-----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, TAtB8Yy1wYivdYrzaAPFpavzzcEOFZxQDIKZUvtm4IS1kZ3ZPwk9FR9WQ+Oe4dUA eBgZIwrt97KcP5L0lShL1Q== 0000351903-99-000009.txt : 19990517 0000351903-99-000009.hdr.sgml : 19990517 ACCESSION NUMBER: 0000351903-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623584 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to___________________ Commission file no. 1-9728 JACKPOT ENTERPRISES, INC. ___________________________________________________________________________ (Exact name of registrant as specified in its charter) NEVADA 88-0169922 _______________________________ __________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1110 Palms Airport Drive, Las Vegas, Nevada 89119 ___________________________________________ __________ (Address of principal executive offices) (Zip Code) 702-263-5555 __________________________________________________ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No _____ _____ There were 8,616,680 shares of the registrant's common stock outstanding as of May 7, 1999. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 Condensed Consolidated Statements of Income - Three and Nine Months Ended March 31, 1999 and 1998 Condensed Consolidated Statement of Stockholders' Equity - Nine Months Ended March 31, 1999 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 1999 and 1998 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Part II. Other Information Item 5. 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 1999 1998 ______ ________ ________ Current assets: Cash and cash equivalents $ 47,929 $ 50,275 Short-term investments, at fair value 6,340 Prepaid expenses 1,072 1,594 Other current assets 1,772 2,225 ________ ________ Total current assets 57,113 54,094 ________ ________ Property and equipment, at cost: Land and buildings 1,535 1,535 Gaming equipment 29,276 28,988 Other equipment 4,473 4,758 Leasehold improvements 360 354 ________ ________ 35,644 35,635 Less accumulated depreciation (20,715) (19,850) ________ ________ 14,929 15,785 Lease acquisition costs and other intangible assets, net of accumulated amortization of $5,296 and $4,607 3,307 2,231 Goodwill, net of accumulated amortization of $2,837 and $2,713 3,784 3,908 Lease and other security deposits 1,540 3,082 Other non-current assets 2,034 ________ ________ Total assets $ 82,707 $ 79,100 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Concluded) (Unaudited) March 31, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ____________________________________ ________ ________ Current liabilities: Accounts payable $ 2,290 $ 1,434 Other current liabilities 3,711 3,508 ________ ________ Total current liabilities 6,001 4,942 Deferred rent 2,488 2,377 Deferred income tax 517 849 Other liabilities 61 ________ ________ Total liabilities 9,006 8,229 ________ ________ Commitments and contingencies Stockholders' equity: Preferred stock - authorized 1,000,000 shares of $1 par value; none issued Common stock - authorized 30,000,000 shares of $.01 par value; 9,860,252 and 9,854,327 shares issued 99 99 Additional paid-in capital 66,465 66,376 Retained earnings 20,775 16,466 Less 1,243,572 and 1,080,372 shares of common stock in treasury, at cost (13,776) (12,070) Unrealized gain on available-for-sale securities, net of tax 138 ________ ________ Total stockholders' equity 73,701 70,871 ________ ________ Total liabilities and stockholders' equity $ 82,707 $ 79,100 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, __________________ __________________ 1999 1998 1999 1998 _______ _______ _______ _______ Revenues: Route operations $24,104 $22,667 $69,045 $67,534 Casino operations 472 704 1,485 2,114 _______ _______ _______ _______ Totals 24,576 23,371 70,530 69,648 _______ _______ _______ _______ Costs and expenses: Route operations 19,836 18,303 57,615 55,206 Casino operations 402 616 1,380 2,034 Amortization 299 289 877 851 Depreciation 1,003 986 3,074 2,751 General and administrative 867 992 2,664 2,878 _______ _______ _______ _______ Totals 22,407 21,186 65,610 63,720 _______ _______ _______ _______ Operating income 2,169 2,185 4,920 5,928 _______ _______ _______ _______ Other income: Interest and other income 346 435 1,064 1,460 _______ _______ _______ _______ Totals 346 435 1,064 1,460 _______ _______ _______ _______ Income before income tax 2,515 2,620 5,984 7,388 _______ _______ _______ _______ Provision (credit) for Federal income tax: Current 1,211 669 2,082 1,912 Deferred (507) 39 (407) 83 _______ _______ _______ _______ Totals 704 708 1,675 1,995 _______ _______ _______ _______ Net income $ 1,811 $ 1,912 $ 4,309 $ 5,393 ======= ======= ======= ======= Basic earnings per share $ .21 $ .21 $ .50 $ .60 ======= ======= ======= ======= Diluted earnings per share $ .21 $ .21 $ .50 $ .59 ======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED MARCH 31, 1999 (Dollars and shares in thousands) (Unaudited) Unrealized gain on available- Common Stock Additional Treasury Stock for-sale _____________ Paid-in Retained ________________ securities, Shares Amount Capital Earnings Shares Amount net of tax Totals ______ ______ _________ ________ ______ _________ __________ _______ Balance July 1, 1998 9,854 $99 $66,376 $16,466 (1,080) $(12,070) $70,871 Tax benefit from stock options 22 22 Issuance of shares on exercise of stock options 6 67 67 Repurchases of common stock (164) (1,706) (1,706) Unrealized gain on available- for-sale securities, net of tax $138 138 Net income 4,309 4,309 _____ ___ _______ _______ ______ _______ ____ _______ Balance March 31, 1999 9,860 $99 $66,465 $20,775 (1,244) $(13,776) $138 $73,701 ===== === ======= ======= ====== ======== ==== ======= >/TABLE> See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (Dollars in thousands) (Unaudited)
1999 1998 _______ _______ Operating activities: Net income $ 4,309 $ 5,393 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,951 3,602 Deferred income tax (407) 83 Increase (decrease) from changes in: Prepaid expenses and other current assets 953 189 Other non-current assets 12 (214) Accounts payable and other current liabilities 193 (449) Deferred rent and other liabilities 50 407 _______ _______ Net cash provided by operating activities 9,061 9,011 _______ _______ Investing activities: Purchase of marketable securities (6,127) Net proceeds from location operators 22 134 Proceeds from sales of property and equipment 1,676 325 Purchases of property and equipment (4,216) (5,674) Increase in lease acquisition costs and other intangible and non-current assets (1,123) (109) _______ _______ Net cash used in investing activities (9,768) (5,324) _______ _______ Financing activities: Proceeds from issuance of common stock 67 244 Repurchases of common stock (1,706) (1,680) _______ _______ Net cash used in financing activities (1,639) (1,436) _______ _______ Net (decrease) increase in cash and cash equivalents (2,346) 2,251 Cash and cash equivalents at beginning of period 50,275 47,945 _______ _______ Cash and cash equivalents at end of period $47,929 $50,196 ======= ======= Supplemental disclosures of cash flow data: Cash paid during the period for: Federal income tax $ 1,200 $ 2,000 ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - General: The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Jackpot Enterprises, Inc. ("Jackpot" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly Jackpot's financial position as of March 31, 1999, the results of its operations for the three and nine months ended March 31, 1999 and 1998 and its cash flows for the nine months ended March 31, 1999 and 1998. The earnings for the three and nine months ended March 31, 1999 and 1998 are not necessarily indicative of results for a full year. Information included in the condensed consolidated balance sheet as of June 30, 1998 has been derived from Jackpot's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended June 30, 1998 (the "1998 Form 10-K"). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and disclosures included in the 1998 Form 10-K. Jackpot accounts for investments in debt and equity securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). This statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities, and requires such securities be classified as either held to maturity, trading, or available-for- sale. Management determines the appropriate classification of its investments in securities at the time of purchase and reevaluates such classification at each balance sheet date. SFAS 115 requires available-for-sale securities be carried at fair value with unrealized gains, net of tax, reported as a separate component of stockholders' equity. Unrealized gains and losses for available-for-sale securities are excluded from earnings. For the three and nine months ended March 31, 1999 and 1998, there were no realized gains or losses from sales of investment securities. In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes additional standards for segment reporting in the financial statements. Management has begun its review of SFAS 131, however it has not made a final determination of the extent of the disclosures required by this statement. 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, 1999. 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. 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, although earlier application is encouraged. Upon adoption, this statement will not have a significant effect on Jackpot's results of operations or its financial position. Note 2 - Comprehensive income: Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Jackpot adopted this statement on July 1, 1998. Comprehensive income for the three and nine months ended March 31, 1999 and 1998 is the following (dollars in thousands): Three Months Nine Months Ended Ended March 31, March 31, ______________ ______________ 1999 1998 1999 1998 ______ ______ ______ ______ Net income $1,811 $1,912 $4,309 $5,393 Other comprehensive income: Unrealized gain on available-for-sale securities, net of tax 138 - 138 - ______ ______ ______ ______ Comprehensive income $1,949 $1,912 $4,447 $5,393 ====== ====== ====== ======
Note 3 - Earnings per share: Basic earnings per share ("Basic EPS") for the three and nine months ended March 31, 1999 and 1998 is computed by dividing net income by the weighted average number of common shares outstanding for the respective period. Diluted earnings per share ("Diluted EPS") for the three and nine months ended March 31, 1999 and 1998 is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding for the respective period. Options to purchase common stock, whose exercise price was greater than the average market price for the respective period, have been excluded from the Diluted EPS computations. Such antidilutive options outstanding for the three months ended March 31, 1999 and 1998 were 1,738,000 and 130,000, respectively, and for the nine months ended March 31, 1999 and 1998 were 721,000 and 169,000, respectively. The following is the amount of income and number of shares used in the Basic and Diluted EPS computations (dollars and shares in thousands, except per share data): Three Months Nine Months Ended Ended March 31, March 31, _______________ ______________ 1999 1998 1999 1998 ______ ______ ______ ______ Basic earnings per share: Earnings: Income available to common stockholders $1,811 $1,912 $4,309 $5,393 ====== ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,617 8,949 8,649 9,035 ====== ====== ====== ====== Basic earnings per share $ .21 $ .21 $ .50 $ .60 ====== ====== ====== ====== Diluted earnings per share: Earnings: Income available to common stockholders $1,811 $1,912 $4,309 $5,393 Effect of dilutive securities - - - - ______ ______ ______ ______ Income, as adjusted $1,811 $1,912 $4,309 $5,393 ====== ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,617 8,949 8,649 9,035 Common shares issuable upon assumed exercise of dilutive stock options 44 1,718 1,048 1,739 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) (1,482) (1,000) (1,556) ______ ______ ______ ______ Weighted average number of common shares and common share equivalents outstanding 8,618 9,185 8,697 9,218 ====== ====== ====== ====== Diluted earnings per share $ .21 $ .21 $ .50 $ .59 ====== ====== ====== ======
Note 4 - Stockholders' equity: The 1992 Incentive and Non-qualified Stock Option Plan: On September 30, 1998, the exercise price of the June 30, 1998 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 $9.94 per share, the fair market value of the stock on that date, pursuant to the terms of the 1992 Incentive and Non-qualified Stock Option Plan (the "1992 Plan"). See Note 6 of Notes to Consolidated Financial Statements in the 1998 Form 10-K for further information regarding the 1992 Plan and option grants. Common stock in treasury: Jackpot purchased a total of 163,200 shares of its common stock during the nine months ended March 31, 1999, all at market prices on the dates of purchase, for a total cost of approximately $1,706,000. Note 5 - Definitive agreement: On February 8, 1999, Jackpot and Players International, Inc. ("Players") entered into a definitive agreement and plan of merger (the "Agreement"). Pursuant to the terms of the Agreement, Jackpot will acquire Players for $8.25 per share, consisting of $6.75 per share in cash and $1.50 in Jackpot's common stock for each share of Players outstanding common stock, except that if the average closing price of Jackpot's common stock during the 30 trading days immediately preceding the second trading day before the completion of the merger is less than $5.00 per share, Players stockholders may receive more than $6.75 in cash and less than $1.50 in Jackpot stock per share of Players stock, but the sum of the cash and the value of Jackpot stock received will in any case equal $8.25 per share of Players stock. The completion of the merger is subject to a number of conditions, including approval by the stockholders of both companies, receipt of all the necessary regulatory and various approvals, and the financing of the transaction. On March 10, 1999, Jackpot purchased 1,014,400 shares of Players common stock at $6.04 per share for a total cost of $6,127,000. As of March 31, 1999, the shares purchased represent approximately 3.2% of Players outstanding common stock. For purposes of SFAS 115, the investment in Players common stock is classified as available-for-sale securities, and carried at fair value. "Short-term investments, at fair value" in the accompanying condensed consolidated balance sheets consist entirely of Jackpot's investment in Players common stock. As of March 31, 1999, the gross unrealized gain was $213,000. Note 6 - Other events: On February 17, 1999, Jackpot and CRC Holdings, Inc. d/b/a Carnival Resorts & Casinos ("CRC"), a privately owned company, entered into a definitive agreement and plan of merger providing for the acquisition of CRC by Jackpot. On April 15, 1999, Jackpot and CRC mutually agreed to terminate the proposed acquisition of CRC by Jackpot. As a result of the termination of the definitive agreement between the parties, all capitalized costs incurred in connection with the proposed acquisition of CRC will be expensed in the quarter ending June 30, 1999. Management estimates that the pretax charge will be approximately $900,000. For further information regarding the above, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 2. Management's Discussion and Analysis of Financial Condition and _______________________________________________________________ Results of Operations _____________________ Capital Resources and Liquidity _______________________________ Cash Flows: Jackpot's principal sources of cash for the nine months ended March 31, 1999 (the "1999 nine months"), consisted of the cash flows from operating activities and its available cash and cash equivalents which, at June 30, 1998, was $50.3 million and at March 31, 1999 was $47.9 million. Net cash provided by operating activities for the 1999 nine months, compared to the nine months ended March 31, 1998 (the "1998 nine months"), remained constant at $9.0 million. Net cash used in investing activities for the 1999 nine months was $9.8 million, and resulted primarily from purchases of marketable securities of $6.1 million, payments of $4.2 million for purchases of property and equipment, $1.1 million for lease acquisition costs and other intangible and non-current assets, net of proceeds of $1.6 million from sales of property and equipment. Net cash used in financing activities for the 1999 nine months was $1.6 million, and resulted from payments for repurchases of common stock of $1.7 million, net of proceeds of $.1 million from the issuance of common stock upon the exercise of stock options. 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, 1999, Jackpot repurchased 785,385 shares of common stock at a cost of approximately $8.5 million. On February 8, 1999, Jackpot and Players International, Inc. ("Players") entered into a definitive agreement and plan of merger (the "Agreement"). Pursuant to the terms of the Agreement, Jackpot will acquire Players for $8.25 per share, consisting of $6.75 per share in cash and $1.50 in Jackpot's common stock for each share of Players outstanding common stock. The completion of the merger is subject to a number of conditions, including approval by the stockholders of both companies, receipt of all the necessary regulatory and various approvals, and the financing of the transaction. On May 7, 1999, Jackpot filed a Registration Statement on Form S-4 with the Securities and Exchange Commission in connection with the Company's acquisition of Players. On March 10, 1999, Jackpot purchased 1,014,400 shares of Players common stock at $6.04 per share for a total cost of $6.1 million. Primarily as a result of this transaction, Jackpot's cash and cash equivalents decreased $2.4 million during the 1999 nine months, from $50.3 million at June 30, 1998 to $47.9 million at March 31, 1999. During the 1999 nine months working capital increased $1.9 million, from $49.2 million at June 30, 1998 to $51.1 million at March 31, 1999. On February 17, 1999, Jackpot signed a definitive agreement to acquire CRC Holdings, Inc. d/b/a Carnival Resorts & Casinos ("CRC"), a privately owned company. The agreement was subject to various conditions, including the assignment to Jackpot of the management agreement relating to a casino managed by CRC in Ontario, Canada. Because of CRC's inability to obtain the necessary consent of the Ontario Casino Corporation (the "OCC"), one of the casino's owners, the agreement was terminated by the mutual agreement of Jackpot and CRC on April 15, 1999. The decision by the OCC, which is not the gaming licensing authority in Ontario, was made without any inquiry of Jackpot and prior to the filing of Jackpot's gaming application with the Ontario Gaming Control Commission. As a result of the termination of the definitive agreement between the parties, all capitalized costs incurred in connection with the proposed acquisition of CRC will be expensed in the quarter ending June 30, 1999. Management estimates that the pretax charge will be approximately $.9 million. Such non-recurring charge will have a material adverse effect on the results of operations for the quarter and year ending June 30, 1999. Management believes Jackpot's working capital and cash provided by operations will be sufficient to enable Jackpot to meet its planned capital expenditures and other cash requirements for the remainder of the year ending June 30, 1999 ("fiscal 1999"). With respect to planned capital expenditures, management anticipates Jackpot will purchase approximately $1.3 million of property and equipment, exclusive of business acquisitions, in the remainder of fiscal 1999 to be used in existing and currently planned new locations. Jackpot continues to explore additional gaming acquisition opportunities. With respect to the acquisition of Players, management intends to obtain financing through bank borrowings and long-term debt, and believes the proceeds received from such financings, along with Jackpot's available working capital and cash provided by operations will be sufficient to enable Jackpot to finance this transaction. However, no assurance can be given that Jackpot will obtain the necessary financing or that such transaction will be successfully consummated. Recently Issued Accounting Standards: In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes additional standards for segment reporting in the financial statements. Management has begun its review of SFAS 131, however it has not made a final determination of the extent of the disclosure required by this statement. 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, 1999. 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. 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, although earlier application is encouraged. Upon adoption, this statement will not have a significant effect on Jackpot's results of operations or its financial position. Results of Operations _____________________ Revenues: Total revenues for the three months ended March 31, 1999 (the "1999 three months") increased $1.2 million, from $23.4 million for the three months ended March 31, 1998 (the "1998 three months") to $24.6 million for the 1999 three months, while total revenues for the 1999 nine months increased $.9 million, from $69.6 million for the 1998 nine months to $70.5 million for the 1999 nine months. The increase in total revenues of $1.2 million for the 1999 three months was the net result of an increase of $1.4 million (from $22.7 million for the 1998 three months to $24.1 million for the 1999 three months) in gaming machine route operations ("route operations") revenues and a decrease of $.2 million (from $.7 million for the 1998 three months to $.5 million for the 1999 three months) in casino operations revenues. The increase in total revenues of $.9 million for the 1999 nine months was the net result of an increase of $1.5 million (from $67.5 million for the 1998 nine months to $69.0 million for the 1999 nine months) in route operations revenues and a decrease of $.6 million (from $2.1 million for the 1998 nine months to $1.5 million for the 1999 nine months) in casino operations revenues. The increase in route operations revenues for the 1999 three months of $1.4 million resulted from a combination of additional revenues generated from new and existing locations of $1.5 million and $.5 million, respectively, net of lost revenues from terminated locations of $.6 million. The increase in route operations revenues for the 1999 nine months of $1.5 million resulted from a combination of additional revenues generated from new locations of $3.8 million, net of lost revenues from terminated locations and a decrease in revenues at existing locations of $2.1 million and $.2 million, respectively. Route operations revenues attributable to fixed payment leases and revenue sharing contracts for the three and nine months ended March 31, 1999 and 1998 are summarized below (dollars in thousands): Three Months Ended March 31, _________________________________________ 1999 1998 ___________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $17,973 74.6% $16,736 73.8% Revenue sharing contracts 6,131 25.4 5,931 26.2 _______ _____ _______ _____ Totals $24,104 100.0% $22,667 100.0% ======= ===== ======= ===== Nine Months Ended March 31, _________________________________________ 1999 1998 ___________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $51,912 75.2% $50,119 74.2% Revenue sharing contracts 17,133 24.8 17,415 25.8 _______ _____ _______ _____ Totals $69,045 100.0% $67,534 100.0% ======= ===== ======= =====
Jackpot has a significant amount of its route operations at retail stores which are part of a group of affiliated retail store chains. The five largest retail store chains with which Jackpot has agreements accounted for approximately 64% and 66% of Jackpot's total revenues for the year ended June 30, 1998 and the nine months ended March 31, 1999, respectively. In August 1998, two of the retail store chains, Albertson's, Inc. and American Stores Company (the parent company of Lucky Stores, Inc. and American Drug Stores, Inc.), entered into a merger agreement. Route operations revenues generated at the locations of those two entities accounted for approximately 55% and 58% of Jackpot's total revenues for the year ended June 30, 1998 and the nine months ended March 31, 1999, respectively. If the merger of the two retail chains is completed, a consolidation or disposition of selected locations may occur which could affect Jackpot's revenues. Additional consolidations may take place in the retail store industry that could result in the loss of existing locations for Jackpot. Costs and expenses: Route operations expenses for the 1999 three months and 1999 nine months increased $1.5 million (from $18.3 million for the 1998 three months to $19.8 million for the 1999 three months) and $2.4 million (from $55.2 million for the 1998 nine months to $57.6 million for the 1999 nine months) and, as a percentage of route operations revenues, increased to 82.3% and 83.4% for the 1999 three months and 1999 nine months, respectively, from 80.7% and 81.7% for the 1998 three months and 1998 nine months, respectively. The increases in route operations expenses of $1.5 million and $2.4 million for the 1999 three and nine month periods, respectively, resulted primarily from a combination of increases of $1.0 million and $1.9 million in location rent, which consisted principally of location rent for new locations of existing chain store customers, increases in payroll costs of $.1 million and $.2 million and increases in other route operations expenses of $.4 million and $.3 million. With respect to location rent, which is the single largest route operations expense, Jackpot entered into an agreement for a long-term extension with one of its largest retail chain store customers in September 1998. Pursuant to the terms of the new agreement, which will become effective July 1, 1999, rent expense will increase significantly over the previous agreement. Such increase could adversely affect the Company's results of operations for the year ending June 30, 2000. 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 1998 Form 10-K. Amortization expense for the 1999 three months and 1999 nine months, compared to the respective 1998 periods, remained constant at $.3 million and $.9 million, respectively, while depreciation expense for the 1999 three months, compared to the 1998 three months remained constant at $1.0 million, and for the 1999 nine months increased $.3 million, from $2.8 million for the 1998 nine months to $3.1 million for the 1999 nine months. The increase in depreciation expense for the 1999 nine months was principally attributable to new gaming machines purchased during the year ended June 30, 1998. General and administrative expense for the 1999 three months and 1999 nine months decreased $.1 million (from $1.0 million for the 1998 three months to $.9 million for the 1999 three months) and $.2 million (from $2.9 million for the 1998 nine months to $2.7 million for the 1999 nine months), respectively. Other income: Other income for the 1999 three months and 1999 nine months decreased $.1 million (from $.4 million for the 1998 three months to $.3 million for the 1999 three months) and $.4 million (from $1.5 million for the 1998 nine months to $1.1 million for the 1999 nine months), respectively. Such decreases resulted primarily from reductions in other income earned from non-recurring transactions. Federal income tax: The effective tax rate for the 1999 three months and 1999 nine months was 28%. Such rate, which approximated the effective tax rate for the 1998 three months and 1998 nine months, was lower than the Federal Statutory rate of 35% primarily because of the tax benefits realized from tax-exempt interest income. General: Operating income for the 1999 three months, compared to the 1998 three months, remained constant at $2.2 million, while operating income for the 1999 nine months decreased $1.0 million, from $5.9 million for the 1998 nine months to $4.9 million for the 1999 nine months. The decrease in operating income resulted from the combination of a decrease in the route operations operating margin of $.9 million, an increase in depreciation expense of $.3 million mentioned above, net of a decrease in all other operating expenses of $.2 million. The decline in the route operations operating margin of $.9 million (from $12.3 million for the 1998 nine months to $11.4 million for the 1999 nine months) was due principally to the decrease in route operations revenues at existing locations and the increase in other route operations expenses previously described, and to the operating results of new locations. Principally as a result of a highly competitive environment, which management believes Jackpot will continue to face during the remainder of fiscal 1999, net income and earnings per share declined in the 1999 nine months compared to the 1998 nine months. Net income decreased $1.1 million (from $5.4 million for the 1998 nine months to $4.3 million for the 1999 nine months) and diluted earnings per share decreased from $.59 per share to $.50 per share. Such declines were due principally to the decrease in the route operations operating margin described above, an increase in depreciation expense and a decrease in interest and other income. Basic and diluted earnings per share for the 1999 three months remained constant at $.21 per share compared to the 1998 three months, while net income decreased slightly, from $1.9 million to $1.8 million. Year 2000 _________ In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, date- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This situation is generally referred to as the "Year 2000 Problem". If this situation occurs, the potential exists for computer system failures or miscalculations by computer programs, which could disrupt operations. Jackpot has conducted a review of its computer systems and other systems for the purpose of assessing its potential Year 2000 Problem, and is in the process of modifying or replacing those systems which are not Year 2000 compliant. Based upon this review, management believes such systems will be compliant by mid-calendar 1999. However, if modifications are not made or not completed timely, the Year 2000 Problem could have a significant adverse impact on the Company's operations. In addition, Jackpot has communicated with its major vendors and suppliers to determine their state of readiness relative to the Year 2000 Problem and Jackpot's possible exposure to Year 2000 issues of such third parties. However, there can be no guarantee that the systems of other companies, which the Company's systems may rely upon, will be timely converted or representations made to Jackpot by these parties are accurate. As a result, the failure of a major vendor or supplier to adequately address their Year 2000 Problem could have a significant adverse impact on the Company's operations. Planning for the Year 2000 Problem, including contingency planning, is significantly complete and will be revised, if necessary. All costs related to the Year 2000 Problem are expensed as incurred, while the cost of new hardware is capitalized and depreciated over its expected useful life. The costs associated with Year 2000 compliance have not been and are not anticipated to be material to the Company's financial position or results of operations. As of March 31, 1999, the Company had incurred costs of approximately $125,000, principally for internal costs and system applications, and anticipates spending an additional $155,000 to become Year 2000 compliant. The estimated completion date and remaining costs are based upon management's best estimates, as well as third party modification plans and other factors. However, there can be no guarantee that such estimates will occur and actual results could differ. Forward-looking statements __________________________ Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission contains statements that may be considered forward-looking. In addition, from time to time, the Company may release or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, competitive pressures, the loss or nonrenewal of any of Jackpot's significant contracts, the possible consolidation or disposition of selected locations which could result from the pending merger of Albertson's, Inc. and American Stores Company (each of which is a significant customer of the Company), conditioning or suspension of any gaming license, unfavorable changes in gaming regulations, adverse results of significant litigation matters, possible future financial difficulties of a significant customer and the continued growth of the gaming industry and population in Nevada. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. The Company assumes no obligation to update or supplement forward-looking statements as a result of new circumstances or subsequent events. Item 3. Quantitative and Qualitative Disclosure About Market Risk _________________________________________________________ On March 10, 1999, the Company purchased a total of 1,014,400 shares of common stock of Players International, Inc. in an open market transaction. The Company acquired the shares of Players common stock because the purchase price for those shares was significantly below the per share consideration which the Company has agreed to pay for all outstanding shares of Players pursuant to the Agreement and Plan of Merger dated as of February 8, 1999, which provides for the merger of Players into a wholly-owned subsidiary of the Company. For further information concerning the merger with Players and the purchase of Players common stock by the Company, see Note 5 of Notes to Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this Form 10-Q. The shares of Players which the Company acquired are being held by the Company pending consummation of the merger with Players. However, unless and until the merger is consummated, the Company is exposed to equity price risk on those shares. The Company has not attempted to reduce or eliminate its market exposure on those shares. A 10% adverse change in the price of the Players common stock from the price at March 31, 1999 would result in a decrease of approximately $634,000 in the fair value of Players common stock currently owned by the Company. In all other respects, for the three and nine months ended March 31, 1999, there were no changes from the information set forth in Item 7A of the 1998 Form 10-K. PART II. OTHER INFORMATION _________________ Item 5. Other Information As reported in a Current Report on Form 8-K filed on March 8, 1999, the Company had entered into an Agreement and Plan of Merger dated as of February 17, 1999 (the "Merger Agreement") with CRC Holdings, Inc. d/b/a Carnival Resorts & Casinos ("CRC") which provided for the acquisition of CRC by the Company. On April 15, 1999, the Merger Agreement was terminated by mutual agreement of the Company and CRC. The termination was a result of CRC's inability to obtain the necessary consent of the Ontario Casino Corporation, one of the owners of the casino managed by CRC in Ontario, Canada, to the assignment to the Company of the management agreement relating to that casino. For further information concerning termination of the Merger Agreement, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.13 - License agreement with Rite Aid Corporation. 10.14 - License agreement with Rite Aid Corporation. 27.1 - Financial Data Schedule (EDGAR filing only). (b) Reports on Form 8-K: During the three months ended March 31, 1999, Jackpot filed one report on Form 8-K, dated March 8, 1999. The Form reported on "Item 5 - Other Events," two separate definitive merger agreements entered into in connection with the acquisitions of Players International, Inc. and CRC Holdings, Inc. 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 14, 1999 EX-10.13 2 EXHIBIT 10.13 LICENSE AGREEMENT THIS AGREEMENT is entered into as of the 12th day of March 1999, between Rite Aid Corporation, a Delaware corporation ("Licensor"), and Cardivan Company, a Nevada corporation ("Licensee"). Licensee and Licensor are collectively referred to as "the Parties". 1. Purpose. This Agreement sets forth the terms and conditions under which the Licensee shall have the exclusive right to operate certain gaming devices (the "Devices") (i) within each of the stores operated by Licensor in the State of Nevada which are designated on Exhibit "A" attached hereto and incorporated herein by reference (the "Existing Locations"), and (ii) in any additional stores other than stores deemed replacement stores under the License Agreement between Rite Aid Corporation and Corral Coin, Inc. dated March 12, 1999, opened or acquired by Licensor or an affiliate of Licensor for business to the public in the state of Nevada during the term of this Agreement which becomes subject to this Agreement pursuant to Section 4(c) hereof (the "New Locations", together with the Existing Locations, the "Licensed Locations"). Notwithstanding the foregoing, an off-site replacement of a Licensed Location which constitutes a "replacement store" in accordance with Licensor's internal policies, which opens concurrently with the closing of the Licensed Location it is replacing, and which is located not more than two miles from the Licensed Location it is replacing, shall not constitute a New Location for purposes of this Agreement. 2. License. Licensor hereby grants to Licensee the use of such amount of space (the "Gaming Space") as is reasonably required to set up the number of Devices currently permitted at such Licensed Location. The Gaming Space shall be located as close to the entrance and checkstand of the Licensed Location as is reasonably practicable with the exact location and square footage of the Gaming Space to be determined by mutual agreement of the parties. Upon agreement of the Gaming Space, Licensor will not change location of, or reduce the Gaming Space without Licensee's written consent. Licensee is also hereby granted an exclusive right to operate up to the maximum number of Devices currently allowed by the State of Nevada in each of the Licensed Locations. However, Licensee may not operate fewer than RCT Devices at any Licensed Location in Clark County or the city limits of either Reno or Carson City. 3. Term. The term of the license for each Licensed Location shall begin on RCT and shall expire at midnight on RCT. Licensee shall have first right of refusal as against any other licensed operator to operate the Devices on the premises of the Licensed Locations upon the expiration of this Agreement. On or before the expiration of this Agreement, and upon Licensor's disclosure to Licensee of the terms of another licensed operator's firm offer, Licensee shall have thirty days to notify Licensor of its intention to match such offer. 4. Fees. a. During the initial term of this License Agreement, Licensee agrees to pay Licensor the following amount per Licensed Location per month: Licensed Location Monthly Fee Per Licensed Location ___________________ ___________________________________ RCT RCT RCT RCT Rite Aid #6114 RCT RCT RCT RCT (1) Rite Aid #6115 RCT RCT RCT RCT Rite Aid #6116 RCT RCT RCT RCT (1) Rite Aid #6121 RCT RCT RCT RCT Rite Aid #6217 RCT RCT RCT (1) RCT (1)
(1) Subject to RCT or more Licensed Locations in operation, including the Licensed Locations in operation under the License Agreement between Rite Aid Corporation and Corral Coin, Inc. dated March 12, 1999. If less than RCT Licensed Locations in operation, monthly fee is the amount listed above for the period RCT through RCT. b. During the term of this Agreement, Licensee agrees to pay Licensor the following amount per month for New Locations. Location (2) Period Monthly Fee Per New Location _________________ ______ ____________________________ Clark County RCT RCT RCT RCT RCT RCT (1) RCT RCT (1) Reno/Carson City RCT RCT (city limits) RCT RCT RCT RCT RCT RCT
(1) Subject to RCT or more Licensed Locations in operation, including the Licensed Locations in operation under the License Agreement between Rite Aid Corporation and Corral Coin, Inc. dated March 12, 1999. If less than RCT locations in operation, monthly fee for New Locations is the amount listed above for the period RCT through RCT. (2) For New Locations outside of Clark County or the city limits of either Reno or Carson City, the monthly fee will be mutually agreed upon by the Parties based on factors associated with each New Location. c. During the term of this Agreement, if Licensor opens or acquires any New Location and Licensor determines to include Devices at such New Location, Exhibit A hereto shall be amended to include such New Location. For store #6217 and New Locations opened or acquired on or after RCT, the fees due pursuant to this Section 4 shall be RCT of the then monthly fee during the RCT period following the date store #6217 and any New Locations are 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, the RCT period shall not commence until all such actions have been taken. d. In the event an Existing Location is closed for renovation for a period of RCT or more, the Fees with respect to such renovated Existing Location shall be RCT of the then applicable monthly fee due pursuant to this Section 4 during the RCT period following the date such renovated Existing Location is reopened for business by Licensor; provided, that if Licensor has not taken all steps required to be taken by it to permit Licensee to recommence operations at such Existing Location, the RCT period shall not commence until all such actions have been taken. e. The above fee shall be due and payable on the first day of each month. Fees for any partial month shall be prorated. f. In the event that (i) Licensor should effect a material reduction in the hours of operation of the Licensed Locations, from the hours of operation in effect on the date of this Agreement, or (ii) there should be a change in the laws or regulations applicable to the operation of gaming devices in retail food and drug facilities which has the effect of materially reducing the revenues received by Licensee from its operation of the Devices hereunder, or (iii) a smoking ban is imposed at a Licensed Location by either Federal, state or local authorities, or by the terms of a lease agreement between Licensor and a third party, the parties shall negotiate in good faith to arrive at an equitable adjustment to the terms of this Agreement. 5. Taxes. Licensee agrees to pay all taxes (other than real estate taxes) payable in connection with the conduct of its business in the Licensed Locations, including personal property taxes levied against the Devices, fixtures, and other personal property of the Licensee in the Licensed Locations. Licensee will pay all social security, unemployment, and old age benefit taxes, state, federal, and local, or other similar taxes due with respect to employees or wages paid to employees of the Licensee in the Licensed Locations. Licensee will maintain and pay all license fees, federal, state, county, or city, necessary for its operations in the Licensed Locations. 6. Security System on Premises. If a Licensed Location is not open twenty-four (24) hours a day, seven (7) days a week, Licensor agrees to install and maintain or have maintained, a burglar alarm system at such Licensed Location that is monitored at a central station over a dedicated phone line. Said alarm system will cover all apertures in the walls and ceiling of the Licensed Location and will include a motion detector which will cover the area occupied by the Devices. Said alarm system will cause a phone line failure violation at the alarm company's central station anytime the phone line from the Licensor's premises to the alarm central office is cut or disrupted. 7. Use and Operation. Licensee agrees to use the Gaming Space within the Licensed Locations for the sole purpose of operating the Devices in such space and will at all times conduct its business in a first-class business like and attractive high-grade and proper manner, including, without limitation, (1) maintaining the Devices in good condition and repair at its own expense and at no expense to Licensor; (2) replacing any out of date Devices at its own expense with modern, up-to-date Devices from time to time; (3) employing a change cashier or installing money changing devices so that the store cashiers in the Licensed Location will not be required to make change for the operation of the Devices; and (4) not employing any person or persons within the Licensed Locations deemed objectionable by Licensor. Upon request of Licensor, Licensee agrees to remove any such objectionable employee as quickly as reasonably possible under existing federal, state, and local laws. Signs of such type and size as may be mutually agreed upon by Licensor and Licensee shall be placed by Licensee in a conspicuous place at each of the Licensed Locations stating that Licensee is the owner and operator of the Devices. Licensor may not ban smoking in the Gaming Spaces unless such change is required by law, lease or regulation. 8. Title to Property. All personal property (including, without limitation, the Devices) placed on the Licensed Locations by Licensee shall be and remain the personal property of Licensee (except as provided in Section 13 with respect to default) and, upon the expiration or earlier termination of this Agreement, Licensee shall within ten (10) days thereafter and at its sole expense, remove from the Licensed Locations all such personal property and restore such Licensed Locations to their original conditions, ordinary wear and tear excepted. 9. General Covenants. Licensee agrees to comply with all applicable laws, ordinances, and governmental regulations now in force or hereafter enacted relating to the business operations of the Licensee in the Licensed Locations; to make any and all alterations, repairs, and changes, at its expense, required by any such laws, ordinances, or governmental regulations; to maintain the Gaming Space occupied by Licensee within each of the Licensed Locations in a clean state and in good condition and repair; not to make any alterations in such space without the prior written consent of Licensor; and at the expiration or termination of this Agreement, to surrender peaceable possession thereof to Licensor in as good condition as it received the same, loss or damage by fire (except if caused by the act or neglect of Licensee or its employees) and wear and tear resulting from reasonable use excepted. 10. Indemnification and Insurance. Licensee agrees to indemnify and hold Licensor harmless from all claims, demands, causes of action, losses, damages, and liability, including costs and expenses and reasonable attorneys' fees incurred by Licensor in connection with any claim by third parties, including employees of Licensee, for injury to or death or damage to property occurring in or on or about the portions of the Licensed Locations licensed to Licensee or arising out of operations conducted by Licensee. Licensee, at its own cost and expense, shall maintain commercial general liability and automobile liability insurance with a limit of not less than $1,000,000 applicable to any one occurrence. Such insurance shall name Licensor as an additional insured with respect to operations conducted in connection with this Agreement. Licensee shall maintain Workers' Compensation insurance for its employees in the form required by the State of Nevada or provide Workers' Compensation on a self-insured basis in compliance with applicable Nevada regulations. Licensee shall, upon request, provide Licensor with certificate(s) evidencing the foregoing insurance coverages. Whether or not it elects to insure its personal property at locations covered by this Agreement, Licensee hereby waives any right of recovery from Licensor for any loss or damage to such property resulting from any of the perils insured against in the standard form fire insurance policy with Extended Coverages and Vandalism and Malicious Mischief Endorsements. To the extent that any insurance maintained by Licensee includes coverage against additional perils, this waiver shall apply with respect to loss damage resulting from such other perils. 11. Termination of License. If Licensor ceases to do business in any of the Licensed Locations for any reason whatsoever, this License Agreement shall terminate as to the Licensed Locations where such business is discontinued, effective at the time of such discontinuance, and thereafter no license fees shall be payable under this Agreement with respect to the Licensed Locations at which Licensor ceases to do business. If Licensor ceases to do business in a location other than at the end of a calendar month, the license fee for the month in which business ceases shall be prorated. This License Agreement will continue to apply to all remaining Licensed Locations. 12. Interruption of Business. If the business of any Licensed Locations subject to this Agreement is substantially interrupted by reason of a major remodeling, fire, other casualty, or any other cause not the fault of Licensee, and such interruption substantially and adversely affects the business of Licensee in such Licensed Location, then, from and after such interruption and until the cause thereof has been corrected or eliminated, the fees due Licensor hereunder for such Licensed Locations shall be equitably reduced or abated to the extent agreed between the parties. 13. Default. If Licensee defaults in the payment of the fees payable by it hereunder or fails to perform any other of its obligations under this Agreement, and Licensee fails to cure such default within a period of fifteen (15) days after written notice from Licensor and such default is not cured within the applicable grace period provided therein, then Licensor shall have all rights and remedies now or hereafter provided by law and, in addition, may do any one or more of the following: (a) Terminate this Agreement by giving written notice to Licensee; resume possession of the space occupied by Licensee in the Licensed Locations; retain all Devices, fixtures, and other personal property of Licensee remaining on such space and full right and authority to sell, lease, or otherwise dispose of the same or to store the same, all at the expense of Licensee; and to recover from Licensee all fees due under this Agreement had it not been terminated, less the net amount realized by Licensor from any such sale, lease, or other disposition. (b) Without terminating this Agreement, reenter and assume possession of the space so licensed and of all Devices, fixtures, and other personal property of Licensee located therein and relet the space and sell, lease, or otherwise dispose of the Devices, fixtures, and other personal property, all on such terms and conditions as Licensor deems advisable, and in any such event, Licensee shall pay promptly upon demand the difference between the fees due under this Agreement for the period of such reletting (but not beyond the term of this Agreement) and the net amount received by Licensor from such reletting and from such sale, lease, or other disposition. (c) To treat all amounts due and not paid by Licensee to the date of such default, together with all amounts payable under this Agreement during the remaining term of this Agreement following such default, as an indebtedness of Licensee immediately due and payable to Licensor and recover the same. In the event of any such default, Licensee shall have no right to remove any Devices, fixtures, or other personal property of Licensee from the space licensed, and Licensor shall have a lien thereon as security for the payment of all amounts due Licensor under the Agreement. 14. Assignment. Licensee may not assign this Agreement without prior written approval of Licensor, except that Licensee may assign this Agreement to a wholly-owned subsidiary of Jackpot Enterprises, Inc. without such prior written approval; provided, that such assignee agrees to be bound by all of the terms and conditions of this Agreement and Licensee guarantees the payment and performance by such assignee of its obligations hereunder during the remaining term hereof. Subject to such provision, this Agreement shall bind and its benefits shall inure to the parties hereto, their successors, and assigns. 15. Notices and Demands. All notices and demands made pursuant to this Agreement shall be sufficient if made in writing and delivered by fax or overnight delivery service______________________________________, or to Licensee at 1110 Palms Airport Drive, Las Vegas, Nevada 89119. All notices mailed shall be deemed given when mailed. 16. Relationship Between the Parties. The relationship of Licensor and Licensee shall be solely that of licensor and licensee and nothing herein contained shall be construed to constitute Licensor and Licensee as landlord and tenant, sublandlord and subtenant, partners, joint venturers or any other relationship whatsoever. 17. Confidentiality. This Agreement and the information contained herein, including but not limited to the fees payable to Licensor by Licensee, is confidential and shall not be disclosed to any person except the gaming licensing authorities of the State of Nevada upon proper request, unless and to the extent required by laws or regulations applicable to the parties. 18. Existing Agreement. The Parties heretofore entered into a License Agreement dated June 19, 1990 as amended on April 24, 1997 (the "Existing Agreement") for Licensee's operation of Devices in Licensor's Locations. Upon entering into this License Agreement, the Existing Agreement is terminated. 19. Additional Remedies. In addition to the remedies set forth in this Agreement, Licensor and Licensee shall have all other remedies provided by law to the same extent as if fully set forth herein. No remedy herein conferred upon, or reserved to Licensor or Licensee, shall exclude any other remedy herein or by law provided, but each shall be cumulative. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. RITE AID CORPORATION By /s/ Elliot Gerson ___________________________ Exec. V.P. CARDIVAN COMPANY By /s/ George Congdon ____________________________ President Exhibit A to License Agreement Between Rite Aid Corporation and Cardivan Company Dated March 12, 1999 Location No. of Machines Store Hours __________________________ _______________ ________________________ Rite Aid #6114 10 24 hours 5991 W. Cheyenne Las Vegas, NV 89108 Rite Aid #6115 15 24 hours 2905 S. Maryland Parkway Las Vegas, NV 89109 Rite Aid #6116 10 Mon.-Sat. 7 a.m.-9 p.m. 2950 E. Desert Inn Sun. 7 a.m.-6 p.m. Las Vegas, NV 89121 Rite Aid #6121 6 Mon.-Sat. 8 a.m.-9 p.m. 1327 Highway 395 South Sun. 9 a.m. - 7 p.m. Gardnerville, NV 89410 Rite Aid #6193 15 24 hours 1515 W. Craig Road North Las Vegas, NV 89030 Rite Aid #6217 10 Mon.-Sat. 7 a.m.-9 p.m. 525 E. Windmill Sun. 7 a.m.-6 p.m. Las Vegas, NV 89123 Rite Aid #6220 10 24 hours 2513 South Nellis Las Vegas, NV 89121 Rite Aid #6221 15 24 hours 3845 E. Lake Mead Blvd. N. Las Vegas, NV 89115 Rite Aid #6222 10 Mon.-Sat. 7 a.m.-9 p.m. 8500 South Eastern Sun. 7 a.m.-6 p.m. Henderson, NV 89123 Rite Aid #6240 10 24 hours 10 North Eastern Las Vegas, NV 89101 Rite Aid #6245 10 Mon.-Sat. 7 a.m.-9 p.m. 7575 W. Vegas Drive Sun. 7 a.m.-6 p.m. Las Vegas, NV 89128 Rite Aid #6247 10 Mon.-Fri. 7:30 a.m.-9:00 p.m. 8485 Sun Valley Blvd. Sat. 7:30 a.m.-8 p.m. Sun Valley, NV 89433 Sun. 9 a.m.-7 p.m. Rite Aid #6260 10 Mon.-Sat. 7 a.m.-9 p.m. 8611 Spring Mountain Road Sun. 7 a.m.-6 p.m. Las Vegas, NV 89117 Rite Aid #6261 10 Mon.-Sat. 7 a.m.-9 p.m. 3115 Las Vegas Blvd. Sun. 7 a.m.-6 p.m. Las Vegas, NV 89109 Rite Aid #6271 10 24 hours 9350 West Sahara Las Vegas, NV 89117 Rite Aid #6279 10 24 hours 1410 E. Prater Way Sparks, NV 89434
EX-10.14 3 EXHIBIT 10.14 LICENSE AGREEMENT THIS AGREEMENT is entered into as of the 12th day of March 1999, between Rite Aid Corporation, a Delaware corporation ("Licensor"), and Corral Coin, Inc., a Nevada corporation ("Licensee"). Licensee and Licensor are collectively referred to as "the Parties". 1. Purpose. This Agreement sets forth the terms and conditions under which the Licensee shall have the exclusive right to operate certain gaming devices (the "Devices") within each of the stores operated by Licensor in the State of Nevada which are designated on Exhibit "A" attached hereto and incorporated herein by reference (the "Licensed Locations"). Notwithstanding the foregoing, an off-site replacement of a Licensed Location which constitutes a "replacement store" in accordance with Licensor's internal policies, which opens concurrently with the closing of the Licensed Location it is replacing, and which is located not more than two miles from the Licensed Location it is replacing, shall not constitute a new location for purposes of this Agreement. Licensee shall have the exclusive right to operate Devices within each replacement store. 2. License. Licensor hereby grants to Licensee the use of such amount of space (the "Gaming Space") as is reasonably required to set up the number of Devices currently permitted at such Licensed Location. The Gaming Space shall be located as close to the entrance and checkstand of the Licensed Location as is reasonably practicable with the exact location and square footage of the Gaming Space to be determined by mutual agreement of the parties. Upon agreement of the Gaming Space, Licensor will not change location of, or reduce the Gaming Space without Licensee's written consent. Licensee is hereby granted an exclusive right to operate up to the maximum number of Devices currently allowed by the State of Nevada in each of the Licensed Locations. However, Licensee may not operate fewer than RCT Devices at any Licensed Location in Clark County or the city limits of either Reno or Carson City. 3. Term. The term of the license for each Licensed Location shall begin on RCT and shall expire at midnight on RCT. Licensee shall have first right of refusal as against any other licensed operator to operate the Devices on the premises of the Licensed Locations upon the expiration of this Agreement. On or before the expiration of this Agreement, and upon Licensor's disclosure to Licensee of the terms of another licensed operator's firm offer, Licensee shall have thirty days to notify Licensor of its intention to match such offer. 4. Fees. a. During the initial term of this License Agreement, Licensee agrees to pay Licensor the following amount per Licensed Location per month: Licensed Location Monthly Fee Per Licensed Location _________________ ___________________________________________ RCT RCT RCT Rite Aid #6109 RCT RCT RCT Rite Aid #6110 RCT RCT RCT Rite Aid #6111 RCT RCT RCT Rite Aid #6112 RCT RCT RCT Rite Aid #6113 RCT RCT RCT Rite Aid #6117 RCT RCT RCT Rite Aid #6118 RCT RCT RCT Rite Aid #6119 RCT RCT RCT
b. During the term of this Agreement, Licensee agrees to pay Licensor the following amount per month for a new location (the "New Location"). Location (2) Period Monthly Fee Per New Location __________________ ______ ____________________________ Clark County RCT RCT RCT RCT RCT RCT (1) RCT RCT (1) Reno/Carson City RCT RCT (city limits) RCT RCT RCT RCT RCT RCT
(1) Subject to RCT or more Licensed Locations in operation, including the Licensed Locations in operation under the License Agreement between Rite Aid Corporation and Cardivan Company dated March 12, 1999. If less than RCT locations in operation, monthly fee for New Locations is the amount listed above for the period RCT through RCT. (2) For New Locations outside of Clark County or Reno/Carson City, the monthly fee will be mutually agreed upon by the Parties based on factors associated with each New Location. c. During the term of this Agreement, if Licensor opens or acquires any New Location and Licensor determines to include Devices at such New Location, Exhibit A hereto shall be amended to include such New Location. In the case of a New Location opened or acquired on or after RCT, the fees due pursuant to this Section 4 with respect to such New Location shall be RCT of the then monthly fee during the RCT period following the date 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 such New Location, the RCT shall not commence until all such actions have been taken. d. In the event an Existing Location is closed for renovation for a period of RCT or more, the Fees with respect to such renovated Existing Location shall be RCT of the then applicable monthly fee due pursuant to this Section 4 during the RCT period following the date such renovated Existing Location is reopened for business by Licensor; provided, that if Licensor has not taken all steps required to be taken by it to permit Licensee to recommence operations at such Existing Location, the RCT period shall not commence until all such actions have been taken. e. The above fee shall be due and payable on the first day of each month. Fees for any partial month shall be prorated. f. In the event that (i) Licensor should effect a material reduction in the hours of operation of the Licensed Locations, from the hours of operation in effect on the date of this Agreement, or (ii) there should be a change in the laws or regulations applicable to the operation of gaming devices in retail food and drug facilities which has the effect of materially reducing the revenues received by Licensee from its operation of the Devices hereunder, or (iii) a smoking ban is imposed at a Licensed Location by either Federal, state or local authorities, or by the terms of a lease agreement between Licensor and a third party, the parties shall negotiate in good faith to arrive at an equitable adjustment to the terms of this Agreement. 5. Taxes. Licensee agrees to pay all taxes (other than real estate taxes) payable in connection with the conduct of its business in the Licensed Locations, including personal property taxes levied against the Devices, fixtures, and other personal property of the Licensee in the Licensed Locations. Licensee will pay all social security, unemployment, and old age benefit taxes, state, federal, and local, or other similar taxes due with respect to employees or wages paid to employees of the Licensee in the Licensed Locations. Licensee will maintain and pay all license fees, federal, state, county, or city, necessary for its operations in the Licensed Locations. 6. Security System on Premises. If a Licensed Location is not open twenty-four (24) hours a day, seven (7) days a week, Licensor agrees to install and maintain or have maintained, a burglar alarm system at such Licensed Location that is monitored at a central station over a dedicated phone line. Said alarm system will cover all apertures in the walls and ceiling of the Licensed Location and will include a motion detector which will cover the area occupied by the Devices. Said alarm system will cause a phone line failure violation at the alarm company's central station anytime the phone line from the Licensor's premises to the alarm central office is cut or disrupted. 7. Use and Operation. Licensee agrees to use the Gaming Space within the Licensed Locations for the sole purpose of operating the Devices in such space and will at all times conduct its business in a first-class business like and attractive high-grade and proper manner, including, without limitation, (1) maintaining the Devices in good condition and repair at its own expense and at no expense to Licensor; (2) replacing any out of date Devices at its own expense with modern, up-to-date Devices from time to time;(3)employing a change cashier or installing money changing devices so that the store cashiers in the Licensed Location will not be required to make change for the operation of the Devices; and (4) not employing any person or persons within the Licensed Locations deemed objectionable by Licensor. Upon request of Licensor, Licensee agrees to remove any such objectionable employee as quickly as reasonably possible under existing federal, state, and local laws. Signs of such type and size as may be mutually agreed upon by Licensor and Licensee shall be placed by Licensee in a conspicuous place at each of the Licensed Locations stating that Licensee is the owner and operator of the devices. Licensor may not ban smoking in the Gaming Spaces unless such change is required by law, lease or regulation. 8. Title to Property. All personal property (including, without limitation, the Devices) placed on the Licensed Locations by Licensee shall be and remain the personal property of Licensee (except as provided in Section 13 with respect to default) and, upon the expiration or earlier termination of this Agreement, Licensee shall within ten (10) days thereafter and at its sole expense, remove from the Licensed Locations all such personal property and restore such Licensed Locations to their original conditions, ordinary wear and tear excepted. 9. General Covenants. Licensee agrees to comply with all applicable laws, ordinances, and governmental regulations now in force or hereafter enacted relating to the business operations of the Licensee in the Licensed Locations; to make any and all alterations, repairs, and changes, at its expense, required by any such laws, ordinances, or governmental regulations; to maintain the Gaming Space occupied by Licensee within each of the Licensed Locations in a clean state and in good condition and repair; not to make any alterations in such space without the prior written consent of Licensor; and at the expiration or termination of this Agreement, to surrender peaceable possession thereof to Licensor in as good condition as it received the same, loss or damage by fire (except if caused by the act or neglect of Licensee or its employees) and wear and tear resulting from reasonable use excepted. 10. Indemnification and Insurance. Licensee agrees to indemnify and hold Licensor harmless from all claims, demands, causes of action, losses, damages, and liability, including costs and expenses and reasonable attorneys' fees incurred by Licensor in connection with any claim by third parties, including employees of Licensee, for injury to or death or damage to property occurring in or on or about the portions of the Licensed Locations licensed to Licensee or arising out of operations conducted by Licensee. Licensee, at its own cost and expense, shall maintain commercial general liability and automobile liability insurance with a limit of not less than $1,000,000 applicable to any one occurrence. Such insurance shall name Licensor as an additional insured with respect to operations conducted in connection with this Agreement. Licensee shall maintain Workers' Compensation insurance for its employees in the form required by the State of Nevada or provide Workers' Compensation on a self-insured basis in compliance with applicable Nevada regulations. Licensee shall, upon request, provide Licensor with certificate(s) evidencing the foregoing insurance coverages. Whether or not it elects to insure its personal property at locations covered by this Agreement, Licensee hereby waives any right of recovery from Licensor for any loss or damage to such property resulting from any of the perils insured against in the standard form fire insurance policy with Extended Coverages and Vandalism and Malicious Mischief Endorsements. To the extent that any insurance maintained by Licensee includes coverage against additional perils, this waiver shall apply with respect to loss damage resulting from such other perils. 11. Termination of License. If Licensor ceases to do business in any of the Licensed Locations for any reason whatsoever, this License Agreement shall terminate as to the Licensed Locations where such business is discontinued, effective at the time of such discontinuance, and thereafter no license fees shall be payable under this Agreement with respect to the Licensed Locations at which Licensor ceases to do business. If Licensor ceases to do business in a location other than at the end of a calendar month, the license fee for the month in which business ceases shall be prorated. This License Agreement will continue to apply to all remaining Licensed Locations. 12. Interruption of Business. If the business of any Licensed Locations subject to this Agreement is substantially interrupted by reason of a major remodeling, fire, other casualty, or any other cause not the fault of Licensee, and such interruption substantially and adversely affects the business of Licensee in such Licensed Location, then, from and after such interruption and until the cause thereof has been corrected or eliminated, the fees due Licensor hereunder for such Licensed Locations shall be equitably reduced or abated to the extent agreed between the parties. 13. Default. If Licensee defaults in the payment of the fees payable by it hereunder or fails to perform any other of its obligations under this Agreement, and Licensee fails to cure such default within a period of fifteen (15) days after written notice from Licensor and such default is not cured within the applicable grace period provided therein, then Licensor shall have all rights and remedies now or hereafter provided by law and, in addition, may do any one or more of the following: (a) Terminate this Agreement by giving written notice to Licensee; resume possession of the space occupied by Licensee in the Licensed Locations; retain all Devices, fixtures, and other personal property of Licensee remaining on such space and full right and authority to sell, lease, or otherwise dispose of the same or to store the same, all at the expense of Licensee; and to recover from Licensee all fees due under this Agreement had it not been terminated, less the net amount realized by Licensor from any such sale, lease, or other disposition. (b) Without terminating this Agreement, reenter and assume possession of the space so licensed and of all Devices, fixtures, and other personal property of Licensee located therein and relet the space and sell, lease, or otherwise dispose of the Devices, fixtures, and other personal property, all on such terms and conditions as Licensor deems advisable, and in any such event, Licensee shall pay promptly upon demand the difference between the fees due under this Agreement for the period of such reletting (but not beyond the term of this Agreement) and the net amount received by Licensor from such reletting and from such sale, lease, or other disposition. (c) To treat all amounts due and not paid by Licensee to the date of such default, together with all amounts payable under this Agreement during the remaining term of this Agreement following such default, as an indebtedness of Licensee immediately due and payable to Licensor and recover the same. In the event of any such default, Licensee shall have no right to remove any Devices, fixtures, or other personal property of Licensee from the space licensed, and Licensor shall have a lien thereon as security for the payment of all amounts due Licensor under the Agreement. 14. Assignment. Licensee may not assign this Agreement without prior written approval of Licensor, except that Licensee may assign this Agreement to a wholly-owned subsidiary of Jackpot Enterprises, Inc. without such prior written approval; provided, that such assignee agrees to be bound by all of the terms and conditions of this Agreement and Licensee guarantees the payment and performance by such assignee of its obligations hereunder during the remaining term hereof. Subject to such provision, this Agreement shall bind and its benefits shall inure to the parties hereto, their successors, and assigns. 15. Notices and Demands. All notices and demands made pursuant to this Agreement shall be sufficient if made in writing and delivered by fax or overnight delivery service to______________________, or to Licensee at 1110 Palms Airport Drive, Las Vegas, Nevada 89119. All notices mailed shall be deemed given when mailed. 16. Relationship Between the Parties. The relationship of Licensor and Licensee shall be solely that of licensor and licensee and nothing herein contained shall be construed to constitute Licensor and Licensee as landlord and tenant, sublandlord and subtenant, partners, joint venturers or any other relationship whatsoever. 17. Confidentiality. This Agreement and the information contained herein, including but not limited to the fees payable to Licensor by Licensee, is confidential and shall not be disclosed to any person except the gaming licensing authorities of the State of Nevada upon proper request, unless and to the extent required by laws or regulations applicable to the parties. 18. Existing Agreement. The Parties heretofore entered into a License Agreement dated April 14, 1992 as amended on April 9, 1997 (the "Existing Agreement") for Licensee's operation of Devices in Licensor's Locations. Upon entering into this License Agreement, the Existing Agreement is terminated. 19. Additional Remedies. In addition to the remedies set forth in this Agreement, Licensor and Licensee shall have all other remedies provided by law to the same extent as if fully set forth herein. No remedy herein conferred upon, or reserved to Licensor or Licensee, shall exclude any other remedy herein or by law provided, but each shall be cumulative. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. RITE AID CORPORATION By /s/ Elliot Gerson ___________________________ Exec. V.P. CORRAL COIN, INC. By /s/ George Congdon ___________________________ President Exhibit A to License Agreement Between Rite Aid Corporation and Corral Coin, Inc. Dated March 12, 1999 Location No. of Machines Store Hours _____________________________ _______________ _______________________ Rite Aid #6109 15 Mon.-Sat. 7 a.m.-9 p.m. 2255 N. Green Valley Parkway Sun. 7 a.m.-6 p.m. Henderson, NV 89014 Rite Aid #6110 15 Mon.-Sat. 7 a.m. - 9 p.m. 716 S. Boulder Highway Sun. 7 a.m.-6 p.m. Henderson, NV 89015 Rite Aid #6111 25 Mon.-Sat. 7 a.m.-9 p.m. 3852 W. Sahara Sun. 7 a.m.-6 p.m. Las Vegas, NV 89102 Rite Aid #6112 15 Mon.-Sat. 7 a.m.-9 p.m. 4230 S. Rainbow Sun. 7 a.m.-6 p.m. Las Vegas, NV 89103 Rite Aid #6113 16 Mon.-Sat. 7 a.m.-9 p.m. 4530 E. Charleston Sun. 7 a.m.-6 p.m. Las Vegas, NV 89104 Rite Aid #6117 16 Mon.-Sat. 7 a.m.-9 p.m. 911. S. Rainbow Sun. 7 a.m.-6 p.m. Las Vegas, NV 89128 Rite Aid #6118 10 24 hours 4911 W. Craig Road Las Vegas, NV 89130 Rite Aid #6119 15 24 hours 8530 W. Lake Mead Las Vegas, NV 89128 /TABLE>
EX-27.1 4
5 This schedule contains summary financial information extracted from Jackpot's Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 and its Consolidated Statements of Income - three and nine months ended March 31, 1999 and 1998 and is qualified in its entirety by reference to such financial statements. 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 47,929 6,340 0 0 0 57,113 35,644 20,715 82,707 6,001 0 0 0 99 73,602 82,707 0 70,530 0 58,995 3,541 0 0 5,984 1,675 0 0 0 0 4,309 .50 .50
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