of (i) the date a written agreement of termination is executed by each of the Company, KM and TM or (b) the fourth anniversary of the date of this Agreement. Notices. All notices, requests and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid by overnight courier guaranteeing next day delivery, or by telecopier (with telephonic or machine confirmation by the sender, addressed as follows (or to such other address, including facsimile number, as shall have been designated by the recipient in writing): If to KM and/or TM: Keith Meister 285 Lafayette Street New York, NY 10012 Facsimile No.: 212-502-6201 With required copies to: Jeffrey S. Klein, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Facsimile No.: 212-310-8007 If to the Company: Jackpot Enterprises, Inc. 1110 Palms Airport Drive Las Vegas, Nevada 89119 Attn: President Facsimile No.: 307-733-4935 With required copies to: Alan I. Annex Camby Karlinsky & Stein LLP 1740 Broadway New York, NY 10019 Tel.: 212-830-5764 Facsimile No.: 212-977-8389 E-mail: aannex@ckslaw.com All such notices, requests and other communications shall be deemed to have been received on the date of delivery thereof (if delivered by hand), on the third business day after the mailing thereof (if mailed), on the next day after the sending thereof (if by overnight courier) and when receipt is confirmed as provided above (if telecopied). Complete Agreement; Amendment. This Agreement constitutes the complete understanding of the parties with respect to its subject matter and supersedes any other agreement or understanding relating thereto. No amendment, change or modification of this Agreement shall be valid, binding or enforceable, unless the same shall be in writing and signed by each of the parties hereto. Waiver. No failure or delay on the part of KM, TM or the Company or any of them in exercising any right, power or privilege hereunder, and no course of dealing between KM, TM or the Company, shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude the simultaneous or later exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights and remedies which the parties hereto would otherwise have. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. Governing Law; Waivers. This Agreement shall be governed by, construed and enforced in accordance with the laws of the state of New York without giving effect to the conflict of laws provisions thereof. Each of the parties hereto submits to personal jurisdiction and waives any objection as to venue in the State of New York. Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in accordance with Section 8(c) hereof. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder. Benefit and Binding Effect; Assignment. All of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. No parties hereto shall assign (other than by will or bequest) his or its rights hereunder or any interest herein without the prior written consent of each of the other parties hereto. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ Keith A. Meister ______________________________ Keith A. Meister /s/ Todd A. Meister ______________________________ Todd A. Meister JACKPOT ENTERPRISES, INC. By: /s/ Allan R. Tessler ______________________________ Name: Allan R. Tessler Title: Chief Executive Officer EX-27 7
5 This schedule contains summary financial information extracted from Jackpot's Condensed Consolidated Balance Sheets - March 31, 2000 and June 30, 1999 and its Condensed Consolidated Statements of Operations - three and nine months ended March 31, 2000 and 1999 and is qualified in its entirety by reference to such financial statements. 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 62,780 0 0 0 0 65,646 33,869 21,142 91,553 4,417 0 0 0 100 82,661 91,553 0 66,689 0 62,170 3,337 0 0 9,484 2,703 0 0 0 0 6,781 .79 .78
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