-----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, Iaqa0F1bcHzgcU1Zrn4/HlscF3OTKAcKl0byWzsIFB+e0CBbsDBM4/MEKc1JuGhW LRlwMHL1PKYYbNioM+//lQ== 0000351903-97-000012.txt : 19971028 0000351903-97-000012.hdr.sgml : 19971028 ACCESSION NUMBER: 0000351903-97-000012 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971027 SROS: NYSE 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: DEF 14A SEC ACT: SEC FILE NUMBER: 001-09728 FILM NUMBER: 97701039 BUSINESS ADDRESS: STREET 1: 1110 PALMS AIRPORT DR CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7023693424 MAIL ADDRESS: STREET 2: 1110 PALMS AIRPORT DRIVE CITY: LAS VEGAS STATE: NV ZIP: 89119 DEF 14A 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 JACKPOT ENTERPRISES, INC. _____________________________________________________________________________ (Name of Registrant as Specified in its Charter) _____________________________________________________________________________ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: _________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: _________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): _________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: _________________________________________________________________________ 5) Total fee paid: _________________________________________________________________________ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: _____________________________________________ 2) Form, Schedule or Registration Statement No.: _____________________________________________ 3) Filing Party: _____________________________________________ 4) Date Filed: _____________________________________________ JACKPOT ENTERPRISES, INC. 1110 Palms Airport Drive Las Vegas, Nevada 89119 Telephone Number: (702) 263-5555 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held December 17, 1997 To the Stockholders of Jackpot Enterprises, Inc. NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Jackpot Enterprises, Inc., a Nevada corporation ("Jackpot"), will be held at Bally's, Las Vegas, 3645 Las Vegas Blvd. South, Las Vegas, Nevada 89109 on December 17, 1997, at 9:00 a.m., local time, for the purpose of considering and acting upon: (1) the election of four directors of Jackpot to serve as the Board of Directors until the next Annual Meeting of Stockholders and until their successors are elected and qualified (the "Director Proposal"); (2) a proposal to ratify the appointment of Deloitte & Touche LLP as Jackpot's independent auditors for the fiscal year ending June 30, 1998 (the "Auditor Proposal"); and (3) such other business as may properly come before the Annual Meeting or any adjournment or adjournments thereof. The Board of Directors has fixed the close of business on October 27, 1997 as the record date for determining Stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment or adjournments thereof. Stockholders will not be entitled to appraisal rights in connection with the matters to be voted on at the Annual Meeting. A proxy and postage prepaid return envelope are enclosed for your convenience. By Order of the Board of Directors, /s/ Alvin J. Hicks ALVIN J. HICKS Secretary October 27, 1997 It is important that your shares be represented at the Annual Meeting. Please complete, date, sign and mail the enclosed proxy card promptly in the return envelope provided, regardless of whether you plan to attend the Annual Meeting, so that your vote may be recorded. If you are present at the Annual Meeting, you may withdraw your proxy and vote in person if you so desire. JACKPOT ENTERPRISES, INC. 1110 Palms Airport Drive Las Vegas, Nevada 89119 Telephone Number: (702) 263-5555 PROXY STATEMENT _____________________________________________________________________________ General This Proxy Statement, including the Notice of Annual Meeting of Stockholders,(the "Proxy Statement") is furnished to the holders("Stockholders") of Common Stock, par value $.01 per share (the"Common Stock"), of Jackpot Enterprises, Inc., a Nevada corporation ("Jackpot" or the "Company"), in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Stockholders of Jackpot to be held on December 17, 1997, including any adjournment or adjournments thereof, (the "Annual Meeting"). A copy of the Notice of Annual Meeting of Stockholders accompanies this Proxy Statement. It is anticipated that the mailing of this Proxy Statement and the accompanying Proxy Card will commence on or about October 27, 1997. The Board of Directors believes that a vote in favor of the Director Proposal and approval of the Auditor Proposal(collectively, the "Proposals")are in the best interests of the Company and its Stockholders. The Board of Directors does not know of any matter that is expected to be presented for consideration at the Annual Meeting other than the matters described in this Proxy Statement. However, if other matters properly come before the Annual Meeting, the persons named in the accompanying proxy intend to vote thereon in accordance with their judgment. All proxies received pursuant to this solicitation will be voted FOR the Proposals, except as to matters where authority to vote is specifically withheld and where another choice is specified as to the Proposal, in which event, they will be voted in accordance with such specification. If no instructions are given, the persons named in the proxy solicited by the Board of Directors of Jackpot intend to vote FOR the Director Proposal and FOR the Auditor Proposal. Record Date; Stockholders Entitled to Vote; Quorum Only Stockholders of record at the close of business on October 27, 1997, the record date (the "Record Date") for the Annual Meeting, will be entitled to notice of and to vote at the Annual Meeting. As of the Record Date, Jackpot had outstanding 9,082,035 shares of Common Stock. Shares of Common Stock are the only securities of Jackpot entitled to vote at the Annual Meeting and each share outstanding as of the Record Date will be entitled to one vote. The presence in person or by proxy of the Stockholders of a majority of the outstanding shares of Common Stock will constitute a quorum for the transaction of business at the Annual Meeting. Vote Required For Approval Nevada law requires that each of the four nominees for director be elected by the affirmative vote of a plurality of the votes of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and that the ratification of the appointment of the Company's independent auditors be approved by the affirmative vote of a plurality of the votes of the shares of Common Stock present in person or represented by proxy at the Annual Meeting. Revocability of Proxies A Stockholder who dates, signs and returns the enclosed form of proxy may revoke the proxy at any time before it is voted by submitting to the Secretary of Jackpot a duly executed written revocation or a proxy bearing a later date. Attendance at the Annual Meeting shall not have the effect of revoking a proxy unless the Stockholder so attending shall, in writing, so notify the Secretary of the Company at any time prior to the voting of the proxy. Solicitation of Proxies The Company will bear the cost of soliciting proxies in the accompanying form. In addition to the use of the mails, proxies may be solicited personally or by telephone by directors, officers or employees of the Company, none of whom will receive any compensation therefor in addition to their regular remuneration. The Company will reimburse brokers and certain other persons holding stock in their names or in the names of nominees for their expenses in sending proxy materials to principals and obtaining their proxies, which are anticipated to total $10,000. The Company has retained Beacon Hill Partners, Inc. ("Beacon") to aid in the solicitation of proxies from brokers, banks, nominees and other institutional owners and non-objecting beneficial owners and individual holders of record, by personal interview, telephone, telegram or mail. The Company will pay Beacon a fee of $1,750 and will reimburse Beacon for certain expenses incurred by it. Voting of Proxies Proxies will be voted in accordance with the instructions indicated thereon. A validly executed proxy which does not indicate instructions will be voted FOR each of the Proposals. The Annual Meeting will be held for the transaction of business described above and for the transaction of such other business as may properly come before the Annual Meeting. Proxies will confer discretionary authority with respect to any other matters which may properly be brought before the Annual Meeting. At the date of this Proxy Statement, the only business which the Company's management intends to present, or knows that others will present, is that described in this Proxy Statement. If other matters properly come before the Annual Meeting, the persons holding proxies solicited hereunder intend to vote such proxies in accordance with their judgment on all such matters. Tabulation of Votes All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Abstentions and broker non-votes will be counted as present in determining whether the quorum requirement is satisfied. Abstentions will be counted towards the tabulation of votes cast on the Proposals and will have the same effect as negative votes. Broker non-votes are not counted for any purpose in determining whether a matter has been approved. ELECTION OF DIRECTORS At the Annual Meeting, four directors are to be elected, each to hold office (subject to Jackpot's By-Laws) until the next Annual Meeting of Stockholders and until a respective successor has been elected and qualified. If any nominee listed in the table below should become unavailable for any reason, which management does not anticipate, the proxy will be voted for any substitute nominee or nominees who may be selected by the Board of Directors prior to or at the Annual Meeting, or, if no substitute is selected by the Board of Directors prior to or at the Annual Meeting, for a motion to reduce the membership of the Board to the number of nominees available. The information concerning the nominees and their security holdings has been furnished by them to Jackpot. The directors of Jackpot (none of whom has a family relationship with one another, and each of whom is a nominee for election as a director at the Annual Meeting) are as follows: Name Age Position _______________________ ___ __________________________________ Allan R. Tessler 61 Chairman of the Board Don R. Kornstein 45 President, Chief Executive Officer and Director David R. Markin 66 Director Robert L. McDonald, Sr. 77 Director
Allan R. Tessler has served as Chairman of the Board since May 1994 and has been a director of Jackpot since 1980. Mr. Tessler also served as Secretary of Jackpot from 1980 through August 1993. He has been Chairman and Chief Executive Officer of International Financial Group, Inc., an international merchant banking firm, since 1987. He has been Co-Chairman and Co-Chief Executive Officer of Data Broadcasting Corporation, a securities market data supplier, since June 1992. From May 1988 through October 1993, Mr. Tessler was Chairman of the Board and Chief Executive Officer of Ameriscribe Corporation, a national provider of facilities management services. Mr. Tessler has been Chairman of the Board of Enhance Financial Services, Inc., an insurance holding company, since 1986, and was Chairman of the Board of Great Dane Holdings Inc., a diversified holding company, from 1987 through December 1996. He is also a director of The Limited, Inc. and Allis-Chalmers Corporation. Don R. Kornstein has served as President, Chief Executive Officer and a director of Jackpot since September 1994. Prior to his appointment with Jackpot, Mr. Kornstein was a Senior Managing Director of Bear, Stearns & Co. Inc., a leading worldwide investment banking firm where he had been employed since 1977. Mr. Kornstein was in such firm's Investment Banking Department and was head of that firm's gaming industry group. Mr. Kornstein is also a director of Riddell Sports Inc., a manufacturer of athletic equipment. David R. Markin has been a director of Jackpot since 1980. Mr. Markin has been Chairman of the Board, Chief Executive Officer and President of Checker Motors Corporation, an automobile parts manufacturer and taxicab fleet operator since 1970. Mr. Markin was President and Chief Executive Officer of Great Dane Holdings Inc. from 1989 through December 1996. Mr. Markin is also a director of Enhance Financial Services, Inc. and Data Broadcasting Corporation. Robert L. McDonald, Sr. has been a director of Jackpot since 1980. Mr. McDonald is a senior partner in the law firm of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, counsel to Jackpot. Mr. McDonald is a principal stockholder, executive officer and a director of Little Bonanza, Inc., the corporate operator of the Bonanza Casino located in Reno, Nevada. These individuals will be placed in nomination for election to the Board of Directors. The Board of Directors recommends a vote FOR the election of each of the nominees for director. The shares represented by the proxy cards returned will be voted FOR election of these nominees unless an instruction to the contrary is indicated on the proxy card. Committees of the Board of Directors and Meetings The Board of Directors held four meetings during the fiscal year ended June 30, 1997. All directors attended the meetings of the Board of Directors and of the Committees of the Board of Directors on which they served during fiscal 1997. The Board of Directors has an Audit Committee and a Compensation Committee. All of the members of the Audit Committee and the Compensation Committee attended all of the meetings of such Committees held during fiscal 1997. The Board of Directors does not have a Nominating Committee. Such matters are discussed by the Board as a whole. The Audit Committee, which consists of Messrs. Tessler and Markin, held two meetings during fiscal 1997. The Audit Committee reviews and satisfies itself as to the adequacy of the structure of Jackpot's financial organization and as to the proper implementation of the financial and accounting policies of Jackpot. The Audit Committee reviews with Jackpot's independent auditors the scope of the annual audit prior to its commencement and the results of such audit before the release of the Annual Report to Stockholders. More specifically, the Audit Committee (a) reviews Jackpot's financial and accounting policies and procedures with emphasis on any major changes during the year, (b) reviews the results of the audit for significant items and inquiries as to whether the independent auditors are completely satisfied with the audit results, discussing any recommendations and comments the independent auditors may have, and (c) ascertains the degree of cooperation of Jackpot's financial and accounting personnel with the independent auditors. The Compensation Committee, which consists of Messrs. Tessler, Markin and McDonald, makes recommendations to the Board of Directors as to salaries, bonuses, and other forms of compensation for officers and other key employees. During fiscal 1997, the Compensation Committee held one meeting. DIRECTOR AND EXECUTIVE COMPENSATION Executive Compensation. The following table sets forth certain information concerning compensation for those persons who were (i) the Chief Executive Officer, and (ii) the other most highly paid executive officers whose total annual salary and bonus exceeded $100,000 (collectively, the "Named Executives") for service provided for the fiscal years ended June 30, 1997, 1996 and 1995. SUMMARY COMPENSATION TABLE Long-Term Compensation ____________________________ Annual Compensation AWARDS PAYOUTS __________________________________ __________ _______ Stock Name and Other Option All Other Principal Fiscal Annual Awards (in LTIP Compen- Position Year Salary Bonus Compensation shares) Payout sation (1) (2) (3) (4) _________ ______ ________ ________ ____________ __________ _______ _________ Don R. 1997 $715,695 $169,000 - 27,500 - $7,500(6) Kornstein 1996 $675,000 $204,920 - 27,500 - $7,500(6) President 1995 $528,750(5)$220,000(5) - 727,500 - $7,500(6) and Chief Executive Officer George 1997 $115,000 $ 75,000 - 10,000 - - Congdon(7) 1996 $105,000 $ 40,000 - - - - Senior 1995 $ 95,000 $ 30,000 - 10,000 - $1,408(8) Vice President- Operations Bob Torkar 1997 $115,000 $ 75,000 - 10,000 - - Senior 1996 $105,000 $ 40,000 - - - - Vice 1995 $ 96,600 $ 27,000 - 10,000 - $1,393(8) President- Finance, Treasurer and Chief Accounting Officer
(1) Reflects the primary capacity served during fiscal 1997. (2) Includes incentive compensation based on a predetermined formula (see "Employment Agreements") and bonuses, which were not pursuant to a predetermined plan or agreement. (3) The Named Executives each received certain perquisites, the aggregate value of which did not exceed, as to any Named Executive in any of the last three fiscal years, the lesser of $50,000 or 10% of such Named Executive's annual salary and bonus. (4) Represents the number of shares subject to options granted during the respective fiscal year. (5) Mr. Kornstein was appointed President and Chief Executive Officer of Jackpot on September 8, 1994. (6) Amount represents the annual premium paid by Jackpot for term life insurance for the benefit of Mr. Kornstein. (7) Mr. Congdon was appointed Senior Vice President - Operations of Jackpot on May 11, 1995. (8) Represents the amount earned under a deferred profit sharing plan. Under such plan, the annual contribution by the Company, as approved by the Board of Directors, was allocated to all eligible employees, including executive officers, based on their annual compensation, as defined. Such plan was terminated during fiscal 1996. Option Grants. The following table summarizes information concerning individual grants of options, including the potential realizable dollar value of grants of options made during the fiscal year ended June 30, 1997, to each Named Executive, assuming that the market value of the underlying security appreciates in value, from the date of grant to the end of the option term, at the assumed rates indicated in the following table. FISCAL 1997 OPTION GRANTS Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term (1) ___________________________________________________________ ____________________ Percent Number of of Total Securities Options Underlying Granted to Exercise Options Employees (2) Price Expiration Name Granted (#) in Fiscal Year ($/Share) Date 5%($) 10%($) _________ ___________ ______________ _________ __________ _______ ________ Don R. Kornstein 27,500 (3) 21% $11.50 6/30/02 $82,500 $181,500 George Congdon 10,000 (4) 8% $11.00 8/13/01 $30,400 $ 67,200 Bob Torkar 10,000 (4) 8% $11.00 8/13/01 $30,400 $ 67,200
(1) The dollar amounts under these columns are the result of calculations at annualized rates of 5% and 10%, respectively, which were established by rules promulgated by the Securities and Exchange Commission and therefore are not intended to forecast possible future appreciation, if any, of Jackpot's Common Stock price. (2) Total options granted include options to purchase an aggregate of 110,000 shares of Common Stock granted to the Board of Directors (see "Director Compensation"). (3) As a member of the Board of Directors on June 30, 1997, Mr. Kornstein was automatically granted an option to purchase 27,500 shares of Common Stock on such date. Pursuant to the 1992 Incentive and Non-qualified Stock Option Plan, the exercise price for each June 30 automatic grant will be the fair market value of the Common Stock on the following September 30. On September 30, 1997, the exercise price of such grant was vested at $11.50 per share (see "Director Compensation"). (4) Such options became exercisable on August 13, 1997. Option Exercises and Fiscal Year-End Values. The following table summarizes information with respect to the exercise of options to purchase Common Stock of Jackpot during the last fiscal year by each of the Named Executives and the value of unexercised options held by each of them as of the end of fiscal 1997. None of the Named Executives exercised any options during fiscal 1997. AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES Number of Shares Underlying Value of Unexercised Shares Unexercised Options In-the-Money Options Acquired Value at Fiscal Year-End (#) at Fiscal Year-End ($) on Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable (1) __________ ___________ ________ ______________________ _______________________ Don R. Kornstein - - 521,666/260,834 $1,046,665/$495,835 George Congdon - - 22,000/ 10,000 $ 28,750/$ 3,750 Bob Torkar - - 51,000/ 10,000 $ 28,750/$ 3,750
(1) Based on the closing price of $11.375 for Jackpot's Common Stock on the New York Stock Exchange on June 30, 1997. Pension Plan. On August 13, 1996, the Board of Directors approved the termination of a retirement plan for certain executives and management employees (the "Salary Continuation Plan"). In general, the Salary Continuation Plan provided that participants (i.e., an employee with an annual salary in excess of $60,000 retiring at age 65) would receive a monthly retirement benefit equal to an amount determined by dividing the sum of the participant's Future Service Benefit, as defined in the Salary Continuation Plan (i.e., the sum, for each year, of such percentage of the participant's annual compensation as the Board of Directors may in its sole discretion determine) and, if applicable, Past Service Benefit, as defined in the Salary Continuation Plan (i.e., an amount equal to 1% of the participant's average annual compensation prior to October 1, 1990) by 12 for a total of 180 consecutive monthly payments. For participants who retire after age 55, but before age 62, the monthly retirement benefit is reduced. The Salary Continuation Plan also provided for pre-retirement survivors' benefits in a monthly amount equal to either (i) the sum of the participant's Future Service Benefit and, if applicable, Past Service Benefit as of the date of death, divided by 12, or (ii) 1/12 of the participant's annual compensation that would have been paid to the participant in the year of death had the participant continued in the service of Jackpot for the remainder of such year, for a number of months determined as follows: Participant's Age at Death Number of Monthly Payments __________________________ __________________________ Less than 40 36 40 but less than 50 24 50 and over 12
The amounts expended by Jackpot for the Salary Continuation Plan were on a group basis and were actuarially determined. No specific amount was expended or set aside by Jackpot for the account of any individual officer or employee under the Salary Continuation Plan. The Board of Directors determined that no percentage of the participant's annual compensation in fiscal 1997 would be used in determining monthly retirement benefits. Messrs. Kornstein, Congdon and Torkar did not earn any benefits under the Salary Continuation Plan. The following table illustrates the annual retirement income payable to an employee under the Salary Continuation Plan assuming the Future Retirement Benefits (as defined in the Salary Continuation Plan) are equal to 1% of a participant's annual compensation, the payments are on a straight 180 month annuity basis, the plan continues in its present form until the participant's retirement and the age of retirement is 65. The benefits listed in the following table are not subject to any deduction for Social Security benefits or other offset amounts. PENSION PLAN TABLE Years Of Service ___________________________________________________ Remuneration 10 15 20 25 30 ____________ _______ ________ ________ ________ ________ $100,000 $10,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $125,000 $12,500 $ 18,750 $ 25,000 $ 31,250 $ 37,500 $150,000 $15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $200,000 $20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $250,000 $25,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $300,000 $30,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $350,000 $35,000 $ 52,500 $ 70,000 $ 87,500 $105,000 $400,000 $40,000 $ 60,000 $ 80,000 $100,000 $120,000 $600,000 $60,000 $ 90,000 $120,000 $150,000 $180,000
Director Compensation. Directors who are not salaried employees of the Company receive annual fees of $32,000. In addition, a director who serves as a member of the Compensation Committee and/or Audit Committee is entitled to receive $10,800 and $7,200, respectively, per year. For the fiscal year ended June 30, 1997, Messrs. Tessler, Markin and McDonald received aggregate fees of $50,000, $50,000 and $42,800,respectively. Mr. Kornstein did not receive any fees for service on the Board of Directors during fiscal 1997. The 1992 Incentive and Non-qualified Stock Option Plan (the "1992 Plan")provides that each individual who is a member of the Board of Directors on June 30 of any year, including any future director on any such date, will automatically be granted a nonqualified option to purchase 27,500 shares of Common Stock on each such June 30. The exercise price for each June 30 grant will be 100% of the fair market value of the Common Stock on the following September 30. Each option granted to a director will become exercisable after September 30 of each year and expire five years from the date of grant. On June 30, 1997 options to purchase an aggregate of 110,000 shares of Common Stock (27,500 each to Messrs. Tessler, Kornstein, Markin and McDonald) were automatically granted at an exercise price of $11.50 per share pursuant to the terms of the 1992 Plan. Employment Agreements Jackpot has an employment agreement (the "Agreement") with Mr. Kornstein, which became effective on September 8, 1994, and currently expires on September 30, 2000. The Agreement is automatically extended for additional one year periods on each October 1 unless, not later than March 31, immediately preceding each October 1, notice is given by either the Company or Mr. Kornstein. From September 19, 1994 through September 7, 1996, Mr. Kornstein's annual base salary was $675,000. Presently, Mr. Kornstein's annual base salary, which became effective September 8, 1996, is $725,000. The Agreement provides for an annual bonus for each fiscal year equal to (i) 2% of the amount up to the first $5 million by which the Company's earnings before interest, taxes, depreciation, amortization and certain other items, as defined in the Agreement ("EBITDA") for such fiscal year exceeds $10 million, (ii) 4% of the amount up to the first $5 million by which EBITDA for such fiscal year exceeds $15 million, (iii) 5% of the amount up to the first $5 million by which EBITDA for such fiscal year exceeds $20 million, (iv) 6% of the amount up to the first $5 million by which EBITDA for such fiscal year exceeds $25 million, plus (v) 7% of the amount by which EBITDA for such fiscal year exceeds $30 million. The Board of Directors may, in its discretion, grant Mr. Kornstein additional bonuses. To date, no such additional bonuses have been granted to Mr. Kornstein. In addition, the Company, at its cost, provides term life and disability insurance to Mr. Kornstein in the amount of $5 million and $25,000 per month, respectively. As part of the Agreement, Mr. Kornstein was granted an option under the 1992 Plan to acquire 700,000 shares of Common Stock at $9.25 per share (the closing price on the effective date of the Agreement). The option, which expires on September 8, 2004, vested as to one-third of the shares on September 8, 1995, 1996 and 1997, respectively. Under certain circumstances, such option is exercisable for a period of 18 months following the termination of the Agreement, but in no event beyond the expiration of the term of such option. In the event Mr. Kornstein is disabled during the term of the Agreement, he will receive his full base salary for the first six months of such disability. At the end of such six month period or upon his death, Mr. Kornstein, or his beneficiary, will receive a payment for accrued salary, if any, and a pro rata bonus, as defined in the Agreement, through such date. In addition, Mr. Kornstein or his beneficiary will receive a lump sum payment equal to the sum of (i) Mr. Kornstein's base salary, which would have been in effect for the twelve months following the date of disability or death, and (ii) the average bonus, as defined in the Agreement, for the prior three fiscal years. The Agreement with Mr. Kornstein may be terminated by the Board of Directors, at any time, for cause. Termination for "cause" under the Agreement is permitted upon (i) such employee's conviction of a felony, (ii) the termination of such employee's gaming license, under certain circumstances, or (iii) upon such employee's willful and continued failure to substantially perform his duties, in which case the Company shall only pay such employee the amounts due him through the date of termination. In the event of a termination of the Agreement by the Company without cause, for "Good Reason", or a "Change in Control", Mr. Kornstein would receive a lump sum amount equal to his base salary, which would have been in effect for the three year period commencing on the date of termination, plus his bonus for a three year period, pursuant to a formula, as well as three additional years credits for pension benefit calculations and three years of welfare benefit coverage to the extent not provided to Mr. Kornstein by a subsequent employer. Assuming such termination occurred on or about October 27, 1997, such lump sum payment would be approximately $2.8 million. In addition, Mr. Kornstein would receive any amount necessary to reimburse him for any excise tax imposed under the Internal Revenue Code, including any tax payable by reason of such reimbursement. Mr. Kornstein agreed that for a period of three years following the termination of his employment, for any reason, he will not compete with Jackpot or its subsidiaries. For purposes of the Agreement, Mr. Kornstein shall have "Good Reason" to terminate his employment (i) upon a failure by the Company to comply with a material provision of the Agreement, (ii) upon a diminution of Mr. Kornstein's title or authority, or (iii) upon receipt by Mr. Kornstein of a notice from the Company indicating that the contract term is not being automatically extended. For a period of time of up to one year after a change in control of Jackpot, Mr. Kornstein has the option of terminating the Agreement. As defined in the Agreement, change in control occurs when (i) any person or group of persons become the beneficial owner of 20% or more of the outstanding voting securities of Jackpot, (ii) during any two consecutive years, the individuals who constituted the Board of Directors of Jackpot at the beginning of such period cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of the period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, (iii) a merger or consolidation other than (1) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent 51% of the combined voting securities of the Company, or (2) a recapitalization in which no person acquires 20% or more of the Company's then outstanding securities, and (iv) a liquidation of the Company or a sale of all or substantially all of the Company's assets. Compensation Committee Interlocks and Insider Participation The Compensation Committee consists of three non-employee directors. Currently the members of the Compensation Committee are Messrs. Tessler, Markin and McDonald. See "Certain Relationships and Related Transactions" for a description of transactions and agreements in which members of the Compensation Committee and their associates were involved. None of the executive officers of Jackpot serves as a director of another corporation in a case where an executive officer of such other corporation serves as a director of Jackpot. Compensation Committee Report on Executive Compensation The compensation of the Named Executives of the Company, as well as other executive officers of the Company, is determined by the Compensation Committee of the Board of Directors. The compensation of the executive officers consists primarily of salary, bonuses and short- and long-term incentives plans, whereby the Company has aligned the executive officers' financial interests with the financial interests of the Stockholders of the Company. As determined by the Compensation Committee, an executive officer's total compensation package is comprised of three components: (1) base salary, (2) bonuses and (3) options. The base salary and certain bonus arrangements for the Named Executives, with the exception of Mr. Kornstein, are not subject to an employment agreement. In considering the terms and conditions of employment agreements, the base salary for executive officers and for annual base salary increases for those Named Executives with whom the Company has an employment agreement, the Compensation Committee considers a number of factors including the executive's level of responsibility, achievements, and present and future value to the Company relative to comparable positions at other companies in the gaming industry. Mr. Kornstein was appointed Chief Executive Officer of Jackpot on September 8, 1994. Prior to his appointment with Jackpot, Mr. Kornstein was a Senior Managing Director of Bear, Stearns & Co. Inc., a leading worldwide investment banking firm where he had been employed since 1977. Mr. Kornstein was in such firm's Investment Banking Department and was head of that firm's gaming industry group. Mr. Kornstein's compensation arrangements were negotiated prior to his joining the Company and were incorporated into the Agreement. In agreeing to the terms of the Agreement, the Compensation Committee considered, among other factors, the depth of Mr. Kornstein's background and experience, Mr. Kornstein's then present position and compensation, and the compensation arrangements for chief executives of comparable companies. Pursuant to the terms of the Agreement, Mr. Kornstein's base salary and bonus were $715,695 and $169,000, respectively, for fiscal 1997. Mr. Kornstein was not awarded any discretionary bonus for fiscal 1997. For additional information concerning the Agreement, see "Employment Agreements". In addition to base salary, executive officers are eligible to receive annual bonuses, which may be determined based upon the Company's meeting of specific economic targets, which may be set forth in such officer's employment agreement, if any, and at the discretion of the Board of Directors. In determining bonuses within its discretion, the Board acting upon the recommendation of the Compensation Committee will consider the overall operating performance of the Company during the period, as well as the position and responsibility of the executive and the executive's service and contributions to the Company during the year. In addition to salary and bonus, executive officers may be granted options to purchase Common Stock. Options are intended to assist in encouraging executive officers, as well as other key management employees, to acquire a proprietary interest in the Company through ownership of its Common Stock. The Company views options as yet another method to bring together the interests of management and Stockholders on a long-term basis. Strong financial performance by the Company over time can be expected to lead to stock price appreciation, enabling the Company's executives to participate in such appreciation, should it be realized. In considering which employees, including executive officers, who are to receive option grants, as well as the number of options to be granted, the Compensation Committee considers such employee's position and responsibility, the service, and accomplishments of such employee, the employee's present and future value to the Company, as well as the anticipated length of the employee's future service to the Company. In fiscal 1997, Messrs. Congdon and Torkar each were granted an option to purchase 10,000 shares of Common Stock at the market price on the date of grant, which was $11.00 per share. In addition, pursuant to the 1992 Plan, directors, including directors who are also employees of the Company, are eligible for an annual automatic grant of an option to purchase 27,500 shares of Common Stock. On June 30, 1997, each director received one such grant relating to services provided in fiscal 1997. For additional information concerning the salary, bonus and stock option grants for the Named Executives, see "Director and Executive Compensation." In fulfilling its responsibilities, the Compensation Committee's goal is to closely ally the interest of management and the Stockholders. The Compensation Committee therefore believes that the short- and long-term financial performance of the Company should be a key determinant of overall executive compensation. Allan R. Tessler David R. Markin Robert L. McDonald, Sr. PERFORMANCE GRAPH The graph below provides a comparison of the five year cumulative total return (assuming reinvestment of dividends) of the Company's Common Stock with the Standard & Poor's 500 Stock Index (the "S & P 500 Index") and the Dow Jones Casinos Index (the "Industry Group"). The industry group consists of six gaming companies. This graph assumes the investment of $100 on June 30, 1992 in each of the Company's Common Stock, the stocks comprising the S&P 500 Index and the stocks comprising the Industry Group. The historical stock price performance of the Company's Common Stock shown on the graph below is not necessarily indicative of future price performance. COMPARISON OF FIVE YEAR CUMULATIVE RETURN* AMONG JACKPOT ENTERPRISES, INC., THE S & P 500 INDEX AND THE DOW JONES CASINOS INDEX Measurement Period July 1 Jackpot Dow Jones June 30 Enterprises, Inc. S & P 500 Index Casinos Index _________________ _______________ _____________ Measurement Pt-6/30/92 $100 $100 $100 FYE 6/30/93 $180 $114 $189 FYE 6/30/94 $ 70 $115 $148 FYE 6/30/95 $ 92 $145 $247 FYE 6/30/96 $120 $183 $322 FYE 6/30/97 $108 $247 $233
* $100 INVESTED ON 6/30/92 IN STOCK OR INDEX- INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING JUNE 30. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of October 1, 1997, certain information regarding the shares of Common Stock beneficially owned by (i) each beneficial holder of more than five percent of the outstanding shares of Common Stock ("Beneficial Holder"), (ii) each director, (iii) each Named Executive, and (iv) all directors and executive officers of Jackpot as a group. OWNERSHIP OF JACKPOT COMMON STOCK ________________________________________________________________________________ Amount and Nature Name of Beneficial Holder, of Beneficial Director, Named Executive Ownership of Percent or Identity of Group Common Stock (2) of Class (2) ________________________________________________________________________________ Beneficial Holders: __________________ Don R. Kornstein (1) 782,500 7.93% David R. Markin (1) 471,979 5.07% Directors other than Messrs. Kornstein and Markin: ____________________________ Allan R. Tessler 404,257 4.34% Robert L. McDonald, Sr. 352,878 3.79% Named Executives other than Mr. Kornstein: ___________________________ George Congdon 42,000 * Bob Torkar 71,000 * All directors and executive officers as a group (6 persons) 2,124,614 19.91% ________________________________________________________________________________ *less than one percent (1) Messrs. Kornstein and Markin have an address in care of the Company at 1110 Palms Airport Drive, Las Vegas, Nevada 89119. (2) Includes shares of Common Stock which may be acquired upon the exercise of vested options held by the following: Mr. Tessler(231,094), Mr. Kornstein (782,500), Mr. Markin (231,094), Mr. McDonald (228,894), Mr. Congdon (42,000), Mr. Torkar (71,000)and all directors and executive officers as a group (1,586,582). Excludes shares of Common Stock which may be acquired upon the exercise of unvested options held by the following: Mr. Congdon (20,000), Mr. Torkar (20,000) and all directors and executive officers as a group (40,000). The nature of the beneficial ownership for all the shares is sole voting and investment power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Robert L. McDonald, Sr., a director of Jackpot, is a senior partner in the law firm of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP ("McDonald Carano"), counsel to Jackpot. In addition, A. J. Hicks, a partner in McDonald Carano is the Secretary of Jackpot. For the fiscal year ended June 30, 1997, the amount of fees paid by the Company to McDonald Carano, based on representation provided by McDonald Carano to the Company, did not exceed 5% of the gross revenues of such firm for its last full fiscal year. The Company believes that the fees for the services provided by McDonald Carano were at least as favorable to the Company as the fees for such services from unaffiliated third parties. During fiscal 1997, Jackpot purchased 55,174 shares of its Common Stock from American Country Insurance Company for approximately $545,000 (the market price on the date of purchase). Mr. Tessler and Mr. Markin, directors of Jackpot, were directors and indirect beneficial owners of an aggregate of more than 51% of the common stock of such insurance company at the time of such purchase. APPOINTMENT OF INDEPENDENT AUDITORS It is proposed that the Stockholders ratify the appointment by the Board of Directors of Deloitte & Touche LLP as independent auditors for Jackpot for the fiscal year ending June 30, 1998. Deloitte & Touche LLP has served as Jackpot's independent auditors since June 21, 1991. Jackpot expects representatives of Deloitte & Touche LLP to be present at the Annual Meeting at which time they will respond to appropriate questions submitted by Stockholders and may make such statements as they may desire. The Board of Directors of Jackpot recommends a vote FOR the Auditor Proposal. Approval by the Stockholders of the appointment of independent auditors is not required, but the Board deems it desirable to submit the matter to the Stockholders for ratification. If the majority of Stockholders voting at the meeting should not approve the selection of Deloitte & Touche LLP, the selection of independent auditors will be reconsidered by the Board of Directors. SUBMISSION OF STOCKHOLDER PROPOSALS Stockholders of Jackpot wishing to include proposals in the proxy material for the next Annual Meeting of Jackpot must submit such proposals in writing so as to be received at the executive offices of Jackpot on or before June 30, 1998. Such proposals must also meet the other requirements of the rules of the Securities and Exchange Commission relating to Stockholders' proposals. By Order of the Board of Directors /s/ Alvin J. Hicks ALVIN J. HICKS Secretary October 27, 1997 FORM OF PROXY - FRONT SIDE PROXY JACKPOT ENTERPRISES, INC. This Proxy is solicited on behalf of the Board of Directors. The undersigned hereby appoints Allan R. Tessler and David R. Markin, and each of them each with the full authority to act without the other, with the power of substitution, as proxies and attorneys-in-fact, to represent and to vote on behalf of the undersigned all of the shares of stock of Jackpot Enterprises, Inc. ("Jackpot") which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held at Bally's, Las Vegas, 3645 Las Vegas Blvd. South, Las Vegas, Nevada 89109 on December 17, 1997 at 9:00 a.m. local time, and at any adjournment or adjournments thereof, hereby revoking all proxies heretofore given with respect to such shares, upon the following proposals more fully described in the notice of the proxy statement for the meeting (receipt whereof is hereby acknowledged). THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS (1) and (2) 1. ELECTION OF DIRECTORS. _____ FOR the nominees listed below (except as marked to the contrary below) _____ WITHHOLD AUTHORITY to vote for all nominees listed below Allan R. Tessler, Don R. Kornstein, David R. Markin and Robert L. McDonald, Sr. (INSTRUCTION: To withhold authority to vote for one or more than one individual nominee, write that nominee's name(s) in the space provided below.) FORM OF PROXY - REVERSE SIDE 2. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP as Jackpot's independent auditors for the fiscal year ending June 30, 1998. ____ FOR ____ AGAINST ____ ABSTAIN 3. In their discretion upon such other matters as may properly come before the meeting. This proxy when properly executed will be voted in the manner directed herein by the undersigned Stockholder. If no direction is made, this proxy will be voted for the nominees named above and for the proposal and as the proxies deem advisable on any other matters as may properly come before the meeting. Please mark, sign, date and return the proxy card promptly, using the enclosed envelope. Please date and sign exactly as your name appears on this proxy. Joint owners should each sign. When signing as attorney, as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. DATED ________________ _____________________________________________ Signature DATED ________________ _____________________________________________ Signature if held jointly -----END PRIVACY-ENHANCED MESSAGE-----