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SUPPLEMENT DATED MAY 23, 1996 TO PROSPECTUS
DATED MAY 9, 1996
ALLIANCE GAMING CORPORATION
OFFER FOR ALL OUTSTANDING
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003
IN EXCHANGE FOR
7 1/2% CONVERTIBLE SENIOR SUBORDINATED DEBENTURES DUE 2003
OF ALLIANCE GAMING CORPORATION
This Supplement dated May 23, 1996 to Prospectus dated May 9, 1996 (the
"Supplement") describes modifications to the offer (the "Exchange Offer") of
Alliance Gaming Corporation contained in the Prospectus dated May 9, 1996 (the
"Prospectus"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings assigned to them in the Prospectus.
THE EXCHANGE OFFER, AS MODIFIED HEREBY, HAS NOT BEEN EXTENDED, AND ACCORDINGLY
WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON JUNE 6, 1996, UNLESS
EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD CONVERTIBLE DEBENTURES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
THE NEW JERSEY CASINO CONTROL COMMISSION NOR THE REGULATORY AUTHORITY OF
ANY OTHER STATE HAS PASSED UPON OR CONFIRMED THE ACCURACY OR
ADEQUACY OF THIS SUPPLEMENT OR THE INVESTMENT MERITS OF THE
SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
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The date on which this Supplement is first being sent to holders of Old
Convertible Debentures is May 23, 1996.
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The following information amends and supplements the Prospectus dated May 9,
1996 of Alliance Gaming Corporation ("Alliance"). The Alliance Board has
approved certain amendments to the terms of the New Convertible Debentures, the
Series E Preferred Stock and the Exchange Offer as described herein. Except as
otherwise stated herein, the terms and conditions set forth in the Prospectus
and the Letter of Transmittal remain applicable in all respects to the Exchange
Offer. ALLIANCE HAS DETERMINED THAT, EXCEPT AS DESCRIBED IN THIS SUPPLEMENT, IT
WILL NOT MAKE FURTHER CHANGES TO THE TERMS OF THE NEW CONVERTIBLE DEBENTURES OR
SERIES E PREFERRED STOCK.
Procedures for tendering Old Convertible Debentures are set forth in the
Prospectus under the heading "The Exchange Offer -- Procedures for Tendering".
Any holder of Old Convertible Debentures desiring to tender all or any portion
of his or her Old Convertible Debentures should either (1) complete and sign the
Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions in the Letter of Transmittal and mail or deliver it, together with
the certificates representing tendered Old Convertible Debentures and any other
required documents, to The Bank of New York (the "Exchange Agent") or tender
such Old Convertible Debentures pursuant to the procedures for book-entry
transfer set forth in "The Exchange Offer -- Procedures for Tendering" or (2)
request his or her broker, dealer, commercial bank, trust company or nominee to
effect the transaction for him or her. Holders whose Old Convertible Debentures
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee must contact such person if they desire to tender their Old
Convertible Debentures. Holders who wish to tender Old Convertible Debentures
and whose Old Convertible Debentures are not immediately available or who cannot
comply with the procedures for book entry transfer on a timely basis may tender
such Old Convertible Debentures by following the procedures for guaranteed
delivery set forth in "The Exchange Offer -- Procedures for Tendering".
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CHANGES IN TERMS OF NEW CONVERTIBLE DEBENTURES AND SERIES E PREFERRED STOCK
The Special Conversion Price of the New Convertible Debentures will be
reduced from $5.56 (equivalent to a conversion rate of approximately 180 shares
of Common Stock per $1,000 principal amount of New Convertible Debentures) to
$4.76 (equivalent to a conversion rate of approximately 210 shares of Common
Stock per $1,000 principal amount of New Convertible Debentures).
The initial Conversion Price of the Series E Preferred Stock will be reduced
from $6.56 (equivalent to a conversion rate of approximately 15.244 shares of
Common Stock per share of Series E Preferred Stock) to $5.88 (equivalent to a
conversion rate of approximately 17.007 shares of Common Stock per share of
Series E Preferred Stock). In addition, the dividend rate will be increased from
10% per annum to 11 1/2% per annum, but dividends will cease to accrue after the
twelfth Series E Dividend Payment Date. Assuming payment of dividends in kind
for all dividend periods and no antidilution protection adjustment to the
initial conversion price of the Series E Preferred Stock, then, at such time as
dividends cease to accrue, each holder of Old Convertible Debentures who
receives Series E Preferred Stock in the Automatic Conversion and retains such
Series E Preferred Stock and all shares of Series E Preferred Stock issued as
in-kind dividends would be entitled to receive on conversion thereof
approximately 239 shares of Common Stock for each $1,000 principal amount of Old
Convertible Debentures so exchanged by such holder in the Exchange Offer.
Finally, Alliance may not redeem the Series E Preferred Stock before the eighth
Series E Dividend Payment Date, but may redeem the Series E Preferred Stock
thereafter at the liquidation value thereof plus accrued dividends.
LIMITATION ON RIGHT TO ELECT SERIES E PREFERRED STOCK; PRORATION
Alliance has determined to limit the principal amount of Old Convertible
Debentures the holders of which may elect to receive Series E Preferred Stock in
the Automatic Conversion to $30.0 million. If the holders of more than that
principal amount of validly tendered and not withdrawn Old Convertible
Debentures so elect, Alliance will accept the election for $30.0 million
principal amount of Old Convertible Debentures as nearly as practicable on a pro
rata basis from among all such Old Convertible Debentures, rounding to the
nearest $1,000 principal amount (the smallest permitted denomination for the
Debentures). Old Convertible Debentures as to which the election is not accepted
will be converted in the Automatic Conversion into Common Stock at the Special
Conversion Price of $4.76.
In the event of proration, because of the difficulty in determining the
precise amount of Old Convertible Debentures validly tendered and not withdrawn
as to which the election to receive Series E Preferred Stock has been made,
Alliance does not expect to be able to announce the final results of such
proration until at least five NASDAQ trading days after the Expiration Date.
CERTAIN FINANCIAL INFORMATION
The changes described above in the terms of the New Convertible Debentures
and the Series E Preferred Stock will affect certain financial and related
information set forth in the Prospectus.
Under the assumptions made in preparing the pro forma financial statements
included in the Prospectus that $50.0 million of Old Convertible Debentures will
be exchanged, with no election of Series E Preferred Stock, the decrease in the
Special Conversion Price referred to above would result in the issuance of
approximately 1.5 million additional shares of Common Stock in the Automatic
Conversion, resulting in an increase in pro forma total outstanding shares from
25.4 million to 26.9 million (25.2 million and 26.1 million weighted average
shares outstanding for the year and nine months ended June 30, 1995 and March
31, 1996, respectively). In addition, the non-cash charge for inducement of
early conversion would increase by $6.0 million to $24.5 million. There is no
change to the total assets, total liabilities or total stockholders' equity as
presented in the pro forma balance sheet, although there is a $6.0 million
increase to both paid-in-capital and accumulated deficit. Pro forma net loss per
common share for the year ended June 30, 1995 and the nine months ended March
31, 1996 would decrease from $0.50 and $0.70, respectively, to $0.47 and $0.66.
Forecasted net loss applicable to Common Shares for the twelve months ending
December 31, 1996 would increase from $35.978 million ($1.42 per share) to
$41.978 million ($1.56 per share), which includes depreciation and amortization
of $23.2 million (or $0.86
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per share), direct Merger costs of $12.8 million (or $0.48 per share), loss on
assumed conversion of New Convertible Debentures of $24.5 million (or $0.91 per
share) and Preferred Stock dividends of $8.0 million (or $0.30 per share).
For each $1.0 million of New Convertible Debentures converted in the
Automatic Conversion into Series E Preferred Stock instead of Common Stock,
there would be an increase in the pay-in-kind preferred stock dividends for the
first year of $120,055, an increase in the loss per common share of $.01 for the
year ended June 30, 1995, and a decrease in the non-cash charge for inducement
of early conversion referred to in the preceding paragraph of $0.5 million.
DILUTION
The decrease in the Special Conversion Price from $5.56 to $4.76 would have
the following effects on the net tangible book value per share of Common Stock
and on the dilution to holders acquiring Common Stock pursuant to the Automatic
Conversion: excluding shares issuable pursuant to stock options and warrants,
the increase in net tangible book value per share attributable solely to the
Automatic Conversion would decline from $2.84 to $2.76, the pro forma net
tangible book value per share after the Automatic Conversion and the Transaction
would increase from $(1.20) to $(1.13), and dilution in pro forma net tangible
book value per share to converting holders of Old Convertible Debentures would
decrease from $(6.76) to $(5.89).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion refers to that section of the Prospectus entitled
"Certain Federal Income Tax Consequences -- Common Stock and Series E Preferred
Stock" and should be read in conjunction therewith. If a distribution with
respect to the Series E Preferred Stock is a taxable dividend, the Series E
Preferred Stock is "disqualified preferred stock" within the meaning of Code
section 1059(f)(2) because dividends on the Series E Preferred Stock will cease
to accrue after the twelfth Series E Dividend Payment Date. Thus, any taxable
dividend received by a corporate holder from Alliance with respect to the Series
E Preferred Stock would be treated as an "extraordinary dividend" without regard
to the period the holder held the Series E Preferred Stock. Accordingly, a
corporate holder's basis in the Series E Preferred Stock would be reduced (but
not below zero) by the portion of the dividend payment that is not taxed because
of the dividends received deduction (i.e., the amount of the dividends received
deduction available to the holder by reason of the dividend). Any amount of the
non-taxed portion of the extraordinary dividend that otherwise would be applied
to reduce basis below zero would not further reduce basis, but would be treated
as gain from the sale or exchange of the Series E Preferred Stock when such
stock is disposed of. President Clinton's Fiscal Year 1997 Balanced Budget
Proposal, released on March 19, 1996, and The Seven-Year Balanced Budget
Reconciliation Act of 1995, vetoed by President Clinton, both contain provisions
that would require a corporate holder to recognize gain for the taxable year in
which extraordinary dividends are received to the extent the non-taxed portion
of such dividends (i.e., the portion of the dividends eligible for the dividends
received deduction) exceeds the corporate holder's basis in the stock on which
such dividends are paid, effective generally for distributions after September
13, 1995, although in certain cases for distributions after May 3, 1995.
Potential holders are urged to consult their tax advisors about these proposals.
No assurance can be given as to whether or when legislation containing the
above-mentioned or similar provisions will be enacted, and if enacted, when such
provisions will be effective.
PRIVATE PLACEMENT
The terms of the Private Placement have been revised to provide that the
$5.0 million of Common Stock issued in the Private Placement will be purchased
at a price equal to the lower of (a) $4.56 per share or (b) 91% of the lowest of
the average last sales prices of Common Stock during any consecutive period of
five trading days ended on any date in the period occurring between May 20, 1996
and the effective time of the Merger.
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RECENT DEVELOPMENTS
GAMING REGULATION. On May 23, 1996, the Nevada Gaming Commission approved
Alliance's application for approval to merge with BGII and the Transaction,
including the Exchange Offer.
BEC LITIGATION. Alliance and BEC have settled the Alliance Action and the
BEC Action by entering into an amendment to the License Agreement. Under the
terms of the settlement (which takes effect on consummation of the Merger), BEC
will consent to the continued use by BGII of the "Bally" name following the
Merger. The amendment also provides that for five years beginning with the
effective time of the Merger, Gaming will pay BEC a royalty of $35 for each
gaming machine sold or leased which is an increase from the $25 royalty
currently paid pursuant to the License Agreement. The minimum royalty under the
License Agreement for each of the first five twelve-month periods beginning with
the effective time of the Merger will increase to $1.0 million (from the current
$0.5 million), and for each such period thereafter will return to $0.5 million.
The Forecast included in the Prospectus had assumed the settlement of the
Alliance Action and BEC Action on substantially the same terms as are provided
for in this amendment to the License Agreement. In addition, the amendment
provides that sales and pledges of the stock and/or assets of Gaming or a parent
company, other than those to competitors of BEC, will generally not be treated
as assignments requiring BEC's consent under the License Agreement.
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Facsimile copies of the Letter of Transmittal will be accepted. Letters of
Transmittal, certificates for the Old Convertible Debentures and any other
required documents should be sent by each debentureholder or his broker, dealer,
commercial bank, trust company or other nominee to the Exchange Agent at the
address set forth below:
THE EXCHANGE AGENT IS:
The Bank of New York
BY MAIL OR BY HAND:
The Bank of New York
101 Barclay Street, Corporate Trust Operations, 7E
New York, New York 10286
Attention: Enrique Lopez
Telephone: (212) 815-2742
BY FACSIMILE:
(212) 571-3080
TOLL FREE NUMBER:
(800) 254-2826
Any questions or requests for assistance or additional copies of this
Supplement, the Prospectus, the Letter of Transmittal and/or the Notice of
Guaranteed Delivery may be directed to the Information Agent at its telephone
number and address set forth below. You may also contact your broker, dealer,
commercial bank or trust company or other nominee for assistance concerning the
Exchange Offer.
THE INFORMATION AGENT IS:
[LOGO]
Wall Street Plaza
New York, NY 10005
TOLL FREE NUMBER:
(800) 223-2064
Banks and Brokerage Firms
please call collect:
(212) 440-9800
THE DEALER MANAGERS FOR THE EXCHANGE OFFER ARE:
DEUTSCHE MORGAN GRENFELL JEFFERIES & COMPANY, INC. LADENBURG, THALMANN & CO.
INC.
