<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-02147
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLIANCE GAMING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 88-0104066
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
4380 BOULDER HIGHWAY, LAS VEGAS, NEVADA 89121
(702) 435-4200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ALLIANCE GAMING CORPORATION SUBSIDIARIES
<TABLE>
<S> <C> <C>
Alliance Holding Company Applied For Nevada
BGII Acquisition Corp. Applied For Delaware
APT Games, Inc. 88-0161456 Nevada
Casino Electronics, Inc. 88-0151764 Nevada
Foreign Gaming Ventures, Inc. 88-0274702 Nevada
United Coin Machine Co. 88-0085163 Nevada
APT Coin Machines, Inc. 88-0161523 Nevada
Trolley Stop, Inc. 88-0245311 Nevada
Plantation Investments, Inc. 88-0250243 Nevada
Mizpah Investments, Inc. 88-0251796 Nevada
United Games, Inc. 88-0245642 Nevada
Slot Palace, Inc. 88-0245274 Nevada
WCAL, Inc. 88-0245271 Nevada
Double Eagle Hotel & Casino, Inc. 88-0251585 Nevada
FCJI, Inc. 88-0268512 Nevada
(STATE OR OTHER
(I.R.S. EMPLOYER JURISDICTION OF
(EXACT NAME OF REGISTRANTS AS IDENTIFICATION INCORPORATION OR
SPECIFIED IN THEIR CHARTERS) NOS.) ORGANIZATION)
United Native American, Inc. 88-0315171 Nevada
Native American Investments, Inc. 33-0589929 Delaware
Oregon Ventures, Inc. 88-274703 Nevada
Indiana Gaming Ventures, Inc. 88-0307743 Nevada
Mississippi Ventures, Inc. 88-0307742 Nevada
United Gaming of Iowa, Inc. 88-0318560 Nevada
United Gaming Rainbow 88-0307744 Nevada
Mississippi Ventures II, Inc. 88-0321191 Nevada
Vermont Financial Ventures, Inc. 88-0329758 Nevada
Missouri Ventures II, Inc. 88-0336728 Nevada
Louisiana Ventures, Inc. 88-0274662 Nevada
Alpine Willow Investments, Inc. Applied For California
Kansas Gaming Ventures, Inc. 88-0322395 Nevada
Pennsylvania Gaming Ventures I, Inc. 88-0349632 Nevada
(STATE OR OTHER
(I.R.S. EMPLOYER JURISDICTION OF
(EXACT NAME OF REGISTRANTS AS IDENTIFICATION INCORPORATION OR
SPECIFIED IN THEIR CHARTERS) NOS.) ORGANIZATION)
</TABLE>
----------------------------------------
JOHN W. ALDERFER
CHIEF FINANCIAL OFFICER
4380 BOULDER HIGHWAY
LAS VEGAS, NEVADA 89121
(702) 435-4200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
----------------------------------
COPIES TO:
<TABLE>
<S> <C>
LAWRENCE LEDERMAN, Esq. NICHOLAS P. SAGGESE, Esq.
ARNOLD B. PEINADO, III, Esq. Skadden, Arps, Slate, Meagher & Flom
Milbank, Tweed, Hadley & McCloy 300 South Grand Avenue
1 Chase Manhattan Plaza Los Angeles, California 90071
New York, New York 10005 (213) 687-5000
(212) 530-5000
</TABLE>
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration number for
the same offering. / / ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) PRICE (1)
<S> <C> <C> <C>
% Senior Secured Notes due 2003........................ $140,000,000 100% $140,000,000
Guarantees (3)............................................ -- -- --
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE (2)
<S> <C>
% Senior Secured Notes due 2003........................ $48,276
Guarantees (3)............................................ --
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid with the initial filing of and Amendment No. 1 to this
Registration Statement.
(3) Alliance Holding Company, BGII Acquisition Corp., APT Games, Inc., Casino
Electronics, Inc., Foreign Gaming Ventures, Inc., United Coin Machine Co.,
APT Coin Machines, Inc., Trolley Stop, Inc., Plantation Investments, Inc.,
Mizpah Investments, Inc., United Games, Inc., Slot Palace, Inc., WCAL, Inc.,
Double-Eagle Hotel & Casino, Inc., FCJI, Inc., United Native American, Inc.,
Native American Investments, Inc., Oregon Ventures, Inc., Indiana Gaming
Ventures, Inc., Mississippi Ventures, Inc., United Gaming of Iowa, Inc.,
United Gaming Rainbow, Mississippi Ventures II, Inc., Vermont Financial
Ventures, Inc., Missouri Ventures II, Inc., Louisiana Ventures, Inc., Alpine
Willow Investments, Inc., Kansas Gaming Ventures, Inc. and Pennsylvania
Gaming Ventures I, Inc. are direct and indirect subsidiaries of Alliance
Gaming Corporation and each is registering its Guarantee of payment of the
principal of, premium, if any, and interest on the Senior Secured Notes
being registered hereby. Pursuant to Rule 457(a) under the Securities Act of
1933, no registration fee is required with respect to the Guarantees.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a combined Prospectus relating to the
public offering by the Registrant of its Senior Secured Notes due 2003 and its
15% Non-Voting Senior Pay-in-Kind Special Stock, Series B (the "Preferred
Stock"). The Preferred Stock is being registered separately pursuant to the
Registrant's Registration Statement on Form S-2 (Registration No. 333-02145).
<PAGE>
ALLIANCE GAMING CORPORATION
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUS REQUIRED BY FORM S-2
<TABLE>
<CAPTION>
FORM S-2 LOCATION OR HEADING
ITEM CAPTION IN PROSPECTUS
- --------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected
Historical Financial Information of Alliance;
Selected Historical Financial Information of BGII
4. Use of Proceeds................................... The Merger and Related Financings; Use of
Proceeds; Capitalization
5. Determination of Offering Price................... Underwriting
6. Dilution.......................................... *
7. Selling Security Holders.......................... *
8. Plan of Distribution.............................. Outside and Inside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered........ Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of the Senior Secured Notes;
Description of Capital Stock; Material Federal
Income Tax Consequences to Holders of Preferred
Stock
10. Interest of Named Experts and Counsel............. *
11. Information with Respect to the Registrant........ Outside Front Cover Page of Prospectus; Prospectus
Summary; The Merger and Related Financings; Use
of Proceeds; Dividend Policy; Capitalization;
Unaudited Pro Forma Condensed Combined Financial
Information; Supplemental Analysis of Adjusted
Operating Cash Flow; Forecast of Operations;
Selected Historical Financial Information of
Alliance; Selected Historical Financial
Information of BGII; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Security
Ownership of Certain Beneficial Holders and
Management; Certain Relationships and Related
Transactions; Description of Certain Other
Indebtedness; Description of the Senior Secured
Notes; Description of Capital Stock; Material
Federal Income Tax Consequences to Holders of
Preferred Stock; Consolidated Financial
Statements of Alliance; Consolidated Financial
Statements of BGII
12. Incorporation of Certain Information by
Reference........................................ Incorporation by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
</TABLE>
- ------------------------
* Not Applicable.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1996
PROSPECTUS
[LOGO]
$140,000,000 % SENIOR SECURED NOTES DUE 2003
$15,000,000 15% NON-VOTING SENIOR PAY-IN-KIND SPECIAL STOCK, SERIES B
--------------
ALLIANCE GAMING CORPORATION (THE "COMPANY") IS HEREBY OFFERING (EACH, AN
"OFFERING" AND TOGETHER, THE "OFFERINGS") (I) $140,000,000 AGGREGATE PRINCIPAL
AMOUNT OF ITS % SENIOR SECURED NOTES DUE 2003 (THE "SENIOR SECURED NOTES") AND
(II) $15,000,000 OF ITS 15% NON-VOTING SENIOR PAY-IN-KIND SPECIAL STOCK, SERIES
B (THE "PREFERRED STOCK", AND TOGETHER WITH THE SENIOR SECURED NOTES, THE
"SECURITIES"). THE SECURITIES ARE BEING ISSUED AS PART OF THE FINANCING OF THE
MERGER (THE "MERGER") OF A WHOLLY-OWNED SUBSIDIARY OF ALLIANCE WITH AND INTO
BALLY GAMING INTERNATIONAL, INC. ("BGII"), PURSUANT TO WHICH BGII WILL BECOME A
WHOLLY-OWNED SUBSIDIARY OF THE COMPANY. SEE "THE MERGER AND RELATED FINANCINGS"
AND "USE OF PROCEEDS." CONSUMMATION OF EACH OFFERING IS CONTINGENT UPON
CONSUMMATION OF THE OTHER OFFERING AND THE MERGER.
INTEREST ON THE SENIOR SECURED NOTES IS PAYABLE SEMI-ANNUALLY IN ARREARS ON
AND OF EACH YEAR, COMMENCING , 1996. THE SENIOR
SECURED NOTES WILL MATURE ON , 2003. THE SENIOR SECURED
NOTES WILL BE REDEEMABLE AT THE OPTION OF THE COMPANY, IN WHOLE OR IN PART, AT
ANY TIME ON OR AFTER , 2000 AT THE REDEMPTION PRICES SET
FORTH HEREIN, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF
REDEMPTION, AND WILL BE REDEEMABLE AT ANY TIME PURSUANT TO A REQUIRED REGULATORY
REDEMPTION (AS DEFINED). UPON THE OCCURRENCE OF A CHANGE OF CONTROL (AS
DEFINED), THE COMPANY IS REQUIRED TO MAKE AN OFFER TO REPURCHASE THE SENIOR
SECURED NOTES AT A PRICE EQUAL TO 101% OF THE PRINCIPAL AMOUNT THEREOF, PLUS
ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF REPURCHASE. SEE "DESCRIPTION
OF THE SENIOR SECURED NOTES."
THE COMPANY'S PAYMENT OBLIGATIONS UNDER THE SENIOR SECURED NOTES WILL BE
FULLY AND UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY ALL EXISTING AND
FUTURE SUBSIDIARIES (AS DEFINED) OF THE COMPANY, OTHER THAN (I) THE
PARTIALLY-OWNED ENTITIES THROUGH WHICH ITS MISSISSIPPI CASINO AND LOUISIANA
GAMING MACHINE MANAGEMENT OPERATIONS ARE CONDUCTED AND (II) SPECIFIED ENTITIES
THROUGH WHICH ITS GERMAN OPERATIONS ARE TO BE CONDUCTED (COLLECTIVELY, THE
"GUARANTORS"). THE SENIOR SECURED NOTES WILL BE SECURED BY AN EXCLUSIVE PLEDGE
OF THE EQUITY INTERESTS DIRECTLY OR INDIRECTLY HELD BY THE COMPANY IN ITS
SUBSIDIARIES, EXCEPT FOR THE EQUITY INTERESTS IN BGII AND ITS SUBSIDIARIES, BUT
INCLUDING THE EQUITY INTERESTS IN ALLIANCE HOLDING COMPANY, WHICH HAS BEEN
FORMED TO HOLD THE EQUITY INTERESTS OF BGII AND ITS SUBSIDIARIES. THE SENIOR
SECURED NOTES AND GUARANTEES THEREOF WILL RANK PARI PASSU IN RIGHT OF PAYMENT
WITH EXISTING AND FUTURE SENIOR INDEBTEDNESS, AND SENIOR TO ALL SUBORDINATED
INDEBTEDNESS, OF THE COMPANY OR SUCH GUARANTOR. AFTER GIVING EFFECT TO THE
MERGER, THE OFFERINGS AND THE TRANSACTIONS CONTEMPLATED THEREBY, AT MARCH 31,
1996, ON A PRO FORMA BASIS, SUBSIDIARIES OF THE COMPANY WOULD HAVE HAD
OUTSTANDING APPROXIMATELY $33.4 MILLION OF SENIOR INDEBTEDNESS, SUBSTANTIALLY
ALL OF WHICH WOULD BE SECURED INDEBTEDNESS.
THE PREFERRED STOCK IS REDEEMABLE AT THE OPTION OF THE COMPANY AT ANY TIME,
IN WHOLE OR IN PART, AT A PRICE PER SHARE EQUAL TO $100.00, PLUS ACCRUED AND
UNPAID DIVIDENDS AND DISTRIBUTIONS THEREON, IF ANY, TO THE DATE OF REDEMPTION.
IN ADDITION, THE COMPANY IS REQUIRED TO REDEEM ALL OUTSTANDING SHARES OF
PREFERRED STOCK ON OR PRIOR TO , 2004 AT SUCH PRICE. DIVIDENDS WILL
ACCRUE FROM MAY 3, 1996 AND ARE PAYABLE QUARTERLY IN CASH IN AN AMOUNT PER SHARE
EQUAL TO $3.75 (OR 15% PER ANNUM), EXCEPT THAT THE COMPANY MAY PAY SUCH
DIVIDENDS IN ADDITIONAL SHARES OF PREFERRED STOCK (OR FRACTIONS THEREOF) UNTIL
, 2003, PROVIDED THAT THE PORTION OF ANY DIVIDENDS PAYABLE IN SHARES
OF PREFERRED STOCK AFTER , 2001 WILL BE LIMITED TO $2.00 PER SHARE
(OR 8% PER ANNUM). SEE "DESCRIPTION OF CAPITAL STOCK--SPECIAL STOCK." THE
COMPANY HAS APPLIED TO HAVE THE PREFERRED STOCK QUOTED ON THE NASDAQ NATIONAL
MARKET SYSTEM.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. 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 PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES
OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1)(2) DISCOUNTS(3) COMPANY(4)
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Per Senior Secured Note...................... $ $ $
Total...................................... $ $ $
Per Share of Preferred Stock................. $ $ $
Total(5)................................... $ $ $
Total........................................ $ $ $
</TABLE>
- ------------------
(1) Plus accrued interest on the Senior Secured Notes, if any, from the date of
issuance.
(2) Plus accrued dividends on the Preferred Stock from May 3, 1996.
(3) The Company and its subsidiaries have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(4) Before deducting expenses payable by the Company, estimated at $ .
(5) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional $2,250,000 of Preferred Stock, on the same terms and
conditions set forth above, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Proceeds to Company, with respect to the Preferred Stock
Offering, will be $ , $ , and $ , respectively. See
"Underwriting."
------------------------
THE SECURITIES ARE OFFERED BY THE SEVERAL UNDERWRITERS, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF ISSUED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT DELIVERY OF THE SECURITIES WILL BE MADE AGAINST PAYMENT THEREFOR
IN NEW YORK, NEW YORK ON OR ABOUT JUNE , 1996.
------------------------
Jefferies & Company, Inc.
Wasserstein Perella Securities, Inc.
Ladenburg, Thalmann & Co. Inc.
JUNE , 1996
<PAGE>
IN CONNECTION WITH THE OFFERING OF THE SECURITIES OFFERED HEREBY, THE
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICE OF SUCH SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET SYSTEM (IN THE CASE OF THE PREFERRED STOCK), IN THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ARTWORK
Pictures of selected slot and wall machines of BGII (inside front cover)
Picture of Rainbow Casino and Gambler's Bonus Cardless Slot Club of Alliance
(inside back cover)
INCORPORATION BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") by Alliance pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act") are incorporated by reference in this
Prospectus:
(1) Alliance's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, as amended and restated by Form 10-K/A Amendment No. 3 dated March
6, 1996;
(2) Alliance's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1995, December 31, 1995, and March 31, 1996, respectively.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (other than exhibits to documents
unless such exhibits are specifically incorporated by reference) are available,
without charge, to any person to whom this Prospectus is delivered, on written
or oral request, to Alliance Gaming Corporation, 4380 Boulder Highway, Las
Vegas, Nevada 89121 (telephone number (702) 435-4200), Attention: John W.
Alderfer, Senior Vice President--Finance and Administration, Chief Financial
Officer and Treasurer.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR IN DOCUMENTS AND FINANCIAL
STATEMENTS INCORPORATED IN THIS PROSPECTUS BY REFERENCE. UNLESS OTHERWISE
INDICATED OR THE CONTEXT OTHERWISE REQUIRES, (I) THE TERM "ALLIANCE", AS USED IN
THIS PROSPECTUS, MEANS ALLIANCE GAMING CORPORATION AND ITS SUBSIDIARIES, TAKEN
AS A WHOLE, PRIOR TO THE MERGER, (II) THE TERM THE "COMPANY", AS USED IN THIS
PROSPECTUS, MEANS ALLIANCE GAMING CORPORATION AND ITS SUBSIDIARIES, INCLUDING
BGII, TAKEN AS A WHOLE, UPON CONSUMMATION OF THE MERGER, AND INFORMATION WITH
RESPECT TO THE COMPANY IN THIS PROSPECTUS IS PRESENTED AFTER GIVING EFFECT TO
THE MERGER, THE OFFERINGS AND THE PRIVATE PLACEMENT (AS DEFINED), (III) THE TERM
"BGII" MEANS BALLY GAMING INTERNATIONAL, INC. AND ITS SUBSIDIARIES, TAKEN AS A
WHOLE, PRIOR TO THE MERGER AND (IV) THE INFORMATION IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF THE OVER-ALLOTMENT OPTION IN THE PREFERRED STOCK OFFERING AND THE
EXCHANGE OF $50.0 MILLION PRINCIPAL AMOUNT OF ALLIANCE'S 7 1/2% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 (THE "OLD CONVERTIBLE DEBENTURES") FOR A LIKE
AGGREGATE PRINCIPAL AMOUNT OF ALLIANCE'S 7 1/2% CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES DUE 2003 (THE "NEW CONVERTIBLE DEBENTURES") IN THE EXCHANGE OFFER (AS
DEFINED) AND, UPON CONSUMMATION OF THE OFFERINGS AND THE MERGER, THE AUTOMATIC
CONVERSION (AS DEFINED) INTO ALLIANCE COMMON STOCK OF ALL OF THE NEW CONVERTIBLE
DEBENTURES. SEE "THE MERGER AND RELATED FINANCINGS." PROSPECTIVE INVESTORS ARE
URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND UNCERTAINTIES AND THAT IS
SUBJECT TO THE ASSUMPTIONS SET FORTH IN CONNECTION THEREWITH AND THE INFORMATION
CONTAINED HEREIN.
THE COMPANY
BACKGROUND
Alliance is a diversified gaming company that currently operates through its
subsidiaries approximately 6,000 electronic gaming machines (primarily video
poker machines and slot machines) and also owns and operates a small casino in
each of Vicksburg, Mississippi and Sparks/Reno, Nevada. Alliance is the largest
gaming machine management operator in Nevada and is the exclusive operator of
video poker devices at the only racetrack and ten associated off-track betting
parlors ("OTBs") in the greater New Orleans area.
As part of its long-term growth strategy, Alliance entered into an Agreement
and Plan of Merger in October 1995, as amended (the "Merger Agreement"), with
BGII pursuant to which BGII will become a wholly-owned subsidiary of Alliance.
BGII, through subsidiaries in the United States and Germany, is a leading
designer, manufacturer and distributor of electronic gaming machines. BGII also
designs, assembles and sells computerized monitoring systems for slot and video
gaming machines which provide casino operators with on-line real time player
tracking, security and maintenance capabilities.
BGII is currently the second largest manufacturer of casino-style electronic
gaming machines in North America and since 1993 has made significant inroads in
recapturing a portion of its once dominant market share of the late 1970s. Unit
sales of electronic gaming machines by BGII's domestic subsidiary have
approximately doubled from the level of unit sales in 1993. Although BGII sells
electronic gaming machines to most of the major participants in the United
States casino industry, the Company hopes to continue to increase its
penetration in such casinos by capitalizing on Alliance's and BGII's
managements' relationships within the gaming industry together with the
performance capabilities of its current products.
Alliance believes that the Merger represents an opportunity to acquire an
established electronic gaming machine manufacturer with a well-recognized
presence in the gaming industry and a significant base of assets and experience.
Management estimates that the installed base of casino-style electronic gaming
machines (for these purposes, primarily slot and video machines) is
approximately 650,000 units, of which approximately 50% are located in North
America, and that annual sales in North America have grown from approximately
30,000 units in 1991 to approximately 89,000 units in 1995, reflecting a period
of accelerated growth in the number and size of casinos in North America.
Historically, growth in the gaming machine market has been fueled principally by
sales to new casinos and to a lesser degree by replacement of machines (which
have an average replacement cycle of three to seven years) and the application
of new technology. In the future, management believes that annual sales growth
resulting from replacement requirements and the application of new technology
should outpace growth in demand generated by new casino openings, which
1
<PAGE>
growth rate is expected to decline. Management believes that the Merger provides
Alliance with an avenue for entering a business historically characterized by
effective barriers to entry in that the BGII assets being acquired are difficult
to replicate and would require significant time and investment to develop
successfully.
For the twelve-month period ended December 31, 1995, on a pro forma basis
after giving effect to the Merger and the related transactions described herein,
the Company would have had revenues and Adjusted Operating Cash Flow (as
defined; see the introduction to "Summary Financial Information") of
approximately $401.0 million and $47.3 million, respectively, and for the three
months ended March 31, 1996 of approximately $99.1 million and $11.3 million,
respectively. The pro forma ratios of Adjusted Operating Cash Flow to net
interest expense and of net debt to Adjusted Operating Cash Flow would have been
2.3x and 4.0x, respectively, for the twelve-month period ended December 31,
1995.
BUSINESS STRATEGY
The Company's strategic objective is to build a pre-eminent gaming
entertainment company to capitalize on what management believes to be gaming's
continuing growth within the entertainment industry. In addition to continuing
the development of the Company's existing business units, the Company's
strategic focus will be on BGII's domestic subsidiary, key elements of which
include:
- to capitalize on BGII's strong product line and current sales momentum as
represented by unit sales of electronic gaming machines by BGII's domestic
subsidiary which have approximately doubled from the level of unit sales
in 1993;
- to develop and market premier gaming entertainment products employing
available information technology currently in common use in other segments
of the entertainment industry, but not yet prevalent in the gaming
industry;
- to reduce costs through enhanced operating efficiencies while improving
the quality of products and services; and
- to capitalize on relationships and enter into alliances with technology
and entertainment companies, with a particular focus on the application of
technology in the gaming entertainment business.
The Company believes it has assembled a strong and experienced management
team to implement its strategy and capitalize on the opportunities in the gaming
industry. Steve Greathouse, Chairman of the Board of Directors, President and
Chief Executive Officer of Alliance, has over 20 years of experience in the
gaming industry and has strong relationships with many casino operators. Prior
to joining Alliance in 1994, Mr. Greathouse was President of the Harrah's Casino
Hotels Division of The Promus Companies Incorporated. Craig Fields, Vice
Chairman of the Board of Directors of Alliance, who is expected to assume a
senior management position upon consummation of the Merger, has over 20 years of
experience with advanced information technology from his work with several
leading companies and government agencies including as a director of Perot
Systems Corp. and as a senior advisor to the United States Department of
Defense. Dr. Fields has been active in developing the Company's strategic focus
on the application of technology to gaming entertainment products. In addition,
Hans Kloss, currently the President and Chief Operating Officer of BGII and
long-time managing director of BGII's German operations, will join the senior
management team and continue to oversee the BGII operations. Since becoming
President of BGII in 1993, Mr. Kloss has been instrumental in implementing
changes in BGII's United States-based operations which have contributed to
improvements in the results of such operations. See "Management."
BUSINESS UNITS
Following the Merger, the Company will operate through four business units:
(i) gaming machine management operations, (ii) casino operations, (iii) German
operations (consisting of the manufacture and distribution of wall-mounted
gaming machines and the distribution of other recreational and amusement
machines) and (iv) casino-style electronic gaming machine manufacturing and
systems operations.
GAMING MACHINE MANAGEMENT OPERATIONS. Alliance's Nevada gaming machine
management operations, which are the largest in Nevada, involve the selection,
ownership, installation, operation and maintenance of video poker devices,
reel-type slot machines and other electronic gaming machines in local
2
<PAGE>
establishments such as taverns, restaurants, supermarkets, drug stores and
convenience stores operated by third parties. Alliance enters into contracts
with these parties whereby Alliance either receives a portion of the revenue
generated by the machines or pays rent and receives all of the revenues
generated by the machines. In Nevada, Alliance operated approximately 5,357
units installed in 528 locations as of March 31, 1996. As of March 31, 1996, the
weighted average remaining term of Alliance's revenue-sharing arrangements was
approximately 3.6 years. Alliance's customer and machine base has remained
relatively stable over the last five years. These operations target local
residents who generally frequent establishments close to their homes. In
December 1995, Alliance launched Gambler's Bonus, a proprietary product which
brings large casino gaming amenities to local establishments, such as
multi-location progressive jackpots, bigger jackpot payouts and traditional
players' club enhancements. Since launching Gambler's Bonus, the gaming machines
linked to Gambler's Bonus have experienced an increase in average net win per
day per machine. As of March 31, 1996, Alliance had the Gambler's Bonus system
installed in 23 locations representing approximately 360 machines, and
management expects to have Gambler's Bonus installed in approximately 88
locations or a total of 980 machines by June 1996. In 1992, Alliance expanded
its machine management operations to Louisiana, where it has an exclusive
10-year contract (seven years remaining, plus a five-year right of first refusal
thereafter) to operate approximately 700 video poker devices at the only
racetrack and 10 associated OTBs in the greater New Orleans area. For the
twelve-month period ended December 31, 1995, EBITDA (as defined; see Note (1) to
"Summary Financial Information--Summary Historical Financial
Information--Alliance Gaming Corporation") for the gaming machine management
operations unit was $18.3 million.
CASINO OPERATIONS. Alliance owns and operates two small full-service
casinos. In Mississippi, the Company's Rainbow Casino is part of the Vicksburg
Landing facility which opened in July 1994 and is the only casino/family
entertainment complex of its kind in Mississippi. The Rainbow Casino currently
has approximately 589 electronic gaming machines and 28 table games. In addition
to the approximately 24,000-square foot Rainbow Casino, Vicksburg Landing opened
an 89-room hotel and a 10-acre indoor/ outdoor amusement park in May 1995.
Although the hotel and amusement park are not owned or operated by Alliance,
management believes that such facilities have contributed significantly to the
recent strong financial results of the Rainbow Casino. Alliance's Plantation
Station Casino located in Reno/Sparks, Nevada is a 20,000-square foot casino
which, as of March 31, 1996, contained approximately 450 electronic gaming
machines, keno and 10 table games in addition to a 300-seat restaurant owned by
Alliance. For the twelve-month period ended December 31, 1995, EBITDA for the
casino operations unit was $10.5 million.
GERMAN OPERATIONS. BGII's German subsidiaries, which operate under the name
Bally Wulff (collectively, "Wulff"), design, manufacture and distribute
coin-operated, wall-mounted, electronic gaming machines known as wall machines.
Management estimates that Wulff has approximately 25% of the installed base of
the wall machine market which exists almost exclusively in Germany and that
Wulff and the two other major competitors have a greater than 90% market share.
Wulff markets its own wall machines as well as wall machines and other
recreational and amusement machines manufactured by third parties, including
pool tables, air-hockey and pinball machines, jukeboxes and arcade games, to
operators of arcades, taverns, hotels and restaurants primarily in Germany. For
the twelve-month period ended December 31, 1995, EBITDA for the German
operations unit was approximately $15.2 million.
GAMING MACHINE MANUFACTURING AND SYSTEMS OPERATIONS. BGII's United States
subsidiary, Bally Gaming, Inc., currently has two components: a domestic-based
electronic gaming machine manufacturing unit ("Gaming") and a data systems and
software and hardware support service unit ("Systems").
Gaming designs, manufactures and distributes a variety of slot machines and
video gaming machines. Gaming is the second largest electronic gaming machine
manufacturer in North America, and has significantly increased its penetration
in the gaming machine market with the successful introduction of its
ProSeries-TM- and Game Maker-Registered Trademark- lines in 1993 and 1994,
respectively. In the United States, Gaming historically has marketed electronic
gaming machines primarily to casinos in Atlantic City and Nevada and more
recently has marketed such machines in other jurisdictions. Gaming also
distributes electronic gaming machines outside the United States, principally in
Europe through Bally Gaming International GmbH ("GmbH") and, to a lesser extent,
in Canada, the Far East, Latin America and the Caribbean.
3
<PAGE>
Systems designs, assembles and sells, primarily to casino operators in the
United States, computerized player tracking, cash monitoring, accounting and
security data systems for electronic gaming machines. Since the introduction of
its SDS 6000 system in the first quarter of 1993 and subsequent upgrades,
Systems has rapidly expanded its presence in casino properties. By the end of
1993, Systems had 40,000 of its game monitoring units ("GMUs") installed in 33
casino properties. This has since increased to 59,000 GMUs installed in 56
casino properties as of March 31, 1996. For the twelve-month period ended
December 31, 1995, EBITDA for the gaming machine manufacturing and systems
operations unit was approximately $13.1 million.
Alliance is a Nevada corporation organized in 1968. The Company's principal
executive offices are located at 4380 Boulder Highway, Las Vegas, Nevada 89121,
and its telephone number is (702) 435-4200.
THE MERGER AND RELATED FINANCINGS
Pursuant to the Merger Agreement and subject to the terms and conditions set
forth therein, Alliance will acquire all of the stock of BGII as set forth
below. In addition, the Company will generally assume BGII's obligations with
respect to each outstanding BGII stock option and warrant, subject to certain
modifications approved by BGII stockholders, and will retire approximately $53.3
million of outstanding debt of BGII (including prepayment premium, original
issue discount and accrued and unpaid interest through the Effective Time (as
defined) of the Merger).
The Merger and related transactions will be financed through (i) the
Offering of the Senior Secured Notes (the "Note Offering"), (ii) the Offering of
the Preferred Stock (the "Preferred Stock Offering"), and (iii) the private
placement of $5.0 of Alliance's equity to an institutional investor in reliance
on an exemption from the registration requirements of the Securities Act (the
"Private Placement"). The Note Offering, the Preferred Stock Offering and the
Private Placement are contingent upon the Merger. In addition, Alliance has
offered to exchange up to $85.0 million aggregate principal amount of its New
Convertible Debentures for a like principal amount of its Old Convertible
Debentures (the "Exchange Offer"), which New Convertible Debentures, in
accordance with the Exchange Offer and subject to certain conditions, will, upon
consummation of the Merger within 60 days of the issuance thereof, be converted
(the "Automatic Conversion") into shares of Common Stock, $0.10 par value per
share, of Alliance (the "Common Stock") or, in lieu thereof, shares of the
Non-Voting Junior Convertible Pay-in-Kind Special Stock, Series E, of Alliance,
par value $0.10 per share (the "Series E Preferred Stock"). See "The Merger and
Related Financings." The Merger, the Offerings and the Private Placement, the
specified uses of proceeds therefrom, the Exchange Offer and the Wulff
Realignment (as defined) are sometimes referred to herein collectively as the
"Transaction."
4
<PAGE>
The following table sets forth the anticipated sources and uses of funds to
be used to consummate the Merger and the other elements of the Transaction based
on the Company's cash and debt balances as of March 31, 1996. The actual
balances and number of shares outstanding will vary based on the date of
consummation of the Transaction and the securities issued in connection with the
Merger and the financing thereof.
(IN MILLIONS)
<TABLE>
<S> <C>
ANTICIPATED SOURCES OF FUNDS
CASH SOURCES:
Senior Secured Notes.................. $ 140.0
Preferred Stock....................... 15.0
Common Stock (Private Placement)...... 5.0
---------
Total Cash Sources................ 160.0
---------
NON-CASH SOURCES:
New Convertible Debentures issued and
automatically converted into Common
Stock................................ 50.0
Preferred Stock to BGII
Stockholders(e)...................... 35.7
Common Stock to BGII
Stockholders(f)...................... 2.9
Common Stock(c)....................... 3.7
---------
Total Non-Cash Sources.............. 92.3
---------
Total Sources..................... $ 252.3
---------
---------
</TABLE>
<TABLE>
<S> <C>
ANTICIPATED USES OF FUNDS
CASH USES:
Cash to BGII Stockholders(a).......... $ 77.2
Retire BGII Debt(b)................... 53.3
Employee Contract Termination Costs
and Performance Unit Awards(c)....... 7.6
Fees and Expenses(d).................. 21.9
---------
Total Cash Uses................... 160.0
---------
NON-CASH USES:
Retire Old Convertible Debentures..... 50.0
Preferred Stock to BGII
Stockholders(e)...................... 35.7
Common Stock to BGII
Stockholders(f)...................... 2.9
Common Stock(c)....................... 3.7
---------
Total Non-Cash Uses................. 92.3
---------
Total Uses........................ $ 252.3
---------
---------
</TABLE>
- --------------------------
(a) Represents the cash consideration to be paid to BGII stockholders in the
Merger consisting of $7.83 per share of BGII common stock plus interest
accruing at a rate of 5.5% per annum from May 3, 1996 to the Effective Time,
calculated in accordance with the terms of the Merger Agreement.
(b) Represents retirement of the following debt of BGII outstanding at March 31,
1996:
(i) $39.7 million of 10 3/8% Senior Secured Notes due July 1998, at a
prepayment price of 101% plus original issue discount of $0.3 million;
(ii) $9.3 million under a bank revolving line of credit of Bally Gaming,
Inc., a wholly-owned subsidiary of BGII;
(iii) other notes payable of BGII, aggregating $1.6 million; and
(iv) accrued and unpaid interest on the foregoing debt instruments, through
the Effective Time, totaling approximately $2.0 million.
(c) Includes $5.0 million payable in cash to Richard Gillman, Chairman of the
Board and Chief Executive Officer of BGII, and $1.3 million payable to Neil
Jenkins, Executive Vice President and Secretary of BGII, consisting of $0.9
million in cash and $0.4 million in Common Stock, all pursuant to agreements
with Alliance in connection with the termination of their respective
employment agreements and performance unit awards. Additionally, Hans Kloss,
President and Chief Operating Officer of BGII and Managing Director of
Wulff, who will remain with the Company, will receive a total of $4.3
million consisting of $1.5 million in cash and $2.8 million in Common Stock,
and Robert Conover, President of Systems, who will remain with the Company,
will receive a total of $0.7 million consisting of $0.2 million in cash and
$0.5 million in Common Stock, in connection with their employment agreements
and performance unit awards. The Common Stock portion of each such payment
will be valued at the average daily closing price per share of Common Stock
as reported through the Nasdaq National Market System ("Nasdaq") for the ten
consecutive trading days ending on (and including) the fifth trading day
prior to the Merger (the "Alliance Average Trading Price") but in no event
more than $6.00 nor less than $4.25 per share. See "The Merger and Related
Financings."
(d) Total estimated Alliance and BGII Transaction-related fees and expenses are
$37.0 million, of which $15.1 million has been paid through March 31, 1996.
Excludes the value of Common Stock to be issued to an Underwriter as a
financial advisory fee. See "Underwriting."
(e) Represents the Preferred Stock consideration to be paid to BGII stockholders
in the Merger consisting of $3.57 of Preferred Stock per share of BGII
common stock, plus dividends accruing at a rate of 15% per annum from May 3,
1996 to the Effective Time, calculated in accordance with the terms of the
Merger Agreement.
(f) Represents the Common Stock consideration to be paid to BGII stockholders in
the Merger consisting of $0.30 per share of BGII common stock valued at the
Alliance Average Trading Price.
5
<PAGE>
PRO FORMA BUSINESS STRUCTURE OF THE COMPANY
The following chart presents the principal elements of the business
structure of the Company as management currently intends to operate following
the Merger, but does not reflect the legal structure of Alliance or BGII.
[graph]
- ------------------------
(1) Not wholly-owned. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
6
<PAGE>
THE NOTE OFFERING
<TABLE>
<S> <C>
Issuer............................ Alliance Gaming Corporation.
Principal Amount.................. $140,000,000.
Maturity Date..................... , 2003.
Interest.......................... The Senior Secured Notes will bear interest at % per
annum, payable semi-annually in arrears on
and , commencing , 1996. Interest is
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Security.......................... The Senior Secured Notes will be secured by an exclusive
pledge of the equity interests directly or indirectly
held by the Company in its Subsidiaries, except for the
equity interests in BGII and its Subsidiaries, but
including the equity interests in Alliance Holding
Company ("Holding"), which has been formed to hold the
equity interests of BGII and its Subsidiaries.
Guarantors........................ The Senior Secured Notes will be fully and
unconditionally guaranteed on a joint and several senior
basis by each present and future Subsidiary (which term,
as defined, excludes "Unrestricted Subsidiaries") of the
Company, other than (i) the partially-owned entities
through which its Mississippi casino and Louisiana gam-
ing machine management operations are conducted and (ii)
specified entities through which its German operations
are to be conducted.
Mandatory Redemption.............. None.
Optional Redemption............... The Senior Secured Notes will be redeemable in cash at
the option of the Company, in whole or in part, at any
time on or after , 2000, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the redemption date. In addition,
the Senior Secured Notes are subject at any time to a
Required Regulatory Redemption (as defined).
Change of Control................. Upon the occurrence of a Change in Control (as defined),
the Company is required to make an offer to repurchase
all outstanding Senior Secured Notes at a price equal to
101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase.
Ranking........................... The Senior Secured Notes will be senior secured
obligations of the Company and pari passu in right of
payment with all existing and future senior Indebtedness
and senior in right of payment to all future
subordinated Indebtedness of the Company.
Certain Covenants................. The Indenture will contain certain covenants which,
among other things, will restrict and regulate the
Company's and its Subsidiaries' ability to (i) incur
additional Indebtedness (as defined) or issue
Disqualified Capital Stock (as defined); (ii) make
Restricted Payments (as defined); (iii) create
encumbrances on the ability of the Company's
Subsidiaries to pay dividends or make other distri-
butions; (iv) permit the existence of Liens (as defined)
on assets of the Company and its Subsidiaries; (v) use
the proceeds from certain asset sales by the Company and
its Subsidiaries; (vi) enter into transactions with
affiliates of the Company; (vii) merge, consolidate or
sell all or substantially all of the Company's assets;
and (viii) engage in unrelated lines of business.
Risk Factors...................... For a discussion of certain factors that should be
considered in connection with an investment in the
Senior Secured Notes, see "Risk Factors."
</TABLE>
7
<PAGE>
THE PREFERRED STOCK OFFERING
<TABLE>
<S> <C>
Issuer........................... Alliance Gaming Corporation.
Preferred Stock Offered.......... $15,000,000 15% Non-Voting Senior Pay-in-Kind Special
Stock, Series B and up to $2,250,000 of additional
Preferred Stock subject to the Underwriters'
over-allotment option.
Dividends........................ The Preferred Stock will entitle holders thereof to a
quarterly dividend in an amount per share of $3.75, or
15% per annum, payable in cash or, at the Company's
option through and including the first dividend payment
date occurring after the seventh anniversary of the
Effective Time, in additional shares of Preferred Stock
(valued at the liquidation value of $100.00 per share),
PROVIDED, that after the first dividend payment date
following the fifth anniversary of the Effective Time
the portion of the dividend that can be so paid in
additional shares is limited to $2.00 per share, or 8%
per annum. The Company expects that so long as the Pre-
ferred Stock remains outstanding, it will, subject to
the terms thereof, pay dividends thereon accruing
through the first dividend payment date occurring after
the seventh anniversary of the Effective Time in
additional shares of such stock, rather than in cash.
The Indenture will restrict the Company's ability to pay
cash dividends on the Preferred Stock.
Liquidation Value................ $100.00 per share, plus an amount equal to all accrued
and unpaid dividends and distributions.
Mandatory Redemption............. All shares of Preferred Stock are required to be
redeemed in cash on the eighth anniversary of the date
of initial issuance in an amount equal to the
Liquidation Value. If the Company fails to redeem such
shares by that date and the holders of Preferred Stock
have not elected two directors to the Board as described
under "Voting Rights" below, then the number of
directors constituting the Board of Directors of the
Company will be increased by two, and not more than two,
and the holders of the shares of Preferred Stock will
have the right until all such shares are redeemed,
voting separately as a class, to elect two directors to
the Board of Directors. In no event will holders of
Preferred Stock have the right to elect more than two
directors in total.
Optional Redemption.............. The Preferred Stock can be redeemed at any time in whole
or in part at the option of the Company for cash at a
price equal to the Liquidation Value.
Voting Rights.................... Upon default in the payment of dividends for six
consecutive dividend payment dates, the number of
directors constituting the Board of Directors will be
increased by two, and not more than two, and the holders
of the shares of Preferred Stock will have the right,
voting separately as a class, to elect two directors to
the Board of Directors. Such right will exist until all
dividends accumulated on such shares have been paid or
set apart for payment in full. In no event will the
holders of Preferred Stock have the right to elect more
than two directors in the aggregate.
Ranking.......................... The Preferred Stock ranks senior in right of payment of
dividends and liquidation preference. Upon liquidation,
the holders of shares of Preferred Stock are entitled
(in proportion to any parity stock) to be paid in cash
out of the assets of the Company an amount equal to the
Liquidation Value. Immediately following the
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Merger, no equity security will be pari passu with the
Preferred Stock and only the Common Stock and any Series
E Preferred Stock issued upon the Automatic Conversion
will be junior to the Preferred Stock.
Nasdaq Quotation................. Alliance has applied to have the Preferred Stock quoted
on Nasdaq under the symbol "ALLYP."
Material Federal Income Tax
Consequences to Holders of
Preferred Stock.................. For a discussion of certain material Federal income tax
consequences to holders of Preferred Stock that should
be considered in connection with an investment in the
Preferred Stock, see "Material Federal Income Tax
Consequences to Holders of Preferred Stock."
Risk Factors..................... For a discussion of certain factors that should be
considered in connection with an investment in the
Preferred Stock, see "Risk Factors."
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following Summary Forecast of Operations (the "Summary Forecast") sets
forth, to the best of management's knowledge and belief and giving consideration
to actual results for Alliance and BGII for the three months ended March 31,
1996, management's expectations of the results of operations for the Company
(assuming consummation of the Merger and giving effect to the other elements of
the Transaction) for the twelve-month period ending December 31, 1996. The
Summary Forecast, which consists of forward-looking statements, is qualified by,
and subject to, the assumptions set forth below and the other information
contained in this Prospectus, and should be read in conjunction with the
"Forecast of Operations," including the "Summary of Significant Assumptions and
Accounting Policies for the Forecast."
The following Summary Historical Financial Information tables set forth
summary consolidated financial information of Alliance, which has been derived
from the audited consolidated financial statements of Alliance, including the
notes thereto, as of June 30, 1995 and for the fiscal years ended June 30, 1993,
1994 and 1995, and the unaudited interim condensed consolidated financial
statements of Alliance, including the notes thereto, as of March 31, 1996 and
for the nine-month periods ended March 31, 1995 and 1996, which are included
elsewhere in this Prospectus. The following Summary Historical Financial
Information tables also set forth summary consolidated financial information of
BGII, which has been derived from the audited consolidated financial statements
of BGII, including the notes thereto, as of December 31, 1995 and for the fiscal
years ended December 31, 1993, 1994 and 1995, and the unaudited interim
condensed consolidated financial statements of BGII, including the notes
thereto, as of March 31, 1996 and for the three-month periods ended March 31,
1995 and 1996, which are included elsewhere in this Prospectus. The Summary
Historical Financial Information for Alliance and BGII reflects all adjustments
which management believes necessary to present fairly the financial position,
results of operations and cash flows of Alliance and BGII. All such adjustments
are of a normal recurring nature. Interim results may not necessarily be
indicative of results which may be expected for any other interim period or for
the fiscal year as a whole.
The following tables also set forth Summary Unaudited Pro Forma Condensed
Combined Financial Information. The Pro Forma Statements of Operations Data
present results of operations of the Company assuming the Transaction occurred
on July 1, 1994 for the statements for the twelve months ended June 30, 1995 and
the nine months ended March 31, 1996, and further assuming that the Rainbow
Casino operations were consolidated. The detailed presentation of revenues is
derived from internally prepared supporting schedules not otherwise presented or
incorporated herein. The Pro Forma Balance Sheet Data presents the financial
position of the Company assuming the Transaction occurred on March 31, 1996. The
Summary Unaudited Pro Forma Condensed Combined Financial Information does not
purport to present the financial position or results of operations of the
Company had the Transaction and events assumed therein occurred on the dates
specified, nor is it necessarily indicative of the results of operations of the
Company as they may be in the future or as they may have been had the
Transaction and the consolidation of the Rainbow Casino operating results been
consummated on the dates described above. The Summary Unaudited Pro Forma
Condensed Combined Financial Information is based on certain assumptions and
adjustments described in the Notes to Unaudited Pro Forma Condensed Combined
Financial Information and should be read in conjunction therewith.
The tables should be read in conjunction with "Unaudited Pro Forma Condensed
Combined Financial Information," "Notes to Unaudited Pro Forma Condensed
Combined Financial Information," "Supplemental Analysis of Adjusted Operating
Cash Flow," "Forecast of Operations," "Summary of Significant Assumptions and
Accounting Policies for the Forecast," "Selected Historical Financial
Information of Alliance," "Selected Historical Financial Information of BGII,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the audited consolidated financial statements of Alliance,
including the notes thereto, the unaudited interim condensed consolidated
financial statements of Alliance, including the notes thereto, the audited
consolidated financial statements of BGII, including the notes thereto, the
unaudited interim condensed consolidated financial statements of BGII, including
the notes thereto, and other financial and operating information included
elsewhere in this Prospectus.
10
<PAGE>
SUMMARY FORECAST OF OPERATIONS (1)
<TABLE>
<CAPTION>
COMPARATIVE ANALYSIS OF
OPERATIONS (2)
--------------------------------------------------------------------
TWELVE MONTHS THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- --------------------------------
1994 1995 1995 1996
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENTS OF OPERATIONS INFORMATION:
Total Revenues.................................... $373,031 $400,964 $105,778 $99,112
Total Operating Costs............................. 361,753(3) 381,720(3) 96,337(3) 95,185(3)
--------------- --------------- --------------- -------
Operating Income.................................. 11,278 19,244 9,441 3,927
Net Income (Loss)................................. $(12,181)(4) $ (7,153)(4) $ 2,906(4) $(3,076)(4)
--------------- --------------- --------------- -------
--------------- --------------- --------------- -------
Income (Loss) per Common Share.................... $ (0.84) $ (0.60) $ 0.04 $ (0.18)
--------------- --------------- --------------- -------
--------------- --------------- --------------- -------
SUPPLEMENTAL INFORMATION:
Operating Income.................................. $ 11,278 $ 19,244 $ 9,441 $ 3,927
Depreciation and Amortization..................... 22,483 22,584 4,740 5,311
Casino Royalty.................................... (1,670) (3,674) (983) (1,024)
Minority Interest................................. (675) (504) (83) (432)
--------------- --------------- --------------- -------
Subtotal........................................ 31,416 37,650 13,115 7,782
Adjustments:
Rainbow Operations.............................. -- 1,912(6) 1,189(6) --
Unusual or Non-recurring
Charges........................................ 2,856(7) 7,783(7) 600(7) 3,487(7)
Direct Merger Costs............................. -- -- -- --
--------------- --------------- --------------- -------
Adjusted Operating Cash Flow...................... $ 34,272(10) $ 47,345(10) $ 14,904(10) $11,269(10)
--------------- --------------- --------------- -------
--------------- --------------- --------------- -------
OTHER DATA:
Net Interest Expense............................ $ 19,561 $ 20,743 $ 4,964 $ 5,191
--------------- --------------- --------------- -------
--------------- --------------- --------------- -------
Ratio of Adjusted Operating Cash Flow to Net
Interest
Expense.............................................................................................................
Ratio of Net Debt to Adjusted Operating Cash
Flow(11)............................................................................................................
<CAPTION>
FORECAST OF
OPERATIONS FOR
THE TWELVE MONTHS
ENDING
DECEMBER 31,
1996
-----------------
<S> <C>
STATEMENTS OF OPERATIONS INFORMATION:
Total Revenues.................................... $425,957
Total Operating Costs............................. 406,239(3)
--------
Operating Income.................................. 19,718
Net Income (Loss)................................. $(33,939)(4)
--------
--------
Income (Loss) per Common Share.................... $ (1.56)(5)
--------
--------
SUPPLEMENTAL INFORMATION:
Operating Income.................................. $ 19,718
Depreciation and Amortization..................... 23,192
Casino Royalty.................................... (4,368)
Minority Interest................................. (920)
--------
Subtotal........................................ 37,622
Adjustments:
Rainbow Operations.............................. --
Unusual or Non-recurring
Charges........................................ 4,479(8)
Direct Merger Costs............................. 12,815(9)
--------
Adjusted Operating Cash Flow...................... $ 54,916(10)
--------
--------
OTHER DATA:
Net Interest Expense............................ $ 20,491
--------
--------
Ratio of Adjusted Operating Cash Flow to Net
Interest
Expense....................................... 2.7x
Ratio of Net Debt to Adjusted Operating Cash
Flow(11)...................................... 3.4x
</TABLE>
- ------------------------------
(1) The Summary Forecast, which consists of forward-looking statements, gives
consideration to actual results for the three months ended March 31, 1996 as
well as a number of estimates and assumptions that, while presented with
numerical specificity and considered reasonable by management of the
Company, are inherently subject to significant business, economic,
competitive, regulatory and other uncertainties and contingencies, all of
which are difficult to predict and many of which are beyond the control of
the Company. The Summary Forecast is necessarily speculative in nature, and
it is usually the case that one or more of the assumptions do not
materialize. The Summary Forecast and actual results will vary, and those
variations may be material. Accordingly, the inclusion of the Summary
Forecast herein should not be regarded as a representation by the Company or
any other person (including the Underwriters) that the Summary Forecast will
be achieved. In addition, because the Summary Forecast has been prepared on
a consolidated basis, the Summary Forecast does not account for the
Company's holding company structure, which may result in cash flows earned
at some subsidiaries being unavailable for distribution to the Company
including to service indebtedness of the Company. Prospective purchasers are
cautioned not to place undue reliance on the Summary Forecast.
(2) See Note (2) -- Presentation of Supplemental Comparative Information of the
"Summary of Significant Assumptions and Accounting Policies for the
Forecast" elsewhere in the Prospectus.
(3) Selling, general and administrative costs are net of the following: direct
Merger costs (for all periods presented except for the twelve months ending
December 31, 1996); the business development costs over (under) the $3.0
million annual budgeted amount totaling $4.7 million, $1.0 million, $1.4
million and $(52,000) for the twelve months ended December 31, 1994 and 1995
and three months ended March 31, 1995 and 1996, respectively; and synergy
cost savings totaling $5.0 million for the twelve months ended December 31,
1994 and 1995 and for the twelve months ending December 31, 1996, and $1.3
million for the three months ended March 31, 1995 and 1996. See Note (8)
below for one-time $1.0 million costs to implement synergy cost savings in
1996. See Note (9) below for the 1996 presentation which includes direct
Merger costs.
(4) Excludes Preferred Stock dividends. Dividends on the Preferred Stock are
compounded quarterly at a rate of 15% per annum; however, such dividends are
permitted to be paid in kind for the first five years after issuance and
partially in kind for the next two years.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
11
<PAGE>
(5) The loss per Common Share in the forecasted twelve-month period ending
December 31, 1996 is computed based on 26,900,000 common shares outstanding,
and includes depreciation and amortization of $23.2 million (or $0.86 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).
(6) Represents adjustment to reflect management's derivation of Rainbow Casino's
annualized results for the period, net of incremental royalty.
(7) Reflects items determined by management to be unusual or non-recurring
(which are also included in Total Operating Costs). The concepts of
non-recurring or unusual charges as used throughout the Prospectus are not
defined in generally accepted accounting principles ("GAAP"). See Notes
10(e),(f),(g) and (h) below.
(8) For the twelve months ending December 31, 1996, reflects items determined by
management to be non-recurring charges, consisting of a provision for
impaired assets of two development projects totaling $3.2 million; the $1.0
million of one-time charges (which are included in Total Operating Costs) to
implement the expected annual synergy cost savings (which are reflected in
Total Operating Costs as well); and certain charges of $0.3 million relating
to a regulatory investigation and legal proceedings in Louisiana.
(9) Direct Merger costs for the twelve months ending December 31, 1996 of $12.8
million have been included in Total Operating Costs and presented as an
adjustment in computing the Adjusted Operating Cash Flow. See Note (3) above
for the presentation of direct Merger costs in earlier periods.
(10) The following is a reconciliation of the historical EBITDA (as defined in
Note (1) -- Summary Historical Financial Information -- Alliance Gaming
Corporation) by business unit to the combined Adjusted Operating Cash Flow:
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS ENDED DECEMBER THREE MONTHS ENDED MONTHS
31, MARCH 31, ENDING
----------------------------- --------------------------- DECEMBER 31,
1994 1995 1995 1996 1996
----------- ----------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA by Business Unit:
Gaming Machine Management.................. $17,159 $18,260 $4,758 $4,469 $19,957
Casinos.................................... 2,927 10,546 731 3,889 14,958
Wulff...................................... 15,575 15,172 5,106(a) 3,406(a) 16,836
Gaming..................................... 7,304 7,305 2,659(a) 1,046(a) 10,750
Systems.................................... 3,593 5,788 1,997(a) 1,620(a) 6,303
Alliance Corporate Administrative
Expense................................... (10,609) (8,912) (1,654) (4,723) (8,979)
Alliance Development Expense............... (7,694) (15,072) (2,139) (3,497) (13,815)
BGII Corporate Administrative Expense...... (4,520) (3,732) (1,285) (604) (4,800)
Discontinued Operations/Other.............. (1,378)(b) (933)(b) (58)(b) (64)(b) --
Casino Royalty............................. -- (2,718) (27) (1,024) (4,368)
Minority Interest.......................... (675) (504) (83) (432) (920)
BGII Unusual Charges and Other............. (300)(c) (7,216)(c) (400)(c) (1,296)(c) (2,300)
----------- ----------- ---------- ---------- -------------
Combined EBITDA.............................. 21,382 17,984 9,605 2,790 33,622
Adjustments:
Direct Merger Costs........................ -- 13,106(d) -- 3,794(d) 12,815(d)
Alliance Development Expense............... 4,694(e) 966(e) 1,389(e) (52)(e) --
Rainbow Operations......................... 340(f) 2,506(f) 2,060(f) -- --
Unusual or Non-recurring Charges........... 2,856(g) 7,783(h) 600(i) 3,487(j) 4,479(k)
Synergy Cost Savings....................... 5,000(l) 5,000(l) 1,250(l) 1,250(l) 4,000(l)
----------- ----------- ---------- ---------- -------------
Adjusted Operating Cash Flow................. $34,272 $47,345 $14,904 $11,269 $54,916
----------- ----------- ---------- ---------- -------------
----------- ----------- ---------- ---------- -------------
</TABLE>
--------------------------------
(a)Differences in interim results for the three-month periods for Gaming and
Systems were affected by the timing and number of new casino openings, and
management believes that the interim results for Wulff in the 1996 quarter
were affected by regulations, which became effective January 1, 1996,
limiting the number of wall machines per square meter in arcade locations,
thereby reducing new sales opportunities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(b)Principally includes expenses by small casinos and taverns after Alliance
management discontinued their operations.
(c)See Notes (3), (6) and (7) to "Summary Historical Financial Information --
Bally Gaming International, Inc."
(d)For the twelve months ended December 31, 1995, $11.1 million of direct
Merger costs are included in Alliance Development Expense and $2.0 million
in BGII Unusual Charges and Other. No such costs were incurred by either
company in the three months ended March 31, 1995. For the three months
ended March 31, 1996, $2.8 million of direct Merger costs are included in
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
12
<PAGE>
Alliance Development Expense and $1.0 million in BGII Unusual Charges and
Other. For the forecasted twelve months ending December 31, 1996, $10.8
million of direct Merger costs are included in Alliance Development Expense
and $2.0 million in BGII Unusual Charges and Other.
(e)Reflects Alliance Development Expense, which relates to mergers,
acquisitions and joint ventures, adjusted to $3.0 million annually. The
adjustment to $3.0 million reflects the anticipated elimination of expenses
that were being incurred pending Alliance's accomplishment of its strategic
plan to acquire a major gaming machine manufacturing company. To accomplish
this reduction, Alliance reduced payroll costs and fees paid to consultants
and legal costs related to non-BGII transactions it had been pursuing. The
adjustment to eliminate direct costs related to the Merger is shown in Note
(b) above. For the three months ended March 31, 1996, Alliance Development
Expense was below the $3.0 million annual rate by $52,000.
(f)To adjust to reflect the operating results of the Rainbow Casino as if
owned during all of 1994 and 1995 and, for the twelve months ended December
31, 1995 and three months ended March 31, 1995, to reflect the recent
operating results of the Rainbow Casino, as if such results had occurred
for all of 1995 (including an adjustment for additional casino royalty
expense of approximately $1.7 million, $1.0 million and $1.0 million for
the twelve months ended December 31, 1994 and 1995 and the three months
ended March 31, 1995, respectively).
(g)Includes legal costs included as BGII Corporate Administrative Expense
related to a former executive totaling $0.5 million and $0.3 million
recorded as BGII Unusual Charges and Other relating to a regulatory
investigation and legal proceedings in Louisiana and a reserve for
discontinued operations of $2.0 million for Alliance included in Alliance
Corporate Administrative Expense.
(h)Includes one-time charges included in Alliance Corporate Administrative
Expense consisting of an executive signing bonus of $1.3 million paid in
Common Stock and $1.1 million of termination costs for certain officers and
directors, which were incurred during the quarter ended June 30, 1995. Also
includes $1.4 million relating to a regulatory investigation and legal
proceedings in Louisiana included in BGII Unusual Charges and Other, and
$0.2 million included in BGII Corporate Administrative Expense for legal
costs related to the "Bally" trade name litigation. BGII Unusual Charges
and Other also includes $2.0 million in costs related to the merger
agreement between BGII and WMS Industries Inc. ("WMS"), a provision of $0.8
million at Wulff to write down to net realizable value the carrying value
of a building to be sold and a provision of $1.0 million to increase
Wulff's tax reserves primarily for German value added taxes ("V.A.T.").
(i)Includes certain charges of $0.4 million included in BGII Unusual Charges
and Other relating to a regulatory investigation and legal proceedings in
Louisiana and $0.2 million included in BGII Corporate Administrative
Expense for legal costs related to the "Bally" trade name litigation.
(j)Includes a provision for impaired assets of two development projects
totaling $3.2 million included in Alliance Corporate Administrative
Expense. Also includes certain charges of $0.3 million included in BGII
Unusual Charges and Other relating to a regulatory investigation and legal
proceedings in Louisiana.
(k)Includes a provision for impaired assets of two development projects
totaling $3.2 million in Alliance Corporate Administrative Expense, $1.0
million of one-time charges to implement the expected annual synergy cost
savings, and certain charges of $0.3 million included in BGII Unusual
Charges and Other relating to a regulatory investigation and legal
proceedings in Louisiana.
(l)To adjust for estimated synergy cost savings identified by management to
date including elimination of certain duplicative costs, such as facility,
legal, accounting and compensation, which total approximately $5.0 million
on an annual basis. For the forecasted twelve months ending December 31,
1996, the synergy cost savings are presented net of the $1.0 million of
one-time charges to implement the cost savings (which are added back in (i)
above).
(11) Net Debt is defined as total long-term debt, including current maturities,
less cash and cash equivalents and securities available for sale.
13
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
ALLIANCE GAMING CORPORATION
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Revenues.................................................. $ 113,091 $ 123,054 $ 131,988 $ 93,776 $ 116,796
Operating Loss................................................ (52) (7,468) (4,261) (2,544) (5,872)
Net Interest Expense.......................................... (4,048) (4,746) (5,335) (3,609) (5,135)
Net Loss...................................................... $ (3,650) $ (13,128) $ (10,751) $ (6,793) $ (14,829)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net Loss per Common Share..................................... $ (0.38) $ (1.28) $ (0.95) $ (0.61) $ (1.21)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deficit of Earnings to Fixed Charges.......................... $ (3,650) $ (12,887) $ (10,487) $ (6,399) $ (14,248)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro Forma Deficit of Earnings to Fixed Charges................ $ (1,164) $ (200) $ (9,821)
--------- --------- ---------
--------- --------- ---------
Pro Forma Deficit of Earnings to Fixed Charges and Preferred
Stock Dividend............................................... $ (9,203) $ (6,116) $ (15,737)
--------- --------- ---------
--------- --------- ---------
CASH FLOW INFORMATION:
Historical Cash Flow From:
Operating Activities........................................ $ 5,909 $ 9,062 $ 957 $ 167 $ (533)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Investing Activities........................................ $ (8,998) $ (27,299) $ (21,648) $ (9,791) $ 5,255
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Financing Activities........................................ $ 2,430 $ 45,742 $ (2,660) $ (1,509) $ (2,485)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro Forma Cash Flow From:
Operating Activities........................................ $ 7,225 $ 4,890 $ 20,564
--------- --------- ---------
--------- --------- ---------
Investing Activities........................................ $ (26,936) $ (13,637) $ 354
--------- --------- ---------
--------- --------- ---------
Financing Activities........................................ $ (757) $ 1,604 $ (3,358)
--------- --------- ---------
--------- --------- ---------
OTHER DATA:
Gaming Machine Management:
Units....................................................... 5,868 5,889 5,902 5,955 5,989
Locations................................................... 518 506 526 527 539
Casinos:
Tables...................................................... 9 9 37 9 35
Slots Operated.............................................. 428 434 1,005 433 1,038
Revenues:
Gaming Machine Management................................... $ 96,282 $ 102,830 $ 106,827 $ 79,389 $ 81,111
Casinos..................................................... 11,286 12,046 19,668 9,874 34,361
Discontinued Operations..................................... 5,523 8,178 5,493 4,513 1,324
--------- --------- --------- --------- ---------
Net Revenues.............................................. $ 113,091 $ 123,054 $ 131,988 $ 93,776 $ 116,796
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EBITDA (1):
Gaming Machine Management................................... $ 14,564 $ 16,820 $ 18,562 $ 13,558 $ 12,967
Casinos (2)................................................. 1,963 2,190 5,359 2,444 10,789
Corporate Development Expenses (3).......................... (900) (1,192) (7,843) (5,647) (14,234)
Corporate Administrative Expenses (4)....................... (6,191) (7,882) (10,177) (5,906) (7,710)
Discontinued Operations (5)................................. (770) (7,874) (642) (59) (357)
Casino Royalty.............................................. -- -- (810) (27) (2,931)
Minority Interest........................................... -- (506) (397) (252) (708)
--------- --------- --------- --------- ---------
Total EBITDA (1).......................................... $ 8,666 $ 1,556 $ 4,052 $ 4,111 $ (2,184)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Depreciation and Amortization................................. $ 8,718 $ 9,530 $ 9,520 $ 6,934 $ 7,328
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Capital Expenditures.......................................... $ 5,092 $ 7,022 $ 7,880 $ 5,038 $ 9,633
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents and Securities Available for Sale ........................................ $ 25,562
Working Capital..................................................................................... 15,583
Total Assets........................................................................................ 111,288
Long-Term Debt, Including Current Maturities........................................................ 99,089
Stockholders' Deficiency............................................................................ (5,595)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
14
<PAGE>
- --------------------------
(1) EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization ("EBITDA"). Corporate expenses, casino
royalty, minority interest and unusual charges and other are shown as
separate components of EBITDA and are not allocated back to business units.
EBITDA should not be construed as an alternative to net income or any other
GAAP measure of performance as an indicator of Alliance's performance or to
cash flows generated by operating, investing and financing activities as an
indicator of cash flows or a measure of liquidity. Management believes that
EBITDA is a useful adjunct to net income and other measurements under GAAP
and is a conventionally used financial indicator.
(2) Since March 29, 1995, the Rainbow Casino operations have been consolidated
with Alliance.
(3) Includes direct Merger costs of $1.7 million and $12.2 million for the
fiscal year ended June 30, 1995 and the nine months ended March 31, 1996,
respectively.
(4) Includes one-time charges incurred by Alliance consisting of an executive
signing bonus of $1.3 million paid in Common Stock and $1.1 million of
termination costs for certain officers and directors, which were incurred
during the quarter ended June 30, 1995, and a provision for impaired assets
of two development projects totaling $3.2 million incurred in the quarter
ended March 31, 1996.
(5) Includes businesses now or previously considered as discontinued operations.
15
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
-------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................. $168,707 $236,192 $249,312(1) $ 68,289 $ 58,544
Operating Income
(Loss).................. (18,536)(2) 13,381(3)(4) 8,364(1)(3)(4)(5)(6) 6,637(3)(4) 2,274(3)(7)
Interest Expense......... 4,424 6,768 6,853 1,733 1,665
Net Income (Loss)........ $(23,443) $ 3,793 $ (3,393) $ 2,862 $ (513)
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Net Income (Loss) per
Share................... $ (2.19) $ 0.35 $ (0.31) $ 0.27 $ (0.05)
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Ratio of Earnings to
Fixed Charges........... -- 1.93X 1.21X 3.69X 1.35X
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Deficit of Earnings to
Fixed Charges........... $(22,960) -- -- -- --
--------
--------
CASH FLOW INFORMATION:
Operating Activities... $(29,548) $ 1,224 $ 3,795 $ (5,605) $ (1,757)
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Investing Activities... $(13,407) $ (6,391) $ (6,233) $ (2,108) $ (2,218)
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Financing Activities... $ 38,980 $ 8,231 $ (1,961) $ 1,688 $ 590
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
OTHER DATA:
Unit Sales:
Gaming................. 10,156 21,625 18,084 4,862 4,041
Wulff.................. 12,552 13,100 12,000 2,900 2,400
Revenues:
Gaming (8)............. $ 49,298 $118,659 $111,849(1) $ 27,979 $ 24,784
Systems................ 12,748 13,386 20,681 6,088 5,004
-------- ---------- ---------- ---------- ----------
Gaming Machine
Manufacturing and
Systems............. 62,046 132,045 132,530 34,067 29,788
Wulff.................. 106,661 104,147 116,782 34,222 28,756
-------- ---------- ---------- ---------- ----------
Total Revenues....... $168,707 $236,192 $249,312 $ 68,289(9) $ 58,544(9)
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
EBITDA (10):
Gaming (8)............. $(24,747)(2) $ 7,304 $ 7,305(1)(5) $ 2,659 $ 1,046
Systems................ 3,829 3,593 5,788 1,997 1,620
-------- ---------- ---------- ---------- ----------
Gaming Machine
Manufacturing and
Systems............. (20,918)(2) 10,897 13,093(1)(5) 4,656 2,666
Wulff.................. 15,959 15,575 15,172 5,106 3,406
BGII Corporate
Administrative Expense
(8)................... (5,473) (4,520)(4) (3,732)(4) (1,285)(4) (604)
Unusual Charges and
Other................. -- (300)(3) (7,216)(3)(6) (400)(3) (1,296)(3)(7)
-------- ---------- ---------- ---------- ----------
Total EBITDA (10).... $(10,432) $ 21,652 $ 17,317 $ 8,077(9) $ 4,172(9)
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Depreciation and
Amortization............ $ 8,103 $ 8,271 $ 8,953 $ 1,440 $ 1,898
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Capital Expenditures..... $ 6,467 $ 9,537 $ 8,240 $ 2,232 $ 2,733
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
1996
---------------
<S> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents........................................................................ $ 2,009
Working Capital.................................................................................. 85,649
Total Assets..................................................................................... 186,936
Long-Term Debt, Including Current Maturities..................................................... 69,971
Stockholders' Equity............................................................................. 86,000
</TABLE>
- ------------------------------
(1) Includes the impact of sales returns of $0.3 million by Gaming related to
two riverboats at the River City Complex in New Orleans which filed for
bankruptcy.
(2) Includes $6.2 million in charges to increase inventory valuation reserves in
1993 principally related to inventory originally intended for sale in the
Louisiana video lottery terminal market. Includes $1.2 million in charges
related to a management reorganization at Gaming in 1993. Includes a
provision for doubtful receivables totaling $5.1 million recorded by Gaming
in 1993 related to a former distributor who filed for bankruptcy during the
second quarter of 1993.
(3) Includes certain charges consisting of costs relating to a regulatory
investigation and legal proceedings in Louisiana totaling $0.3 million and
$1.4 million for the years ended December 31, 1994 and 1995, respectively,
and $0.4 million and $0.3 million for the three months ended March 31, 1995
and 1996, respectively.
(4) Includes legal costs related to a former executive totaling $0.5 million
during the year ended December 31, 1994. Also includes legal costs related
to the "Bally" trade name litigation totaling $0.2 million during both the
year ended December 31, 1995 and the three months ended March 31, 1995.
(5) Includes a provision for doubtful receivables of $0.9 million related to the
bankruptcy described in Note (1) above.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
16
<PAGE>
(6) Includes $2.0 million in Merger transaction costs and related litigation
expenses, $2.0 million in costs related to the merger agreement with WMS, a
provision of $0.8 million at Wulff to write-down to net realizable value the
carrying value of a building to be sold and a provision of $1.0 million to
increase Wulff's tax reserves primarily for V.A.T.
(7) Includes $1.0 million in Merger transaction costs.
(8) Includes results of GmbH and BGI Australia Pty Limited in Gaming's results,
along with certain reclassifications from historical presentation.
(9) Differences in interim results for the three-month periods for Gaming and
Systems were affected by the timing and number of new casino openings, and
management believes that the interim results for Wulff in the 1996 quarter
were affected by regulations, which became effective January 1, 1996,
limiting the number of wall machines per square meter in arcade locations,
thereby reducing new sales opportunities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(10)See Note (1) to "Summary Historical Financial Information -- Alliance Gaming
Corporation" in this Prospectus Summary.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
JUNE 30, MARCH 31,
1995 1996
----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................................................................... $ 400,821 $ 287,117
Operating Income....................................................................... 22,677 9,136
Net Interest Expense................................................................... (20,431) (15,716)
Casino Royalty......................................................................... (3,431) (2,931)
Minority Interest...................................................................... (397) (708)
Other, net............................................................................. 418 398
----------- ------------
Loss Before Taxes...................................................................... (1,164) (9,821)
Provisions for Income Taxes............................................................ (2,555) (1,508)
----------- ------------
Net Loss............................................................................... $ (3,719) $ (11,329)
----------- ------------
----------- ------------
Preferred Stock Dividend............................................................... $ (8,039) $ (5,916)
----------- ------------
----------- ------------
Net Loss per Common Share.............................................................. $ (0.47) $ (0.66)
----------- ------------
----------- ------------
OTHER DATA:
Depreciation and Amortization.......................................................... $ 22,642 $ 17,114
Capital Expenditures................................................................... 16,742 16,176
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents and Securities Available for Sale......................................... $ 19,817
Working Capital..................................................................................... 107,330
Total Assets........................................................................................ 345,564
Current Maturities of Long-Term Debt (1)............................................................ 19,506
Long-Term Debt, Excluding Current Maturities........................................................ 188,926
Stockholders' Equity................................................................................ 42,350
</TABLE>
- --------------------------
(1) Includes $14.8 million of borrowings under a working capital revolving
facility at Wulff.
18
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE PURCHASERS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS BEFORE
PURCHASING THE SECURITIES OFFERED HEREBY.
HIGH LEVERAGE AND FIXED CHARGES AFTER THE MERGER; HOLDING COMPANY STRUCTURE;
WORKING CAPITAL
The Company will have a substantial amount of indebtedness after the
Transaction. As of March 31, 1996, on a pro forma basis after giving effect to
the Transaction, the Company would have had outstanding debt of approximately
$208.4 million and a long-term debt to equity ratio of 4.9 to 1. If the
Preferred Stock were included in debt the pro forma long-term debt to equity
ratio would be 6.1 to 1. See "The Merger and Related Financings,"
"Capitalization" and "Unaudited Pro Forma Condensed Combined Financial
Information." In addition, if the maximum amount of dividends on the Preferred
Stock were paid in kind, as anticipated, the liquidation value of the Preferred
Stock would accrete to approximately $124.0 million after seven years. The high
level of indebtedness and the amount of Preferred Stock of the Company
outstanding following the Transaction will have important consequences,
including without limitation the following: (i) significant interest expense,
cash dividend requirements (after five years), principal repayment (primarily
after seven years) and Preferred Stock redemption obligations (after eight
years) resulting in substantial annual fixed charges and significant repayment
and redemption obligations; (ii) significant limitations on the Company's
ability to obtain additional financing, make capital expenditures, make
acquisitions and take advantage of other business opportunities that may arise;
and (iii) increased vulnerability to adverse general economic and industry
conditions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources of the Company (Pro
Forma)."
On a pro forma basis after giving effect to the Transaction and the use of
proceeds thereof, the Company's earnings would have been inadequate to cover
fixed charges (including the imputed fixed charges for contingent rental expense
related to revenue-sharing agreements in its Nevada gaming machine management
operations of approximately $18.0 million annually) by approximately $1.2
million for the year ended June 30, 1995 and $9.8 million for the nine-month
period ended March 31, 1996. On a pro forma basis after giving effect to the
Transaction, the Company would have annual fixed charges (including the imputed
fixed charges referred to in the immediately preceding sentence) of
approximately $44.4 million, plus dividends on the Preferred Stock (aggregating
$8.0 million in the first year permitted to be paid in kind for the first five
years after issuance and partially in kind for the next two years) and
additional dividends (payable in kind and only payable for the first three years
following issuance) on the Series E Preferred Stock. Future operating results
are subject to significant business, economic, regulatory and competitive
uncertainties and contingencies, many of which are beyond the control of the
Company. There can be no assurance that the Company will be able to generate the
cash flow necessary to permit the Company to meet its fixed charges and
repayment obligations. If the Company is unable to generate sufficient cash flow
from operations in the future, it may be required to refinance all or a portion
of its existing debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to the
Company. Any inability of the Company to service its fixed charges and repayment
obligations would have a significant adverse effect on the Company and the
market value and marketability of the Securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources of the Company (Pro Forma)."
Alliance is a holding company, the only material assets of which are equity
interests in its subsidiaries (including, after the Merger, BGII and its
subsidiaries). The ability of Alliance to make interest and principal payments
on its obligations, including the Senior Secured Notes, and to pay cash
dividends on the Preferred Stock, will depend on the subsidiaries' ability to
generate sufficient cash flow from operations and distribute such amounts to
Alliance. Such entities' ability to make these distributions is restricted by,
among other things, the indebtedness of Alliance's Video Services, Inc. ("VSI")
subsidiary and may be restricted by other obligations which may be incurred in
the future and by restrictions imposed by gaming authorities on licensed
enterprises.
19
<PAGE>
The Company believes that its working capital needs will increase as a
result of the introduction of new machines and the expected increases in
production and sales levels from recent historical levels. The Company expects
that cash flow generated by operations and other available cash will be
sufficient to satisfy the Company's normal working capital needs, although there
can be no assurance the Company will generate such available cash. See "--
Implementation of the Merger." In order to be competitive in meeting the growing
customer demand for financing of gaming equipment in emerging gaming markets,
the Company also plans to continue to involve third-party finance companies to
secure additional financing; however, there can be no assurances that such
additional financing will be obtained. Failure to obtain such financing on terms
acceptable to the Company could impair the Company's operations and ability to
pursue its business strategy. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RESTRICTIONS ON CERTAIN ACTIVITIES
The Indenture pursuant to which the Senior Secured Notes will be issued (the
"Indenture") will provide that the Senior Secured Notes will be guaranteed by
subsidiaries of the Company and secured by the stock thereof as described herein
and will impose restrictions on Alliance and its subsidiaries, in addition to
restrictions imposed by existing instruments, including the indenture for the
Old Convertible Debentures. Generally, the restrictions contained in these
indentures relate to the incurrence of additional indebtedness, the distribution
of cash and/or property to shareholders, the repayment or repurchase of pari
passu or junior securities, investments, mergers and sales of assets and the
creation of liens. These restrictions and requirements could limit the ability
of the Company to respond to changing business and economic conditions. A
failure to comply with any of these obligations could also result in an event of
default under the Indenture, which could permit acceleration of the Senior
Secured Notes and acceleration of certain other indebtedness of the Company
under other instruments which may contain cross-acceleration or cross-default
provisions. See "Description of the Senior Secured Notes."
CERTAIN CONSIDERATIONS RELATED TO THE COLLATERAL FOR THE SENIOR SECURED NOTES
There can be no assurance that, in the event the Trustee were to exercise
remedies under the Indenture, the proceeds of the sale of any of the Collateral
(as defined) securing the Senior Secured Notes pursuant to the Indenture and the
Collateral Agreements (described herein under "Description of the Senior Secured
Notes -- Security for the Senior Secured Notes") would be sufficient to satisfy
any payment of the Senior Secured Notes. The amount of proceeds received on any
such sale of the Collateral would be influenced by many factors, including
limitations on the ownership of securities of the Company contained in various
gaming laws and the timing and manner of any such sale. See "Gaming Regulation
and Licensing." Consequently the book value of the Collateral should not be
relied upon as a measure of realizable value.
OPERATING HISTORY--RECENT LOSSES
Alliance incurred net losses of $3.7 million, $13.1 million and $10.8
million for its fiscal years ended June 30, 1993, 1994 and 1995, respectively,
and a net loss of $14.8 million for the nine months ended March 31, 1996,
whereas BGII had net income of $5.3 million, a net loss of $23.4 million, net
income of $3.8 million and a net loss of $3.4 million for its fiscal years ended
December 31, 1992, 1993, 1994 and 1995, respectively and a net loss of $0.5
million for the three months ended March 31, 1996. There can be no assurance
that the Company will be profitable in the future, that there will not be
similar or other unusual or non-recurring charges in the future, or that future
results will improve as a result of the Merger. See "Unaudited Pro Forma
Condensed Combined Financial Information," "Selected Historical Financial
Information of Alliance" and "Selected Historical Financial Information of
BGII."
The new wall machine unit sales of Wulff decreased by approximately 8% in
the year ended December 31, 1995 as compared to the year ended December 31, 1994
and by approximately 17% in the three months ended March 31, 1996 as compared to
the three months ended March 31, 1995. Management believes new wall machine
revenues for the last six months of 1995 and the first three months of 1996 were
adversely affected by an industry downturn caused by regulations imposed in
Germany limiting the number of wall machines per square meter in arcade
locations effective January 1, 1996, thereby reducing sales opportunities, and
by increased competition from the sale of foreign-manufactured token machines in
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Germany. Management expects the adverse impact of such regulations to continue
during the second quarter of 1996; however, there can be no assurance that this
impact will only be temporary. Foreign competition may also continue to have an
adverse impact on wall machine revenues.
IMPLEMENTATION OF THE MERGER
The Company's future operations and earnings will be largely dependent upon
the Company's ability to integrate the businesses separately conducted by
Alliance and BGII prior to the Merger. Alliance and BGII currently operate in
different areas of the gaming entertainment industry, with only modest overlap
in their activities. There can be no assurance that the Company will
successfully integrate the businesses of Alliance and BGII, and a failure to do
so would have a material adverse effect on the Company's financial position,
results of operations and cash flows. Additionally, although the Company does
not currently have any specific acquisition plans other than the Merger, the
need to focus management's attention on integration of the separate businesses
may limit the Company's ability to successfully pursue acquisitions or other
opportunities related to its business for the foreseeable future. Although the
Company plans to introduce more sophisticated technology into BGII's electronic
gaming machines, there is no assurance that it will succeed in doing so or that
it will be able to enter into alliances with technology and entertainment
companies. In addition, although management cannot precisely quantify future
cost savings, the Company expects to realize cost savings of approximately $5.0
million on an annual basis (primarily through the reduction of duplicative
costs, such as facility, legal, accounting and compensation costs) as a result
of the Merger. In order to achieve these cost savings, the Company believes it
will incur one-time costs of approximately $1.0 million. The achievement of
these savings is dependent on, among other things, the successful integration of
the businesses of Alliance and BGII. There can be no assurance, however, that
such savings will be achieved or sustained. See "Unaudited Pro Forma Condensed
Combined Financial Information."
BGII currently supplies electronic gaming machines to certain customers
which are in competition with Alliance. It is possible that, because of such
competition, certain of these customers may cease purchasing electronic gaming
machines from BGII after the Merger. Alliance and BGII do not believe that such
discontinuations, if at all, will be material. BGII sales to machine management
operators have historically been, and are likely to remain, insignificant.
Nevertheless, discontinuance of purchases by customers could adversely affect
the Company's sales.
FINANCIAL FORECAST
The Company was the sole preparer of the forecast (the "Forecast") set forth
under "Forecast of Operations." While such Forecast is presented with numerical
specificity, it is based on the Company's current best estimates of expected
results given the forecasted assumptions described in "Summary of Significant
Assumptions and Accounting Policies for the Forecast" for the period presented,
including consummation of the Merger and the other elements of the Transaction.
The Forecast, which consists of forward-looking statements, is qualified by and
subject to the assumptions set forth therein and the other information contained
in this Prospectus. The Company does not intend to update or otherwise revise
the Forecast to reflect events or circumstances existing or arising after the
date of this Prospectus or to reflect the occurrence of unanticipated events.
The Forecast necessarily is based upon a number of estimates and assumptions,
that, while presented with numerical specificity and considered reasonable by
the Company, are inherently subject to significant business, economic,
competitive, regulatory and other uncertainties and contingencies, all of which
are difficult to predict and many of which are beyond the control of the
Company. Financial forecasts are necessarily speculative in nature, and it is
usually the case that one or more of the assumptions underlying such projections
do not materialize. The Forecast and actual results will vary, and those
variations may be material. The inclusion of the Forecast herein should not be
regarded as a representation by the Company or any other person (including the
Underwriters) that the Forecast will be achieved. Prospective purchasers are
cautioned not to place undue reliance on the Forecast or the other
forward-looking information contained herein.
CHANGE OF CONTROL
Following consummation of the Transaction, Alliance's two largest
shareholders, Alfred Wilms and Kirkland Investment Corporation ("KIC"), who
currently own approximately 38.8% and 10.3%, respectively, of the outstanding
shares of Common Stock, will own approximately 18.8% and 5.0%, respectively, of
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the outstanding shares of Common Stock. Accordingly, following the Transaction,
no one person or group will hold a majority interest in the Company, and it is
possible that the Company could be subject to a change in control, either
pursuant to a takeover attempt or otherwise, to a greater degree than has been
the case. Mr. Wilms is contractually obligated until September 21, 1997 to vote
his shares of Common Stock in favor of four nominees of KIC to Alliance's
seven-member Board of Directors. See "Security Ownership of Certain Beneficial
Holders and Management."
The indentures for the Senior Secured Notes and the Old Convertible
Debentures contain provisions relating to certain changes of control of the
Company ("Change of Control"). Upon the occurrence of such a Change of Control,
the Company will be required, subject to certain conditions, to offer to
purchase all outstanding Senior Secured Notes and any remaining Old Convertible
Debentures, as applicable, at a price equal to 101% of the then outstanding
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. The Transaction will not constitute a Change of Control under the
indenture for the Old Convertible Debentures. On a pro forma basis after giving
effect to the Transaction, the Company will not have sufficient funds available
to purchase all of the outstanding Senior Secured Notes and/or Old Convertible
Debentures were they to be tendered in response to an offer made as a result of
a Change of Control. There can be no assurance that the Company would have or be
able to obtain such funds through a refinancing of the Senior Secured Notes or
the Old Convertible Debentures to be repurchased or otherwise. In addition, the
right to require Alliance to redeem the Old Convertible Debentures could create
an event of default under senior indebtedness as a result of which any
redemption could, absent a waiver, be blocked by the subordination provisions of
the indenture for the Old Convertible Debentures. Also, the requirement that
Alliance offer to repurchase the Senior Secured Notes and Old Convertible
Debentures in the event of a change of control may have the effect of deterring
a third party from effecting a transaction that would constitute a Change of
Control.
COMPETITION
GAMING MACHINE MANAGEMENT OPERATIONS. The competition for obtaining and
renewing gaming machine routes in Nevada is high and continues to intensify.
Such competition has, over time, reduced Alliance's gross profit margins for
such operations. In addition, such competition has required Alliance to provide
substantial financial incentives and incur financial risks to retain or obtain
certain gaming machine route locations. Such incentives include long-term lease
commitments, guarantees of leases in favor of owners of local establishments,
substantial advance deposits, payments of lease rentals in advance and loans for
buildings and tenant-improvement costs. Although Alliance believes that it now
has adequate procedures for evaluating and managing such risks, historically
substantial losses have been incurred in connection with such transactions
reflecting, in part, former management's willingness to accept higher levels of
risk to further its policy of emphasizing market share. Notwithstanding the
change in Alliance's business strategy to one emphasizing profitability rather
than market share, the future success of the Company's machine management
operations will continue to be dependent to some extent on its ability and
willingness to provide such financial inducements. Although Alliance has
historically generated sufficient new machine management contracts to offset the
loss of old machine management contracts, due to increased competition, the
increased sophistication and bargaining power of customers and possibly other
factors not yet known, there can be no assurance that the Company will be able
to obtain new machine management contracts or renew or extend its current space
lease or revenue-sharing arrangements upon their expiration or termination, or
that, if renewed or extended, the terms will be favorable to the Company. In
Louisiana, the Company's racetrack and OTBs compete with various truck stops and
locations with liquor licenses throughout the New Orleans area, as well as
riverboat gaming and one land-based casino which may re-open in New Orleans.
CASINO OPERATIONS. The operation of casinos is also a highly competitive
business. The principal competitive factors in the industry include the quality
and location of the facility, the nature and quality of the amenities and
customer services offered and the implementation and success of marketing
programs. In Sparks/Reno, Nevada, the principal competition for the Company's
operations comes from larger casinos focusing on the local market. The Company's
one dockside casino in Vicksburg, Mississippi faces substantial direct
competition from other dockside gaming facilities in the region.
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GERMAN OPERATIONS. Germany's wall machine manufacturing industry is
dominated by Wulff and two of its competitors. These three entities are believed
collectively to account for more than 90% of the entire market for wall machines
(which exists almost exclusively in Germany). Wulff's two major competitors have
greater resources than the Company and own and operate a significant number of
arcades, which may give them a competitive advantage arising from a built-in
market for their games and the ability to test market new games in their own
arcades. In addition, wall machines compete for floor space in arcades with
token machines, the sales of which have expanded rapidly in the last several
years, in part as a result of low price competitors from outside Germany and the
popularity of these machines. Token machines are not subject to the strict
German licensing requirements governing wall machines.
GAMING MACHINE MANUFACTURING AND SYSTEMS OPERATIONS. The market for gaming
machines is extremely competitive, and there are a number of established,
well-financed and well-known companies producing machines that compete with each
of BGII's product lines in each of the markets for BGII's gaming machine
manufacturing operations. The domestic market for gaming machines is dominated
by a single competitor, International Game Technology ("IGT"), with a number of
smaller competitors in the field. In addition, certain technology-oriented
companies have recently announced plans to enter the gaming machine market.
Management believes that some of these competitors have greater capital
resources than the Company. Competition among gaming product manufacturers,
particularly with respect to sales of gaming machines into new and emerging
markets, is based on competitive customer pricing and financing terms, appeal to
the player and quality of the product, and having an extensive distribution and
sales network. Sales to established casinos in Nevada normally require
completion of a successful trial period for the machines in the casino.
The competition for the computerized monitoring systems designed and sold by
Systems currently consists of IGT, Casino Data Systems ("CDS"), and, to a lesser
extent, Gaming Systems International, Inc. and Acres Gaming, Inc. Competition is
keen in this market due to the number of providers and the limited number of
casinos and the jurisdictions in which they operate. Pricing, product feature
and function, accuracy, and reliability are all main factors in determining a
provider's success in selling its system. Systems believes the future success of
its operations will be determined by its ability to bring new and innovative
products to the marketplace while at the same time maintaining the base of loyal
existing customers.
PRODUCT DEVELOPMENT
The future success of the Company depends to a large extent upon its ability
to design, manufacture and market technologically sophisticated products that
achieve high levels of player acceptance. The development of a successful new
product or product design by a competitor could adversely affect sales of the
Company's products and force it to respond quickly with its own competing
products. The Company's plans with respect to the introduction of more
sophisticated technology into the electronic gaming machine market are designed
to lead to an increase in market share and profitability for the Company. See
"Business." However, no products incorporating such technology have reached the
development stage, and there is no assurance that any such products will be
developed, or that if developed they will receive necessary regulatory approvals
or be commercially successful.
CUSTOMER FINANCING
Management believes that customer financing terms have become an
increasingly important competitive factor in certain emerging markets.
Competitive conditions sometimes require Gaming to grant extended payment terms
on electronic gaming machines and other gaming equipment. Approximately 75% of
Gaming's slot and video gaming machine customers pay within 90 days or less.
Approximately 25% of Gaming's sales, primarily in certain emerging gaming
markets such as riverboat casinos and Indian gaming casinos, are financed over
extended periods as long as 36 months and bear interest at rates ranging from 8%
to 14%. While customer financings are normally collateralized by such equipment,
the resale value of the collateral in the event of a default may be less than
the amount financed. Accordingly, Gaming has greater exposure to the financial
condition of its customers in emerging markets than has historically been the
case in established markets like Nevada and Atlantic City. In addition, in
certain situations, Gaming has participated in the financing of other
gaming-related equipment manufactured by third parties in the emerging North
American gaming markets. International sales by Gaming are generally consummated
on a cash basis or financed over a period of one year or less.
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Wulff provides customer financing for approximately 20% of its sales, and
management expects this practice to increase during the latter half of 1996. See
"Business--German Operations--Operations of Wulff--Sales and Marketing."
SALES TO NON-TRADITIONAL GAMING MARKETS
The continued growth of the non-traditional markets outside of Nevada and
Atlantic City for electronic gaming machines is contingent upon the public's
acceptance of these markets and an ongoing regulatory approval process by
Federal, state and local governmental authorities. The Company cannot predict
which new jurisdictions or markets, if any, will approve the operation of
electronic gaming machines, the timing of any such approval or the level of the
Company's participation in any such markets or that jurisdictions currently
permitting gaming will continue to do so in the future.
FOREIGN OPERATIONS
The Company's business in foreign markets is subject to the risks
customarily associated with such activities. These risks include fluctuations in
foreign currency exchange rates and controls, expropriation, nationalization and
other economic, tax and regulatory policies of local governments as well as the
laws and policies of the United States affecting foreign trade and investment.
BGII does not generally enter into foreign exchange contracts to hedge its
exposure to foreign exchange rate fluctuations.
KEY PERSONNEL
The success of the Company will be dependent, to a significant extent, upon
the continued services of a relatively small group of executive personnel. The
loss or unavailability of one or more of such executive officers or the
inability to attract or retain key employees in the future could have an adverse
effect upon the Company's operations. See "Management."
STRICT REGULATION BY GAMING AUTHORITIES
The manufacture and distribution of gaming machines and the conduct of
gaming operations is subject to extensive Federal, state, local and foreign
regulation by various gaming authorities (each, a "Gaming Authority"). Although
the laws and regulations of the various jurisdictions in which the Company
operates vary in their technical requirements and are subject to amendment from
time to time, virtually all of these jurisdictions require licenses, permits,
documentation of the qualification, including evidence of integrity and
financial stability, and other forms of approval for companies engaged in the
manufacture and distribution of gaming machines and gaming operations as well as
for the officers, directors, major stockholders and key personnel of such
companies. Alliance and BGII and their key personnel have obtained, or applied
for, all government licenses, registrations, findings of suitability, permits
and approvals necessary for the manufacture and distribution, and operation
where permitted, of their gaming machines in the jurisdictions in which Alliance
and BGII currently do business. However, there can be no assurance that such
licenses, registrations, findings of suitability, permits or approvals will be
given or renewed in the future or that the Company will obtain the licenses
necessary to operate in emerging markets.
BGII was pursuing a permanent manufacturer's license for Gaming as it
relates to the land-based casino in New Orleans. However, in November 1995, the
operator of the land-based casino in New Orleans filed for bankruptcy
reorganization and ceased operations. That action resulted in the termination of
funding for the regulatory operations of the Louisiana Economic Development
Gaming Corporation ("LEDGC") and, shortly thereafter, the Attorney General of
Louisiana took control of the agency and effectively closed its operations and
dismissed its President and employees. The Louisiana legislature recently passed
a bill which created a single gaming control board for the regulation of gaming
in Louisiana who will issue all licensing after May 1, 1996 for video draw poker
devices. The foregoing occurred prior to completion of review of Gaming's
pending application. In addition, BGII's application for renewal of Gaming's
license as a gaming-related casino service industry in New Jersey is pending
before the New Jersey Casino Control Commission (the "New Jersey Commission").
See "--Ongoing BGII Regulatory Investigations" and "Gaming Regulation and
Licensing."
Alliance currently has an agreement with Fair Grounds Corporation, Jefferson
Downs Corporation and Finish Line Management Corporation (collectively, "Fair
Grounds") to be the exclusive operator of video
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poker machines at the only racetrack and ten associated OTBs in the greater New
Orleans area. The Louisiana legislature has recently passed a bill which will
result in an election to be held in November 1996 which will allow each parish
to decide whether to disallow video poker devices, riverboat casinos and, in
Orleans Parish, land-based casinos. If any parish in which the Company operates
elects to disallow video poker devices, the Company would have to cease its
video poker operations there by June 30, 1999. The Company cannot predict which
parishes will so elect; however, if Orleans Parish or certain other parishes in
which Alliance operates so elect, the cessation of the Company's video poker
operations would have a material adverse effect on the operations of the
Company. The Company's operations also depend on the financial viability of the
racetrack, which is beyond the control of the Company.
OWNERSHIP LIMITATIONS ON SECURITIES OF THE COMPANY
The Gaming Authorities may, at their discretion, require the holder of any
security of the Company, such as the Senior Secured Notes or the Preferred
Stock, to file applications, be investigated and be found suitable to own such
security of the Company. If a record or beneficial owner of the Senior Secured
Notes or the Preferred Stock is required by a Gaming Authority to be found
suitable, such owner will be required to apply for a finding of suitability
within 30 days after request by such Gaming Authority, or within such earlier
time as required by such Gaming Authority. As a general matter, assuming a
passive investment intent, only owners of specified percentages of the Company's
voting securities are required to be found suitable, absent unusual
circumstances, which percentage is typically between 10% to 15% of any class of
such securities. In the event that there is a default in the payment of
dividends for six consecutive dividend payment dates, the Preferred Stock will
qualify as a voting security and will be considered as a separate class of
voting securities for purposes of determining beneficial ownership. The
applicant for a finding of suitability generally must pay all costs of the
investigation for such finding of suitability and in Nevada must provide an
initial deposit as determined by the Nevada State Gaming Control Board to pay
the anticipated costs and charges incurred in the investigation and deposit such
additional sums as are required by the Nevada State Gaming Control Board to pay
final costs and charges. If a Gaming Authority determines that a holder is
unsuitable to own the Senior Secured Notes or the Preferred Stock or to have any
other relationship with the Company, then the Company can be sanctioned,
including by the loss of its approvals, if without the prior approval of the
Gaming Authorities, it; (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; (iv) makes any payment to the unsuitable person by way
of principal, redemption, conversion, exchange, liquidation, or similar
transaction; or (v) fails to pursue all lawful efforts to require such person to
relinquish his voting securities including, if necessary, the immediate purchase
of such voting securities for cash at fair market value. The Company will be
permitted to repurchase a holder's Senior Secured Note pursuant to a Required
Regulatory Redemption. See "Description of the Senior Secured Notes--Optional
Redemption."
Any person who fails or refuses to apply for a finding of suitability within
the period of time required or prescribed by a Gaming Authority may be found
unsuitable. The same restrictions apply to a record owner if the record owner,
after request, fails to identify the beneficial owner. Any holder of the
Securities found unsuitable and who holds, directly or indirectly, any
beneficial ownership of the Securities beyond such period of time prescribed by
a Gaming Authority may be guilty of a criminal offense. See "Gaming Regulation
and Licensing."
ONGOING BGII REGULATORY INVESTIGATIONS
In May 1994, an investigation of BGII's former VLT Louisiana distributor
resulted in the indictment by a United States grand jury and subsequent
conviction in New Orleans of 18 individuals including certain of the former
distributor's officers, directors, employees and others. In addition, Alan
Maiss, a former director and president of BGII, pled guilty to misprision of a
felony in connection with such investigation. BGII, its subsidiaries and its
current employees were not subject to such investigation. BGII's activities with
regard to its former VLT distributor in Louisiana have been the subject of
current inquiries by gaming regulators. The gaming authorities in Ontario,
Canada, who have investigated the matter, issued a gaming registration to Bally
Gaming, Inc. on February 8, 1996. The New Jersey Commission is currently
reviewing such proceedings in connection with Gaming's application for a license
renewal. An adverse determination by a Gaming Authority
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in any jurisdiction could result in the loss of the Company's ability to do
business in that jurisdiction and could have the effect of discouraging gaming
operators from doing business with the Company. In addition, further regulatory
scrutiny in other jurisdictions may follow any such adverse determination. See
"Business--Other Litigation" and "Gaming Regulation and Licensing."
CERTAIN LITIGATION
WMS has instituted a lawsuit in New York State Court against BGII alleging,
among other things, that $4.8 million is due and payable from BGII to WMS as a
result of the termination of BGII's merger agreement with WMS. Pursuant to the
Merger Agreement, Alliance has agreed to indemnify BGII against such a claim
under certain circumstances.
Prospective purchasers should read the description of this and other
litigation proceedings currently pending against Alliance and BGII, as well as
certain purported class actions, under the captions "Business--Litigation
Relating to the Merger" and "--Other Litigation."
GAMING TAXES AND VALUE ADDED TAXES
Gaming operators are typically subject to significant taxes and fees in
addition to corporate income taxes, and such taxes and fees are subject to
increase at any time. Any material increase in these taxes or fees, which could
occur prospectively or retroactively, would adversely affect the Company. Sales
of Wulff's products in Germany are generally subject to V.A.T. The operations of
Wulff had benefitted from a special tax rebate that was phased out from January
1, 1992 to January 1, 1994. See "Gaming Regulation and Licensing--Germany." In
addition, during 1995, Wulff increased the amount of V.A.T. reserves by $1.0
million as a result of developments to date in an ongoing quadrennial audit of
Wulff's tax returns for the years 1988 through 1991. While no written claim or
assessment has been issued, the German tax authorities have orally proposed
preliminary adjustments which range from $1.4 million (which has been accrued)
to $5.0 million. The Company pays and expects to continue to pay substantial
taxes and fees in Nevada, Louisiana and Mississippi and expects to pay
substantial taxes and fees in any other jurisdiction in which it conducts gaming
operations.
FRAUDULENT TRANSFER CONSIDERATIONS
The obligations of the Company under the Senior Secured Notes may be subject
to review under state or Federal fraudulent transfer laws in the event of the
bankruptcy or other financial difficulty of the Company. Under those laws, if a
court in a lawsuit by an unpaid creditor or representative of creditors of the
Company, such as a trustee in bankruptcy, or the Company as
debtor-in-possession, were to find that at the time the Company incurred its
obligations under the Senior Secured Notes, it (a) did so with actual intent to
hinder, delay or defraud its creditors or (b) did not receive reasonably
equivalent value or fair consideration therefor, and either (i) was insolvent,
(ii) was rendered insolvent, (iii) was engaged in a business or transaction for
which its remaining unencumbered assets constituted unreasonably small capital
or (iv) intended to incur or believed that it would incur debts beyond its
ability to pay as such debts matured, such court could void the Company's
obligations under the Senior Secured Notes and direct the return of any amounts
paid thereunder to the Company or to a fund for the benefit of its creditors.
Similarly, the obligations of each Guarantor under its guarantee of the
Senior Secured Notes, as well as the security interest granted by certain
Guarantors in equity interests in such Guarantors' subsidiaries to secure the
Senior Secured Notes, may be subject to review under such laws in the event of
the bankruptcy or other financial difficulty of such Guarantor. In the event
that a court were to find that at the time such Guarantor incurred such
obligations or granted such security interest the factors set forth in either
clause (a) or (b) in the foregoing paragraph applied to such Guarantor, such
court could avoid such Guarantor's obligations under its guarantee, as well as
the security interests securing the Senior Secured Notes, and direct the return
of any amounts paid under such guarantee to such Guarantor or to a fund for the
benefit of its creditors.
Among other things, a court might conclude that a Guarantor did not receive
reasonably equivalent value or fair consideration for its guarantee to the
extent that the economic benefits realized by it in the Transaction were less
than the aggregate amount of its liability under its guarantee.
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The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
would be required to pay its probable liability on its existing debts as they
become absolute and matured.
ABSENCE OF PUBLIC MARKET; POTENTIAL VOLATILITY OF MARKET PRICES
SENIOR SECURED NOTES. The Company does not intend to list the Senior
Secured Notes on a national securities exchange or to seek the admission thereof
for trading on Nasdaq. The Underwriters have advised the Company that, following
the consummation of the Note Offering, they intend to make a market in the
Senior Secured Notes, but are not obligated to do so and may discontinue any
such market making at any time without notice. There can be no assurance as to
the liquidity of, or that an active trading market will develop for, the Senior
Secured Notes. In addition, factors such as quarterly fluctuations in the
Company's financial and operating results, announcements by the Company or
others and developments affecting the Company customers or the gaming industry
generally could cause the market price of the Senior Secured Notes to fluctuate
substantially.
PREFERRED STOCK. Although the Company has applied to have the Preferred
Stock quoted on Nasdaq, there is no assurance that this will occur. The
Preferred Stock has no existing trading market and there can be no assurance as
to the type of trading market that will develop. Further, there can be no
assurance with respect to the prices at which the Preferred Stock will trade
after the date hereof. The trading price of the Preferred Stock could be subject
to wide fluctuations in response to quarter-to-quarter variations in operating
results and other events or factors, including the success of the Company's
development activities, legislation approving or defeating gaming, other
governmental actions, developments in the gaming industry generally and
announcements by the Company or by competitors. In addition, the stock market,
and the gaming industry in particular, have experienced extreme price and volume
fluctuations in a manner which has often been unrelated to the operating
performance of the companies within the gaming industry. These broad market
fluctuations may adversely affect the market price of the Preferred Stock. A
shift away from investor interest in gaming in general could adversely affect
the trading price of the Preferred Stock.
PREFERRED STOCK
The Preferred Stock dividend may be paid in kind in whole or in part through
and including the first dividend payment date occurring after the seventh
anniversary of the Effective Time of the Merger. The Preferred Stock is
mandatorily redeemable on the eighth anniversary of the Effective Time; however,
if the Company fails to so redeem all outstanding shares of the Preferred Stock
by such date, the remedies of holders are limited to the right to elect two
directors to the Board of Directors, and to prohibit the payment of dividends or
other distributions on, or the purchase or redemption of, any other stock of the
Company ranking junior or pari passu to the Preferred Stock. The Preferred Stock
will be callable for cash at any time at the Company's option at the Liquidation
Value. The Preferred Stock does not limit the Company's right to issue other
series of special stock ranking on a parity with the Preferred Stock as to
receipt of dividends or distributions. Furthermore, while fractional shares of
such Preferred Stock will be issued in connection with the Merger, holders of
such fractional shares will not be able to trade such fractional shares on
Nasdaq. These factors may adversely affect the market price and marketability of
the Preferred Stock.
LIMITATIONS ON NET OPERATING LOSSES; DISCHARGE OF DEBT INCOME
Alliance had net operating loss carryforwards ("NOLs") of approximately
$46.0 million, which Alliance believes are not currently subject to an annual
limitation on their utilization under Section 382 of the Internal Revenue Code
of 1986, as amended (the "Code"). There is a material risk that the Transaction
will result in an "ownership change" under Section 382 of the Code, in which
event the use of these NOLs will likely be subject to an annual limitation on
their utilization. For tax purposes the Automatic Conversion may result in an
extinguishment of debt gain. However, it is anticipated that this tax gain would
be entirely offset by the Company's NOLs, based on current Common Stock prices.
27
<PAGE>
THE MERGER AND RELATED FINANCINGS
On October 18, 1995, Alliance entered into the Merger Agreement with BGII, a
Delaware corporation, and BGII Acquisition Corp. (the "Merger Subsidiary"), a
Delaware corporation and wholly-owned subsidiary of Alliance. Pursuant to the
Merger Agreement and subject to the terms and conditions set forth therein, the
Merger Subsidiary will merge into BGII which will become a wholly-owned
subsidiary of Alliance. The Merger consideration to BGII stockholders will be
approximately $77.2 million in cash, $35.7 million in Preferred Stock and $2.9
million in Common Stock, assuming that the Effective Time occurs on or about
June 18, 1996 and 10,799,501 shares of BGII common stock are outstanding, less
1,000,000 shares owned by Alliance which will be canceled upon consummation of
the Merger. Alliance will also retire approximately $53.3 million of BGII's
outstanding debt (including prepayment premium, original issue discount and
accrued and unpaid interest through the Effective Time), in connection with the
Merger.
The Merger Agreement provides that Alliance will honor the terms of all
employment agreements to which BGII is a party. Upon consummation of the Merger
and the filing of a Certificate of Merger with the Secretary of State of the
State of Delaware (the "Effective Time"), certain executive officers of BGII
will be entitled, pursuant to the termination of their employment agreements and
performance unit awards with BGII, to lump-sum payments, without discount to
present value, in connection with the termination of their respective employment
agreements and performance unit awards, as described further below. In addition,
the Company will generally assume BGII's obligations with respect to each
outstanding stock option and warrant to purchase shares of BGII common stock,
subject to certain modifications approved by BGII stockholders.
The Merger and related transactions will be financed through (i) the
issuance of $140.0 million aggregate principal amount of the Senior Secured
Notes in the Note Offering, (ii) the issuance of $15.0 million of Preferred
Stock in the Preferred Stock Offering and (iii) the issuance of $5.0 million of
Common Stock in the Private Placement. The Note Offering, the Preferred Stock
Offering and the Private Placement are contingent upon consummation of the
Merger.
Alliance has offered to exchange up to $85.0 million aggregate principal
amount of its New Convertible Debentures for a like principal amount of its Old
Convertible Debentures. The terms of the New Convertible Debentures are
substantially identical to the terms of the Old Convertible Debentures, except
that if the Merger is consummated within 60 days after the issuance of the New
Convertible Debentures, then at the effective time of the Merger the New
Convertible Debentures will automatically be converted pursuant to the Automatic
Conversion into Common Stock at a conversion price of $4.76 per share
(equivalent to a conversion rate of approximately 210 shares per $1,000
principal amount of New Convertible Debentures), subject to adjustment under
certain circumstances. A holder tendering Old Convertible Debentures in the
Exchange Offer may elect, at the time such Old Convertible Debentures are
tendered, to forego receipt of all or any portion of the Common Stock that such
holder would otherwise be entitled to receive upon the occurrence of the
Automatic Conversion with respect to the New Convertible Debentures issued in
exchange for such Old Convertible Debentures and to receive in lieu thereof ten
shares of the Series E Preferred Stock, for each $1,000 principal amount of New
Convertible Debentures. Each share of Series E Preferred Stock will accrue
dividends for the first three years only following issuance, at an annual rate
of 11 1/2%, payable quarterly in cash or, at the Company's option, in additional
shares of Series E Preferred Stock, will be convertible into Common Stock at an
initial conversion price of $5.88 per share (equivalent to a conversion rate of
approximately 17.004 shares of Common Stock per share of Series E Preferred
Stock), subject to adjustment under certain circumstances, and will have a $100
liquidation preference per share. 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. The
Preferred Stock offered hereby will rank senior to the Series E Preferred Stock.
See "Description of Capital Stock."
A financial institution has agreed to purchase privately in the Private
Placement, simultaneously with the consummation of the Merger, $5.0 million of
the Common Stock of Alliance at a price equal to the lower of $4.56 per share
(the average trading price of the Common Stock for the five trading day period
immediately preceding the agreement) and 91% of the lowest of the averages of
the last sales prices of
28
<PAGE>
Common Stock during any consecutive period of five trading days ending on any
date in the period occuring between May 20, 1996 and the Effective Time. This
investment would be in the form of Common Stock to the extent of 4.9% of the
total Common Stock outstanding at the time, taking into account Common Stock to
be issued in the Merger and the Automatic Conversion, with the remainder to be
in the form of non-voting special stock convertible into Common Stock. Alliance
anticipates, and it is assumed for all purposes herein, that all $5.0 million
will be issued in the form of Common Stock.
Immediately following the Merger, Holding, a newly-formed wholly-owned
Nevada subsidiary of Alliance, will purchase for a promissory note all the
shares of stock of BGII's German subsidiaries, Bally Wulff Automaten GmbH
("Automaten") and Bally Wulff Vertriebs GmbH ("Vertriebs") from BGII, which
currently holds all of the economic interest in such subsidiaries. At the same
time, the Company will contribute to Holding all the shares of capital stock of
BGII and, indirectly, its domestic subsidiary, Bally Gaming, Inc. Holding will
then immediately contribute the Automaten and Vertriebs shares directly to a
newly-formed German limited partnership ("KG") which is also intended to be a
partnership for U.S. Federal income tax purposes, in exchange for a 99% limited
partnership interest in KG. The general partner of KG will be a newly-formed
German corporation, which will be a wholly-owned subsidiary of Holding and will
own 0.5% of the economic interest in KG. KG, its general partner, Automaten,
Vertriebs and their subsidiaries are sometimes collectively referred to herein
as the "Wulff Entities" and the above transactions are collectively referred to
herein as the "Wulff Realignment." The effect of the Wulff Realignment is that,
after the Merger, Holding will hold all of the economic interests in the
entities comprising BGII and its subsidiaries prior to the Merger.
29
<PAGE>
USE OF PROCEEDS
The proceeds of the Offerings, net of underwriting discounts, are estimated
to be approximately $ million. The following table sets forth the anticipated
sources and uses of funds to be used to consummate the Transaction based on the
Company's cash and debt balances as of March 31, 1996. The actual balances and
number of shares outstanding may vary based on the date of consummation of the
Transaction.
(IN MILLIONS)
<TABLE>
<S> <C>
ANTICIPATED SOURCES OF FUNDS
CASH SOURCES:
Senior Secured Notes.................. $ 140.0
Preferred Stock....................... 15.0
Common Stock (Private Placement)...... 5.0
---------
Total Cash Sources................ 160.0
---------
NON-CASH SOURCES:
New Convertible Debentures issued and
automatically converted into Common
Stock................................ 50.0
Preferred Stock to BGII
Stockholders(e)...................... 35.7
Common Stock to BGII
Stockholders(f)...................... 2.9
Common Stock(c)....................... 3.7
---------
Total Non-Cash Sources.............. 92.3
---------
Total Sources..................... $ 252.3
---------
---------
</TABLE>
<TABLE>
<S> <C>
ANTICIPATED USES OF FUNDS
CASH USES:
Cash to BGII Stockholders(a).......... $ 77.2
Retire BGII Debt(b)................... 53.3
Employee Contract Termination Costs
and Performance Unit Awards(c)....... 7.6
Fees and Expenses(d):................. 21.9
---------
Total Cash Uses................... 160.0
---------
NON-CASH USES:
Retire Old Convertible Debentures..... 50.0
Preferred Stock to BGII
Stockholders(e)...................... 35.7
Common Stock to BGII
Stockholders(f)...................... 2.9
Common Stock(c)....................... 3.7
---------
Total Non-Cash Uses................. 92.3
---------
Total Uses........................ $ 252.3
---------
---------
</TABLE>
- --------------------------
(a) Represents the cash consideration to be paid to BGII stockholders in the
Merger consisting of $7.83 per share of BGII common stock plus interest
accruing at a rate of 5.5% per annum from May 3, 1996 to the Effective Time,
calculated in accordance with the terms of the Merger Agreement.
(b) Represents retirement of the following debt of BGII outstanding at March 31,
1996:
(i) $39.7 million of 10 3/8% Senior Secured Notes due July 1998, at a
prepayment price of 101% plus original issue discount of $0.3 million;
(ii) $9.3 million under a bank revolving line of credit of Bally Gaming,
Inc., a wholly-owned subsidiary of BGII, which matures on March 31,
1997 and bears interest at a fluctuating rate based on the bank's prime
rate plus 1 1/2% (9.75% per annum at March 31, 1996);
(iii) other notes payable of BGII aggregating $1.6 million due in varying
amounts from 1996 through 1999 bearing interest at rates varying from
5% to 12%; and
(iv) accrued and unpaid interest on the foregoing debt instruments, through
the Effective Time, totaling approximately $2.0 million.
(c) Includes $5.0 million payable in cash to Richard Gillman and $1.3 million
payable to Neil Jenkins consisting of $0.9 million in cash and $0.4 million
in Common Stock, all pursuant to agreements with Alliance in connection with
the termination of their respective employment agreements and performance
unit awards. Additionally, Hans Kloss, who will remain with the Company,
will receive a total of $4.3 million consisting of $1.5 million in cash and
$2.8 million in Common Stock, and Robert Conover, who will remain with the
Company, will receive a total of $0.7 million consisting of $0.2 million in
cash and $0.5 million in Common Stock, in connection with their employment
agreements and performance unit awards. The Common Stock portion of each of
such payments will be valued at the Alliance Average Trading Price but in no
event more than $6.00 nor less than $4.25 per share.
(d) Total estimated Alliance and BGII Transaction-related fees and expenses are
$37.0 million, of which $15.1 million has been paid through March 31, 1996.
Excludes the value of Common Stock to be issued to an Underwriter as a
financial advisory fee. See "Underwriting."
(e) Represents the Preferred Stock consideration to be paid to BGII stockholders
in the Merger consisting of $3.57 of Preferred Stock per share of BGII
common stock plus dividends accruing at a rate of 15% per annum from May 3,
1996 to the Effective Time, calculated in accordance with the terms of the
Merger Agreement.
(f) Represents the Common Stock consideration to be paid to BGII stockholders in
the Merger consisting of $0.30 per share of BGII common stock valued at the
Alliance Average Trading Price.
30
<PAGE>
DIVIDEND POLICY
The Company intends to retain all future earnings for use in the development
of its business and does not anticipate paying any cash dividends (including
with respect to the Preferred Stock for the first five years following issuance
and the Series E Preferred Stock) in the foreseeable future. The payment of all
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions. The ability of the Company or its subsidiaries to pay
dividends is restricted by the Indenture. If a holder of securities is
disqualified by any Gaming Authority from owning such securities, such holder
will not be permitted to receive any dividends with respect to such securities.
See "Gaming Regulations and Licensing."
CAPITALIZATION
The following table sets forth the consolidated capitalization as of March
31, 1996 (i) of Alliance on a historical basis, (ii) of BGII on a historical
basis, and (iii) of the Company on a pro forma basis as adjusted to reflect the
Transaction (including the use of the estimated proceeds from the Offerings and
the Private Placement). See "The Merger and Related Financings," "Use of
Proceeds," and "Unaudited Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------------------
THE COMPANY
ALLIANCE BGII PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-Term Debt:
Senior Secured Notes(1)................................................ $ -- $ -- $ 140,000
Old Convertible Debentures(2).......................................... 85,000 -- 35,000
Hospitality Franchise Systems.......................................... 6,902 -- 6,902
Due to Stockholder, Net of Unamortized Discount of $0.6 million at
March 31, 1996........................................................ 1,442 -- 1,442
10 3/8% Senior Secured Notes due July 1998............................. -- 39,688 --
Other Notes Payable.................................................... 1,704 5,605 5,582
---------- ---------- --------------
Total Long-Term Debt, excluding current maturities(3).................... 95,048 45,293 188,926
New Preferred Stock(1)(4)................................................ -- -- 50,662
Total Stockholders' Equity (Deficiency)(1)(2)(5)......................... (5,595) 86,000 42,350
---------- ---------- --------------
Total Capitalization..................................................... $ 89,453 $ 131,293 $ 281,938
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
- ------------------------
(1) Issuance costs relative to the Note Offering and the Preferred Stock
Offering are assumed to be capitalized and amortized over the relative terms
of these instruments. Issuance costs relative to the Private Placement have
been offset against proceeds.
(2) Assumes $50.0 million of New Convertible Debentures are issued in exchange
for a like amount of Old Convertible Debentures and are converted into
Common Stock at a conversion price of $4.76 per share pursuant to the
Exchange Offer and the Automatic Conversion.
(3) Actual amounts exclude borrowings under lines of credit of $9.3 million at
Bally Gaming, Inc. (which are being repaid in connection with the Merger)
and $14.8 million at Wulff and current maturities of long-term debt of $4.7
million. Cash, cash equivalents and securities available for sale at March
31, 1996 on a pro forma basis were $19.8 million. The Wulff lines of credit
have additional availability of $7.1 million and are expected to remain in
place upon consummation of the Transaction. Alliance currently anticipates
obtaining one or more working capital revolving facilities at Gaming,
Systems and Wulff providing up to an aggregate of $40.0 million of
borrowings (of which approximately $22.0 million of Wulff's existing lines
of credit are anticipated to remain in place) which would be secured by
inventory and accounts receivable. Alliance has not received any commitment
for any such facility and
31
<PAGE>
no assurance can be given that it will be able to obtain any such facility
on terms acceptable to Alliance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources of the Company (Pro Forma)."
(4) For a description of the Preferred Stock, see "Description of Capital
Stock."
(5) Excludes shares underlying certain options and warrants and other equity
equivalents. See "Security Ownership of Certain Beneficial Holders and
Management--Outstanding Options and Convertible Securities" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Statements of Operations present
results of operations of the Company assuming the Transaction occurred on July
1, 1994 for the statements for the twelve months ended June 30, 1995 and the
nine months ended March 31, 1996, and further assuming that the Rainbow Casino
operations were consolidated. Adjustments necessary to reflect these assumptions
and to restate historical combined results of operations are presented in the
Pro Forma Adjustments columns, which are further described in the Notes to
Unaudited Pro Forma Condensed Combined Financial Information.
The Unaudited Pro Forma Condensed Combined Balance Sheet presents the
financial position of the Company assuming the Transaction occurred on March 31,
1996. In preparing the following Pro Forma Financial Information, the Company
has also assumed that $50.0 million of the $85.0 million principal amount of the
Old Convertible Debentures are exchanged in the Exchange Offer and that all the
resulting New Convertible Debentures are converted into Common Stock pursuant to
the Automatic Conversion. Adjustments necessary to reflect this assumption and
to restate historical combined balance sheets are presented in the Pro Forma
Adjustments column, which are further described in the Notes to Unaudited Pro
Forma Condensed Combined Financial Information.
The historical unaudited financial information for Alliance is derived from
the audited financial statements of Alliance for the year ended June 30, 1995,
and the unaudited financial statements of Alliance for the nine-month period
ended March 31, 1996. The historical unaudited financial information for BGII is
derived from the unaudited interim information generated as of and for the
periods ended June 30, 1994 and 1995 and March 31, 1996. BGII operating results
for the twelve-month period ended June 30, 1995 are calculated by subtracting
the unaudited six-month period ended June 30, 1994 results from the audited year
ended December 31, 1994 results and adding the unaudited six-month period ended
June 30, 1995 results. BGII operating results for the nine-month period ended
March 31, 1996 are calculated by subtracting the unaudited six-month period
ended June 30, 1995 results from the audited year ended December 31, 1995
results and adding the unaudited three-month period ended March 31, 1996 results
thereto.
The Unaudited Supplemental Pro Forma Information presents pro forma cash
flow and fixed charges information and includes related pro forma adjustments,
consistent with those assumed elsewhere herein.
The following information does not purport to present the financial position
or results of operations of the Company had the Transaction and events assumed
therein occurred on the dates specified, nor is it necessarily indicative of the
results of operations of the Company as they may be in the future or as they may
have been had the Transaction and the effect of consolidating the Rainbow Casino
operating results been consummated on the dates shown. The Unaudited Pro Forma
Condensed Combined Financial Information is based on certain assumptions and
adjustments described in the Notes to Unaudited Pro Forma Condensed Combined
Financial Information and should be read in conjunction therewith and with "The
Merger and Related Financings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited and unaudited
historical consolidated financial statements and related notes thereto of
Alliance and BGII included elsewhere herein.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996 (1)(2)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
ALLIANCE BGII COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents and Securities
Available for Sale............................ $ 25,562 $ 2,009 $ 27,571 $ 152,900(a) $ 19,817
(52,190)(b)
(77,220)(c)
(7,559)(c)
(10,410)(c)
1,535(d)
(14,810)(e)
Receivables, Net............................... 2,060 82,872 84,932 84,932
Inventories.................................... 661 51,961 52,622 52,622
Other.......................................... 3,775 4,450 8,225 8,225
---------- ---------- ---------- -----------
Total Current Assets......................... 32,058 141,292 173,350 165,596
Property and Equipment, Net...................... 52,065 23,615 75,680 75,680
Other Assets:
Long-Term Receivables, Net..................... 5,600 9,696 15,296 15,296
Excess of Costs over Net Assets of an Acquired
Business, Net................................. 2,074 5,290 7,364 46,523(c) 53,887
4,998(c)
Intangible Assets, Net......................... 11,273 5,127 16,400 (2,478)(f) 18,920
6,500(a)
Other, Net..................................... 8,218 1,916 10,134 (449)(b) 16,185
---------- ---------- ---------- -----------
Total Other Assets........................... 27,165 22,029 49,194 104,288
---------- ---------- ---------- -----------
Total Assets................................. $ 111,288 $ 186,936 $ 298,224 $ 345,564
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable............................... $ 2,089 $ 14,707 $ 16,796 $ 16,796
Accrued Liabilities............................ 10,345 16,258 26,603 (3,789)(e) 21,964
(850)(b)
Current Maturities of Long-Term Debt........... 4,041 24,678 28,719 (9,213)(b) 19,506
---------- ---------- ---------- -----------
Total Current Liabilities.................... 16,475 55,643 72,118 58,266
---------- ---------- ---------- -----------
140,000(a)
(41,415)(b)
Long-Term Debt, Less Current Maturities.......... 95,048 45,293 140,341 (50,000)(f) 188,926
Other Liabilities................................ 4,325 4,325 4,325
---------- ---------- ---------- -----------
Total Liabilities............................ 115,848 100,936 216,784 251,517
Minority Interest................................ 1,035 1,035 1,035
15,000(a)
Preferred Stock.................................. 35,662(c) 50,662
STOCKHOLDERS' EQUITY (DEFICIENCY):
125(a)
74(c)
93(c)
(108)(c)
Common Stock, Par.............................. 1,298 108 1,406 1,050(f) 2,640
4,275(a)
(68,345)(c)
2,866(c)
3,637(c)
48,950(f)
Paid-in Capital................................ 32,134 68,345 100,479 22,000(f) 113,862
(712)(b)
(449)(b)
(1,329)(c)
522(d)
(11,021)(e)
Retained Earnings (Accumulated Deficit)........ (37,960) 1,329 (36,631) (24,478)(f) (74,098)
Cumulative Translation Adjustments............. 16,708 16,708 (16,708)(c)
490(c)
Other Stockholders' Equity..................... (1,067) (490) (1,557) 1,013(d) (54)
---------- ---------- ---------- -----------
Total Stockholders' Equity (Deficiency)...... (5,595) 86,000 80,405 42,350
---------- ---------- ---------- -----------
Total Liabilities and Stockholders' Equity
(Deficiency)................................ $ 111,288 $ 186,936 $ 298,224 $ 345,564
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1995(1)(3)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ALLIANCE
----------------------------------- AS PRO FORMA
AS BGII ADJUSTED ------------------------
HISTORICAL ADJUSTMENTS ADJUSTED HISTORICAL COMBINED ADJUSTMENTS COMBINED
---------- ----------- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Gaming........................... $128,114 $14,809(g) $142,923 $ $142,923 $ $142,923
Food and Beverage Sales.......... 3,847 891(g) 4,738 4,738 4,738
Net Equipment Sales.............. 27 27 248,701 248,728 248,728
Other............................ 4,432 4,432 4,432
---------- -------- ---------- ---------- ----------
Total Revenues................. 131,988 147,688 253,133 400,821 400,821
---------- -------- ---------- ---------- ----------
OPERATING COSTS:
Gaming........................... 91,311 2,127(g) 93,438 93,438 93,438
Food and Beverage................ 2,795 334(g) 3,129 3,129 3,129
Equipment Sales.................. 12 12 157,538 157,550 157,550
Selling, General and
Administrative.................. 32,611 9,716(g) 39,153 67,651 106,804 (5,000)(i) 100,135
(3,174)(h) (1,669)(j)
Unusual Charges and Other........ 1,500 1,500 (250)(j) 1,250
Depreciation and Amortization.... 9,520 893(g) 10,413 8,482 18,895 1,166(k) 22,642
2,404(l)
(298)(m)
800(n)
(325)(o)
---------- -------- ---------- ---------- ----------
Total Operating Costs.......... 136,249 146,145 235,171 381,316 378,144
---------- -------- ---------- ---------- ----------
Operating Income (Loss)............ (4,261) 1,543 17,962 19,505 22,677
OTHER INCOME (EXPENSES):
Interest Income.................. 2,798 2,798 2,798 2,798
Interest Expense................. (8,133) (988)(g) (9,121) (7,090) (16,211) (7,018)(n) (23,229)
Casino Royalty................... (810) (2,621)(g) (3,431) (3,431) (3,431)
Minority Interest................ (397) (397) (397) (397)
Other, Net....................... 317 101(g) 418 418 418
---------- -------- ---------- ---------- ----------
Income (Loss) Before Taxes......... (10,486) (8,190) 10,872 2,682 (1,164)
Domestic Tax Expense............... (265) (265) (290) (555) (555)
Foreign Tax Benefit (Expense)...... (5,779) (5,779) 3,779(p) (2,000)
---------- -------- ---------- ---------- ----------
Net Income (Loss).................. $(10,751) $ (8,455) $ 4,803 $ (3,652) $ (3,719)
---------- -------- ---------- ---------- ----------
---------- -------- ---------- ----------
Preferred Stock Dividend........... $ (8,039)
----------
Net Loss Applicable to Common
Shares............................ $(11,758)
----------
----------
Income (Loss) Per Common Share(5).. $ (0.95) $ 0.45 $ (0.47)
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL INFORMATION:(6)
PRO FORMA CASH FLOW INFORMATION:
Cash Flow from Operating Activities.......................................................................... $ 7,225
----------
----------
Cash Flow from Investing Activities.......................................................................... $(26,936)
----------
----------
Cash Flow from Financing Activities.......................................................................... $ (757)
----------
----------
Pro Forma Deficit of Earnings to Fixed Charges................................................................. $ (1,164)
----------
----------
Pro Forma Deficit of Earnings to Fixed Charges and Preferred Stock Dividend.................................... $ (9,203)
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 1996(1)(4)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ALLIANCE
------------------------------------ AS PRO FORMA
AS BGII ADJUSTED ------------------------
HISTORICAL ADJUSTMENTS ADJUSTED HISTORICAL COMBINED ADJUSTMENTS COMBINED
----------- ----------- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Gaming........................... $113,809 $ $113,809 $ $113,809 $ $113,809
Food and Beverage Sales.......... 2,976 2,976 2,976 2,976
Net Equipment Sales.............. 11 11 166,328 166,339 166,339
Other............................ 3,993 3,993 3,993
----------- -------- ---------- ---------- ----------
Total Revenues................. 116,796 116,796 170,321 287,117 287,117
----------- -------- ---------- ---------- ----------
OPERATING COSTS:
Gaming........................... 77,019 77,019 77,019 77,019
Food and Beverage................ 1,992 1,992 1,992 1,992
Equipment Sales.................. 3 3 107,831 107,834 107,834
Selling, General and
Administrative.................. 33,147 252(q) 33,399 48,842 82,241 (3,750)(r) 66,256
(12,235)(s)
Unusual Charges and Other........ 3,179 3,179 7,312 10,491 (2,725)(s) 7,766
Depreciation and Amortization.... 7,328 7,328 6,977 14,305 874(t) 17,114
1,803(u)
(224)(v)
600(w)
(244)(x)
----------- -------- ---------- ---------- ----------
Total Operating Costs.......... 122,668 122,920 170,962 293,882 277,981
----------- -------- ---------- ---------- ----------
Operating Income (Loss)............ (5,872) (6,124) (641) (6,765) 9,136
OTHER INCOME (EXPENSES):
Interest Income.................. 1,206 1,206 1,206 1,206
Interest Expense................. (6,341) (6,341) (4,949) (11,290) (5,632)(w) (16,922)
Casino Royalty................... (2,931) (2,931) (2,931) (2,931)
Minority Interest................ (708) (708) (708) (708)
Other, Net....................... 398 398 398 398
----------- -------- ---------- ---------- ----------
Income (Loss) Before Taxes......... (14,248) (14,500) (5,590) (20,090) (9,821)
Domestic Tax Expense............... (581) (581) (216) (797) (797)
Foreign Tax (Expense) Benefit...... (2,032) (2,032) 1,321(y) (711)
----------- -------- ---------- ---------- ----------
Net Loss........................... $(14,829) $(15,081) $ (7,838) $(22,919) $(11,329)
----------- -------- ---------- ---------- ----------
----------- -------- ---------- ----------
Preferred Stock Dividend........... $ (5,916)
----------
Net Loss Applicable to Common
Shares............................ $(17,245)
----------
----------
Loss Per Common Share(5)........... $ (1.21) $ (0.73) $ (0.66)
----------- ---------- ----------
----------- ---------- ----------
SUPPLEMENTAL INFORMATION:(6)
PRO FORMA CASH FLOW INFORMATION:
Cash Flow from Operating Activities............................................................................ $ 20,564
----------
----------
Cash Flow from Investing Activities............................................................................ $ 354
----------
----------
Cash Flow from Financing Activities............................................................................ $ (3,358)
----------
----------
Pro Forma Deficit of Earnings to Fixed Charges................................................................... $ (9,821)
----------
----------
Pro Forma Deficit of Earnings to Fixed Charges and Preferred Stock Dividend...................................... $(15,737)
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
1. The Unaudited Pro Forma Condensed Combined Financial Statements of
Operations are presented as if the combination of Alliance and BGII occurred on
July 1, 1994. The Unaudited Pro Forma Condensed Combined Balance Sheet is
presented assuming the combination occurred on March 31, 1996. The combination
is expected to be recorded as a purchase transaction in accordance with
generally accepted accounting principles and, accordingly, BGII assets and
liabilities are presented at their estimated fair values as of that date.
The Merger Agreement provides that BGII stockholders will receive in the
Merger, in exchange for each of their issued and outstanding shares of common
stock, (i) an amount of cash (the "Cash Consideration") determined by dividing
$76.7 million by the number of shares of BGII common stock issued and
outstanding immediately prior to the Effective Time ($7.83 per share for
purposes of presentation of the pro forma financial information) (plus interest
accruing at a rate of 5.5% per annum from May 3, 1996 to the Effective Time),
(ii) a fraction of a share of Common Stock equal to the quotient of $0.30 and
the Alliance Average Trading Price ($2.9 million in aggregate) and (iii) that
number of shares (or fractions thereof) of Preferred Stock having a value as
determined in accordance with the Merger Agreement equal to $11.40 less the Cash
Consideration of $7.83, or $3.57 per share for purposes of presentation of the
pro forma financial information ($35.0 million in aggregate) (plus dividends
accruing at a rate of 15% per annum from May 3, 1996). The price per share of
Common Stock used for purposes of the Unaudited Pro Forma Condensed Combined
Financial Information is $4.00, based on the closing price of the Common Stock
as reported on Nasdaq on May 23, 1996. The assumed price per share of the $5.0
million Private Placement is computed as the lower of $4.56 (the average trading
price of the Common Stock for the five trading day period immediately preceding
the Private Placement agreement) and 91% of the lowest of the averages of the
last sales prices of Common Stock during any consecutive period of five trading
days ending on any date in the period occurring between May 20, 1996 and the
Effective Time. The price per share is assumed to be $4.00 for purposes of the
pro forma calculations. See "The Merger and Related Financings."
Foreign taxes result from the income generated by Wulff. Domestic taxes
result from Federal consolidated alternative minimum taxes and state and local
income taxes.
The Rainbow Casino in Vicksburg began operations in July 1994. In March
1995, Alliance completed its acquisition of the general partnership interest in
the limited partnership owning the casino and from that point forward, the
Rainbow Casino's operations have been consolidated with those of Alliance. The
Rainbow Casino's operating results have been included in the Unaudited Pro Forma
Condensed Combined Statements of Operations as if it was owned for each period
presented.
Certain reclassifications of BGII balances have been made to conform to the
Alliance reporting format.
The following adjustments have been made to arrive at the Unaudited Pro
Forma Condensed Combined Financial Information:
2. PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS AT MARCH 31, 1996
(a) To adjust for the net cash proceeds of the Offerings and the Private
Placement, less estimated fees and expenses which have been capitalized in
the case of the Offerings and netted against the gross proceeds in the case
of the Private Placement. For every 1.0% increase in the effective dividend
rate on the Preferred Stock, which is assumed to be issued at a 15% annual
rate, the correlative change in the Preferred Stock dividend would be an
increase of $0.2 million, or a $0.01 increase in loss per common share.
(b) To adjust for the repayment of $52.2 million of certain BGII debt as
such instruments are intended to be repaid with the proceeds of the
Offerings, including the remaining original issue discount and other costs
associated with the prepayment of the BGII debt totaling $0.7 million and
accrued and unpaid interest of $0.9 million. Additionally, certain deferred
financing costs related to the BGII debt totaling $0.4 million will be
written off. Based on the passage of time from March 31, 1996 to June 18,
37
<PAGE>
1996, it is anticipated that at the Effective Time the total repayment of
debt including accrued and unpaid interest, original issue discount and
other costs associated with the prepayment, will be $53.3 million.
(c) The purchase of BGII is presented as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CONSIDERATION PAID:
Cash paid for original 1 million shares of BGII common stock owned by
Alliance..................................................................... $ 10,410
Cash consideration............................................................ 77,220
Value of Common Stock to be exchanged for BGII shares......................... 2,940
Value of Preferred Stock to be exchanged for BGII shares...................... 35,662
Contract termination costs for certain BGII personnel (see below)............. 6,291
--------------
Total consideration........................................................... 132,523
Estimated value of BGII's underlying net assets............................... (86,000)
--------------
Excess of costs over the net assets of BGII acquired.......................... $ 46,523
--------------
--------------
</TABLE>
The compensation to be paid to BGII personnel consists of cash payable
to Messrs. Gillman and Jenkins totaling $5.9 million and Common Stock valued
at $0.4 million (determined using the Alliance Average Trading Price but in
no event more than $6.00 nor less than $4.25 per share). As each of the
above individuals will not be employed by the Company after the Merger, such
costs have been included in the computation of goodwill.
Consideration to be paid to Messrs. Kloss and Conover consists of $1.7
million in cash and $3.3 million of Common Stock (determined using the
Alliance Average Trading Price but in no event more than $6.00 nor less than
$4.25 per share). As Messrs. Kloss and Conover will remain with the Company,
such amounts have been capitalized and will be amortized over the
approximately 2 1/2 and one year life of each of their employment
agreements, respectively. These transactions have been effected in the
Unaudited Pro Forma Condensed Combined Financial Information since they are
conditions of the Merger Agreement.
The allocation of purchase cost in the pro forma financial statements is
based on available information. After consummation of the Merger, Alliance
will arrange for independent appraisal of the significant assets and
liabilities of BGII to determine the final allocation of purchase
cost. Alliance management does not currently believe that any adjustments to
the final allocation of purchase price will have a material effect on the
Unaudited Pro Forma Condensed Combined Financial Information.
(d) To add back the $1.0 million valuation adjustment, net of the tax
effect of $0.5 million, for the Alliance-owned BGII common stock,
representing the difference between the purchase cost of $10.4 million and
the market value at March 31, 1996 of $8.9 million.
(e) To record the payment of certain Merger and related expenses assumed
to be incurred prior to and concurrent with the date of the Unaudited Pro
Forma Condensed Combined Balance Sheet totaling $14.8 million, of which $3.8
million has been accrued for at March 31, 1996.
(f) Represents the assumed conversion of all $50.0 million of the New
Convertible Debentures assumed to be issued in the Exchange Offer into
shares of Common Stock. Each $1,000 principal amount of Old Convertible
Debentures is convertible into 100 shares of Common Stock. Each $1,000
principal amount of the New Convertible Debentures will be converted in the
event of the Automatic Conversion into approximately 210 shares of Common
Stock. The additional 110 shares of Common Stock per $1,000 of principal are
treated as a "sweetener" to the original terms of the Old Convertible
Debentures and recorded at the fair value of the stock consideration being
offered as a non-cash charge for inducement for early conversion.
38
<PAGE>
In accordance with the rules and regulations of the Commission, the net
charge for inducement for early conversion resulting from the Exchange Offer
was not considered in the Unaudited Pro Forma Condensed Combined Statements
of Operations and has been reflected in the Unaudited Pro Forma Condensed
Combined Balance Sheet as a charge against retained earnings. The assumed
$50.0 million of New Convertible Debentures to be issued in the Exchange
Offer and converted into Common Stock pursuant to the Automatic Conversion
would result in a non-cash charge of $24.5 million, representing the value
of the Common Stock inducement of $22.0 million and the write-off of the
proportionate amount of the existing deferred financing costs. For tax
purposes the Automatic Conversion results in an extinguishment of debt gain.
However, this tax gain would be entirely offset against the Company's net
operating loss carry-forwards, based on current Common Stock prices.
The pro forma loss per common share amount presented in the Pro Forma
Unaudited Condensed Combined Statements of Operations assumes that all of
the $50.0 million of New Convertible Debentures convert into Common Stock.
The holders of the New Convertible Debentures may elect to convert into
Series E Preferred Stock that will accrue quarterly pay-in-kind dividends,
at an annual rate of 11.5%. 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 for early conversion referred
to in the preceding paragraph of $0.5 million. Based on the terms of the
Series E Preferred Stock, issuance of this security, if any, will be
reported in the stockholders' equity section of the balance sheet.
Therefore, there is no net effect on total stockholders' equity if New
Convertible Debentures are converted into Series E Preferred Stock instead
of Common Stock.
3. PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS FOR
THE YEAR ENDED JUNE 30, 1995
(g) To recognize operations of the Rainbow Casino as if owned for the
entire year.
(h) Alliance development expenses, which relate to mergers, acquisitions
and joint ventures, were reduced to $3.0 million annually resulting in an
adjustment of $3.2 million. Such adjustment does not include any effect from
the elimination of direct costs related to the Merger shown separately in
(j) below. The reduction to $3.0 million reflects the elimination of costs
that were being incurred prior to Alliance's accomplishment of its strategic
plan to acquire a major gaming machine manufacturing company. To accomplish
this reduction Alliance reduced payroll costs and fees paid to consultants
and legal costs related to non-BGII transactions it had been pursuing.
(i) To adjust for estimated synergy cost savings identified by
management to date including elimination of certain duplicative costs, such
as facility, legal, accounting and compensation, which total approximately
$5.0 million on an annual basis.
(j) To eliminate costs associated with the Merger incurred by Alliance
and BGII totaling $1.7 million and $0.3 million, respectively, consisting of
legal, accounting and investment banking fees and related costs.
(k) To record the amortization of the goodwill resulting from the
Merger. The goodwill is being amortized over 40 years.
(l) To amortize the costs associated with the termination of Messrs.
Kloss and Conover's existing employment contracts with BGII over the life of
their respective employment contracts.
(m) To eliminate the amortization of goodwill on the historical
financial statements of BGII.
(n) To adjust for the $16.8 million increase in interest expense from
the issuance of the Senior Secured Notes, and to amortize the related debt
issuance costs over 7 years, offset by the elimination of the $6.0 million
interest on the BGII debt being refinanced. For every 0.50% change in the
interest rate for the Senior Secured Notes, the correlating change in
interest expense for the year would be $0.7
39
<PAGE>
million on a pre-tax basis. Also represents the reduction of interest
expense of $3.8 million caused by the Exchange Offer and the Automatic
Conversion into Common Stock of an assumed $50.0 million of principal of the
New Convertible Debentures.
(o) Represents the reduction of the amortization of the deferred
financing costs related to the assumed $50.0 million of New Convertible
Debentures exchanged and converted into Common Stock.
(p) To adjust for the estimated effect of foreign income tax savings
resulting from acquisition restructuring which will enable Alliance to
allocate items such as interest expense to Wulff.
4. PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS FOR
THE NINE-MONTH PERIOD ENDED MARCH 31, 1996
(q) Alliance development expenses, which relate to mergers, acquisitions
and joint ventures, were reduced to $3.0 million annually. For the
nine-month period ended March 31, 1996, Alliance was below this $3.0 million
annualized amount by $0.3 million. The elimination of direct costs related
to the Merger is shown separately in note (s) below.
(r) To adjust for estimated synergy cost savings identified by
management to date including elimination of certain duplicative costs, such
as facility, legal, accounting and compensation, which total approximately
$5.0 million on an annual basis.
(s) To eliminate costs associated with the Merger incurred by Alliance
and BGII of $12.2 million and $2.7 million, respectively, consisting of
legal, accounting and investment banking fees and related costs.
(t) To record the amortization of the goodwill resulting from the
Merger. The goodwill is being amortized over 40 years.
(u) To amortize the costs associated with the termination of Messrs.
Kloss and Conover's existing employment contracts with BGII over the life of
their respective employment contracts.
(v) To eliminate the amortization of goodwill on the historical
financial statements of BGII.
(w) To adjust for the $12.6 million increase in interest expense from
the issuance of the Senior Secured Notes, and to amortize the related debt
issuance costs over 7 years, net of the elimination of the $4.2 million
interest on the BGII debt being refinanced. Also represents the reduction of
interest expense of $2.8 million caused by the Exchange Offer and the
Automatic Conversion into Common Stock of an assumed $50.0 million of
principal of the New Convertible Debentures.
(x) Represents the reduction of the amortization of the deferred
financing costs related to the assumed $50.0 million of New Convertible
Debentures exchanged and converted into Common Stock.
(y) To adjust for the estimated effect of foreign income tax savings
resulting from acquisition restructuring which will enable Alliance to
allocate items such as interest expense to Wulff.
40
<PAGE>
5. SHARE INFORMATION
The following table reflects computations of the pro forma number of shares
of Common Stock outstanding and the per share computations (shares in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
1995 1996
---------------- ---------------
<S> <C> <C>
Historical weighted average shares outstanding................... 11.3(a) 12.2
Shares to be sold in the Private Placement....................... 1.3 1.3
Shares to be issued to BGII stockholders......................... 0.7 0.7
Common Stock to be issued to terminate contracts for certain BGII
personnel....................................................... 0.9 0.9
Common Stock to be issued in the Automatic Conversion and as
advisory compensation........................................... 11.0 11.0
--- ---
Pro forma weighted average shares outstanding................ 25.2 26.1
--- ---
--- ---
</TABLE>
- ------------------------
(a) Excludes 1.3 million shares of non-voting special stock held by KIC, which
was converted into Common Stock in December 1995.
Effect of the Merger on the shareholders of Alliance, assuming a stock price
of $4.00, exchange of $50.0 million of Old Convertible Debentures and conversion
of New Convertible Debentures solely into Common Stock, is as follows (shares in
millions):
<TABLE>
<S> <C> <C> <C> <C>
Common Stock outstanding at March 31, 1996....................... 13.0
Shares of BGII common stock outstanding at March 31, 1996........ 10.8
Less the shares of BGII common stock already owned by
Alliance.................................................... 1.0
-----
BGII common stock to be converted.......................... 9.8
-----
-----
Common Stock to be issued to BGII stockholders................... 0.7
Common Stock to be issued to terminate contracts for certain BGII
personnel....................................................... 0.9
Common Stock to be sold in Private Placement..................... 1.3
Common Stock to be issued in the Automatic Conversion and as
advisory compensation........................................... 11.0
-----
Pro forma total outstanding shares........................... 26.9
-----
-----
</TABLE>
If all $85.0 million outstanding Old Convertible Debentures were exchanged
and the resulting New Convertible Debentures converted into Common Stock, the
pro forma total of outstanding shares would increase by an additional 7.4
million.
6. SUPPLEMENTAL PRO FORMA INFORMATION
Additional supplemental information regarding cash flow and fixed charges
has been presented with adjustments consistent with those shown in the pro forma
operating results. The earnings required to cover the Preferred Stock dividend
fixed charge have been presented excluding the effects of income taxes due to
the fact that the pro forma results of operations reflect losses from continuing
operations, resulting in a computed effective tax rate from continuing
operations that is not meaningful.
41
<PAGE>
SUPPLEMENTAL ANALYSIS OF
ADJUSTED OPERATING CASH FLOW
The Company believes that it is important to present supplementally an
analysis of its Adjusted Operating Cash Flow, given the pro forma leverage ratio
of the Company. Reference should be made to the Unaudited Pro Forma Condensed
Combined Financial Information presented elsewhere herein. The information
presented in the following schedule is being provided solely for the purposes of
assisting a prospective investor in making an investment decision.
The Company believes that this information is a useful adjunct to net
income, cash flows and other GAAP measurements. However, this supplemental
information should not be construed as an alternative to net income or any other
GAAP measure of performance as an indicator of the Company's performance or to
GAAP-defined cash flows generated by operating, investing and financing
activities as an indicator of cash flows or a measure of liquidity.
Alliance management has made certain adjustments to combined operating
income and has made further adjustments thereto to arrive at a measure of
adjusted operating cash flow ("Adjusted Operating Cash Flow"). As is more fully
described below, such adjustments consist of the elimination of certain charges
that management has determined to be non-recurring or unusual, as well as
adjustments made to reflect the most recent operating results of the Rainbow
Casino by annualizing the most recent nine month operating results (seasonally
adjusted), and presenting such results as if they had occurred for each period
presented. The concepts of non-recurring or unusual charges are not defined in
GAAP. In making these adjustments, management considered non-recurring revenue
items as well as non-recurring expense items. There can be no assurance that
other unusual charges will not occur in the future.
<TABLE>
<CAPTION>
ESTIMATED
ALLIANCE BGII SYNERGY ADJUSTED OPERATING
-------------------------- ------------- COST CASH FLOW AND PRO FORMA
HISTORICAL AS ADJUSTED AS ADJUSTED SAVINGS NET INTEREST EXPENSE
----------- ------------- ------------- ----------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995
Operating Income (Loss)......................... $ (4,261) $ 1,543 $ 17,962
Depreciation and Amortization................... 9,520 10,413 8,482
Minority Interest............................... (397) (397) --
Casino Royalty.................................. (810) (3,431) --
----------- ------------- -------------
$ 4,052 8,128 26,444
----------- ------------- -------------
-----------
Reclassification of Certain Direct Merger
Costs........................................ 1,669 250
ADJUSTMENTS:
Rainbow Operations............................ 5,219 --
Other Unusual or Non-recurring Charges........ 2,367 1,950
------------- -------------
Adjusted Operating Cash Flow.................... $ 17,383 $ 28,644 $ 5,000 $ 51,027
------------- ------------- ----------- -------
------------- ------------- ----------- -------
Pro Forma Net Interest Expense.................. $ 20,431
-------
-------
NINE-MONTH PERIOD ENDED MARCH 31, 1996
Operating Income (Loss)......................... $ (5,872) $ (6,124) $ (641)
Depreciation and Amortization................... 7,328 7,328 6,977
Minority Interest............................... (708) (708) --
Casino Royalty.................................. (2,931) (2,931) --
----------- ------------- -------------
$ (2,183) (2,435) 6,336
----------- ------------- -------------
-----------
Reclassification of Certain Direct Merger
Costs........................................ 12,235 2,725
ADJUSTMENTS:
Rainbow Operations............................ (160) --
Other Unusual or Non-recurring Charges........ 3,179 4,566
------------- -------------
Adjusted Operating Cash Flow.................... $ 12,819 $ 13,627 $ 3,750 $ 30,196
------------- ------------- ----------- -------
------------- ------------- ----------- -------
Pro Forma Net Interest Expense.................. $ 15,716
-------
-------
</TABLE>
The above supplemental analysis should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Financial Information and the notes
thereto. In this regard, for the year ended June 30, 1995, the Company's pro
forma deficit of earnings to fixed charges was $1.2 million, and the pro forma
deficit of earnings to fixed charges after the Preferred Stock dividend was $9.2
million. The Company's pro forma deficit of earnings to fixed charges, both
before and after the Preferred Stock dividend, for the nine-month period ended
March 31, 1996 was $9.8 million, and $15.7 million, respectively.
42
<PAGE>
The direct Merger costs have been reclassified and presented in computing
the separate company Adjusted Operating Cash Flow, as management believes that
such presentation provides additional relevant information to the potential
purchasers of the Company's securities, after eliminating direct costs related
to the Merger.
DIRECT MERGER COSTS. Both Alliance and BGII have incurred direct costs
related to the Merger consisting of legal, accounting, and investment banking
fees and related costs. For Alliance, such costs totaled $1.7 million and $12.2
million for the year ended June 30, 1995 and the nine months ended March 31,
1996. BGII's direct costs incurred relating to the Merger totaled $0.3 million
and $2.7 million for the year ended June 30, 1995 and the nine months ended
March 31, 1996, respectively.
The adjustments which were made in determining the supplemental analysis of
Adjusted Operating Cash Flow which were not considered in the preceding
Unaudited Pro Forma Condensed Combined Statements of Operations reflect the
following:
RAINBOW OPERATIONS. The final elements of the Rainbow Casino facility,
consisting of an 89-room hotel and an amusement park and the completion of the
casino exterior decor, parking, landscaping and signage, were not completed
until July 1995, although the Rainbow Casino had been open without these
amenities since July 1994. Although the hotel and amusement park are not owned
or operated by Alliance, management believes that such facilities have
contributed significantly to the recent strong financial results of the Rainbow
Casino. Therefore, Alliance management believes that the results of operations
for the nine months ended March 31, 1996 after considering seasonality (which
management believes was immaterial) are more reflective of the property's
ongoing results of operations. Accordingly, such results for the twelve months
ended June 30, 1995 and the nine months ended March 31, 1996 have been
annualized based on the actual financial results for the six months ended
December 31, 1995, as Alliance management believes that such results better
portray the Rainbow Casino's contribution to Adjusted Operating Cash Flow. This
annualization involves forward-looking statements that involve risks and
uncertainties, including the risks of competition, gaming regulation and the
other risks detailed in this Prospectus, included under "Risk Factors."
BGII ONE-TIME COSTS. Certain charges incurred by BGII consist of costs
relating to a regulatory investigation and legal proceedings in Louisiana
totaling $1.0 million, legal costs related to a former executive totaling $0.5
million, and legal costs related to the "Bally" trade name litigation that were
directly caused by the investigation totaling $0.2 million during the fiscal
year ended June 30, 1995. Results for the nine months ended March 31, 1996 were
adjusted for charges consisting of a reserve for V.A.T and the write-down of a
building in Germany, which had been acquired in the purchase of a distributor
and never used by Wulff, to its net realizable value in anticipation of its
sale, totaling $1.8 million, as well as to adjust for legal costs relating to
Louisiana of $1.0 million.
In June 1995, BGII entered into a merger agreement with WMS, which was
ultimately terminated to enter into the Merger Agreement with Alliance. Based on
management's assessment and allocation of the total costs incurred for both the
WMS and Alliance merger transactions, one-time costs related to the WMS
transaction were $0.2 million and $1.8 million for the fiscal year ended June
30, 1995 and the nine months ended March 31, 1996, respectively.
ALLIANCE ONE-TIME COSTS. One-time charges incurred by Alliance consist of
an executive signing bonus of $1.3 million paid in Common Stock and $1.1 million
of termination costs for certain directors. These charges were incurred during
the quarter ended June 30, 1995 and are therefore included as adjustments only
for the twelve months ended June 30, 1995. Also, for the nine months ended March
31, 1996 Alliance recorded a provision for impaired assets of two business
development projects, totaling $3.2 million.
SYNERGY COST SAVINGS. Although management cannot precisely quantify future
savings, the Company has identified and expects to realize synergy cost savings
of approximately $5.0 million on an annual basis (primarily through the
reduction of duplicative costs, such as facility, legal, accounting and
compensation costs) as a result of the Merger. The Company further expects to
incur approximately $1.0 million in one-time implementation costs in realizing
these savings, which expenditures have been added back in arriving at the above
supplemental analysis.
43
<PAGE>
FORECAST OF OPERATIONS
The following Forecast of Operations (the "Forecast") sets forth, to the
best of management's knowledge and belief and giving consideration to actual
results for Alliance and BGII for the three months ended March 31, 1996,
management's expectations of the results of operations for the Company (assuming
consummation of the Merger and giving effect to the other elements of the
Transaction) for the twelve-month period ending December 31, 1996. The Forecast
is based on Alliance's current best estimates of expected results for the period
presented given the forecasted assumptions described in "Summary of Significant
Assumptions and Accounting Policies for the Forecast." The Forecast, which
consists of forward-looking statements, is qualified by, and subject to, the
assumptions set forth below and the other information contained in this
Prospectus, and should be read in conjunction with "Summary of Significant
Assumptions and Accounting Policies for the Forecast" as well as "Unaudited Pro
Forma Condensed Combined Financial Information," "Supplemental Analysis of Pro
Forma Adjusted Operating Cash Flow," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited and unaudited
historical consolidated financial statements and related notes thereto of
Alliance and BGII included elsewhere herein.
Alliance does not intend to update or otherwise revise the Forecast to
reflect events or circumstances existing or arising after the date of this
Prospectus or to reflect the occurrence of unanticipated events. BGII's
independent accountants, Coopers & Lybrand L.L.P., have neither examined nor
compiled nor had any other involvement with the preparation of the Forecast and
accordingly do not express an opinion or any other form of assurance with
respect thereto, nor do they assume any responsibility for the Forecast.
Independent accountants for Alliance, KPMG Peat Marwick LLP, have not examined
the Forecast presented herein and, accordingly, do not express an opinion or any
other form of assurance with respect thereto, and no other independent expert
has examined the Forecast.
The Forecast is based upon a number of estimates and assumptions that while
presented with numerical specificity and considered reasonable by management of
Alliance are inherently subject to significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
to predict and many of which are beyond the control of Alliance. However, the
Forecast does represent management's good faith estimate of the most likely 1996
results of operations including operating income, net income (loss), net income
(loss) applicable to Common Shares, income (loss) per share, EBITDA and Adjusted
Operating Cash Flow. The assumptions disclosed herein are those that Alliance
believes are significant to the Forecast and reflect management's judgment as of
the date hereof. The Forecast is necessarily speculative in nature, and it is
usually the case that one or more of the assumptions do not materialize. Not all
assumptions used in the preparation of the Forecast have been set forth herein.
In addition, as disclosed elsewhere in this Prospectus under "Risk Factors", the
business and operations of the Company are subject to substantial risks which
increase the uncertainty inherent in the Forecast. Many of the factors disclosed
under "Risk Factors" in this Prospectus could cause actual results to differ
materially from those expressed in the Forecast. The Forecast and actual results
will vary, and those variations may be material. The inclusion of the Forecast
herein should not be regarded as a representation by Alliance or any other
person (including the Underwriters) that the Forecast will be achieved.
Prospective purchasers are cautioned not to place undue reliance on the
Forecast.
Alliance was the sole preparer of the Forecast, which was prepared in
accordance with guidelines established by the American Institute of Certified
Public Accountants, except that it combines Alliance and BGII as if the
Transaction had occurred and it omits the disclosure of certain non-operating
items, income taxes, extraordinary items, and significant changes in financial
position.
The Forecast reflects, among other things, the results of operations, EBITDA
and Adjusted Operating Cash Flow, but it may not fully reflect the Company's
ability to pay cash interest requirements because it does not reflect other cash
obligations and requirements, such as mandatory payments on debt principal and
preferred stock redemptions, and operating requirements relating to capital
maintenance and expansion. Because the Forecast has been prepared on a
consolidated basis, the Forecast does not account for the Company's holding
company structure, which will result in cash flow earned at certain subsidiaries
being unavailable for distribution to the Company, including to service
indebtedness of the Company.
44
<PAGE>
ALLIANCE GAMING CORPORATION
FORECAST OF OPERATIONS
<TABLE>
<CAPTION>
COMPARATIVE ANALYSIS OF
OPERATIONS (1)
--------------------------------------------------------- FORECAST OF
OPERATIONS FOR
TWELVE MONTHS THREE MONTHS THE TWELVE
ENDED DECEMBER 31, ENDED MARCH 31, MONTHS ENDING
------------------------- ----------------------------- DECEMBER 31,
1994 1995 1995 1996 1996
----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENTS OF OPERATIONS INFORMATION:
Revenues
Gaming................................ $129,690 $147,590 $ 36,365 $ 39,707 $163,389
Food and Beverage Sales............... 7,096 4,045 1,118 856 4,189
Net Equipment Sales................... 231,371 244,488 67,664 57,440 254,467
Other................................. 4,874 4,841 631 1,109 3,912
----------- ----------- ------------- ------------ --------------
Net Revenues........................ 373,031 400,964 105,778 99,112 425,957
----------- ----------- ------------- ------------ --------------
Operating Costs
Gaming................................ 90,125 98,377 22,972 26,771 103,331
Food and Beverage..................... 4,755 2,884 701 566 3,150
Equipment Sales....................... 152,582 157,800 42,889 36,740 158,804
Selling, General and Administrative... 91,508(2) 94,859(2) 24,635(2) 22,318(2) 113,283(2)
Unusual Charges and Other............. 300 5,216 400 3,479 4,479
Depreciation and Amortization......... 22,483 22,584 4,740 5,311 23,192
----------- ----------- ------------- ------------ --------------
Total Operating Costs............. 361,753 381,720 96,337 95,185 406,239
----------- ----------- ------------- ------------ --------------
Operating Income........................ $ 11,278 $ 19,244 $ 9,441 $ 3,927 $ 19,718
----------- ----------- ------------- ------------ --------------
----------- ----------- ------------- ------------ --------------
Net Income (Loss)....................... $(12,181) $ (7,153) $ 2,906 $ (3,076) $(33,939)
Preferred Stock Dividends............... (8,039) (8,039) (1,900) (1,900) (8,039)
----------- ----------- ------------- ------------ --------------
Net Income (Loss) Applicable to Common
Shares................................. $(20,220) $(15,192) $ 1,006 $ (4,976) $(41,978)
----------- ----------- ------------- ------------ --------------
----------- ----------- ------------- ------------ --------------
Income (Loss) per Common Share.......... $ (0.84) $ (0.60) $ 0.04 $ (0.18) $ (1.56)(3)
----------- ----------- ------------- ------------ --------------
----------- ----------- ------------- ------------ --------------
Common Shares Outstanding............... 24,100 25,300 25,200 26,900 26,900
----------- ----------- ------------- ------------ --------------
----------- ----------- ------------- ------------ --------------
SUPPLEMENTAL INFORMATION:
Operating Income........................ $ 11,278 $ 19,244 $ 9,441 $ 3,927 $ 19,718
Depreciation and Amortization........... 22,483 22,584 4,740 5,311 23,192
Casino Royalty.......................... (1,670) (3,674) (983) (1,024) (4,368)
Minority Interest....................... (675) (504) (83) (432) (920)
----------- ----------- ------------- ------------ --------------
Subtotal.............................. 31,416 37,650 13,115 7,782 37,622
Adjustments:
Rainbow Operations.................... -- 1,912(4) 1,189(4) -- --
Unusual Charges and Other............. 2,856(5) 7,783(5) 600(5) 3,487(5) 4,479(6)
Direct Merger Costs................... -- -- -- -- 12,815(7)
----------- ----------- ------------- ------------ --------------
Adjusted Operating Cash Flow............ $ 34,272 $ 47,345 $ 14,904 $ 11,269 $ 54,916
----------- ----------- ------------- ------------ --------------
----------- ----------- ------------- ------------ --------------
OTHER DATA:
Net Interest Expense.................. $ 19,561 $ 20,743 $ 4,964 $ 5,191 $ 20,491
----------- ----------- ------------- ------------ --------------
----------- ----------- ------------- ------------ --------------
Ratio of Adjusted Operating
Cash Flow to Net Interest
Expense......................................................................................... 2.7x
Ratio of Net Debt to
Adjusted Operating Cash
Flow............................................................................................ 3.4x
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
45
<PAGE>
- ------------------------------
(1) See Note (2) -- Presentation of Supplemental Comparative Information of the
"Summary of Significant Assumptions and Accounting Policies for the
Forecast."
(2) Selling, general and administrative costs are net of the following: direct
Merger costs (for all periods presented except for the twelve months ending
December 31, 1996); the business development costs over (under) the $3.0
million budgeted annual amount totaling $4.7 million, $1.0 million, $1.4
million and $(52,000) for the twelve months ended December 31, 1994 and 1995
and the three months ended March 31, 1995 and 1996, respectively; and
synergy cost savings totaling $5.0 million for the twelve months ended
December 31, 1994 and 1995 and for the twelve months ending December 31,
1996 and $1.3 million for the three months ended March 31, 1995 and 1996.
See Note (6) below for one-time $1.0 million costs to implement synergy cost
savings in 1996. See Note (7) below for the 1996 presentation which includes
direct Merger costs.
(3) The loss per Common Share in the forecasted twelve-month period ending
December 31, 1996 is computed based on 26,900,000 common shares outstanding,
and includes depreciation and amortization of $23.2 million (or $0.86 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).
(4) Represents adjustment to reflect management's derivation of Rainbow Casino's
annualized results for the period, net of incremental royalty.
(5) Reflects items determined by management to be unusual or non-recurring
(which are also included in Total Operating Costs). The concepts of
non-recurring or unusual charges are not defined in GAAP.
(6) For the twelve months ending December 31, 1996, reflects items determined by
management to be non-recurring charges, consisting of a provision for
impaired assets of two development projects totaling $3.2 million included
in Alliance's Selling, General and Administrative costs; the $1.0 million of
one-time charges (which are included in Selling, General and Administrative
costs) to implement the expected annual synergy cost savings (which are
reflected in Total Operating Costs as well); and certain charges of $0.3
million relating to a regulatory investigation and legal proceedings in
Louisiana.
(7) Direct Merger costs for the twelve months ending December 31, 1996 of $12.8
million have been included in Total Operating Costs and presented as an
adjustment in computing the Adjusted Operating Cash Flow. See Note (2) above
for the presentation of direct Merger costs in earlier periods.
See accompanying Summary of Significant Assumptions and Accounting Policies for
the Forecast
46
<PAGE>
SUMMARY OF SIGNIFICANT
ASSUMPTIONS AND ACCOUNTING POLICIES FOR THE FORECAST
FOR THE TWELVE-MONTH PERIOD ENDING DECEMBER 31, 1996
NOTE 1. -- INTRODUCTION
The Forecast of Operations for the twelve-month period ending December 31,
1996 and the accompanying related Summary of Significant Assumptions and
Accounting Policies of Alliance Gaming Corporation and subsidiaries, after
consummation of the Transaction, represent Alliance's best estimate as of the
date of this Prospectus for the first twelve months of combined operations
(after elimination of all significant intercompany accounts and transactions).
The Forecast reflects management's judgment, based on present circumstances, of
the expected set of conditions and their expected courses of action, to the
extent such conditions or action are anticipated to affect the results described
in the Forecast.
The assumptions described herein are those that management believes are
significant to the Forecast or are the key factors upon which the results shown
in the Forecast depend. However, not all assumptions used in the preparation of
the Forecast have been set forth herein. The estimates and assumptions, though
considered reasonable by management, may not be achieved and are inherently
subject to significant business, economic, regulatory and competitive
uncertainties and contingencies, including possible competitive responses, many
of which are not within the control of the Company and are not possible to
assess accurately. Therefore, the actual results achieved during the forecast
period will vary from those set forth in the Forecast, and the variations may be
material. Prospective investors are cautioned not to place undue reliance on the
Forecast.
The Forecast assumes that, among other things: (i) the proceeds of the
Offerings and the Private Placement are used as contemplated in "The Merger and
Related Financings" and "Use of Proceeds;" (ii) there will be no change in GAAP
that may have a direct material effect on the reporting of financial results of
the Company; (iii) there will be no material changes made to gaming regulations
that would affect the operations of the Company; and (iv) that management will
realize the anticipated synergies. Management believes that these assumptions,
when taken together with management's extensive experience in operating in such
markets, provide a reasonably objective basis to forecast the Company's
operations for the period presented.
Alliance does not intend to update or otherwise revise the Forecast to
reflect events or circumstances existing or arising after the date hereof or to
reflect the occurrence of unanticipated events. The Forecast is provided solely
for the purpose of assisting a prospective investor in making an investment
decision, and not for the purpose of assessing equity value.
For a discussion of significant accounting policies see Note 1 of the Notes
to the Alliance audited consolidated financial statements and the "Summary of
Significant Accounting Policies" of the notes to the BGII audited consolidated
financial statements included elsewhere in this Prospectus.
NOTE 2. -- PRESENTATION OF SUPPLEMENTAL COMPARATIVE INFORMATION
For the purpose of assisting investors in evaluating the forecasted
information, Alliance has presented a Comparative Analysis for the twelve-month
periods ended December 31, 1994 and 1995 and the three-month periods ended March
31, 1995 and 1996 which have been derived using accounting principles and
assumptions consistent with those used in deriving the Pro Forma Unaudited
Condensed Combined Statements of Operations included elsewhere in this
Prospectus. Each period in the Comparative Analysis includes adjustments for the
planned reduction of the Company's ongoing development costs to $3.0 million per
year, certain estimated annual synergy cost savings (net of one-time
implementation costs) and items management believes to be one-time charges, and
assumes that the Rainbow Casino was consolidated since its opening in July 1994.
The Comparative Analysis has been prepared by management to provide potential
investors with additional information to analyze the Forecast and should not be
construed as a presentation of actual historical results or expected future
results.
The "Unaudited Pro Forma Condensed Combined Financial Information,"
"Supplemental Analysis of Adjusted Operating Cash Flow" and the audited and
unaudited historical consolidated financial statements and related notes thereto
of Alliance and BGII included elsewhere herein should be read for additional
information.
47
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS
The assumptions disclosed herein are those that management believes are
significant to the Forecast. There will be differences between forecasted and
actual results, because events and circumstances frequently do not occur as
expected, and those differences may be material. Costs and Expenses presented
for the individual business units below exclude depreciation and amortization,
which are non-cash charges.
REVENUES AND COSTS AND EXPENSES
GAMING MACHINE MANAGEMENT OPERATIONS
NEVADA
In its Nevada gaming machine management operations, Alliance selects, owns,
installs, manages and services gaming devices (approximately 5,250 devices at
December 31, 1995) in third-party owned local establishments such as taverns,
restaurants, supermarkets, drug stores and convenience stores (approximately 520
locations at December 31, 1995).
Alliance has agreements with local bars, taverns, restaurants and
convenience stores for either space lease or revenue-sharing arrangements. Under
the revenue-sharing arrangements, Alliance shares the revenues from the machines
with the location operator, and with space lease arrangements Alliance pays a
fixed rental to the owner of the establishment and then Alliance receives all of
the revenues derived from the gaming devices. At December 31, 1995, the weighted
average remaining term of Alliance's revenue-sharing arrangements was
approximately 3.9 years, and for space lease arrangements was approximately 2.9
years.
NEVADA GAMING MACHINE MANAGEMENT OPERATIONS
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS MONTHS
ENDED DECEMBER 31, ENDING
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average Number of Machines.......................................... 5,180 5,288 5,482
Average Number of Locations......................................... 504 521 541
Net Revenues........................................................ $90,092 $91,949 $101,579
Costs and Expenses.................................................. $76,248 $77,507 $85,582
</TABLE>
Gaming machine management revenues are a function of the average number of
machines installed, times the average net win per machine. The revenues are
assumed to increase due to the increase in the number of Alliance's machines
installed, which reflects increased demand caused in part by Nevada's
significant population growth trend, as well as due to an increase in average
net win per machine based primarily on the assumed implementation of Gambler's
Bonus discussed below. The Forecast assumes that of the contracts expiring
during the forecast period Alliance intends to retain 80%, which is consistent
with historical renewal rates. For the year ended June 30, 1995, Alliance did
not renew 17% of expiring agreements, including those Alliance had determined to
allow to lapse.
Additionally, in December 1995, Alliance implemented the Gambler's Bonus
cardless slot player's club and player tracking system. Alliance assumes, for
the purpose of this Forecast, that there will be 88 locations, or an aggregate
of 980 machines, installed at June 1996, increasing to 130 locations, or 1,490
machines, at December 1996. Consistent with results of previously installed
machines linked to Gambler's Bonus, the Forecast assumes that there will be an
increase in the average net win per machine at these locations based on an
anticipated increase in the play at these machines. Consistent with contracts
signed to date, the Forecast assumes that the contracts with the additional
locations will allow Alliance to receive a percentage of the increased gaming
win generated by Gambler's Bonus in addition to its existing revenue
participation. Forecasted results of the Nevada gaming operations are directly
dependent upon the realization of these assumptions. Variations from the
realization of these assumptions will have a material effect upon the forecasted
results.
48
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
The Forecast assumes that costs and expenses (which include selling, general
and administrative costs) related to Nevada gaming machine management operations
are relatively stable as a percentage of revenues as compared to the 1995
levels.
LOUISIANA
VSI operates video poker devices in the greater New Orleans area under an
exclusive agreement with the owner of the only full service thoroughbred horse
racing facility and its 10 associated OTBs. The tenth OTB location opened in
Metairie, Louisiana in October 1995, bringing the total number of machines in
operation to approximately 700 (which is the assumed number of machines for the
forecasted period). Only the operator of the full service horse racing facility
may own OTBs.
LOUISIANA GAMING MACHINE MANAGEMENT OPERATIONS
<TABLE>
<CAPTION>
FORECASTED
TWELVE MONTHS TWELVE
ENDED DECEMBER MONTHS
31, ENDING
---------------- DECEMBER 31,
1994 1995 1996
------- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average Number of Machines....................................... 724 702 700
Net Revenues..................................................... $17,196 $15,739 $16,946
Costs and Expenses............................................... $13,882 $11,921 $12,985
</TABLE>
Revenues are assumed to increase as a result of the full year impact of the
Metairie OTB location completed in October 1995.
The Forecast assumes that the statute that permits the operation of
unlimited numbers of video poker devices in pari-mutuel horse racing tracks and
the associated OTBs is not changed by referendum. See "Risk Factors -- Strict
Regulation by Gaming Authorities." Forecasted results of the Louisiana gaming
machine management operations are directly dependent upon this assumption. An
unfavorable result in legislation or referendum will have a material adverse
effect upon the forecasted results. Alliance's operations also depend on the
financial viability of the racetrack, which is beyond the control of Alliance.
Pursuant to the terms of a subordinated loan of up to $6.5 million made in
March 1992 by Mr. Wilms to VSI, a majority-controlled subsidiary of Alliance (as
amended, the "VSI Loan"), VSI may not pay cash dividends or make any
distribution of its property. The loan, which had an outstanding balance of $3.4
million at December 31, 1995, amortizes quarterly until due in full in September
1998 and may be prepaid at any time without penalty. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Forecast assumes that costs and expenses (which include selling, general
and administrative costs) related to Louisiana gaming machine management
operations will be approximately the same during the forecast period as a
percentage of revenues as during 1995.
49
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
CASINO OPERATIONS
PLANTATION STATION
PLANTATION STATION OPERATIONS
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS ENDED MONTHS
DECEMBER 31, ENDING
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT UNIT
DATA)
<S> <C> <C> <C>
Average Number of Slot Machines........................................ 422 462 453
Win/Slot/Day........................................................... $ 46 $ 38 $ 41
Average Number of Table Games.......................................... 9 9 9
Win/Table/Day.......................................................... $ 260 $ 219 $ 225
Gaming Revenues........................................................ $ 8,892 $ 8,209 $ 8,645
Net Revenues........................................................... $ 12,847 $ 12,183 $ 12,653
Costs and Expenses..................................................... $ 10,425 $ 10,150 $ 10,555
</TABLE>
Total revenues include food and beverage sales, which are assumed to remain
relatively stable compared to 1995; however, the food and beverage sales provide
only minimal gross profit.
The Forecast assumes that total revenues will experience a 4% increase from
the previous year. The Forecast also assumes that the Sparks/Reno, Nevada gaming
market will increase by 3% in 1996, compared to 5% growth for calendar 1995 as
reported by the Nevada Gaming Control Board. In addition, because the negative
impact on Plantation Station of a major street, sidewalk, and landscaping
redevelopment project by the City of Sparks ended in December 1995, the Forecast
assumes that revenues will increase in 1996. Forecasted results of the
Plantation Station operations are directly dependent upon the realization of
these assumptions. Variations from these assumptions will have a material effect
upon the forecasted results.
The Forecast also assumes that costs and expenses (which includes selling,
general and administrative costs) related to Plantation Station operations are
approximately the same during the forecast period as a percentage of revenues as
in 1995.
50
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
RAINBOW CASINO
RAINBOW CASINO OPERATIONS (a)
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS ENDED MONTHS
DECEMBER 31, ENDING
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT UNIT
DATA)
<S> <C> <C> <C>
TOTAL VICKSBURG MARKET
Average Number of Slot Machines........................................ 2,849 2,847 2,880
Average Number of Tables............................................... 152 154 155
Win/Slot/Day........................................................... $ 124 $ 142 $ 153
% CHANGE............................................................. -- 15.2% 7.4%
Win/Table/Day.......................................................... $ 851 $ 789 $ 730
% CHANGE............................................................. -- -7.2% -7.5%
Win/Position/Day....................................................... $ 128 $ 140 $ 145
% CHANGE............................................................. -- 9.2% 4.0%
RAINBOW
Average Number of Slot Machines........................................ 573 589 589
Average Number of Tables............................................... 28 28 25
Win/Position/Day....................................................... $ 72 $ 102 $ 132
% CHANGE............................................................. -- 42.7% 29.2%
Net Revenues........................................................... $ 10,433 $ 29,069 $ 36,400
Costs and Expenses..................................................... $ 7,918 $ 18,995 $ 23,540
</TABLE>
- ------------------------
(a) The information for 1994 and 1995 represents the actual results of the
Rainbow Casino, which opened in July 1994 and was not consolidated with
Alliance until March 1995, when Alliance completed its acquisition of the
general partnership interest in the limited partnership owning the casino.
From that point forward, the Rainbow Casino's operations have been
consolidated with those of Alliance.
The total gaming market for the Vicksburg, Mississippi area is assumed to
increase 5% to approximately $200 million for 1996. Management assumes that the
Company's location at Vicksburg Landing and the adjoining amenities will enable
the Rainbow Casino to attract visitors from the existing tourism market of the
historic city of Vicksburg as well as a significant share of the local market.
The Rainbow Casino market share is assumed to be 18% (versus its current level
of approximately 19%) which is up from 13% prior to the opening of the Days Inn
Hotel, the Funtricity Entertainment Center and the restaurant in July 1995. Both
the hotel and entertainment park are operated by third parties. The Forecast
assumes that there are no new entrants into the market and no relocation of
existing facilities within the market. Forecasted results of Mississippi gaming
operations are directly dependent upon the realization of these assumptions.
Variations from these assumptions will have a material effect upon forecasted
results.
The Forecast assumes that costs and expenses (which include selling, general
and administrative but do not include the casino royalty related to the Rainbow
Casino operations) are relatively stable as a percentage of revenues as compared
to the 1995 levels.
NET EQUIPMENT SALES
Forecasted equipment results include the operating results from Gaming,
Systems and Wulff. There are numerous factors which affect any forecast of
gaming equipment sales, including gaming regulatory factors and casino or arcade
machine demand and patron preferences. The impact of such factors on the Company
will be material.
51
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
GAMING
Equipment sales reflect the sales of video and reel-type gaming machines to
casinos in various jurisdictions, including casinos in Nevada and Atlantic City,
riverboats, Native American casinos, and international markets. Equipment sales
is a function of the number of unit sales and the net sales price per unit.
Gaming's results include GmbH and BGI Australia Pty Limited along with certain
reclassifications from historical presentation.
GAMING OPERATIONS
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS ENDED MONTHS
DECEMBER 31, ENDING
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
UNIT SALES
United States.............................................................. 17,126 12,586 15,000
International.............................................................. 4,499 5,498 5,500
---------- ---------- ------------
Total.................................................................. 21,625 18,084 20,500
Net Revenues............................................................... $ 118,659 $ 111,849 $ 122,483
Costs and Expenses......................................................... $ 111,355 $ 104,544 $ 111,733
</TABLE>
Although worldwide electronic gaming machine sales (for these purposes,
primarily slot and video machines) decreased in 1995 by approximately 18%
primarily because of a reduced number of new casino openings and delays in
previously expected riverboat activity, management assumes that 1996 worldwide
gaming machine sales will increase as a result of (1) three major casino
openings in Las Vegas, (2) the opening of Indiana riverboat casinos, (3) the
expansion of certain other markets and (4) the expected increase in demand for
replacement machines as a result of an increasing portion of the installed base
reaching its natural replacement cycle. However, particularly in the case of
non-traditional gaming markets, the timing and magnitude of electronic gaming
machine sales is difficult to predict with accuracy. The Forecast assumes a
relatively constant market share during the forecast period while Gaming's share
during the past two years has grown significantly.
The Forecast assumes gross margin increases during the forecast period due
to a 1.5% increase in net unit price, continued reduction in the new material
cost per unit (although at a lower rate than experienced during the past two
years) and improved manufacturing efficiencies as a result of higher production
levels during the forecast period than during the year ended December 31, 1995.
Gaming's forecasted operating results are directly dependent upon the
realization of these assumptions. The Forecast assumes selling, general and
administrative expenses will increase by approximately 18% as a result of
increased product development and sales efforts. Variations from these
assumptions will have a material effect upon forecasted results. As Gaming's
manufacturing overhead costs and selling, general and administrative expenses
are relatively fixed, variances from the forecasted unit sales impact margins to
a greater extent than if such costs were predominantly variable.
52
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
SYSTEMS
Systems' revenues reflect the sales of computer hardware and computer
software, as well as maintenance and upgrades of such hardware and software, to
casinos in various jurisdictions, including Nevada and Atlantic City,
riverboats, Native American casinos and, to a lesser extent, in international
markets. Hardware and software sales are based on the contracts that Systems
enters into with each of the individual casinos. Such contracts generally
reflect pre-determined prices for goods and services provided by Systems.
Maintenance revenues are generally a function of the total installed base of
Systems' GMUs.
SYSTEMS OPERATIONS
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS ENDED MONTHS
DECEMBER 31, ENDING
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues....................................................... $ 13,386 $ 20,681 $ 20,565
Costs and Expenses................................................. $ 9,793 $ 14,893 $ 14,262
</TABLE>
The Forecast assumes that revenues during the forecast period will be
comparable to the prior year. The forecasted net revenues assumes that
approximately 40% of Systems' sales result from product upgrades and expansions.
The Forecast assumes gross margin will increase during the forecast period due
to lower average discounts from list price primarily due to a change in customer
mix and the absence of a provision for product upgrades which was recorded
during the year ended December 31, 1995. The Forecast assumes selling, general
and administrative expenses will increase approximately 13%. Systems' forecasted
operating results are directly dependent upon the realization of these
assumptions. Variations from these assumptions will have a material effect upon
forecasted results. In particular, because Systems' revenues are concentrated in
a relatively small number of customers, a change in circumstantial delay or
other change in a small number of orders will materially impact Systems'
operating results.
WULFF
Wulff sales reflect the sales of new and used wall machine units,
third-party wall machines, pinball machines and other related amusement devices
and used equipment primarily in Germany to various arcades, taverns, hotels and
amusement galleries. Wulff's revenues are a function of the number of unit sales
and the sales price per unit.
WULFF OPERATIONS
<TABLE>
<CAPTION>
FORECASTED
TWELVE MONTHS TWELVE
ENDED MONTHS
DECEMBER 31, ENDING
---------------------- DECEMBER 31,
1994 1995 1996
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
New Wall Machine Units..................................................... 13,100 12,000 12,000
Net Revenues (all machines)................................................ $ 104,147 $ 116,782 $ 115,331
Costs and Expenses......................................................... $ 88,572 $ 101,610 $ 98,495
</TABLE>
The Forecast assumes that new wall machine revenues for the first six months
of 1996 will be adversely affected by an industry downturn caused by regulations
imposed in Germany limiting the number of wall machines per square meter in
arcade locations effective January 1, 1996, thereby reducing sales
opportunities. The Forecast assumes demand for new wall machines to continue to
be lower during the first half of 1996 than during the first half of 1995, but
to increase, and to exceed the 1995 level of demand, in the second half of 1996
principally due to the expected impact of new regulations going into effect on
January 1, 1997,
53
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
which will require all wall machines in use to have meters to monitor the amount
inserted by players and paid out by the machine. There can be no assurance that
the downturn in the first half of 1996 will be less than the downturn in the
last half of 1995, nor that the downturn is solely related to the regulatory
change, and, accordingly, temporary in nature. Further, there can be no
assurance that the forecasted positive impact of the 1997 regulations will be
realized or that demand will increase in the second half of 1996 as forecasted.
The Forecast assumes gross margin will increase during the forecast period
due to lower raw material costs per unit partially offset by a lower average
price per unit. Wulff's forecasted operating results will be directly dependent
upon the realization of these assumptions. The Forecast assumes selling, general
and administrative expenses will remain relatively constant. Variations from the
realization of these assumptions will have a material effect upon forecasted
results. As Wulff's manufacturing overhead costs and selling, general and
administrative expenses are relatively fixed, variances from forecasted unit
sales could impact margins to a greater extent than if such costs were
predominantly variable.
OTHER OPERATING COSTS AND EXPENSES (ALL BUSINESS UNITS)
The Forecast gives effect to assumed cost savings as a result of Merger
synergies and further assumes a reduction in corporate development costs, all on
the basis reflected under "Supplemental Analysis of Adjusted Operating Cash
Flow." In contrast to the actual results presented in the Comparative Analysis
for 1995, the Forecast assumes that other than as presented, no charges will be
incurred of the sort reflected in the "Supplemental Analysis of Adjusted
Operating Cash Flow" as Other Unusual or Non-recurring Charges, although the
concepts of non-recurring or unusual charges are not defined under GAAP. In
developing the Forecast, management included anticipated Merger costs for the
forecast period, and reviewed the Comparative Analysis period for non-recurring
revenue items as well as non-recurring expense items. The forecast of other
operating costs and expenses are particularly dependent upon the assumptions
concerning synergy cost savings and reduction of corporate development costs.
There is a possibility that a variation from the assumed savings may occur, and
the effect may be material. Assumptions for forecasted overhead levels and
certain other expenses as reflected above (E.G., for litigation costs) may be
subject to factors substantially outside of the Company's control, to a greater
degree than assumptions regarding its business units' revenues and cost of
sales.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization (which were not included in the business unit
discussion above) are expected to continue to be charged to earnings on
substantially the same basis as has been done historically. There are no
significant capital additions expected during the forecast period, nor is there
any expected material change to depreciation or amortization rates. Capital
replacement is expected to continue during the year at a moderate rate. The
Forecast also gives effect to expected increases in amortization of goodwill and
other assets resulting from the Merger.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
FORECASTED
TWELVE
TWELVE MONTHS ENDED MONTHS
DECEMBER 31, ENDING
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gaming Machine Management................................................... $ 6,166 $ 7,773 $ 5,132
Casinos..................................................................... 644 3,803 1,580
Gaming...................................................................... 1,522 879 750
Systems..................................................................... 626 294 276
Wulff....................................................................... 7,389 7,067 5,682
Other....................................................................... 1,169 444 65
--------- --------- ------------
Total................................................................... $ 17,516 $ 20,260 $ 13,485
--------- --------- ------------
--------- --------- ------------
</TABLE>
54
<PAGE>
NOTE 3. -- OPERATING ASSUMPTIONS (CONTINUED)
Management believes that it has substantial discretion to reduce forecasted
levels of capital expenditures without materially reducing operating results for
the forecasted period, principally in the case of the Gaming Machine Management
and Casino expenditures. The significant capital expenditures in 1994 and 1995,
including upgrading the Plantation Casino, completing the Rainbow Casino and
upgrading the Gaming Machine Management installed base, are assumed to further
enhance the Company's ability to reduce 1996 capital expenditures on a
discretionary basis. Management estimates the minimum level of capital
expenditures for maintenance purposes is approximately $8.0 million.
NOTE 4. -- ADJUSTED OPERATING CASH FLOW BY BUSINESS UNIT
The following is a reconciliation of the historical EBITDA by business unit
to the combined Adjusted Operating Cash Flow:
<TABLE>
<CAPTION>
FORECASTED
TWELVE
MONTHS
TWELVE MONTHS ENDED THREE MONTHS ENDED MARCH ENDING
DECEMBER 31, 31, DECEMBER
------------------------- ------------------------ 31,
1994 1995 1995 1996 1996
---------- ----------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA by Business Unit:
Gaming Machine Management............. $ 17,159 $ 18,260 $ 4,758 $ 4,469 $ 19,957
Casinos............................... 2,927 10,546 731 3,889 14,958
Wulff................................. 15,575 15,172 5,106(a) 3,406(a) 16,836
Gaming................................ 7,304 7,305 2,659(a) 1,046(a) 10,750
Systems............................... 3,593 5,788 1,997(a) 1,620(a) 6,303
Alliance Corporate Administrative
Expense.............................. (10,609) (8,912) (1,654) (4,723) (8,979)
Alliance Development Expense.......... (7,694) (15,072) (2,139) (3,497) (13,815)
BGII Corporate Administrative
Expense.............................. (4,520) (3,732) (1,285) (604) (4,800)
Discontinued Operations/Other......... (1,378)(b) (933)(b) (58)(b) (64)(b) --
Casino Royalty........................ -- (2,718) (27) (1,024) (4,368)
Minority Interest..................... (675) (504) (83) (432) (920)
BGII Unusual Charges and Other........ (300)(c) (7,216)(c) (400)(c) (1,296)(c) (2,300)
---------- ----------- ---------- ---------- -----------
Combined EBITDA......................... 21,382 17,984 9,605 2,790 33,622
Adjustments:
Direct Merger Costs................... -- 13,106(d) -- 3,794(d) 12,815(d)
Alliance Development Expense.......... 4,694(e) 966(e) 1,389(e) (52)(e) --
Rainbow Operations.................... 340(f) 2,506(f) 2,060(f) -- --
Unusual or Non-recurring Charges...... 2,856(g) 7,783(h) 600(i) 3,487(j) 4,479(k)
Synergy Cost Savings.................. 5,000(l) 5,000(l) 1,250(l) 1,250(l) 4,000(l)
---------- ----------- ---------- ---------- -----------
Adjusted Operating Cash Flow............ $ 34,272 $ 47,345 $ 14,904 $ 11,269 $ 54,916
---------- ----------- ---------- ---------- -----------
---------- ----------- ---------- ---------- -----------
</TABLE>
- --------------------------
(a) Differences in interim results for the three-month periods for Gaming and
Systems were affected by the timing and number of new casino openings, and
management believes that the interim results for Wulff in the 1996 quarter
were affected by regulations, which became effective January 1, 1996,
limiting the number of wall machines per square meter in arcade locations,
thereby reducing new sales opportunities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(b) Principally includes expenses by small casinos and taverns after Alliance
management discontinued their operations.
(c) See Notes (3), (6) and (7) to "Selected Historical Financial Information of
BGII."
(d) For the twelve months ended December 31, 1995, $11.1 million of direct
Merger costs are included in Alliance Development Expense and $2.0 million
in BGII Unusual Charges and Other. No such costs were incurred by either
company in the three months ended March 31, 1995. For the three months ended
March 31, 1996, $2.8 million of direct Merger costs are included in Alliance
Development Expense and $1.0 million in BGII Unusual Charges and Other. For
the forecasted twelve months ending December 31, 1996, $10.8 million of
direct Merger costs are included in Alliance Development Expense and $2.0
million in BGII Unusual Charges and Other.
(e) Reflects Alliance Development Expense, which relates to mergers,
acquisitions and joint ventures, adjusted to $3.0 million annually. The
adjustment to $3.0 million reflects the anticipated elimination of expenses
that were
55
<PAGE>
NOTE 4. -- ADJUSTED OPERATING CASH FLOW BY BUSINESS UNIT (CONTINUED)
being incurred pending Alliance's accomplishment of its strategic plan to
acquire a major gaming manufacturing company. To accomplish this reduction,
Alliance reduced payroll costs and fees paid to consultants and legal costs
related to non-BGII transactions it had been pursuing. The adjustment to
eliminate direct costs related to the Merger is shown in Note (b) above. For
the three months ended March 31, 1996, Alliance Development Expense was
below the $3.0 million annual rate by $52,000.
(f) To adjust to reflect the operating results of the Rainbow Casino as if owned
during all of 1994 and 1995 and, for the twelve months ended December 31,
1995 and three months ended March 31, 1995, to reflect the recent operating
results of the Rainbow Casino, as if such results had occurred for all of
1995 (including an adjustment for additional casino royalty expense of
approximately $1.7 million, $1.0 million and $1.0 million, for the twelve
months ended December 31, 1994 and 1995 and the three months ended March 31,
1995, respectively).
(g) Includes legal costs included as BGII Corporate Administrative Expense
related to a former executive totaling $0.5 million and $0.3 million
recorded as BGII Unusual Charges and Other relating to a regulatory
investigation and legal proceedings in Louisiana and a reserve for
discontinued operations of $2.0 million for Alliance included in Alliance
Corporate Administrative Expense.
(h) Includes one-time charges included in Alliance Corporate Administrative
Expense consisting of an executive signing bonus of $1.3 million paid in
Common Stock and $1.1 million of termination costs for certain officers and
directors, which were incurred during the quarter ended June 30, 1995. Also
includes $1.4 million relating to a regulatory investigation and legal
proceedings in Louisiana included in BGII Unusual Charges and Other, and
$0.2 million included in BGII Corporate Administrative Expense for legal
costs related to the "Bally" trade name litigation. BGII Unusual Charges and
Other also includes $2.0 million in costs related to the merger agreement
between BGII and WMS, a provision of $0.8 million at Wulff to write down to
net realizable value the carrying value of a building to be sold and a
provision of $1.0 million to increase Wulff's tax reserves primarily for
V.A.T.
(i) Includes certain charges of $0.4 million included in BGII Unusual Charges
and Other relating to a regulatory investigation and legal proceedings in
Louisiana and $0.2 million included in BGII Corporate Administrative Expense
for legal costs related to the "Bally" trade name litigation.
(j) Includes a provision for impaired assets of two development projects
totaling $3.2 million included in Alliance Corporate Administrative Expense.
Also includes certain charges of $0.3 million included in BGII Unusual
Charges and Other relating to a regulatory investigation and legal
proceedings in Louisiana.
(k) Includes a provision for impaired assets of two development projects
totaling $3.2 million in Alliance Corporate Administrative Expense, $1.0
million of one-time charges to implement the expected annual synergy cost
savings, and certain charges of $0.3 million included in BGII Unusual
Charges and Other relating to a regulatory investigation and legal
proceedings in Louisiana.
(l) To adjust for estimated synergy cost savings indentified by management to
date including elimination of certain duplicative costs such as facility,
legal, accounting and compensation, which total approximately $5.0 million
on an annual basis. For the forecasted twelve months ending December 31,
1996, the synergy cost savings are presented net of the $1.0 million of
one-time charges to implement the cost savings (which are added back in Note
(i) above).
NOTE 5. -- MANDATORY PRINCIPAL PAYMENTS
Because the Forecast has been prepared on a consolidated basis, the Forecast
does not account for the Company's holding company structure, which will result
in cash flows earned at certain subsidiaries being unavailable for distribution
to the Company, including to service indebtedness of the Company during the
forecast period. Mandatory principal payments for the twelve months ending
December 31, 1996 (all of which relate to indebtedness of subsidiaries) consist
of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
VSI Loan.......................................................................................... $ 1,074
Rainbow Casino debt............................................................................... 2,810
Other............................................................................................. 773
------
$ 4,657
------
------
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources of the Company (Pro Forma)."
56
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF ALLIANCE
The following table sets forth selected consolidated financial information
of Alliance as of and for the fiscal years ended June 30, 1991, 1992, 1993, 1994
and 1995, and as of and for the nine months ended March 31, 1995 and 1996. The
historical financial information of Alliance as of June 30, 1991, 1992 and 1993
and for the years ended June 30, 1991 and 1992 as set forth below has been
derived from the audited consolidated financial statements of Alliance not
included in this Prospectus. The results for the period ended March 31, 1996
will not necessarily be indicative of the results for the fiscal year ended June
30, 1996, and in the opinion of Alliance include all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the information set
forth herein. The table should also be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Condensed Combined Financial Information," the audited
consolidated financial statements of Alliance and the unaudited interim
condensed consolidated financial statements of Alliance including the notes
thereto and other financial and operating information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
-------- ------- ------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
NET REVENUES:
Gaming:
Routes.............................. $ 77,150 $77,940 $96,282 $102,830 $106,827 $ 79,389 $ 81,111
Casinos and Taverns................. 11,281 11,560 12,526 15,679 21,287 11,523 32,698
Food and Beverage Sales............... 3,120 3,376 4,184 4,480 3,847 2,842 2,976
Net Equipment Sales (1)............... 214 379 99 65 27 22 11
-------- ------- ------- -------- -------- -------- -----------
Total Net Revenues.................. 91,765 93,255 113,091 123,054 131,988 93,776 116,796
COSTS AND EXPENSES:
Cost of Gaming:
Routes.............................. 58,299 58,585 72,614 76,332 79,875 59,411 62,293
Casinos and Taverns................. 8,528 8,459 8,667 11,871 11,436 6,743 14,726
Cost of Food and Beverage............. 2,249 2,367 2,876 3,084 2,795 2,038 1,992
Cost of Equipment Sales............... 151 284 49 20 12 10 3
Selling, General and Administrative... 8,059 8,950 12,667 13,555 14,633 9,279 14,308
Business Development Costs............ -- -- 900 1,192 7,843 5,647 14,233
Corporate Expenses.................... 7,567 5,290 6,191 7,882 9,735 6,258 4,606
Provision for Impaired Assets......... -- -- -- -- -- -- 3,179
Bad Debt Expense...................... 4,845 539 461 705 400 -- --
Write-off of Inventories, Intangibles
and Other Assets..................... 4,982 -- -- -- -- -- --
Loss on Abandoned Casinos............. 7,847 2,307 -- 3,713 -- -- --
Loss on Abandoned Taverns............. -- -- -- 2,638 -- -- --
Depreciation and Amortization......... 7,092 7,355 8,718 9,530 9,520 6,934 7,328
-------- ------- ------- -------- -------- -------- -----------
Total Costs and Expenses............ 109,619 94,136 113,143 130,522 136,249 96,320 122,668
-------- ------- ------- -------- -------- -------- -----------
Operating Loss.......................... (17,854) (881) (52) (7,468) (4,261) (2,544) (5,872)
OTHER INCOME (EXPENSE):
Interest Income....................... 1,750 1,324 998 2,084 2,798 2,235 1,206
Interest Expense...................... (4,663) (4,505) (5,046) (6,830) (8,133) (5,844) (6,341)
Minority Interest..................... -- -- -- -- (397) (252) (708)
Royalty............................... -- -- -- -- (810) (27) (2,931)
Other Net............................. (1,007) (618) 450 (673) 317 33 398
-------- ------- ------- -------- -------- -------- -----------
Loss Before Income Taxes................ (21,774) (4,680) (3,650) (12,887) (10,486) (6,399) (14,248)
Income Tax (Expense) Benefit............ 5,958 -- -- (241) (265) (394) (581)
-------- ------- ------- -------- -------- -------- -----------
Net Loss............................ $(15,816) $(4,680) $(3,650) $(13,128) $(10,751) $ (6,793) $ (14,829)
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Net Loss Per Common Share............... $ (1.73) $ (0.51) $ (0.38) $ (1.28) $ (0.95) $ (0.61) $ (1.21)
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Weighted Average Common Shares
Outstanding............................ 9,151 9,248 9,696 10,251 11,300 11,192 12,245
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Deficit of Earnings to Fixed Charges
(2).................................... $(21,744) $(4,680) $(3,650) $(12,887) $(10,487) $ (6,399) $ (14,248)
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Pro Forma Deficit of Earnings to Fixed
Charges................................ $ (1,164) $ (200) $ (9,821)
-------- -------- -----------
-------- -------- -----------
Pro Forma Deficit of Earnings to Fixed
Charges and Preferred Stock
Dividends.............................. $ (9,203) $ (6,116) $ (15,737)
-------- -------- -----------
-------- -------- -----------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
FISCAL YEARS ENDED JUNE 30, 31,
------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
-------- ------- ------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CASH FLOW INFORMATION:
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Cash Flow From:
Operating Activities................ $ 4,889 $12,311 $ 5,909 $ 9,062 $ 957 $ 167 $ (533)
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Investing Activities................ $ (7,159) $(6,887) $(8,998) $(27,299) $(21,648) $ (9,791) $ 5,255
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Financing Activities................ $ 766 $ (959) $ 2,430 $ 45,742 $ (2,660) $ (1,509) $ (2,485)
-------- ------- ------- -------- -------- -------- -----------
-------- ------- ------- -------- -------- -------- -----------
Pro Forma Cash Flow From:
Operating Activities................ $ 7,225 $ 4,890 $ 20,564
-------- -------- -----------
-------- -------- -----------
Investing Activities................ $(26,936) $(13,637) $ 354
-------- -------- -----------
-------- -------- -----------
Financing Activities................ $ (757) $ 1,604 $ (3,358)
-------- -------- -----------
-------- -------- -----------
<CAPTION>
AT JUNE 30, AT MARCH 31,
------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
-------- ------- ------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents............... $ 5,774 $10,239 $ 9,580 $ 37,085 $ 13,734 $ 25,952 $ 15,791
Securities Available for Sale........... -- -- -- 12,489 23,680 13,240 9,591
Working Capital......................... 10,450 11,557 7,991 50,926 31,746 37,749 15,583
Total Assets............................ 79,024 75,594 73,768 119,416 126,348 128,103 111,288
Total Long-term Debt, including
Current Maturities..................... 44,450 43,282 44,798 90,726 101,397 102,718 99,089
Total Stockholders' Equity
(Deficiency)........................... 27,008 23,660 22,665 15,099 9,985 12,699 (5,595)
Book Value per Share.................... 2.95 2.51 2.27 1.28(3) 0.77(3) 1.00(3) (0.43)(3)
Pro Forma Book Value per Share.......... 2.16 1.58
</TABLE>
- ------------------------------
(1) Includes sales to related parties of $86 (1991), $236 (1992), $2 (1993), $6
(1994), $0 (1995) and $0 for the nine-month periods ended March 31, 1995 and
1996.
(2) No dividends were paid by Alliance during any period presented.
(3) Computed including Common Stock and Special Stock owned by KIC which was
converted into Common Stock in December 1995.
58
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF BGII
The following table sets forth selected financial information of BGII
(consolidated for the periods 1992 through 1995 and combined for 1991), as of
and for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and as of
and for the three months ended March 31, 1995 and 1996, of which certain periods
are included elsewhere in this Prospectus. See "Basis of Presentation and
Description of Business" in BGII's Notes to Consolidated Financial Statements.
The historical financial information of BGII as of December 31, 1991, 1992 and
1993 and for the years ended December 31, 1991 and 1992 as set forth below has
been derived from the audited financial statements of BGII not included in this
Prospectus. The unaudited results for the period ended March 31, 1996 will not
necessarily be indicative of the results for the year ending December 31, 1996
and in the opinion of BGII include all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the information set forth
herein. The selected historical consolidated financial data for periods prior to
November 18, 1991 (the date BGII completed its initial public offering of common
stock), present, on a historical cost basis, the financial position, results of
operations and cash flows of the subsidiaries and divisions of BEC which
formerly conducted operations as Gaming, Systems and Wulff. This table should
also be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed
Combined Financial Information", the audited consolidated financial statements
of BGII including the notes thereto and the unaudited interim condensed
consolidated financial statements of BGII including the notes thereto and other
financial and operating information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993(1) 1994(1) 1995(1) 1995(1) 1996(1)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................................ $ 153,648 $ 163,781 $ 168,707 $ 236,192 $ 249,312(2) $ 68,289 $ 58,544
Cost of Sales........................... 102,357 99,906 121,710(3) 157,059 163,131(2) 43,500 37,757
Selling, General and Administrative
Expenses............................... 36,725 46,348 57,357(4) 59,989 65,289 16,998 16,526
Provision for Doubtful Receivables...... 2,176 3,597 8,176(5) 5,763 6,712(2) 1,154 991
Unusual Charges......................... -- -- -- -- 5,816(6) -- 996(7)
Interest Expense, Primarily Charged by
BEC in 1991............................ 1,602 1,951 4,424 6,768 6,853 1,733 1,665
Provision for Income Taxes.............. 5,784 6,725 4,242 2,820 4,904 2,042 1,122
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) before Extraordinary
Gain................................... 5,004 5,254 (27,202) 3,793 (3,393) 2,862 (513)
Extraordinary Gain on Early
Extinguishment of Debt................. -- -- 3,759 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)....................... $ 5,004 $ 5,254 $ (23,443) $ 3,793 $ (3,393) $ 2,862 $ (513)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Per Share before
Extraordinary Gain..................... $ 0.48 $ 0.50 $ (2.54) $ 0.35 $ (0.31) $ 0.27 $ (0.05)
Extraordinary Gain on Early
Extinguishment of Debt Per Share....... -- -- 0.35 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Per Share............. $ 0.48 $ 0.50 $ (2.19) $ 0.35 $ (0.31) $ 0.27 $ (0.05)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro Forma Net Income.................... $ 2,435(8)
---------
---------
Pro Forma Net Income Per Share.......... $ 0.23(8)
---------
---------
Average Number of Common Shares
Outstanding............................ 10,450 10,573 10,685 10,727 10,776 10,751 10,805
Ratio of Earnings to Fixed Charges...... 6.51X 6.56X -- 1.93X 1.21X 3.69X 1.35X
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Deficit of Earnings to Fixed Charges.... -- -- $ (22,960) -- -- -- --
---------
---------
CASH FLOW INFORMATION:
Historical Cash Flow From:
Operating Activities.................. $ 24,960 $ (17,604) $ (29,548) $ 1,224 $ 3,795 $ (5,605) $ (1,757)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Investing Activities.................. $ (2,878) $ (5,175) $ (13,407) $ (6,391) $ (6,233) $ (2,108) $ (2,218)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Financing Activities.................. $ (13,134) $ 18,506 $ 38,980 $ 8,231 $ (1,961) $ 1,688 $ 590
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents............... $ 14,429 $ 9,800 $ 5,436 $ 9,204 $ 5,526 $ 3,959 $ 2,009
Working Capital......................... 69,350 82,481 83,009 95,772 97,357 103,369 85,649
Property, Plant and Equipment, Net...... 19,650 18,695 24,042 24,358 23,244 26,412 23,615
Total Assets............................ 131,342 150,805 170,830 192,242 194,316 205,112 186,936
Long-term Debt, Including Current
Maturities............................. 7,186 25,950 62,458 69,762 69,944 73,936 69,971
Stockholders' Equity.................... 98,605 101,277 74,879 85,883 88,410 97,314 86,000
</TABLE>
- ------------------------------
(1) Includes results from the acquisition of a distribution business by Wulff in
January 1993.
(2) Includes the impact of sales returns of $0.3 million and a provision for
doubtful receivables of $0.9 million recorded in the second quarter of 1995
by Gaming related to two riverboats at the River City Complex in New Orleans
which filed for bankruptcy.
(3) Includes $6.2 million in charges to increase inventory valuation reserves in
1993 principally related to inventory originally intended for sale in the
Louisiana video lottery terminal market.
(4) Includes $1.2 million in charges related to a management reorganization at
Gaming in 1993.
(5) Includes a provision for doubtful receivables totaling $5.1 million recorded
by Gaming in 1993 related to a former distributor who filed for bankruptcy
during the second quarter of 1993.
(6) Includes $4.0 million in merger transaction costs and related litigation
expenses, a provision of $0.8 million at Wulff to write down to net
realizable value the carrying value of a building to be sold and a provision
of $1.0 million to increase Wulff's tax reserves primarily for V.A.T.
(7) Includes $1.0 million in Merger transaction costs.
(8) Includes pro forma income tax information for the year ended December 31,
1991 to reflect the provision for income taxes and net income as if Gaming
and Systems had filed separate income tax returns. The pro forma information
assumes that Gaming and Systems would have been unable to utilize operating
losses on a carry back basis.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion provides an assessment of the liquidity and capital
resources of Alliance, the pro forma liquidity and capital resources of the
Company, and the results of operations of each of Alliance and BGII. The
discussion should be read in conjunction with the audited consolidated financial
statements of Alliance and BGII, and the unaudited interim condensed
consolidated financial statements of Alliance, in each case including the notes
thereto, which are included elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES OF ALLIANCE
At March 31, 1996, Alliance had working capital of approximately
$15,583,000, a decrease of approximately $16,163,000 from June 30, 1995. The
decrease in working capital is due in part to a decrease in cash and cash
equivalents which were used to fund development activities in connection with
Alliance's business strategy. As of March 31, 1996, Alliance had $25,562,000 in
cash, cash equivalents and securities available for sale (including $8,875,000
representing the market value of the 1,000,000 shares of BGII common stock owned
by Alliance), of which approximately $9,000,000 is necessary to fund ongoing
gaming operations in the ordinary course of business. At June 30, 1995, Alliance
had working capital of approximately $31,746,000 and $37,414,000 in cash, cash
equivalents and securities available for sale.
For the nine months ended March 31, 1996, Alliance incurred development
costs associated with pursuing Alliance's business strategy relating to mergers
and acquisition of approximately $14,233,000 consisting of $12,235,000 of direct
costs incurred related to the Merger and the previous tender offer and consent
solicitation by Alliance and $1,998,000 of salaries and administrative costs of
the mergers and acquisitions unit. During fiscal 1995, Alliance incurred
approximately $7,843,000 in expenses associated with pursuit of Alliance's
business strategy, of which $1,669,000 related to the Merger. Alliance's
business strategy is to use its strengthened management team, diversified gaming
expertise and business and investment community relationships to develop new
opportunities in the operation of land-based, dockside and riverboat casinos
(including Native American casinos), gaming systems and technology and the
supply and management of electronic gaming machines.
On July 16, 1994 the Rainbow Casino located in Vicksburg, Mississippi
permanently opened for business. In connection with the completion of the casino
and the acquisition of its original 45% limited partnership interest in Rainbow
Casino Vicksburg Partnership L.P. ("RCVP"), the partnership which owns the
casino, through a wholly-owned subsidiary, Alliance funded a $3,250,000 advance
to the Rainbow Casino Corporation, an unaffiliated Mississippi corporation
("RCC"), on the same terms as RCC's financing from Hospitality Franchise
Systems, Inc. ("HFS") (other than the fact that such advance is subordinate to
payments due to HFS and the HFS financing is secured).
The HFS financing provided to RCC on August 3, 1993 consisted of a $7.5
million loan which is secured by a first priority lien on all of the assets of
the project. The terms of the HFS financing provide that, in connection with the
loan and certain marketing services provided by HFS to RCC, RCC will pay to HFS
a royalty based upon the casino's annual gross gaming revenues of 12% on the
first $40 million, 11% on the next $10 million, and 10% thereafter, which
royalty is also secured by a lien on the assets of the project. See
"Business--Casino Operations."
On March 29, 1995, Alliance consummated certain transactions whereby
Alliance acquired from RCC the controlling general partnership interest in RCVP
and increased its limited partnership interest. In exchange for commitments by
Alliance and National Gaming Mississippi, Inc. ("NGM"), a subsidiary of National
Gaming Corporation, to provide additional financing (up to a maximum of
$2,000,000 each) to be used, among other things, for the completion of certain
elements of the project which survived the opening of the casino (for which RCC
was to have been responsible, but failed to satisfy) and for a $500,000 payment
paid to HFS as a waiver fee, a commitment by Alliance to fund any additional
capital necessary for the completion, upgrading or working capital of the
project, the following occurred: (i) a subsidiary of Alliance
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became the general partner and RCC became the limited partner of RCVP and (ii)
the respective partnership interests were adjusted. As of March 31, 1996,
amounts outstanding under the HFS facility and the related financings aggregated
$9.4 million. As adjusted, RCC is entitled to receive 10% of the net available
cash flows (which amount shall increase to 20% of such amount of revenues
exceeding $35,000,000 (i.e. only on such incremental amount)), for a period of
15 years, such period being subject to one year extensions for each year in
which a minimum payment of $50,000 is not made. In addition, if during any
continuous 12-month period until December 31, 1999 the casino achieved earnings
from the project of at least $10.5 million before deducting depreciation,
amortization, royalty and income taxes, then Alliance would be obligated to pay
to certain principals of the original partnership an amount aggregating $1.0
million in cash or shares of Common Stock 180 days after the occurrence. The
casino has achieved the required earnings as adjusted, and Alliance is obligated
to make the required payment or issue the Common Stock (with the issuance being
its expected course of action) by September 30, 1996. Also, Alliance's 5.2%
royalty on gross revenues was terminated on the date it became general partner.
Alliance and Casino Magic Corporation, through wholly-owned subsidiaries,
are members in Kansas Gaming Partners, L.L.C. ("KGP") and Kansas Financial
Partners, L.L.C. ("KFP"), both Kansas limited liability companies. Under an
option agreement (the "Option Agreement") granted to KGP by Camptown and The
Racing Association of Kansas-Southeast ("TRAK Southeast"), KGP has been granted
the exclusive right, which right expires on September 13, 2013, to operate
gaming machines and/or casino-type gaming at Camptown's racing facility in
Frontenac, Kansas if and when such gaming is permitted in Kansas. In December
1994, Camptown received a $3,205,000 loan from Boatmen's Bank which was
guaranteed by KFP. Alliance and Casino Magic Corporation each invested
$1,580,000 in KFP which amounts were used by KFP to purchase a certificate of
deposit to collateralize its guaranty. Construction of Camptown's racing
facility has been completed and the facility opened for business in May 1995.
The racing facility was temporarily closed on November 5, 1995 due to poor
financial results. Camptown filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in January 1996 and has stated its intention to reopen for
business following bankruptcy reorganization. Boatmen's Bank demanded payment of
the Camptown loan from KFP under the terms of the guaranty. KFP paid the loan
and Boatmen's Bank returned KFP's certificate of deposit and KFP assumed
Boatmen's Bank's position in the loan to Camptown which is secured by a second
mortgage on Camptown's greyhound racing facility in Frontenac, Kansas. TRAK
Southeast and Camptown continue to be bound by the Option Agreement. KFP intends
to vigorously pursue all of its rights and remedies which may include, among
other things, seeking authority from the bankruptcy court to commence a
foreclosure action. In the case of a foreclosure action, KFP would be required
to assume or pay the existing first mortgage of approximately $2,000,000 if KFP
becomes the purchaser at any such sale. The Kansas legislature considered gaming
bills during the 1996 session although none passed. There can be no assurance
that gaming of any type will ever be legalized in Kansas. Management has
evaluated this investment and determined it to be impaired because it does not
appear to be recoverable. Alliance fully reserved the net book value of
approximately $1,585,000 through a charge to operations which has been recorded
in the quarter ended March 31, 1996.
Native American Investments, Inc. ("NAI"), a wholly-owned subsidiary has a
contract to develop Class II and III gaming opportunities with an Indian tribe
in California. Class II gaming is subject to the concurrent jurisdiction of the
National Indian Gaming Commission ("NIGC") and the applicable Indian tribe.
Class III gaming is a residual category composed of all forms of gaming that are
not Class I gaming or Class II gaming, including casino style gaming. The
contract is subject to negotiations resulting in satisfactory compacts with the
state and approval of the contract by the NIGC. The Governor of California has
to date refused to negotiate a compact covering Class III electronic gaming
machines and house-banked games in California and is currently engaged in
related litigation over the scope of gaming issues with certain Indian tribes.
There can be no assurance as to the ultimate outcome of these litigation
activities or successful completion of any part of the Alliance project. On
March 27, 1996, the United States Supreme Court ruled that a portion of the
Indian Gaming Regulatory Act was unconstitutional. As a result, Federal courts
cannot oversee negotiations between Indian tribes and state officials. Alliance
believes that this ruling will have a materially adverse effect upon its Native
American casino development activities in California. Accordingly, management
has evaluated this investment and determined it to be impaired because it now
appears to be
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unrecoverable. Management has fully reserved the net book value of approximately
$1,594,000 through a charge to operations which has been recorded in the quarter
ended March 31, 1996. Management will continue to monitor the status of Class II
and III gaming in California.
In March 1992, Alfred H. Wilms committed to provide to VSI, a
majority-controlled subsidiary of Alliance, a subordinated loan of up to $6.5
million dollars. The VSI Loan, as amended, bears interest at a rate equal to the
London Interbank Offered Rate for a period of ninety days plus 2%, payable
quarterly, and is due on September 21, 1998. The VSI Loan is secured by liens in
favor of N.V. Continental Trust Company ("CTC"), an affiliate of Mr. Wilms, on
substantially all of VSI's assets. Pursuant to the terms of the VSI Loan, VSI
may not pay cash dividends or make any distribution of its property. Alliance
also issued to Mr. Wilms warrants to purchase 2,000,000 shares of Common Stock
at $2.50 per share in connection with such loan which expire on September 1,
1998 (the "Wilms Warrants"). As of March 31, 1996, there was an outstanding
balance of $3.1 million on this loan.
Cash provided by operations for the nine months ended March 31, 1996
decreased by approximately $700,000 from amounts reported for the same period in
1995 resulting in negative cash flow from operations of $553,000. The change is
primarily due to an increase in business development costs over the same period
from the prior year of $8,586,000, primarily related to the Merger, partially
offset by an increase in cash provided by the casino operations of approximately
$7,795,000 attributable to the Rainbow Casino.
Cash provided by operations for fiscal 1995 decreased approximately
$8,105,000 from fiscal 1994. Included in fiscal 1994's cash provided by
operations was a non-recurring gain of $3,600,000 associated with the
termination of Alliance's letter agreement with Capital Gaming International,
Inc. ("Capital Gaming"), which concerned Alliance's proposed equity investment
in Capital Gaming, and the payment by Capital Gaming of $4,000,000 (offset by
transaction expenses) to Alliance in connection therewith, and $6,351,000 of
charges related to Alliance's decision to exit the downtown Las Vegas gaming
market and dispose of its tavern operations. Exclusive of these items,
expenditures related to supporting Alliance's business strategy relating to
mergers and acquisitions in fiscal 1995 increased approximately $3,051,000 from
fiscal 1994. Long-term accrued expenses decreased by approximately $1,031,000
from fiscal 1994 as Alliance paid rent and other exit expenses against the
amounts accrued in fiscal 1994 as noted above. The remaining increase in accrued
expenses accounted for the use of cash in the amount of $4,710,000. These uses
of cash were partially offset by an increase in cash flows from operations of
approximately $2,666,000 from Alliance's ongoing business operations and an
operating cash contribution of approximately $3,089,000 from the first year of
operations by the Rainbow Casino. Significant non-cash items added back to cash
flows from operations for fiscal 1995 include $1,313,000 in non-cash
compensation expense and $1,075,000 related to certain service contracts and
termination costs.
Cash provided by investing activities for the nine months ended March 31,
1996, increased $15,046,000 over that in 1995 due primarily to the proceeds of
approximately $12,950,000 from the sale of securities. Also, proceeds from the
sale of property and equipment increased $1,885,000 compared to the same period
last year.
Cash flows used for investing activities in fiscal year 1995 decreased by
$5,651,000 from the prior year. Net collections on receivables in fiscal 1995
improved by $2,605,000 over those in fiscal 1994. In fiscal 1994, Alliance
funded approximately $7,250,000 in loans to Capital Gaming and the original
general partner in RCVP, which additions were partially offset by increased
collections of receivables related primarily to the collection of the Capital
Gaming loan in fiscal 1994.
Cash used in financing activities for the nine months ended March 31, 1996,
increased $976,000 from the same period in 1995 due primarily to an increase in
Alliance's principal reductions on its existing long-term debt of $1,192,000 in
1996.
Cash flows from financing activities in fiscal year 1995 declined
$48,402,000 from fiscal 1994. In fiscal 1994, Alliance completed the private
placement of $85,000,000 aggregate principal amount of the Old Convertible
Debentures. Concurrent with the closing of the issuance of the Old Convertible
Debentures, Kirkland-Ft. Worth Investment Partners, L.P. ("Kirkland") invested
$5,000,000 in Alliance (the "Kirkland
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Investment") in exchange for 1,333,333 shares of Alliance's Non-Voting Junior
Convertible Special Stock and warrants to purchase up to 2,750,000 shares of
Common Stock, subject to certain conditions. A portion of the net proceeds from
these transactions was used to repay previously existing debt and accrued
interest of approximately $38,245,000. In December 1995, Kirkland elected to
convert the entire 1,333,333 shares of Non-Voting Junior Convertible Special
Stock into an equivalent number of shares of Common Stock.
EBITDA as a percent of the related revenues changed for Nevada gaming
machine management operations from 15.3% in fiscal 1994 to 16.7% in fiscal 1995
and to 14.5% in the first nine months of fiscal 1996 and for Louisiana gaming
machine management operations from 17.5% to 19.1% and to 20.6% for the same
periods. EBITDA as a percent of revenues for casino operations (excluding
discontinued operations), excluding certain one-time charges, was 18.2% in
fiscal 1994 and 23.3% in fiscal 1995 and 31.4% in the first nine months of
fiscal 1996. The increase in the first nine months of fiscal 1996 was due
primarily to the acquisition of the Rainbow Casino. EBITDA should not be
construed as an alternative to net income or any other GAAP measure of
performance as an indicator of Alliance's performance or to cash flows generated
by operating, investing and financing activities as an indicator of cash flows
or a measure of liquidity. Management believes that EBITDA is a useful adjunct
to net income and other GAAP measurements and is a conventionally used financial
indicator. On a pro forma basis, earnings would have been inadequate to cover
fixed charges by approximately $1.2 million for the year ended June 30, 1995 and
would have been inadequate to cover fixed charges by approximately $9.8 million
for the nine-month period ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY (PRO FORMA)
On October 18, 1995 Alliance entered into the Merger Agreement with BGII.
Pursuant to the Merger, BGII will become a wholly-owned subsidiary of Alliance.
The aggregate Merger consideration to BGII stockholders will be approximately
$77.2 million in cash (including interest accruing at a rate of 5.5% per annum
from May 3, 1996 to the Effective Time), $35.7 million in Preferred Stock
(including dividends accruing at a rate of 15% per annum from May 3, 1996 to the
Effective Time) and $2.9 million in Common Stock. Alliance will also retire
approximately $53.3 million of long-term debt of BGII (including prepayment
premium, original issue discount and unpaid interest accrued through the
Effective Time of the Merger) in connection with the Merger, and will generally
assume BGII's obligations with respect to outstanding options and warrants to
purchase shares of BGII common stock. See "The Merger and Related Financings."
Alliance currently anticipates obtaining one or more working capital
revolving facilities at Gaming, Systems and Wulff providing up to an aggregate
of $40.0 million of borrowings (of which approximately $22.0 million of Wulff's
existing lines of credit are anticipated to remain in place) which would be
secured by inventory and accounts receivable. Alliance has not received any
commitment for any such facility and no assurance can be given that it will be
able to obtain any such facility on terms acceptable to Alliance.
Following the Transaction, the Company believes that its working capital and
funds generated from operations will be sufficient to meet its existing
commitments, debt payments and other obligations as they become due; however,
the Company expects that it will have to refinance all or a portion of the Old
Convertible Debentures and the Senior Secured Notes at maturity if its cash flow
from operations does not increase substantially. On a pro forma basis after
giving effect to the Transaction, the Company's earnings would have been
inadequate to cover fixed charges and Preferred Stock dividends by approximately
$9.2 million and approximately $15.7 million for the 12-month period ended June
30, 1995 and the nine-month period ended March 31, 1996, respectively. The
Company believes that its working capital needs will increase as a result of the
introduction of new gaming machines and the expected increases in production and
sales levels from recent historical levels.
Following the Transaction, it remains a part of Alliance's business strategy
to seek on a more limited basis complementary gaming opportunities, including
opportunities in which its gaming machine management and casino experience may
be applicable. As part of its business activities, Alliance is regularly
involved in the identification, investigation and development of such
opportunities. Accordingly, in order to support such activities, Alliance may in
the future desire to issue additional debt or equity securities if and when
attractive opportunities become available on terms satisfactory to management.
However, the terms of the
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Senior Secured Notes will restrict the Company's ability to incur indedtedness
as set forth herein. See "Risk Factors -- High Leverage and Fixed Charges after
the Merger; Holding Company Structure; Working Capital" and "Description of the
Senior Secured Notes."
Management believes that customer financing terms have become an
increasingly important competitive factor in certain emerging markets.
Competitive conditions sometimes require Gaming and Systems to grant extended
payment terms on gaming machines and other gaming equipment. While these
financings are normally collateralized by such equipment, the resale value of
the collateral in the event of a default may be less than the amount financed.
In conjunction with sales by Gaming, with recourse to Gaming and/or BGII , of
certain trade receivables to third parties, Gaming and/or BGII have guaranteed
amounts due from various customers of approximately $16.7 million at March 31,
1996. It is possible that one or more of Gaming's customers whose obligation has
been guaranteed by Gaming may be unable to make payments as such become due. In
this case Gaming may become responsible for repayment of at least a portion of
such amounts over the term of the receivables. In general, under the terms of
these contracts, the Company may be responsible for monthly payments of the
outstanding obligations. Accordingly, the Company will have greater exposure to
the financial condition of its customers in emerging markets than has
historically been the case in established markets like Nevada and Atlantic City.
Wulff provides customer financing for approximately 20% of its sales, and
management expects this practice temporarily to increase during the latter half
of 1996. In order to be competitive in meeting customer demand for financing of
gaming equipment in emerging markets, the Company plans to continue to evaluate
the need to involve third party finance companies or secure additional
financing, although there is no assurance that such additional financing will be
obtained.
ALLIANCE RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
REVENUES
Total revenues for the nine months ended March 31, 1996 were $116,796,000,
an increase of $23,020,000 (24.5%) over those for the same period in fiscal year
1995. Revenues from all gaming machine management operations increased
$1,722,000 (2.2%) to approximately $81,111,000 in the first nine months of
fiscal 1996. Revenues from the Louisiana gaming machine management operations
increased $467,000 (an increase of 3.9%) primarily as a result of an expansion
of operations from the opening of a new OTB in October 1995. Revenues from
Nevada gaming machine management operations increased approximately $1,255,000
(1.9%) over those for the same period last year. The increase in the Nevada
gaming machine management revenues was attributable to a $0.66 increase in the
average net win per gaming device per day for the nine months ended March 31,
1996 compared to the same period in fiscal year 1995 (accounting for an increase
of approximately $942,000) and an increase in the weighted average number of
gaming devices on location for the nine months ended March 31, 1996 as compared
to the same period in fiscal year 1995 (accounting for an increase of
approximately $313,000). Revenues from casino and tavern operations, including
food and beverage sales, increased approximately $21,309,000 (148.3%) during the
current nine months as compared to those for the prior year as revenues
recognized from the Rainbow Casino, which were consolidated beginning March 29,
1995, exceeded the revenues lost with the termination of Alliance's lease at the
Royal Casino and the reduction of operations at Alliance's tavern locations.
COSTS AND EXPENSES
COSTS OF REVENUES. Cost of gaming machine management revenues for the nine
months ended March 31, 1996 increased $2,882,000 (4.8%) over the same period in
fiscal year 1995. Costs of revenues from gaming machine management operations in
Louisiana increased $187,000 (an increase of 2.4% from last year) as a result of
an expansion of operations from the opening of a new OTB parlor in October 1995.
Costs of gaming revenues for Nevada gaming machine management revenues increased
$2,695,000 (5.2%) as compared to the prior year as revenues increased, and
increased slightly as a percent of Nevada gaming machine management revenues
primarily due to increased costs associated with additional and renewed space
lease contracts. Cost of gaming machine management revenues includes rents under
both space lease and revenue sharing arrangements, gaming taxes and direct
labor, including related taxes and benefits. The
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cost of casino and tavern revenues including costs of food and beverage revenues
increased $7,937,000 (90.4%) compared to the same period of fiscal year 1995
results primarily due to the Rainbow Casino cost of revenues which were
consolidated beginning March 29, 1995. This increase was partially offset by the
termination of Alliance's lease at the Royal Casino and the reduction of
operations at Alliance's tavern locations. Cost of casino and tavern revenues
includes cost of goods sold, gaming taxes, rent and direct labor, including
related taxes and benefits.
EXPENSES. For the nine months ended March 31, 1996 Alliance incurred
developmental costs associated with pursuing Alliance's business development
strategy relating to mergers and acquisitions of approximately $14,233,000,
consisting of $12,235,000 of direct costs incurred related to the Merger and the
previous tender offer and consent solicitation by Alliance and $1,998,000 of
salaries and administrative costs of the mergers and acquisitions unit, which
represented an increase of $8,586,000 (152.0%). These business development
expenses include salaries and wages, related taxes and benefits, professional
fees, travel expense and other expenses associated with supporting Alliance's
strategy. The level of business development activities, exclusive of Merger
costs, has been reduced from prior periods due to the termination of two
executives in this business unit in order to reduce costs and the relocation of
this unit to lower cost office space. Alliance believes that such reduced level
of costs will be adequate to pursue its business development strategies on a
more limited basis in accordance with its business plan following consummation
of the Merger.
Selling, general and administrative expenses for the nine months ended March
31, 1996 increased approximately $5,029,000 (54.2%) over the same period in
1994. Expenses for casinos and taverns for the nine months ended March 31, 1996
increased $5,577,000 (209.5%) over the prior year primarily due to the Rainbow
Casino expenses which were consolidated beginning March 29, 1995. This increase
was partially offset by the termination of Alliance's lease at the Royal Casino
and the reduction of operations at Alliance's tavern locations. Such expenses
related to gaming machine management operations for the nine months ended March
31, 1996 decreased $548,000 (8.3%) over the same period in fiscal year 1995
reflecting steps taken to reduce costs, including reduced staffing levels.
Corporate general and administrative expenses decreased $1,652,000 (26.4%). This
decrease was caused primarily by controlling costs and reducing staffing levels.
Alliance expects that there may be further increases in selling, general and
administrative expenses related to the addition of new management and
development personnel and other costs associated with supporting Alliance's
business strategy. Included in last year's other income and expenses is a charge
of $386,000 representing Alliance's equity in the net loss of the Rainbow Casino
in its first nine months of operations prior to Alliance's acquisition of the
general partnership interest in RCVP on March 29, 1995.
Interest expense for the period increased $497,000 (8.5%) over the same
period last year due principally to the increased interest expense related to
the debt of Rainbow Casino.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES
Total revenues for the fiscal year ended June 30, 1995 were approximately
$131,988,000, an increase of $8,934,000 (7.3%) over those for fiscal 1994.
Revenues from all gaming machine management operations increased $3,997,000
(3.9%) to approximately $106,827,000 in fiscal 1995. Revenues from gaming
machine management operations in the State of Louisiana declined $1,796,000
(10.3%) primarily as a result of increased competition from riverboat
operations. Revenue from Nevada gaming machine management operations for fiscal
1995 increased approximately $5,739,000 (6.7%) over those for fiscal 1994. The
increase in the Nevada gaming machine management revenues was attributable to a
$2.15 increase in the average net win per gaming device per day in fiscal 1995
compared to fiscal 1994 (accounting for approximately $4,042,000 of such
increase) and an increase in the weighted average number of gaming devices on
location during fiscal 1995 as compared to fiscal 1994 (accounting for an
increase of approximately $1,751,000). Revenues from casino and tavern
operations, including food and beverage sales, increased approximately
$4,975,000 (24.6%) during fiscal 1995 over those for fiscal 1994 as revenues
recognized from the Rainbow
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Casino, which were consolidated beginning March 29, 1995, exceeded the revenues
lost as a result of the closing of Alliance's properties in downtown Las Vegas
and the termination of Alliance's lease at the Royal Casino.
COSTS AND EXPENSES
COSTS OF REVENUES. Cost of gaming machine management revenues for the
fiscal year ended June 30, 1995 increased $3,543,000 (4.6%) over that for fiscal
1994. Costs of revenues for gaming machine management operations in Louisiana
decreased $1,199,000 (10.7%) from fiscal 1994 as revenues declined primarily as
a result of increased competition in that market. As a percent of related
revenues, Louisiana gaming machine management costs of revenues remained
relatively constant. Cost of gaming revenues for Nevada gaming machine
management revenues for fiscal 1995 increased $4,742,000 (7.3%) over that in
fiscal 1994 and increased slightly as a percent of Nevada gaming machine
management revenues due primarily to increased costs associated with additional
and renewed space lease arrangements. Cost of gaming machine management revenues
includes rents under both space lease and revenue-sharing arrangements, gaming
taxes and direct labor, including related taxes and benefits. The cost of casino
and tavern revenues, including the cost of food and beverage sales, for fiscal
1995 decreased $724,000 (4.8%) over that in fiscal 1994 primarily due to the
closing of Alliance's properties in downtown Las Vegas and the termination of
Alliance's lease at the Royal Casino. These decreases were partially offset by
increases in Rainbow Casino costs of revenues which were consolidated beginning
in March 1995. Cost of casino and tavern revenues includes cost of goods sold,
gaming taxes, rent and direct labor expenses, including taxes and benefits.
Although the gross margin percentage for Nevada operations declined slightly
during fiscal 1995, the decline was completely offset by the addition of the
Rainbow Casino and a small improvement in the Louisiana gross margin percentage.
As a result, the total cost of revenues as a percentage of total revenues
declined by 2.9% over that in fiscal 1994.
EXPENSES. In fiscal 1995, Alliance incurred development costs associated
with pursuing Alliance's long term growth strategy of approximately $7,843,000,
an increase of approximately $6,651,000 (558.0%) over fiscal 1994. Included in
the development costs for fiscal 1995 was $1,669,000 of costs related to the
Merger. Included as an offset to development costs for fiscal 1994 was a
non-recurring gain of $3,600,000 related to Alliance's effort to acquire Capital
Gaming and the payment by Capital Gaming to extinguish its obligation to issue
warrants to Alliance in connection therewith. Fiscal 1994 development costs also
include certain significant expenses associated with Alliance's purchase of
Native American Investments, Inc. ("NAI"). Development costs include salaries
and wages, related taxes and benefits, professional fees, travel expenses,
payments to third parties for business development options and other expenses
associated with supporting Alliance's long-term growth strategy. With the
exception of the significant costs expected to be incurred in conjunction with
the Merger, Alliance expects to continue to incur a significant level of
development costs although at a reduced level compared to fiscal 1995 due to the
termination of two executives in this business unit in order to reduce costs and
its relocation to lower cost office space. Alliance believes that such reduced
costs will be adequate to pursue its business development strategies on a more
limited basis in accordance with its business plan following consummation of the
Merger.
Corporate administrative expenses for fiscal 1995 were approximately
$9,735,000, an increase of $1,853,000 over the same amounts for fiscal 1994. The
primary cause for the increase was $1,331,000 in compensation expense recognized
upon the issuance of 250,000 shares of Common Stock to Steve Greathouse,
Alliance's President, Chief Executive Officer and Chairman of the Board, in
connection with his employment agreement. Also contributing to the increase in
corporate administrative expenses were $485,000 of expenses related to certain
service contracts and termination costs. Corporate administrative expenses
include salaries and wages, related taxes and benefits, professional fees and
other expenses associated with maintaining the corporate office and providing
centralized corporate services for Alliance.
Exclusive of the development and corporate expenses noted above, selling,
general and administrative expenses for fiscal 1995 increased $1,078,000 (7.9%)
from fiscal 1994. Selling, general and administrative expenses related to gaming
machine management operations in fiscal 1995 decreased $1,340,000 (13.8%) from
fiscal 1994. Selling, general and administrative expenses for Louisiana gaming
machine management
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operations declined approximately $660,000 (23.8%) as staff reductions and cost
containment measures were implemented to counter increased competition in that
market. The same costs for Nevada gaming machine management operations in fiscal
1995 decreased $680,000 (9.8%) as the benefit of staff reductions and cost
controls taken in late fiscal 1994 was realized. Selling, general and
administrative costs increased for casino and tavern operations by $1,595,000
(44.0%) over those in fiscal 1994. The acquisition of the Rainbow Casino, which
contributed $1,984,000 to the increase, was partially offset by the closing of
Alliance's downtown Las Vegas properties and the termination of the lease at the
Royal Casino. Also contributing to the increase in selling, general and
administrative expenses were $478,000 of expenses related to certain service
contracts and termination costs. Selling, general and administrative expenses
may be subject to further increases.
In fiscal 1994, due to continuing losses from operations, negative cash
flows and incompatibility with Alliance's long-term growth strategy, Alliance's
Board of Directors resolved to (i) exit the downtown Las Vegas gaming market and
(ii) dispose of the currently operated small independent tavern operations.
Based on these decisions, Alliance recognized total expenses of approximately
$5,884,000 in fiscal 1994. As a result of the decision to exit the downtown Las
Vegas gaming market, in September 1994, Alliance substantially reduced
operations at both the Trolley Stop Casino and Miss Lucy's Gambling Hall &
Saloon. Included in the fiscal 1994 statements of operations are total expenses
of approximately $3,246,000 related to these actions. The total charge included
approximately $488,000 related to the write-down of assets and approximately
$2,758,000 representing primarily the present value of the future lease payments
net of estimated future sublease income. The decision to withdraw from the
tavern business resulted in expenses of approximately $2,638,000 being
recognized in fiscal 1994. Approximately $1,813,000 of the total amount was
related to the write-down of assets while approximately $825,000 represented
primarily the present value of the future lease payments net of estimated future
sublease income.
On December 17, 1993, Alliance incurred a fire loss at the Fairgrounds Race
Course in New Orleans, Louisiana where Alliance operated 199 electronic gaming
machines prior to the fire (of which 193 were destroyed by the fire) through its
controlled subsidiary, VSI. Alliance was fully insured for all equipment,
leasehold improvements, other assets and business income with the exception of
approximately $46,000 in deductibles. During fiscal 1995, Alliance recorded
approximately $247,000 of income from business interruption insurance proceeds
compared to $241,000 of such proceeds in fiscal 1994. Alliance is discussing
settlement of additional business interruption claims with the insurance
carrier. Alliance has also received insurance proceeds based on the replacement
value of the assets destroyed in the fire and, therefore, recognized a gain of
approximately $156,000 which is included in other income in fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES
Total revenues for the fiscal year ended June 30, 1994 were approximately
$123,054,000 for fiscal 1994, an increase of $9,963,000 (8.8%) over those for
fiscal 1993. Revenues from all gaming machine management operations increased
$6,548,000 (6.8%) to approximately $102,830,000 in fiscal 1994. Gaming machine
management operations in the State of Louisiana contributed $5,222,000 (an
increase of 42.9%) to the overall increase in gaming machine management revenues
as Alliance continued to experience increasing demand in that relatively young
market. Revenue from Nevada gaming machine management operations increased
approximately $1,326,000 (1.6%) over those for fiscal 1993. The increase in the
Nevada gaming machine management revenues was attributable to a $1.30 increase
in the average net win per gaming machine per day in fiscal 1994 over that of
fiscal 1993 (accounting for an increase of approximately $2,608,000) which was
partially offset by a decrease in the weighted average number of gaming machines
on location during fiscal 1994 as compared to fiscal 1993 (accounting for a
decrease of approximately $1,282,000). Revenues from casino and taverns
increased approximately $3,449,000 (20.6%) during fiscal 1994 as compared to
those for fiscal 1993 due to the continued expansion of casino operations and
operating additional troubled tavern locations.
COSTS AND EXPENSES
COSTS OF REVENUES. Cost of gaming machine management revenues for the
fiscal year ended June 30, 1994 increased $3,718,000 (5.1%) over that for fiscal
1993. Gaming machine management operations in
68
<PAGE>
Louisiana contributed $2,854,000 (an increase of 33.8%) from fiscal 1993 to the
overall increase. Cost of gaming revenues for Nevada gaming machine management
revenues for fiscal 1994 increased $864,000 (1.3%) over that for fiscal 1993.
The increase to cost of Nevada gaming machine management revenues was primarily
due to an increase in location operators' share of gaming revenues caused by
replacing a large space lease arrangement with revenue-sharing arrangements.
Cost of gaming machine management revenues includes rents under both space lease
and revenue-sharing arrangements, gaming taxes and direct labor, including
related taxes and benefits. The cost of casino and tavern revenues for fiscal
1994 increased $3,412,000 (29.6%) over that for fiscal 1993 primarily due to the
first full year of operations of two small casinos and the first full year of
operating the hotel and food and beverage operations at the Mizpah Hotel and
Casino (the "Mizpah"). Previously, Alliance had operated only the casino at the
Mizpah, but in January, 1993 began operating the entire facility including food
and beverage operations to insure its availability for the casino. Cost of
casino and tavern revenues includes cost of goods sold, gaming taxes, rent and
direct labor expenses, including taxes and benefits. Although the gross margin
percentage from Nevada operations declined during fiscal 1994, the decline was
offset by increases in the Louisiana operating margin percentage. As a result,
the combined cost of gaming revenues as a percentage of gaming revenues remained
relatively constant from fiscal 1993 to fiscal 1994.
EXPENSES. In August 1994, due to continuing losses from operations,
negative cash flows and incompatibility with Alliance's long-term growth
strategy, Alliance's Board of Directors resolved to (i) exit the downtown Las
Vegas gaming market and (ii) dispose of the currently operated small independent
tavern operations. Based on these decisions, Alliance recognized total expenses
of approximately $5,883,500 in fiscal 1994. As a result of the decision to exit
the downtown Las Vegas gaming market, in September 1994, Alliance substantially
reduced operations at both the Trolley Stop Casino and Miss Lucy's Gambling Hall
& Saloon. Included in the fiscal 1994 statements of operations are total
expenses of approximately $3,246,000 related to these actions. The total charge
included approximately $488,000 related to the write-down of assets and
approximately $2,758,000 representing primarily the present value of the future
lease payments net of estimated future sublease income. The decision to withdraw
from the tavern business resulted in expenses of approximately $2,638,000 being
recognized in fiscal 1994. Approximately $1,813,000 of the total amount was
related to the write-down of assets while approximately $825,000 represented
primarily the present value of the future lease payments net of estimated future
sublease income.
Alliance's lease at the Mizpah has a remaining lease term of approximately
8.5 years with an option on Alliance's behalf to terminate the lease arrangement
at any time after December 31, 1995 with 120 days notice. In September 1994,
Alliance notified the landlord of the Mizpah of its intent to exercise the
termination clause of its lease at the earliest possible date of January 1, 1996
and give 120 days notice at that time. As a result of this decision, Alliance
recognized additional charges of $467,500 in fiscal 1994.
Also included in selling, general and administrative expenses for fiscal
1994 are development costs associated with pursuing Alliance's long term growth
strategy of approximately $1,192,000. These developmental costs include
approximately $4,792,000 in legal fees, travel expenses and other expenses
associated with supporting Alliance's long-term growth strategy, which expenses
are partially offset by the $3,600,000 recovered under the Capital Gaming
termination agreement. Fiscal 1994 was the first year in which significant funds
were expended in pursuit of this strategy.
Exclusive of the reserves, write-downs and development expenses noted above,
selling, general and administrative expenses for fiscal 1994 increased
$1,679,000 (8.5%) over those in fiscal 1993. The primary causes for the increase
include a $400,000 fiscal 1994 bonus granted to Shannon L. Bybee as part of the
restructuring of his employment with Alliance, $350,000 in fees incurred under
the one year consulting contract with Carole A. Carter, the former President and
Chief Operating Officer of Alliance, continued expansion of the Louisiana
machine management operations which contributed approximately $546,000 to the
overall increase and $274,000 of overall increases in Nevada machine management
operations. The general and administrative costs for casinos and taverns were
$3,622,000 (18.0%) of related revenues for fiscal 1994 as compared to $3,511,000
(21.0%) for fiscal 1993. The same costs for gaming machine management operations
were $9,736,000 (9.5%) of revenues for fiscal 1994 and $8,916,000 or (9.3%) of
revenues for fiscal 1993.
69
<PAGE>
Bad debt expense in fiscal 1994 increased 52.9% to approximately $705,000
over that for fiscal 1993 expense of $461,000 due primarily to the financial
difficulties of a particular customer in Northern Nevada.
On December 17, 1993, Alliance incurred a fire loss at the Fairgrounds Race
Course in New Orleans, Louisiana where Alliance operated 199 electronic gaming
machines prior to the fire (of which 193 were destroyed by the fire) through its
controlled subsidiary, VSI. Alliance is fully insured for all equipment,
leasehold improvements, other assets and business income with the exception of
approximately $46,000 in deductibles. Through June 30, 1994, Alliance had
recorded approximately $241,000 of income from business interruption insurance
proceeds. Alliance will continue to receive proceeds under this policy while the
Fairgrounds Race Course is rebuilt. Alliance also received insurance proceeds
based on the replacement value of the assets destroyed in the fire and,
therefore, recognized a gain of approximately $156,000 which is included in
other income in fiscal 1994.
BGII RESULTS OF OPERATIONS
GENERAL
BGII was formed in August 1991 to consolidate BEC's gaming machine
manufacturing and distribution operations which are conducted through Wulff,
Gaming and Systems. The operations of Wulff were conducted through Automaten and
Vertriebs, two direct subsidiaries of BEC, until their transfer to BGII in
contemplation of the initial public offering of common stock of BGII. The
operations of Gaming and Systems were conducted as divisions or subsidiaries of
BEC until substantially all of the assets and liabilities of these divisions and
subsidiaries were transferred to BGII in contemplation of the initial public
offering of common stock of BGII. For purposes of this discussion of results of
operations of BGII, the operations of Wulff, Gaming and Systems are described
separately as well as on a consolidated basis and GmbH results are included in
Wulff's results. The results of operations for Wulff and Gaming include an
allocation of BGII, the parent company, revenues and expenses, and intercompany
transactions which are eliminated on a consolidated basis.
70
<PAGE>
The following tables set forth, for the periods indicated, the percentage of
revenues represented by items reflected in BGII's consolidated statements of
operations.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
REVENUES:
Sales............................ 97.5% 97.9% 98.1% 99.1% 98.1%
Other............................ 2.5 2.1 1.9 0.9 1.9
-------- -------- --------- -------- ---------
Total Revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
COSTS AND EXPENSES:
Cost of Sales.................... 72.1% 66.5% 65.4% 63.7% 64.5%
Selling, General and
Administrative.................. 34.0 25.4 26.2 24.9 28.2
Provision for Doubtful
Receivables..................... 4.9 2.4 2.7 1.7 1.7
Unusual Charges.................. -- -- 2.3 -- 1.7
-------- -------- --------- -------- ---------
Total Costs and Expenses....... 111.0 94.3 96.6 90.3 96.1
-------- -------- --------- -------- ---------
Operating Income (Loss)............ (11.0) 5.7 3.4 9.7 3.9
Interest Expense................... 2.6 2.9 2.8 2.5 2.9
-------- -------- --------- -------- ---------
Income (Loss) before Income Taxes
and Extraordinary Gain............ (13.6) 2.8 0.6 7.2 1.0
Provision for Income Taxes......... 2.5 1.2 2.0 3.0 1.9
-------- -------- --------- -------- ---------
Income (Loss) before Extraordinary
Gain.............................. (16.1) 1.6 (1.4) 4.2 (0.9)
Extraordinary Gain on Early
Extinguishment of Debt............ 2.2 -- -- -- --
-------- -------- --------- -------- ---------
Net Income (Loss).................. (13.9)% 1.6% (1.4)% 4.2% (0.9)%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
WULFF
REVENUES:
Sales............................ 96.6% 96.3% 97.1% 98.5% 97.5%
Other............................ 3.4 3.7 2.9 1.5 2.5
-------- -------- --------- -------- ---------
Total Revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
COSTS AND EXPENSES:
Cost of Sales.................... 65.4% 64.9% 67.4% 65.4% 66.3%
Selling, General and
Administrative.................. 25.5 25.1 24.1 23.8 26.8
Provision for Doubtful
Receivables..................... 0.5 1.7 1.3 0.4 1.2
Unusual Charges.................. -- -- 2.9 -- 1.6
-------- -------- --------- -------- ---------
Total Costs and Expenses....... 91.4 91.7 95.7 89.6 95.9
-------- -------- --------- -------- ---------
Operating Income................... 8.6 8.3 4.3 10.4 4.1
Interest Expense................... 1.3 1.3 1.0 1.0 0.8
-------- -------- --------- -------- ---------
Income before Income Taxes......... 7.3 7.0 3.3 9.4 3.3
Provision for Income Taxes......... 3.7 2.3 3.5 5.5 3.4
-------- -------- --------- -------- ---------
Net Income (Loss).................. 3.6% 4.7% (0.2)% 3.9% (0.1)%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
ADDITIONAL INFORMATION (APPROXIMATE
UNITS):
New Wall Machines Sold by
Wulff........................... 12,552 13,100 12,000 2,900 2,400
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- ---------
GAMING
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................ 98.3% 99.3% 98.9% 99.5% 98.6%
Other............................ 1.7 0.7 1.1 0.5 1.4
-------- -------- --------- -------- ---------
Total Revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
COSTS AND EXPENSES:
Cost of Sales.................... 100.0% 73.7% 71.9% 69.6% 71.3%
Selling, General and
Administrative.................. 48.4 21.9 24.6 24.7 26.4
Provision for Doubtful
Receivables..................... 16.9 3.0 3.6 2.4 2.6
Unusual Charges.................. -- -- 1.9 -- 2.1
-------- -------- --------- -------- ---------
Total Costs and Expenses....... 165.3 98.6 102.0 96.7 102.4
-------- -------- --------- -------- ---------
Operating Income (Loss)............ (65.3) 1.4 (2.0) 3.3 (2.4)
Interest Expense................... 7.1 4.6 5.2 5.0 6.0
-------- -------- --------- -------- ---------
Loss before Income Taxes and
Extraordinary Gain................ (72.4) (3.2) (7.2) (1.7) (8.4)
Provision for Income Taxes......... -- 0.2 0.3 0.2 0.2
-------- -------- --------- -------- ---------
Loss before Extraordinary Gain..... (72.4) (3.4) (7.5) (1.9) (8.6)
-------- -------- --------- -------- ---------
Extraordinary Gain on Early
Extinguishment of Debt, Net of
Income Taxes...................... 7.7 -- -- -- --
-------- -------- --------- -------- ---------
Net Loss........................... (64.7)% (3.4)% (7.5)% (1.9)% (8.6)%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
ADDITIONAL INFORMATION (UNITS):
New Slot Machines Sold........... 7,749 17,655 11,948 3,668 2,921
New Video Gaming Machines Sold... 2,205 3,807 6,080 1,194 1,120
Other............................ 202 163 56 -- --
-------- -------- --------- -------- ---------
Total.......................... 10,156 21,625 18,084 4,862 4,041
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
SYSTEMS
REVENUES:
Sales............................ 100.0% 100.0% 100.0% 100.0% 99.9%
Other............................ -- -- -- -- 0.1
-------- -------- --------- -------- ---------
Total Revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
COSTS AND EXPENSES:
Cost of Sales.................... 28.2% 32.0% 35.3% 36.3% 31.8%
Selling, General and
Administrative.................. 42.8 46.5 34.3 25.5 37.0
Provision for Doubtful
Receivables..................... (4.4) 2.1 5.3 5.5 --
-------- -------- --------- -------- ---------
Total Costs and Expenses....... 66.6 80.6 74.9 67.3 68.8
-------- -------- --------- -------- ---------
Operating Income................... 33.4 19.4 25.1 32.7 31.2
Interest Expense................... -- 0.2 -- 0.1 0.1
-------- -------- --------- -------- ---------
Income before Income Taxes......... 33.4 19.2 25.1 32.6 31.1
Provision for Income Taxes......... -- -- -- -- --
-------- -------- --------- -------- ---------
Net Income......................... 33.4% 19.2% 25.1% 32.6% 31.1%
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
ADDITIONAL INFORMATION:
New Installations Implemented.... 6 11 9 3 6
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
</TABLE>
72
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
WULFF
Wulff's revenues for the three months ended March 31, 1996 were $31.4
million compared to $35.9 million in the comparable 1995 quarter, a decrease of
13%. Revenues from new wall machines decreased approximately 17% due to an
approximate 14% decrease in units sold in the first quarter 1996 and an
approximate 3% decrease in the average selling price of new wall machines.
Revenues from the distribution of recreational and amusement machines, used wall
machines and new wall machines manufactured by third parties decreased
approximately 11% during the first quarter of 1996 compared to the 1995 period.
The currency translation impact of the fluctuation of the German mark versus the
U.S. dollar increased revenues by $0.2 million during the 1996 period.
Operating income for the three months ended March 31, 1996 was $1.3 million
compared to $3.7 million for the three months ended March 31, 1995. The $2.4
million decrease was principally due to the aforementioned decrease in revenues,
a $0.2 million increase in the provision for doubtful receivables, unusual
charges of $0.5 million in 1996 representing an allocation of Merger costs,
partially offset by slightly lower selling, general and administrative expenses.
Gross margin as a percentage of revenues remained unchanged during the first
quarter of 1996 and 1995.
GAMING
Gaming reported revenues of $23.6 million in the first quarter of 1996
compared to $28.0 million in the comparable 1995 period, a 16% decrease. Gaming
reported unit sales of approximately 4,000 new gaming machines in the three
months ended March 31, 1996, compared to approximately 4,900 in the comparable
1995 quarter. This decrease was primarily a result of the continuing trend of
lower demand due to a reduced number of new casino openings. First quarter 1996
included sales of approximately 1,900 units to the Nevada and Atlantic City
markets, 1,600 units to international markets and 500 units to riverboat, other
domestic casinos and casinos on Native American lands. The average sale price
for new gaming machines was unchanged during the first quarters of 1996 and
1995. In total, revenues from the sale of new gaming machines were $19.9 million
in the 1996 quarter versus $23.8 million in the 1995 period. Revenues from other
sources decreased approximately $0.5 million to $3.7 million in the 1996 period
due principally to decreased accessory and used equipment sales offset in part
by a 43% increase in part sales.
Gaming reported an operating loss for the 1996 period of $0.6 million
compared to operating income of $0.9 million in the first quarter of 1995. The
$1.5 million decline in Gaming's operating results was primarily due to the
aforementioned decline in Gaming's revenues, a 1% decline in gross profit
margins as a percentage of total revenues and $0.5 million in unusual charges,
offset, in part, by a decrease in selling, general, and administrative expenses.
Gross profit margins as a percentage of revenues decreased due to the impact of
decreased demand for new machines and a $0.4 million increase in the provision
for inventory valuation, partially offset by the changing mix in products to
higher margin products. Unusual charges of $0.5 million in 1996 represent an
allocation of Merger costs. Selling, general, and administrative expenses
decreased approximately $0.7 million principally due to lower legal expenses.
SYSTEMS
Systems' revenues for the three months ended March 31, 1995 and 1996 were
$6.1 million and $5.0 million respectively. While this represents an 18%
decrease from the prior year quarter, the 1995 quarter was a record quarter due
to significant sales in the Louisiana market.
Operating income for the three months ended March 31, 1996 was $1.6 million
compared to operating income of $2.0 million for the three months ended March
31, 1995. The $0.4 million decrease in operating results was primarily a result
of lower revenues and increased selling, general and administrative expenses
offset, in part, by higher gross margin as a percentage of total revenues and a
lower provision for doubtful receivables. Gross margins as a percentage of total
revenues increased due primarily to product mix. Selling, general, and
administrative expenses increased approximately $0.3 million due to increased
staffing levels. The provision for doubtful receivables decreased approximately
$0.3 million due principally to better collection experience during the 1996
quarter.
73
<PAGE>
CONSOLIDATED
Revenues for the first quarter of 1996 were $58.5 million compared to $68.3
million in the first quarter of 1995, a decrease of $9.8 million (14%)
principally due to the aforementioned decreases in revenues at Wulff, Gaming and
Systems.
BGII had operating income of $2.3 million in the 1996 quarter compared to
$6.6 million in the comparable 1995 quarter, a decrease of $4.3 million. The
decline in operating results was attributable to the aforementioned decreases in
Wulff's, Gaming's and Systems' operating results, and reflects $1.0 million of
Merger transaction expenses in the first quarter of 1996.
Interest expense was $1.7 million in both periods.
BGII's effective tax rate in both periods differs from the United States
statutory rate of 35% principally due to a higher tax rate on income earned in
Germany and the lack of current tax benefits available for operating losses in
the United States.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
WULFF
Wulff's revenues for the year ended December 31, 1995 were $130.7 million
compared to $111.1 million in 1994, an increase of $19.6 million (18%). This
improvement resulted from the favorable effect of currency translation rates in
the 1995 period, an increase in slot and video gaming machines sold by
Vertriebs' wholly-owned subsidiary, GmbH, and an increase in used equipment and
recreation and amusement machine sales offset in part by a decrease in new wall
machine units sold by 8% and a decrease in the average selling price for new
wall machines by 8.4% as a result of increased price competition. Revenues from
GmbH increased by 99% due to increased new casino openings and greater market
penetration in Western and Central Europe and in Africa. The overall decline in
the value of the U.S. dollar against the Deutsche Mark increased revenues by
$15.0 million in 1995. New and used wall machine sales for the last six months
of 1995 were impacted by regulations, which became effective January 1, 1996,
limiting the number of wall machines per square meter in arcade locations,
thereby reducing new sales opportunities. Industry-wide demand for new machines
was adversely affected by this new regulation while demand for used machines
increased dramatically. The decrease in demand for new wall machines resulted in
increased competition based on sales price resulting in the reduction in average
selling price for new units during the year. Management expects the demand for
new wall machines to continue to be lower than prior year levels during the
first half of 1996. See "Risk Factors--Operating History--Recent Losses."
Revenues from the distribution of recreational and amusement machines increased
by approximately 8.7% during 1995.
Operating income was $5.6 million for 1995 compared to $9.2 million in 1994,
a decrease of $3.6 million or 40%. This decrease resulted from lower gross
margins, higher selling, general and administrative expenses, and unusual
charges, offset in part by a lower provision for doubtful receivables. Gross
margins for 1995 were 33% compared to 35% in the prior year. Gross margin was
unfavorably impacted by higher unit costs associated with lower production
levels, a change in product mix to lower priced used machines and a decrease in
average selling price of new wall machines sold. Selling, general and
administrative expenses increased by $3.5 million resulting from the effect of
currency translation rates between years and costs associated with the increased
revenues in GmbH. Wulff recorded unusual charges in 1995 of $0.8 million to
writedown to net realizable value the carrying value of a building to be sold
and $1.0 million to increase its tax reserves primarily for V.A.T. In addition,
Wulff incurred $2.0 million of unusual charges representing an allocation of
merger transaction costs and litigation expenses related to the proposed merger
with WMS, which has since been terminated, and to a tender offer by Alliance
which was subsequently terminated in connection with the execution of a
definitive merger agreement between BGII and Alliance.
The effective tax rate for the year ended December 31, 1995 was 50% compared
to an effective rate of 26% in 1994. The 1994 rate was lower due to
implementation of a tax planning strategy that reduced the effective tax rate by
approximately 50%.
74
<PAGE>
GAMING
Gaming's revenues for the year ended December 31, 1995 were $108.4 million
compared to $117.8 million in 1994, a decrease of $9.4 million or 8%. New gaming
machines sold decreased to 18,084 units in 1995 from 21,625 units in 1994, a
decrease of 16%. This decline in new unit sales was caused principally by a
reduced number of new casino openings, especially in the riverboat markets,
partially offset by increased sales in the Nevada market. Management believes
that the increase in sales into the Nevada market occurred principally due to
the popularity of Gaming's new V7000 Game Maker-Registered Trademark- machine
(the "Game Maker-Registered Trademark-"), a multi-game, touch screen video
device which accounted for 26% of Gaming's unit sales in 1995. The average price
of new gaming machines sold increased approximately 3% in 1995 principally due
to proportionately greater sales of the higher priced Game
Maker-Registered Trademark- machine. Revenues from new machines decreased to
$90.9 million in 1995 from $106.6 million in 1994. Revenues from sales of used
equipment increased by 121% to $9.2 million in 1995. In addition, revenues from
sales of service parts and interest income from financing customer receivables
increased by $2.2 million in 1995.
Gaming incurred an operating loss of $2.2 million for 1995 compared to
operating income of $1.6 million in the 1994 period, a decline of $3.8 million.
The decline in operating results was principally due to the impact of the
aforementioned decrease in revenues, higher selling, general and administrative
costs and higher bad debt provisions and unusual charges offset, in part, by an
increase in gross margin.
Gross margin as a percentage of total revenues was 28% for 1995 compared to
26% in 1994. Lower costs of materials in 1995 were offset, in part, by decreased
absorption of manufacturing overhead expenses attributable to the decline in new
sales units for 1995.
Selling, general and administrative expenses increased to $26.7 million in
1995 compared to $25.8 million in 1994, an increase of 3%. The $0.9 million
increase resulted principally from an increase in legal expenses primarily
related to Louisiana. Despite the decrease in unit sales in 1995, the provision
for doubtful accounts increased $0.3 million resulting from the closure of
certain riverboat casinos. Gaming incurred $2.0 million of unusual charges in
1995 representing an allocation of merger transaction costs and litigation
expenses related to the proposed merger with WMS, which has since been
terminated, and to a tender offer by Alliance which was subsequently terminated
in connection with the execution of the Merger Agreement.
SYSTEMS
Systems' revenues for the year ended December 31, 1995 were $20.7 million, a
55% increase compared to 1994. This increase is directly attributable to the
increased number of GMUs sold to both new casinos and to existing customers
which expanded their casinos, upgraded their current systems due to new
products, or replaced existing systems. In 1995 Systems sold approximately
22,000 GMUs compared to 13,000 in 1994. During 1995, Systems products were
installed in 9 new locations and as of December 31, 1995, Systems had 50
installations on-line. The average price of a GMU sold during 1995 decreased by
1.5% from the 1994 average price.
Systems' operating income was $5.2 million in 1995 compared to $2.6 million
in 1994, a 100% increase. This increase resulted from increased GMUs sold,
partially offset by lower gross margins, higher selling, general and
administrative expenses and a higher provision for doubtful receivables. Gross
margin was 65% in 1995 compared to 68% in 1994. This decrease results from the
decrease in the average selling price of a GMU during 1995, higher product costs
and a provision for product upgrades. Selling, general and administrative
expenses increased by $0.9 million in 1995 principally as a result of higher
compensation costs to support the business and higher facility costs for the
1995 year as 1994 was only impacted for six months by the higher costs resulting
from Systems occupying its new facility in July 1994. The provision for doubtful
accounts of $1.1 million in 1995 was primarily attributable to one riverboat
customer.
CONSOLIDATED
Revenues for the year ended December 31, 1995 were $249.3 million, net of
eliminations, compared to $236.2 million in 1994, an increase of 6%. This
increase is due to the aforementioned increase at Wulff and Systems partially
offset by the aforementioned decrease in Gaming's revenues.
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BGII had operating income of $8.4 million for 1995 compared to $13.4 million
in the 1994 period. The decrease in operating results of $5.0 million was caused
principally by the unusual charges recorded in 1995 along with the
aforementioned decrease in Wulff and Gaming's operating results partially offset
by the aforementioned increase in operating income at Systems.
Interest expense was $6.9 million in 1995 compared to $6.8 million in 1994.
The net loss for 1995 was $3.4 million or $0.31 per share compared to net
income of $3.8 million or $0.35 per share in 1994. This decline in net income
resulted from the after tax effect of $5.3 million in unusual charges and an
increase in the effective income tax rate primarily due to the aforementioned
higher effective tax rate in Germany in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
WULFF
Wulff's revenues for the year ended December 31, 1994 were $111.1 million
compared to $112.6 million in 1993, a decrease of $1.5 million (1%). New wall
machine unit sales of Wulff's products increased approximately 4% in 1994.
Additionally, the average selling price for new wall machine units sold
increased approximately 10% due principally to popular models introduced by
Wulff in the latter part of 1994. Revenues from the distribution of recreational
and amusement machines, new wall machines manufactured by third parties, used
wall machines and other revenues decreased approximately 17% in the 1994 period
due in part to depressed economic conditions in Germany and increased
competition in the lower margin recreational and amusement sales markets.
Currency translation rate adjustments of Wulff's revenues into U.S. dollars
increased revenues by $2.3 million in the 1994 period due to fluctuations in the
German mark versus the U.S. dollar.
Wulff's operating income was $9.2 million for 1994 compared to operating
income of $9.7 million in the 1993 period. The $0.5 million decrease in 1994 as
compared to 1993 was caused principally by the aforementioned decrease in
revenues and a $1.4 million increase in the provision for bad debts, offset, in
part, by a slight improvement in Wulff's gross margin as a percentage of total
revenues and a decrease in selling, general and administrative expenses of
approximately 3%. The increase in Wulff's provision for bad debts was caused by
an increase in Wulff's accounts and notes receivable balances in the 1994 period
as well as the general impact of depressed economic conditions on some of
Wulff's customers.
GAMING
Gaming's revenues for the year ended December 31, 1994 were $117.8 million
compared to $48.5 million in 1993, an increase of $69.3 million (143%). New
gaming machines sold increased to 21,625 units in 1994 from 10,156 units in
1993, an increase of 112%. The introduction of Gaming's S5500 ProSeries-TM- line
of slot machines and its new Game Maker-Registered Trademark-, a multi-game
touch screen machine, in the second half of 1993 and 1994, respectively, as well
as the proliferation of legalized gaming in riverboat markets, contributed to
this increase of units sold. The average price of gaming machines sold increased
18% in 1994 due to additional features, such as the embedded bill acceptor, in
the new machines and fewer sales through distributors in 1994. Aggregate
revenues from new machines increased to $106.6 million in 1994 from $41.7
million in 1993. Revenues from other sources, including interest income,
increased $4.4 million from $6.8 million in 1993 to $11.2 million in 1994,
primarily due to increased sales of used units and machine accessories.
Gaming's operating income was $1.6 million for 1994 compared to an operating
loss of $31.7 million in the 1993 period, an improvement of $33.3 million. The
1993 operating loss includes $12.5 million of unusual charges principally
relating to the writedown of inventories originally intended for the Louisiana
VLT market and provisions for bad debts relating to Gaming's former distributor
in Louisiana. The improvement in operating results was principally due to the
aforementioned increase in revenues, higher gross margins realized from
increased absorption of manufacturing overhead costs coupled with lower costs of
materials, offset, in part, by higher selling, general and administrative costs
as well as higher bad debt provisions and interest costs.
Cost of sales as a percentage of Gaming's total revenues, was 73% in 1994
compared to 87% in 1993, excluding an inventory valuation adjustment in 1993 of
$6.2 million (13% of 1993 total revenues). The lower
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cost of sales is due to increased absorption of overhead manufacturing expenses
attributable to increased production in 1994 as compared to 1993 and lower costs
of materials attributed to ongoing redesign of products and volume discounts
from suppliers.
Selling, general and administrative expenses increased to $25.9 million in
1994 compared to $23.4 million in 1993, an increase of 11%. The $2.5 million
increase was caused principally by increased staffing levels in the sales
departments and sales related costs associated with the aforementioned sales
volume increase in 1994 compared to 1993. Bad debt expense provisions increased
to $3.6 million in 1994 from $3.2 million in 1993, excluding a $5.1 million
increase in the provision in 1993 primarily relating to Gaming's former
distributor of VLT devices in Louisiana. This $0.4 million increase (13%)
resulted from increased sales volume in the 1994 period.
SYSTEMS
Systems' revenues for the year ended December 31, 1994 were $13.4 million
compared to $12.0 million in the comparable 1993 period, an increase of $1.4
million (12%). Continued growth in casino emerging markets, particularly with
casinos on Indian lands and on riverboats, contributed to an increase in the
demand for gaming monitoring systems and the increase in Systems' revenues.
Systems' operating income was $2.6 million for the year ended December 31,
1994 compared to $4.0 million during the twelve months ended December 31, 1993.
This decrease in operating income of $1.4 million was caused primarily by
slightly lower gross profit margins as a percentage of revenues, higher selling,
general and administrative costs and a higher provision for bad debts offset, in
part, by the aforementioned increase in revenues. Selling, general and
administrative expenses increased $1.1 million due to higher sales levels,
increased staffing levels and increased facility costs. The provision for bad
debts increased $0.8 million due to the increase in revenues and higher accounts
receivable balances outstanding during the period.
CONSOLIDATED
Revenues for the year ended December 31, 1994 were $236.2 million, net of
eliminations, compared to $168.7 million in 1993, an increase of 40%. This
increase is due to the aforementioned increase at Gaming and Systems partially
offset by the aforementioned decrease in Wulff's revenues.
BGII had operating income of $13.4 million for 1994 compared to an operating
loss of $18.5 million in the 1993 period. The improvement in operating results
of $31.9 million was caused principally by the aforementioned improvement in
Gaming's operating results partially offset by the aforementioned decline in
operating income at Systems and Wulff.
Interest expense was $6.8 million in 1994 compared to $4.4 million in 1993.
This increase was caused by higher borrowings outstanding and higher interest
rates in 1994.
BGII's effective tax rate in 1994 and 1993 differs from the U.S. statutory
rate of 34% principally due to the lack of tax benefits available for operating
losses generated in the U.S.
IMPACT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
Inflation has not had a significant effect on Alliance's operations for the
three years ended June 30, 1995 or the nine-month period ended March 31, 1996,
or BGII's operations during the three years ended December 31, 1995 or the
three-month period ended March 31, 1996.
Substantially all of Wulff's transactions are denominated in Deutsche Marks.
The Deutsche Mark is the functional currency used by BGII to translate Wulff's
financial statements. Therefore, BGII is exposed to foreign exchange rate risk.
BGII does not generally enter into foreign exchange contracts to hedge its
exposure to foreign exchange rate fluctuations.
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BUSINESS
OVERVIEW
Alliance is a diversified gaming company that currently operates
approximately 6,000 electronic gaming machines (primarily video poker devices
and slot machines) and also owns and operates a small casino in each of
Vicksburg, Mississippi and Sparks/Reno, Nevada. Alliance is the largest gaming
machine management operator in Nevada and is the exclusive operator of video
poker devices at the only racetrack and ten associated OTBs in the greater New
Orleans area.
As part of its long-term growth strategy, Alliance entered into the Merger
Agreement on October 18, 1995 with BGII pursuant to which BGII will become a
wholly-owned subsidiary of Alliance. BGII, through subsidiaries in the United
States and Germany, is a leading designer, manufacturer and distributor of
electronic gaming machines. BGII also designs, assembles and sells computerized
monitoring systems for slot and video gaming machines which provide casino
operators with on-line real time player tracking, security and maintenance
capabilities.
BGII is currently the second largest manufacturer of casino-style electronic
gaming machines in North America and since 1993 has made significant inroads in
recapturing a portion of its once dominant market share of the late 1970s.
Although BGII sells gaming devices to most of the major participants in the
United States casino industry, the Company hopes to continue to increase its
penetration in such casinos by capitalizing on Alliance's and BGII's
management's relationships within the gaming industry to enable the Company to
demonstrate the performance capabilities of its current products.
Alliance believes that the Merger represents an opportunity to acquire an
established company with a well-recognized presence in the gaming industry and a
significant base of assets and experience. Management estimates that the
installed base of casino-style electronic gaming machines (for these purposes,
primarily slot and video machines) is approximately 650,000 units, of which
approximately 50% are located in North America, and that annual sales in North
America have grown from approximately 30,000 units in 1991 to approximately
89,000 units in 1995, reflecting a period of exceptional growth in the number
and size of casinos in North America. Historically, growth in the gaming machine
market has been principally fueled by sales to new casinos and to a lesser
degree by replacement of machines (which have an average replacement cycle of
three to seven years) and the application of new technology. In the future,
management believes that annual sales growth resulting from replacement
requirements and the application of new technology should outpace growth in
demand generated by new casino openings, which growth rate is expected to
decline. Management believes that the Merger provides Alliance with an avenue
for entering a business historically characterized by effective barriers to
entry in that the BGII assets being acquired are difficult to replicate and
require significant time and investment to develop successfully.
BUSINESS STRATEGY
The Company's strategic objective is to build a pre-eminent gaming
entertainment company to capitalize on what management believes to be gaming's
continuing growth within the entertainment industry. In addition to continuing
the development of the Company's existing business units, the Company's
strategic focus will be on the Gaming and Systems business unit, key elements of
which include:
CAPITALIZE ON BGII'S CURRENT SALES MOMENTUM. Since 1993, BGII's management
has initiated steps to increase its share of gaming machine sales in traditional
markets and capture increased gaming machine market share in new and emerging
jurisdictions. In the mid-1980s, BGII management's slow response to rapidly
evolving technology, new competitors and changing customer preferences
contributed to a significant reduction in Gaming's market position. Hans Kloss,
who became President of BGII in 1993, and other members of the current BGII
senior management, have led BGII's efforts to rebuild its market position, and
have effectively increased its presence in major casinos in the Las Vegas
market, including Caesars Palace and the MGM Grand. As part of its long-term
growth strategy, Gaming has increased its research and development efforts,
focusing on upgrading its gaming machine product line, and has increased its
sales and marketing efforts. For example, Gaming introduced its ProSeries-TM-
reel-type slot machines during the third
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quarter of 1993 and its multi-game touch screen machine, the Game
Maker-Registered Trademark- during the third quarter of 1994, which have
contributed significantly to an increase in unit sales which have approximately
doubled the level of unit sales in 1993. See "Gaming Machine Manufacturing and
Systems--Gaming--Products."
DEVELOP AND MARKET PREMIER GAMING ENTERTAINMENT PRODUCTS EMPLOYING NEW
TECHNOLOGY. The Company intends to continue to develop, market and sell premier
gaming entertainment products and systems that employ available information
technology currently in common use in other segments of the entertainment
industry, but not yet prevalent in the gaming industry. The Company believes
that technological enhancements are the key to improving the appeal of its games
and locations. To implement this strategy, the Company will draw upon the
resources of Dr. Craig Fields, Vice Chairman of the Board, who has over 20 years
of experience with advanced information technology from his work with several
leading companies and government agencies. Alliance has developed and is
currently marketing a next-generation computerized product called "Gambler's
Bonus," a cardless slot players' club and player tracking system for use in its
gaming machine management operations which will allow multiple locations to be
linked together into a distributed gaming environment. Management believes that
"Gambler's Bonus" offers a wider variety of gaming choices to players than any
other gaming device currently available for use in route locations.
Additionally, BGII is in the process of developing an innovative form of
cashless wagering that uses bar-coded coupons which can be read by bill
validators in slot machines with the resulting information being transmitted to
a computerized monitoring system, subject to testing and regulatory approval. In
addition, both BGII and Alliance have developed electronic gaming machines with
bill acceptor and ticket printer features, as well as touch screen and
multi-game capabilities.
ENHANCE OPERATING EFFICIENCIES AND IMPROVE THE QUALITY OF THE COMPANY'S
PRODUCTS AND SERVICES. The Company is taking a number of steps in different
business units to improve its operating efficiencies while at the same time
improving the quality of its products and services, including (i) engineering
improvements in its gaming machine manufacturing operations and reducing per
unit costs by increasing production throughput and negotiating decreases in
materials costs; (ii) continuing to improve Wulff's manufacturing efficiency and
productivity through the use of computer-aided design systems, automated
production equipment and devotion of substantial resources to product quality
control in its wall machine operations; (iii) expanding the installed base of
electronic gaming machines equipped with Gambler's Bonus, and updated
bill-acceptor devices throughout its Nevada gaming machine management
operations, which is expected to improve Alliance's revenues and operating
efficiencies; (iv) initiating improved customer service programs and increasing
employee responsiveness to customers' needs for after-sale services; and (v)
eliminating duplicative executive, insurance, rent, outside professional
services and other administrative costs. Management will continue to seek cost
reductions and efficiencies.
CAPITALIZE ON RELATIONSHIPS AND ENTER INTO ALLIANCES WITH TECHNOLOGY AND
ENTERTAINMENT COMPANIES. Management's focus on technological developments in
gaming entertainment has created the potential for alliances with other
technology-oriented companies for the purpose of sharing information or
professional services in developing product concepts. The Company intends to
continue to develop or license technology which can be integrated into various
aspects of the gaming entertainment industry in the future. In addition, the
Company intends to make strategic acquisitions of rights to use proprietary
technology when attractive opportunities arise. There can be no assurance,
however, that any such alliances or acquisitions will be available to the
Company or will result in sustained beneficial results to the Company.
BUSINESS UNITS
Following the Merger, the Company will operate through four business units:
(i) gaming machine management operations, (ii) casino operations, (iii) German
operations (consisting of the manufacture and distribution of wall-mounted
gaming machines and distribution of other recreational and amusement machines)
and (iv) casino-style electronic gaming machine manufacturing and systems
operations.
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GAMING MACHINE MANUFACTURING AND SYSTEMS OPERATIONS
INDUSTRY OVERVIEW
Gaming's primary markets for its gaming machine products are the United
States and Europe and, to a lesser extent, Canada, the Far East, Latin America
and the Caribbean. The following table sets forth the percentage of Gaming's new
unit sales by market segment during the periods shown:
<TABLE>
<CAPTION>
PERCENTAGE OF NEW UNITS SOLD
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
NEW UNIT SALES BY MARKET SEGMENT 1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Nevada and Atlantic City............................................... 27% 34% 42%
International.......................................................... 27 21 30
Riverboats............................................................. 31 31 12
Indian Gaming.......................................................... 12 13 14
Other (principally VLTs)............................................... 3 1 2
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
UNITED STATES MARKETS. Within the United States, Nevada represents the
largest installed base of gaming machines with an installed base of
approximately 185,000 machines as of December 31, 1995. Atlantic City is the
second largest market which management estimates had an installed base of
approximately 30,000 machines as of December 31, 1995. Product sales in these
markets are primarily to established casino customers to either replace existing
machines or as part of an expansion or refurbishment of the casino. Also,
because gaming machine revenues have increased at a higher rate than table game
revenues over the past decade, casino operators have frequently increased floor
space dedicated to gaming machines. In addition, major casino openings in
Nevada, expansions of existing casinos and the proliferation of casinos in
emerging markets have created additional floor space available for new machines
and are anticipated to further increase competitive pressures on casino
operators to replace existing equipment with new machines on an accelerated
basis.
Riverboat casinos began operating in 1991 and, as of December 31, 1995,
riverboat casinos were operating in Indiana, Iowa, Illinois, Mississippi,
Missouri and Louisiana. The estimated installed base of gaming machines on
riverboats is approximately 61,000 machines as of December 31, 1995.
Casino-style gaming continues to expand on North American Indian lands.
Indian gaming is regulated under the Indian Gaming Regulatory Act of 1988 which
permits specific types of gaming. Gaming's machines are placed only with Indian
gaming operators who have negotiated a compact with the state and received
approval by the U.S. Department of the Interior. Gaming has, either directly or
through its distributors, sold machines for casinos on Indian lands in Arizona,
Connecticut, Iowa, Michigan, Minnesota, Mississippi, Montana, New Mexico, North
Dakota, South Dakota and Wisconsin. Compacts have also been approved in Oregon,
Colorado and Louisiana, although Gaming made no deliveries in these
jurisdictions during 1995. In addition to the approved states, compacts are
under consideration in several states, including Alabama, California, Maine,
Massachusetts, Rhode Island, Texas and Washington. The installed base of all
Indian gaming machines as of December 31, 1995 was approximately 52,000 units.
In addition, there are currently casinos in Colorado and South Dakota. The
estimated installed base of machines in these markets as of December 31, 1995
was approximately 13,000 machines.
The continued growth of domestic emerging markets for gaming machines is
contingent upon the public's acceptance of these markets and an ongoing
regulatory approval process by Federal, state and local governmental
authorities. Management cannot predict which new jurisdictions or markets, if
any, will approve the operation of gaming machines, the timing of any such
approval or the level of Gaming's participation in any such new markets.
INTERNATIONAL MARKETS. In addition to the domestic markets, the gaming
industry is also expanding in international markets. Gaming's primary
international market is Europe, and to a lesser extent, Canada, the
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Far East, Latin America and the Caribbean. Gaming has begun, and plans to
continue, expansion into the Australian market, and in 1995, BGII established an
office in Sydney, Australia. No new machines have yet been sold into Australia.
The percentage of Gaming's international revenues by geographic area for the
periods indicated are set forth below:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Europe (including sales to GmbH)......................................... 69.2% 55.6% 51.4%
Canada................................................................... 12.7 16.6 21.6
Latin America............................................................ 16.3 20.5 19.7
Far East................................................................. 1.8 4.4 4.0
Other.................................................................... -- 2.9 3.3
--------- --------- ---------
100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
MARKETS FOR SYSTEMS. Systems' primary markets for its computerized
monitoring systems are the United States and, to a lesser extent, Canada, New
Zealand, Latin America, Europe, and the Caribbean. Markets for Systems within
the United States include traditional land-based casinos predominately in Nevada
and Atlantic City, New Jersey, Indian gaming and riverboats. Domestically, the
market for monitoring systems is divided equally between selling to new
installations and to existing customers who are either expanding their casino
floors or are upgrading their hardware to a new product release. Unlike the
United States, where most jurisdictions require the implementation of systems,
there have been few international markets to do so. Management believes,
however, that the international market for such systems is increasing, and that
Systems' sales to such markets will increase accordingly.
GAMING
PRODUCTS. Gaming designs, manufactures and distributes a variety of
electronic slot and video gaming machines. Machines are differentiated from one
another by graphic design and theme, cabinet style and size, payout, reel-type
design and minimum/maximum betting amount. Slot machines are normally produced
to specific order, with design and configuration customized to a customer's
particular requirements. Customers may also change from one gaming model to
another gaming model by ordering a "conversion kit" which consists of artwork,
reel strips and a computer chip. Gaming's video gaming machines are designed to
simulate various live card games and keno through a video display. New games and
themes are introduced periodically in order to satisfy customer demand and to
compete with product designs introduced by competitors. Gaming introduced its
"ProSeries-TM-" reel-type slot machines during the third quarter of 1993 and its
multi-game touch screen machine, the Game Maker-Registered Trademark-, during
the third quarter of 1994.
The Game Maker-Registered Trademark- can offer up to 10 different video
games within one gaming device. Various games can be selected from a game
library that has over 200 games. The games simulate various card games, keno and
popular reel-spinning games. The Game Maker-Registered Trademark- machines
contain bill acceptors and many other features believed to be popular with
casinos and their customers. The Game Maker-Registered Trademark- machines are
available in upright, bar top and slant top cabinets. Based on Gaming's sales of
this product to date, management believes that Gaming is currently more
competitive than in the past in the video gaming device market. Revenues from
sales of Game Maker-Registered Trademark- machines were approximately $0.1
million, $6.7 million and $27.4 million during 1993, 1994 and 1995,
respectively.
The ProSeries-TM- was the result of a comprehensive product development
effort which began in 1991. The development process included extensive testing
of the new products in-house and on casino floors for reliability and player
appeal. Based on Gaming's sales of the ProSeries-TM- products to date,
management believes that the ProSeries-TM- has been the catalyst to allow Gaming
to increase market share in traditional and emerging markets for gaming machines
as the product becomes accepted by casino customers. Revenues from sales of
ProSeries-TM- machines were approximately $19.3 million, $86.2 million and $57.1
million during 1993, 1994 and 1995, respectively.
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Gaming typically offers a 90-day labor and up to a one-year parts warranty
for new gaming machines sold and is actively involved in customer service after
the original installation. Gaming provides several after-sale, value-added
services to its customers including customer education programs, a 24-hour
customer service hot-line, and field service support programs and spare parts
programs.
In addition, Gaming sells and services used gaming machines and sells parts
for existing machines. Sales of used gaming machines increased for 1995 as
management implemented a policy to reduce inventory levels. Sales of used
equipment were $2.7 million, $4.2 million and $9.2 million for the years ended
December 31, 1993, 1994 and 1995, respectively.
The following table sets forth the percentages of Gaming's revenues provided
by each of its major product lines during the periods shown:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Slot machines..................................................... 67.0% 74.2% 52.8%
Video gaming machines............................................. 18.9 16.3 31.0
Other (primarily used machines, parts and services)............... 14.1 9.5 16.2
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
Gaming machines have a mechanical life that can exceed 10 years. However, in
the established markets, Gaming's experience is that casino operators usually
replace gaming machines after three to seven years. The factors which result in
replacement of gaming machines sooner than their mechanical life include
technological advances, development of new games, new sound and visual features
and changing preferences of casino patrons. Casinos typically recoup the
purchase cost of their electronic gaming machines in a few months, which allows
casinos to replace machines with new models that are popular with casino
patrons.
Gaming often accepts used machines as trade-ins toward the purchase of new
gaming equipment. While a small secondary market exists in the United States,
used machines are typically resold into the international market. While some
used equipment is reconditioned for direct sale, much is sold in container lots
on an "as is" condition through independent brokers.
In the past, Gaming had designed, manufactured and distributed VLTs, which
are generally operated by, or under the regulation of, state or provincial
lottery commissions. The VLT business was less than 2% of revenues during 1993,
1994 and 1995. Gaming will pursue this business only on a selected basis in the
future.
PRODUCT DEVELOPMENT. The Company believes that technological enhancements
are the key to improving the appeal of its electronic gaming machines. Most
gaming machines on casino floors today are driven by technology which was
developed over 20 years ago. The Company believes that accelerating the use of
existing computer technology will give its gaming machines and systems a
competitive advantage in the gaming industry.
Gaming develops its products for both the domestic and international market.
Gaming's product development process is divided into two areas, hardware and
software. Major areas of hardware development include cabinet style, electronic
capability, machine handle, coin hopper and bill acceptor. Hardware development
efforts are focused upon player appeal, product reliability and ease of
maintenance. Development cycles for hardware can range from a few days for
simple enhancements to more than a year for new electronics or new mechanical
packages.
The software development process for new games, which includes graphics
development, involves a continuous effort requiring relatively significant human
resource allocations. Creativity in software development is an important element
in product differentiation as the major manufacturers sometimes use similar
hardware technology. Ideas for new models are generated both internally and from
customers. Gaming can design the software and artwork for a new model in as
little as two weeks, excluding regulatory approval. All new or modified hardware
and software is designed to satisfy all applicable testing standards and must
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receive the approval of the appropriate gaming regulatory agency based
substantially on satisfying such applicable testing standards before such gaming
product can be offered for play to the public. Most gaming jurisdictions rely
upon and accept the certification of selected independent laboratories that a
gaming product meets the applicable testing standards.
Regulatory approval for new or modified hardware and software changes takes
from 30 days to three months or more. On an annual basis, Gaming expects to
introduce approximately 25 new games to the market. However, no assurance can be
made with respect to the rate of new model introductions.
During 1993, 1994 and 1995, Gaming spent $3.0 million, $3.5 million, and
$3.7 million, respectively, on product research and development.
SALES AND MARKETING. Gaming uses a direct sales force, an independent
distributor network and GmbH to sell its products. Gaming's sales staff of
approximately 20, which operates offices in Nevada, New Jersey, Mississippi,
Illinois and Florida, generated approximately 84% of new machine sales over the
past three years. Gaming currently uses distributors for sales to certain
specific markets in the United States as well as certain European jurisdictions.
Gaming's agreements with distributors do not specify minimum purchases but
generally provide that Gaming may terminate such agreements if certain
performance standards are not met. Approximately 8% of new gaming machine unit
sales over the past three years have been generated through independent
distributors (including foreign distributors) and 8% have been generated through
GmbH.
In addition to offering an expansive product line, Gaming provides
customized services in response to specific casino requests. These services
include high quality silkscreen printing of gaming machine glass, customized
game development and interior design services. Gaming also offers customized
design services that utilize computer aided design and studio software programs.
Gaming's design department can generate a casino floor layout and can create a
proposed slot mix for its customers. In many of the emerging markets, Gaming
provides assistance to customers including the selection of related equipment
such as slot stands, chairs, etc. and a recommended layout of the casino floor
as well as a mix of machine models. Sales to established casinos in Nevada
normally require completion of a successful trial period for the machines in the
casino.
Approximately 75% of Gaming's slot and video gaming machine sales are on
terms of 90 days or less. Approximately 25% of Gaming's sales, primarily in
certain emerging markets such as riverboat and Indian gaming casinos, are
financed over extended periods as long as 36 months and bear interest at rates
ranging from 8% to 14%. International sales are generally consummated on a cash
basis or financed over a period of one year or less. In addition, in certain
situations, Gaming has participated in the financing of other gaming related
equipment manufactured by third parties in the emerging markets. Management
believes that financing of customer sales has become an increasingly important
factor in certain emerging markets. See "--Competition."
CUSTOMERS. The demand for slot machines and video gaming machines varies
depending on new construction and renovation of casinos and other facilities
with needs for new equipment. Since machines are not replaced each year, many
current customers will need only product maintenance in the near future. Growth
will depend on Gaming's ability to obtain new customers and take advantage of
the newly emerging markets. For the year ended December 31, 1995, Gaming's
largest customer accounted for approximately 5% of Gaming's sales while Gaming's
ten largest customers, excluding GmbH, accounted for approximately 25% of
Gaming's revenues. During that period, sales to GmbH accounted for approximately
9% of Gaming's revenues.
ASSEMBLY OPERATIONS. Gaming's Las Vegas facility was built in 1990
specifically for the design, manufacture and distribution of gaming equipment.
The 150,000-square foot facility was designed to meet fluctuating product design
demands and volume requirements, and management believes the facility enables
Gaming to increase production without significant capital expenditures.
Management believes that its assembly operations allow for rapid generation
of different models to fill orders quickly and efficiently. Another major
advantage of the existing plant operation is the system by
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which machines can be altered in many ways including the size, type and color of
glass, sound and payoff patterns to produce a "customized" product for each
customer. Gaming keeps an inventory of parts that allow machines to be altered
quickly to conform with a particular customer's design/feature request. Gaming
designs all of the major assemblies that are incorporated into the final machine
configuration.
COMPETITION. The market for gaming machines in North America is dominated
by a single competitor, IGT. There are a number of other well established,
well-financed and well-known companies producing machines that compete with each
of Gaming's lines in each of Gaming's markets. The other major competitors are
Universal Distributing of Nevada, Inc., Sigma Games, Inc., WMS and in the
international marketplace, companies who market gaming machines under the brand
names of Aristocrat, Atronic, Cirsa and Novomatic. In addition, certain
technology-oriented companies, including CDS and Sega Enterprises Ltd., have
recently announced their intention to enter the gaming machine business.
Management believes that some of these competitors generally have greater
capital resources than Gaming. Competition among gaming product manufacturers,
particularly with respect to sales of gaming machines into new and emerging
markets, is based on competitive customer pricing and financing terms, appeal to
the player, quality of the product and having an extensive distribution and
sales network.
The future success of the Company, to a large extent, will be dependent upon
the ability of Gaming to design, manufacture and market technologically
sophisticated products that achieve high levels of player acceptance. The
development of a successful new product or product design by a competitor could
adversely affect sales of Gaming's products and force Gaming to respond quickly
with its own competing products. In addition, management believes that customer
financing terms have become an increasingly important competitive factor in
certain emerging markets. Competitive conditions sometimes require Gaming to
grant extended payment terms on gaming machines and other gaming equipment.
While these financings are normally collateralized by such equipment, the resale
value of the collateral in the event of a default may be less than the amount
financed. Accordingly, Gaming will have greater exposure to the financial
condition of its customers in emerging markets than has historically been the
case in established markets like Nevada and Atlantic City. Also, because certain
of Gaming's competitors generally have greater financial resources than Gaming,
Gaming will need to rely on third party financing arrangements in order to
compete in providing competitive financing to customers. See "--Sales and
Marketing."
SYSTEMS
PRODUCTS. Systems designs, assembles, and sells a computerized monitoring
system ("SDS 6000") for slot and video gaming machines which provide casino
operators with on-line real time data relative to a machine's accounting,
security, and maintenance functions. The SDS 6000 also provides data to, and
receives data from, other third party player tracking computer and software
applications allowing casinos to track their players to establish and compile
individual player profitability and other demographic information. SDS 6000 is
comprised primarily of (1) hardware consisting of microcontroller based printed
circuit boards which are installed within the slot and video machines as well as
card reader displays and keypads which provide casinos the ability to track
player gaming activity and to monitor access to slot and video machines by the
casino's employees, (2) application software developed by Systems which provides
access to the slot machine's activity data gathered by the microcontroller
hardware, and (3) third party mini-computers on which the application software
resides. Systems also provides software and hardware support services, including
maintenance, repair and training for purchasers of its monitoring systems.
PRODUCT DEVELOPMENT. Systems' product development is divided into two
areas, hardware and software. The major areas of hardware development include
microcontroller circuit board design and programming as well as user interface
devices such as card readers, keypads and displays. Hardware development efforts
are focused upon the casino operator in terms of functionality, product
reliability and ease of maintenance and customer appeal in terms of appearance
and ease of use. Development cycles for hardware can vary between a few months
for minor revisions to more than a year for major design changes or for changes
made by various slot manufacturers with which Systems' product must communicate
and be physically integrated. Software development results in (1) periodic
product releases that include new
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features which extend and enhance the SDS 6000 product, (2) periodic maintenance
releases which enable casino operators to correct problems or improve the
usability of the system and (3) documentation needed to install and use the
system.
In 1995, the hardware and software groups from Systems, as well as engineers
from Gaming, coordinated efforts to develop a form of cashless wagering that
uses bar-coded coupons which can be read by the bill validators in Gaming's slot
machines which are connected to an SDS 6000 system. Testing and regulatory
approval is being pursued by Systems in anticipation of a 1996 release to casino
operators. In 1996, Systems and Gaming development groups will continue to
direct development efforts towards other forms of cashless wagering for use on
Gaming's slot machines and the SDS 6000 system.
During 1993, 1994 and 1995, Systems spent $1.4 million, $1.7 million and
$1.9 million, respectively on product research and development.
SALES AND MARKETING. Systems has a direct sales force which produces the
majority of its sales. Gaming's sales force and Gaming's independent distributor
network produce the balance of Systems' sales, primarily in situations where
customers are making slot machine and computerized slot monitoring system
purchase decisions at the same time. Worldwide, Systems has approximately 60,000
GMUs installed, or in the process of being installed, of which approximately
53,000 are in the United States. Over the past three years, Systems' own sales
force has generated approximately 78% of its sales.
Systems offers its customers the option of signing separate hardware and
software maintenance agreements at the time of sale. These agreements are for
periods of one year and automatically renew unless otherwise canceled in writing
by the customer or Systems. After an initial warranty period, typically 90 days,
the customer is invoiced a monthly hardware and software maintenance fee which
provides essentially for repair and/or replacement of malfunctioning hardware
and software, software version upgrades, and on-call support for software.
Systems offers limited financing terms, normally less than one year, for
sales to new installations. Most sales, however, are invoiced on a net 30 day
basis.
CUSTOMERS. The demand for computerized slot monitoring systems is driven
either by regulatory requirements in a given jurisdiction and/or by a casino
operator's competitive need to properly track their players' activity and
establish and compile individual player profitability and other demographic
information, all of which is of particular importance to casinos in developing
marketing strategies. Systems' revenues are derived equally from selling to new
installations as well as to existing customers who are either expanding their
casino floors or are upgrading their hardware to a new product release. For the
year ended December 31, 1995, Systems' ten largest customers (which includes
certain multi-site casino operators that have corporate agreements with Systems)
accounted for approximately 92% of Systems' revenues. Due to the high initial
costs of installing a computerized monitoring system, customers for such systems
generally have tended not to change suppliers once they have installed such a
system. Future growth will be based on further expansion in the established and
emerging markets as well as continued development efforts by Systems to provide
customers with new and innovative hardware and software product offerings.
COMPETITION. Although there are numerous companies providing computerized
slot monitoring systems to casino operators, the competition currently consists
of IGT, CDS, and to a lesser extent, Gaming Systems International and Acres
Gaming. Competition is keen in this market due to the number of providers and
the limited number of casinos and the jurisdictions in which they operate.
Pricing, product feature and function, accuracy, and reliability are all main
factors in determining a provider's success in selling its system. Systems
believes the future success of its operations will be determined by its ability
to bring new and innovative products to the market place and at the same time
maintain a base of loyal existing customers.
GERMAN OPERATIONS
INDUSTRY OVERVIEW
Management believes that the German amusement game industry, a historically
stable market, consists of approximately 200,000 wall machine units and 50,000
token machine units. German regulations require
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the replacement of wall machines after a period of up to four years, ensuring
replacement sales in Germany. As a result, the annual market sales are
approximately 50,000 units with fluctuations resulting primarily from economic
conditions and regulatory changes. In May 1993, the maximum initial coin drop in
wall machines was increased from 30 pfennigs to 40 pfennigs. This regulatory
change caused some customers to defer purchases prior to this regulatory
proposal pending its outcome. During mid-1994, the German government effected a
tax law revision based on a European Court ruling, whereby V.A.T. charged to the
operators of wall machines was significantly reduced. Management believes this
tax law revision, offset in part by increased leisure taxes, caused the
aggregate new wall machine unit sales to increase to approximately 47,000 units
in 1994. Effective January 1, 1996, a regulatory change took effect requiring
all arcade operators to have at least 15 square meters of space for each wall
machine and a maximum of 10 machines per arcade. Starting in mid-1995, arcade
operators began removing wall machines from their arcades to meet the
requirements of this new regulation. Despite this adverse impact, the demand for
new wall machines remained at approximately 47,000 units in 1995. All wall
machines manufactured since 1992 have meters that monitor the amount inserted by
players and paid out by the machine; from the end of 1996 on, all wall machines
in use are required to have such meters, which management believes should lead
to an increase in demand for new, metered wall machines in the latter half of
1996. See "--Operations of Wulff--Products," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--BGII Results of
Operations" and "Gaming Regulation and Licensing--Germany."
One of the most important markets for wall machines in Germany is the arcade
market. A significant number of arcades are owned by competitors of Wulff who
are able to introduce their own machines into the arcades and generally do not
purchase wall machines from Wulff. Wulff's two largest competitors, NSM, AG and
Gauselmann, AG, own arcades containing approximately 15% of the wall machines in
Germany. Management believes Wulff's share of the installed base of German wall
machines market was approximately one-quarter of the market for each of the last
three years. On an ongoing basis, the German legislative authorities regulate
and monitor the wall machine industry so as to ensure certain manufacturing
standards and the fairness of each machine to users. The most significant
legislation presently affecting the wall machine industry relates to prescribed
licensing procedures, the use, installation and operation of wall machines and
the taxation of wall machines. There have been no recent material changes in
these ongoing legislative regulations. See "Risk Factors--Operating
History--Recent Losses" and "Gaming Regulation and Licensing--Germany."
Token machines, unlike wall machines, are not designed to pay off money.
Instead, a player wins games or tokens. Therefore, the strict German licensing
requirements governing wall machines are not currently applied to token
machines, although it cannot be ruled out that this may change in the future due
to legislative changes or changes in administrative practice. Furthermore,
management believes that the token machine market has reached its potential and
that sales will decline because token machines are not subject to the four-year
operation limit set by German regulations. See "Gaming Regulation and
Licensing-- Germany."
OPERATIONS OF WULFF
PRODUCTS. Wulff's manufacturing operations were founded in Berlin in 1950
and sold to BEC in 1972. Wulff produces and distributes a variety of models of
wall machines, under the trade name "Bally Wulff", for operation in arcades,
hotels, restaurants and taverns primarily in Germany. These wall machines are
coin-operated, armless gaming devices similar to slot machines that award
winnings for matching numbers or symbols on three to five wheels or drums and
differ primarily in appearance, graphic design, theme, pay-table and customer
appeal. Each game costs up to 40 pfennigs (approximately $0.28, assuming an
exchange rate of $1.00=DM 1.43 as of December 31, 1995 hereinafter) to play,
although the player may deposit larger amounts to provide continuous play but
not to increase payoffs. German regulations limit the maximum payout to ten
times the player's stake (DM 4.00 or approximately $2.80 per game). Current
models of wall machines provide the player the opportunity to win 100 special
games on one play, which increases the potential amount that can be won on the
minimum coin drop. German regulations require a minimum payback of 60% for wall
machines, although many machines are generally programmed to pay back at higher
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rates to encourage play. Effective January 1, 1997, all wall machines in use
must have meters that monitor the amount inserted by players and paid out by the
machine. See "Gaming Regulation and Licensing-- Germany."
In addition to manufacturing wall machines, Wulff distributes wall machines
and other recreational and amusement coin-operated machines manufactured by
third parties to provide a more extensive line of products to its customers.
These machines include pool tables, dart games, pinball machines, jukeboxes and
arcade games and are distributed primarily for use in arcades, restaurants,
hotels and taverns. One of BGII's indirect subsidiaries, GmbH distributes
traditional slot machines, manufactured primarily by Gaming, principally to
customers in Europe, Russia and, through its branch office in Johannesburg,
South Africa, the African continent. The following table sets forth the
percentage of Wulff's revenues by product line during the periods shown:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Wall machines manufactured by Wulff...................................... 42.8% 50.8% 37.5%
Recreational and amusement machines and third party wall machines
distributed............................................................. 36.4 20.0 22.3
Slot machines distributed................................................ 5.0 6.3 11.2
Other (primarily used machines, parts and services)...................... 15.8 22.9 29.0
--------- --------- ---------
100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Wulff also manufactures token machines for operation in arcades, hotels,
restaurants and taverns in Germany. See "Gaming Regulation and
Licensing--Germany."
PRODUCT DEVELOPMENT. Management believes that Wulff's wall machines are
viewed as premium products because of their quality, dependability, ease of
service and proven ability to attract players and generate revenue. Wulff
designs its machines to appeal to each of the three categories of participants
in the distribution process: Wulff's sales representatives and independent
distributors, the owner/operators of the machines, and the players. The sales
representatives and distributors require machines with broad appeal that are
easy to demonstrate and sell. The owner/operators desire reasonably priced
machines that are easy to collect from and service and that are proven revenue
generators. The players prefer entertaining machines that are simple to play and
have unique features.
Wulff's management has formed design teams which are responsible for
generating ideas for creative new machines. These teams are comprised of
representatives of each department involved in the production and distribution
of machines, such as art design, engineering, manufacturing, marketing and
sales. The design teams meet for three days each calendar quarter at a site away
from Wulff's headquarters. The teams analyze machines currently being marketed
by Wulff and its competitors to assess their strengths and weaknesses and then
suggest ideas for new machines. These ideas are reviewed to determine which
machines should be produced on a trial basis. Wulff typically pursues 15 to 20
projects at any given time, and approximately 12 to 15 machines are submitted
for licensing each year. These new machines are built in limited quantities and
then test marketed for three to six months. Generally, less than one-half of the
new machines tested are put into full scale production. Management believes this
process of generating new ideas and then turning only a limited number of the
ideas into machines which will reach the mass market is responsible for the high
quality of Wulff's machines and their continued acceptance and success in the
marketplace. Because the machines have a reputation for quality, Wulff is often
able to produce and market a particular model for up to two years, which
management believes, based upon its experience in the relevant marketplace and
feedback from customers, exceeds the industry average.
During 1993, 1994 and 1995, Wulff spent approximately $3.3 million, $3.5
million, and $3.6 million, respectively, on product research and development.
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SALES AND MARKETING. Wulff sells approximately 94% of its products through
its own sales force of 56 people located in its 23 regional sales offices.
Independent German distributors account for approximately 6% of sales.
Approximately 97% of Wulff's sales of new wall machines are in the German
market. The sales offices are operated as independent profit centers and are
assigned geographic areas for which they are responsible for sales, servicing
the machines and assisting in collecting customers' accounts receivable
balances. GmbH maintains a sales office in Hanover for the distribution of
traditional slot machines, principally in Europe, and has an office in
Johannesburg, South Africa for the sale and distribution of traditional slot
machines into the African continent.
Wulff devotes substantial time, money and effort marketing and promoting its
products. Wulff takes an active part in the annual Amusement Game Fair which is
held each January in Frankfurt, Germany, at which Wulff introduces new products.
The wall machines manufactured and sold by Wulff generally sell for prices
ranging from DM 5,000 to DM 8,000 (approximately $3,493 to $5,590). A majority
of machines distributed by Wulff are paid for in full within 90 days after the
sale. Remaining sales of machines are financed by Wulff generally over a
12-month period, with interest rates of up to 12%. For this reason, Wulff
establishes an internal credit rating and credit limit for each customer. Under
Wulff's conditions of sale, title to a machine is retained by Wulff until the
machine has been paid for in full. In addition, Wulff demands security.
Currently, Wulff provides customer financing for approximately 20% of its sales,
and management expects this practice to increase during the latter half of 1996.
In approximately 60% of its sales, Wulff accepts wall machines and/or other
recreational and amusement equipment as trade-ins toward the purchase of new
machines. To the extent possible, the used machines are then resold.
CUSTOMERS. Each of Wulff's top ten customers in 1994 has maintained its
relationship with Wulff for over three years. For the fiscal year ended December
31, 1995, no single customer accounted for more than 3% of Wulff's sales, while
Wulff's top ten customers accounted for approximately 10% of Wulff's sales.
Wulff's customer base for wall machines may be divided into two categories
which differ based on the preferences of their clientele. Arcade operators are
generally interested in purchasing the newest products in the hopes that a new
innovation will result in a high level of public demand to play the new "hot"
product. Hotels, restaurants and taverns, on the other hand, are generally more
inclined to purchase lower-priced existing models with proven earnings records
to provide as an amenity to customers.
ASSEMBLY OPERATIONS. Wulff's manufacturing process is primarily an assembly
operation. Its manufacturing facility consists of a four-story, 100,000-square
foot building in Berlin, Germany. Wulff purchases its key raw materials,
sub-assemblies and fabricated parts from a variety of suppliers, and most parts
are purchased from multiple suppliers. While there exists no formal long-term
contract commitments to any single supplier, Wulff has placed certain standing
orders with suppliers through 1996 to help assure the availability of specific
quantities on an as-needed basis. These orders are cancelable by Wulff at any
time without penalty. Most of the component parts are standard on all models of
all Wulff's wall machines, which promotes easy conversion from the production of
one model to another in response to customer demand. Except in connection with
certain promotions, Wulff generally maintains low inventory levels of assembly
parts, and the amount of work-in-process is generally less than the number of
machines sold in one week.
Because of its manufacturing structure, Wulff is capable of substantially
increasing its wall machine output without significant capital expenditures.
Wulff continues to improve its manufacturing efficiency and productivity through
the use of computer-aided design systems, automated production equipment and
devotion of substantial resources to product quality control.
COMPETITION. Germany's wall machine manufacturing industry is dominated by
Wulff and two of its competitors, NSM, AG and Gauselmann, AG. Management
believes these three entities collectively account for more than 90% of the
entire market. Wulff competes with many companies in the distribution of coin-
operated amusement games, some of which are larger and have greater resources
than Wulff. Wulff's two major competitors own and operate a significant number
of arcades, which may give them a competitive advantage arising from a built-in
market for their games and the ability to test market new games in their
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own arcades. Further, increased foreign competition in Germany may have an
adverse impact on the Company's future wall machine revenues. Management
believes that the primary competitive factors in the wall machine coin-operated
amusement game market are the quality and depth of the product line, price and
customer service which includes the ability to fill orders quickly and
efficiently.
Management believes that the market for token machines has expanded rapidly,
from sales of approximately 3,900 units in 1993 to approximately 16,700 units in
1995. Management believes that token machines have in recent years competed
directly with wall machines due to the lower prices and the popularity of the
token machines. Furthermore, management believes that the token machine market
may have reached its potential and that sales may decline because token machines
are not subject to the four-year operation limit set by German regulations.
Increased foreign competition in Germany may have an adverse impact on the
Company's future wall machine revenues. See "Gaming Regulation and
Licensing--Germany."
GAMING MACHINE MANAGEMENT OPERATIONS
NEVADA OPERATIONS
Alliance's Nevada gaming machine management operations involve the
selection, ownership, installation, operation and maintenance of video poker
devices, reel-type slot machines and other gaming machines in local
establishments such as taverns, restaurants, supermarkets, drug stores and
convenience stores operated by third parties ("local establishments").
Alliance's gaming machine management operations target local residents who
generally frequent establishments close to their homes.
The following table sets forth certain historical data concerning the
Alliance's Nevada gaming machine management operations:
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------- AT MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Number of electronic gaming machines
owned...................................... 5,240 5,505 5,121 5,148 5,208 5,357
Number of locations......................... 527 552 508 496 516 528
</TABLE>
Alliance enters into gaming machine management agreements with local
establishments through either revenue-sharing arrangements or space lease
arrangements. In revenue-sharing arrangements, most common with taverns,
restaurants and convenience stores, Alliance does not pay rent, but rather
receives a percentage of the revenues from the electronic gaming machines. In
such arrangements, both the owner of the local establishment and Alliance must
have a gaming license. In space lease arrangements, most common with
supermarkets and drug stores, Alliance pays a fixed rental to the owner of the
local establishment and Alliance receives all of the revenues derived from the
gaming machines. In such arrangements, only Alliance (and not the establishment
owner) is required to hold a gaming license. Most of the local establishments
serviced by Alliance are restricted by law to operating no more than 15 gaming
machines.
Revenue-sharing arrangements accounted for approximately 80%, 86%, 86% and
86% of the Nevada gaming machine management revenues and 77%, 80%, 78% and 77%
of its operating Nevada gaming machines in 1993, 1994 and fiscal 1995 and the
nine-month period ended March 31, 1996, respectively. At March 31, 1996, the
weighted average remaining term of Alliance's revenue-sharing arrangements was
approximately 3.6 years. Space lease arrangements accounted for approximately
20%, 14%, 14% and 14% of the Nevada gaming machine management revenues and 23%,
20%, 22% and 23% of its operating Nevada gaming machines in 1993, 1994 and
fiscal 1995 and the nine-month period ended March 31, 1996. At March 31, 1996,
the weighted average remaining term of Alliance's space lease arrangements was
2.8 years.
Alliance has historically been able to renew or replace revenues from
expiring agreements with revenues generated by renewal or replacement contracts.
However, during the past few years, greater competitive pressures in the gaming
machine management business have increased the portion of gaming machine
management revenues payable to the local establishment, decreasing Alliance's
gross margins from these operations. As a result, Alliance has refocused its
Nevada gaming machine management operations to
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emphasize return on investment rather than increasing market share and has
undertaken a systematic review process to adjust its contract mix to emphasize
higher margin contracts and, where permissible, canceling or not renewing
unprofitable contracts.
SALES AND MARKETING. As the largest Nevada gaming machine management
operator, Alliance believes that it is able to differentiate itself from its
competitors through a full-service operation providing its customers marketing
assistance and promotional allowances and using its advanced design capabilities
to provide electronic gaming machines with features customized to customers'
needs, such as Gambler's Bonus.
Alliance has developed and is currently testing a new system called
"Gambler's Bonus". Gambler's Bonus is designed as a cardless slot players' club
and player tracking system, which allows multiple route locations to be linked
together into a distributed gaming environment. Through this technology,
Alliance is able to provide its players and customers with many of the same
gaming choices currently available only in a larger scale casino environment
such as multi-location progressive jackpots, bigger jackpot payouts and
traditional players' club enhancements. Additionally, Alliance will offer a
series of new and unique games available only to members of the Gambler's Bonus
players' club. Since launching Gamblers' Bonus, the gaming machines linked to
Gambler's Bonus have experienced an increase in net win per day per machine. As
of March 31, 1996, Alliance had the Gambler's Bonus system installed in 23
locations representing approximately 360 machines, and management expects to
have Gambler's Bonus installed in approximately 88 locations, or a total of 980
machines, by June 1996. Alliance believes Gambler's Bonus will improve both the
revenues and operating efficiencies of its Nevada gaming machine management
operations and has the potential to create additional opportunities in the
gaming machine management segment of the gaming industry. Additionally, in
keeping with the trends in the Nevada market, Alliance is updating its gaming
device base with bill-acceptor equipped electronic gaming machines which are
also expected to improve revenues and operating efficiencies.
CUSTOMERS. Alliance believes it has a diversified customer base with no one
customer accounting for more than 10% of Alliance's revenues generated from
Nevada gaming machine management operations during fiscal 1995, although
approximately 14.1% of such revenues was generated through an affiliated group
of such customers. The affiliated group consists of eight partnerships each
having one individual partner who is common to all such partnerships. For the
year ended December 31, 1995, Alliance's ten largest customers accounted for
approximately 20.7% of Alliance's revenues.
ASSEMBLY OPERATIONS. Alliance currently manufactures and distributes
electronic gaming machines in Nevada for use in its gaming machine management
operations. Alliance manufactured approximately 80% of the electronic gaming
machines currently used in its Nevada gaming machine management operations. The
manufacturing process generally involves the assembly of standard components
which are readily available from various sources. Alliance is not dependent upon
any one supplier for the material or components used in its manufacturing
operations.
COMPETITION. Alliance is subject to substantial direct competition for its
revenue-sharing and space lease locations from several large gaming machine
management operators and numerous small operators, located principally in Las
Vegas, Reno and the surrounding areas. Alliance and Jackpot Enterprises, Inc.
are the dominant gaming machine management operators in Nevada. The principal
method of competition for gaming machine management operators includes the
economic terms of the revenue-sharing or space lease arrangement, the services
provided and the reputation of the gaming machine management operator. Price
competition is intense and has reduced Alliance's gross margin on such
operations over the past several years as the percentage of the gaming device
revenues retained by local establishment owners has increased.
LOUISIANA OPERATIONS
In March 1992, Alliance obtained a contract to operate video poker gaming
devices in the greater New Orleans, Louisiana area through its controlled
subsidiary, VSI. Alliance entered into an operating agreement which runs through
May 2002 with Fair Grounds for Alliance to be the exclusive operator of video
poker devices at the only racetrack and ten associated OTBs in the greater New
Orleans area. Alliance
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selects, installs, manages and services video poker devices for each of the ten
facilities owned by Fair Grounds for which it receives a percentage of the
revenue generated by the devices. Alliance currently has installed 694 video
poker devices in Louisiana.
Under the Louisiana gaming laws and regulations, the majority stockholder of
any entity operating video poker devices in Louisiana must be a domiciled
resident of the State of Louisiana. As a result, Alliance owns 49% of the
capital stock of VSI and three prominent members of the Louisiana business and
legal community own the remaining 51%. Pursuant to the terms of the VSI Loan,
VSI may not pay cash dividends or make any distribution of its property. The VSI
Loan amortizes quarterly until due in full in September 1998 and may be prepaid
at any time without penalty. Alliance, however, owns all the voting stock of VSI
and the majority of its officers and directors are Alliance employees. Alliance
has a 71% interest in dividends of VSI in the event dividends are declared.
Alliance also formed two other Louisiana subsidiaries, Southern Video Services,
Inc. ("SVS") and Video Distributing Services, Inc. ("VDSI"). Both SVS and VDSI
are structured in a manner similar to VSI except that Alliance is entitled to
receive 60% of any SVS dividends. Under the terms of its contract with Fair
Grounds, Alliance must conduct any additional video poker operations in
Louisiana other than gaming at racetracks or OTBs through SVS. To date, SVS and
VDSI have not engaged in business in Louisiana. In addition, Alliance and Fair
Grounds may have certain mutual rights of first refusal to participate in
certain Louisiana riverboat gaming opportunities of the other party on terms and
conditions to be specified.
Alliance is prohibited by the Louisiana Act from engaging in both the
manufacture and operation of gaming machines in Louisiana and, therefore,
Alliance does not manufacture its own gaming machines for use in Louisiana.
Further, the Louisiana legislature recently passed a bill which could have the
effect of curtailing the Company's activities in Louisiana. See "Risk
Factors--Regulation by Gaming Authorities" and "Gaming Regulation and
Licensing-- Louisiana."
On December 17, 1993, Alliance incurred a fire loss at the Fairgrounds Race
Course in New Orleans where Alliance operated 199 gaming machines prior to the
fire, 193 of which were destroyed in the fire. Alliance was fully insured for
all equipment, leasehold improvements, other assets and business income with the
exception of immaterial deductibles. From December 17, 1993 through December 31,
1995, Alliance recorded approximately $815,000 of income from business
interruption insurance proceeds. Alliance is discussing settlement of additional
business interruption claims with the insurance carrier.
SALES AND MARKETING. VSI has developed an extensive marketing program under
the name "The Players Room" which is designed to attract primarily local
residents to its facilities. Media placement has focused on newspaper and radio
advertising with promotions including a player's club, direct mailings and
offerings of a wide range of prizes.
Alliance intends to selectively expand its operations in the greater New
Orleans area by increasing the number of video poker devices in certain of its
existing locations as demand warrants, as well as investigating the addition of
new locations under its current contract with the Fair Grounds in areas where
competitive factors are favorable. Under the Louisiana Act, racetracks and OTBs
are permitted to install an unlimited number of video poker devices while
truckstops and taverns may install only limited numbers of such devices.
COMPETITION. Alliance is subject to extensive competition for contracts to
operate video poker devices and Alliance's racetrack and OTB parlors compete
with various truck stops and locations with liquor licenses throughout the New
Orleans area. Each truck stop is permitted to operate up to 50 video poker
devices and each tavern is permitted to operate up to three video poker devices.
In addition, Louisiana has authorized riverboat gaming statewide and several
riverboats are operating in Orleans Parish. Riverboats are permitted to have
live table games and an unlimited number of gaming machines, including slot
machines. Louisiana has also authorized one land-based casino, permitted to
include live table games and an unlimited number of gaming machines in New
Orleans, which opened in May 1995; however, its operator filed for bankruptcy
reorganization and ceased operations in November 1995. The operator has stated
its intention to reopen the land-based casino following reorganization.
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CASINO OPERATIONS
RAINBOW CASINO. On July 16, 1994, the Rainbow Casino located in Vicksburg,
Mississippi permanently opened for business. The entire project consists of the
Rainbow Casino, which is a 24,000-square foot casino owned and operated by
Alliance containing approximately 589 gaming machines and 28 table games, and
also includes an 89-room Days Inn hotel and a 10-acre indoor and outdoor
entertainment complex called Funtricity Entertainment Park, which was developed
by a subsidiary of Six Flags Corporation. Both the hotel and entertainment park,
which were substantially completed in late May 1995, are operated by third
parties. The entire property, known as Vicksburg Landing, is the only
destination of its kind in Mississippi containing a casino/family entertainment
complex.
Through a wholly-owned subsidiary, Alliance originally purchased a 45%
limited partnership interest in RCVP, a Mississippi limited partnership which
owns the casino, all assets (including the gaming equipment) associated with the
casino and certain adjacent parcels of land. The 55% general partnership
interest in RCVP was held by RCC, an unaffiliated Mississippi corporation.
Pursuant to a management agreement dated October 29, 1993, which terminates on
December 31, 2010, Alliance through a wholly-owned subsidiary also serves as
manager of the casino. In connection with the completion of the casino and the
acquisition of its original 45% limited partnership interest, Alliance funded a
$3,250,000 advance to RCC on the same terms as RCC's financing from HFS (other
than the fact that such advance is subordinate to payments due to HFS, and the
HFS financing is secured). The HFS financing provided to RCC on August 3, 1993
consisted of a $7.5 million loan secured by a first priority lien on all of the
assets of the project. The terms of the HFS financing provide that, in
connection with the loan and certain marketing services provided by HFS to RCC,
RCC will pay to HFS a perpetual royalty based upon the casino's annual gross
gaming revenues of 12% on the first $40.0 million, 11% on the next $10.0
million, and 10% thereafter.
On March 29, 1995, Alliance consummated certain transactions whereby
Alliance acquired from RCC the controlling general partnership interest in RCVP
and increased its partnership interest. In exchange for the commitments by NGM,
a subsidiary of National Gaming Corporation, and Alliance to provide additional
financing (up to a maximum of $2.0 million each) to be used, among other things
for the completion of certain incomplete elements of the project which survived
the opening of the casino (for which RCC was to have been responsible, but
failed to satisfy) and for a $500,000 payment paid to HFS as a waiver fee, a
commitment by Alliance to fund any additional capital necessary for the
completion, upgrading or working capital of the project, the following occurred:
(i) a subsidiary of Alliance became the general partner and RCC became the
limited partner and (ii) the respective partnership interests were adjusted. As
of March 31, 1996, amounts outstanding under the HFS facility and the related
financings aggregated $9.4 million. As adjusted, RCC is entitled to receive 10%
of the net available cash flows after debt service and other items, as defined
(which amount increases to 20% of such amount if revenues exceed $35.0 million
(i.e. only on such incremental amount)), for a period of 15 years, such period
being subject to one year extensions for each year in which a minimum payment of
$50,000 is not made. In addition, if during any continuous 12-month period until
December 31, 1999 the casino achieved earnings from the project of at least
$10.5 million before deducting depreciation, amortization, royalty and income
taxes, then Alliance would be obligated to pay to certain principals of the
original partnership an amount aggregating $1.0 million in cash or shares of
Common Stock 180 days after the occurrence. The casino has achieved the required
earnings as adjusted, and Alliance is obligated to make the required payment or
issue the Common Stock (with the issuance being its expected course of action)
by September 30, 1996. Also, Alliance's 5.2% royalty on gross revenues was
terminated on the date it became the general partner.
PLANTATION STATION. In April 1990, Alliance purchased, for an aggregate
purchase price of $9.5 million, substantially all of the assets of the
Plantation Station casino ("Plantation Station") located near the border of Reno
and Sparks in northern Nevada. Plantation Station is a 20,000 square-foot casino
which currently contains approximately 453 gaming machines, keno and 10 table
games, including blackjack, craps, roulette and poker. In addition, Plantation
Station offers a race and sports book which is leased to an independent race and
sports book operator and includes a 300-seat restaurant owned by Alliance.
Plantation Station is convenient to both Reno and Sparks and caters to the local
market.
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SALES AND MARKETING. Alliance's casinos target the cost-conscious market.
Alliance promotes its casinos primarily by providing quality food at reasonable
prices and through special promotional events. Alliance believes its experience
with operating small casinos targeted to local markets will enable it to
effectively operate casinos in emerging gaming jurisdictions that have similar
characteristics.
COMPETITION. Gaming of all types is available throughout Nevada in numerous
locations, including many locations similar to those at which Alliance operates
gaming machines. All of these gaming opportunities may compete directly or
indirectly with Alliance's casino operations. Many of Alliance's competitors
possess substantially greater financial and other resources than Alliance. Many
of such competitors include large casino-hotels which offer more variety and
amenities and may be perceived to have more favorable locations than Alliance.
The operation of casinos is a highly competitive business. The principal
competitive factors in the industry include the quality and location of the
facility, the nature and quality of the amenities and customer services offered
and the implementation and success of marketing programs. Plantation Station's
primary casino operations focus on the local market rather than the tourist
market. The Rainbow Casino generally appeals to both locals and visitors.
Accordingly, Alliance believes that the principal competition for Plantation
Station's operations comes from larger "locals" casinos. The Rainbow Casino
appeals to both locals and visitors to historic Vicksburg, Mississippi. The
Rainbow Casino is the fourth gaming facility to open in Vicksburg, Mississippi
and as such, faces substantial direct competition for gaming customers in the
region.
BUSINESS DEVELOPMENT ACTIVITY
As described in "Unaudited Pro Forma Condensed Combined Financial
Information," the Company intends to reduce Alliance development expenses, which
related to mergers, acquisitions and joint ventures, following the Transaction.
The reduction reflects the elimination of costs that were being incurred prior
to Alliance's accomplishment of its strategic plan to acquire a major electronic
gaming machine manufacturing company. To accomplish this reduction the Company
intends to reduce payroll costs and fees paid to consultants and legal costs
related to non-BGII transactions Alliance had been pursuing.
PATENTS, COPYRIGHTS AND TRADE SECRETS
Alliance has copyrighted both the source code and the video presentation of
its games and registered many of these copyrights with the U.S. Copyright Office
under the Copyright Act of 1976. Game version upgrades and new games are
currently in the process of United States patent and copyright registration.
Such copyrights expire at various dates from September 2056 to October 2065. In
addition, some of the games have Federal and/or state trademarks registered with
the U.S. Patent and Trademark Office. Some of the games (either currently used
or reserved for future development) also are covered by patents filed with the
U.S. Patent and Trademark Office. Such patents expire at various dates from May
2008 to March 2012.
BGII is obligated under several patent agreements to pay royalties ranging
from approximately $50 to $200 per game depending on the components in the
gaming machines. Additionally, based on an amendment to the trademark licensing
agreement between BGII and BEC dated March 31, 1995, BGII is obligated to pay a
royalty on new machines sold of $25 to $30 per machine beginning on March 31,
1995 with a minimum annual royalty payment of $500,000 for the initial five-year
term of the amended agreement, which is subject to annual renewals thereafter.
Royalty expense for the years ended December 31, 1993, 1994 and 1995 was $1.1
million, $2.9 million and $3.0 million, respectively.
Pursuant to a Trademark and License Agreement, as amended, between BEC and
BGII (the "License Agreement"), BGII licenses the name "Bally" from BEC for use
in the businesses of BGII. In 1992, BGII paid $3.5 million to BEC in the form of
an offset against a tax receivable which was owed by BEC to BGII for the
licensing rights. See "Notes to BGII's Consolidated Financial
Statements--Summary of Significant Accounting Policies--Intangible and other
Assets." On November 20, 1995, Alliance, the Merger Subsidiary and BGII
commenced an action against BEC in Federal District Court in Delaware seeking a
declaratory judgment, among other things, that the surviving company in the
Merger will be permitted to use the "Bally" trade name in accordance with the
terms of the License Agreement, and seeking injunctive relief (the "Alliance
Action"). On November 28, 1995, BEC commenced an action against BGII, Bally
Gaming Inc., Alliance and the Merger Subsidiary in Federal District Court in New
Jersey to enjoin the defendants from
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using the "Bally" trade name (the "BEC Action"). 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, BEC will withdraw its
objection 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, Bally Gaming, Inc. 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
will increase to $1.0 million (from the current $0.5 million), and for each such
period thereafter will return to $0.5 million. In addition, the amendment
clarifies that sales and pledges of the stock and/or assets of Bally Gaming,
Inc. 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.
In July 1992, BGII reached an agreement for an exclusive license until
December 31, 2005, subject to extension, of a patent relating to the use of
credit cards in gaming machines and acquired 1% of the stock of Scotch Twist,
Inc., the private company which granted this license in exchange for the
issuance of 100,001 shares of BGII's common stock. The licensing agreement
requires BGII to commit $1.2 million in research and development costs related
to the patent, plus any costs related to obtaining required regulatory approvals
and licenses. As of March 31, 1996, approximately $1.0 million had been spent
relating to this commitment.
In connection with a settlement agreement entered between BEC, Gaming, BGI
Enterprises, BGII and IGT on December 16, 1992, BGII sold its interest in the
Casino Interlink Multiple Location Progressive System (the "Progressive System")
to IGT. BGII reserved certain rights in the sale, including the rights to
continue to sell the Progressive System (i) within Europe, (ii) for use in
single locations, and (iii) worldwide in lottery applications. BGII agreed to
discontinue general sales of the Progressive System or any similar system
outside of Europe for a period of five years. This agreement is binding on all
successors and assigns of BGII, including the Company from the date of the
settlement agreement.
The Company has registered the trademark "CEI" and its design and the logos
of United Gaming, Inc. and United Coin Machine Co. with the U.S. Patent and
Trademark Office.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1995, Alliance employed approximately 683 persons in the
State of Nevada and approximately 8 persons in various states related to its
business development activities, VSI employed approximately 73 persons in the
State of Louisiana, RCVP employed 374 persons in the State of Mississippi, and
BGII and its subsidiaries employed approximately 500 persons in various states
and 440 persons in Germany. None of such employees is covered by a collective
bargaining agreement. Wulff's employees, however, are covered by German
regulations which apply industry-wide and are developed, to some extent, through
negotiations between representatives of the metal working industry employers and
the trade union representing the employees. These regulations are in the nature
of collective bargaining agreements and cover the general terms and conditions
of such items as wages, vacations and work hours. The regulations codify what
are considered the common standards of employment in the German metal working
industry. The Company believes its relationships with its employees are
satisfactory.
LITIGATION RELATING TO THE MERGER
On or about June 19, 1995, three purported class actions were filed in the
Chancery Court of Delaware by BGII stockholders against BGII and its directors
(the "Fiorella, Cignetti and Neuman Actions") in connection with the
then-proposed merger of BGII with WMS (the "WMS Merger"). Also on or about June
19, 1995, a purported class action was filed in the Delaware Court of Chancery
by a BGII stockholder against BGII and its directors and Alliance (the "Strougo
Action") in connection with the tender offer and consent solicitation made by
Alliance (subsequently superseded by the execution of the Merger Agreement). On
or about July 6, 1995, the plaintiffs in the Fiorella, Cignetti, Neuman and
Strougo Actions (collectively, the "Stockholder Plaintiffs") filed with the
Court a motion to consolidate the four actions. On or about July 27, 1995,
certain of the Stockholder Plaintiffs filed an amended complaint that adopted
certain allegations concerning self-dealing by BGII directors in connection with
the merger agreement entered into
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with WMS (the "WMS Agreement"); added a claim relating to BGII's alleged failure
to hold an annual meeting as required; and added WMS as defendant. The amended
complaint also alleged that BGII intended, in violation of Delaware law, to sell
Wulff without first seeking stockholder approval of the sale. The action sought
an order enjoining defendants from proceeding with, consummating or closing the
WMS Merger, or rescinding it if it closed; preventing the sale of Wulff without
prior stockholder approval; declaring invalid BGII's agreement to pay WMS a fee
if the WMS Agreement is terminated by BGII in certain circumstances; compelling
an auction of BGII and the provision of due diligence to Alliance; scheduling an
immediate meeting of BGII stockholders; and awarding compensatory damages.
Management believes these claims to be without merit and intends to vigorously
defend these actions.
On October 23, 1995, WMS instituted a suit in New York State Court against
BGII for BGII's failure to pay $4.8 million upon termination of the WMS
Agreement. Management intends to vigorously defend this action. On November 22,
1995, BGII answered the complaint and brought counterclaims against WMS alleging
that WMS repudiated and breached the WMS Agreement by, among other things,
failing to act in good faith toward the consummation of the WMS Merger, advising
BGII that it would not perform as agreed but would impose new conditions on the
WMS Merger, acting in excess of its authority and undermining the ability of
BGII to perform the WMS Agreement. On February 8, 1996 WMS moved for summary
judgment. On April 2, 1996, BGII opposed WMS's motion and cross-moved for
summary judgment. Pursuant to the Merger Agreement, Alliance has agreed to
indemnify BGII against such a claim under certain circumstances.
On September 14, 1995, a stockholders' class and derivative action was
commenced by Richard Iannone, an Alliance stockholder, against Alliance, the
members of its current Board of Directors and certain of its former directors in
Federal District Court in Nevada asserting, among other matters, that Alliance
has wasted corporate assets in its efforts to acquire BGII by, among other
things, agreeing to onerous and burdensome financing arrangements that threaten
Alliance's ability to continue as a going concern and that Alliance had made
false and misleading statements and omissions in connection with that effort by
failing to disclose the need to refinance an additional $53.0 million of
existing BGII indebtedness, by failing to disclose how Alliance would
recapitalize the indebtedness of a combined Alliance/BGII and by failing to
disclose the leading role played by Richard Rainwater in Alliance's efforts to
acquire control of BGII which, given assurances made by Alliance to gaming
regulators in Nevada that the unlicensed Mr. Rainwater would not play an active
role in the management of Alliance, could expose Alliance to suspension or
revocation of its Nevada gaming license. In addition, the stockholder action
against Alliance alleges that (i) Alliance substantially inflated its results of
operations by selling gaming machines at inflated prices in exchange for
promissory notes (without any down payment) which Alliance knew could not be
paid in full but which Alliance nevertheless recorded at full value, (ii)
Alliance doctored reports sent to its route customers and (iii) the directors of
Alliance had caused Alliance to engage in self-dealing transactions with certain
directors which resulted in the exchange of Alliance assets for assets and
services of vastly lesser value. On September 21, 1995, a United States
magistrate denied the plaintiffs' request for expedited discovery, stating that
Mr. Iannone was not an adequate representative and was not likely to succeed on
the merits. On October 4, 1995, the defendants filed a motion to dismiss the
action. On December 18, 1995, the plaintiff filed an amended shareholder
derivative complaint. The plaintiff is no longer asserting any class claims. On
March 5, 1996 the defendants filed a motion to dismiss the amended complaint. On
May 16, 1996, the magistrate judge, on motion of defendants, stayed discovery in
this case pending a ruling by the court on the defendants' motion to dismiss the
amended complaint.
OTHER LITIGATION
In 1994, after an intensive Federal investigation of Gaming's former
Louisiana distributor, eighteen individuals were indicted on charges of
racketeering and fraud against Gaming and the Louisiana regulatory system. Among
those indicted were the former distributor's stockholders, directors, employees
and others alleged to be associated with organized crime. Fifteen entered pleas
of guilty before trial and the remaining three were convicted in October 1995.
In addition, Alan Maiss, a former director and president of BGII, pled guilty to
misprision of a felony in connection with such investigation. BGII, its
subsidiaries and its current employees were not subject to such investigation.
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Prior to the conclusion of the Federal criminal case, BGII's activities with
regard to its former VLT distributor in Louisiana were the subject of inquiries
by gaming regulators and a report by the New Jersey Division of Gaming
Enforcement dated August 24, 1995. The New Jersey Commission has indicated that
it will hold a hearing on the matter, but no date has been set at this time. The
New Jersey report made no specific recommendations for action by the New Jersey
Commission. The Gaming Authorities in Ontario, Canada, who have investigated the
matter, issued a gaming registration to Gaming on February 8, 1996.
On September 25, 1995, BGII was named as a defendant in a class action
lawsuit filed in Federal District Court in Nevada, by Larry Schreirer on behalf
of himself and all others similarly situated (the "plaintiffs"). The plaintiffs
filed suit against BGII and approximately 45 other defendants (each a
"defendant," and collectively the "defendants"). Each defendant is involved in
the gaming business as either a gaming machine manufacturer, distributor, or
casino operator. The class action lawsuit arises out of alleged fraudulent
marketing and operation of casino video poker machines and electronic slot
machines. The plaintiffs allege that the defendants have engaged in a course of
fraudulent and misleading conduct intended to induce people into playing their
gaming machines based on a false belief concerning how those machines actually
operate as well as the extent to which there is actually an opportunity to win
on any given play. The plaintiffs allege that the defendants' actions constitute
violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and
give rise to claims of common law fraud and unjust enrichment. The plaintiffs
are seeking monetary damages in excess of one billion dollars, and are asking
that any damage awards be trebled under applicable Federal law. Management
believes the plaintiffs' lawsuit to be without merit. The Company intends to
vigorously pursue all legal defenses available to it.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, past spills,
disposals or other releases of hazardous substances (together, "Environmental
Laws"). The Company uses certain substances and generates certain wastes that
are regulated or may be deemed hazardous under applicable Environmental Laws.
From time to time, the Company's operations may result in certain noncompliance
with applicable requirements under Environmental Laws. Any past noncompliance
with applicable requirements under Environmental Laws has not had a material
adverse effect on the Company's results of operations or financial condition.
Further, the Company believes that any noncompliance or cleanup liability under
current Environmental Laws would not have a material adverse effect on the
Company's results of operations or financial condition.
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GAMING REGULATION AND LICENSING
The manufacture and distribution of gaming machines and the operation of
gaming facilities are subject to extensive Federal, state, local and foreign
regulation. Although the laws and regulations of the various jurisdictions in
which the Company operates and into which the Company may expand its gaming
operations vary in their technical requirements and are subject to amendment
from time to time, virtually all of these jurisdictions require licenses,
permits, documentation of qualification, including evidence of financial
stability, and other forms of approval for companies engaged in the manufacture
and distribution of gaming machines and the operation of gaming facilities, as
well as for the officers, directors, major stockholders and key personnel of
such companies.
Any person which acquires a controlling interest in the Company would have
to meet the requirements of all governmental bodies which regulate the Company's
gaming business. A change in the make-up of the Company's Board of Directors and
management would require the various Gaming Authorities to examine the
qualifications of the new board and management. The past conduct of management,
which may be re-examined in conjunction with hearings in Nevada, New Jersey and
Louisiana, would normally not be a controlling factor in passing upon the
suitability of a successor group when that prior management group would no
longer be in control of the Company. Absent actual approval of the successor
interests controlling the Company after a merger or other acquisition, there can
be no assurances that governmental authorities would give required approvals to
any particular persons or groups.
NEVADA
The ownership and operation of casino gaming facilities in Nevada, and the
manufacture, distribution and operation of gaming machines and cashless wagering
systems for use or play in Nevada, or for distribution outside of Nevada, are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and (ii) various local ordinances and regulations.
The Company's gaming, manufacturing, distributing and slot machine route
operations (herein referred to as "gaming machine management operations") are
subject to the licensing and regulatory control of the Nevada State Gaming
Control Board (the "Nevada Board"), the Nevada Gaming Commission (the "Nevada
Commission"), the County Liquor and Gaming Licensing Board (the "Clark County
Board") and various other county and city regulatory agencies, all of which are
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things, (i) the prevention of unsavory or unsuitable persons
from having any direct or indirect involvement with gaming at any time in any
capacity; (ii) the strict regulation of all persons, locations, practices,
associations and activities related to the operation of licensed gaming
establishments and the manufacture and distribution of gaming machines, cashless
wagering systems and associated equipment; (iii) the establishment and
maintenance of responsible accounting practices and procedures; (iv) the
maintenance of effective control over the financial practices of licensees,
including establishment of minimum procedures for internal fiscal affairs and
the safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming Authorities; (v)
the prevention of cheating and fraudulent practices; and (vi) providing a source
of state and local revenues through taxation and licensing fees. Change in such
laws, regulations and procedures could have an adverse effect on the gaming
related operations conducted by the Company.
Alliance and BGII are each registered with the Nevada Commission as
publicly-traded corporations ("Registered Corporations"). The Company's direct
and indirect subsidiaries conduct gaming operations at various locations,
conduct gaming machine management operations and manufacture and distribute
electronic gaming machines (collectively, the "Alliance Nevada Subsidiaries").
Gaming, the operating subsidiary for BGII's domestic gaming operations, which
manufactures and distributes electronic gaming machines, is also required to be
licensed by the Nevada Gaming Authorities. The licenses held by the Alliance
Nevada Subsidiaries and Gaming require the periodic payments of fees, or fees
and taxes, and are not transferable. Alliance and BGII have been found suitable
to own the stock of the Alliance Nevada Subsidiaries and Gaming, respectively,
each of which is a corporate licensee (individually, a "Corporate Licensee" and
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collectively, "Corporate Licensees") under the terms of the Nevada Act. As
Registered Corporations, Alliance and BGII are required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of the profits from, the
Corporate Licensees without first obtaining licenses and approvals from the
Nevada Gaming Authorities. Alliance, BGII and the Corporate Licensees have
obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits and licenses required in order to engage in gaming
activities, gaming machine management operations, and in the manufacture and
distribution of gaming machines for use or play in Nevada or for distribution
outside of Nevada, as the case may be.
On May 23, 1996, the Merger and related transactions were approved by the
Nevada Commission upon the recommendation of the Nevada Board.
All gaming machines and cashless wagering systems that are manufactured,
sold or distributed for use or play in Nevada, or for distribution outside of
Nevada, must be manufactured by licensed manufacturers and distributed or sold
by licensed distributors. All gaming machines manufactured for use or play in
Nevada must be approved by the Nevada Commission before distribution or exposure
for play. The approval process for gaming machines and cashless wagering systems
includes rigorous testing by the Nevada Board, a field trial and a determination
as to whether the gaming machines or cashless wagering system meets strict
technical standards that are set forth in the regulations of the Nevada
Commission. Associated equipment must be administratively approved by the
Chairman of the Nevada Board before it is distributed for use in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or the
Corporate Licensees in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and key employees of the Company who are actively and directly
involved in the licensed activities of the Corporate Licensees may be required
to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities who, in addition to
their authority to deny an application for a finding of suitability or
licensure, have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or the Corporate Licensees, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company or the Corporate Licensees to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and the Corporate Licensees that hold nonrestricted licenses are
required to submit detailed financial and operating reports to the Nevada
Commission. A nonrestricted license is a license for an operation consisting of
16 or more slot machines, or a license for any number of slot machines together
with any other game, gaming device, race book or sports pool at one
establishment. Substantially all material loans, leases, sales of securities and
similar financing transactions by the Corporate Licensees that hold a
nonrestricted license must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by a Corporate
Licensee, the licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company and the Corporate Licensees and the persons involved
could be subject to substantial fines for each separate violation of the Nevada
Act at the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate any nonrestricted gaming
establishment operated by a Corporate Licensee and, under certain circumstances,
earnings generated during the supervisor's appointment (except for reasonable
rental of the casino) could be
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forfeited to the State of Nevada. Limitation, conditioning or suspension of the
gaming licenses of the Corporate Licensees or the appointment of a supervisor
could (and revocation of any gaming license would) materially adversely affect
the gaming related operations of the Company.
The Gaming Authorities may, at their discretion, require the holder of any
security of the Company, such as the Senior Secured Notes or the Preferred
Stock, to file applications, be investigated, and be found suitable to own such
security of the Company if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of any class of
a Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of any class of a Registered Corporation's voting securities apply to the
Nevada Commission for a finding of suitability within 30 days after the Chairman
of the Nevada Board mails the written notice requiring such filing. In the event
that there is a default in the payment of dividends for six consecutive dividend
payment dates, the Preferred Stock will qualify as a voting security under the
terms of the Nevada Act and will be considered as a separate class of voting
securities for purposes of determining beneficial ownership. Under certain
circumstances, an "institutional investor" as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a class of a Registered
Corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder or to have any
other relationship with the Company or the Corporate Licensees, the Company (i)
pays that person any dividend or interest upon voting securities of the Company,
(ii) allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise, or (iv) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his voting
securities, including, if necessary, the immediate purchase of said voting
securities for cash at fair market value. Additionally, the Clark County Board
has the authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
securities of a Registered Corporation, such as the Senior Secured Notes, to
file applications, be investigated and be found suitable to own the debt
security if the Nevada Commission has reason to believe that such ownership
would otherwise
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be inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if, without the prior approval of the
Nevada Commission, it (i) pays the unsuitable person any dividend, interest or
any distribution whatsoever, (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
The Company is required to maintain current stock ledgers in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to impose a requirement that a Registered Corporation's
stock certificates bear a legend indicating that the securities are subject to
the Nevada Act. The Nevada Commission has imposed this requirement on the
Company.
The Company may not make a public offering of its securities such as the
Senior Secured Notes and the Preferred Stock, without the prior approval of the
Nevada Commission if the securities or proceeds therefrom are intended to be
used to construct, acquire or finance gaming facilities in Nevada, or to retire
or extend obligations incurred for such purposes. On May 23, 1996, the Nevada
Commission approved the Offerings and related transactions, including stock
pledges, negative pledges, security interests and guarantees in connection with
the Note Offering. Such approval does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities offered.
Any representation to the contrary is unlawful. The Nevada Commission has also
imposed a requirement on Alliance and BGII that it must receive the prior
administrative approval of the Nevada Board Chairman for any offer for the sale
of an equity security in a private transaction such as the Private Placement.
The Company filed a request for administrative approval of the Private Placement
and the Nevada Board Chairman has approved the Private Placement.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he or she obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as a part of the approval process relating to the transaction. The
Merger and certain related transactions require the prior approval of the Nevada
Commission.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices on
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before a Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
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License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada, and to the
counties and cities in which the Licensees' respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon either (i) a
percentage of the gross revenues received, (ii) the number of gaming machines
operated, or (iii) the number of games operated. A casino entertainment tax is
also paid by casino operations where entertainment is furnished in connection
with the selling of food or refreshments. The Corporate Licensees that hold a
license as an operator of a gaming device route or a manufacturer's or
distributor's license also pay certain fees to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of its participation in such foreign gaming. The revolving fund
is subject to increase or decrease in the discretion of the Nevada Commission.
Thereafter, Licensees are required to comply with certain reporting requirements
imposed by the Nevada Act. Licensees are also subject to disciplinary action by
the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees
or employ a person in the foreign operations who has been denied a license or
finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at establishments operated by a Corporate
Licensee are subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
such license, and any such disciplinary action could (and revocation would) have
a material adverse affect upon the operations of the Corporate Licensees.
LOUISIANA
The manufacture, distribution, servicing and operation of video draw poker
devices ("Devices") in Louisiana is subject to the Louisiana Video Draw Poker
Devices Control Law and the Rules and Regulations promulgated thereunder (the
"Louisiana Act"). Licensing and regulatory control was provided by the Video
Gaming Division of the Gaming Enforcement Section of the Office of State Police
within the Department of Public Safety and Corrections (the "Division"). The
Louisiana legislature recently passed a bill which creates a single gaming
control board for the regulation of gaming in Louisiana. This Board is called
the Louisiana Gaming Control Board (the "Louisiana Board") who will issue all
licensing after May 1, 1996 for video draw poker devices. The Division will
continue to perform investigatory functions for the Louisiana Board. The laws
and regulations of Louisiana are based upon a primary consideration of
maintaining the health, welfare and safety of the general public and upon a
policy which is concerned with protecting the video gaming industry from
elements of organized crime, illegal gambling activities and other harmful
elements as well as protecting the public from illegal and unscrupulous gaming
to ensure the fair play of Devices. The Louisiana legislature recently passed a
bill which would allow each parish to decide whether to disallow video poker
devices, riverboat casinos and, in Orleans Parish, land-based casinos. If any
parish in which the Company operates elects to disallow video poker devices, the
Company would have to cease its video poker operations there by June 30, 1999.
The Company cannot predict which parishes will so elect; however, if all of the
parishes in which the Company operates so elect, the cessation of the Company's
video poker operations would have a material adverse effect on the operations of
the Company. See "Risk Factors--Strict Regulation by Gaming Authorities."
Each of the indirect operating subsidiaries for the Company's gaming
operations in Louisiana, VSI and SVS, has been granted a license as a Device
owner by the Division. Another indirect subsidiary of the Company, VDSI, has
been granted a license as a distributor by the Division. Gaming has been granted
a license as a manufacturer by the Division. These gaming subsidiaries are
"Louisiana Licensees" under the
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terms of the Louisiana Act. The licenses held by such Louisiana Licensees expire
at midnight on June 30 of each year and must be renewed annually through payment
of fees. All license fees must be paid on or before May 15 in each year licenses
are renewable.
The Louisiana Board may deny, impose a condition on or suspend or revoke a
license, renewal or application for a license for violations of any rules and
regulations of the Louisiana Board or any violations of the Louisiana Act. In
addition, fines for violations of gaming laws or regulations may be levied
against the Louisiana Licensees and the persons involved for each violation of
the gaming laws. The issuance, condition, denial, suspension or revocation is a
pure and absolute privilege and is at the discretion of the Louisiana Board in
accordance with the provisions of the Louisiana Act. A license is not property
or a protected interest under the constitution of either the United States or
the State of Louisiana.
The Division has the authority to conduct overt and covert investigations of
any person involved directly or indirectly in the video gaming industry in
Louisiana. This investigation may extend to information regarding a person's
immediate family and relatives and their affiliations with certain organizations
or other business entities. The investigation may also extend to any person who
has or controls more than a 5% ownership, income or profits interest in an
applicant for or holder of a license or who is a key employee, or who has the
ability to exercise significant influence over the licensee. All persons or
entities investigated must meet all suitability requirements and qualifications
for a licensee. The Louisiana Board may deny an application for licensing for
any cause which it may deem reasonable. The applicant for licensing must pay a
filing fee which also covers the cost of the investigation.
In order for a corporation to be licensed as an operator or a distributor by
the Louisiana Board, a majority of the stock of the corporation must be owned by
persons who have been domiciled in Louisiana for a period of at least two years
prior to the date of the application.
In addition to licensure as a manufacturer of Devices under the Louisiana
Act, Gaming has been licensed by the Division as a manufacturer under the
Louisiana Riverboat Economic Development and Gaming Control Act (the "Louisiana
Riverboat Act"). Gaming's application for a permanent manufacturer's license as
it relates to the land-based casino was pending before LEDGC at the time the
operator of the land-based casino filed for bankruptcy reorganization and ceased
operations, resulting in the termination of funding for the LEDGC regulatory
operations and the effective closure of the LEDGC's operations. See "Risk
Factors--Ongoing BGII Regulatory Investigations" and "Business--Other
Litigation."
The Division notified Alliance that it would be necessary to obtain approval
from it prior to the Effective Time which approval will now have to be issued by
the Louisiana Board. To that effect, the Company has made all requests necessary
to obtain any such licenses, permits or approvals required to be obtained prior
to the Effective Time.
MISSISSIPPI
The manufacture, distribution, ownership and operation of gaming machines in
Mississippi is subject to extensive state and local laws and regulations,
including the Mississippi Gaming Control Act (the "Mississippi Act") and the
regulations (the "Mississippi Regulations") promulgated thereunder. The
Mississippi Gaming Commission (the "Mississippi Commission") oversees licensing
and regulatory compliance. Gaming in Mississippi can be legally conducted only
on vessels of a certain minimum size in navigable waters of the Mississippi
River or in waters of the State of Mississippi which lie adjacent and to the
south (principally in the Gulf of Mexico) of the counties of Hancock, Harrison
and Jackson, and only in counties in Mississippi in which the registered voters
have not voted to prohibit such activities. The voters in Jackson County, the
southeastern-most county of Mississippi, have voted to prohibit gaming in that
county. However, gaming could be authorized in Jackson County should the voters
fail to disapprove of gaming in that county in any referendum, which could be
held annually. The underlying policy of the Mississippi Act is to ensure that
gaming operations in Mississippi are conducted (i) honestly and competitively,
(ii) free of criminal and corruptive influences and (iii) in a manner which
protects the rights of the creditors of gaming operations.
The Mississippi Act requires that a person (including any corporation or
other entity) must be licensed to conduct gaming activities in Mississippi. A
license to own and operate gaming machines will be issued only for a
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specified location which has been approved as a gaming site by the Mississippi
Commission. Alliance through its interest in RCVP must apply for renewal of such
licenses every two years, which renewal cannot be assured. Gaming holds a
license to manufacture and distribute gaming machines. The current license at
the Rainbow Casino will expire on June 1, 1996 unless renewed in advance of that
date. Alliance knows of no reason why such license will not be renewed. The
Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who exercises a significant influence over the
licensee, either directly or indirectly, must be found suitable by the
Mississippi Commission. In addition, any employee of the licensee who is
directly involved in gaming must obtain a work permit from the Mississippi
Commission. The Mississippi Commission will not issue a license or make a
finding of suitability unless it is satisfied, only after an extensive
investigation paid for by the applicant, that the persons associated with the
gaming licensee or applicant for a license are of good character, honesty and
integrity, with no relevant or material criminal record. In addition, the
Mississippi Commission will not issue a license unless it is satisfied that the
licensee is adequately financed or has a reasonable plan to finance its proposed
operations from acceptable sources, and that persons associated with the
applicant have sufficient business probity, competence and experience to engage
in the proposed gaming enterprise. The Mississippi Commission may refuse to
issue a work permit to a gaming employee (i) if the employee has committed
larceny, embezzlement or any crime of moral turpitude, or knowingly violated the
Mississippi Act or Mississippi Regulations, or (ii) for any other reasonable
cause. If an employee is denied a license, the Company must terminate his or her
employment.
On May 16, 1996, the Merger and related transactions were approved by the
Mississippi Commission.
The Mississippi Commission has the power to deny, limit, condition, revoke
and suspend any license, finding of suitability or registration, or fine any
person, as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any licensee or
person who was found suitable up to $100,000 for each violation of the
Mississippi Act or the Mississippi Regulations which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of any final decision of the Mississippi Commission by petition to a
Mississippi Circuit Court, but filing of such petition does not necessarily stay
any action by the Mississippi Commission pending a decision by the Circuit
Court.
Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings). The license fee equals 4% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and up to $134,000
per month and 8% of gaming receipts over $134,000 per month. The foregoing
license fees are allowed as a credit against any Mississippi State income tax
liability for the year paid. An additional license fee, equal to $100 for each
table game conducted or planned to be conducted on the gaming premises, is
payable to the State of Mississippi annually in advance. Municipal and county
fees may also be assessed and vary from jurisdiction to jurisdiction. All taxes
and fees must be paid timely in order to retain a gaming license. The
Mississippi Act also imposes certain audit and record keeping laws and
regulations, primarily to ensure compliance with the Mississippi Act, including
compliance with the provisions relating to the payment of license fees.
Under the Mississippi Regulations, a gaming licensee cannot be publicly
held, although an affiliated corporation, such as the Company, may be publicly
held so long as the Company registers with and gets the approval of the
Mississippi Commission. In addition, approval of any subsequent public offerings
of the securities of the Company must be obtained from the Mississippi
Commission if any part of the proceeds from that offering are intended to be
used to pay for or reduce debt used to pay for the construction, acquisition or
operation of any gaming facility in Mississippi.
Under the Mississippi Regulations, a person is prohibited from acquiring
control of a licensee without the prior approval of the Mississippi Commission.
Any person who, directly or indirectly, or in association with others, acquires
beneficial ownership of more than five percent of a licensee must notify the
Mississippi Commission of this acquisition. The Mississippi Commission may
require that a person be found suitable if that person holds between a five
percent and ten percent ownership position and must require that a person be
found suitable if that person owns more than ten percent of a licensee.
Furthermore, regardless of the amount of ownership, any person who acquires
beneficial ownership may be required to be found suitable if the Mississippi
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Commission has reason to believe that the acquisition of such ownership would be
inconsistent with the declared policy of Mississippi. Any person who is required
to be found suitable must apply for a finding of suitability from the
Mississippi Commission within 30 days after being requested to do so, and must
deposit with the State Tax Commission a sum of money which is adequate to pay
the anticipated investigatory costs associated with such finding. Any person who
is found not to be suitable by the Mississippi Commission will not be permitted
to have any direct or indirect ownership in the licensee. Any person who is
required to apply for a finding of suitability and fails to do so, or who fails
to dispose of his or her interest in the licensee if found unsuitable, is guilty
of a misdemeanor. If a finding of suitability with respect to any person is not
applied for where required, or if it is denied a revoked by the Mississippi
Commission, the licensee is not permitted to pay such person of services
rendered, or to employ or enter into any contract with such person.
Dockside casinos may be required to be moved to a "safe harbor" in the event
of a threatened hurricane. The appropriate county civil defense director will
determine when such movement is required. In general, it is anticipated that
casino vessels will have to be moved in the event of a Class III or more severe
hurricane warning, where there is the possibility of 125 miles per hour wind
speeds. The movement of a casino barge will not necessarily insure protection
against damage or destruction by a hurricane. Furthermore, the removal of a
casino barge will generally require several days, and as a consequence, the
casino barge will be out of business during that movement, even if no hurricane
strikes the casino site.
Any permanently moored vessel used for casino operations must meet the fire
safety standard of the Mississippi Fire Prevention Code, the Life Safety Code
and the Standards for the Construction and Fire Protection of Marine Terminals,
Piers and Wharfs of the National Fire Protection Association. Additionally, any
establishment to be constructed for dockside gaming must meet the Southern
Standard Building Code or the local building code, if such a local building code
has been implemented at the casino's site.
While unpowered and permanently moored vessels do not require certification
by the United States Coast Guard, the Mississippi Commission has engaged the
American Bureau of Shipping, an independent consulting agency, which will
inspect and certify all casino barges with respect to stability and single
compartment flooding integrity, in accordance with the Mississippi Regulations.
The law and regulations permitting and governing Mississippi casino gaming
were adopted during 1990 and 1991, and the first casinos opened in August 1992.
Consequently, the interpretation and application of Mississippi law and
regulations may evolve over time, and any such changes may have an adverse
effect on Mississippi licensees.
NEW JERSEY
BGII's subsidiary, Gaming, is licensed by the New Jersey Commission as a
gaming-related casino service industry ("CSI") in accordance with the New Jersey
Casino Control Act (the "Casino Control Act").
Prior to expiration of the initial license period, Gaming filed an
application for renewal of its license, which application has been deemed
complete by the New Jersey Commission. Consequently, pending formal renewal of
the license, Gaming is permitted to continue doing business with New Jersey
casino licenses.
Due to the change of control of BGII as a result of the Merger, BGII's
license as a CSI will be terminated. The Company will apply for a new CSI
license following the Merger; however, the Company's operations in New Jersey
are expected to continue uninterrupted pursuant to transactional waivers granted
by the New Jersey Commission on a sale-by-sale basis, as the New Jersey
Commission has indicated its willingness to provide such waivers to the Company.
In considering the qualifications of an applicant for a CSI license, the New
Jersey Commission may require that the officers, directors, key personnel,
financial sources and stockholders (in particular those with holdings in excess
of 5%) of the applicant and its holding and intermediary companies demonstrate
their qualifications. In this regard, such persons and entities may be
investigated and may be required to make certain regulatory filings and to
disclose and/or to provide consents to disclose personal and financial data. The
costs associated with such investigation are typically borne by the applicant.
ADDITIONAL DOMESTIC JURISDICTIONS
The Company, in the ordinary course of its business, routinely considers
business opportunities to expand its gaming operations into additional
jurisdictions.
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Although the laws and regulations of the various jurisdictions in which the
Company operates or into which the Company may expand its gaming operations vary
in their technical requirements and are subject to amendment from time to time,
virtually all of those jurisdictions require licenses, permits, documentation of
qualification, including evidence of financial stability, and other forms of
approval for companies engaged in the manufacture and distribution of gaming
machines as well as for the officers, directors, major stockholders and key
personnel of such companies.
Alliance and BGII and their key personnel have obtained, or applied for, all
government licenses, registrations, findings of suitability, permits and
approvals necessary for the manufacture and distribution, and operation where
permitted, of their gaming machines in the jurisdictions in which Alliance and
BGII currently do business. The Company and the holders of its securities may be
subject to the provisions of the gaming laws of each jurisdiction where BGII or
its subsidiaries are licensed and/or conduct business, including, without
limitation, the States of Arizona, Colorado, Connecticut, Illinois, Indiana,
Iowa, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada,
New Jersey, New Mexico, South Dakota, Wisconsin, and the local regulatory
authority within each such state as well as Australian, Canadian and other
foreign gaming jurisdictions in which BGII and its subsidiaries are licensed or
conduct business. Following the consummation of the Merger, the Company and its
officers and directors will be required to apply for any government licenses,
permits and approvals necessary or required by each of these jurisdictions.
Holders of common stock of an entity licensed to manufacture and sell gaming
machines, and in particular those with holdings in excess of 5%, should note
that local laws and regulations may affect their rights regarding the purchase
of such common stock and may require such persons or entities to make certain
regulatory filings, or seek licensure, findings of qualification or other
approvals. In some cases this process may require the holder or prospective
holder to disclose and/or provide consents to disclose personal and financial
data in connection with necessary investigations, the costs of which are
typically borne by the applicant. The investigatory and approval process can
take three to six months to complete under normal circumstances. See "Risk
Factors--Strict Regulation by Gaming Authorities."
FEDERAL REGISTRATION. The operating subsidiaries of the Company that are
involved in gaming activities are required to file annually with the Attorney
General of the United States in connection with the sale, distribution or
operation of gaming machines. All currently required filings have been made.
GERMANY
German legislative authorities regulate and monitor the wall machine
industry so as to ensure certain manufacturing standards and the fairness of
each machine to users. The most significant legislation presently affecting the
wall machine industry relates to prescribed licensing procedures, the use,
installation and operation of machines and the taxation of same. No approval of
the Merger is required to be obtained from German legislative or regulatory
authorities.
Wall machine manufacturers are dependent upon the successful introduction of
new products each year and currently are required to receive prior government
approval for each new product introduction. Manufacturers are required to apply
for licenses through an agency of the German federal Ministry of Economics. Such
agency maintains a policy of accepting only two licensing applications from an
individual applicant at any given time. Wulff, through affiliates and
subsidiaries, is in a position to file up to six concurrent applications. After
receiving a prototype of a machine for which the applicant seeks government
licensing approval, the federal agency deliberates for periods that range from
approximately 6 to 24 months. If that product is approved, the wall machine
manufacturer is permitted to reproduce the sample machine initially submitted
for government approval. Every wall machine carries with it a small license card
that permits the machine to be operated for up to four years from the initial
date of sale, after which it may not be used in Germany. In Germany, wall
machines sold via the secondary market may be operated by a new owner but only
for the residual time remaining on each machine's four-year life. In addition to
licensing requirements for manufacturers, any person or entity which intends to
operate a licensed wall machine must
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apply to local regulatory authorities for a license, which will not be granted
by the authorities if facts justify the assumption that the applicant does not
possess the requisite reliability. In this proceeding, the applicant must
furnish a police certificate of conduct.
German legislation prohibits the public play of wall machines by individuals
under age 18. Voluntary agreements among manufacturers and certain amusement
game trade associations, among other things, restrict wall machine advertising
and the ability of a player to play more than two machines at once, require all
machines to carry visible warning notices and provide that every wall machine is
automatically switched off for three minutes after one hour of continuous play.
In April 1993, the German government increased the maximum coin drop per
game effective May 7, 1993 from 30 pfennigs (approximately $0.21) to 40 pfennigs
(approximately $0.28) although 30-pfennig machines are still permitted to be
manufactured and sold.
The Spielverordnung (gaming ordinance) specifically governs wall machines.
These regulations limit game payouts to DM 4.00 (approximately $2.80 per game),
require a minimum payout percentage, detail where the machines may be installed,
how many may be installed and by whom, which games are prohibited, the technical
requirements of the machines and technical review and approval. Operators must
comply with regulations which stipulate how many machines may operate within
defined square foot areas (15 square meters per machine, with a maximum of ten
machines per location). The Spielverordnung was modified in 1985 to achieve a
significant reduction of gaming machines. Gaming halls which through December
19, 1985 had more gaming machines than permitted under the revised regulations,
have a transition period through December 31, 1995 to comply with the revised
regulations. Such facilities were allowed to keep the 1985 number of wall
machines until December 31, 1990. During the period January 1, 1991 to December
31, 1995 they are entitled to two-thirds of such total number, but they must be
in compliance with the new limits by January 1, 1996. In taverns, restaurants,
hotels and certain other establishments, no more than two gaming machines are
permitted. See "Risk Factors--Operating History--Recent Losses."
The Baunutzungsverordnung (Ordinance Regarding the Use of Real Estate)
governs the zoning classification of land and the type and density of
development within the various zoning classifications. Effective January 27,
1990, the Baunutzungsverordnung was amended essentially to restrict the
development of larger gaming halls to core commercial areas, limit the
permissibility of smaller gaming halls in various types of mixed use zones and
to ban gaming halls in most types of residential and all types of industrial use
areas. Prior to such amendment, gaming halls, regardless of size, were generally
allowed in core, business, mixed and industrial zones. In addition, on a case by
case basis, each local zoning agency is authorized to exclude certain types of
otherwise permissible uses, including gaming halls.
Subject to certain exceptions, V.A.T. of 15% is generally assessed on the
sale or supply of any goods and services in Germany. Since the total amount paid
for particular goods or services is considered to be the gross price in
calculating such tax, the actual rate is 13.04%. With respect to operators of
gaming machines, prior to January 1, 1994, V.A.T. was to have been assessed at a
rate of 0.1304 times a multiplier of, with respect to the period from January 1,
1991 through December 31, 1992, 2.0 times the amount remaining in the cash box
after payoffs to players and, with respect to the period from January 1, 1993
through December 31, 1993, 2.5 times the amount remaining in the cash box after
payouts to players. Commencing January 1, 1994 the tax rate was changed to
0.1304 times the cash handled by a machine. During mid-1994, the German
government effected a tax law revision based on a European Court ruling whereby
V.A.T. charged to the operators of wall machines was significantly reduced. See
"Business--German Operations--Industry Overview." In accordance with the ruling,
for all cases arising on or after, or that were pending on, July 5, 1994, the
basis for taxation has been the cash remaining in the machines. The rule
requiring a minimum payout percentage is applied to the amount remaining in the
cash box net of such V.A.T. Depending on the municipality in which a machine is
located, operators may also have to pay a monthly leisure tax on each machine of
up to DM 600 (approximately $419).
The business conducted by Wulff had benefitted from the Berlin Promotion
Act, a special tax statute which was intended to support the economy of West
Berlin in various ways. With the reunification of Germany, the need for benefits
provided by the law is perceived to have decreased. Consequently, the German
government has enacted amendments to the Berlin Promotion Act which are designed
to phase out,
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over a number of years, most of the tax benefits and incentives provided by the
law. These tax benefits and incentives have been changed in five ways: (i) the
V.A.T. rebates of up to 10% to enterprises located in West Berlin for sales to
German customers outside West Berlin were eliminated by January 1, 1994, which
began with an initial 30% decrease on January 1, 1992, and continued with
further decreases of 20% on July 1, 1992, 25% on January 1, 1993 and 25% on
January 1, 1994; (ii) the V.A.T. rebates of 4.2% for German (other than West
Berlin) enterprises which purchase goods from West Berlin taxpayers' enterprises
were abolished effective July 1, 1991; (iii) special accelerated depreciation
allowances which permitted West Berlin taxpayers to pay to write off 75% of the
cost of qualifying fixed assets at any time during the first three years after
acquisition have been modified to limit the write off to 50%; (iv) certain
special investment subsidies have been restricted and were completely eliminated
by the end of 1994; and (v) tax credits on German federal income taxes were
reduced from 22.5% in 1990 to 20% in 1991, 13.5% in 1992, 9.0% in 1993 and 4.5%
in 1994, and were phased out completely by December 31, 1994.
During 1995, Wulff increased the amount of V.A.T. reserves by $1.0 million
as a result of developments to date in an ongoing quadrennial audit of Wulff's
tax returns for the years 1988 through 1991. While no written claim or
assessment has been issued, the German tax authorities have orally proposed
preliminary adjustments which range from $1.4 million (which has been accrued)
to $5.0 million.
MANAGEMENT
The name, age, present principal occupation or employment and five-year
employment history of each of the directors and executive officers of Alliance
as of May 24, 1996 is set forth below. No director or executive officer is
related by blood, marriage or adoption to any other director or executive
officer.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Steve Greathouse 45 Chairman of the Board, President and Chief Executive Officer
Anthony DiCesare 33 Director and Executive Vice President--Development
Craig Fields 49 Vice Chairman of the Board
Joel Kirschbaum 45 Director and Consultant
David Robbins 36 Director
Alfred H. Wilms 51 Director
Shannon L. Bybee 56 Executive Vice President--Government Affairs and Special Advisor to the
Board of Directors
John W. Alderfer 51 Senior Vice President--Finance and Administration; Chief Financial
Officer and Treasurer
David D. Johnson 44 Senior Vice President, General Counsel and Secretary
Robert L. Miodunski 45 Senior Vice President--Nevada Route Group
Robert M. Hester 40 Vice President--Human Resources and Administration
Johnann F. McIlwain 49 Vice President--Marketing
Robert L. Saxton 42 Vice President--Casino Group
Robert A. Woodson 46 Vice President--Regulatory Compliance
</TABLE>
Steve Greathouse joined Alliance as President and Chief Executive Officer in
August 1994, was appointed a director in October 1994, and became Chairman of
the Board in March 1995. Mr. Greathouse, who has held various positions in the
gaming industry since 1974, most recently served as the President of the
Harrah's Casino Hotels Division of The Promus Companies Incorporated from
September 1993 to July 1994. In this position, Mr. Greathouse had responsibility
for Harrah's resorts in Las Vegas, Laughlin, Reno, Lake Tahoe and Atlantic City.
From July 1991 to September 1993, Mr. Greathouse served as President and (from
1990) Chief Operating Officer of Harrah's Southern Nevada, overseeing the
operations of Harrah's Las Vegas and Harrah's Laughlin. From 1990 to July 1991,
Mr. Greathouse served as Executive Vice President of Harrah's Southern Nevada.
Mr. Greathouse is an active member and has served as the
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Chairman of the Board of the Nevada Resort Association and is on the Executive
Committee of United Way of Southern Nevada. He has also served as a member of
the Board of Directors of the Las Vegas Convention and Visitors Authority and on
the Executive Committee of the Nevada Development Authority.
Anthony L. DiCesare was employed by KIC from April 1991 to July 1994 and
joined Alliance as Executive Vice President--Development and as a director in
July 1994. Prior to that time and following his graduation from business school
in 1989 he was employed as an associate at Wasserstein, Perella & Co., Inc. from
September 1989 to April 1991, where he worked in the Mergers and Acquisitions
group.
Dr. Craig Fields was appointed a director in October 1994 and became Vice
Chairman of the Board in March 1995. Dr. Fields was employed by the U.S.
Department of Defense Advanced Research Projects Agency ("ARPA") from 1974 to
1990. He joined the Microelectronics and Computer Technology Corporation ("MCC")
in 1990 as President and later became Chairman and CEO. He left MCC in 1994, and
serves as director of two publicly-traded corporations in addition to the
Company, Ensco, Inc. and Projectavision, Inc.
Joel Kirschbaum was appointed a director in July 1994 and served as Chairman
of the Board from July 1994 to March 1995. Mr. Kirschbaum is the sole
stockholder, director and officer of KIC, which is the sole general partner in
Kirkland, and of GSA, Inc. ("GSI"), the sole general partner in Gaming Systems
Advisors, L.P. ("GSA"). He has been engaged in operating the businesses of KIC
and Kirkland since January 1991 when KIC and Kirkland were established, and GSI
and GSA since June 1993. Prior to that time, he worked at Goldman, Sachs & Co.
for 13 years, during the last six of which he was a General Partner. When he
established KIC and Kirkland, Mr. Kirschbaum resigned his general partnership
interest in Goldman, Sachs & Co. and became a limited partner. Mr. Kirschbaum
resigned his limited partnership interest in Goldman, Sachs & Co. in November
1993.
David Robbins was appointed a director in July 1994. Mr. Robbins has been an
attorney with O'Sullivan, Graev & Karabell from September 1995 to the present.
From May 1993 to September 1995, Mr. Robbins was an attorney with Kramer, Levin,
Naftalis, Kamin & Frankel. From September 1984 to May 1993, Mr. Robbins was an
attorney with Cahill Gordon & Reindel.
Alfred H. Wilms has served as a director of Alliance since November 1983. He
served as Chief Executive Officer of Alliance from December 1984 to July 1994
and as Chairman of the Board of Alliance from August 1986 to July 1994. From
1976 through 1989, Mr. Wilms served as President of Wilms Distributing Company,
Inc. and Wilms Export Company, N.V., a Belgian company engaged in the
distribution of amusement and gaming equipment. From 1971 through 1976, Mr.
Wilms held various positions with Bally Continental, including positions in
research and development, marketing, sales, gaming operation and management,
and, from 1974 through 1979, he served as a director of Bally Manufacturing
Corp. Mr. Wilms is currently President and a director of Aqualandia, the largest
waterpark in Europe; President and a director of Gibsa, a real estate company
located in Spain; and a director of Jardin Parks, a real estate company located
in Spain. Mr. Wilms is a citizen and resident of Belgium.
Shannon L. Bybee joined Alliance in July 1993 and served as President and
Chief Operating Officer until July 1994. In July 1994, Mr. Bybee assumed the
roles of Executive Vice President--Government Affairs and Special Advisor to the
Board of Directors and also took a position as Associate Professor with the
William F. Harrah College of Hotel Administration and the UNLV International
Gaming Institute at the University of Nevada, Las Vegas. Mr. Bybee currently
serves as a member of the board of directors of The Claridge Hotel and Casino
Corporation, a position he has held since August 1988. Prior to his association
with Alliance, Mr. Bybee had served as Chief Executive Officer of The Claridge
Hotel and Casino Corporation from August 1989 to July 1993. From 1983 to 1987
Mr. Bybee served as Senior Vice President and from 1978 to 1981 as Vice
President of Golden Nugget, Inc. (now Mirage Resorts, Inc.).
John W. Alderfer joined Alliance in September 1990 as Vice President, Chief
Financial Officer and Treasurer. Mr. Alderfer was subsequently promoted to
Senior Vice President--Finance and Administration, in December 1993. Prior to
joining Alliance, Mr. Alderfer was the Chief Financial Officer of The Bicycle
Club, a Los Angeles-based card casino, from February 1989 to September 1990.
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<PAGE>
David D. Johnson joined Alliance as Senior Vice President, General Counsel
and Secretary in March 1995. Previously, Mr. Johnson developed extensive gaming
industry experience representing a diverse group of casino clients as a Senior
Partner at Schreck, Jones, Bernhard, Woloson & Godfrey, a Nevada law firm where
he was employed from January 1987 to April 1995. Prior to joining Schreck,
Jones, Bernhard, Woloson & Godfrey, Mr. Johnson served as Chief Deputy Attorney
General for the gaming division of the Nevada Attorney General's Office. Mr.
Johnson serves as Vice Chairman of the Executive Committee of the Nevada State
Bar's Gaming Law Section and is an officer and founding member of the Nevada
Gaming Attorneys Association.
Robert L. Miodunski joined Alliance as Senior Vice President--Nevada Route
Group in March 1994. From January 1991 to March 1994, Mr. Miondunski was
President of Mulholland-Harper Company, a sign manufacturing and service
company. From 1984 through 1990, Mr. Miodunski held various positions with
Federal Signal Company, the most recent being Vice President and General Manager
of the Midwest Region of the Sign Group.
Robert M. Hester joined Alliance in October 1993 as Director of Human
Resources and was promoted to Vice President--Human Resources and Administration
in December 1993. From 1989 to 1993, Mr. Hester was Director of Human Resources
for Sam's Town Hotel and Casino in Las Vegas.
Johnann F. McIlwain joined Alliance in June 1994 as Vice
President--Marketing. From 1991 to 1992, Ms. McIlwain was Vice President of
Marketing of Greenwood, Inc. a Philadelphia-based gaming and entertainment
company. From 1989 to 1991, she was Director of Marketing Services for
Hospitality Franchise Systems, Inc. in Parsippany, New Jersey. Prior to joining
Hospitality Franchise Systems, Inc. Ms. McIlwain served as Director of
Advertising for the Resorts International Casino Hotel and the Trump Taj Mahal
Casino Hotel.
Robert L. Saxton joined Alliance in 1982 as Corporate Controller and was
elected Vice President-- Casino Group in December 1993. Since joining Alliance,
Mr. Saxton has held various management positions with the Nevada Route Group and
is currently responsible for casino operations. He also serves as President of
Alliance's Louisiana subsidiaries.
Robert A. Woodson joined Alliance in 1988 as Director of Gaming Compliance
and was promoted to Vice President--Regulatory Compliance in September 1993.
Prior to joining Alliance, Mr. Woodson was with the Investigation Division of
the State of Nevada Gaming Control Board for 10 years.
Following consummation of the Merger, the Company intends to evaluate the
composition of its Board of Directors to insure that the Board includes
individuals having appropriate skills and experience in light of the expanded
scope of the Company's operations following the Merger. With the exception of
Hans Kloss, who, subject to regulatory approval, will continue as President of
BGII and Managing Director of Wulff, and Robert Conover, who will continue as
President of Systems, and Richard Gillman and Neil Jenkins, who will not
continue with the Company, the current executive officers of BGII, if any, who
will be employed by the Company after the Merger have not yet been determined.
The Company expects that a substantial number of BGII officers will remain
employed by the Company following consummation of the Merger.
Hans Kloss has been a Director of BGII since August 1991 and President and
Chief Operating Officer of BGII since May 1993. Mr. Kloss has been the Managing
Director of BGII's German subsidiaries, Bally Wulff Automaten GmbH and Bally
Wulff Vertriebs GmbH, since 1981 and has been employed by those companies since
1970.
Robert Conover is the President of Systems and has held that position since
November 1990. Mr. Conover also serves as Vice-President and Chief Information
Officer of BEC and has served as such since December 1992. Mr. Conover is also
Senior Vice-President in charge of Management Information Systems Operations at
the BEC subsidiaries that operate casino hotels, and has held that position
since 1983.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
HOLDERS AND MANAGEMENT
The following table sets forth certain information as of May 24, 1996 with
respect to the beneficial ownership of the Common Stock, which constitutes the
Alliance's only outstanding class of voting securities, by (i) each person who,
to the knowledge of Alliance, beneficially owned more than 5% of the Common
Stock, (ii) each director of the Company, (iii) the named executive officers of
Alliance (as defined in the Exchange Act) and (iv) all executive officers and
directors of Alliance as a group:
<TABLE>
<CAPTION>
POST-TRANSACTION
AMOUNT OF PRE-TRANSACTION PERCENT OF
SHARES PERCENT OF CLASS(1) CLASS(1)(2)(3)
--------------- --------------------- --------------------
<S> <C> <C> <C>
Alfred H. Wilms.............................. 7,034,082(4) 46.9% 24.4%
Donaldson, Lufkin & Jenrette Securities 1,695,500(5) 11.6% 5.9%
Corporation ................................
277 Park Avenue
New York, New York 10172
Joel Kirschbaum ............................. 1,333,333(6) 10.3% 5.0%
Kirkland Investment Corporation
Kirkland-Ft. Worth Corporation
Investment Partners, L.P.
535 Madison Avenue
New York, New York 10022
Gaming Systems Advisors, L.P. ............... --(7) -- --
535 Madison Avenue
New York, New York 10022
Steve Greathouse............................. 333,333(8) 1.9% 1.3%
Anthony L. DiCesare.......................... --(9) -- --
Craig Fields................................. 125,000(10) * *
David Robbins................................ 20,000(11) * *
Shannon L. Bybee............................. 210,000(12) 1.6% *
John W. Alderfer............................. 162,000(13) 1.2% *
David D. Johnson............................. 66,667(14) -- --
Robert L. Miodunski.......................... 56,667(15) * *
All executive officers and directors as a
group....................................... 9,321,082(16) 46.5% 27.5%
</TABLE>
- ------------------------
* Less than 1%.
(1) Excludes the effect of (a) the issuance of (i) 2,750,000 shares subject to
warrants to Kirkland in connection with the Kirkland Investment, (ii)
1,250,000 shares subject to warrants to GSA pursuant to the GSA Advisory
Agreement on September 21, 1993 and 2,500,000 shares subject to additional
warrants issuable to GSA upon consummation of the Merger, both of which
become exercisable in equal amounts only when the stock price reaches $11,
$13 and $15, and (iii) 750,000, 250,000 and 30,000 shares subject to
warrants issued to Donaldson, Lufkin & Jenrette Securities Corporation,
Oppenheimer & Co. Inc. ("Oppenheimer") and L.H. Friend ("Friend"),
respectively, in connection with the issuance of the Old Convertible
Debentures, and (iv) 250,000 shares subject to warrants issued to Cerberus
Partners L.P. and certain affiliates of Canyon Partners, Inc., in September
1995, and (b) shares covered by employee stock options other than those
deemed beneficially owned by executive officers and directors.
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(2) Assumes the issuance of approximately 735,000 shares to BGII stockholders
in the Merger, approximately 1,250,000 shares in the Private Placement,
approximately 933,000 shares in partial satisfaction of BGII employee
contract termination costs and performance unit awards, and approximately
10,950,000 shares in the Exchange Offer and the Automatic Conversion.
(3) Excludes the effect of BGII obligations assumed by Alliance with respect to
each outstanding stock option and warrant to purchase shares of BGII common
stock, which options and warrants represented an aggregate of 752,500 and
1,498,000 shares of BGII common stock, respectively.
(4) Includes 2,000,000 shares represented by the warrants issued to Mr. Wilms.
Mr. Wilms' mailing address is 4380 Boulder Highway, Las Vegas, Nevada
89121. See "Certain Relationships and Related Transactions."
(5) Donaldson, Lufkin & Jenrette Securities Corporation and certain affiliated
entities filed on February 14, 1995, as amended on February 14, 1996, a
Schedule 13G indicating ownership as of December 31, 1995, of (i) 1,193,500
shares issuable upon conversion of Convertible Debentures held by it, (ii)
500,000 shares which may be acquired upon exercise of certain warrants
issued to Donaldson, Lufkin & Jenrette Securities Corporation and (iii)
2,000 shares. Excludes warrants exercisable for 250,000 shares issued to
Donaldson, Lufkin & Jenrette Securities Corporation which will vest when
the price of the Common Stock reaches $13 per share following consummation
of the Merger or any similar transaction.
(6) Based upon information contained in a Schedule 13D filed on June 23, 1994,
as amended on September 28, 1995 and November 6, 1995, and provided to
Alliance by such persons (except as to percent of class) which indicated
that each of them held sole voting and disposition over all such shares. Of
such shares, certain amounts have been or may be sold or distributed to
Friend, Mr. DiCesare and, possibly, certain other persons, as set forth in
the Schedule 13D provided to Alliance by Mr. Kirschbaum, KIC, Kirkland and
GSA.
(7) Based upon information contained in a Schedule 13D filed on June 23, 1994,
as amended on September 28, 1995 and November 6, 1995 and provided to
Alliance by such person jointly with Mr. Kirschbaum, KIC and Kirkland.
(8) Includes options to purchase shares of Common Stock pursuant to the
Alliance 1991 Plan, a portion of which vested in 1995 and excludes warrants
exercisable for 250,000 shares portions of which became exercisable in
equal amounts only when the stock price reaches $11, $13 and $15.
(9) Based upon information contained in a Schedule 13D filed on June 23, 1994,
as amended on September 28, 1995 and November 6, 1995 and provided to
Alliance by Mr. Kirschbaum, KIC, Kirkland and GSA. As set forth in such
Schedule 13D, as amended, Mr. DiCesare has certain rights to receive a
portion of the securities that KIC would be entitled to receive upon
dissolution of Kirkland and that GSI would be entitled to receive upon
dissolution of GSA.
(10) Includes 125,000 shares subject to options that are currently exercisable
or will become exercisable within 60 days. Excludes warrants exercisable
for 250,000 shares portions of which become exercisable in equal amounts
only when the stock price reaches $11, $13 and $15 and options exercisable
in equal amounts for 150,000 shares which will be issued within 30 days of
the consummation of the Merger. See "Certain Relationships and Related
Transactions."
(11) Pursuant to options granted to Mr. Robbins by Kirkland. Based on
information contained in the Schedule 13D referred to in Note 5 above.
(12) Includes 210,000 shares subject to options that are currently exercisable
or will become exercisable within 60 days.
(13) Includes 162,000 shares subject to options that are currently exercisable
or will become exercisable within 60 days.
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(14) Includes 66,667 shares subject to options that are currently exercisable or
will become exercisable within 60 days.
(15) Includes 17,000 shares subject to options that are currently exercisable or
will become exercisable within 60 days.
(16) Includes 2,676,000 shares subject to options and warrants that are
currently exercisable or will become exercisable within 60 days.
STOCKHOLDERS AGREEMENT
On July 14, 1994, as contemplated by the Stockholders Agreement dated as of
September 21, 1993 by and among Alliance, KIC, GSA, Kirkland and Mr. Wilms (as
amended, the "Stockholders Agreement"), the Alliance Board of Directors was
reconfigured to consist of four persons designated by KIC (Messrs. Kirschbaum,
DiCesare, David Robbins and Jay R. Gottlieb) and three persons designated by Mr.
Wilms (Messrs. Wilms, David A. Scheinman and Sidney Sosin). The Stockholders
Agreement and related transactions are more fully described in the Alliance
Forms 8-K dated June 25, 1993, September 21, 1993 and July 14, 1994 and in its
Information Statement dated June 29, 1994. On October 20, 1994, the Stockholders
Agreement was amended to reconfigure the Board of Directors of Alliance to
consist of four persons designated by KIC (Messrs. Kirschbaum, DiCesare, Robbins
and Gottlieb), one person designated by Mr. Wilms (Mr. Wilms) and two new
directors designated by a majority of the Board of Directors of Alliance. The
Stockholders Agreement obligates Mr. Wilms to vote his shares for such persons
nominated by KIC. On October 20, 1994 Mr. Greathouse and Dr. Fields were
appointed to the Board to fill vacancies created upon the resignation of Messrs.
Scheinman and Sosin. As amended, the Stockholders Agreement also provides that
Mr. Wilms may designate two persons (currently Messrs. Scheinman and Sosin) (the
"Advisors") who will be observers of, and advisors to, the Board of Directors
and who will be entitled to attend all of the Alliance Board of Directors'
meetings and receive all information furnished to members of the Board. Mr.
Wilms and/or at least one Advisor will be entitled to attend all meetings of the
committees of Alliance's and its subsidiaries' Boards of Directors. In addition,
Mr. Wilms is contractually obligated until September 21, 1997 to vote his shares
of Common Stock in favor of four nominees of KIC to the Alliance Board of
Directors. See "Certain Relationships and Related Transactions."
OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES
Immediately following the Transaction (and assuming that $50.0 million
principal amount of New Convertible Debentures are exchanged pursuant to the
Exchange Offer and converted into Common Stock and none into Series E Preferred
Stock pursuant to the Automatic Conversion and that $35.0 million in Old
Convertible Debentures remain outstanding), the Company will have outstanding
options, warrants and convertible securities which will be exercisable in the
aggregate for approximately 15,900,000 shares of Common Stock, as described
below. The following description does not purport to be complete and is
qualified in its entirety by reference to the documents and agreements related
to the items described which are incorporated by reference as exhibits to the
Registration Statement of which this prospectus is a part.
ALLIANCE
OPTIONS. Alliance has two stock option plans currently in effect: the United
Gaming, Inc. 1991 Long-Term Incentive Plan and the Gaming and Technology, Inc.
1984 Employee Stock Option Plan. Pursuant to these two plans, an aggregate of
5,000,000 shares of Common Stock are issuable, as to which options covering
2,162,834 shares were outstanding and options covering 1,088,644 shares were
exercisable as of March 31, 1996. In addition, Alliance has agreed to issue to
Dr. Fields options exercisable for 150,000 shares within 30 days of the
consummation of the Merger.
WARRANTS. Alliance has issued warrants to purchase shares of Common Stock to
the following persons in the amounts set forth below:
(1) Mr. Wilms: warrants to purchase 2,000,000 shares at a purchase price of
$2.50 per share (and in certain circumstances in a "cashless" transaction), and
which expire on September 1, 1998, issued in connection with the VSI Loan;
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(2) Kirkland: warrants to purchase 2,750,000 shares at a purchase price of
$1.50 per share, divided equally among warrants which become exercisable when
the price of the Common Stock reaches $11, $13 and $15 per share and which
expire on September 21, 1999, issued in connection with the Kirkland Investment;
(3) GSA: warrants to purchase 1,250,000 shares at a purchase price of $1.50
per share, divided equally among warrants which become exercisable when the
price of the Common Stock reaches $11, $13 and $15 per share and which expire on
September 21, 1999 issued pursuant to the GSA Advisory Agreement, and additional
warrants to purchase 2,500,000 shares issuable on the same terms (other than
their respective expiration dates) upon consummation of the Merger;
(4) Donaldson, Lufkin & Jenrette Securities Corporation: warrants to
purchase 500,000 shares at a purchase price of $8.25 per share, issued in
connection with the issuance of the Old Convertible Debentures, and additional
warrants to purchase 250,000 shares at a purchase price of $8.25 per share which
will vest when the price of the Common Stock reaches $13 per share following
consummation of the Merger or any similar transaction, all of which expire on
September 21, 1999;
(5) Oppenheimer: warrants to purchase 250,000 shares of Common Stock at a
purchase price of $8.25 per share and which expire on September 21, 1999, issued
in connection with the issuance of the Old Convertible Debentures;
(6) Cerberus Partners, L.P. and Canyon Partners, Inc.: warrants expiring in
2002 to purchase 250,000 shares of Common Stock at a purchase price of $3.75 per
share, issued in connection with a firm commitment by Cerberus Partners, L.P.
and affiliates of Canyon Partners, Inc. to Alliance in September 1995 relating
to financing for Alliance's tender offer and consent solicitation;
(7) Mr. Greathouse: warrants to purchase 250,000 shares on terms
substantially the same as the warrants issued to GSA described in clause (3)
above and which expire on August 15, 2000, issued in connection with his
employment;
(8) Dr. Fields: warrants to purchase 250,000 shares on terms substantially
the same as the warrants issued to GSA described in clause (3) above and which
expire on September 21, 2000, issued in connection with an agreement between Dr.
Fields and Alliance upon his becoming a director; and
(9) Friend: warrants to purchase 30,000 shares at a purchase price of $1.50
per share divided equally among warrants which become exercisable when the price
of the Common Stock reaches $11, $13 and $15 per share and which expire on
September 21, 1999, issued in connection with the issuance of the Old
Convertible Debentures.
BGII
OPTIONS. BGII has three stock option plans currently in effect: the 1991
Incentive Plan (the "BGII 1991 Incentive Plan"), the 1991 Non-employee
Directors' Option Plan (the "BGII 1991 Directors' Plan") and the 1994 Stock
Option Plan for Non-Employee Directors (the "BGII 1994 Plan"). Under the BGII
1991 Incentive Plan, 852,500 options were issued to employees of BGII, including
365,000 options held by executive officers. Under the BGII 1991 Directors' Plan,
100,000 options were issued to non-employee directors of BGII. Under the BGII
1994 Plan, 100,000 options were issued to non-employee directors of BGII.
Pursuant to the Merger Agreement, Alliance will assume BGII's obligations
with respect to each outstanding option, and such options will be exercisable
for the Merger consideration per share of BGII common stock subject to such
options, except that at the election of any employee of BGII (other than Messrs.
Gillman, Jenkins and Kloss) immediately prior to the effective time, any such
options held (not more than 552,500 in the aggregate) will be instead
exercisable for a number of shares of Common Stock equal to the number of shares
of BGII common stock subject thereto at an exercise price equal to the Alliance
Average Trading Price. See "The Merger and Related Financings."
WARRANTS. BGII issued warrants to purchase 1.2 million shares of BGII
common stock at a purchase price of $12.50 per share, exercisable after the BGII
common stock has traded at or above a price of $20 per share for 20 consecutive
trading days and under certain other circumstances, expiring on July 29, 1998,
which
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were issued in connection with the private placement of its 10 3/8% Senior
Secured Notes due July 1998. In addition, BGII issued warrants to purchase
300,000 shares of BGII common stock at a purchase price of $15 per share,
exercisable during a four-year period ending November 11, 1996, issued to the
underwriters of the initial public offering of BGII's common stock, of which
2,000 warrants have been exercised.
Pursuant to the Merger Agreement, Alliance will assume BGII's obligation
with respect to each outstanding warrant, and such warrants will be exercisable
for the Merger consideration per share of BGII common stock subject to such
warrants. See "The Merger and Related Financings."
PERFORMANCE UNITS. Under the BGII 1992 Restricted Stock Performance Plan,
BGII granted awards of performance units comprised of stock and cash to certain
members of its senior management based upon specific performance objectives.
Such performance units vest under certain circumstances following a change in
control, including as a result of the Merger. Alliance has agreed to make
payments to certain executive officers in connection with their employment
agreements and performance unit awards. See "The Merger and Related Financings."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1992, Mr. Wilms committed to provide the VSI Loan to Alliance's
majority controlled subsidiary, VSI. As consideration for Mr. Wilms commitment,
Alliance issued to Mr. Wilms a warrant to purchase 200,000 shares of Alliance
Common Stock at a purchase price of $2.50 per share and agreed to issue an
additional warrant to purchase 1.8 million shares of Common Stock at a purchase
price of $2.50 per share upon funding of the full amount of such loan. Mr. Wilms
is entitled to one demand and unlimited piggyback registration rights covering
resale for the Common Stock underlying the warrants (previously defined as the
Wilms Warrants). The exercise price of the warrants was determined based on an
analysis of, and a fairness opinion with respect to, the transaction and on the
price range of the Common Stock during a period prior to announcement of
Alliance's expansion into Louisiana. The VSI Loan requires quarterly interest
and principal payments with an interest rate equal to 2% above the London
InterBank Offered Rate, adjusted quarterly. The VSI Loan is currently held by
CTC, a Belgian corporation owned by Mr. Wilms and members of his family.
At June 30, 1993, Mr. Wilms had funded $6.0 million of the VSI Loan. On
August 2, 1993, the Board unanimously approved (except that Mr. Wilms abstained
from voting) the execution of a new Loan and Security Agreement and amendment of
the Wilms Warrants. CTC assumed Mr. Wilms' rights and obligations under the VSI
Loan. The VSI Loan grants CTC a security interest in substantially all of VSI's
present and future personal property; provided, however, that CTC's security
interest will be subordinated to certain purchase money indebtedness incurred by
VSI in the purchase from unaffiliated persons of inventory or equipment, and
working capital loans to VSI from unaffiliated persons. Pursuant to the terms of
the VSI Loan, VSI may not pay cash dividends or make any distributions of its
property. The VSI Loan matures on September 21, 1998 and provides for quarterly
principal payments beginning September 1, 1993, rising from approximately
$280,000 to $360,000 over its term. CTC has funded the full $6.5 million
original principal amount of the VSI Loan and Alliance has issued to Mr. Wilms
the warrant to purchase 1.8 million shares of Common Stock. Pursuant to the 1993
amendments to the VSI Loan, the maturity date of the VSI loan was extended one
year and the terms of the Wilms Warrants were also amended to extend their
exercise period to September 1, 1998 and to provide for a "cashless" exercise of
the Wilms Warrants under certain circumstances. No change was made in the
interest rate applicable to the VSI Loan or in the number of shares or the
exercise price of the Wilms Warrants. Alliance agreed to pay Mr. Wilms
out-of-pocket expenses incurred in connection with the transactions with
Kirkland, the restructuring of the VSI Loan and the related documentation in an
aggregate amount of $201,750. As of March 31, 1996 the aggregate amount of the
VSI Loan outstanding was approximately $3.7 million.
Under the terms of the Letter Agreement, dated as of June 25, 1993, between
Kirkland, KIC, Alliance and, as to certain provisions, Mr. Wilms, and the
related Securities Purchase Agreement, dated as of September 21, 1994, Alliance
agreed to make payments to Kirkland at the rate of $350,000 per year in
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reimbursement to Kirkland for its aggregate costs and expenses in conducting its
business as related to Alliance. Such payments aggregated approximately
$272,000, $346,000 and $597,000 in fiscal years 1993 through 1995, respectively.
In connection with the closing of the Kirkland Investment and the related
Nevada licensing process (completed June 23,1994), Alliance is obligated to
reimburse Kirkland for an aggregate of approximately $312,000 in out-of-pocket
expenses.
Pursuant to a letter agreement dated June 25, 1993 among GSA, Alliance and
Mr. Wilms, Alliance engaged GSA to assist it in among other things, identifying
opportunities for strategic transactions and in structuring and negotiating such
transactions. In connection with its retention of GSA for financial advisory
services, Alliance has issued to it warrants to purchase 1,250,000 shares of
Common Stock with an exercise price of $1.50 per share. Upon consummation of the
Merger, GSA will be entitled to receive additional warrants to purchase
2,500,000 shares of Common Stock on the same terms. Joel Kirschbaum, a director
of and consultant to Alliance, is the president, sole director and sole
stockholder of GSI, the sole general partner of GSA. Mr. DiCesare, a director
and Executive Vice President-Development of Alliance, has the right to receive
20% of the issued warrants (which percentage may increase in certain
circumstances) to be distributed to GSI by GSA.
The Stockholders Agreement contains certain registration rights running in
favor of Kirkland, KIC, GSA, Mr. Wilms and their respective transferees,
including up to four demand registration rights each (and additional demand
rights for Mr. Wilms under certain circumstances), at the expense of the
Company, and provisions granting Mr. Wilms the right to participate in certain
offerings of securities by the Company and by KIC and its transferees.
Pursuant to an agreement with Alliance, Dr. Fields, Vice Chairman of the
Alliance Board, will within 30 days of the consummation of the Merger receive
options to purchase 150,000 shares of Common Stock.
David Robbins, a director of Alliance appointed to the Board of Directors in
July 1994, was employed until July 1995 by the law firm of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel which has represented Alliance in various
matters. The firm received fees from Alliance of $1,046,000 and $493,000 in
fiscal 1994 and 1995, respectively.
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
CONVERTIBLE DEBENTURES
GENERAL. Alliance currently has outstanding $85.0 million aggregate
principal amount of 7 1/2% Convertible Subordinated Debentures due 2003,
although the information appearing elsewhere in this Prospectus, unless stated
otherwise, assumes the exchange of $50.0 million of the Old Convertible
Debentures into New Convertible Debentures, and the subsequent Automatic
Conversion into Common Stock or Series E Preferred Stock in lieu thereof. The
Old Convertible Debentures pay 7 1/2% interest per annum payable on a
semi-annual basis. The Old Convertible Debentures are convertible into shares of
Common Stock at any time prior to maturity (unless previously redeemed) at a
conversion price of $10.00 (the "Conversion Price") with each $1,000 principal
amount being convertible into 100 shares of Common Stock. The Company may, at
its option, redeem the Old Convertible Debentures at a redemption price equal to
the principal amount of such Old Convertible Debentures, together with accrued
interest, plus a specified redemption premium. The Old Convertible Debentures
also contain certain required redemption obligations at the option of the
holders of the Old Convertible Debentures. The following description of the Old
Convertible Debentures does not purport to be complete and is subject to and
qualified in its entirety by reference to the agreements related to such
Convertible Debentures which have been filed as exhibits to Alliance's Form S-2
Registration Statement No. 33-72990 and subsequent amendments thereto.
CHANGE IN CONTROL. Upon the occurrence of a Change in Control (as defined
in the Old Convertible Debentures), each holder of Old Convertible Debentures
will have the right to require the Company to
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purchase all or any of such holder's Old Convertible Debentures at 101% of the
principal amount thereof, plus accrued interest to the date of such purchase.
The Merger will not constitute a Change of Control under the Old Convertible
Debentures.
SUBORDINATION. The Old Convertible Debentures are subordinated in right of
payment to all indebtedness of Alliance, including the principal of and premium,
if any, and interest on such indebtedness, whether outstanding or created in the
future, for borrowed money, for indebtedness incurred in connection with
acquisitions, and for money owned or reimbursement obligations under letters of
credit or under any lease of real or personal property, which obligations are
capitalized on Alliance's books.
SUBSIDIARY INDEBTEDNESS
Set forth below is a brief summary of certain indebtedness of the
subsidiaries of the Company, which will remain outstanding after the Merger. The
following description does not purport to be complete and is subject to and
qualified in its entirety by reference to the agreements related to such
indebtedness which have been filed as exhibits to, or incorporated by reference
in, each Registration Statement of which this Prospectus forms a part.
VSI LOAN
In March 1992, Alfred H. Wilms committed to provide to VSI, a subordinated
loan of up to $6.5 million. The VSI Loan, bears interest at a rate equal to the
London Interbank Offered Rate for a period of ninety days plus 2%, payable
quarterly, and is due on September 21, 1998. The VSI Loan is secured by liens in
favor of CTC, an affiliate of Mr. Wilms, on substantially all of VSI's assets.
Pursuant to the terms of the VSI Loan, VSI may not pay cash dividends or make
any distribution of its property. As of March 31, 1996, there was an outstanding
balance of $3.7 million on this loan. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Certain Relationships and
Related Transactions."
RAINBOW CASINO
In connection with the completion of the Rainbow Casino, HFS provided
financing to RCC on August 3, 1993, consisting of a $7.5 million loan secured by
a first priority lien on all of the assets of the project. Such assets are also
pledged to secure a royalty payment required to be made by RCVP to an affiliate
of HFS. The terms of the HFS financing provide that, in connection with the loan
and certain marketing services provided by HFS to RCC, RCC will pay to HFS a
royalty based upon the casino's annual gross gaming revenues of 12% on the first
$40.0 million, 11% on the next $10.0 million, and 10% thereafter. See
"Business--Casino Operations."
On March 29, 1995, in exchange for commitments by Alliance and NGM, to
provide additional financing (up to a maximum of $2.0 million each) to be used,
among other things, for the completion of certain elements of the project. RCVP
issued promissory notes to each of Alliance and NGM equal to the amount of such
commitments. As of March 31, 1996, amounts outstanding under the HFS facility
and the related financings aggregated $9.7 million. As adjusted, RCC is entitled
to receive 10% of the net available cash flows (which amount shall increase to
20% of cash flow from gaming revenues above $35.0 million (I.E., only on such
incremental amount)), for a period of 15 years, such period being subject to one
year extensions for each year in which a minimum payment of $50,000 is not made.
In addition, if during any continuous 12-month period until December 31, 1999
the casino achieved earnings from the project of at least $10.5 million before
deducting depreciation, amortization, royalty and income taxes, then Alliance
would be obligated to pay to certain principals of the original partnership an
amount aggregating $1.0 million in cash or shares of Common Stock 180 days after
the occurrence. The casino has achieved the required earnings as adjusted, and
Alliance is obligated to make the required payment or issue the Common Stock
(with the issuance being its expected course of action) by September 30, 1996.
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DESCRIPTION OF THE SENIOR SECURED NOTES
Set forth below is a summary of certain provisions of the Senior Secured
Notes. The Senior Secured Notes will be issued pursuant to an indenture (the
"Indenture") to be dated as of June , 1996 by and among Alliance Gaming
Corporation, the Guarantors and United States Trust Company of New York, as
trustee (the "Trustee"), a copy of which is filed as an exhibit to each
Registration Statement of which this Prospectus is a part. The Senior Secured
Notes are also governed by certain provisions contained in the Trust Indenture
Act. The following summary of certain provisions of the Indenture and the
Collateral Agreements does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Indenture and the
Collateral Agreements, including the definitions therein of certain terms used
below. Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Indenture. Wherever particular provisions of
the Indenture are referred to in this summary, such provisions are incorporated
by reference as a part of the statements made and such statements are qualified
in their entirety by such reference. For purposes of this summary, the term "the
Company" refers to Alliance Gaming Corporation, exclusive of its subsidiaries,
following the Transaction and "Wulff" refers collectively to the Wulff Entities,
in which BGII's German operations are to be conducted following the Wulff
Realignment (as described in "The Merger and Related Financings").
GENERAL
The Senior Secured Notes will be senior, secured, general obligations of the
Company, limited in aggregate principal amount to $140.0 million and secured as
set forth under "-- Security for the Senior Secured Notes" below. The Senior
Secured Notes will be jointly and severally irrevocably and unconditionally
guaranteed on a senior basis by each of the Company's present and future
Subsidiaries, except RCVP, VSI, SVS, VDSI and Wulff (the "Guarantors"). The term
"Subsidiaries" as used herein, however, does not include Unrestricted
Subsidiaries. The Senior Secured Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof.
The Senior Secured Notes will mature on , 2003. The Senior
Secured Notes will bear interest at the rate per annum stated on the cover page
hereof from the date of issuance or from the most recent Interest Payment Date
to which interest has been paid or provided for, payable semi-annually on
and of each year, commencing , 1996, to the
persons in whose names such Senior Secured Notes are registered at the close of
business on the or immediately preceding such Interest
Payment Date. Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Senior Secured Notes will
be payable, and the Senior Secured Notes may be presented for registration of
transfer or exchange, at the office or agency of the Company maintained for such
purpose, which office or agency shall be maintained in the Borough of Manhattan,
The City of New York. At the option of the Company, payment of interest may be
made by check mailed to the holders of the Senior Secured Notes at the addresses
set forth upon the registry books of the Company. No service charge will be made
for any registration of transfer or exchange of Senior Secured Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Until otherwise designated
by the Company, the Company's office or agency will be the corporate trust
office of the Trustee at 114 West 47th Street, New York, New York.
SECURITY FOR THE SENIOR SECURED NOTES
Subject to certain limited exceptions, the obligations of the Company with
respect to the Senior Secured Notes will be secured by an exclusive pledge of
all Equity Interests directly or indirectly held by the Company or its
Subsidiaries, whether currently owned or acquired in the future, except for its
Equity Interests in BGII and its Subsidiaries, but including its Equity
Interests in Alliance Holding Company, which has been formed to hold the equity
interests in BGII and, indirectly, its subsidiaries (collectively, the
"Collateral"). The Collateral will not include any other property or assets. The
Company and certain Guarantors will enter into one or more pledge agreements
(collectively, the "Collateral Agreements") that will provide for the pledge of
the Collateral to the Trustee, as collateral agent, for the benefit of the
holders of the Senior Secured Notes. Such pledges will secure the payment and
performance when due of all of the obligations of the
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Company and the Guarantors under the Indenture and the Senior Secured Notes. The
Equity Interests of Subsidiaries that are not pledged as Collateral are not
permitted to be pledged to any other person, except the Equity Interests in
Wulff may be pledged to secure working capital facilities at Wulff. See the
covenant "LIMITATION ON LIENS."
The Indenture will contain certain covenants limiting the ability of the
Company and its Subsidiaries to incur Indebtedness. However, subject to certain
limitations, the Indenture permits the inventory and accounts receivable and
certain other assets of Bally Gaming, Inc., Wulff and their Subsidiaries to be
used to secure up to $40.0 million principal amount permitted to be outstanding
under one or more working capital facilities. The Indenture also permits the
incurrence of up to $20.0 million of Purchase Money Indebtedness, Capitalized
Lease Obligations and other secured debt. See the covenant "LIMITATION ON
INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK." In
addition, substantially all of the assets of RCVP and VSI, and certain of the
assets of Wulff, will continue to be pledged to secure Indebtedness and other
obligations of such persons. See "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Certain Other Indebtedness." As a result, such encumbered assets will be
available to satisfy obligations in respect of the Senior Secured Notes, if at
all, only after such secured obligations are satisfied in full.
Following an Event of Default, the Trustee, on behalf of the holders of the
Senior Secured Notes, in addition to any rights or remedies available to it
under the Indenture, may take such action as it deems advisable to protect and
enforce its rights in the Collateral, including the institution of foreclosure
proceedings. The ability of the holders of the Senior Secured Notes to operate
certain businesses of the Company or any Subsidiary after any foreclosure on the
Collateral is subject to (x) restrictions under certain gaming regulations,
including the approval of certain Gaming Authorities and (y) such other
restrictions as may be applicable under the laws of other jurisdictions. See
"Gaming Regulation and Licensing." If the Trustee takes possession of or
otherwise acquires any of such facilities, the Trustee would be required to
obtain a license from the Gaming Authorities of the relevant jurisdiction or
jurisdictions to operate such facilities. Because potential bidders must satisfy
licensing requirements, the number of potential bidders in a foreclosure sale
will be less than in foreclosure of other types of facilities and such
requirements may delay the sale of, and may adversely affect the sales price
for, such businesses and other Collateral. In addition, the ability of the
holders of Senior Secured Notes to realize upon the Collateral may be subject to
certain other bankruptcy law or fraudulent transfer limitations in the event of
a bankruptcy. Enforcement of each of the terms of the Indenture, the Collateral
Agreements and the other documents and instruments executed in connection
therewith is also subject to general principles of equity.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to foreclose on the Collateral upon the occurrence
of an Event of Default will likely be significantly impaired if a bankruptcy
case under Title 11 of the Bankruptcy Code is commenced by or against the
Company or any Guarantor prior to such foreclosure. Once such a case is
commenced, the Bankruptcy Code prohibits a secured creditor, such as the
Trustee, from commencing or pursuing a foreclosure on its collateral without
bankruptcy court approval. Moreover, the bankruptcy court may decline to grant
such approval, even if the debtor is in default under the applicable debt
instruments, if it concludes that there exists or that the debtor can provide
"adequate protection" for the interest of such secured creditor. The meaning of
the term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the secured creditor's interest in
the collateral, as of the commencement of the case, and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of foreclosure during the pendency of the
bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict, in the event of the bankruptcy of the Company or
any Guarantor, whether and for how long payments under the Senior Secured Notes
would be delayed, whether or when the Trustee would be permitted to foreclose on
the Collateral or whether or to what extent holders of the Senior Secured Notes
would be compensated for any delay in payment or loss of value of the Collateral
through the requirement of "adequate protection." See "Risk Factors --
Fraudulent Transfer Considerations."
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The Company is a holding company, conducting all of its business through
Subsidiaries, including the Guarantors. Holders of the Senior Secured Notes will
be direct creditors of each Guarantor by virtue of its guarantee. Nonetheless,
in the event of the bankruptcy or financial difficulty of a Guarantor, such
Guarantor's obligations under its guarantee may be subject to review and
avoidance under state and Federal fraudulent transfer laws. Among other things,
such obligations may be avoided if a court concludes that such obligations were
incurred for less than reasonably equivalent value or fair consideration at a
time when the Guarantor was insolvent, was rendered insolvent, or was left with
inadequate capital to conduct its business. A court would likely conclude that a
Guarantor did not receive reasonably equivalent value or fair consideration to
the extent that the aggregate amount of its liability on its guarantee exceeds
the economic benefits it receives in the Transaction. See "Risk Factors --
Fraudulent Transfer Considerations." The obligations of each Guarantor under its
guarantee will be limited in a manner intended to avoid it being deemed a
fraudulent conveyance under applicable law.
If the obligations of a Guarantor under its guarantee were avoided, Holders
of Senior Secured Notes would have to look to the assets of any remaining
Guarantors for payment. There can be no assurance in that event that such assets
would be sufficient to pay the outstanding principal and interest on the Senior
Secured Notes.
REDEMPTION
The Company will not have the right to redeem any Senior Secured Notes prior
to , 2000 (other than as described in the following paragraph). The
Senior Secured Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after , 2000, upon not less than 30
days nor more than 60 days notice to each holder of Senior Secured Notes, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the 12-month period commencing of the years
indicated below, in each case (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest thereon
to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2000............................................................................. %
2001............................................................................. %
2002 and thereafter.............................................................. 100.000%
</TABLE>
The Senior Secured Notes of a holder will also be redeemable in whole or in
part, at any time upon not less than 30 nor more than 60 days prior notice (or
such earlier date as may be required by any Gaming Authority) at 100% of the
principal amount thereof, together with accrued and unpaid interest through the
date on which such holder receives notice of disqualification (or such lesser
price as such Gaming Authority may require), pursuant to a Required Regulatory
Redemption. In certain circumstances, holders of the Senior Secured Notes may be
required to qualify under regulations adopted by certain Gaming Authorities as a
financial source to and as holders of securities of the Company. See "Gaming
Regulation and Licensing." The Indenture will provide that if any Gaming
Authority requires that a holder (whether the record or beneficial owner) so
qualify and if such holder does not so qualify, then such holder must dispose of
his interest in the Senior Secured Notes within 30 days after receipt of notice
of such finding, or within such earlier time as such Gaming Authority may
require.
In the case of a partial redemption, the Trustee shall select the Senior
Secured Notes or portions thereof for redemption on a pro rata basis, by lot or
in such other manner it deems appropriate and fair. The Senior Secured Notes may
be redeemed in part in multiples of $1,000 only.
The Senior Secured Notes will not have the benefit of any mandatory
redemption or sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the holder
of each Senior Secured Note to be redeemed to such holder's last address as then
shown upon the registry books of the Registrar. Any notice which relates to a
Senior Secured Note to be partially redeemed must state the portion of the
principal amount equal to the unredeemed portion thereof and must state that on
and after the date of redemption, upon surrender of
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such Senior Secured Note, a new Senior Secured Note or Senior Secured Notes in a
principal amount equal to the unredeemed portion thereof will be issued. On and
after the date fixed for redemption, interest will cease to accrue on the Senior
Secured Notes or portions thereof called for redemption, unless the Company
defaults in the payment thereof.
CERTAIN COVENANTS
REPURCHASE OF SENIOR SECURED NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE
OF CONTROL
The Indenture will provide that in the event that a Change of Control has
occurred, each holder of Senior Secured Notes will have the right, at such
holder's option, pursuant to an irrevocable and unconditional offer by the
Company (the "Change of Control Offer"), to require the Company to repurchase
all or any part of such holder's Senior Secured Notes (PROVIDED, that the
principal amount of such Senior Secured Notes must be $1,000 or an integral
multiple thereof) on a date (the "Change of Control Purchase Date") that is no
later than 60 days after the occurrence of such Change of Control, at a cash
price (the "Change of Control Purchase Price") equal to 101% of the principal
amount thereof (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Change in Control Purchase Date), together with accrued interest to the Change
of Control Purchase Date. The Change of Control Offer will be made within 30
days following a Change of Control and will remain open for 20 Business Days
following its commencement (the "Change of Control Offer Period"). Upon
expiration of the Change of Control Offer Period, the Company shall purchase all
Senior Secured Notes properly tendered in response to the Change of Control
Offer.
As used herein, a "Change of Control" is deemed to have occurred at such
time as (i) any person or group (as the term "person" or "group" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than an Exempt
Person has become the beneficial owner (as defined) of 50% or more of the
Company's capital stock having the power to vote in the election of directors
under ordinary circumstances ("Voting Stock"), (ii) there shall be consummated
any consolidation or merger of the Company that is not approved by at least a
majority of the Continuing Directors (A) in which the Company is not the
continuing or surviving corporation or (B) pursuant to which any Voting Stock of
the Company would be converted into cash, securities or other property, in each
case other than a consolidation or merger in which the holders of such Voting
Stock immediately prior thereto have at least a majority of the Voting Stock,
directly or indirectly, of the resulting or surviving corporation immediately
after the consolidation or merger, (iii) any person acquires all or
substantially all of the assets of the Company, in one transaction or a series
of related transactions, or (iv) during any period of 12 consecutive months
after the Issue Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Company, together with any
Continuing Directors, cease for any reason to constitute a majority of the Board
of Directors of the Company then in office.
An "Exempt Person" is defined as (A) the Company or any employee benefit
plan or stock ownership plan of either the Company or any subsidiary of the
Company or (B) any of Kirkland, KIC, GSA or Mr. Wilms, or any of their
respective Affiliates, or any successor to any of Kirkland, KIC or GSA or any of
their respective Affiliates by merger, sale or transfer of assets or similar
transaction, or by a transfer from Mr. Wilms to any estate planning vehicle
controlled by Mr. Wilms or established for the benefit of Mr. Wilms' family or
his estate.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Senior Secured Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest) of all Senior Secured Notes so tendered and (iii) deliver
to the Trustee Senior Secured Notes so accepted together with an Officers'
Certificate listing the Senior Secured Notes or portions thereof being purchased
by the Company. The Paying Agent will promptly mail to the Holders of Senior
Secured Notes so accepted payment in an amount equal to the Change of Control
Purchase Price (together with accrued and unpaid interest), and the Trustee will
promptly authenticate and mail or deliver to such Holders a new Senior Secured
Note equal in principal amount to any unpurchased portion of the Senior Secured
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Note surrendered. Any Senior Secured Notes not so accepted will be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The Change of Control purchase feature of the Senior Secured Notes may make
more difficult or discourage a takeover of the Company, and, thus, the removal
of incumbent management. No assurance can be given that the Company will have
sufficient funds available to purchase any Senior Secured Notes tendered in
response to an offer made as a result of a Change of Control. See "Risk Factors
- -- Change of Control."
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK
The Indenture will provide that, except as set forth below in this covenant,
the Company and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an "incurrence"),
any Indebtedness (including Acquired Indebtedness) or any Disqualified Capital
Stock. Notwithstanding the foregoing:
(a) if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a PRO FORMA
basis to, such incurrence of Indebtedness or Disqualified Capital Stock and (ii)
on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of the Company for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a PRO FORMA basis to such incurrence of
such Indebtedness or Disqualified Capital Stock and, to the extent set forth in
the definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to 1 for incurrences on or prior to , 1997 and
at least 2.25 to 1 for incurrences thereafter (the "Debt Incurrence Ratio"),
then the Company may incur such Indebtedness or Disqualified Capital Stock,
PROVIDED, that except in the case of Acquired Indebtedness, such Indebtedness
incurred pursuant to this clause (a) has an Average Life to Stated Maturity that
exceeds the remaining Average Life to Stated Maturity of the Senior Secured
Notes and has a Stated Maturity for its final scheduled principal or (in the
case of Disqualified Capital Stock) redemption payment, as applicable, later
than the Stated Maturity for the final scheduled principal payment of the Senior
Secured Notes;
(b) the Company or any Guarantor may incur Indebtedness evidenced by the
Senior Secured Notes and the Guarantees and represented by the Indenture up to
the amounts specified therein as of the date thereof, and the Company or any
Subsidiary may incur other Indebtedness outstanding on the Issue Date (after
giving effect to the Transaction);
(c) the Company or any Subsidiary may incur Purchase Money Indebtedness,
Capitalized Lease Obligations and Indebtedness secured solely by the current
BGII headquarters and site ("BGII Site Indebtedness") (including any
Indebtedness issued to refinance, replace or refund such Indebtedness) on or
after the Issue Date, PROVIDED, that (i) the aggregate amount of such
Indebtedness incurred on or after the Issue Date and outstanding at any time
pursuant to this paragraph (c) shall not exceed $20.0 million, and (ii) such
Indebtedness other than BGII Site Indebtedness shall not constitute less than
75% nor more than 100% of the cost (determined in accordance with GAAP) to the
Company or such Subsidiary, as applicable, of the property so purchased,
constructed or leased;
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(d) the Company or any Subsidiary, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, of such Person described in clauses (a) and (b) of this covenant so
long as such Refinancing Indebtedness is secured only by the assets (if any)
that secured the Indebtedness so refinanced;
(e) Bally Gaming, Inc., Wulff and their Subsidiaries may incur Indebtedness
under one or more working capital facilities in an aggregate amount outstanding
at any time (including any Indebtedness which refinances, replaces or refunds
such Indebtedness) of up to $40.0 million, less any amounts outstanding pursuant
to clause (h) of the definition of "Permitted Indebtedness;"
(f) the Company or any Subsidiary may incur Permitted Indebtedness;
(g) the Company or any Subsidiary may incur Indebtedness in an aggregate
amount outstanding at any time (including any Indebtedness issued to refinance,
replace, or refund such Indebtedness) of up to $7.5 million; and
(h) any Subsidiary may incur Acquired Indebtedness in an aggregate amount
outstanding at any time of up to $7.5 million, provided, however, that the
Consolidated Coverage Ratio of the Company for the Reference Period immediately
preceding the Incurrence Date thereof, after giving effect on a PRO FORMA basis
to such incurrence of Acquired Indebtedness and, to the extent set forth in the
definition of Consolidated Coverage Ratio, the use of proceeds thereof, would be
at least 2.25 to 1.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a pro
forma basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) the Company is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio in clause (a) of
the covenant "LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND
DISQUALIFIED CAPITAL STOCK," or (3) the aggregate amount of all Restricted
Payments made by the Company and its Subsidiaries, including after giving effect
to such proposed Restricted Payment, from and after the Issue Date, would exceed
the sum of (a) 50% of the aggregate Consolidated Net Income of the Company for
the period (taken as one accounting period) commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) 100% of the aggregate Net
Cash Proceeds received by the Company from the issuance of Qualified Capital
Stock of the Company after the Issue Date (whether upon the exercise of options,
warrants or other rights or otherwise), other than (i) to a Subsidiary and (ii)
to the extent applied in connection with a Qualified Exchange.
The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, will not prohibit (A) the redemption by the Company or any Subsidiary
of any Equity Interest if (i) counsel to the Company delivers an opinion that
failure to so redeem would subject the Company to a materially adverse action by
a Gaming Authority (or, if applicable, a failure so to act with a materially
adverse consequence to the Company) or is required to preserve a Gaming License
and (ii) the Company determines (as evidenced by a Board of Directors resolution
delivered to the Trustee) that such adverse action or failure so to act would be
likely to have a material adverse effect on the Company, (B) Restricted
Investments, PROVIDED, that, after giving PRO FORMA effect to such Restricted
Investment, the aggregate amount of all such Restricted Investments made on or
after the Issue Date that are outstanding (after giving effect to any such
Investments that are returned or repaid to the Company or to any Wholly-owned
Subsidiary, without restriction, in cash or property on or prior to the date of
any such calculation) at any time does not exceed $10.0 million, (C) the
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payment of scheduled dividends on the Preferred Stock to the extent such
dividends are not permitted to be paid in kind pursuant to the terms thereof as
in effect on the Issue Date (which cash dividends will be 7% per annum
compounding quarterly for the sixth and seventh years, and 15% per annum
compounding quarterly for the eighth year, following the Issue Date), (D) a
Qualified Exchange, (E) the payment of any dividend on Qualified Capital Stock
within 60 days after the date of its declaration if such dividend could have
been made on the date of such declaration in compliance with the foregoing
provisions; (F) the purchase of Capital Stock held by employees of the Company
or any Subsidiary pursuant to any stock ownership or option plan in an aggregate
amount not to exceed $1.0 million in any one 12-month period and $5.0 million in
the aggregate; (G) the payment of any dividend or distribution by RCVP, VSI, SVS
and VDSI to minority holders of their respective Equity Interests not in excess
of such holders' pro rata share of dividends or distributions in accordance with
the applicable terms of such entities' respective charters, bylaws or agreements
as in effect on the Issue Date; (H) prepayments made with respect to the VSI
Loan as in effect on the Issue Date; (I) loans or advances to officers,
directors and employees of the Company or any Subsidiary after the Issue Date in
an aggregate amount not to exceed $1.0 million at any one time outstanding; and
(J) any redemption, retirement, repurchase or other acquisition of the Preferred
Stock (at a price of not more than the Liquidation Value) with the Net Cash
Proceeds received by the Company from the substantially concurrent sale of
Qualified Capital Stock, other than to a Subsidiary, or any exchange of
Qualified Capital Stock for Preferred Stock. The full amount of any Restricted
Payment made pursuant to the foregoing clauses (A), (B), (C), (E), (F), (G), (I)
and (J), of the immediately preceding sentence, however, will be deducted in the
calculation of the aggregate amount of other Restricted Payments available to be
made thereafter referred to in clause (3) of the immediately preceding
paragraph.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Indenture will provide that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, create,
assume or suffer to exist any consensual restriction on the ability of any
Subsidiary of the Company to pay dividends or make other distributions to or on
behalf of, or otherwise to transfer assets or property to or on behalf of, or to
pay any obligation to or on behalf of, or make or pay loans or advances to or on
behalf of, the Company or any Subsidiary of the Company, except (a) restrictions
imposed by the Senior Secured Notes or the Indenture, (b) restrictions imposed
by applicable law or by Gaming Authorities on entities possessing a Gaming
License, (c) existing restrictions under Indebtedness outstanding on the Issue
Date (after giving effect to the Transaction) and any Refinancing Indebtedness
with respect thereto which is permitted by the covenant "LIMITATION ON
INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK," PROVIDED,
that any restriction imposed by such Refinancing Indebtedness is no more
restrictive than that imposed by such Indebtedness as of the Issue Date, (d)
restrictions under any Acquired Indebtedness not incurred in violation of the
Indenture or any agreement relating to any property, asset, or business acquired
by the Company or any of its Subsidiaries, which restrictions in each case
existed at the time of acquisition, were not put in place in connection with or
in anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired, (e) restrictions imposed by
Indebtedness incurred under clause (e) of the covenant "LIMITATION ON INCURRENCE
OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK," PROVIDED such
restriction is no more restrictive than that imposed by the Company's working
capital facilities as they existed immediately prior to the Issue Date, (f)
restrictions with respect solely to a Subsidiary of the Company imposed pursuant
to a binding agreement which has been entered into for the sale or disposition
of all or substantially all of the Equity Interests or assets of such
Subsidiary, PROVIDED, that such restrictions apply solely to the Equity
Interests or assets of such Subsidiary which are being sold and (g) restrictions
on transfer contained in Permitted Liens, PROVIDED, that such restrictions
relate only to the transfer of the property subject thereto. Notwithstanding the
foregoing, customary provisions restricting subletting or assignment of any
lease or assignment of any license entered into in the ordinary course of
business, consistent with industry practice shall not in and of themselves be
considered a restriction on the ability of the applicable Subsidiary to transfer
such agreement.
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LIMITATION ON LIENS
The Indenture will provide that the Company will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien of any
kind, other than Permitted Liens, upon any of their respective assets now owned
or acquired on or after the date of the Indenture or upon any income or profits
therefrom.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture will provide that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of their respective property, business or assets, including
by merger or consolidation (in the case of a Subsidiary), and including any sale
or other transfer or issuance of any Equity Interests of any Subsidiary of the
Company, whether by the Company or a Subsidiary of either or through the
issuance, sale or transfer of Equity Interests by a Subsidiary of the Company
(an "Asset Sale"), unless (l)(a) within 270 days after the date of such Asset
Sale, the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are
applied to the optional redemption of the Senior Secured Notes in accordance
with the terms of the Indenture or to the repurchase of the Senior Secured Notes
pursuant to an irrevocable, unconditional cash offer (the "Asset Sale Offer") to
repurchase Senior Secured Notes at a purchase price (the "Asset Sale Offer
Price") of 100% of principal amount, together with accrued and unpaid interest
to the date of payment, made within 240 days of such Asset Sale or (b) within
270 days following such Asset Sale, the Asset Sale Offer Amount is invested in
assets and property (other than notes, bonds, obligations and securities) which
in the good faith judgment of the Board will immediately constitute or be a part
of a Related Business of the Company or such Subsidiary (if it continues to be a
Subsidiary) immediately following such transaction or (c) within 270 days
following such Asset Sale, the Asset Sale Offer Amount is applied to the
repayment of any Indebtedness of the Company or any Subsidiary which is secured
by the assets subject to such Asset Sale, as required by the terms thereof, (2)
with respect to any Asset Sale or related series of Asset Sales involving
securities, property or assets with an aggregate fair market value in excess of
$5.0 million, at least 75% of the consideration for such Asset Sale or series of
related Asset Sales consists of Cash or Cash Equivalents, (3) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect, on a PRO FORMA basis, to, such Asset Sale, and (4)
the Board of Directors of the Company determines in good faith that the Company
or such Subsidiary, as applicable, receives fair market value for such Asset
Sale.
The Indenture will provide that an Asset Sale Offer may be deferred until
the accumulated Net Cash Proceeds from Asset Sales not applied to the uses set
forth in (l)(b) or (c) above (the "Excess Proceeds") exceeds $15.0 million and
that each Asset Sale Offer shall remain open for 20 Business Days following its
commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale
Offer Period, the Company shall apply the Asset Sale Offer Amount plus an amount
equal to accrued interest to the purchase of all Senior Secured Notes properly
tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to
purchase all Senior Secured Notes so tendered) at the Asset Sale Offer Price
(together with accrued interest). To the extent that the aggregate amount of
Senior Secured Notes tendered pursuant to an Asset Sale Offer is less than the
Asset Sale Offer Amount, the Company may use any remaining Net Cash Proceeds for
general corporate purposes as otherwise permitted by the Indenture, and
following each Asset Sale Offer the Excess Proceeds amount shall be reset to
zero. For purposes of (2) above, total consideration received means the total
consideration received for such Asset Sales minus the amount of (a) Indebtedness
secured by the assets sold and assumed or repaid by a transferee as required
thereunder and (b) property that within 90 days of such Asset Sale is converted
into Cash or Cash Equivalents.
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Subsidiaries may, in the ordinary course of
business, convey, sell, lease, transfer, assign or otherwise dispose of
inventory acquired and held for resale in the ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with the
limitation on mergers, sales or consolidations provisions in the Indenture;
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(iii) the Company and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Company or such Subsidiary, as applicable; and
(iv) the Subsidiaries may convey, sell, lease, transfer, assign or
otherwise dispose of assets to the Company or any of its Subsidiaries.
All Net Cash Proceeds from an Event of Loss shall be invested or used to
repurchase Senior Secured Notes, all within the period and as otherwise provided
above in clause (1) of the first paragraph of this covenant.
In addition to the foregoing, the ability of the Company and its
Subsidiaries to, directly or indirectly, make any Asset Sale of any of the
Equity Interests of any Subsidiary is restricted pursuant to the covenant
"RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK."
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company may not, and may not permit any
Subsidiary to, directly or indirectly, enter into any transaction or series of
transactions after the Issue Date with any Affiliate of the Company (other than
the Company or a Wholly-owned Subsidiary), unless (i) such transaction or series
of transactions is on terms no less favorable to the Company or such Subsidiary
than those that could be obtained in a comparable arm's-length transaction with
an entity that is not an Affiliate; (ii) if such transaction or series of
transactions involves aggregate consideration equal to or greater than $1.0
million, a committee of directors of the Company that are disinterested with
respect to such transaction shall approve by resolution certifying that such
transaction or series of transactions complies with clause (i) above; and (iii)
if such a transaction or series of transactions involves aggregate consideration
equal to or greater than $5.0 million, the Company receives a written opinion
from an investment banking firm of national standing or, in the case of a
transaction involving a sale or transfer of assets subject to valuation such as
real estate, an appraisal by a nationally recognized appraisal firm, that such
transaction or series of transactions is fair to the Company from a financial
point of view.
This covenant will not apply to (a) transactions between the Company or any
Subsidiary and any employee of the Company or any Subsidiary that is entered
into in the ordinary course of business, (b) the payment of reasonable and
customary regular fees and expenses (including indemnification) to directors of
the Company, (c) Exempted Affiliate Transactions, (d) Restricted Payments
permitted by the provisions of the Indenture described above in clauses (F),
(G), and (I) of the second paragraph under the covenant "LIMITATION ON
RESTRICTED PAYMENTS," or (e) any other transactions that do not involve, in the
aggregate for all such transactions, the payment of more than $250,000 in
consideration in any one calendar year.
In addition, the Company will not, and will not permit any of its
Subsidiaries to, pay any management, consulting or related fees to Kirkland, KIC
or their respective Affiliates pursuant to any agreement between any of such
entities and the Company or any of its Affiliates if a Default or Event of
Default has occurred and is continuing.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that the Company will not, directly or
indirectly, consolidate with or merge with or into another person or sell,
lease, convey or transfer all or substantially all of its assets (computed on a
Consolidated basis), whether in a single transaction or a series of related
transactions, to another person or group of affiliated persons or adopt a plan
of liquidation, unless (i) either (a) the Company is the continuing entity or
(b) the resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation is a corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes by supplemental
indenture all of the obligations of the Company in connection with the Senior
Secured Notes and the
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Indenture; (ii) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a PRO FORMA basis to such transaction; (iii)
immediately after giving effect to such transaction on a PRO FORMA basis, the
Consolidated Net Worth of the Consolidated surviving or transferee entity or, in
the case of a plan of liquidation, the entity which receives the greatest value
from such plan of liquidation is at least equal to 90% of the Consolidated Net
Worth of the Company immediately prior to such transaction; and (iv) immediately
after giving effect to such transaction on a PRO FORMA basis, the Consolidated
resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation would immediately thereafter be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in
clause (a) of the covenant "LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
AND DISQUALIFIED CAPITAL STOCK."
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named therein as the Company, and the Company (except in the case of a lease)
shall be released from the obligations under the Senior Secured Notes and the
Indenture except with respect to any obligations that arise from, or are related
to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
LIMITATION ON LINES OF BUSINESS
The Indenture will provide that neither the Company nor any of its
Subsidiaries shall directly or indirectly engage to any substantial extent in
any line or lines of business activity other than that which in the good faith
judgment of the Board of Directors of the Company is a Related Business.
MAINTENANCE OF INSURANCE
The Indenture will provide that, from and at all times after the Issue Date
until the Senior Secured Notes have been paid in full, the Company and the
Guarantors will, and will cause their Subsidiaries to, have and maintain in
effect insurance with responsible carriers against such risks and in such
amounts as is customarily carried by similar businesses with such deductibles,
retentions, self insured amounts and coinsurance provisions as are customarily
carried by similar businesses of similar size, including, without limitation,
property and casualty. All such insurance policies will be issued by carriers
having an A.M. Best & Company, Inc. rating of A- or higher and a financial size
category of not less than X, or if such carrier is not rated by A.M. Best &
Company, Inc., having the financial stability and size deemed appropriate by an
opinion from a reputable insurance broker.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK
The Indenture will provide that the Company and the Guarantors will not
sell, and will not permit any of their Subsidiaries to issue or sell, any Equity
Interests of any Subsidiary of the Company to any person other than the Company
or a Wholly-owned Subsidiary of the Company, except for (i) directors'
qualifying shares or shares owned by foreign nationals, in each case to the
extent required by applicable law; (ii) Equity Interests of RCVP, VSI, SVS and
VDSI outstanding on the Issue Date (after giving effect to the Transaction) and
not owned by Wholly-owned Subsidiaries; and (iii) the issuance and sale of all,
but not less than all, of the Equity Interests of any Subsidiary of the Company
held by the Company or any Subsidiary in compliance with the other provisions of
the Indenture.
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FUTURE SUBSIDIARY GUARANTORS
The Indenture will provide that all present and future Subsidiaries of the
Company (other than RCVP, VSI, SVS, VDSI and Wulff, until any such Subsidiary
(other than Wulff) becomes a Wholly-owned Subsidiary, at which time such
Subsidiary shall promptly become a Guarantor) jointly and severally will
guaranty irrevocably and unconditionally all principal, premium, if any, and
interest on the Senior Secured Notes on a senior basis. The term Subsidiary does
not include Unrestricted Subsidiaries.
RELEASE OF GUARANTORS
The Indenture will provide that no Guarantor shall consolidate or merge with
or into (whether or not such Guarantor is the surviving person) another person
(other than the Company or another Guarantor) unless (i) subject to the
provisions of the following paragraph, the person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture and (if
required) additional Collateral Agreements in form reasonably satisfactory to
the Trustee, pursuant to which such person shall unconditionally guarantee, on a
senior basis, all of such Guarantor's obligations under such Guarantor's
Guarantee, the Indenture and the Senior Secured Notes on the terms set forth in
the Indenture; (ii) immediately before and immediately after giving effect to
such transaction on a PRO FORMA basis, no Default or Event of Default shall have
occurred or be continuing; and (iii) immediately after such transaction, the
surviving person holds all permits required for operation of the business of,
and such entity is controlled by a person or entity (or has retained a person or
entity which is) experienced in, or otherwise holds all permits (including those
required from Gaming Authorities) to operate its business.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Guarantor or all of its assets to an entity which is not a
Guarantor or the designation of a Subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with the Indenture
(including, without limitation, the provisions of the covenant "LIMITATIONS ON
SALE OF ASSETS AND SUBSIDIARY STOCK"), such Guarantor will be deemed released
from its obligations under its Guarantee of the Senior Secured Notes; PROVIDED,
HOWEVER, that any such termination shall occur only to the extent that all
obligations of such Guarantor under all of its guarantees of, and under all of
its pledges of assets or other security interests which secure, any Indebtedness
of the Company or any other Subsidiary shall also terminate upon such release,
sale or transfer.
The Indenture will expressly permit the consummation of the Transaction
(including the Wulff Realignment).
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture will prohibit the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
REPORTS
The Indenture will provide that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each Holder, within 15 days after it is or
would have been required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the Commission, if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Senior Secured Notes as and
when the same becomes due and payable and the continuance of any such failure
for 30 days, (ii) the failure by the Company to pay all or any part of the
principal, or
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premium, if any, on the Senior Secured Notes when and as the same becomes due
and payable at maturity, redemption, by acceleration or otherwise, including,
without limitation, payment of the Change of Control Purchase Price or the Asset
Sale Offer Price, or otherwise, (iii) the failure by the Company or any
Subsidiary to observe or perform any other covenant or agreement contained in
the Senior Secured Notes or the Indenture and, subject to certain exceptions,
the continuance of such failure for a period of 60 days after written notice is
given to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Senior Secured
Notes then outstanding, (iv) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Subsidiaries,
(v) a default in Indebtedness of the Company or any of its Subsidiaries with an
aggregate principal amount in excess of $10.0 million as a result of which the
maturity of such Indebtedness has been accelerated prior to its Stated Maturity,
(vi) final unsatisfied judgments not covered by insurance aggregating in excess
of $10.0 million at any one time rendered against the Company or any of its
Subsidiaries and not stayed, bonded or discharged within 60 days, and (vii) an
event of default under any Collateral Agreement. The Indenture provides that if
a Default occurs and is continuing, the Trustee must, within 90 days after the
occurrence of such default, give to the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or any
Significant Subsidiary,) then in every such case, unless the principal of all of
the Senior Secured Notes shall have already become due and payable, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Senior Secured Notes then outstanding, by notice in writing to the Company (and
to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest thereon to be due
and payable immediately. If an Event of Default specified in clause (iv), above,
relating to the Company or any Significant Subsidiary occurs, all principal and
accrued interest thereon will be immediately due and payable on all outstanding
Senior Secured Notes without any declaration or other act on the part of Trustee
or the Holders. The Holders of a majority in aggregate principal amount of
Senior Secured Notes generally are authorized to rescind such acceleration if
all existing Events of Default, other than the non-payment of the principal of,
premium, if any, and interest on the Senior Secured Notes which have become due
solely by reason of such acceleration and except a default with respect to any
provision requiring a supermajority approval to amend, which default may only be
waived by such a supermajority, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Senior
Secured Notes, the Holders of a majority in aggregate principal amount of the
Senior Secured Notes at the time outstanding may waive on behalf of all the
Holders any default, except a default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and except a default in the payment of principal of or interest
on any Senior Secured Note not yet cured or a default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Senior Secured Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Senior Secured Notes at the time outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will provide that the Company may, at its option and at any
time within one year of the Stated Maturity of the Senior Secured Notes, elect
to have its obligations discharged with respect to the outstanding Senior
Secured Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the Senior Secured Notes, the Collateral shall be released from the Liens in
favor of the Senior Secured Notes and the Indenture shall cease to be of further
effect as to all outstanding Senior Secured Notes, except as to (i) rights of
Holders to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Secured Notes when such payments are due from the trust
funds; (ii) the Company's obligations with respect to such
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Senior Secured Notes concerning issuing temporary Senior Secured Notes,
registration of Senior Secured Notes, mutilated, destroyed, lost or stolen
Notes, and the maintenance of an office or agency for payment and money for
security payments held in trust; (iii) the rights, powers, trust, duties, and
immunities of the Trustee, and the Company's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Senior Secured Notes. In the event Covenant
Defeasance occurs, the Collateral shall be released from the Liens in favor of
the Senior Secured Notes and certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Senior Secured Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Senior Secured Notes, U.S. legal tender, non-callable
government securities or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on such
Senior Secured Notes on the stated date for payment thereof or on the redemption
date of such principal or installment of principal of, premium, if any, or
interest on such Senior Secured Notes, and the holders of Senior Secured Notes
must have a valid, perfected, exclusive security interest in such trust; (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that (A) the Company has received from, or there has been published
by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of such Senior Secured Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that the holders of such
Senior Secured Notes will not recognize income, gain or loss for Federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred; (iv)
no Default or Event of Default shall have occurred and be continuing on the date
of such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under the Indenture
or any other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of such Senior Secured Notes over any other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and (vii) the Company
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that the conditions precedent provided for in, in the case
of the officers' certificate, clauses (i) through (vi) of this paragraph and, in
the
case of the opinion of counsel, clauses (i) (with respect to the validity and
perfection of the security interest), (ii), (iii) and (v) of this paragraph have
been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Senior Secured Notes when due, then the obligations of the
Company under the Indenture and the Collateral Agreements will be revived, and
no such defeasance will be deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture will contain provisions permitting the Company, the Guarantors
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the
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consent of the Holders of not less than a majority in aggregate principal amount
of the Senior Secured Notes at the time outstanding, the Company, the Guarantors
and the Trustee are permitted to amend or supplement the Indenture or any
supplemental indenture or modify the rights of the Holders; PROVIDED, that no
such modification may without the consent of holders of at least 66-2/3% in
aggregate principal amount of the Senior Secured Notes at the time outstanding
modify the provisions (including the defined terms used therein) of the covenant
"REPURCHASE OF SENIOR SECURED NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE IN
CONTROL" in a manner adverse to the Holders; and PROVIDED, FURTHER, that no such
modification may, without the consent of each Holder affected thereby: (i)
change the Stated Maturity on any Senior Secured Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Senior Secured Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price, or
alter the provisions (including the defined terms used therein) regarding the
right of the Company to redeem the Senior Secured Notes in a manner adverse to
the Holders, or make the Senior Secured Notes subordinated in right of payment
to any other Indebtedness of the Company or (ii) reduce the percentage in
principal amount of the outstanding Senior Secured Notes, the consent of whose
Holders is required for any such amendment, supplemental indenture or waiver
provided for in the Indenture, or (iii) modify any of the waiver provisions,
except to increase any required percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Senior Secured Note affected thereby.
NO PERSONAL LIABILITY OF STOCKHOLDERS, EMPLOYEES, OFFICERS, DIRECTORS
The Indenture will provide that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in respect
of the obligations of the Company or a Guarantor under the Indenture, the Senior
Secured Notes or the Guarantees by reason of such status as a stockholder,
employee, officer or director, except to the extent such is an issuer or a
Guarantor of any Senior Secured Note.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Company,
including by designation, or is merged or consolidated into or with the Company
or one of its Subsidiaries.
"ACQUISITION" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"AFFILIATE" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, PROVIDED, that ownership by a Beneficial Owner of 10% or more of
the total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable, shall for such purposes be deemed to
constitute control.
"AVERAGE LIFE TO STATED MATURITY" means, as of the date of determination,
with respect to any security or instrument, the quotient obtained by dividing
(i) the sum of (a) the product of the number of years from the date of
determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of each
such respective principal (or redemption) payment by (ii) the sum of all such
principal (or redemption) payments.
"BENEFICIAL OWNER" or "beneficial owner" for purposes of the definition of
Change of Control has the meaning attributed to it in Rules 13d-3 and 13d-5
under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
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"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"CAPITAL STOCK" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"CAPITALIZED LEASE OBLIGATION" of any person means any obligation of such
person or its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"CASH EQUIVALENT" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED, that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits,
certificates of deposit, commercial paper and bankers' acceptances issued by the
parent corporation of any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million and commercial paper issued by
others rated at least A-2 or the equivalent thereof by Standard & Poor's Ratings
Services or at least P-2 or the equivalent thereof by Moody's Investors Service,
Inc. and in each case maturing within one year after the date of acquisition,
(iii) repurchase agreements that are secured by a perfected security interest in
the types of securities described in clause (i) above, and (iv) money market
funds investing principally in the types of securities described in clauses (i)
and (ii) above.
"CONSOLIDATED COVERAGE RATIO" of any person on any date of determination
(the "Transaction Date") means the ratio, on a PRO FORMA basis, of (a) the
aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; PROVIDED, that for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of such Reference Period, (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a PRO FORMA basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used, (v) there shall be excluded from Consolidated Fixed Charges any
portion of such Consolidated Fixed Charges related to any amount of Indebtedness
that was outstanding during the Reference Period but is not outstanding on the
Transaction Date, except for Consolidated Fixed Charges actually incurred with
respect to Indebtedness borrowed (as adjusted pursuant to clause (iv)) under a
revolving credit or similar arrangement to the extent the commitment thereunder
remains in effect on the Transaction Date and (iv) the Consolidated Fixed
Charges of such Person attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis will be computed based
upon the average daily balance of such Indebtedness during the Reference Period.
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"CONSOLIDATED EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of (i) Consolidated income tax expense,
(ii) Consolidated depreciation and amortization expense and (iii) Consolidated
Fixed Charges.
"CONSOLIDATED FIXED CHARGES" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letter of credit financings and Interest Swap and Hedging
Obligations, in each case to the extent attributable to such period, (b) one-
third of Consolidated Rental Expense for such period attributable to operating
leases of such person and its Consolidated Subsidiaries, and (c) the amount of
dividends accrued or payable by such person or any of its Consolidated
Subsidiaries in respect of Disqualified Capital Stock (other than Disqualified
Capital Stock of RCVP, VSI, SVS or VDSI as in effect on the Issue Date, or
dividends payable by Subsidiaries of such person to such person or such person's
Wholly-owned Subsidiaries). For purposes of this definition, (x) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
determined in good faith by the Company to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP and (y) interest
expense attributable to any Indebtedness represented by the guaranty by such
person or a Subsidiary of such person of an obligation of another person shall
be deemed to be the interest expense attributable to the Indebtedness
guaranteed.
"CONSOLIDATED NET INCOME" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a Consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains (but not losses) which are
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
Capital Stock), (b) the net income, if positive, of any person, other than a
Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case not
in excess of such person's PRO RATA share of such person's net income for such
period, (c) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition, and
(d) the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions to the Company is not at the time permitted by operation
of the terms of its charter or bylaws or any other agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Consolidated Subsidiary; PROVIDED, that for the purposes of determining
Consolidated Net Income for any period which includes any fiscal quarter ending
on or prior to September 30, 1996, net income shall be adjusted to exclude (only
to the extent included in computing such net income (or loss) and without
duplication) Alliance's net charge for inducement for early conversion resulting
from the Exchange Offer, the direct Merger costs of Alliance and BGII and the
unusual or nonrecurring charges of Alliance and BGII, consisting of BGII costs
relating to a regulatory investigation and legal proceedings in Louisiana,
provision to write-down to net realizable value the carrying value of a building
to be sold and provision to increase Wulff's tax reserves, and Alliance costs
relating to an executive signing bonus paid in Common Stock, termination costs
for certain officers and directors, and provision for impaired assets of two
development projects (each in an amount not to exceed, and in the nature of, the
amounts disclosed in Alliance's and BGII's financial statements appearing
elsewhere in this Prospectus).
"CONSOLIDATED NET WORTH" of any person at any date means, in the cases of a
partnership, the partners' capital, and in the case of any other person, the
aggregate Consolidated stockholders' equity of such person (plus amounts of
equity attributable to preferred stock) and its Consolidated Subsidiaries, as
would be
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shown on the Consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualifed Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward reevaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in Subsidiaries that are
not Consolidated Subsidiaries and in person that are not Subsidiaries.
"CONSOLIDATED RENTAL EXPENSE" of any Person, for any period and determined
without duplication, means the aggregate rental obligations of such Person and
its Consolidated Subsidiaries (not including taxes, insurance, maintenance and
similar expenses that the lessee is obligated to pay under the terms of the
relevant leases), determined on a Consolidated basis in conformity with GAAP,
payable in respect of such period under leases of real or personal property (net
of income from subleases thereof, not including taxes, insurance, maintenance
and similar expenses that the sublessee is obligated to pay under the terms of
such sublease), whether or not such obligations are reflected as liabilities or
commitments on a Consolidated balance sheet of such Person and its Subsidiaries
or in the notes thereto, excluding, however, in any event, (i) that portion of
Consolidated Fixed Charges of such Person representing payments by such Person
or any of its Consolidated Subsidiaries in respect of Capitalized Lease
Obligations and (ii) in the case of the Company or its Subsidiaries, that
portion of rental obligations in respect of revenue-sharing arrangements or
space lease arrangements used in the Company's gaming machine management
operations.
"CONSOLIDATED SUBSIDIARY" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are Consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"CONSOLIDATION" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its Subsidiaries if and to the extent the
accounts of such Person and each of its Subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied. The term "Consolidated" shall have a similar meaning.
"CONTINUING DIRECTOR" means a director of the Company who either (i) was a
member of the board of directors of the Company on the date hereof or (ii)
subsequently became a director of the Company and whose election or nomination
for election is approved or recommended by a vote of a majority of the board of
directors of the Company, which majority includes a majority of the then
existing Continuing Directors then on the board of directors of the Company.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any person, (a) Equity
Interests of such person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event (other than the disqualification of the holder thereof by a Gaming
Authority) or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Senior Secured Notes and (b) with respect to any Subsidiary of such
person (including with respect to any Subsidiary of the Company), any Equity
Interests other than any common equity with no preference, privileges, or
redemption or repayment provisions.
"EQUITY INTEREST" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership interests in, such
Person.
"EVENT OF LOSS" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"EXEMPTED AFFILIATE TRANSACTIONS" means (i) the continuation, extension or
renewal of any transaction entered into between the Company or any Subsidiary
and any Affiliate prior to the Issue Date, (ii) any agreement between the
Company, KIC, Kirkland, GSA or their respective Affiliates providing for the
payment by the Company of management or related fees in connection with
providing services to the Company in an aggregate amount not exceeding $1.4
million per annum, plus reimbursement of reasonable
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related expenses, (iii) any agreement between the Issuer and Mr. Wilms or any of
his Affiliates providing for the payment by the Company of consulting fees or
similar fees in an aggregate amount not to exceed $500,000 per annum, and (iv)
any agreement between the Issuer and Mr. Kirschbaum or any of his Affiliates
providing for the granting of options or warrants, provided that such options or
warrants will not be payable by their terms in cash, notes payable or property.
"FAIR MARKET VALUE" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy and, with respect to any redemption of Senior Secured
Notes pursuant to the applicable gaming laws, means (a) the last sales price
regular way on the last trading day prior to the date of determination of such
value on the largest national securities exchange (or, if said security is not
listed on a national securities exchange, on which such Senior Secured Notes
shall have traded on such trading day, or (b) if no such sales of such Senior
Secured Notes occurred on such trading day, the mean between the "bid" and
"asked" prices on such national securities exchange or as quoted on Nasdaq, as
the case may be, on such last trading day, or (c) if the Senior Secured Notes
are not listed or quoted on any national securities exchange or Nasdaq, the
average of the closing bid and asked prices on such day in the over-the-counter
market as reported by Nasdaq or, if bid and asked price for the Senior Secured
Notes have not been reported through Nasdaq, the average of the bid and asked
prices on such day as furnished by any New York Stock Exchange member firm
regularly making a market in the Senior Secured Notes, selected for such purpose
by the Company or (d) if none of the clauses (a) through (c) are applicable, the
fair market value of such Senior Secured Notes as of the date of determination
as determined in such manner as shall be satisfactory to the Company, which
shall be entitled to rely for such purpose on the advice of any firm of
investment bankers or securities dealers having familiarity with the Senior
Secured Notes.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"GAMING AUTHORITY" means any governmental agency which regulates gaming in a
jurisdiction in which the Company or any of its Subsidiaries conducts gaming
activities or activities related to the design, manufacture or distribution of
gaming machines, equipment or systems.
"GAMING LICENSES" means every material license, material franchise, or other
material authorization required to own, lease, operate or otherwise conduct or
manage riverboat, dockside or land-based gaming (including any applicable liquor
licenses) or to design, manufacture or distribute gaming machines, equipment or
systems in any state or jurisdiction where the Company or any of its
Subsidiaries conducts such business.
"GSA" means Gaming Systems Advisors, L.P.
"GUARANTEED DEBT" of any person means, without duplication, all indebtedness
of any other person referred to in the definition of Indebtedness contained in
this section guaranteed directly or indirectly in any manner by such person, or
in effect guaranteed directly or indirectly by such person through an agreement
(a) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (b) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (c) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services without requiring that such property be received or such services be
rendered), (d) to maintain working capital or equity capital of the debtor, or
otherwise maintain the net worth, solvency or other financial condition of the
debtor or (e) otherwise to assure a creditor against loss; PROVIDED, that the
term "guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
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"INDEBTEDNESS" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such person, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof), (ii) evidenced by bonds,
notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, except
those incurred in the ordinary course of its business that would and continue to
constitute ordinarily a trade payable to trade creditors, (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v) for
the payment of money relating to any Capitalized Lease Obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such person
with respect to any letter of credit; (b) all net obligations of such person
under Interest Swap and Hedging Obligations; (c) all liabilities and obligations
of others of the kind described in the preceding clause (a) or (b) that such
person has guaranteed or that is otherwise its legal liability or which are
secured by any assets or property of such person and all obligations to
purchase, redeem or acquire any Equity Interests; (d) any and all deferrals,
renewals, extensions, refinancings and refundings (whether direct or indirect)
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b) or (c), or this clause (d),
whether or not between or among the same parties; and (e) all Disqualified
Capital Stock of such Person (valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"INTEREST SWAP AND HEDGING OBLIGATION" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"INVESTMENT" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person; (b) the making by such person of any deposit with, or advance, loan or
other extension of credit to, such other person (including the purchase of
property from another person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other person) or any
commitment to make any such advance, loan or extension (but excluding accounts
or notes receivable, prepayments or deposits or other similar arrangements
arising in the ordinary course of business); (c) other than guarantees of
Indebtedness of the Company or any Subsidiary to the extent permitted by the
covenant "LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED
CAPITAL STOCK," the entering into by such person of any guarantee of, or other
credit support or contingent obligation with respect to, Indebtedness or other
liability of such other person; (d) the making of any capital contribution by
such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary. Any
such designation constitutes an Investment in an amount equal to the sum of (x)
the net assets of such Subsidiary at the time of the designation, unless in the
case of this clause (x) the designation is made at the time of an Acquisition of
such Subsidiary by the Company or any of its Subsidiaries, in which case the
amount of consideration paid by the Company and its Subsidiaries to effect such
Acquisition (excluding Qualified Capital Stock of the Company issued in
connection therewith) shall be included in lieu thereof and (y) the maximum
amount of Guaranteed Debt of the Company and its Subsidiaries in respect of the
designated Subsidiary which is to be outstanding immediately after such
designation.
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"ISSUE DATE" means the date of first issuance of the Senior Secured Notes
under the Indenture.
"KIC" means Kirkland Investment Corporation.
"KIRKLAND" means Kirkland-Ft. Worth Investment Partners, L.P.
"LEGAL REQUIREMENTS" shall mean all applicable laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, directions and requirements of all
governments, departments, commissions, boards, courts, authorities, agencies,
officials and officers of governments, federal, state and municipal.
"LIEN" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"NET CASH PROCEEDS" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash on or after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities (including options, warrants, rights and convertible
or exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary) expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable taxes required to be paid by the
Company or any of its respective Subsidiaries in connection with such Asset
Sale.
"PERMITTED INDEBTEDNESS" means (a) Indebtedness incurred by the Company to
any Subsidiary, and any Indebtedness incurred by any Subsidiary of the Company
to any other Subsidiary or to the Company; PROVIDED, that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the Senior
Secured Notes and the date of any event that causes such Subsidiary to no longer
be a Subsidiary shall be an Incurrence Date; (b) Interest Swap and Hedging
Obligations relating to Indebtedness of the Company or any Subsidiary, as the
case may be; PROVIDED the notional principal amount of such Interest Swap and
Hedging Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap and Hedging Obligation relates; (c) Indebtedness in
connection with one or more commercial letters of credit or banker's acceptances
issued for the account of the Company or any Subsidiary for the purchase of
goods or services in the ordinary course of business; (d) Indebtedness in
respect of performance, completion, guarantee, surety or similar bonds, provided
by the Company or any Subsidiary in the ordinary course of business; (e)
Indebtedness in respect of any bond or surety obligation in order to prevent the
loss or material impairment of or to obtain a Gaming License or as otherwise
required by an order of any Gaming Authority to the extent required by
applicable law and consistent in character and amount with customary industry
practice, provided, that the aggregate amount of Indebtedness incurred pursuant
to clauses (c), (d) and (e) outstanding at any one time shall not exceed $5.0
million in the aggregate; (f) reimbursement obligations with respect to letters
of credit in respect of workers' compensation claims consistent in character and
amount with customary industry practice; (g) Indebtedness consisting of
obligations, contingent or otherwise, in respect of incremental additions after
the Issue Date to off-balance sheet sales or financing of accounts receivable
("Receivables Financing") in existence on the Issue Date pursuant to the terms
of such factoring arrangements in existence on the Issue Date; and (h)
Indebtedness consisting of Receivables Financing incurred after the Issue Date,
PROVIDED, that any such Indebtedness will be deemed Indebtedness incurred
pursuant to clause (e) of the covenant "LIMITATION ON INCURRENCE OF ADDITIONAL
INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK," subject to the limitations on the
aggregate amount thereof contained therein.
"PERMITTED INVESTMENT" means (a) Investments in any of the Senior Secured
Notes; (b) Cash Equivalents; (c) intercompany notes to the extent permitted
under the definition of "Permitted Indebtedness;" (d)
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loans, advances or investments in existence on the Issue Date (after giving
effect to the Transaction); (e) any Investment consisting of the extension of
credit to customers consistent with industry practice in the ordinary course of
business; (f) accounts and notes receivable if credited or acquired in the
ordinary course of business and payable or dischargeable on commercially
reasonable terms; (g) Investments in Wholly-owned Subsidiaries (including
Investments as a direct result of which a person becomes a Wholly-owned
Subsidiary); and (h) Investments consisting of non-cash proceeds from Asset
Sales permitted by the Indenture.
"PERMITTED LIEN" means (a) Liens existing on the Issue Date (after giving
effect to the Transaction); (b) Liens imposed by governmental authorities for
taxes, assessments or other charges not yet subject to penalty or which are
being contested in good faith and by appropriate proceedings, if adequate
reserves with respect thereto are maintained on the books of the company in
accordance with GAAP; (c) statutory liens of carriers, warehousemen, mechanics,
materialmen, landlords, repairmen or other like Liens arising by operation of
law in the ordinary course of business, PROVIDED, that (i) the underlying
obligations are not overdue for a period of more than 60 days, or (ii) such
Liens are being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP; (d) Liens securing the performance of bids,
trade contracts (other than borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; (e) easements,
rights-of-way, zoning, similar restrictions and other similar encumbrances or
title defects which, singly or in the aggregate, do not in any case materially
detract from the value of the property, subject thereto (as such property is
used by the Company or any of its Subsidiaries) or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries; (f) Liens
arising by operation of law in connection with judgments, only to the extent,
for an amount and for a period not resulting in an Event of Default with respect
thereto; (g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security legislation; (h) Liens securing the Senior Secured Notes and the
Guarantees; (i) Liens securing Indebtedness of a person existing at the time
such person becomes a Wholly-owned Subsidiary or is merged with or into the
Company or a Wholly-owned Subsidiary or Liens securing Indebtedness incurred in
connection with an Acquisition, PROVIDED, that such Liens were in existence
prior to the date of such acquisition, merger or consolidation, were not
incurred in anticipation thereof, and do not extend to any other assets; (j)
Liens arising from Indebtedness permitted to be incurred under clause (c) of the
covenant "LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED
CAPITAL STOCK," PROVIDED, that such Liens relate only to the property which is
subject to such Indebtedness; (k) Liens on accounts receivable, inventory,
general intangibles and associated documents, instruments, lockbox accounts and
related bank accounts in respect thereof, BGII's current headquarters and site
and the Equity Interests in Wulff, in each case securing Indebtedness permitted
to be incurred under clause (e) of the covenant "LIMITATION ON INCURRENCE OF
ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK" or under clause (h) of
the definition of "Permitted Indebtedness" (but not in respect of inventory);
(l) leases or subleases granted to other persons in the ordinary course of
business not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Subsidiary; and (m) Liens securing
Refinancing Indebtedness incurred to refinance any Indebtedness that was
previously so secured in a manner no more adverse to the Holders of the Senior
Secured Notes than the terms of the Liens securing such refinanced Indebtedness,
PROVIDED, that the Indebtedness secured is not increased and the lien is not
extended to any additional assets or property.
"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness of such person to any
seller or other person incurred to finance the acquisition (including in the
case of a Capitalized Lease Obligation, the lease) or construction of any real
or personal tangible property which in the good faith judgment of the Company is
directly related to a Related Business of the Company and which is incurred
substantially concurrently with such acquisition, lease or construction and is
secured only by the assets so financed or other property acquired for use
therewith.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
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"QUALIFIED EXCHANGE" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Equity Interests or Indebtedness of the
Company issued after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of Qualified Capital Stock or any
exchange of Qualified Capital Stock for any Equity Interests or Indebtedness
issued after the Issue Date.
"REFERENCE PERIOD" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Senior Secured Notes or the Indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so refinanced and (ii) if such Indebtedness being
refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
PROVIDED, that (A) such Refinancing Indebtedness of any Subsidiary of the
Company shall only be used to refinance outstanding Indebtedness or Disqualified
Capital Stock of such Subsidiary, (B) such Refinancing Indebtedness shall (x)
not have an Average Life to Stated Maturity shorter than the Indebtedness or
Disqualified Capital Stock to be so refinanced at the time of such Refinancing
and (y) in all respects, be no less subordinated or junior, if applicable, to
the rights of Holders of the Senior Secured Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have no installment of principal (or redemption payment)
scheduled to come due earlier than the Stated Maturity of the corresponding
installment of principal of the Indebtedness or Disqualified Capital Stock to be
so refinanced which was scheduled to come due prior to the Stated Maturity of
the Senior Secured Notes or a final Stated Maturity or redemption date, as
applicable, no earlier than the final Stated Maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced.
"RELATED BUSINESS" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date (after
giving effect to the Transaction), including the management and operation of
gaming machines and casinos, the design, manufacture and distribution of gaming
machines, equipment, monitoring and systems and amusement equipment, and other
gaming-related businesses, including but not limited to amusements, arcades and
lottery-related activities, and any and all businesses that in the good faith
judgment of the Board of Directors of the Company are materially related
businesses.
"REQUIRED REGULATORY REDEMPTION" means a redemption by the Company of any of
a holder's Senior Secured Notes pursuant to, and in accordance with, any order
of any Gaming Authority with appropriate jurisdiction and authority relating to
a Gaming License, or to the extent necessary in the good faith judgment of the
Company to prevent the loss, failure to obtain or material impairment to or to
secure the reinstatement of, any material Gaming License, where such redemption
or acquisition is required because the holder or beneficial owner of such Senior
Secured Note is required to be found suitable or to otherwise qualify under any
gaming laws and is found unsuitable, or not found suitable or so qualified
within a reasonable period of time.
"RESTRICTED INVESTMENT" means, in one or a series of related transactions,
any Investment, other than Permitted Investments.
"RESTRICTED PAYMENT" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any parent or Subsidiary of such person, (b) any payment on
account of the purchase, redemption or other acquisition or retirement for value
of Equity Interests of such person or any Subsidiary or parent of such person,
(c) other than with the proceeds from the substantially concurrent sale of, or
in exchange for, Refinancing Indebtedness, any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such person or a parent or Subsidiary of such person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Subordinated Indebtedness and (d) any
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Restricted Investment by such person; PROVIDED, HOWEVER, that the term
"Restricted Payment" does not include (i) any dividend, distribution or other
payment on or with respect to Capital Stock of an issuer to the extent payable
solely in shares of Qualified Capital Stock of such issuer; or (ii) any
dividend, distribution or other payment, directly or indirectly, to the Company,
or to any of its Wholly-owned Subsidiaries, by any of its Subsidiaries.
"SIGNIFICANT SUBSIDIARY" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"STATED MATURITY," when used with respect to any Senior Secured Note, means
, 2003 and, when used with respect to any other Indebtedness or
Disqualified Capital Stock, means the dates specified in such other instrument
as the fixed date on which the principal thereof or such installment of
principal is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or a
Subsidiary that is subordinated in right of payment to the Senior Secured Notes
or such Subsidiary's Guarantee, as applicable, in any respect or, except in the
case of Indebtedness incurred under clause (e) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," has a
Stated Maturity on or after the Stated Maturity of the Senior Secured Notes
(excluding the Senior Secured Notes).
"SUBSIDIARY," with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person, by such
person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) any other person (other than a corporation) in
which such person, one or more Subsidiaries of such person, or such person and
one or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest, or (iii) a
partnership in which such person or a Subsidiary of such person is, at the time,
a general partner and in which such person, directly or indirectly, at the date
of determination thereof has at least a majority ownership interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company. Unless the
context otherwise requires, Subsidiary means each direct and indirect subsidiary
of the Company.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"UNRESTRICTED SUBSIDIARY" means any direct or indirect subsidiary of the
Company that does not own any Capital Stock of, or own or hold any Lien on any
property of, the Company or any other Subsidiary of the Company and that, at the
time of determination, shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company); PROVIDED, that (a) such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (b) neither immediately prior thereto nor after
giving PRO FORMA effect to such designation would there exist a Default or Event
of Default and (c) either (x) such subsidiary, at the time of designation
thereof, has no assets, (y) such subsidiary is designated an "Unrestricted
Subsidiary" at the time of acquisition by the Company or a Subsidiary in the
case of subsidiaries acquired after the Issue Date or (z) immediately after
giving effect to such designation, on a PRO FORMA basis, the Company could incur
at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio in clause
(a) of the covenant "LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND
DISQUALIFIED CAPITAL STOCK." The Board of Directors of the Company may designate
any Unrestricted Subsidiary to be a Subsidiary, PROVIDED, that (i) no Default or
Event of Default is existing or will occur as a consequence thereof and (ii)
immediately after giving effect to such designation, on a PRO FORMA basis, the
Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio in clause (a) of the covenant "LIMITATION ON INCURRENCE OF
ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK." Each such designation
shall be evidenced by filing with the Trustee a certified copy of the resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary all the Equity Interests of
which are owned by the Company or one or more Wholly-owned Subsidiaries of the
Company, except for directors' qualifying shares or shares owned by foreign
nationals, in each case to the extent required by applicable law.
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DESCRIPTION OF CAPITAL STOCK
The Company's Articles of Incorporation, as amended (the "Articles of
Incorporation"), authorize the issuance of 185,000,000 shares of capital stock,
of which 175,000,000 shares are designated as Common Stock, par value $0.10 per
share, and 10,000,000 shares are designated as Special Stock, par value $0.10
per share. As of March 31, 1996, approximately 12,988,000 shares of Common Stock
were issued and outstanding and no shares of Special Stock were issued and
outstanding. See "Security Ownership of Certain Beneficial Holders and
Management." The Company expects to issue approximately 735,000 shares of Common
Stock to BGII stockholders and 933,000 shares of Common Stock in partial
satisfaction of BGII employee contract termination costs and performance unit
awards, and 350,000 shares of Preferred Stock pursuant to the Merger Agreement
(in each case, based on 10,799,501 shares of BGII common stock outstanding, less
1,000,000 shares owned by Alliance and a Common Stock price of $4.00 per share)
and expects to issue approximately 9,450,000 shares of Common Stock and no
shares of Series E Preferred Stock upon Automatic Conversion of the New
Convertible Debentures and as a financial advisory fee assuming the exchange of
$50.0 million principal amount of New Convertible Debentures and no election by
the holders of New Convertible Debentures to receive Series E Preferred Stock in
the conversion and 1,250,000 shares of Common Stock in the Private Placement
(based on a Common Stock price of $4.00 per share) and 150,000 shares of
Preferred Stock in the Preferred Stock Offering.
COMMON STOCK
Holders of Common Stock are entitled to cast one vote per share on all
matters on which the Company's stockholders are entitled to vote. The number of
votes required to take any action by the Company's stockholders are as provided
in Title 7 of the Nevada Revised Statutes (the "Nevada Revised Statutes") or the
Articles of Incorporation. Holders of Common Stock are not entitled to cumulate
their votes. Holders of Common Stock are entitled to receive dividends when and
as declared by the Company's Board of Directors (the "Board") out of funds
legally available for the payment thereof. The Articles of Incorporation provide
that once the subscription price or par value of any share of Common Stock has
been paid in, such share shall be non-assessable and shall not be subject to
assessment to pay the debts of Alliance. Subject to any preferential rights
which may be granted to holders of certain series of Special Stock, holders of
Common Stock are entitled to share ratably in all assets of the Company that are
legally available for distribution to its stockholders in the event of its
liquidation or dissolution. Holders of Common Stock have no preemptive rights
nor are there any subscription, redemption or conversion privileges associated
with the Common Stock.
The Common Stock is quoted on Nasdaq under the symbol "ALLY."
SPECIAL STOCK
The Articles of Incorporation provide that the Special Stock may be issued
from time to time upon such terms and conditions and for such consideration as
may be provided by the Board. The Special Stock may be issued in one or more
series, each series having such designations, rights, preferences and privileges
as may be determined by the Board at the time of issuance. The Company has no
current intention to issue any series of Special Stock with the exception of the
Preferred Stock and the Series E Preferred Stock described herein.
15% NON-VOTING SENIOR PAY-IN-KIND SPECIAL STOCK, SERIES B
The Company's Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions thereof (the "Certificate of
Designations") of the 15% Non-Voting Senior Pay-in-Kind Special Stock, Series B
(previously defined as the "Preferred Stock") provides that holders of shares of
Preferred Stock are entitled to receive quarterly dividends, as and when
declared by the Board, in an amount per share equal to $3.75, or 15% per annum,
payable in cash, except that the Company may at its option pay any such dividend
accruing through and including the Dividend Payment Date (as defined below)
occurring next after the seventh anniversary of the Effective Time in whole or
in part in additional shares of Preferred Stock (or fractions thereof) in an
amount equal to such dividend, with each share of Preferred Stock valued at $100
(the "Liquidation Value"), provided that after the first Dividend Payment Date
(as defined below) occurring next
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after the fifth anniversary of the Effective Time the portion of any such
dividend that may be so paid is limited to $2.00 per share, or 8% per annum.
Dividends are payable on the first day in each year of the first, fourth,
seventh and tenth months of each year following the date of initial issuance
beginning on the first day of the fourth month following the date of initial
issuance or such other dates as set by the Board (each a "Dividend Payment
Date"). Dividends are cumulative and shall accrue from and after May 3, 1996 or,
in the case of Preferred Stock issued as dividends, from and after the date of
initial issuance. Dividends payable for any partial dividend period (including
the period from May 3, 1996 until the first day of the month next following the
month in which the date of initial issuance occurred) will be computed on the
basis of the actual days elapsed in such period over a year of 365 or 366 days.
Unless all dividends that have accrued are paid on the Preferred Stock, no
dividend or other distribution can be paid to holders of any equity security
ranking junior to or pari passu with the Preferred Stock (including the Series E
Preferred Stock) and no shares of such junior or pari passu security can be
purchased or redeemed by the Company. The Company currently expects that so long
as the Preferred Stock remains outstanding, it will, subject to the terms
thereof, pay dividends accruing through the first dividend payment date
occurring after the seventh anniversary of the Effective Time on the Preferred
Stock in additional shares of such stock.
Upon liquidation, the holders of shares of Preferred Stock are entitled
(subject to other rights of any senior equity securities) to be paid out of
assets of the Company in cash or property valued at its fair market value (as
determined in good faith by the Board) an amount equal to $100 plus an amount
equal to all accrued and unpaid dividends and distributions thereon. The Company
may not issue equity securities ranking senior in right of payment to the
Preferred Stock. Therefore, immediately following the Merger, no equity security
will be senior to or pari passu with the Preferred Stock and only the Common
Stock and Series E Preferred Stock will be junior to the Preferred Stock.
The Preferred Stock has no voting rights except as required by law and
except in the case where dividends payable on shares of the Preferred Stock have
been in arrears for six consecutive Dividend Payment Dates, at which time the
number of directors constituting the Board will be increased by two and the
holders of shares of Preferred Stock will have the right, voting separately as a
class, to elect two directors to the Board until all dividends accumulated on
such shares have been paid or set apart for payment in full.
The Company may at its option redeem all, or any number less than all, of
the outstanding shares of Preferred Stock at any time at a price per share equal
to $100 per share plus an amount equal to all accrued and unpaid dividends and
distributions thereon to the date of redemption. The Company is required to
redeem at the above mentioned price all of the outstanding shares of Preferred
Stock by the eighth anniversary of original issuance, 2004. If the
Company fails to redeem such shares on that date and the holders have not yet
elected two directors to the Board as provided in the previous paragraph, then
the number of directors constituting the Board will be increased by two and the
holders of the shares of Preferred Stock will have the right to elect two
directors to the Board. The total number of directors which the holders of
Preferred Stock shall have the right to elect may not exceed two. Holders of the
Preferred Stock have no other remedy than those described above if the Company
fails to redeem all the outstanding shares of Preferred Stock on such date. The
terms of the Senior Secured Notes will restrict the Company's ability to effect
any such redemption so long as any Senior Secured Notes remain outstanding.
Fractional shares of Preferred Stock will entitle the holder to receive
dividends and distributions and to exercise voting rights in proportion to the
fractional holding.
Alliance has applied to have the Preferred Stock quoted on Nasdaq under the
symbol "ALLYP."
11 1/2% NON-VOTING JUNIOR CONVERTIBLE PAY-IN-KIND SPECIAL STOCK, SERIES E
Alliance's Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions thereof (the "Series E Certificate
of Designations") of the 11 1/2% Non-Voting Junior Convertible Pay-in-Kind
Special Stock, Series E (previously defined as the "Series E Preferred Stock")
to be filed with the Secretary of State of Nevada provides that holders of
shares of Series E Preferred Stock are entitled to receive quarterly dividends,
as and when declared by the Board, in an amount per share equal to $2.50 payable
in cash,
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through and including the Series E Dividend Payment Date (as defined below)
occurring next after the third anniversary of the Effective Time, except that
the Company may at its option pay any such dividend in whole or in part in
additional shares of Series E Preferred Stock (or fractions thereof) in an
amount equal to such dividend, with each share of Series E Preferred Stock
valued at $100. Dividends are payable on the first day in each year of the
first, fourth, seventh and tenth months of each year following the date of
initial issuance beginning on the first day of the fourth month following the
date of initial issuance or such other dates as set by the Board (each a "Series
E Dividend Payment Date"). Dividends are cumulative and will accrue from and
after the date of initial issuance. Dividends payable for any partial dividend
period (including the period from the date of initial issuance until the first
day of the month next following the month in which the date of initial issuance
occurred) will be computed on the basis of the actual days elapsed in such
period over a year of 365 or 366 days. Unless all dividends that have accrued
are paid on the Series E Preferred Stock, no dividend or other distribution can
be paid to holders of any equity security ranking junior to or pari passu with
the Series E Preferred Stock and no shares of such junior security can be
purchased or redeemed by Alliance. Alliance currently expects that so long as
the Series E Preferred Stock remains outstanding, it will, subject to the terms
thereof, pay dividends on the Series E Preferred Stock in additional shares of
such stock.
Shares of Series E Preferred Stock are convertible into shares of Common
Stock at any time, initially at a conversion price of $5.88 per share, subject
to adjustment as provided below (the "Series E Conversion Price"). The right to
convert shares of Series E Preferred Stock called for redemption will expire at
the close of business on the fifth business day prior to the redemption date.
The Series E Conversion Price is subject to adjustment in certain events,
including (i) dividends (and other distributions) payable in shares of Common
Stock on any class of capital stock of the Company, (ii) the issuance to all
holders of shares of Common Stock or rights or warrants entitling them to
subscribe for or purchase shares of Common Stock at less than the current market
price (as defined in the Series E Certificate of Designations), (iii)
subdivisions, combinations and reclassifications of shares of Common Stock, (iv)
certain tender offers by the Company or any subsidiary of the Company for shares
of Common Stock and (v) distributions by the Company to all holders of shares of
Common Stock of evidences of indebtedness, securities other than shares of
Common Stock or other assets (including securities but excluding those
dividends, rights, warrants and distributions referred to above and excluding
dividends and distributions paid in cash or other property out of the retained
earnings of the Company), provided that, in the event that the fair market value
of the assets, evidences of indebtedness or other securities so distributed
applicable to one share of Common Stock equals or exceeds such current market
price per share of Common Stock or such current market price exceeds such fair
market value by less than $0.10 per share, the Series E Conversion Price will
not be adjusted until such time as the cumulative amount of all such
distributions exceed $0.10 per share.
In addition to the foregoing adjustments, the Company is permitted to make
such reductions in the Series E Conversion Price as it considers to be advisable
in order that any event treated for Federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the shares of Common
Stock.
In case of certain reclassifications, consolidations or mergers to which the
Company is a party or the transfer of all or substantially all of the assets of
the Company, each share of Series E Preferred Stock then outstanding would,
without the consent of any holders of such shares, become convertible only into
the kind and amount of securities, cash and other property receivable upon the
reclassification, consolidation, merger or transfer by a holder of the number of
shares of Common Stock into which such shares might have been converted
immediately prior to such reclassification, consolidation, merger or transfer
(assuming such holder of shares of Common Stock failed to exercise any rights of
election and received per share the kind and amount received per share by a
plurality of non-electing shares).
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon market price
(as determined in accordance with the Series E Certificate of Designations).
Fractional shares of Series E Preferred Stock may be issued under certain
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circumstances (including in payment of dividends payable in shares of Series E
Preferred Stock) and will entitle the holder to receive dividends and
distributions and to exercise voting rights in proportion to the fractional
holding.
Upon liquidation, the holders of shares of Series E Preferred Stock are
entitled (subject to prior preferences and other rights of any senior equity
securities including the Preferred Stock and on a parity with other securities
ranking equally) to be paid out of assets of the Company in cash or property
valued at its fair market value (as determined in good faith by the Board) an
amount equal to $100 plus an amount equal to all accrued and unpaid dividends
and distributions thereon.
The Series E Preferred Stock has no voting rights except as required by law
and except in the case where dividends payable on shares of the Series E
Preferred Stock have been in arrears for six consecutive Series E Dividend
Payment Dates, at which time the number of directors constituting the Board will
be increased by two and the holders of shares of Series E Preferred Stock,
together with the holders of any other class of Special Stock ranking on a
parity with the Series E Preferred Stock as to the payment of dividends, will
have the right, voting separately as a class, to elect two directors to the
Board until all dividends accumulated on such shares have been paid or set apart
for payment in full.
The Company may at its option redeem all, or any number less than all, of
the outstanding shares of Series E Preferred Stock at any time at a price per
share equal to $100 per share plus an amount equal to all accrued and unpaid
dividends and distributions thereon to the date of redemption.
PROVISIONS APPLICABLE TO CERTAIN HOLDERS
The Nevada Revised Statutes contains a control share provision with respect
to the acquisition of more than 20% of the voting shares of a Nevada
corporation. Alliance, however, has opted out of this provision in accordance
with the Nevada Revised Statutes by adopting an amendment to its by-laws to such
effect.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF PREFERRED STOCK
The following is a description of the material Federal income tax
consequences to the original holders of Preferred Stock. The description is
based on currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations thereunder, current administrative
rulings and court decisions, all of which are subject to change (possibly on a
retroactive basis) and any such change could affect the continuing validity of
this description. The Federal income tax description set forth below may not be
applicable to certain classes of taxpayers, including insurance companies,
securities dealers, financial institutions, foreign persons, and persons in
special situations. Holders of Preferred Stock are urged to consult their tax
advisors as to their respective personal tax situations including the
applicability and effect of state, local and other tax laws. The discussion
below assumes that the shares of Preferred Stock are capital assets in the hands
of any holder.
TAX TREATMENT OF CASH DISTRIBUTIONS AND DISTRIBUTIONS OF ADDITIONAL SHARES OF
PREFERRED STOCK
The Company believes the Preferred Stock will be deemed "participating"
preferred stock for purposes of Code section 305(b)(4). Consequently, the
Company believes that the quarterly distribution of additional shares of
Preferred Stock ("Distribution Shares") on the shares of Preferred Stock sold
pursuant to this Offering is a distribution of stock described in Code Section
305(a) and will not be subject to tax upon receipt by holders ("Non-taxable
Distribution Shares"). Generally, a holder must allocate a portion of the
holder's adjusted tax basis in its share of Preferred Stock to the basis of each
Non-taxable Distribution Share, or portion thereof, a holder receives tax free
under Code section 305(a). It is possible at some time in the future that
additional shares of Preferred Stock distributed on Distribution Shares will not
be "participating" in this sense and their receipt by holders will be subject to
tax as described in the immediately following paragraph ("Taxable Distribution
Shares"). In addition, in the event more than a DE MINIMIS amount of Old
Convertible Debentures remain outstanding after the Merger, under one possible
reading of the Treasury Regulations under Code Section 305(b)(2), the receipt of
Distribution Shares would be subject to tax as described in the immediately
following paragraph because such receipt would increase the proportionate
interest in Alliance's earnings and assets by holders of Preferred Stock while
the receipt of interest by holders of Old Convertible Debentures would be
treated as the receipt of property. Under Code section 306(a), if a holder sells
a Non-taxable Distribution Share (other than in a redemption by the Company) the
amount realized shall be treated as ordinary income except to the extent the
amount realized exceeds such share's ratable share of the amount which would
have been a dividend at the time of distribution if the Company had distributed
money in an amount equal to the fair market value of such share at the time of
distribution (the "Dividend Amount"). Any excess of the amount realized by the
holder over the sum of (i) the Dividend Amount and (ii) the holder's allocated
tax basis in the Non-taxable Distribution Share shall be treated as capital gain
from the sale of such stock. If the Company redeems such Non-taxable
Distribution Share, the redemption will be taxed as a distribution subject to
Code section 301(c) (as described immediately below), unless, generally, a
holder reduces his interest in the Company as described below in the section
titled "Redemption for Cash", in which case the amount realized shall be treated
as capital gain from the sale of such stock.
Pursuant to Code section 301(c)(1), holders of Preferred Stock will
recognize ordinary income upon the receipt of a dividend in cash or in Taxable
Distribution Shares, in both cases to the extent of the Company's current or
accumulated earnings and profits. The amount of the distribution for purposes of
Code section 301(c) will equal the amount of cash and the fair market value of
the Taxable Distribution Shares distributed. The fair market value of each
Taxable Distribution Share paid as a dividend will equal the mean between the
highest and lowest quoted selling prices of shares of the Preferred Stock on
Nasdaq on the date of payment. Pursuant to Code section 301(c)(2) and (3), a
distribution of cash or Taxable Distribution Shares in an amount in excess of
the Company's current and accumulated earnings and profits will be a tax free
return of capital to the extent of a holder's tax basis in the shares of
Preferred Stock, and thereafter, capital gain. Any capital gain will be
long-term if, as of the date of payment, the holder held the shares of the
Preferred Stock for more than one year, and will be short-term if, as of the
date of payment, the holder held the shares of Preferred Stock for one year or
less. Short-term capital gain is subject to a maximum marginal
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Federal income tax rate of 39.6%. For individuals, long-term capital gain is
currently subject to a maximum marginal Federal income tax rate of 28%. The
current maximum long-term capital gain rate for corporations is 35%.
Pursuant to Code section 305(c) and the Treasury Department regulations
recently promulgated thereunder, if the Liquidation Value of a Distribution
Share is greater than its issue price by more than a DE MINIMIS amount, the
difference between the Liquidation Value and the issue price will be treated as
a constructive distribution or series of constructive distributions of
additional shares of Preferred Stock to which Code section 301(c) applies (as
described in the immediately preceding paragraph) and will be taken into account
by the holder over the period from the issue date to the mandatory redemption
date of the Preferred Stock. The issue price of the Taxable Distribution Shares
will be the mean between the high and low trading prices of such shares on their
date of issue. The difference between the issue price and Liquidation Value of a
Taxable Distribution Share will be more than DE MINIMIS if it is at least 2% of
the Liquidation Value (.25% times the Liquidation Value times eight (the number
of complete years from the issue date until the mandatory redemption date of the
Preferred Stock)). Holders will take into account the constructive distributions
under "principles similar to the principles of Code section 1272(a)". While the
regulations under Code section 305(c) do not expressly provide how to apply the
principles of Code section 1272(a) to constructive distributions of Preferred
Stock, the Company believes the so-called "constant yield method" will apply to
accrue the difference between issue price and Liquidation Value of a Taxable
Distribution Share.
Generally, under the "constant yield method", the amount of the constructive
distribution to be taken into account in accord with Code section 301(c) will
equal the increase in the adjusted issue price of a Taxable Distribution Share
for each accrual period. For this purpose, the increase in the adjusted issue
price for any accrual period shall be an amount equal to the excess, if any, of
(a) the product of (i) the adjusted issue price of a Taxable Distribution Share
at the beginning of such accrual period and (ii) the yield to maturity
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period) over (b) the sum of the
amounts actually distributed on a Taxable Distribution Share during such accrual
period. For this purpose, the adjusted issue price of a Taxable Distribution
Share at the beginning of any accrual period is the sum of the issue price of a
Taxable Distribution Share plus the adjustments made to such issue price for all
periods before the first day of such accrual. For this purpose, the accrual
period shall mean the three month period (or shorter period from the date of
original issue of the Taxable Distribution Share) which ends on a day in the
calendar year corresponding to the redemption date of the Taxable Distribution
Share or the date three, six or nine months before such redemption date.
In the event the redemption price of any Distribution Share exceeds its fair
market value at the time of the distribution by more than a DE MINIMIS amount,
the excess could be treated as a constructive distribution that must be taken
into account by the holders in a manner consistent with the constant yield
method of Code section 1272(a)(1) and Code section 301. The Company, however,
intends to take a position that there will be no constructive distribution to
holders prior to the redemption date of the Preferred Stock with respect to any
such excess in respect of additional shares of Preferred Stock. Pursuant to
Treasury Regulation section 1.305-5(b)(5), the Company's determination is
binding on all holders of Preferred Stock, other than a holder that explicitly
discloses on its timely filed federal income tax return for the taxable year
that includes the date of the holder's receipt of the relevant Preferred Stock
distribution that its determination as to whether there is a constructive
distribution differs from that of the Company. The Company will provide holders
the relevant information in a reasonable manner in order to make their own such
determination. There is no assurance that the IRS would not disagree with the
Company's position and assert that there has been a constructive distribution
with respect to the Preferred Stock prior to redemption.
REDEMPTION FOR CASH
If the Company redeems the holder's shares of Preferred Stock for cash, the
following would be applicable. Under the rules of Code section 302 a redemption
of shares of Preferred Stock by the Company for cash will be treated as a
distribution taxable as a dividend to redeeming stockholders to the extent of
the
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Company's current or accumulated earnings and profits unless the redemption (i)
results in a "complete termination" of the stockholder's interest in the Company
(within the meaning of Code section 302(b)(3)), (ii) is "substantially
disproportionate" (within the meaning of Code section 302(b)(2)) with respect to
the holder or (iii) is "not essentially equivalent to a dividend" (within the
meaning of Code section 302(b)(1)). In determining whether any of the Code
section 302(b) tests have been met, shares of Common Stock and of any other
class of stock of the Company will be taken to account along with shares of
Convertible Preferred Stock. Moreover, shares considered to be owned by the
holder by reason of the constructive ownership rules set forth in Code section
318, as well as shares actually owned, will be taken into account. If any of the
foregoing tests are met, then, except with respect to declared and unpaid
dividends, if any, the redemption of shares of Preferred Stock for cash will
result in taxable gain or loss equal to the difference between the amount of
cash received and the holder's tax basis in the redeemed shares. Any such gain
or loss will be capital gain or loss and will be long-term capital gain or loss
if the shareholder's holding period exceeds one year. Based on a published IRS
ruling, the redemption of a shareholder's Preferred Stock for cash will be
treated as "not essentially equivalent to a dividend" if, taking into account
the constructive ownership rules, (a) the holder's relative stock interest in
the Company is minimal, (b) the holder exercises no control over the Company's
affairs and (c) there is a reduction in the holder's proportionate interest in
the Company.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF THE PREFERRED
STOCK INCLUDING FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreements
relating to the Senior Secured Notes and the Preferred Stock, respectively
(copies of which have been filed as exhibits to the Registration Statements of
which this Prospectus forms a part), the Company has agreed to sell to Jefferies
& Company, Inc., Wasserstein Perella Securities, Inc. and Ladenburg, Thalmann &
Co. Inc. (the "Underwriters"), and the Underwriters have severally agreed to
purchase from the Company, the principal amount of the Senior Secured Notes and
the liquidation value of Preferred Stock as set forth opposite their respective
names in the table below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT LIQUIDATION VALUE
OF SENIOR OF PREFERRED
UNDERWRITER SECURED NOTES STOCK
<S> <C> <C>
Jefferies & Company, Inc.................................
Wasserstein Perella Securities, Inc......................
Ladenburg, Thalmann & Co. Inc............................
---------------- -----------------
Total................................................ $ 140,000,000
---------------- -----------------
---------------- -----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreements, the
Underwriters are committed to purchase all the Securities offered hereby (other
than those covered by the over-allotment option for the Preferred Stock
described below) if any are purchased. The Underwriters propose to offer the
Securities directly to the public initially at the public offering prices set
forth on the cover page of this Prospectus and, in the case of the Preferred
Stock, to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share to certain other dealers. After the initial
public offering of the Securities, the respective public offering price of the
Senior Secured Notes and the Preferred Stock and the commission to selected
dealers and the reallowance to other dealers with the respect to the Preferred
Stock may be changed by the Underwriters.
Prior to the Offerings, there has been no public market for the Senior
Secured Notes or the Preferred Stock. The public offering prices were determined
by negotiations between the Company and the Underwriters. Among the principal
factors considered in such negotiations were the financial strength of the
Company in recent periods, prevailing economic prospects, debt offerings of
companies in related businesses, the prospects for the Company and its industry
and the general conditions prevailing in the securities markets. The
Underwriters do not intend to confirm sales of the Securities to any accounts
over which they exercise discretionary authority.
Alliance and its subsidiaries have agreed to indemnify the Underwriters
against certain liabilities that may be incurred in connection with the
Offerings, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company does not intend to list any of the Senior Secured Notes on a
national securities exchange or to seek the admission thereof for trading on
Nasdaq. The Underwriters have advised the Company that they currently intend to
make a market in the Senior Secured Notes as permitted by applicable laws and
regulations; however, they are not obligated to do so, and such market-making,
if commenced may be discontinued at any time without notice. The Company has
applied to have the Preferred Stock quoted on Nasdaq, however, there can be no
assurance as to the liquidity of the trading market for either the Senior
Secured Notes or the Preferred Stock, or that an active trading market will
develop.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date hereof, to purchase up to an additional $ liquidation
value of Preferred Stock at the public offering price, less the underwriting
discount. The Underwriters may exercise such right of purchase only for the
purpose of covering over-allotments, if any, made in connection with the sale of
the shares of Preferred Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase additional shares of Preferred Stock proportionate to
such Underwriter's initial commitment as indicated in the preceding table.
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<PAGE>
The foregoing includes a summary of the principal terms of the Underwriting
Agreements and does not purport to be complete. Reference is made to the copy of
each Underwriting Agreement that is on file as an exhibit to the Registration
Statements of which this Prospectus is a part.
Jefferies & Company, Inc., on the one hand, and Ladenburg, Thalmann & Co.
Inc., on the other, are serving as financial advisors to Alliance and BGII,
respectively, for which they receive customary fees and reimbursement of certain
expenses, including in the case of Jefferies & Company, Inc., 450,000 shares of
Common Stock as an advisory fee. Jefferies & Company, Inc. and Ladenburg,
Thalmann & Co. Inc. are acting as dealer managers, together with a third dealer
manager, for the Exchange Offer, for which they expect to receive customary fees
and reimbursement of certain expenses.
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby are
being passed upon for the Company by Schreck, Jones, Bernhard, Woloson &
Godfrey, Chartered, Las Vegas, Nevada, and Milbank, Tweed, Hadley & McCloy, New
York, New York, and for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom, Los Angeles, California.
The statements as to matters of law and legal conclusions concerning Nevada
gaming laws included under the caption "Gaming Regulation and Licensing--Nevada"
have been prepared by Schreck, Jones, Bernhard, Woloson & Godfrey, Chartered,
Las Vegas, Nevada, gaming counsel for the Company.
The statements as to matters of law and legal conclusions concerning
Louisiana gaming laws included under the captions "Risk Factors--Strict
Regulation of Gaming Authorities" and "Gaming Regulation and
Licensing--Louisiana" have been prepared by Hoffman, Sutterfield, Ensenat, a
Professional Corporation, New Orleans, Louisiana, gaming counsel for the
Company.
The statements as to matters of law and legal conclusions concerning
Mississippi gaming laws included under the caption "Gaming Regulation and
Licensing--Mississippi" have been prepared by Paul H. Johnson, Esq., Jackson,
Mississippi, gaming counsel for the Company.
The statements as to matters of law and legal conclusions concerning New
Jersey gaming laws included under the captions "Risk Factors--Strict Regulation
of Gaming Authorities" and "Gaming Regulation and Licensing--New Jersey" have
been prepared by Kozlov, Seaton, Romanini & Brooks, Cherry Hill, New Jersey,
gaming counsel for the Company.
The statements as to matters of law and legal conclusions concerning German
gaming laws included under the caption "Gaming Regulation and
Licensing--Germany" have been prepared by Bruckhaus, Westrick, Stegeman, Berlin,
Germany, German counsel for the Company.
EXPERTS
The consolidated financial statements of Alliance Gaming Corporation and
subsidiaries as of June 30, 1994 and 1995, and for each of the years in the
three-year period ended June 30, 1995 included herein have been included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
refers to a change in the method of accounting for income taxes, effective July
1, 1993. As noted under "Forecast of Operations," KPMG Peat Marwick LLP has not
examined the Forecast presented under "Forecast of Operations" and, accordingly,
does not express an opinion or any other form of assurance with respect thereto.
The consolidated balance sheets of BGII as of December 31, 1994 and 1995,
and the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995 included
herein have been included herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, appearing elsewhere herein, given on
the authority of that firm as experts in accounting and auditing. As noted under
"Forecast of Operations," Coopers & Lybrand L.L.P.
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neither examined nor compiled nor had any other involvement with the preparation
of the Forecast presented under "Forecast of Operations" and accordingly does
not express an opinion or any other form of assurance with respect thereto, nor
do they assume any responsibility for the Forecast.
AVAILABLE INFORMATION
Each of Alliance and BGII is subject to the informational requirements of
the Exchange Act, and in accordance therewith files reports, proxy statements
and other information with the Commission. The reports, proxy statements and
other information filed by Alliance and BGII may be inspected and copied at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and should be available at the
Commission's regional offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or part of such materials also may
be obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Alliance's Common Stock is and the Preferred Stock, when issued, will be,
listed on Nasdaq under the symbol "ALLY" and "ALLYP", respectively. Reports,
proxy statements and other information filed by Alliance and BGII may also be
inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
Alliance has filed with the Commission Registration Statements on Form S-2
(together with any amendments and exhibits thereto, each, a "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus, which is a part of each such Registration Statement,
does not contain all the information set forth in each such Registration
Statement and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Such additional
information may be inspected, without charge, at the Commission's principal
office in Washington, D.C. and copies may be obtained from the Commission upon
payment of the prescribed fee. Statements contained in this Prospectus or in any
document incorporated in this Prospectus by reference as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to each such Registration Statement or such
other document, each such statement being qualified in all respects by such
reference.
FOR CALIFORNIA RESIDENTS ONLY
With respect to sales of the security being offered hereby to California
residents, such security may be sold only to: (1) "accredited investors" within
the meaning of Regulation D under the Securities Act of 1933, (2) banks, savings
and loan associations, trust companies, insurance companies, investment
companies registered under the Investment Company Act of 1940, pension or
profit-sharing trusts, corporations or other entities which, together with the
corporation's or other entity's affiliates which are under common control have a
net worth on a consolidated basis according to their most recent regularly
prepared financial statements (which shall have been reviewed, but not
necessarily audited, by outside accountants) of not less than $14,000,000, and
subsidiaries of the foregoing, or (3) any person (other than a person formed for
the sole purpose of purchasing the security being offered hereby) who purchases
at least $1,000,000 aggregate amount of the security offered hereby.
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INDEX TO FINANCIAL STATEMENTS
ALLIANCE GAMING CORPORATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report....................................................................... F-2
Consolidated Balance Sheets as of June 30, 1994 and 1995........................................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 1993, 1994 and 1995...... F-5
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended June 30, 1993, 1994 and
1995.............................................................................................. F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1993, 1994 and 1995...... F-7
Notes to Consolidated Financial Statements......................................................... F-8-F-34
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1995 (audited) and March 31, 1996
(unaudited)....................................................................................... F-35
Unaudited Condensed Consolidated Statements of Operations for the Nine Months Ended March 31, 1995
and 1996.......................................................................................... F-36
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1995
and 1996.......................................................................................... F-37
Notes to Unaudited Condensed Consolidated Financial Statements..................................... F-38-F-48
BALLY GAMING INTERNATIONAL, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.................................................................. F-49
Consolidated Balance Sheets, December 31, 1994 and 1995............................................ F-50
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995......... F-51
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and
1995.............................................................................................. F-52
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995......... F-53
Notes to Consolidated Financial Statements......................................................... F-54-F-82
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31, 1995 (audited) and March 31, 1996
(unaudited)....................................................................................... F-83
Consolidated Statements of Operations (unaudited) -- for the Three Months Ended March 31, 1995 and
1996.............................................................................................. F-84
Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 1996............ F-85
Condensed Consolidated Statements of Cash Flows (unaudited) -- for the Three Months Ended March 31,
1995 and 1996..................................................................................... F-86
Notes to Condensed Consolidated Financial Statements (unaudited)................................... F-87-F-100
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Alliance Gaming Corporation
We have audited the consolidated balance sheets of Alliance Gaming
Corporation and subsidiaries as of June 30, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alliance
Gaming Corporation and subsidiaries as of June 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 6 to the consolidated financial statements, effective
July 1, 1993 Alliance Gaming Corporation adopted the provisions of Financial
Accounting Standards Board's Statement of Financial Accounting Standard No. 109,
ACCOUNTING FOR INCOME TAXES.
KPMG Peat Marwick LLP
Las Vegas, Nevada
September 1, 1995
F-2
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 37,085 $ 13,734
Securities available for sale........................................................... 12,489 23,680
Receivables, net........................................................................ 5,924 3,316
Inventories............................................................................. 661 714
Prepaid expenses........................................................................ 4,420 4,148
Refundable income taxes................................................................. 361 361
Other................................................................................... 30 156
---------- ----------
Total current assets.................................................................. 60,970 46,109
---------- ----------
Property and equipment:
Land and improvements................................................................... 3,229 17,296
Building and improvements............................................................... 4,286 8,822
Gaming equipment........................................................................ 30,395 36,396
Furniture, fixtures and equipment....................................................... 9,632 11,582
Leasehold improvements.................................................................. 5,222 5,372
Construction in progress................................................................ 212 30
---------- ----------
52,976 79,498
Less accumulated depreciation and amortization.......................................... 24,293 29,146
---------- ----------
Property and equipment, net........................................................... 28,683 50,352
---------- ----------
Other assets:
Receivables, net........................................................................ 4,609 5,309
Excess of costs over net assets of an acquired business, net of accumulated amortization
of $295 (1994) and $585 (1995)......................................................... 3,789 3,842
Intangible assets, net of accumulated amortization of $4,145 (1994) and $5,516 (1995)... 13,527 12,405
Deferred tax assets..................................................................... 1,081 1,399
Investment in minority owned subsidiary................................................. 2,000 1,585
Other................................................................................... 4,757 5,347
---------- ----------
Total other assets.................................................................... 29,763 29,887
---------- ----------
$ 119,416 $ 126,348
---------- ----------
---------- ----------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
JUNE 30, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................................................... $ 1,504 $ 3,995
Accounts payable........................................................................ 1,661 1,758
Accrued expenses, including related parties of $312 (1994) and $931 (1995).............. 6,879 8,610
---------- ----------
Total current liabilities............................................................. 10,044 14,363
---------- ----------
Long-term debt, less current maturities................................................... 89,222 97,402
Deferred tax liabilities.................................................................. 1,218 1,205
Other liabilities......................................................................... 3,587 2,750
---------- ----------
Total liabilities..................................................................... 104,071 115,720
---------- ----------
Commitments and contingencies
Minority interest......................................................................... 246 643
Stockholders' equity:
Common stock, $.10 par value; authorized 175,000,000 shares; issued 10,505,928 shares
(1994) and 11,654,150 shares (1995).................................................... 1,051 1,165
Special stock, $.10 par value; authorized 10,000,000 shares; issued 1,333,333 (1994 and
1995).................................................................................. 133 133
Paid-in capital......................................................................... 26,716 32,134
Unrealized loss on securities available for sale, net................................... (421) (316)
Accumulated deficit..................................................................... (12,380) (23,131)
---------- ----------
Total stockholders' equity............................................................ 15,099 9,985
---------- ----------
$ 119,416 $ 126,348
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Gaming:
Routes................................................................... $ 96,282 $ 102,830 $ 106,827
Casinos and taverns...................................................... 12,526 15,679 21,287
Food and beverage sales.................................................... 4,184 4,480 3,847
Net equipment sales........................................................ 99 65 27
---------- ---------- ----------
113,091 123,054 131,988
---------- ---------- ----------
Costs and expenses:
Cost of gaming:
Routes................................................................... 72,614 76,332 79,875
Casinos and taverns...................................................... 8,667 11,871 11,436
Cost of food and beverage.................................................. 2,876 3,084 2,795
Cost of equipment sales.................................................... 49 20 12
Selling, general & administrative.......................................... 12,667 13,555 14,633
Business development expenses.............................................. 900 1,192 7,843
Corporate expenses......................................................... 6,191 7,882 9,735
Bad debt expense........................................................... 461 705 400
Loss on abandoned small casinos............................................ -- 3,713 --
Loss on abandoned taverns.................................................. -- 2,638 --
Depreciation and amortization.............................................. 8,718 9,530 9,520
---------- ---------- ----------
113,143 130,522 136,249
---------- ---------- ----------
Operating loss............................................................... (52) (7,468) (4,261)
Other income (expense):
Interest income............................................................ 998 2,084 2,798
Interest expense........................................................... (5,046) (6,830) (8,133)
Minority share of income................................................... -- (506) (397)
Equity in income of affiliate.............................................. -- -- 31
Other, net................................................................. 450 (167) (524)
---------- ---------- ----------
Loss before income taxes..................................................... (3,650) (12,887) (10,486)
Income tax expense........................................................... -- (241) (265)
---------- ---------- ----------
Net loss..................................................................... $ (3,650) $ (13,128) $ (10,751)
---------- ---------- ----------
---------- ---------- ----------
Net loss per common share.................................................... $(0.38) $(1.28) $(0.95)
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding................................... 9,696 10,251 11,300
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
RETAINED LOSS ON
TOTAL COMMON STOCK SPECIAL STOCK EARNINGS SECURITIES
STOCKHOLDERS' --------------- ---------------- PAID-IN (ACCUMULATED AVAILABLE
EQUITY SHARES DOLLARS SHARES DOLLARS CAPITAL DEFICIT) FOR SALE
------------ ------ ------- ------ ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1992............ $23,661 9,409 $ 942 -- $ -- $18,321 $ 4,398 $--
Net loss......................... (3,650) -- -- -- -- -- (3,650) --
Common stock warrants issued..... 559 -- -- -- -- 559 -- --
Shares issued upon exercise of
options......................... 2,096 591 59 -- -- 2,037 -- --
------------ ------ ------- ------ ------- ------- ---------- -----
Balances, June 30, 1993............ 22,666 10,000 1,001 -- -- 20,917 748 --
Net loss......................... (13,128) -- -- -- -- -- (13,128) --
Shares issued for acquisitions... 249 112 11 -- -- 238 -- --
Common stock warrants issued..... 116 -- -- -- -- 116 -- --
Cost of private placement........ (201) -- -- -- -- (201) -- --
Net change in unrealized loss on
securities available for sale... (421) -- -- -- -- -- -- (421)
Shares issued for capital
infusion........................ 4,999 -- -- 1,333 133 4,866 -- --
Shares issued upon exercise of
options......................... 819 394 39 -- -- 780 -- --
------------ ------ ------- ------ ------- ------- ---------- -----
Balances, June 30, 1994............ 15,099 10,506 1,051 1,333 133 26,716 (12,380) (421)
Net loss......................... (10,751) -- -- -- -- -- (10,751) --
Shares issued for acquisitions... 3,754 712 71 -- -- 3,683 -- --
Compensatory stock issued........ 1,313 250 25 -- -- 1,288 -- --
Net change in unrealized loss on
securities available for sale... 105 -- -- -- -- -- -- 105
Shares issued upon exercise of
options......................... 465 186 18 -- -- 447 -- --
------------ ------ ------- ------ ------- ------- ---------- -----
Balances, June 30, 1995............ $ 9,985 11,654 $1,165 1,333 $133 $32,134 $(23,131) $(316)
------------ ------ ------- ------ ------- ------- ---------- -----
------------ ------ ------- ------ ------- ------- ---------- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (3,650) $ (13,128) $ (10,751)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................... 8,718 9,530 9,520
Loss on abandoned casinos....................................................... -- 3,713 --
Loss on abandoned taverns....................................................... -- 2,638 --
Write-off of other assets....................................................... 149 1,817 2,796
Provision for losses on receivables............................................. 461 705 400
Amortization of debt discounts.................................................. 265 292 297
Undistributed earnings of affiliate............................................. -- -- (31)
Non-cash stock compensation expense............................................. -- -- 1,313
Net change in operating assets and liabilities:
(Increase) decrease in:
Inventories..................................................................... (233) 78 (40)
Prepaid expenses................................................................ 1,475 (519) 381
Refundable income taxes......................................................... 766 (361) --
Other........................................................................... 305 254 (126)
Increase (decrease) in:
Accounts and slot contracts payable............................................. (2,378) 269 (447)
Accrued and deferred income taxes............................................... -- 137 (137)
Other liabilities, including minority interest.................................. (153) 511 397
Accrued expenses................................................................ 184 3,126 (2,615)
--------- --------- ---------
Net cash provided by operating activities..................................... 5,909 9,062 957
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment............................................... (5,092) (5,385) (8,887)
Proceeds from sale of property and equipment...................................... 257 1,466 351
Additions to receivables.......................................................... (8,715) (18,801) (8,970)
Cash collections on receivables................................................... 7,925 17,541 10,315
Net cash provided by acquisition of business...................................... -- -- 2,481
Acquisition of securities available for sale...................................... -- (12,910) (11,086)
Acquisition of partnership interests.............................................. -- (2,000) (1,585)
Additions to intangible assets.................................................... (77) (5,179) (390)
Additions to other long-term assets............................................... (3,296) (2,031) (3,877)
--------- --------- ---------
Net cash (used in) investing activities....................................... (8,998) (27,299) (21,648)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net of expenses..................................... 1,941 81,984 --
Issuance of common stock warrants................................................. 559 116 --
Reduction of long-term debt....................................................... (2,167) (41,776) (3,125)
Issuance of special stock, net of costs........................................... -- 4,799 --
Issuance of common stock.......................................................... 2,097 619 465
--------- --------- ---------
Net cash (used in) provided by financing activities........................... 2,430 45,742 (2,660)
--------- --------- ---------
Cash and cash equivalents:
Increase (decrease) for year...................................................... (659) 27,505 (23,351)
Balance, beginning of year........................................................ 10,239 9,580 37,085
--------- --------- ---------
Balance, end of year.......................................................... $ 9,580 $ 37,085 $ 13,734
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS
Alliance Gaming Corporation and its subsidiaries (collectively, the
"Company") are presently engaged in gaming device route operations in Nevada and
in the greater New Orleans, Louisiana area; casino operations in Nevada and
Mississippi; and the design, manufacture and refurbishment of gaming devices.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Alliance Gaming Corporation, its wholly-owned subsidiaries and indirect
subsidiaries and its partially owned, controlled subsidiaries. In the case of
Video Services, Inc. ("VSI"), the Company owns 490 shares of Class B voting
stock, which constitutes 100% of the voting stock, of VSI. The Company is
entitled to receive 71% of dividends declared by VSI, if any, at such time that
such dividends are declared. In July 1994, the Company acquired a 45% limited
partnership interest in the Rainbow Casino-Vicksburg Partnership. Accordingly,
the Company accounted for its investment in this partnership under the equity
method until March 29, 1995 at which time the Company increased its partnership
interest and assumed the general partnership position (see Note 11). Effective
March 29, 1995, the results of operations of the Rainbow Casino have been
included in the accompanying consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
In accordance with industry practice, the Company recognizes gaming revenues
as the net win from route, casino and tavern operations, which is, for gaming
devices, the difference between coins and currency deposited into the devices
and payments to customers and, for other games, the difference between gaming
wins and losses. The Company recognizes total net win from gaming devices as
revenues for gaming routes which operate under revenue-sharing arrangements and
revenue-sharing payments as a cost of gaming routes. The Company recognizes
revenue from parts and equipment sales to outside purchasers when the products
are shipped.
LOCATION RENT EXPENSE
For financial statement purposes, the Company recognizes expenses for fixed
periodic rental payments (including scheduled increases) made in connection with
route operation space lease arrangements or sublease agreements on a straight
line basis over the term of the agreement including any extension periods which
are expected to be exercised. Contingent periodic rental payments are expensed
in the period incurred.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Such
investments of $29,799,000 (1994) and $5,238,000 (1995) are included in cash and
cash equivalents and are carried at cost, which approximates market value.
SECURITIES AVAILABLE FOR SALE
Effective January 1, 1994, the Company adopted Financial Accounting Standard
No. 115. For fiscal years beginning after December 15, 1993, Statement 115
requires that, except for debt securities classified as "held-to-maturity"
securities, investments in debt and equity securities should be reported at fair
market value. The Company has designated certain securities as being available
for sale. Securities are designated as available for sale at the time of their
purchase. The Company determines which securities are available for sale by
evaluating whether such securities would be sold in response to liquidity needs,
asset/liability management and other factors. Securities available for sale are
recorded at market value with the resulting unrealized gains and losses being
recorded, net of tax, as a component of stockholders' equity. Gains or losses on
these securities are determined using the specific identification method.
F-8
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market and are determined by
the first-in, first out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated and amortized
over their estimated useful lives or lease terms, if less, using the straight
line method as follows:
<TABLE>
<S> <C>
Building and improvements...................................... 31-39 years
Gaming equipment............................................... 5-7 years
Furniture, fixtures and equipment.............................. 3-10 years
Leasehold improvements......................................... 5-20 years
</TABLE>
EXCESS OF COSTS OVER NET ASSETS OF AN ACQUIRED BUSINESS
Excess of costs over net assets of an acquired business is the excess of the
cost over the value of net tangible assets of an acquired business and is
generally amortized on the straight-line method over a period of 40 years. In
the case of the Company's majority-owned subsidiary, Native American
Investments, Inc., where the assets acquired are largely intangible, the Company
has elected a 10-year amortization period representing the estimated life of the
rights acquired, consisting principally of contracts to conduct gaming
operations on Indian lands.
At each balance sheet date, management evaluates the realizability of
goodwill based on expectations of non-discounted cash flows and operating income
for each subsidiary having a material goodwill balance. Based upon its most
recent analysis, management believes that no material impairment of goodwill
exists at June 30, 1995.
INTANGIBLE ASSETS
Intangible assets consist primarily of costs associated with the acquisition
of location leases which are capitalized and amortized using the straight-line
method over the terms of the leases, ranging from one to 40 years, with an
average life of approximately 11 years. Intangible assets for fiscal 1995
includes approximately $4,547,000 of commissions, discounts and other
capitalized costs related to the issuance of the Company's 7.5% Convertible
Subordinated Debentures due 2003, net of approximately $957,000 of accumulated
amortization. At June 30, 1994, intangible assets includes $4,993,000 of such
costs, net of $405,000 of accumulated amortization. Such amounts are being
amortized over the term of the debentures.
The carrying value of intangible assets is periodically reviewed by
management and impairment losses are recognized when the expected non-discounted
future operating cash flows derived from such intangible assets are less than
their carrying value.
OTHER ASSETS
Other assets includes assets held for sale, long-term deposits and other
non-current assets. In fiscal 1993, the Company paid to certain property owners
a $2,500,000 refundable deposit to operate gaming devices at their location.
Additionally, other assets are presented net of valuation allowances of
$1,763,000 and $631,000 at June 30, 1994 and 1995, respectively.
LOSS PER SHARE OF COMMON STOCK
Loss per share of common stock has been computed based on the weighted
average number of shares of common stock outstanding. Fully diluted earnings per
share is not presented because the effect would be anti-dilutive.
F-9
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
(CONTINUED)
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 109 ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Effective
July 1, 1993, the Company adopted Statement 109. The Company previously used the
asset and liability method under Statement 96.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statements
to conform with the current year presentation.
2. RECEIVABLES
The Company's gaming route operations from time to time involve making loans
to location operators in order to participate in revenues over extended periods
of time. The loans, made for build-outs, tenant improvements and initial
operating expenses are generally secured by the personal guarantees of the
operators and the locations' assets. The majority of the loans are interest
bearing and are expected to be repaid over a period of time not to exceed the
life of the revenue sharing arrangement. The loans have varying payment terms,
with weekly payment amounts ranging from $200 to $1,440 and monthly payment
amounts ranging from $200 to $18,780. Interest rates on the loans range from
prime plus 1.50% to stated rates of 12% with various due dates ranging from July
1995 to April 2007. The loans are expected to be repaid from the locations' cash
flows or proceeds from the sale of the leaseholds.
Receivables at June 30 consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Notes receivable-location operators...................................... $ 8,319 $ 7,760
Other receivables........................................................ 2,214 865
--------- ---------
10,533 8,625
Less current amounts..................................................... 5,924 3,316
--------- ---------
Long-term receivables, excluding current amounts......................... $ 4,609 $ 5,309
--------- ---------
--------- ---------
</TABLE>
Receivables are presented net of an allowance for doubtful accounts of
$1,389,000 and $1,659,000 as of June 30, 1994 and 1995, respectively. The
allowance is allocated between current and long-term receivables on a pro rata
basis related to notes receivable from location operators.
During fiscal 1994, the Company cancelled certain sublease agreements as a
result of defaults by payors in making payments and acquired title to the assets
and operating rights to the tavern locations in exchange for releases of the
customers' debt owed to the Company. During fiscal 1994, interest income of
approximately $48,000 was recognized on these receivables. Total interest income
of $130,000 would have been recognized if the receivables had been current in
accordance with their original terms. The total initial investment in these
tavern locations of approximately $2,011,000 includes the net receivables of
approximately $1,362,000 and other assets of $649,000. No such transactions were
completed in fiscal 1995. Management of the Company has determined the fair
value of the locations' assets from knowledge of sales
F-10
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
2. RECEIVABLES (CONTINUED)
of comparable establishments and expertise acquired from operating its gaming
devices at similar locations. Due to the Company's decision to dispose of the
currently operated small independent tavern operations, certain reserves and
write downs were recognized in fiscal 1994 results of operations.
Management believes properly managing the disposal of these operations will
protect the Company's existing contractual arrangements from the tavern
locations as well as assure their continued operation while preserving the
Company's investment. Management cannot estimate when or how many of these
locations will be obtained and subsequently disposed.
3. LOSS ON ABANDONMENT OF SMALL CASINOS AND TAVERNS
In fiscal 1994, due to continuing losses from operations, negative cash
flows and incompatibility with the Company's long-term growth strategy, the
Company's Board of Directors resolved to 1) exit the downtown Las Vegas gaming
market and 2) dispose of the currently operated small independent taverns on
commercially reasonable terms as market conditions warrant.
As a result of the decision to exit the downtown Las Vegas gaming market,
the Company substantially reduced operations at both the Trolley Stop Casino and
Miss Lucy's Gambling Hall & Saloon. Included in the 1994 statements of
operations are total expenses of approximately $3,246,000 related to these
actions. The total charge included approximately $488,000 related to the
write-down of assets and approximately $2,758,000 representing primarily the
present value of the future lease payments net of estimated future sublease
income.
The decision to withdraw from the tavern business resulted in expenses of
approximately $2,638,000 being recognized in fiscal 1994. Approximately
$1,813,000 of the total amount was related to the write down of assets while
approximately $825,000 represented primarily the present value of the future
lease payments net of estimated future sublease income. The Company has entered
into an agreement to sell all of its tavern locations to an unaffiliated third
party. The sale is contingent upon, among other conditions, approval by Nevada
gaming authorities.
In addition to the items noted above, the Company's lease on the Mizpah
Hotel and Casino has a remaining term of approximately 7.5 years with an option
on the Company's behalf to terminate the lease arrangement with 120 days written
notice at any time after December 31, 1995. The Company has notified the
landlord of the Mizpah of its intention to exercise the termination clause of
the lease at that time. As a result of this decision, the Company recognized an
expense of $467,500 in fiscal 1994.
4. DEBT
Long-term debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
7.5% Convertible subordinated debentures due 2003, unsecured.................... $ 85,000 $ 85,000
Due to stockholder, net of discount of $983,709 (1994) and $747,619 (1995),
secured by the assets of VSI................................................... 4,390 3,309
Hospitality Franchise Systems, secured by the assets of Rainbow Vicksburg....... -- 9,065
Other, secured by related equipment............................................. 1,336 4,023
---------- ----------
90,726 101,397
Less current maturities......................................................... 1,504 3,995
---------- ----------
Long-term debt, less current maturities......................................... $ 89,222 $ 97,402
---------- ----------
---------- ----------
</TABLE>
F-11
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
4. DEBT (CONTINUED)
Accrued interest of approximately $1,893,000 (1994) and $1,991,000 (1995) is
included in accrued expenses in the Consolidated Balance Sheets. Included in
these amounts are $30,343 (1994) and $27,813 (1995) due to affiliates of Alfred
H. Wilms, principal stockholder and member of the Board of Directors of the
Company, related to funding of VSI's gaming device route operations.
In September 1993, the Company completed the private placement of
$85,000,000 aggregate principal amount of its 7.5% Convertible Subordinated
Debentures due 2003. The debentures pay interest semi-annually on March 15 and
September 15. These debentures are convertible at any time into shares of the
Company's common stock at a conversion price of $10 per share (equivalent to a
conversion rate of 100 shares per $1,000 principal amount of debentures),
subject to adjustment. Upon certain defined events, including a change of
control, holders of the debentures have the right to require the Company to
redeem the debentures for cash at the rate of 101% of principal amount plus
accrued interest. The debentures are redeemable at predetermined redemption
prices, in whole or in part, at the option of the Company for cash at any time
on and after September 15, 1995 if the market price of the common stock exceeds
250% of the conversion price for 20 out of any 30 consecutive trading days or at
any time on and after September 15, 1996.
In March 1992, Alfred H. Wilms, director and principal stockholder (and then
Chairman of the Board of Directors and Chief Executive Officer) of the Company,
committed to provide or cause others to provide a $6,500,000 five year
subordinated loan to VSI, the Company's controlled subsidiary which loan has
been funded in full and is secured by a subordinated interest in all of VSI's
present and future personal property. Until August 1993, the loan required
quarterly payments of interest. In August 1993, the loan agreement was amended
to extend the maturity of the loan to September 1, 1998 and to require quarterly
payments of principal and interest. Interest on the loan accrues at the rate of
200 basis points above the 90-day London Inter Bank Offered Rate, adjusted
quarterly. At June 30, 1995 the interest rate for the note was 8.2275%.
During 1995, Hospitality Franchise Systems, Inc. ("HFS") agreed to loan
$7,750,000 to the Company's majority controlled subsidiary RCVP in connection
with the construction of the Rainbow Casino. The loan amount was subsequently
increased to $10,000,000. The note bears interest at 7.5% per annum and requires
monthly payments of principal and interest over an 24 month period. In exchange
for funding this loan, HFS is also entitled to receive a monthly royalty fee
equal to 12% of the casino's gaming revenues. Included in the consolidated
results of operations for fiscal 1995 are approximately $810,000 of such
royalties.
Maturities of long-term debt for each of the five years ending subsequent to
June 30, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................... $3,995,000
1997........................................................... 3,927,000
1998........................................................... 2,825,000
1999........................................................... 1,670,000
2000........................................................... 1,723,000
Thereafter..................................................... 87,257,000
</TABLE>
5. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of special stock, par value $.10 per share ("Special Stock").
Special Stock consists of non-voting stock where no holder of the Special Stock
shall be entitled to vote at any meeting of stockholders or otherwise, except as
otherwise may be specifically provided by law or as approved by the Board of
Directors in certain limited circumstances at the time of the stock issuance.
The Special Stock may be issued from time to time in one or more series, each
series having such designations, preferences and relative, participating,
optional or other special rights,
F-12
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
5. STOCKHOLDERS' EQUITY (CONTINUED)
qualifications, limitations or restrictions as shall be stated and expressed in
the resolution providing for the issuance of Special Stock or any series thereof
adopted by the Board of Directors. The Board has designated an initial series of
Special Stock as "Non-voting Junior Convertible Special Stock" which consists of
1,333,333 shares (the "Initial Series"). The Company's Articles of Incorporation
provide that the Initial Series is intended to have the same rights as the
Common Stock except that the Initial Series has no voting rights and a $.01 per
share liquidation preference. At June 30, 1995, only the Initial Series of
Special Stock was outstanding. The Initial Series is convertible on a share for
share basis into shares of Common Stock of the Company.
In 1984, the Company created an Employee Stock Option Plan (the "1984 Plan")
that provides for the issuance of up to 2,000,000 shares of common stock to
Company employees and directors. At June 30, 1995, there were incentive stock
options covering 207,000 shares and non-qualified stock options covering 10,000
shares outstanding under the 1984 Plan.
At June 30, 1994 there were incentive stock options covering 376,000 shares
and non-qualified stock options covering 15,000 shares outstanding under the
1984 Plan. Generally, options are granted at the fair market value of the
Company's Common Stock at the date of the grant and become exercisable over five
years.
In 1992, the Company created the 1991 Long Term Incentive Plan (the
"Incentive Plan") that, as amended, provides for the issuance of up to 3,000,000
shares of common stock to Company employees and directors. At June 30, 1995
there were incentive stock options covering 2,400,834 shares outstanding under
the Incentive Plan. At June 30, 1994 there were incentive stock options covering
1,099,500 shares outstanding under the Incentive Plan. Generally, options are
granted at the fair market value of the Company's Common Stock at the date of
the grant and become exercisable over five years.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
SHARES EXERCISE PRICE
<S> <C> <C>
Balance, June 30, 1992..................................................... 1,546,150 1.375- 8.750
Granted.................................................................. 300,000 5.875- 8.750
Exercised................................................................ (590,700) 1.375- 4.875
Cancelled................................................................ (3,600) 3.875
----------
Balance, June 30, 1993..................................................... 1,251,850 1.375- 8.750
Granted.................................................................. 690,500 6.500-10.125
Exercised................................................................ (393,850) 1.625- 4.000
Cancelled................................................................ (58,000) 2.125- 4.000
----------
Balance, June 30, 1994..................................................... 1,490,500 1.375-10.125
Granted.................................................................. 1,598,334 5.750- 8.000
Exercised................................................................ (186,000) 1.375- 4.000
Cancelled................................................................ (285,000) 3.500-10.000
----------
Balance, June 30, 1995..................................................... 2,617,834 1.625- 9.250
----------
----------
Exercisable at June 30, 1995............................................... 825,600 1.625- 9.250
----------
----------
</TABLE>
Also at June 30, 1995, Mr. Wilms held warrants to purchase 2,000,000 shares
of Common Stock at $2.50 per share, subject to adjustment. These warrants were
issued in connection with the funding of the $6,500,000 five year subordinated
loan for VSI.
F-13
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
5. STOCKHOLDERS' EQUITY (CONTINUED)
Upon closing of the private placement of the Company's 7.5% Convertible
Subordinated Debentures and the $5 million equity investment by Kirkland-Ft.
Worth Investment Partners, L.P. ("Kirkland") on September 21, 1993, the Company
issued warrants to purchase up to 2,750,000 shares of Common Stock at $1.50 per
share to Kirkland. These warrants are exercisable one year after the grant date
and only after the market price of the Common Stock reaches certain
predetermined levels. Under the same terms, the Company issued warrants to
purchase 1,250,000 and 30,000 shares of Common Stock to Gaming Systems Advisors,
L.P. ("GSA") and L.H. Friend, Weinress & Frankson, Inc. ("Friend"),
respectively. The Company also issued warrants to purchase 500,000 and 250,000
shares of Common Stock at $8.25 per share to the initial purchasers of the
Debentures, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
Oppenheimer & Co., Inc. ("Oppenheimer"), respectively. Under the same general
terms and conditions, DLJ may earn warrants to purchase an additional 250,000
shares of the Company's Common Stock. In fiscal 1995, in connection with the
commencement of their employment with the Company, Steve Greathouse, the
Company's Chairman of the Board, President and Chief Executive Officer and Dr.
Craig Fields, Vice Chairman of the Board were each granted warrants to purchase
250,000 shares of common stock on the same terms as the Kirkland warrants
described above.
As of June 30, 1995, none of the warrants granted to Kirkland, GSA, Friend,
Greathouse or Fields are exercisable.
6. INCOME TAXES
The Company generally accounts for income taxes and files its income tax
returns on a consolidated basis. However, VSI, in which the Company holds 100%
of the voting interests, has previously filed its income tax returns on a
separate basis and was not consolidated for tax purposes. During the quarter
ended December 31, 1994, the Company determined that VSI can be consolidated for
tax purposes. As a result, the Company filed for and has received a refund of
estimated income taxes paid for fiscal year 1994.
Effective July 1, 1993, the Company adopted Financial Accounting Standard
No. 109 ACCOUNTING FOR INCOME TAXES, prospectively. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
F-14
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
6. INCOME TAXES (CONTINUED)
The federal and state income tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and liabilities at June
30, 1995 and 1994 are presented below.
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Net Operating Loss Carryforwards.............................................. $ 8,495 $ 12,470
Inventory Obsolescence Reserve................................................ 578 179
Receivables, Bad Debt Allowance............................................... 472 564
Organization and Start-up Costs............................................... 267 172
Reserves for abandoned projects............................................... 1,577 1,356
Other......................................................................... 307 566
---------- ----------
Total gross deferred tax assets................................................. 11,696 15,307
Less valuation allowance........................................................ 10,615 13,908
---------- ----------
Net deferred tax assets......................................................... $ 1,081 $ 1,399
---------- ----------
Deferred tax liabilities:
Property and equipment, principally due to depreciation differences........... 1,218 1,399
---------- ----------
Total gross deferred tax liabilities (in 1995, $194 is included in accrued
expenses)...................................................................... 1,218 1,399
---------- ----------
Net deferred tax assets (liabilities)........................................... $ (137) $ --
---------- ----------
---------- ----------
</TABLE>
The valuation allowance for deferred tax assets as of June 30, 1994 was
$10,615,000. The net change in the total valuation allowance for the twelve
months ended June 30, 1995 was an increase of $3,293,000.
At June 30, 1995, the Company has estimated net operating loss carryforwards
for federal income tax purposes of approximately $36,678,000 which are available
to offset future federal taxable income, if any, expiring in the years 2007
through 2010.
A reconciliation of the Company's provision for income tax expense as
compared to the tax benefit calculated by applying the statutory federal tax
rate to the loss before income taxes follows.
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Statutory Rate..................................................................... $ (4,202) $ (3,565)
Meals, entertainment............................................................... 3 27
State Income Taxes................................................................. 33 67
Tax losses for which no current benefit is recognized.............................. 4,385 3,736
Alternative Minimum Tax............................................................ 22 --
--------- ---------
$ 241 $ 265
--------- ---------
--------- ---------
</TABLE>
The components of the Company's income tax expense for the year ended June
30, 1995 are:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Federal--current................................................................... $ 73 $ --
State--current..................................................................... 31 102
Federal--deferred.................................................................. 118 163
State--deferred.................................................................... 19 --
--------- ---------
Total.......................................................................... $ 241 $ 265
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
7. STATEMENTS OF CASH FLOWS
The following supplemental information is related to the Consolidated
Statements of Cash Flows. In fiscal 1995, the Company reclassified approximately
$212,000 from receivables to intangible assets and reclassified other assets of
approximately $1,099,000 to property and equipment ($1,074,000) and receivables
($25,000). Additionally, numerous non-cash items related to the Company's
acquisition of the general partnership interest in RCVP impacted the statement
of cash flows. The most significant of these non-cash items included non-cash
additions to property, plant and equipment of approximately $23,400,000 and
additions to total debt of approximately $13,839,000. See also Note 11.
In fiscal 1994, the Company reclassified approximately $1,445,000 of
accounts receivable to intangible assets ($1,393,000) and property and equipment
($52,000) on a net basis.
Payments for interest expense in 1993, 1994 and 1995 were approximately
$4,408,000, $4,690,000 and $7,102,000 respectively.
8. INTERIM FINANCIAL INFORMATION (UNAUDITED)
Following is the unaudited quarterly results of the Company for the years
ended June 30, 1994 and 1995. This information is not covered by the Independent
Auditors' Report.
<TABLE>
<CAPTION>
PRIMARY
INCOME
TOTAL NET (LOSS) (LOSS) PER
REVENUES INCOME SHARE
--------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
1994
First Quarter........................................................ $ 28,419 $ (1,376) $ (.14)
Second Quarter....................................................... 30,566 (1,221) (.12)
Third Quarter........................................................ 31,807 847 .08
Fourth Quarter....................................................... 32,262 (11,378) (1.09)
1995
First Quarter........................................................ $ 30,824 $ (1,926) $ (.18)
Second Quarter....................................................... 31,514 (3,090) (.28)
Third Quarter........................................................ 31,439 (1,775) (.16)
Fourth Quarter....................................................... 38,211 (3,960) (.34)
</TABLE>
The sum of the income (loss) per share for the four quarters, which are
based on average shares outstanding during each quarter, does not equal income
(loss) per share for the year, which is based on average shares outstanding
during the year.
9. RELATED PARTY TRANSACTIONS
The Company sold products to Seeben N.V., a company in which Alfred H. Wilms
is the brother of a member of the company's board of directors. Sales to this
company were approximately $2,000 (1993), $6,000 (1994) and $0 (1995). No
accounts receivable were due from this company at June 30, 1994 or June 30,
1995. Sales prices and terms were similar to those of non-affiliated persons.
In March 1992, Alfred H. Wilms, a director and principal stockholder (and
then Chairman and Chief Executive Officer of the Company), committed to provide
or cause others to provide a $6,500,000 five year, unsecured, subordinated loan
to VSI, a majority-controlled subsidiary of the Company engaged in the Company's
Louisiana gaming device route operations. As consideration for this commitment,
the Company issued to Mr. Wilms five year warrants to purchase 200,000 shares of
Common Stock at $2.50 per share subject to certain adjustments, and agreed to
issue an additional warrant to purchase 1,800,000 shares of Common Stock at
$2.50 per share subject to certain adjustments upon complete funding of the
loan. At
F-16
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
9. RELATED PARTY TRANSACTIONS (CONTINUED)
June 30, 1993 approximately $6,000,000 of the loan had been funded. The
remaining $500,000 was funded in October 1993 at which time the Company issued
to Mr. Wilms the additional warrant for 1,800,000 shares of common stock.
David Robbins, a director appointed to the Board in July 1994, as a designee
of Kirkland Investment Corporation ("KIC"), is employed by the law firm of
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel which has represented the
Company in various matters related to the Company's growth strategy and its
transactions with Kirkland and KIC. The Company paid fees of approximately
$1,046,000 and $493,000 to such firm in fiscal 1994 and fiscal 1995,
respectively.
In connection with the agreements with KIC (100% owned by Joel Kirschbaum)
and its affiliates and related transactions, the Company has paid to or on
behalf of Kirkland and its affiliates a total of approximately $346,000 in
fiscal 1994 and $597,000 in fiscal 1995 primarily for reimbursement of expenses
incurred on behalf of the Company.
In 1993 and 1994 the Company entered into employment agreements with certain
key employees. These agreements range from one to three years in length and
cover certain other terms of employment including compensation. As a condition
of his employment, in April 1995 the Company issued 250,000 shares of common
stock to Steve Greathouse, the Company's Chairman, President and Chief Executive
Officer and recognized a non-cash charge of $1,313,000 related to this
transaction.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment, warehouse and repair facilities,
gaming route locations, casino and other locations under non-cancelable
operating leases.
Future minimum rentals under non-cancelable operating leases at June 30,
1995 are:
<TABLE>
<CAPTION>
TOTAL
MINIMUM SUBLEASE NET MINIMUM
YEAR ENDED JUNE 30 RENTALS INCOME RENTALS
- ----------------------------------------------------------------------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
1996................................................................... $ 8,828 $ 921 $ 7,907
1997................................................................... 6,462 842 5,620
1998................................................................... 6,173 809 5,364
1999................................................................... 5,623 758 4,865
2000................................................................... 3,737 598 3,139
Thereafter............................................................. 34,349 2,757 31,592
----------- ----------- -----------
$ 65,172 $ 6,685 $ 58,487
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Certain gaming route location leases provide only for contingent rentals
based upon a percentage of gaming revenue and are cancelable at any time by
either party.
F-17
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating lease rental expense, including contingent lease rentals, for
years ended June 30 was as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals........................................................ $ 11,727 $ 13,743 $ 9,704
Contingent rentals..................................................... 49,621 55,910 58,113
--------- --------- ---------
61,348 69,653 67,817
Sublease rental income................................................. (850) (1,004) (1,192)
--------- --------- ---------
$ 60,498 $ 68,649 $ 66,625
--------- --------- ---------
--------- --------- ---------
</TABLE>
These amounts are included in the cost of gaming revenues on the
accompanying Consolidated Statements of Operations.
In April, 1990, the Company entered into a ten year lease to operate a
non-restricted gaming location in Las Vegas, Nevada. The lease commencement date
was scheduled to begin no later than 90 days after the construction had been
finalized. In January, 1991, the Company received notice that the construction
was complete; however, upon review of the property, the Company did not believe
that construction had been completed. In August, 1992, the lessor filed a suit
against the Company seeking compensatory and exemplary damages totalling
$18,700,000. In fiscal 1992, the Company had accrued a $480,000 liability
representing back rent owed to the lessor. In February, 1993 the lawsuit was
settled and the Company paid the lessor $425,000 in return for resolution of all
prior and current disputes regarding the lease terms. The lease calls for
monthly rentals of approximately $31,000 and provides for annual increases based
on certain indices. At June 30, 1992, the Company sublet the property to a
location operator in exchange for the right to operate gaming devices at the
property under a space lease arrangement for a period of 10 years beginning
December, 1992.
The Company and Casino Magic Corporation, through wholly owned subsidiaries,
are members in Kansas Gaming Partners, LLC ("KGP") and Kansas Financial
Partners, LLC ("KFP"), both Kansas limited liability companies. Under an option
agreement granted to KGP by Camptown Greyhound Racing, Inc. ("Camptown"), KGP
has been granted the exclusive right to operate gaming devices and/or
casino-type gaming at Camptown's facility if and when such gaming is permitted
in Kansas. In September 1994, the Kansas Racing Commission approved a revised
financing proposal submitted by Camptown that would facilitate completion of
construction of a greyhound racing facility on the 320 acre site in Frontenac,
Kansas. Camptown has received a $3,205,000 loan commitment which has been
guaranteed by KFP. In December 1994, the Company invested $1,580,000 in KFP for
its portion of the loan guarantee which was made in the form of a certificate of
deposit. The Company owns 50% of the equity of KFP which is accounted for under
the equity method. The Company has not guaranteed the obligations of KFP.
Construction of Camptown's racing facility has been completed and the facility
opened for business in May 1995. Camptown's obligation to begin to repay the
loan guaranteed by KFP commenced in June 1995 with interest only payments.
Principal repayment is scheduled to commence in June 1996. There can be no
assurance as to the successful completion or operation of any part of this
project.
The Company is also involved in various claims and legal actions arising in
the ordinary course of business. Management of the Company believes that the
ultimate outcome of these matters will not have a material adverse effect on the
Company's consolidated financial statements taken as a whole.
11. ACQUISITIONS
On July 12, 1994, the Rainbow Casino located in Vicksburg, Mississippi
permanently opened for business. Through a wholly-owned subsidiary, the Company
originally purchased a 45% limited partnership
F-18
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
11. ACQUISITIONS (CONTINUED)
interest in RCVP, a Mississippi limited partnership which owns the casino, all
assets (including the gaming equipment) associated with the casino and certain
adjacent parcels of land. As consideration for its 45% limited partnership
interest, the Company paid $2,000,000 in cash and issued 600,000 shares of its
common stock to RCC and its two shareholders. The 55% general partnership
interest in RCVP was held by RCC. In connection with the completion of the
casino, the Company funded a $3,250,000 advance to RCC on the same terms as
RCC's financing from Hospitality Franchise Systems, Inc. ("HFS") (other than the
fact that such advance is subordinate to payments due to HFS). On March 29,
1995, the Company consummated certain transactions whereby the Company acquired
from RCC the controlling general partnership interest in RCVP and increased its
partnership interest. In exchange for the assumption by National Gaming
Mississippi, Inc. ("NGM"), a subsidiary of National Gaming Corporation, of
approximately $1,140,000 of liabilities (plus a financing fee payable to HFS)
related to the completion of certain incomplete elements of the project which
survived the opening of the casino (for which RCC was to have been responsible,
but failed to satisfy), a related $652,000 cash payment by the Company to NGM
and commitments by the Company and NGM to fund additional financing required to
complete the project (i) a subsidiary of the Company became the general partner
and RCC became the limited partner and (ii) the respective partnership interests
were adjusted. As a result of these transactions, RCVP assumed $1,304,000 of new
debt of which 50% was payable to the Company. Under the adjusted partnership
interests, RCC is entitled to receive 10% of the net available cash flows after
debt service and other items, as defined, (which amount shall increase to 20% of
cash above $35,000,000 (i.e., only on such incremental amount)), for a period of
15 years, such period being subject to one year extensions for each year in
which a minimum payment of $50,000 is not made. This transaction was accounted
for as an acquisition using the purchase method. Accordingly, the purchase price
was allocated to assets acquired based on their estimated fair values. This
treatment resulted in no cost in excess of net assets acquired (goodwill) being
recognized. The Rainbow Casino's results of operations have been included in the
consolidated results of operations since the date of acquisition.
The following summarized, unaudited pro forma results of operations for the
fiscal year ended June 30, 1995, assume the complete acquisition of RCVP
occurred on the date the casino permanently opened for business:
<TABLE>
<CAPTION>
1995
-------------------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNT)
<S> <C>
Revenues........................................................................... $ 142,051
Net loss........................................................................... (10,862)
Net loss per common share.......................................................... (0.96)
</TABLE>
12. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating financial statements are presented to provide
information regarding Alliance Gaming Corporation (the Parent) and its
wholly-owned "Guaranteeing Subsidiaries" and its non-wholly-owned "Pledging
Subsidiaries," VSI and Rainbow. The "Pledging Subsidiaries" are shown separately
because all of the Company's interest in these entities is pledged as collateral
for the Senior Secured Notes. The notes to consolidating financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto.
F-19
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEETS
JUNE 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 34,750 $ 2,335 $ -- $ 37,085
Securities available for sale............................. 12,489 -- -- 12,489
Receivables, net.......................................... 5,821 103 -- 5,924
Inventories............................................... 661 -- -- 661
Prepaid expenses.......................................... 3,715 705 -- 4,420
Refundable income taxes................................... -- 361 -- 361
Other..................................................... 29 1 -- 30
------------ ----------- ----------- -----------
Total current assets.................................... 57,465 3,505 -- 60,970
------------ ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements..................................... 3,229 -- -- 3,229
Building and improvements................................. 4,286 -- -- 4,286
Gaming equipment.......................................... 28,547 4,267 (2,419) 30,395
Furniture, fixtures and equipment......................... 8,961 671 -- 9,632
Leasehold improvements.................................... 4,743 479 -- 5,222
Construction in progress.................................. 212 -- -- 212
------------ ----------- ----------- -----------
49,978 5,417 (2,419) 52,976
Less accumulated depreciation and amortization............ (25,198) (1,281) 2,186 (24,293)
------------ ----------- ----------- -----------
Property and equipment, net............................. 24,780 4,136 (233) 28,683
------------ ----------- ----------- -----------
OTHER ASSETS:
Receivables, net.......................................... 4,609 -- -- 4,609
Excess of costs over net assets of an acquired business,
net of accumulated amortization.......................... 3,789 -- -- 3,789
Intangible assets, net of accumulated amortization........ 13,145 382 -- 13,527
Deferred tax assets....................................... 797 284 -- 1,081
Investment in minority owned subsidiary................... 6,287 -- (4,287) 2,000
Other..................................................... 5,057 (113) (187) 4,757
------------ ----------- ----------- -----------
Total other assets...................................... 33,684 553 (4,474) 29,763
------------ ----------- ----------- -----------
$ 115,929 $ 8,194 $ (4,707) $ 119,416
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
(Continued)
See accompanying notes.
F-20
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEETS--(CONTINUED)
JUNE 30, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................... $ 324 $ 1,180 $ -- $ 1,504
Accounts payable........................................ 1,508 153 -- 1,661
Accrued expenses........................................ 6,154 725 -- 6,879
------------ ----------- ----------- -----------
Total current liabilities............................. 7,986 2,058 -- 10,044
------------ ----------- ----------- -----------
Long-term debt, less current maturities................... 85,807 3,415 -- 89,222
Deferred tax liabilities.................................. 797 421 -- 1,218
Other liabilities......................................... 3,387 -- 200 3,587
------------ ----------- ----------- -----------
Total liabilities..................................... 97,977 5,894 200 104,071
------------ ----------- ----------- -----------
Commitments and contingencies
Minority interest......................................... -- 245 1 246
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock......................................... 3,084 -- (3,084) --
Common stock, $.10 par value; authorized 175,000,000
shares................................................. 1,169 2 (120) 1,051
Special stock, $.10 par value; authorized 10,000,000
shares................................................. 133 -- -- 133
Paid-in capital......................................... 26,966 1,454 (1,704) 26,716
Unrealized loss on securities available for sale, net... (421) -- -- (421)
Accumulated (deficit) earnings.......................... (12,979) 599 -- (12,380)
------------ ----------- ----------- -----------
Total stockholders' equity (deficiency)............... 17,952 2,055 (4,908) 15,099
------------ ----------- ----------- -----------
$ 115,929 $ 8,194 $ (4,707) $ 119,416
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEETS
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,234 $ 5,500 $ -- $ 13,734
Securities available for sale............................. 23,680 -- -- 23,680
Receivables, net.......................................... 4,322 50 (1,056) 3,316
Inventories............................................... 700 14 -- 714
Prepaid expenses.......................................... 3,345 803 -- 4,148
Refundable income taxes................................... -- 361 -- 361
Other..................................................... 150 6 -- 156
------------ ----------- ----------- -----------
Total current assets.................................... 40,431 6,734 (1,056) 46,109
------------ ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements..................................... 3,230 14,066 -- 17,296
Building and improvements................................. 4,659 4,163 -- 8,822
Gaming equipment.......................................... 30,465 7,706 (1,775) 36,396
Furniture, fixtures and equipment......................... 9,351 2,231 -- 11,582
Leasehold improvements.................................... 4,889 483 -- 5,372
Construction in progress.................................. 17 13 -- 30
------------ ----------- ----------- -----------
52,611 28,662 (1,775) 79,498
Less accumulated depreciation and amortization............ (28,528) (2,393) 1,775 (29,146)
------------ ----------- ----------- -----------
Property and equipment, net............................. 24,083 26,269 -- 50,352
------------ ----------- ----------- -----------
OTHER ASSETS:
Receivables, net.......................................... 9,839 -- (4,530) 5,309
Excess of costs over net assets of an acquired business,
net of accumulated amortization.......................... 3,864 -- (22) 3,842
Intangible assets, net of accumulated amortization........ 12,153 230 22 12,405
Deferred tax assets....................................... 1,399 -- -- 1,399
Investment in minority owned subsidiary................... 10,235 -- (8,650) 1,585
Other..................................................... 5,485 282 (420) 5,347
------------ ----------- ----------- -----------
Total other assets...................................... 42,975 512 (13,600) 29,887
------------ ----------- ----------- -----------
$ 107,489 $ 33,515 $ (14,656) $ 126,348
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
(Continued)
See accompanying notes.
F-22
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEETS--(CONTINUED)
JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................... $ 186 $ 4,419 $ (610) $ 3,995
Accounts payable........................................ 1,254 504 -- 1,758
Accrued expenses........................................ 6,683 2,373 (446) 8,610
------------ ----------- ----------- -----------
Total current liabilities............................. 8,123 7,296 (1,056) 14,363
------------ ----------- ----------- -----------
Long-term debt, less current maturities................... 85,219 16,438 (4,255) 97,402
Deferred tax liabilities.................................. 281 924 -- 1,205
Other liabilities......................................... 3,766 4,665 (5,681) 2,750
------------ ----------- ----------- -----------
Total liabilities..................................... 97,389 29,323 (10,992) 115,720
------------ ----------- ----------- -----------
Commitments and contingencies
Minority interest......................................... -- 642 1 643
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock......................................... 253 -- (253) --
Common stock, $.10 par value; authorized 175,000,000
shares................................................. 1,283 2 (120) 1,165
Special stock, $.10 par value; authorized 10,000,000
shares................................................. 133 -- -- 133
Paid-in capital......................................... 33,971 1,455 (3,292) 32,134
Unrealized loss on securities available for sale, net... (316) -- -- (316)
Accumulated (deficit) earnings.......................... (25,224) 2,093 -- (23,131)
------------ ----------- ----------- -----------
Total stockholders' equity (deficiency)............... 10,100 3,550 (3,665) 9,985
------------ ----------- ----------- -----------
$ 107,489 $ 33,515 $ (14,656) $ 126,348
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-23
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Gaming:
Routes................................................ $ 84,726 $ 12,168 $ (612) $ 96,282
Casinos and taverns................................... 12,887 -- (361) 12,526
Food and beverage sales................................. 5,756 -- (1,572) 4,184
Net equipment sales..................................... 99 -- -- 99
------------ ----------- ----------- -----------
103,468 12,168 (2,545) 113,091
------------ ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of gaming:
Routes................................................ 64,780 8,446 (612) 72,614
Casinos and taverns................................... 9,028 -- (361) 8,667
Cost of food and beverage............................... 2,876 -- -- 2,876
Cost of equipment sales................................. 49 -- -- 49
Selling, general & administrative....................... 11,634 2,337 (1,304) 12,667
Business development expenses........................... 900 -- -- 900
Corporate expenses...................................... 6,191 -- -- 6,191
Bad debt expense........................................ 461 -- -- 461
Depreciation and amortization........................... 8,000 718 -- 8,718
------------ ----------- ----------- -----------
103,919 11,501 (2,277) 113,143
------------ ----------- ----------- -----------
Operating (loss) income................................... (451) 667 (268) (52)
------------ ----------- ----------- -----------
Other income (expense):
Interest income......................................... 977 21 -- 998
Interest expense........................................ (4,315) (731) -- (5,046)
Other, net.............................................. 122 60 268 450
------------ ----------- ----------- -----------
(Loss) income before income taxes......................... (3,667) 17 -- (3,650)
Income tax expense........................................ -- -- -- --
------------ ----------- ----------- -----------
Net (loss) income......................................... $ (3,667) $ 17 $ -- $ (3,650)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-24
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Gaming:
Routes................................................ $ 86,268 $ 17,389 $ (827) $ 102,830
Casinos and taverns................................... 16,150 -- (471) 15,679
Food and beverage sales................................. 6,306 -- (1,826) 4,480
Net equipment sales..................................... 65 -- -- 65
------------ ----------- ----------- -----------
108,789 17,389 (3,124) 123,054
------------ ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of gaming:
Routes................................................ 65,971 11,214 (853) 76,332
Casinos and taverns................................... 12,316 -- (445) 11,871
Cost of food and beverage............................... 3,084 -- -- 3,084
Cost of equipment sales................................. 20 -- -- 20
Selling, general & administrative....................... 12,344 2,884 (1,673) 13,555
Business development expenses........................... 1,192 -- -- 1,192
Corporate expenses...................................... 7,882 -- -- 7,882
Bad debt expense........................................ 705 -- -- 705
Loss on abandoned small casinos......................... 3,713 -- -- 3,713
Loss on abandoned taverns............................... 2,638 -- -- 2,638
Depreciation and amortization........................... 8,652 878 -- 9,530
------------ ----------- ----------- -----------
118,517 14,976 (2,971) 130,522
------------ ----------- ----------- -----------
Operating (loss) income................................... (9,728) 2,413 (153) (7,468)
Other income (expense):
Interest income......................................... 2,049 35 -- 2,084
Interest expense........................................ (6,173) (657) -- (6,830)
Minority share of income................................ -- (506) -- (506)
Other, net.............................................. (498) 178 153 (167)
------------ ----------- ----------- -----------
(Loss) income before income taxes......................... (14,350) 1,463 -- (12,887)
Income tax expense........................................ -- (241) -- (241)
------------ ----------- ----------- -----------
Net (loss) income......................................... $ (14,350) $ 1,222 $ -- $ (13,128)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-25
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ --------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Gaming:
Routes............................................. $ 92,007 $ 15,592 $ (772) $ 106,827
Casinos and taverns................................ 14,997 6,759 (469) 21,287
Food and beverage sales.............................. 5,522 207 (1,882) 3,847
Net equipment sales.................................. 27 -- -- 27
------------ --------------- ----------- -----------
112,553 22,558 (3,123) 131,988
------------ --------------- ----------- -----------
COSTS AND EXPENSES:
Cost of gaming:
Routes............................................. 70,637 10,015 (777) 79,875
Casinos and taverns................................ 9,155 2,698 (417) 11,436
Cost of food and beverage............................ 2,712 83 -- 2,795
Cost of equipment sales.............................. 12 -- -- 12
Selling, general & administrative.................... 12,011 4,208 (1,586) 14,633
Business development expenses........................ 7,843 -- -- 7,843
Corporate expenses................................... 9,735 -- -- 9,735
Bad debt expense..................................... 387 13 -- 400
Depreciation and amortization........................ 8,175 1,345 -- 9,520
------------ --------------- ----------- -----------
120,667 18,362 (2,780) 136,249
------------ --------------- ----------- -----------
Operating (loss) income................................ (8,114) 4,196 (343) (4,261)
Other income (expense):
Interest income...................................... 2,786 115 (103) 2,798
Interest expense..................................... (7,131) (1,106) 104 (8,133)
Minority share of income............................. -- (397) -- (397)
Equity in income of affiliate........................ 31 -- -- 31
Other, net........................................... (251) (615) 342 (524)
------------ --------------- ----------- -----------
(Loss) income before income taxes...................... (12,679) 2,193 -- (10,486)
Income tax benefit (expense)........................... 434 (699) -- (265)
------------ --------------- ----------- -----------
Net (loss) income...................................... $ (12,245) $ 1,494 $ -- $ (10,751)
------------ --------------- ----------- -----------
------------ --------------- ----------- -----------
</TABLE>
See accompanying notes.
F-26
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................. $ (3,667) $ 17 $ -- $ (3,650)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 8,000 718 -- 8,718
Write-off of other assets................................... 149 -- -- 149
Provision for losses on receivables......................... 461 -- -- 461
Amortization of debt discounts.............................. 41 224 -- 265
Net change in operating assets and liabilities:
(Increase) decrease in:
Inventories................................................. (233) -- -- (233)
Prepaid expenses............................................ 1,375 100 -- 1,475
Refundable income taxes..................................... 766 -- -- 766
Other....................................................... 313 (8) -- 305
Increase (decrease) in:
Accounts and slot contracts payable......................... (753) (1,625) -- (2,378)
Other liabilities, including minority interest.............. (153) -- -- (153)
Accrued expenses............................................ (185) (38) 407 184
------------- ----------- ----- -----------
Net cash (used in) provided by operating activities....... 6,114 (612) 407 5,909
------------- ----------- ----- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................... (4,583) (509) -- (5,092)
Proceeds from sale of property and equipment.................. 257 -- -- 257
Additions to receivables...................................... (8,749) (83) 117 (8,715)
Cash collections on receivables............................... 8,728 2 (805) 7,925
Additions to intangible assets................................ (77) -- -- (77)
Additions to other long-term assets........................... (3,853) (2) 559 (3,296)
------------- ----------- ----- -----------
Net cash (used in) provided by investing activities....... (8,277) (592) (129) (8,998)
------------- ----------- ----- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of expenses................. 285 1,656 -- 1,941
Issuance of common stock warrants............................. -- 559 -- 559
Reduction of long-term debt................................... (1,377) (1,071) 281 (2,167)
Issuance of common stock...................................... 2,656 -- (559) 2,097
------------- ----------- ----- -----------
Net cash (used in) provided by financing activities....... 1,564 1,144 (278) 2,430
------------- ----------- ----- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for year.................................. (599) (60) -- (659)
Balance, beginning of year.................................... 7,922 2,317 -- 10,239
------------- ----------- ----- -----------
Balance, end of year...................................... $ 7,323 $ 2,257 $ -- $ 9,580
------------- ----------- ----- -----------
------------- ----------- ----- -----------
</TABLE>
See accompanying notes.
F-27
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................. $ (14,350) $ 1,222 $ -- $ (13,128)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 8,652 878 -- 9,530
Loss on abandoned casinos................................... 3,713 -- -- 3,713
Loss on abandoned taverns................................... 2,638 -- -- 2,638
Write-off of other assets................................... 1,793 24 -- 1,817
Provision for losses on receivables......................... 705 -- -- 705
Amortization of debt discounts.............................. 46 246 -- 292
Net change in operating assets and liabilities:
(Increase) decrease in:
Inventories................................................. 78 -- -- 78
Prepaid expenses............................................ (211) (308) -- (519)
Refundable income taxes..................................... -- (361) -- (361)
Other....................................................... 246 8 -- 254
Increase (decrease) in:
Accounts and slot contracts payable......................... 548 (279) -- 269
Accrued and deferred income taxes........................... -- 137 -- 137
Other liabilities, including minority interest.............. 4 507 -- 511
Accrued expenses............................................ 2,996 130 -- 3,126
Intercompany accounts....................................... (122) 122 -- --
------------- ----------- ----------- -----------
Net cash (used in) provided by operating activities....... 6,736 2,326 -- 9,062
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................... (4,061) (1,324) -- (5,385)
Proceeds from sale of property and equipment.................. 368 1,098 -- 1,466
Additions to receivables...................................... (15,933) (2,868) -- (18,801)
Cash collections on receivables............................... 22,746 2,860 (8,065) 17,541
Acquisition of securities available for sale.................. (12,910) -- -- (12,910)
Acquisition of partnership interests.......................... (2,000) -- -- (2,000)
Additions to intangible assets................................ (5,179) -- -- (5,179)
Additions to other long-term assets........................... (1,664) (325) (42) (2,031)
------------- ----------- ----------- -----------
Net cash (used in) investing activities................... (18,633) (559) (8,107) (27,299)
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of expenses................. 81,484 500 -- 81,984
Issuance of common stock warrants............................. 116 -- -- 116
Reduction of long-term debt................................... (47,694) (2,189) 8,107 (41,776)
Issuance of special stock, net of costs....................... 4,799 -- -- 4,799
Issuance of common stock...................................... 619 -- -- 619
------------- ----------- ----------- -----------
Net cash (used in) provided by financing activities....... 39,324 (1,689) 8,107 45,742
------------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for year.................................. 27,427 78 -- 27,505
Balance, beginning of year.................................... 7,323 2,257 -- 9,580
------------- ----------- ----------- -----------
Balance, end of year...................................... $ 34,750 $ 2,335 $ -- $ 37,085
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-28
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................. $ (12,245) $ 1,494 $ -- $ (10,751)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 8,175 1,345 -- 9,520
Write-off of other assets................................... 2,892 (96) -- 2,796
Provision for losses on receivables......................... 387 13 -- 400
Amortization of debt discounts.............................. 62 235 -- 297
Undistributed earnings of affiliate......................... (31) -- -- (31)
Non-cash stock compensation expense......................... 1,313 -- -- 1,313
Net change in operating assets and liabilities:
(Increase) decrease in:
Inventories................................................. (40) -- -- (40)
Prepaid expenses............................................ 377 4 -- 381
Other....................................................... (126) -- -- (126)
Increase (decrease) in:
Accounts and slot contracts payable......................... (254) (193) -- (447)
Accrued and deferred income taxes........................... (227) 90 -- (137)
Other liabilities, including minority interest.............. -- 397 -- 397
Accrued expenses............................................ 722 (302) (3,035) (2,615)
Intercompany accounts....................................... 37 (37) -- --
------------- ----------- ----------- -----------
Net cash (used in) provided by operating activities....... 1,042 2,950 (3,035) 957
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................... (7,643) (1,244) -- (8,887)
Proceeds from sale of property and equipment.................. 225 126 -- 351
Additions to receivables...................................... (8,765) (205) -- (8,970)
Cash collections on receivables............................... 10,295 271 (251) 10,315
Net cash provided by acquisition of business.................. -- 2,481 -- 2,481
Acquisition of securities available for sale.................. (11,086) -- -- (11,086)
Acquisition of partnership interests.......................... (1,585) -- -- (1,585)
Additions to intangible assets................................ (390) -- -- (390)
Additions to other long-term assets........................... (7,452) -- 3,575 (3,877)
------------- ----------- ----------- -----------
Net cash (used in) provided by investing activities....... (26,401) 1,429 3,324 (21,648)
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of expenses................. -- 1,504 (1,504) --
Reduction of long-term debt................................... (579) (2,718) 172 (3,125)
Issuance of common stock...................................... (578) -- 1,043 465
------------- ----------- ----------- -----------
Net cash (used in) provided by financing activities....... (1,157) (1,214) (289) (2,660)
------------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for year.................................. (26,516) 3,165 -- (23,351)
Balance, beginning of year.................................... 34,750 2,335 -- 37,085
------------- ----------- ----------- -----------
Balance, end of year...................................... $ 8,234 $ 5,500 $ -- $ 13,734
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-29
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
These notes to consolidating financial statements should be read in
conjunction with the consolidated financial statements and notes thereto.
Certain reclassifications have been made to prior years' financial
statements to conform with the current year presentation.
RECEIVABLES
Aggregate receivables at June 30, 1994 (in thousands) consist of the
following:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Notes receivable-location
operators......................... $ 8,319 $-- $-- $ 8,319
Other receivables.................. 2,111 103 -- 2,214
------------ ------------ ----------- -------
10,430 103 -- 10,533
Less current amounts............... (5,821) (103) -- (5,924)
------------ ------------ ----------- -------
Long-term receivables, excluding
current amounts................... $ 4,609 $-- $-- $ 4,609
------------ ------------ ----------- -------
------------ ------------ ----------- -------
</TABLE>
Aggregate receivables at June 30, 1995 (in thousands) consist of the
following:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Notes receivable-location
operators......................... $ 7,760 $-- $-- $ 7,760
Other receivables.................. 6,401 50 (5,586) 865
------------ ----- ----------- -------
14,161 50 (5,586) 8,625
Less current amounts............... (4,322) (50) 1,056 (3,316)
------------ ----- ----------- -------
Long-term receivables, excluding
current amounts................... $ 9,839 $-- $(4,530) $ 5,309
------------ ----- ----------- -------
------------ ----- ----------- -------
</TABLE>
LONG-TERM DEBT
Aggregate long-term debt at June 30, 1994 (in thousands) was as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
7.5% Convertible subordinated
debentures due 2003, unsecured.... $85,000 $-- $-- $85,000
Due to stockholder, net of discount
of $983,709 secured by the assets
of VSI............................ -- 4,390 -- 4,390
Other, secured by related
equipment......................... 1,131 205 -- 1,336
------------ ------ ----------- -------
86,131 4,595 -- 90,726
Less current maturities............ (324) (1,180) -- (1,504)
------------ ------ ----------- -------
Long-term debt, less current
maturities........................ $85,807 $3,415 $-- $89,222
------------ ------ ----------- -------
------------ ------ ----------- -------
</TABLE>
F-30
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
Aggregate long-term debt at June 30, 1995 (in thousands) was as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
7.5% Convertible subordinated
debentures due 2003, unsecured.... $85,000 $-- $-- $85,000
Due to stockholder, net of discount
of $747,619 secured by the assets
of VSI............................ -- 3,309 -- 3,309
Hospitality Franchise Systems,
secured by the assets of Rainbow
Vicksburg......................... -- 9,065 -- 9,065
Other, secured by related
equipment......................... 405 8,483 (4,865) 4,023
------------ ------------ ----------- -------
85,405 20,857 (4,865) 101,397
Less current maturities............ (186) (4,419) 610 (3,995)
------------ ------------ ----------- -------
Long-term debt, less current
maturities........................ $85,219 $16,438 $(4,255) $97,402
------------ ------------ ----------- -------
------------ ------------ ----------- -------
</TABLE>
Aggregate annual maturities of long-term debt for the five years subsequent
to June 30, 1995 (in thousands) are as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
1996............................... $ 186 $ 4,419 (610) $ 3,995
1997............................... 98 4,493 (664) 3,927
1998............................... 70 3,475 (720) 2,825
1999............................... 51 2,401 (782) 1,670
2000............................... -- 2,572 (849) 1,723
Thereafter......................... 85,000 3,497 (1,240) 87,257
</TABLE>
F-31
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
INCOME TAXES
The federal and state income tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and liabilities for the
year ended June 30, 1994 are as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
NOL Carryforwards................ $ 8,495 $-- $-- $ 8,495
Inventory Obsolescence Reserve... 578 -- -- 578
Receivables, Bad Debt
Allowance....................... 472 -- -- 472
Organization and Start-up
Costs........................... -- 267 -- 267
Reserves for abandoned
projects........................ 1,577 -- -- 1,577
Other............................ 307 17 (17) 307
------------ ------ ----------- -------
Total gross deferred tax assets.... 11,429 284 (17) 11,696
Less: Valuation allowance.......... (10,632) -- 17 (10,615)
------------ ------ ----------- -------
Net deferred tax assets............ 797 284 -- 1,081
------------ ------ ----------- -------
DEFERRED TAX LIABILITIES:
Property and equipment,
principally due to
depreciation.................... 797 421 -- 1,218
------------ ------ ----------- -------
Total gross deferred tax
liabilities....................... 797 421 -- 1,218
------------ ------ ----------- -------
Net deferred tax (liabilities)..... $ -- $ (137) $-- $ (137)
------------ ------ ----------- -------
------------ ------ ----------- -------
</TABLE>
The federal and state income tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and liabilities for the
year ended June 30, 1995 are as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
NOL Carryforwards................ $ 12,470 $-- $-- $12,470
Inventory Obsolescence Reserve... 179 -- -- 179
Receivables, Bad Debt
Allowance....................... 550 14 -- 564
Organization and Start-up
Costs........................... -- 172 -- 172
Reserves for abandoned
projects........................ 1,356 -- -- 1,356
Other............................ 458 108 -- 566
------------ ----- ----------- -------
Total gross deferred tax assets.... 15,013 294 -- 15,307
Less: Valuation allowance.......... (13,908) -- -- (13,908)
------------ ----- ----------- -------
Net deferred tax assets............ 1,105 294 -- 1,399
------------ ----- ----------- -------
DEFERRED TAX LIABILITIES:
Property and equipment,
principally due to
depreciation.................... 475 924 -- 1,399
------------ ----- ----------- -------
Total gross deferred tax
liabilities ($194 is included in
other liabilities)................ 475 924 -- 1,399
------------ ----- ----------- -------
Net deferred tax assets
(liabilities)..................... $ 630 $(630) $-- $--
------------ ----- ----------- -------
------------ ----- ----------- -------
</TABLE>
The Rainbow Casino Vicksburg Partnership L.P. has been consolidated since
March 29, 1995, and as a partnership its earnings are passed through to the
partnership principals.
F-32
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
COMMITMENTS AND CONTINGENCIES
Operating lease rental expense, including contingent lease rentals, for the
year ended June 30, 1993 was as follows:
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Minimum rentals.................... $11,626 $ 101 -- $11,727
Contingent rentals................. 46,151 3,470 -- 49,621
------------ ------ ----------- ------------
57,777 3,571 -- 61,348
Sublease rental income............. (850) -- -- (850)
------------ ------ ----------- ------------
$56,927 $3,571 -- $60,498
------------ ------ ----------- ------------
------------ ------ ----------- ------------
</TABLE>
Operating lease rental expense, including contingent lease rentals, for the
year ended June 30, 1994 was as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Minimum rentals.................... $13,655 $ 88 -- $13,743
Contingent rentals................. 50,797 5,113 -- 55,910
------------ ------ ----------- -------
64,452 5,201 -- 69,653
Sublease rental income............. (1,004) -- -- (1,004)
------------ ------ ----------- -------
$63,448 $5,201 -- $68,649
------------ ------ ----------- -------
------------ ------ ----------- -------
</TABLE>
Operating lease rental expense, including contingent lease rentals, for the
year ended June 30, 1995 was as follows:
<TABLE>
<CAPTION>
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Minimum rentals.................... $ 9,611 $ 98 $ (5) $ 9,704
Contingent rentals................. 54,406 4,479 (772) 58,113
------------ ------ ----------- -------
64,017 4,577 (777) 67,817
Sublease rental income............. (1,192) -- -- (1,192)
------------ ------ ----------- -------
$62,825 $4,577 $ (777) $66,625
------------ ------ ----------- -------
------------ ------ ----------- -------
</TABLE>
F-33
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
Future minimum rentals under non-cancelable operating leases at June 30,
1995 (in thousands) are as follows:
<TABLE>
<CAPTION>
TOTAL MINIMUM RENTAL
------------------------------------------------------------
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30
1996............................... $ 8,733 $95 -- $ 8,828
1997............................... 6,369 93 -- 6,462
1998............................... 6,166 7 -- 6,173
1999............................... 5,623 -- -- 5,623
2000............................... 3,737 -- -- 3,737
Thereafter......................... 34,349 -- -- 34,349
--
------------ ----- -------
$64,977 $195 -- $65,172
--
--
------------ ----- -------
------------ ----- -------
<CAPTION>
SUBLEASE INCOME
------------------------------------------------------------
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30
1996............................... $ 921 -- -- $ 921
1997............................... 842 -- -- 842
1998............................... 809 -- -- 809
1999............................... 758 -- -- 758
2000............................... 598 -- -- 598
Thereafter......................... 2,757 -- -- 2,757
--
------------ ----- -------
$ 6,685 -- -- $ 6,685
--
--
------------ ----- -------
------------ ----- -------
<CAPTION>
NET MINIMUM RENTALS
------------------------------------------------------------
ALLIANCE
PARENT AND GAMING
GUARANTEEING PLEDGING CORPORATION
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS AND SUBSIDIARIES
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30
1996............................... $ 7,812 $95 -- $ 7,907
1997............................... 5,527 93 -- 5,620
1998............................... 5,357 7 -- 5,364
1999............................... 4,865 -- -- 4,865
2000............................... 3,139 -- -- 3,139
Thereafter......................... 31,592 -- -- 31,592
--
------------ ----- -------
$58,292 $195 -- $58,487
--
--
------------ ----- -------
------------ ----- -------
</TABLE>
F-34
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1996
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and securities available for sale............................... $ 37,414 $ 25,562
Receivables, net....................................................................... 3,316 2,060
Inventories............................................................................ 714 661
Prepaid expenses....................................................................... 4,148 3,289
Other.................................................................................. 517 486
---------- -----------
Total current assets................................................................. 46,109 32,058
---------- -----------
Property and equipment, net.............................................................. 50,352 52,065
Receivables, net......................................................................... 5,309 5,600
Excess of costs over net assets of an acquired business, net of accumulated
amortization............................................................................ 3,842 2,074
Intangible assets, net of accumulated amortization....................................... 12,405 11,273
Investment in minority owned subsidiary.................................................. 1,585 --
Other.................................................................................... 6,746 8,218
---------- -----------
Total assets....................................................................... $ 126,348 $ 111,288
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt................................................... $ 3,995 $ 4,041
Accounts payable....................................................................... 1,758 2,089
Accrued expenses, including due to related parties..................................... 8,610 10,345
---------- -----------
Total current liabilities............................................................ 14,363 16,475
Long-term debt, less current maturities.................................................. 97,402 95,048
Other liabilities........................................................................ 3,955 4,325
---------- -----------
Total liabilities.................................................................... 115,720 115,848
---------- -----------
Commitments and contingencies
Minority interest........................................................................ 643 1,035
Stockholders' equity (deficiency):
Common stock, $.10 par value; authorized 175,000,000 shares; issued and outstanding
11,654,150 and 12,987,483........................................................... 1,165 1,298
Special stock, $.10 par value; authorized 10,000,000 shares; issued and outstanding
1,333,333 and 0..................................................................... 133 --
Paid-in capital...................................................................... 32,134 32,134
Unrealized loss on securities available for sale, net................................ (316) (1,067)
Accumulated deficit.................................................................. (23,131) (37,960)
---------- -----------
Total stockholders' equity (deficiency).............................................. 9,985 (5,595)
---------- -----------
Total liabilities and stockholders' equity (deficiency)............................ $ 126,348 $ 111,288
---------- -----------
---------- -----------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-35
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Revenues:
Gaming:
Routes................................................................................. $ 79,389 $ 81,111
Casinos and taverns.................................................................... 11,523 32,698
Food and beverage sales.................................................................. 2,842 2,976
Net equipment sales...................................................................... 22 11
--------- ----------
93,776 116,796
--------- ----------
Costs and expenses:
Cost of gaming:
Routes................................................................................. 59,411 62,293
Casinos and taverns.................................................................... 6,743 14,726
Cost of food and beverage................................................................ 2,038 1,992
Cost of equipment sales.................................................................. 10 3
Selling, general and administrative...................................................... 9,279 14,308
Business development expenses............................................................ 5,647 14,233
Corporate expenses....................................................................... 6,258 4,606
Provision for impaired assets............................................................ -- 3,179
Depreciation and amortization............................................................ 6,934 7,328
--------- ----------
96,320 122,668
--------- ----------
Operating loss........................................................................... (2,544) (5,872)
Other income (expense):
Interest income.......................................................................... 2,235 1,206
Interest expense......................................................................... (5,844) (6,341)
Minority share of income................................................................. (252) (708)
Royalty fee.............................................................................. (27) (2,931)
Other, net............................................................................... 33 398
--------- ----------
Loss before income taxes................................................................... (6,399) (14,248)
Income tax expense......................................................................... (394) (581)
--------- ----------
Net loss................................................................................... $ (6,793) $ (14,829)
--------- ----------
--------- ----------
Loss per share of common stock............................................................. $ (.61) $ (1.21)
--------- ----------
--------- ----------
Weighted average common shares outstanding................................................. 11,192 12,245
--------- ----------
--------- ----------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-36
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................ $ (6,793) $ (14,829)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization......................................................... 6,934 7,328
Loss on sale of property and equipment................................................ 825 277
Write off of other assets............................................................. 1,620 396
Provision for losses on receivables................................................... 380 46
Amortization of debt discounts........................................................ 237 177
Equity in losses of affiliate......................................................... 386 --
Provision for impaired assets......................................................... -- 3,179
Deferred income tax provision......................................................... -- 388
Net change in operating assets and liabilities:
Decrease (increase) in:
Inventories........................................................................... (14) 23
Prepaid expenses...................................................................... 1,627 864
Refundable income taxes............................................................... -- 361
Other assets.......................................................................... (47) 201
Increase (decrease) in:
Accounts and slot contracts payable................................................... (271) 331
Accrued expenses...................................................................... (4,163) 735
Minority interests.................................................................... 251 392
Other liabilities..................................................................... (805) (402)
---------- ----------
Net cash (used in) provided by operating activities................................. 167 (533)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment..................................................... (7,816) (6,624)
Proceeds from sale of property and equipment............................................ 328 2,213
Additions to receivables................................................................ (10,251) (9,303)
Cash collections on receivables......................................................... 11,063 9,774
Net cash provided by acquisition of business............................................ 2,481 --
Investment in subsidiary................................................................ (1,585) --
Proceeds from sale (purchase) of securities available for sale.......................... (577) 12,950
Additions to intangible assets.......................................................... (282) (487)
Additions to other long-term assets..................................................... (3,152) (3,268)
---------- ----------
Net cash (used in) provided by investing activities................................... (9,791) 5,255
---------- ----------
Cash flows from financing activities:
Reduction of long-term debt............................................................. (1,975) (3,167)
Proceeds from long-term debt............................................................ -- 682
Issuance of stock....................................................................... 466 --
---------- ----------
Net cash (used in) financing activities............................................... (1,509) (2,485)
---------- ----------
Cash and cash equivalents:
Increase (decrease) for period.......................................................... (11,133) 2,237
Balance, beginning of period............................................................ 37,085 13,734
---------- ----------
Balance, end of period................................................................ $ 25,952 $ 15,971
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-37
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
1. ADJUSTMENTS FOR FAIR PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, including normal recurring adjustments,
necessary to present fairly the financial condition, results of operations and
cash flows of the Company for the respective periods presented. The results of
operations for an interim period are not necessarily indicative of the results
to be expected for a full year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying condensed
consolidated financial statements be read in conjunction with the financial
statements and notes in the Company's annual report on Form 10-K. All
intercompany accounts and transactions have been eliminated in consolidation.
2. RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial
statements to conform with current period presentations.
3. CASH, CASH EQUIVALENTS AND SECURITIES AVAILABLE FOR SALE
For balance sheet presentation the following account balances have been
combined:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
--------- -----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents............................................... $ 13,734 $ 15,971
Securities available for sale........................................... 23,680 9,591
--------- -----------
Total................................................................... $ 37,414 $ 25,562
--------- -----------
--------- -----------
</TABLE>
As of March 31, 1996 unrealized losses for securities available for sale was
$1,067,000 net of a tax effect of $550,000 and is included as a component of
stockholders' equity.
4. RECEIVABLES
The Company's gaming route operations from time to time involve making loans
to location operators in order to participate in revenues over extended periods
of time. These loans, generally made for buildouts, tenant improvements and
initial operating expenses, are generally guaranteed on a full recourse basis by
the location owner and are secured by the assets of the location. The majority
of the loans are interest bearing and are expected to be repaid over a period of
time not to exceed the life of the related revenue sharing agreement. The loans
have varying payment terms requiring either weekly or monthly payments. Annual
interest rates on the loans range from prime plus 1.5% to stated rates of 12%
with various maturity dates ranging through 2007. The loans are expected to be
repaid from the locations' cash flows or proceeds from the sale of the
leaseholds.
Receivables consist of the following:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
--------- -----------
(In thousands)
<S> <C> <C>
Notes receivable--location operators.................................... $ 7,760 $ 6,160
Other receivables....................................................... 865 1,500
--------- -----------
8,625 7,660
Less current amounts.................................................... (3,316) (2,060)
--------- -----------
Long-term receivables, excluding current amounts........................ $ 5,309 $ 5,600
--------- -----------
--------- -----------
</TABLE>
F-38
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
4. RECEIVABLES (CONTINUED)
Receivables are presented net of an allowance for doubtful accounts of
approximately $1,659,000 and $1,363,000 as of June 30, 1995 and March 31, 1996,
respectively. The allowance is allocated between current and long-term
receivables on a pro rata basis related to notes receivable from location
operators.
5. DEBT
Long-term debt at June 30, 1995 and March 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1995 1996
---------- -----------
(In thousands)
<S> <C> <C>
Convertible subordinated debentures due 2003, 7.5%............................... $ 85,000 $ 85,000
Due to stockholder due 1998, 200 basis points over the London Inter Bank Offer
Rate (current rate 7.5%), net of discount of $747,619 and $570,551.............. 3,309 2,535
Hospitality Franchise Systems due 2001, 7.5%..................................... 9,065 8,173
National Gaming Mississippi due 2002, 10.0%...................................... 631 1,188
Other debt....................................................................... 3,392 2,193
---------- -----------
101,397 99,089
Less current maturities.......................................................... 3,995 4,041
---------- -----------
Long-term debt, less current maturities.......................................... $ 97,402 $ 95,048
---------- -----------
---------- -----------
</TABLE>
Accrued interest of approximately $1,991,000 (June 30) and $372,000 (March
31) is included in accrued expenses in the unaudited condensed consolidated
balance sheets. Amounts due to stockholder include amounts owed to affiliates of
Alfred H. Wilms, the Company's largest stockholder and a member of the Board of
Directors of the Company, relating to funding of the Company's
majority-controlled subsidiary, Video Services, Inc.'s ("VSI") gaming device
route operations.
6. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Financial Accounting Standard No. 109 Accounting for Income Taxes. Under the
asset and liability method of Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Due to losses and the lack of available carrybacks, the Company recognized
no federal income tax expense or benefit for the nine-month periods ended March
31, 1996 and 1995 other than the tax effects of changes in the unrealized gains
(losses) on securities available for sale. At March 31, 1996, the Company had
estimated net operating loss carryforwards for federal income tax purposes of
approximately $46,000,000 which are available to offset future federal taxable
income, if any, expiring 2007 through 2009. The deferred tax asset related to
the net operating losses has been fully reserved.
7. IMPAIRED ASSETS
The Company and Casino Magic Corporation, through wholly owned subsidiaries,
are members in Kansas Gaming Partners, L.L.C. ("KGP") and Kansas Financial
Partners, L.L.C. ("KFP"), both Kansas limited liability companies. Under an
option agreement (the "option agreement") granted to KGP by Camptown Greyhound
Racing, Inc. ("Camptown") and The Racing Association of Kansas-Southeast
F-39
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
7. IMPAIRED ASSETS (CONTINUED)
("TRAK Southeast"), KGP has been granted the exclusive right, which right
expires on September 13, 2013, to operate gaming devices and/or casino-type
gaming at Camptown's racing facility in Frontenac, Kansas if and when such
gaming is permitted in Kansas. In December 1994, Camptown received a $3,205,000
loan from Boatmen's Bank which was guaranteed by KFP. The Company and Casino
Magic Corporation each invested $1,580,000 in KFP which was used to purchase a
certificate of deposit to collateralize its guaranty. Construction of Camptown's
racing facility has been completed and the facility opened for business in May
1995. The racing facility was temporarily closed on November 5, 1995 due to poor
financial results. Camptown filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in January 1996 and has stated an intention to reopen for
business following bankruptcy reorganization. Boatmen's Bank demanded payment of
the Camptown loan from KFP under the terms of the guaranty. KFP paid the loan
and Boatmen's Bank returned KFP's certificate of deposit and KFP assumed
Boatmen's Bank's position in the loan to Camptown which is secured by a second
mortgage on Camptown's greyhound racing facility in Frontenac, Kansas. TRAK
Southeast and Camptown continue to be bound by the Option Agreement. KFP intends
to vigorously pursue all of its rights and remedies which may include, among
other things, seeking authority from the bankruptcy court to commence a
foreclosure action. In the case of a foreclosure action, KFP would be required
to assume or pay the existing first mortgage of approximately $2,000,000 if KFP
becomes the purchaser at any such sale. The Kansas legislature considered gaming
bills during the 1996 session although none passed. There can be no assurance
that gaming of any type will ever be legalized in Kansas. Management has
evaluated this investment and determined it to be impaired because it does not
appear to be recoverable. The Company fully reserved the net book value of
approximately $1,585,000 through a charge to operations which has been recorded
in the quarter ended March 31, 1996.
Native American Investments, Inc. ("NAI"), a wholly-owned subsidiary has a
contract to develop Class II and III gaming opportunities with an Indian tribe
in California. Class II gaming is subject to the concurrent jurisdiction of the
National Indian Gaming Commission ("NIGC") and the applicable Indian tribe.
Class III gaming is a residual category composed of all forms of gaming that are
not Class I gaming or Class II gaming, including casino style gaming. The
contract is subject to negotiations resulting in satisfactory compacts with the
state and approval of the contract by the NIGC. The Governor of California has
to date refused to negotiate a compact covering Class III electronic gaming
machines and house-banked games in California and is currently engaged in
related litigation over the scope of gaming issues with certain Indian tribes.
There can be no assurance as to the ultimate outcome of these litigation
activities or successful completion of any part of the Company's project. On
March 27, 1996, the United States Supreme Court ruled that a portion of the
Indian Gaming Regulatory Act was unconstitutional. As a result, Federal courts
cannot oversee negotiations between Indian tribes and state officials. The
Company believes that this ruling will have a materially adverse effect upon its
Native American casino development activities in California. Accordingly,
Management has evaluated this investment and determined it to be impaired
because it now appears to be unrecoverable. Management has fully reserved the
net book value of approximately $1,594,000 through a charge to operations which
has been recorded in the quarter ended March 31, 1996. Management will continue
to monitor the status of Class II and III gaming in California.
8. RAINBOW CASINO VICKSBURG PARTNERSHIP
On July 16, 1994, the Rainbow Casino located in Vicksburg, Mississippi
permanently opened for business. In connection with the completion of the casino
and the acquisition of its 45% limited partnership interest, through a
wholly-owned subsidiary, the Company funded a $3,250,000 advance to Rainbow
Casino Corporation ("RCC") on the same terms as RCC's financing from Hospitality
Franchise Systems, Inc. ("HFS").
On March 29, 1995 the Company consummated certain transactions whereby the
Company acquired from RCC the controlling general partnership interest in
Rainbow Casino Vicksburg Partnership ("RCVP") and increased its partnership
interest and since that date the operations of RCVP have been consolidated. In
F-40
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
8. RAINBOW CASINO VICKSBURG PARTNERSHIP (CONTINUED)
exchange for commitments by the Company and National Gaming Mississippi, Inc.
("NGM"), a subsidiary of National Gaming Corporation, to provide additional
financing (up to a maximum of $2,000,000 each) to be used for the completion of
certain elements of the project which survived the opening of a casino (for
which RCC was to have been responsible for, but failed to satisfy), the
following occurred: (i) a subsidiary of the Company became the general partner
and RCC became the limited partner and (ii) the respective partnership interests
were adjusted. RCC is entitled to receive 10% of the net available cash flows
from gaming revenues, as defined (which amount shall increase to 20% of the
incremental cash flow generated from gaming revenues above $35,000,000 (i.e.
only on such incremental amount)), for a period of 15 years, such period being
subject to one year extensions for each year in which a minimum payment of
$50,000 is not made. In addition, if during any continuous 12-month period until
December 31, 1999 the casino achieved earnings from the project of at least
$10,500,000 before deducting depreciation, amortization, royalty and income
taxes, then the Company would be obligated to pay to certain principals of the
original partnership, as additional consideration for the purchase of the
general partnership interest, an amount aggregating $1,000,000 in cash or shares
of Common Stock (at the Company's option) 180 days after the occurrence. The
casino has achieved the required earnings as adjusted, and the Company is
obligated to make the required payment or issue the Common Stock by September
30, 1996.
9. PROPOSED BGII MERGER TRANSACTION
On October 18, 1995, the Company and Bally Gaming International, Inc.
("BGII") entered into a definitive merger agreement ("Merger") under which the
outstanding shares of BGII common stock would each be exchanged for $13 in cash
and shares of the Company's common stock.
On January 22, 1996, the parties reached an agreement to amend the terms of
the Merger. Under the amended agreement, each share of BGII common stock
outstanding (10,799,501 as of September 30, 1995 less the 1,000,000 shares
already owned by the Company) will receive $7.83 per share in cash, $3.57 per
share in the Company's Series B Special Stock which is a Pay-in-Kind (PIK)
preferred stock, and $0.30 per share of the Company's common stock totaling
$11.70 per share of BGII common stock. The PIK preferred stock has an eight-year
maturity and has a dividend rate of 15% as follows: PIK at 15% for the first
five years; 8% PIK and 7% cash for years six and seven; and 15% cash in the
eighth year of the term. All shares of Series B Special Stock are mandatorily
redeemable by the eighth anniversary of the date of initial issuance. If the
Company fails to redeem such shares by that date, then the number of directors
constituting the Company's Board will be increased by two and the holders of the
shares of Series B Special Stock will have the right to elect no more than two
directors total to the Company's Board. The holders of Series B Special Stock
will have no other remedies upon such failure to redeem the outstanding shares
of Series B Special Stock by such date. Other than as described herein, the
holders of shares of Series B Special Stock have no other voting rights except
as stated by law. The Company intends to seek to have the Series B Special Stock
quoted on NASDAQ. The aggregate amount of cash is unchanged from the previous
agreement.
On April 2, 1996, shareholders of both companies approved the pending
Merger. The Company has filed registration statements with the Securities and
Exchange Commission covering offerings of $140,000,000 senior secured notes and
$15,000,000 Series B Special Stock, the proceeds of which will be used to fund
the cash portion of the consideration of the merger agreement, to refinance
existing BGII debt, and for working capital purposes.
On April 17, 1996, both companies agreed to a Mutual Waiver of Agreement and
Plan of Merger extending the termination date of the Merger until June 18, 1996.
In addition the Company will pay interest at the rate of 5.5% on the cash
portion of the merger consideration to BGII shareholders from May 3, 1996
through the effective date of the transaction. Similarly, the dividend on the
PIK preferred stock portion of the merger consideration will begin accruing on
May 3, 1996. In addition, in order to facilitate completion of
F-41
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
9. PROPOSED BGII MERGER TRANSACTION (CONTINUED)
the offerings, the Company has filed a registration statement in respect of an
offer to exchange for its outstanding convertible subordinated debentures new
convertible subordinated debentures which would be senior to the outstanding
debentures. The new debentures would automatically convert on consummation of
the Merger into shares of the Company's common stock at a conversion price of
$5.56 per share (or, at the option of the holder, into a new series of junior
convertible pay-in-kind preferred stock). The transaction is subject to
obtaining customary regulatory approvals, the successful completion of the
offerings, and certain other conditions. The merger is expected to occur no
later than June 18, 1996.
10. LEGAL PROCEEDINGS
In June 1995, Bally Entertainment Corporation ("BEC") asserted that a
certain agreement between BEC and BGII (the "Noncompete Agreement") prohibits
the use of the trade name "Bally" if it is merged with a company that is in the
casino business within or without the United States and operates such business
prior to January 8, 1996. BGII believes such claim is entirely without merit
since the restriction referred to expires on January 8, 1996 and in any event
does not relate to the use of the "Bally" trade name, which is covered by the
License Agreement. The restriction in the Noncompete Agreement will not have any
impact on the combined company after the Merger since the effective time of the
Merger contemplates a closing of the Merger after the restriction in the
Noncompete Agreement lapses. BEC has not reasserted this position since it was
informed by BGII in July 1995 that the restriction lapses on January 8, 1996.
Consequently, BGII believes BEC has determined not to contest with BGII's
position.
BEC has also asserted that its permission is required for use of the "Bally"
trade name by any entity other than BGII and that a merger between BGII and
another company would violate the terms of the License Agreement. BGII has
denied these claims and believes that the surviving company in a merger will be
permitted to use the "Bally" trade name in accordance with the terms of such
License Agreement. BGII believes that no breach of such License Agreement is
caused by the Merger and the use of the "Bally" trade name by the surviving
corporation. In a letter dated November 9, 1995, BEC reasserted its position. On
November 20, 1995 the Company, the Company's Merger Subsidiary, and BGII
commenced an action against BEC in Federal District Court in Delaware seeking a
declaratory judgment, among other things, that the surviving company in the
Merger will be permitted to use the "Bally" trade name in accordance with the
terms of the License Agreement, and seeking injunctive relief (the "Alliance
Action"). On November 28, 1995, BEC commenced an action against BGII, Bally
Gaming (a BGII subsidiary), the Company, and the Company's Merger Subsidiary in
Federal District Court in New Jersey to enjoin the defendants from using the
"Bally" trade name (the "BEC Action"). The BEC Action alleges that BGII's
continued use of the trade name after the Merger will (1) constitute a
prohibited assignment of BGII's rights to use the trade name and (2) exceed the
scope of the license granted to BGII because BGII will be under control of the
Company. Also on November 28, 1995, BEC filed a motion to dismiss, transfer to
New Jersey, or stay the Alliance Action pending resolution of the BEC Action.
BGII, Bally Gaming, the Company, and the Company's Merger Subsidiary intend to
vigorously defend their position in these actions. However, there can be no
assurance that BEC will not be successful in its action to prohibit the
surviving corporation in the Merger from using the "Bally" trade name. The loss
of the "Bally" trade name may have a material adverse effect on the gaming
machine operations of the surviving corporation in the Merger.
11. INITIAL SERIES SPECIAL STOCK
In September 1993, Kirkland-Ft. Worth Investment Partners, L.P. ("Kirkland")
invested $5,000,000 in the Company in exchange for 1,333,333 shares of the
Company's Non-Voting Junior Convertible Special Stock, which are convertible on
a share for share basis into shares of the Company's Common Stock, and warrants
to purchase up to 2,750,000 shares of common stock subject to certain
conditions. In December 1995, Kirkland elected to convert the entire 1,333,333
shares of Special Stock into shares of the Company's Common Stock.
F-42
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED MARCH 31, 1995 AND 1996
12. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating financial statements are presented to provide
information regarding Alliance Gaming Corporation and its wholly-owned
"Guaranteeing Subsidiaries" and its non-wholly-owned "Pledging Subsidiaries",
VSI and Rainbow. The "Pledging Subsidiaries" shows separately because all of the
Company's interest in these entities is pledged as collateral for the Senior
Secured Notes. The notes to consolidating financial statements should be read in
conjunction with the consolidated financial statements and notes thereto.
F-43
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and securities available for sale.... $ 16,710 $ 8,852 $ -- $ 25,562
Receivables, net............................................ 2,935 134 (1,009) 2,060
Inventories................................................. 651 10 -- 661
Prepaid expenses............................................ 2,521 768 -- 3,289
Other....................................................... 480 6 -- 486
------------ ----------- ----------- -----------
Total current assets...................................... 23,297 9,770 (1,009) 32,058
------------ ----------- ----------- -----------
Property and equipment, net................................... 24,649 27,416 52,065
Receivables, net.............................................. 10,609 -- (5,009) 5,600
Excess of costs over net assets of an acquired business, net
of accumulated amortization.................................. 2,074 -- -- 2,074
Intangible assets, net of accumulated amortization............ 10,808 465 -- 11,273
Investment in minority owned subsidiary....................... 7,862 -- (7,862) --
Other......................................................... 10,965 842 (3,589) 8,218
------------ ----------- ----------- -----------
Total assets.............................................. $ 90,264 $ 38,493 $ (17,469) $ 111,288
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................ $ 134 $ 4,635 $ (728) $ 4,041
Accounts payable............................................ 1,732 357 -- 2,089
Accrued expenses............................................ 7,477 3,148 (280) 10,345
------------ ----------- ----------- -----------
Total current liabilities................................. 9,343 8,140 (1,008) 16,475
Long-term debt, less current maturities....................... 85,179 14,163 (4,294) 95,048
Other liabilities............................................. 8,065 5,350 (9,090) 4,325
------------ ----------- ----------- -----------
Total liabilities......................................... 102,587 27,653 (14.392) 115,848
------------ ----------- ----------- -----------
Commitments and contingencies
Minority interest............................................. -- 1,035 -- 1,035
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock............................................. 252 -- (252) --
Common stock, $.10 par value; authorized 175,000,000
shares..................................................... 1,416 2 (120) 1,298
Special stock, $.10 par value; authorized 10,000,000
shares..................................................... -- -- -- --
Paid-in capital............................................. 32,384 2,455 (2,705) 32,134
Unrealized loss on securities available for sale, net....... (1,067) -- -- (1,067)
Accumulated (deficit) earnings.............................. (45,308) 7,348 -- (37,960)
------------ ----------- ----------- -----------
Total stockholders' equity (deficiency)................... (12,323) 9,805 (3,077) (5,595)
------------ ----------- ----------- -----------
Total liabilities and stockholders' equity
(deficiency)........................................... $ 90,264 $ 38,493 $ (17,469) $ 111,288
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
F-44
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE-MONTH PERIOD ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Gaming:
Routes................................................ $ 68,039 $ 11,914 $ (564) $ 79,389
Casinos and taverns................................... 11,629 221 (327) 11,523
Food and beverage sales................................. 4,171 4 (1,333) 2,842
Net equipment sales..................................... 22 -- -- 22
------------ ----------- ----------- -----------
83,861 12,139 (2,224) 93,776
------------ ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of gaming:
Routes................................................ 52,294 7,686 (569) 59,411
Casinos and taverns................................... 6,956 92 (305) 6,743
Cost of food and beverage............................... 2,038 -- -- 2,038
Cost of equipment sales................................. 10 -- -- 10
Selling, general & administrative....................... 8,649 1,788 (1,158) 9,279
Business development expenses........................... 5,647 -- -- 5,647
Corporate expenses...................................... 6,258 -- -- 6,258
Depreciation and amortization........................... 6,178 756 -- 6,934
------------ ----------- ----------- -----------
88,030 10,322 (2,032) 96,320
------------ ----------- ----------- -----------
Operating (loss) income................................... (4,169) 1,817 (192) (2,544)
Other income (expense):
Interest income......................................... 2,178 60 (3) 2,235
Interest expense........................................ (5,375) (472) 3 (5,844)
Minority share of income................................ -- (252) -- (252)
Royalty fee............................................. -- (27) -- (27)
Other, net.............................................. (73) 130 (24) 33
------------ ----------- ----------- -----------
(Loss) income before income taxes......................... (7,439) 1,256 (216) (6,399)
Income tax (expense) benefit.............................. 14 (624) 216 (394)
------------ ----------- ----------- -----------
Net (loss) income......................................... $ (7,425) $ 632 $ -- $ (6,793)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
F-45
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE-MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Gaming:
Routes................................................ $ 69,066 $ 12,380 $ (335) $ 81,111
Casinos and taverns................................... 8,572 24,380 (254) 32,698
Food and beverage sales................................. 3,899 678 (1,601) 2,976
Net equipment sales..................................... 11 -- -- 11
------------ ----------- ----------- -----------
81,548 37,438 (2,190) 116,796
------------ ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of gaming:
Routes................................................ 54,756 7,873 (336) 62,293
Casinos and taverns................................... 5,997 8,908 (179) 14,726
Cost of food and beverage............................... 1,766 226 -- 1,992
Cost of equipment sales................................. 3 -- -- 3
Selling, general & administrative....................... 7,604 8,210 (1,506) 14,308
Business development expenses........................... 14,233 -- -- 14,233
Corporate expenses...................................... 4,606 -- -- 4,606
Provision for impaired assets........................... 3,179 -- -- 3,179
Depreciation and amortization........................... 5,705 1,623 -- 7,328
------------ ----------- ----------- -----------
97,849 26,840 (2,021) 122,668
------------ ----------- ----------- -----------
Operating (loss) income................................... (16,301) 10,598 (169) (5,872)
Other income (expense):
Interest income......................................... 1,344 220 (358) 1,206
Interest expense........................................ (5,223) (1,476) 358 (6,341)
Minority share of income................................ -- (708) -- (708)
Royalty fee............................................. -- (2,931) -- (2,931)
Other, net.............................................. 499 426 (527) 398
------------ ----------- ----------- -----------
(Loss) income before income taxes......................... (19,681) 6,129 (696) (14,248)
Income tax expense........................................ (403) (874) 696 (581)
------------ ----------- ----------- -----------
Net (loss) income......................................... $ (20,084) $ 5,255 $ -- $ (14,829)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
F-46
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE-MONTH PERIOD ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................. $ (7,425) $ 632 $ -- $ (6,793)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 6,178 756 -- 6,934
Loss (gain) on sale of property equipment................... 951 (126) -- 825
Write-off of other assets................................... 1,620 -- -- 1,620
Provision for losses on receivables......................... 380 -- -- 380
Amortization of debt discounts.............................. 60 177 -- 237
Equity in losses of affiliate............................... 386 -- -- 386
Net change in operating assets and liabilities:
(Increase) decrease in:
Inventories................................................. (14) -- -- (14)
Prepaid expenses............................................ 1,011 616 -- 1,627
Other assets................................................ (47) -- -- (47)
Increase (decrease) in:
Accounts and slot contracts payable......................... 43 (314) -- (271)
Accrued expenses............................................ (1,091) (1,610) (1,462) (4,163)
Minority interests.......................................... -- 251 -- 251
Other liabilities........................................... (668) (137) -- (805)
Intercompany accounts....................................... (552) 552 -- --
------------- ----------- ----------- -----------
Net cash (used in) provided by operating activities:...... 832 797 (1,462) 167
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................... (7,797) (19) -- (7,816)
Proceeds from sale of property and equipment.................. 202 126 -- 328
Additions to receivables...................................... (11,213) -- 962 (10,251)
Cash collections on receivables............................... 10,734 400 (71) 11,063
Net cash provided by acquisition of business.................. -- 2,481 -- 2,481
Investment in subsidiary...................................... (2,417) -- 832 (1,585)
Cash used in purchase of securities available for sale........ (577) -- -- (577)
Additions to intangible assets................................ (282) -- -- (282)
Additions to other long-term assets........................... (3,152) -- -- (3,152)
------------- ----------- ----------- -----------
Net cash (used in) provided by investing activities: (14,502) 2,988 1,723 (9,791)
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................................. -- 1,304 (1,304) --
Reduction of long-term debt................................... (762) (1,213) -- (1,975)
Issuance of stock............................................. (577) -- 1,043 466
------------- ----------- ----------- -----------
Net cash (used in) provided by financing activities....... (1,339) 91 (261) (1,509)
------------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
(Decrease) increase for period................................ (15,009) 3,876 -- (11,133)
Balance, beginning of period.................................. 34,750 2,335 -- 37,085
------------- ----------- ----------- -----------
Balance, end of period.................................... $ 19,741 $ 6,211 $ -- $ 25,952
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
F-47
<PAGE>
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE-MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ALLIANCE
GAMING
PARENT AND CORPORATION
GUARANTEEING PLEDGING AND
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES
------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................. $ (20,084) $ 5,255 $ -- $ (14,829)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 5,705 1,623 -- 7,328
Loss (gain) on sale of property and equipment............... 293 (16) -- 277
Write-off of other assets................................... 396 -- -- 396
Provision for losses on receivables......................... 29 17 -- 46
Amortization of debt discounts.............................. -- 177 -- 177
Provision for impaired assets............................... 3,179 -- -- 3,179
Deferred income tax provision............................... 388 -- -- 388
Net change in operating assets and liabilities:
Increase in:
Inventories................................................. 19 4 -- 23
Prepaid expenses............................................ 829 35 -- 864
Refundable income taxes..................................... -- 361 -- 361
Other assets................................................ 232 (31) -- 201
Increase (decrease) in:
Accounts and slot contracts payable......................... 481 (150) -- 331
Accrued and deferred income taxes........................... (206) 775 166 735
Other liabilities, including minority interests............. -- 392 -- 392
Intercompany accounts....................................... 765 (765) -- --
Accrued expenses............................................ (402) -- -- (402)
------------- ----------- ----------- -----------
Net cash (used in) provided by operating activities....... (8,376) 7,677 166 (533)
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................... (4,844) (1,780) -- (6,624)
Proceeds from sale of property and equipment.................. 2,084 129 -- 2,213
Additions to receivables...................................... (11,225) (334) 2,256 (9,303)
Cash collections on receivables............................... 11,311 233 (1,770) 9,774
Proceeds from sale of securities available for sale........... 12,950 -- -- 12,950
Additions to intangible assets................................ (150) (337) -- (487)
Additions to other long-term assets........................... (3,268) -- -- (3,268)
------------- ----------- ----------- -----------
Net cash (used in) provided by investing activities....... 6,858 (2,089) 486 5,255
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt................................... (130) (3,524) 487 (3,167)
Proceeds from long-term debt.................................. 533 1,288 (1,139) 682
------------- ----------- ----------- -----------
Net cash (used in) provided by financing activities....... 403 (2,236) (652) (2,485)
------------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
(Decrease) increase for period................................ (1,115) 3,352 -- 2,237
Balance, beginning of period.................................. 8,234 5,500 -- 13,734
------------- ----------- ----------- -----------
Balance, end of period.................................... $ 7,119 $ 8,852 $ -- $ 15,971
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Bally Gaming International, Inc.
We have audited the accompanying consolidated balance sheets of Bally Gaming
International, Inc. as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995, included on pages
F-50-- F-81, hereafter. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bally Gaming
International, Inc. as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
February 13, 1996
F-49
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 9,204 $ 5,526
Accounts and notes receivable, net of allowance for doubtful accounts of $12,282 and
$16,281................................................................................ 84,632 87,176
Inventories, net:
Raw materials and work-in-process..................................................... 21,082 16,066
Finished goods........................................................................ 28,377 35,525
---------- ----------
49,459 51,591
Other current assets.................................................................... 5,074 3,983
---------- ----------
Total current assets................................................................ 148,369 148,276
Long-term notes receivable, net of allowance for doubtful accounts
of $8,198 and $7,869.................................................................... 5,558 9,981
Property, plant and equipment, at cost:
Land.................................................................................... 1,357 1,357
Buildings and leasehold improvements.................................................... 19,262 19,871
Machinery and equipment................................................................. 26,636 30,328
Furniture, fixtures and equipment....................................................... 6,075 6,162
Less accumulated depreciation........................................................... (28,972) (34,474)
---------- ----------
Property, plant and equipment, net.................................................... 24,358 23,244
Intangible assets, less accumulated amortization of $12,609 and $13,720................... 11,410 10,814
Other assets.............................................................................. 2,547 2,001
---------- ----------
$ 192,242 $ 194,316
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 19,272 $ 18,556
Accrued liabilities and other payables:
Compensation and benefit related liabilities............................................ 5,962 5,608
Other................................................................................... 11,363 11,798
---------- ----------
17,325 17,406
Current maturities of long-term debt.................................................... 16,000 14,957
---------- ----------
Total current liabilities........................................................... 52,597 50,919
10 3/8% Senior Secured Notes due 1998, net of unamortized discount
of $458 and $344........................................................................ 39,542 39,656
Other long-term debt, less current maturities............................................. 14,220 15,331
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; 5,000,000 shares authorized, none issued............... -- --
Common stock; $.01 par value; 30,000,000 shares authorized, 10,749,501
and 10,799,501 issued and outstanding.................................................. 107 108
Additional paid-in-capital.............................................................. 67,758 68,345
Retained earnings....................................................................... 5,235 1,842
Cumulative translation adjustments...................................................... 13,560 18,662
Unearned compensation................................................................... (777) (547)
---------- ----------
Total stockholders' equity.......................................................... 85,883 88,410
---------- ----------
$ 192,242 $ 194,316
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-50
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Sales.................................................................... $164,571 $231,318 $244,471
Other.................................................................... 4,136 4,874 4,841
-------- -------- --------
168,707 236,192 249,312
-------- -------- --------
Costs and expenses:
Cost of sales............................................................ 121,710 157,059 163,131
Selling, general and administrative...................................... 57,357 59,989 65,289
Provision for doubtful receivables....................................... 8,176 5,763 6,712
Unusual charges.......................................................... -- -- 5,816
-------- -------- --------
187,243 222,811 240,948
-------- -------- --------
Operating income (loss).................................................... (18,536) 13,381 8,364
Interest expense........................................................... 4,424 6,768 6,853
-------- -------- --------
Income (loss) before income taxes and extraordinary gain................... (22,960) 6,613 1,511
Provision for income taxes................................................. 4,242 2,820 4,904
-------- -------- --------
Income (loss) before extraordinary gain.................................... (27,202) 3,793 (3,393)
Extraordinary gain on early extinguishment of debt......................... 3,759 -- --
-------- -------- --------
Net income (loss).......................................................... $(23,443) $ 3,793 $ (3,393)
-------- -------- --------
-------- -------- --------
Net income (loss) per common share:
Income (loss) before extraordinary gain.................................. $ (2.54) $ 0.35 $ (0.31)
Extraordinary gain on early extinguishment of debt....................... 0.35 -- --
-------- -------- --------
Net income (loss)........................................................ $ (2.19) $ 0.35 $ (0.31)
-------- -------- --------
-------- -------- --------
Weighted average number of common shares and common stock equivalents
outstanding............................................................... 10,685 10,727 10,776
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-51
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN- RETAINED TRANSLATION UNEARNED STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTS COMPENSATION EQUITY
------ ---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........................... $106 $65,757 $24,885 $11,662 $(1,133) $101,277
Net loss............................................. -- -- (23,443 ) -- -- (23,443)
Issuance of restricted Company common stock award.... 1 1,149 -- -- (1,150) --
Exercise of warrants................................. -- 30 -- -- -- 30
Amortization of unearned compensation................ -- -- -- -- 951 951
Foreign currency translation adjustment.............. -- -- -- (4,536) -- (4,536)
Issuance of stock warrants........................... -- 600 -- -- -- 600
------ ---------- -------- ----------- ------------ -------------
Balance at December 31, 1993........................... 107 67,536 1,442 7,126 (1,332) 74,879
Net income........................................... -- -- 3,793 -- -- 3,793
Amortization of unearned compensation................ -- -- -- -- 555 555
Foreign currency translation adjustment.............. -- -- -- 6,434 -- 6,434
Issuance of Company common stock under compensation
agreement.......................................... -- 222 -- -- -- 222
------ ---------- -------- ----------- ------------ -------------
Balance at December 31, 1994........................... 107 67,758 5,235 13,560 (777) 85,883
------ ---------- -------- ----------- ------------ -------------
Net loss............................................. -- -- (3,393 ) -- -- (3,393)
Exercise of stock options............................ 1 587 -- -- -- 588
Amortization of unearned compensation................ -- -- -- -- 230 230
Foreign currency translation adjustment.............. -- -- -- 5,102 -- 5,102
------ ---------- -------- ----------- ------------ -------------
Balance at December 31, 1995........................... $108 $68,345 $ 1,842 $18,662 $ (547) $ 88,410
------ ---------- -------- ----------- ------------ -------------
------ ---------- -------- ----------- ------------ -------------
<CAPTION>
COMMON
STOCK
SHARE AMOUNTS ISSUED
- ------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........................... 10,623
Issuance of restricted Company common stock award.... 100
Exercise of warrants................................. 2
-------------
Balance at December 31, 1993........................... 10,725
Issuance of Company common stock under compensation
agreement.......................................... 25
-------------
Balance at December 31, 1994........................... 10,750
Exercise of stock options............................ 50
-------------
Balance at December 31, 1995........................... 10,800
-------------
-------------
</TABLE>
See accompanying notes.
F-52
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ (23,443) $ 3,793 $ (3,393)
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Extraordinary gain on early extinguishment of debt.......................... (3,759) -- --
Depreciation and amortization............................................... 8,103 8,271 8,953
Deferred income taxes....................................................... 163 (296) (778)
Provision for doubtful receivables.......................................... 8,176 5,763 6,712
Provision for writedown of building to be sold.............................. -- -- 812
Provision for inventory valuation........................................... 6,156 2,230 1,955
(Gain) loss on disposals of property, plant and equipment................... 64 (83) 48
Changes in operating assets and liabilities:
Accounts and notes receivable............................................. (17,648) (15,823) (10,304)
Inventories............................................................... (15,077) (3,889) (2,167)
Other current assets...................................................... (1,534) (713) 1,279
Accounts payable and accrued liabilities.................................. 9,717 2,730 578
Other, net.................................................................. (466) (759) 100
---------- ---------- ----------
Cash provided by (used in) operating activities........................... (29,548) 1,224 3,795
---------- ---------- ----------
Cash flows from investing activities:
Net assets of distribution business acquired.................................. (8,382) -- --
Purchases of property, plant and equipment.................................... (6,467) (9,537) (8,240)
Proceeds from disposals of property, plant and equipment...................... 1,091 1,749 1,757
Other......................................................................... 351 1,397 250
---------- ---------- ----------
Cash used in investing activities......................................... (13,407) (6,391) (6,233)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of Senior Secured Notes and Common Stock Warrants...... 40,000 -- --
Net change in lines of credit................................................. 28,711 21,423 359
Repayments of long-term debt.................................................. (29,761) (13,192) (2,908)
Exercise of stock warrants and stock options.................................. 30 -- 588
---------- ---------- ----------
Cash provided by financing activities....................................... 38,980 8,231 (1,961)
Effect of exchange rate changes on cash....................................... (389) 704 721
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.............................. (4,364) 3,768 (3,678)
Cash and cash equivalents, beginning of year.................................. 9,800 5,436 9,204
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 5,436 $ 9,204 $ 5,526
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flows information:
Operating activities include cash payments for interest and income taxes as
follows:
Interest paid............................................................... $ 2,910 $ 5,972 $ 6,888
Income taxes paid, net of refunds........................................... 6,454 4,020 1,801
Investing activities exclude the following non-cash activities:
Exchange of income tax receivable for intangible assets and equipment....... 1,969 -- --
Long-term notes received from sale of assets................................ -- 517 --
Financing activities exclude the following non-cash activities:
Issuance of restricted stock awards......................................... 1,150 -- --
Issuance of Company common stock under compensation agreement............... -- 222 --
Issuance of notes payable for license agreement............................. -- 1,465 --
</TABLE>
See accompanying notes.
F-53
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Bally Gaming International, Inc. (the "Company") was formed in August 1991
by Bally Entertainment Corporation ("BEC") to consolidate the gaming machine
manufacturing and distribution operations of BEC. These operations are conducted
in Germany under the name Bally Wulff ("Wulff") and in the United States under
the name Bally Gaming ("Gaming") and Bally Systems ("Systems"). Wulff designs,
manufactures (through the Company's wholly-owned subsidiary "Automaten") and
distributes (through the Company's wholly-owned subsidiary "Vertriebs")
wall-mounted, coin-operated, armless gaming devices similar to slot machines
known as wall machines and also distributes recreational and amusement machines
manufactured by third parties. Gaming designs, manufactures and distributes
electronic slot machines and video gaming machines. Systems designs, assembles
and sells computerized monitoring systems for slot and video gaming machines. In
three transactions dated November 1991, July 1992 and September 1993, BEC
divested substantially all its interests in the Company.
Certain reclassifications have been made to prior years' financial
statements to conform with the 1995 presentation.
Hereafter, references to the Company are to the consolidated operations of
Wulff, Gaming and Systems including the predecessor operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less which are readily convertible into cash.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Cost elements included for work-in-process and
finished goods include raw materials, freight, direct labor and manufacturing
overhead.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided by using the straight-line method over the
estimated economic lives of the related assets and the terms of the applicable
leases for leasehold improvements, which range from 3 to 30 years.
Significant replacements and improvements are capitalized; other maintenance
and repairs are expensed. The cost and accumulated depreciation of assets
retired or otherwise disposed of are eliminated from the accounts and any
resulting gain or loss is credited or charged to income as appropriate.
INTANGIBLE AND OTHER ASSETS
Intangible assets include the cost in excess of net assets of acquired
businesses, which are being amortized using the straight-line method over
periods ranging up to 40 years from dates of acquisition.
In July 1992, the Company reached an agreement for an exclusive license
until December 31, 2005, subject to extension, of a patent relating to the use
of credit cards in gaming machines, and acquired 1% of the stock of Scotch
Twist, Inc., a private company which granted this license, in exchange for the
issuance of 100,001 shares of the Company's Common Stock. The licensing
agreement requires the Company to commit
F-54
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
$1.2 million in research and development costs related to the patent, plus any
costs related to obtaining required regulatory approvals and licenses. As of
December 31, 1995 approximately $1 million has been spent relative to this
commitment.
In July 1992 and again in March 1995, the Company and BEC amended a
trademark license agreement ("License Agreement") pursuant to which the Company
licensed the use of the name "Bally" for its use in the gaming machine business
worldwide. Prior to 1995, the trademark licensing rights were being amortized
using the straight-line method over a 20 year period. Pursuant to the terms of
the March 1995 amendment, the Company reduced the remaining amortization period
to five years effective March 31, 1995, resulting in an increase in amortization
expense of approximately $315,000 for the year ended December 31, 1995.
In January 1993, as part of an amendment to an intercorporate agreement
between the Company and BEC, a long-term income tax receivable from BEC of
$1,971,000 was exchanged for certain assets owned by BEC but managed by the
Company, a reduction in the period from six years to three years of certain non-
competition restrictions previously imposed on the Company by BEC and the
settlement of certain other intercompany service arrangements with BEC. This
transaction resulted in an increase to intangible assets of approximately
$1,515,000 which is being amortized over a 6 year period.
In June 1994, the Company acquired a paid up license for use of a patent on
slot machines manufactured or sold during the life of the patent. The owner of
the patent had recently filed an infringement action against various casinos in
Atlantic City alleging infringement of a certain patent by these casino
companies. As a result of the agreement, the casino operator defendants will be
released from any claims relating to the past and future use of certain gaming
machines manufactured by the Company. The Company agreed to pay $2 million over
a 5 year period, without interest, for the paid up license. The asset is fully
amortized as of December 31, 1995.
The carrying value of intangible assets is periodically reviewed by
management and impairment losses, if any, are recognized when the expected
non-discounted future operating cash flows derived from such intangible assets
is less than their carrying value. In 1995, Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121") was issued which will be
effective for the Company's year ended December 31, 1996. This statement
requires that long-lived assets and certain identifiable intangible assets to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. Management believes that if SFAS No. 121 had been early adopted at
December 31, 1995, it would not have had a material effect on the financial
position, results of operations or cash flows of the Company.
INCOME TAXES
Taxes on income of Wulff are provided at the tax rates applicable to the tax
jurisdictions in Germany, as Wulff files separate foreign income tax returns.
German withholding taxes and related United States federal income taxes are
provided on Wulff earnings.
REVENUE RECOGNITION
The Company sells products on normal credit terms (90 days or less), over
longer term installments of up to 36 months or more or through payments from the
net winnings of the machines until the purchase price is paid.
Revenue from sales of gaming machines and recreational and amusement
equipment is normally recognized at the time products are shipped and title has
passed to the customer. Revenue from sales of software included in computerized
management systems is recognized at the time the systems are accepted by the
customer, which normally coincides with installation of the equipment. Revenue
from sales of hardware included in computerized management systems is recognized
at the time the product is shipped.
F-55
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of Wulff is the Deutsche Mark. Assets and
liabilities of Wulff are translated at the rate of exchange at the end of the
period, and the statements of operations are translated at the average rate of
exchange for the period. Translation adjustments are reflected as a separate
component of stockholder's equity. Gains and losses on foreign currency
transactions are included in net income.
RESEARCH AND DEVELOPMENT
The Company expenses product research and development costs as incurred.
Research and development costs for the years ended December 31, 1993, 1994 and
1995 were $7.8 million, $8.7 million and $9.2 million, respectively.
STOCK-BASED EMPLOYEE COMPENSATION AWARDS
The Company accounts for its stock-based employee compensation awards in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). Under APB 25, because the exercise price
of the Company's employee stock options and stock performance rights equals the
market price on date of grant, no compensation expense is recognized.
In 1995, Statement of Financial Accounting Standards No. 123, "Accounting
for Awards of Stock-Based Compensation to Employees" ("SFAS No. 123") was issued
which will be effective for the Company's year ended December 31, 1996. SFAS No.
123 provides alternative accounting treatment to APB No. 25 with respect to
stock-based compensation and requires certain additional disclosures, including
disclosures if the Company elects not to adopt the accounting requirements of
SFAS No. 123. At this point, the Company does not anticipate adopting the
accounting requirements of SFAS No. 123 and therefore in future years would
expect to provide the required additional disclosures in the footnotes to the
consolidated financial statements.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed by dividing net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents outstanding totaling 10,685,054, 10,726,556 and 10,775,699 for the
years ended December 31, 1993, 1994 and 1995.
Common stock equivalents were not included in the computation of earnings
(loss) per common share as their effect would have been antidilutive or
immaterial.
MERGER AGREEMENT, TENDER OFFER AND RELATED LITIGATION
On October 17, 1995, the Board of Directors of the Company approved an
Agreement and Plan of Merger with Alliance Gaming Corporation ("Alliance") which
was subsequently amended as of January 23, 1996 ("Merger Agreement"). Pursuant
to the Merger Agreement, the Company will merge with a subsidiary of Alliance
("Alliance Merger Subsidiary") with the Company being the surviving corporation
and becoming a wholly-owned subsidiary of Alliance ("Alliance Merger"). The
Merger Agreement provides that the Company's stockholders will have the right to
receive, in exchange for each of their issued and outstanding shares of the
Company's common stock (i) an amount of cash determined by dividing $76,700,000
by the number of shares of the Company's common stock outstanding immediately
prior to the effective time of the Merger (other than shares which are held by
the Company, Alliance or their respective subsidiaries) ("Converted Shares"),
(ii) a fraction of a share of common stock, $.10 par value, of Alliance
("Alliance
F-56
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Common Stock") having a value determined in accordance with the Merger Agreement
of $.30 (the "Common Stock Consideration") and (iii) that number of shares (or
fractions thereof) of 15% Non-Voting Junior Special Stock, Series B, $.10 par
value, of Alliance (the "Series B Special Stock") having a value determined in
accordance with the Merger Agreement equal to $11.40 less the cash consideration
described in clause (i) above. The obligations of Alliance and the Company to
consummate the Alliance Merger are subject to various conditions, including
obtaining requisite stockholder and regulatory approvals and Alliance's
obtaining $150 million in financing on commercially reasonable terms, at least
two-thirds of which must be in the form of bank debt, other debt having a term
of at least four years or equity. In conjunction with the Merger Agreement,
Alliance terminated its unsolicited tender offer and consent solicitation and
withdrew its litigation against the Company and the Company withdrew its
litigation against Alliance.
BUSINESS SEGMENT
The business of the Company is conducted in one industry segment: the
design, manufacture and distribution of gaming machines, computerized monitoring
systems and recreational and amusement equipment. All of Wulff's sales are to
customers outside the United States while Gaming and Systems sell to domestic
and foreign customers. See "Commitments and Contingencies."
The Company has operations based in Germany and the United States. The table
below presents information as to the Company's operations by geographic region.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Germany................................................ $ 112,601 $ 111,068 $ 130,655
United States.......................................... 60,533 131,228 129,140
Eliminations........................................... (4,427) (6,104) (10,483)
---------- ---------- ----------
Consolidated........................................... $ 168,707 $ 236,192 $ 249,312
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME (LOSS):
Germany................................................ $ 9,702 $ 9,232 $ 5,581
United States.......................................... (27,658) 4,184 2,982
Eliminations........................................... (580) (35) (199)
---------- ---------- ----------
Consolidated........................................... $ (18,536) $ 13,381 $ 8,364
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS:
Germany................................................ $ 81,899 $ 97,537 $ 100,207
United States.......................................... 90,613 99,478 100,643
Eliminations........................................... (1,682) (4,773) (6,534)
---------- ---------- ----------
Consolidated........................................... $ 170,830 $ 192,242 $ 194,316
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Wulff's customers are a diverse group of operators of arcades, hotels,
restaurants and taverns, primarily in Germany. Gaming's and Systems' customers
are primarily casinos and gaming machine distributors in the United States and
abroad. Receivables of Wulff, Gaming and Systems are generally collateralized by
the related equipment. See "Concentration of Credit Risk."
F-57
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Export sales (including sales to Wulff) from Gaming's and Systems'
operations for the years ended December 31, 1993, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Europe....................................................... $ 8,651 $ 10,889 $ 12,890
Far East..................................................... 223 860 998
Latin America................................................ 2,030 4,015 5,392
Canada....................................................... 1,589 3,254 6,185
Other........................................................ -- 556 1,824
--------- --------- ---------
$ 12,493 $ 19,574 $ 27,289
--------- --------- ---------
--------- --------- ---------
</TABLE>
ACCOUNTS AND NOTES RECEIVABLE
The Company grants certain customers extended payment terms under contracts
of sale. These contracts are generally for terms of one to three years, with
interest at prevailing rates, and are generally collateralized by the related
equipment sold although the value of such equipment, if repossessed, may be less
than the receivable balance outstanding. See "Concentration of Credit Risk."
The following table represents, at December 31, 1995, scheduled collections
of accounts and notes receivable (net of allowances for doubtful accounts) by
year:
<TABLE>
<S> <C>
1996............................................................... $ 87,176
1997............................................................... 8,250
1998............................................................... 1,731
---------
$ 97,157
---------
---------
</TABLE>
LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt and lines of credit consist of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
10 3/8% Senior Secured Notes due 1998, net of unamortized discount of
$458 and $344........................................................ $ 39,542 $ 39,656
OTHER LONG-TERM DEBT:
Wulff revolving lines of credit....................................... 15,853 15,905
Bally Gaming, Inc. revolving line of credit........................... 7,768 9,400
Notes payable, 5% to 12%.............................................. 6,599 4,983
Less current maturities............................................... (16,000) (14,957)
---------- ----------
$ 14,220 $ 15,331
---------- ----------
---------- ----------
</TABLE>
In July 1993, the Company completed a private placement of $40 million
principal amount of 10 3/8% Senior Secured Notes due July 1998 and Common Stock
Purchase Warrants to purchase 1.2 million shares of Common Stock exercisable at
$12.50 per share after the Common Stock has traded at an average of $20 per
share for a twenty consecutive trading day period and under certain other
circumstances. The warrants became exercisable during November 1993. The Company
allocated $600,000 of the $40 million gross proceeds to the warrants and
accordingly recorded the Senior Secured Notes at $39.4 million with unamortized
discount of $600,000 (the effective yield of the Senior Secured Notes is
10.77%). The Company used $21.6 million of the gross proceeds of $40 million
from the sale of the notes and warrants to redeem all of its outstanding 6%
Senior Convertible Debentures due 2002. The Company realized an extraordinary
gain of approximately $3.8 million from the redemption of the Convertible
Debentures in 1993. The gain represents the difference between the carrying
amount of the debt retired and related deferred financing costs ($25.4
F-58
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
million) and the redemption price of $21.6 million. The Senior Secured Notes are
collateralized by a pledge of the outstanding capital stock of Automaten and
Vertriebs and a guarantee by Bally Gaming, Inc. The Notes are subject to
redemption, at the option of the Company, at a redemption price equal to 103%
and 101.5% of the principal amount of the Notes if redeemed during the twelve
month period beginning on the anniversary of the issue date in the years 1996
and 1997, respectively.
During March 1993, Vertriebs obtained two bank lines of credit for the
purpose of financing the acquisition of assets acquired from an independent
distributor. The agreements provide for borrowings of DM2,250,000 and
DM16,000,000 (approximately $1,600,000 and $11,200,000) at December 31, 1995,
respectively. Availability of the DM2,250,000 line of credit is reduced by
DM250,000 per quarter and expires on March 31, 1998. Borrowings under this line
of credit bear interest at 6.95%. The working capital revolving credit line of
DM16,000,000 bears interest at a rate tied to an international borrowing rate
plus 1% (5.3% at December 31, 1995) and is due on demand. These lines are
collateralized by a pledge of the assets acquired. Approximately $12,751,000 was
outstanding under these lines at December 31, 1995. In May 1993, Vertriebs
obtained a DM16,300,000 (approximately $11,400,000 at December 31, 1995)
revolving line of credit for general working capital purposes. This agreement
bears interest at a rate tied to an international borrowing rate plus 1% (4.8%
at December 31, 1995) and is due on demand. This line is collateralized by the
receivables of Vertriebs. Approximately $3,144,000 was outstanding under this
line at December 31, 1995. Vertriebs and Automaten are jointly and severally
liable under these lines of credit.
In March 1993, Bally Gaming, Inc. obtained a bank revolving line of credit
which, as amended, provides for borrowings tied to a percentage of Bally Gaming,
Inc.'s eligible (as defined in the credit agreement) inventory and accounts
receivable with a maximum borrowing capacity of $15,000,000. Borrowings under
this agreement, which expires March 31, 1997, bear interest at one and one-half
percent above the bank's prime rate (10% at December 31, 1995). The Company must
pay an annual facility fee of one-half of one percent of the maximum borrowing
capacity and a monthly unused line fee of one-quarter of one percent of the
difference between the maximum borrowing capacity and the average daily
outstanding balance during any month. This line of credit is collateralized by
property, plant and equipment and the eligible inventory and accounts
receivable. The agreement and subsequent amendments also contain certain
financial and other restrictive covenants, including the maintenance by Bally
Gaming, Inc. of specified levels of minimum net working capital, working capital
ratio, tangible net worth, net worth ratio, and minimum net income after taxes,
all as defined in the credit agreement. Eligible borrowing capacity under this
agreement at December 31, 1995 was approximately $15,000,000. Approximately
$9,400,000 was outstanding at December 31, 1995.
Aggregate annual maturities of long-term debt for the five years after
December 31, 1995 are $14.9 million, $11.5 million, $43.6 million, $.3 million
and none.
STOCK PLANS, AWARDS AND RIGHTS
1991 INCENTIVE PLAN
On November 6, 1991, the Company adopted the 1991 Incentive Plan of Bally
Gaming International, Inc. (the "Plan") for directors (employee directors that
are not members of the Compensation and Stock Option Committee of the Board of
Directors), officers, key employees and consultants (collectively
"Participants"). The Plan provides for the grant of stock options, stock
appreciation rights ("SARs") and restricted stock (collectively "Awards"). The
aggregate number of shares of common stock which may be delivered under the Plan
and the 1991 Non-Employee Directors' Option Plan described below may not exceed
1,250,000 shares. No awards may be granted after November 6, 2001.
The Plan provides for granting incentive as well as nonqualified stock
options. Unless the Compensation and Stock Option Committee of the Board of
Directors, in its discretion, determines otherwise,
F-59
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
nonqualified stock options will be granted with an option price equal to the
fair market value of the shares of common stock at the date of grant. Incentive
stock options must be granted at not less than the fair market value of the
shares of common stock at the date of grant.
SARs are rights granted to Participants to receive shares of common stock
and/or cash in an amount equal to the excess of (i) the fair market value of the
shares of common stock on the date the SARs are exercised over (ii) the fair
market value of the shares of common stock on the date the SARs were granted or,
at the discretion of the Compensation and Stock Option Committee of the Board of
Directors, the date the option was granted, if granted in tandem with an option
granted on a different date.
Restricted stock awards are rights granted to an employee to receive shares
of common stock without payment but subject to forfeiture and other restrictions
as set forth in the Plan. Generally, the restricted stock awarded, and the right
to vote such stock or to receive dividends thereon, may not be sold, exchanged
or otherwise disposed of during the restricted period. The Compensation and
Stock Option Committee of the Board of Directors, in its discretion, will
determine the restrictions and the forfeiture provisions applicable to
restricted stock awards. The Plan provides that, at the discretion of the
Compensation and Stock Option Committee of the Board of Directors, the Company
may pay cash to Participants to insure that the Participant will receive the
common stock net of all taxes imposed on such Participant related to the receipt
of common stock and cash payments under the Plan. During 1991, restricted stock
awards for 72,500 shares of common stock were granted under the Plan to key
employees effective January 1, 1992. These awards are fully vested at December
31, 1995. In 1993, 100,000 shares of restricted common stock were granted to an
officer of the Company. This award vests ratably over a five-year period. As of
December 31, 1995, 40,000 shares of this award were vested.
The Plan is administered by the Compensation and Stock Option Committee
which will determine the participants to whom awards will be granted, the
provisions applicable to each award and the time periods during which the awards
may be exercised. Each option and SAR granted under the Plan may be exercisable
for a term of not more than ten years after the date of grant. Incentive stock
options and SARs granted in tandem with incentive stock options may only be
exercised when the fair market value of common stock is greater than the option
price. Certain other restrictions apply in connection with the timing of
exercise. In the event of a change of control (as defined in the Plan), the date
on which all SARs and options outstanding under the Plan may first be exercised
is accelerated, and restrictions on restricted stock awards lapse. Generally,
all SARs and options terminate 90 days after a change of control.
1991 NON-EMPLOYEE DIRECTORS' OPTION PLAN
The 1991 Non-Employee Directors' Option Plan of the Company (the "Directors'
Plan") was also adopted in November 1991. The Directors' Plan provides for the
granting of stock options at the Company's initial public offering price to
persons who, on the consummation of the Company's initial public offering, were
members of the Board of Directors and who are not employees of the Company or
its subsidiaries ("Non-Employee Directors"), and thereafter, options are granted
at fair market value to persons who become members of the Board of Directors
after the Company's initial public offering and who are not employees of the
Company or its subsidiaries at the time they become members of the Board of
Directors. Each of the Non-Employee Directors received, or will receive, an
option, for ten years, to purchase 25,000 shares of common stock that vests over
three years. Administration, the term of the Directors' Plan and change of
control features for the Directors' Plan are consistent with the above described
Plan.
F-60
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
At December 31, 1995, 35,000 shares were reserved for future grant under the
Plan and the Directors' Plan. A summary of shares granted, canceled and
exercisable (excluding restricted stock grants of 172,500) are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
---------- -----------------
<S> <C> <C>
Outstanding at December 31, 1992.............................. 845,000 $11.75 - $14.50
Granted..................................................... 188,000 $12.38 - $12.75
Canceled.................................................... (9,000) $14.50
----------
Outstanding at December 31, 1993.............................. 1,024,000 $11.75 - $14.50
Granted..................................................... 58,000 $ 8.06 - $12.88
Canceled.................................................... (53,000) $12.00 - $14.50
----------
Outstanding at December 31, 1994.............................. 1,029,000 $ 8.06 - $14.50
Granted..................................................... 30,000 $7.88
Canceled.................................................... (16,500) $12.00 - $14.50
Exercised................................................... (50,000) $11.75
----------
Outstanding at December 31, 1995.............................. 992,500 $ 7.88 - $14.50
---------- -----------------
---------- -----------------
Exercisable at December 31, 1995.............................. 871,320 $ 8.06 - $14.50
---------- -----------------
---------- -----------------
</TABLE>
1992 RESTRICTED STOCK PERFORMANCE PLAN
On November 3, 1992, the Company's Board of Directors adopted the Bally
Gaming International, Inc. 1992 Restricted Stock Performance Plan (the
"Performance Plan"). The purpose of the Performance Plan is to benefit the
Company through increased incentive on the part of key employees, officers,
directors and consultants of the Company and its subsidiaries by permitting the
Company to make awards of Restricted Stock and/or Performance Units comprised of
stock and cash to such persons based upon specific performance objectives. Up to
600,000 shares of the Company's common stock have been reserved under this plan.
In February 1993, 200,000 Performance Units were granted in connection with an
employment agreement entered into by the Company with its Chairman of the Board
and Chief Executive Officer. In May 1993, 200,000 Performance Units were granted
in connection with an employment agreement entered into by the Company and Bally
Gaming, Inc. with its new President. In December 1993, an additional 120,000
Performance Units were granted to other members of senior management of the
Company, of which 40,000 units were canceled during the year ended December 31,
1994.
Under the terms of the award agreements as amended June 8, 1994, the
Performance Units will vest if either (i) the cumulative annual growth rate for
any three consecutive years during the Performance Period (as defined in the
Performance Plan) is at least 35% (the "EPS Growth Target") or (ii) the fair
market value of the Common Stock (as determined based on the market price of the
Common Stock) equals or exceeds $40 per share for at least twenty of thirty
consecutive trading days (the "Market Price Target") or (iii) under certain
circumstances following a change in control or (iv) the Company enters into a
business combination or (v) the Company obtains a capital infusion of at least
$30,000,000 provided however if (i) the Company's earnings per share growth in
any consecutive three years during the Performance Period (as defined in the
Performance Plan) is at least 85% of the EPS Growth Target, at least 70% of the
Performance Units will vest, or (ii) the Company's stock price at any time in
the Performance Period (as defined in the Performance Plan) is at least 85% of
the Market Price Target, at least 70% of the Performance Units will vest. Each
Performance Unit is equal in value to one share of the Company's Common Stock,
plus an additional amount in cash equal to fifty percent (50%) of the value of
one share of Common Stock, based on the fair market value of the Common Stock at
the date the award vests. Payments are to be made in common stock and/or cash as
determined by the Compensation Committee. No accruals have been recorded in the
Company's financial statements as of December 31, 1995 as such performance
objectives have not yet begun to be met.
F-61
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1994 Stock Option Plan for Non-Employee Directors (the "1994 Directors'
Plan") was adopted in April 1994 and provides for the granting of stock options
of the Company's Common Stock exercisable at fair market value to Non-Employee
Directors. Each of the Non-Employee Directors received an option, for ten years,
to purchase 25,000 shares of Common Stock that vests over three years. The
option price was $12.875. The 1994 Directors' Plan has change in control
features similar to those contained in the 1991 Directors' Plan. 250,000 shares
of the Company's Common Stock were reserved for future issuance under the 1994
Directors' Plan. At December 31, 1995, 125,000 shares had been granted of which
33,333 shares were exercisable, 25,000 had been canceled and none had previously
been exercised.
STOCK PERFORMANCE RIGHTS ("SPRS")
Stock Performance Rights ("SPRs") are rights granted to individuals to
receive cash in an amount equal to the excess of (i) the fair market value of
the shares of common stock on the date the SPRs are exercised over (ii) the fair
market value of the shares of common stock on the date the SPRs were granted.
In 1993, 100,000 SPRs were granted to an officer of the Company at a fair
market value on date of grant of $11.625 in connection with the signing of a
five-year employment agreement. These SPRs vest ratably over the term of the
employment agreement and become exercisable at the end of each vesting period.
As of December 31, 1995, 40,000 of the SPRs were exercisable, and none had been
previously exercised.
WARRANTS
The Company issued warrants to the underwriters of the initial public
offering of the Company's common stock to purchase an aggregate of 300,000
shares of its common stock. The warrants are exercisable during a four-year
period ending November 11, 1996 at an exercise price of $15 per share. For the
year ended December 31, 1993, 2,000 warrants were exercised and no other
warrants have since been exercised.
In 1993, the Company issued warrants to purchase 1.2 million shares of its
common stock at $12.50 per share in connection with the private placement of the
Senior Secured Notes. These warrants are currently exercisable and expire on
July 29, 1998. At December 31, 1995 none of these warrants were exercised. See
"Long-term Debt and Lines of Credit."
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1995 shares of the Company's Common Stock were reserved for
future issuance as follows:
<TABLE>
<S> <C>
Warrants related to the 10 3/8% Senior Secured Notes............. 1,200,000
1991 Incentive Plan and Directors' Plan.......................... 1,200,000
1992 Restricted Stock Performance Plan........................... 600,000
1994 Stock Option Plan for Non-Employee Directors................ 250,000
Warrants to underwriters......................................... 298,000
---------
3,548,000
---------
---------
</TABLE>
OTHER REVENUES
Other revenues for the years ended December 31, 1993, 1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest......................................................... $ 3,795 $ 3,538 $ 3,615
Currency transaction gain (loss)................................. (245) (30) (53)
Other............................................................ 586 1,366 1,279
--------- --------- ---------
$ 4,136 $ 4,874 $ 4,841
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-62
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
UNUSUAL CHARGES
During the year ended December 31, 1995, the Company incurred approximately
$4.0 million in legal, accounting, investment banking, public and investor
relations and printing costs in connection with a merger agreement with WMS
Industries, Inc., which has been terminated, Alliance's tender offer and consent
solicitation and the pending Alliance Merger. All of these costs have been
expensed as incurred. Such costs will continue to be incurred in 1996.
During the fourth quarter of 1995, Vertriebs recorded a non-recurring charge
of $.8 million to writedown to net realizable value a building to be sold. The
provision was based on a strategic decision to sell the building as Wulff's
other distribution offices adequately covered the geographic region that would
have been served by this facility.
During 1995, Wulff increased the amount of value added tax reserves by $1.0
million as a result of developments to date in an ongoing quadrennial audit of
Wulff's tax returns for the years 1988 through 1991. While no written claim or
assessment has been issued, the German tax authorities have orally proposed
preliminary adjustments which range from $1.4 million (which has been accrued)
to $5.0 million. The Company has accrued the liability as, based on current
developments, the Company's estimate of the ultimate outcome and its experience
in contesting these matters, it is probable that a liability has been incurred
and a range of costs can be reasonably estimated. As the scope of the liability
is better determined, there could be changes in the estimate of the ultimate
liability. Management believes that the preliminary proposed adjustments are
without merit and the ultimate results of the audit will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes" which requires recognition of deferred tax
assets and liabilities for temporary differences and net operating loss ("NOL")
and tax credit carryforwards. Under SFAS No. 109, deferred income taxes are
established based on enacted tax rates expected to be in effect when temporary
differences are scheduled to reverse and NOL and tax credit carryforwards are
expected to be utilized. The cumulative effect of the adoption of SFAS No. 109
had an immaterial effect on net income for the year ended December 31, 1993.
The provision (credit) for foreign and domestic income taxes for the years
ended December 31, 1993, 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
FEDERAL:
Current........................................................ $ 476 $ 220 $ 260
Deferred....................................................... -- -- --
--------- --------- ---------
476 220 260
--------- --------- ---------
--------- --------- ---------
FOREIGN:
Current........................................................ 3,603 2,896 4,586
Deferred....................................................... 163 (296) 58
--------- --------- ---------
3,766 2,600 4,644
--------- --------- ---------
Total provisions for income taxes................................ $ 4,242 $ 2,820 $ 4,904
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-63
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The major components of the net deferred tax asset as of December 31, 1994,
and 1995 were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Property, plant and equipment......................................... $ 1,075 $ 1,193
Other................................................................. 131 --
---------- ----------
Total deferred tax liabilities.................................... 1,206 1,193
---------- ----------
Bad debt reserves..................................................... 4,933 5,876
Inventory reserves.................................................... 5,527 4,736
Wulff corporate reorganization........................................ 235 366
Net operating loss carryforwards...................................... -- 391
Foreign tax credit carryforwards...................................... 8,382 12,955
AMT tax credit carryforwards.......................................... 384 570
Intangibles........................................................... 2,432 909
Accrued liabilities................................................... 1,201 562
Deferred compensation................................................. 696 476
Other................................................................. 31 500
---------- ----------
Total deferred tax assets......................................... 23,821 27,341
---------- ----------
Valuation allowance................................................... (21,460) (24,667)
---------- ----------
Net deferred tax assets........................................... $ 1,155 $ 1,481
---------- ----------
---------- ----------
</TABLE>
At December 31, 1994 and 1995, net deferred tax assets resulted from German
net operating loss carryforwards and, inventory and intangible assets book/tax
basis differences. At December 31, 1995 the Company has foreign tax credit
carryforwards of approximately $13.0 million and alternative minimum tax ("AMT")
credit carryforwards of approximately $.6 million. Foreign tax credits are
available to offset future taxes due in the U.S. on future foreign taxable
income and expire between 1997 and 2001 unless utilized prior to such time. AMT
credits are available to be carried forward indefinitely and may be utilized
against regular U.S. corporate income tax to the extent it does not exceed tax
computed under AMT calculations.
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Taxes at federal statutory rate................................. $ (7,806) $ 2,248 $ 529
Losses with no current tax benefit.............................. 11,528 -- --
Federal alternative minimum tax................................. 143 200 200
Foreign earnings at other than U.S. statutory rate.............. 238 (2) 3,529
Foreign withholding on dividends................................ 333 353 450
Other........................................................... 34 21 196
Impact of SFAS 109 adoption..................................... (228) -- --
--------- --------- ---------
$ 4,242 $ 2,820 $ 4,904
--------- --------- ---------
--------- --------- ---------
</TABLE>
RELATED PARTY TRANSACTIONS
In connection with the Company's initial public offering, BEC granted
restricted stock awards for shares of the Company's common stock owned by BEC to
certain senior executives of the Company. These restricted stock awards
represent compensation from the Company equal to the fair market value of the
F-64
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
shares on the date of the awards and are recorded as unearned compensation and a
capital contribution in the accompanying financial statements. Unearned
compensation is charged to operations over the vesting periods of the awards.
In connection with the Company's initial public offering, the Company and
BEC entered into an intercorporate agreement which was amended in July 1992, and
again in January 1993, which provided, among other things, that BEC would
perform certain accounting, tax, treasury, legal, data processing, employee
benefits and other services which the Company reasonably requests, and that the
Company would reimburse BEC for the reasonable cost of all services rendered,
including salaries and expenses of BEC's employees while they are rendering such
services. Charges by BEC to the Company under the intercorporate agreement for
the years ended December 31, 1993, 1994 and 1995 were $295,000, $90,000 and
none, respectively.
The Company participated in BEC's insurance program for general liability
and directors' and officers' liability coverage through June 1993. Under these
programs, insurance expenses were charged to the Company based on claims
experience and for reimbursements of premium payments made by BEC. Insurance
expense charged to the Company was $281,000, none, and none for the years ended
December 31, 1993, 1994 and 1995, respectively.
The Company had a long-term income tax receivable from BEC totaling
$1,971,000 at December 31, 1992. As part of an amendment to the intercorporate
agreement between the Company and BEC, which was entered into in January 1993,
the income tax receivable of $1,971,000 was exchanged for certain assets
previously owned by BEC but managed by the Company, a reduction in the period
from six years to three years of certain non-competition restrictions previously
imposed on the Company by BEC and settlement of certain other intercompany
service arrangements with BEC. This transaction resulted in an increase to
intangible assets of approximately $1,515,000 which is being amortized over a
six-year period.
Waters, McPherson, McNeill, P.C., a law firm of which Mr. McPherson, a
director of the Company, is Senior Lawyer and Chairman, provides legal services
to the Company, primarily relating to litigation involving the Company's former
distributor in Louisiana. As of December 31, 1994 and 1995, the Company was
indebted to the firm for approximately $200,000 and $480,000, respectively, for
legal services rendered. During the years ended December 31, 1993, 1994 and
1995, Waters, McPherson, McNeill, P.C. billed the Company approximately $1.0
million, $1.3 million and $1.5 million, respectively, for legal services
provided to the Company.
EMPLOYEE BENEFIT PLANS
Until February 28, 1994 the Company participated in BEC's defined
contribution plans which covered certain full-time employees and which were
considered part of the Company's overall retirement program. Effective March 1,
1994, the Company ceased its participation in BEC's defined contribution plans
and formed its own plan. This program consists of a savings plan to which
employees may contribute a percentage of their compensation. Employee
contributions to the savings plan, up to certain limits, may be matched by the
Company. The Company's contribution accrued for the savings plan for the years
ended December 31, 1993, 1994 and 1995 was approximately $91,000, $120,000 and
$140,000, respectively.
COMMITMENTS AND CONTINGENCIES
The Company is obligated under several patent agreements to pay royalties
ranging from approximately $50 to $200 per game depending on the components in
the gaming machines. Additionally, based on an amendment to the trademark
licensing agreement between the Company and BEC dated March 31, 1995, the
Company is obligated to pay a royalty on new machines sold of $25 to $30 per
machine beginning on March 31, 1995 with a minimum annual royalty payment of
$500,000 for the initial five-year term of the amended agreement, which is
subject to annual renewals thereafter. Royalty expense for the years ended
December 31, 1993, 1994 and 1995 was $1.1 million, $2.9 million and $3.0
million, respectively.
F-65
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum lease
payments at December 31, 1995 under operating leases that have initial or
remaining lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1996............................................................... $ 3,136
1997............................................................... 2,753
1998............................................................... 1,754
1999............................................................... 1,361
2000............................................................... 1,121
Thereafter......................................................... 1,844
---------
$ 11,969
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was $2.6
million, $2.7 million and $3.6 million, respectively.
The Company has entered into employment contracts with several of its
executives. These contracts are for periods ranging from one to five years and
require certain minimum annual payments. Future minimum annual payments under
these contracts are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 3,573
1997................................................................ 2,299
1998................................................................ 1,700
---------
$ 7,572
---------
---------
</TABLE>
In conjunction with sales by Gaming, with recourse to Gaming and/or the
Company, of certain trade receivables to third parties, Gaming and/or the
Company have guaranteed amounts due from various customers of approximately
$18.2 million at December 31, 1995. A charge was recognized as a result of these
sales of receivables which aggregated approximately $.5 million, $1.0 million
and $.1 million during 1993, 1994 and 1995, respectively. It is possible that
one or more of Gaming's customers whose obligation has been guaranteed by Gaming
may be unable to make payments as such become due. In this case Gaming may
become responsible for repayment of at least a portion of such amounts over the
term of the receivables. At December 31, 1995, amounts due from one customer
under three contracts totaling $3.5 million were past due and these amounts and
subsequent installments have not been paid. In general, under the terms of these
contracts, the Company may be responsible for monthly payments of the
outstanding obligations. The third party holder of these contracts has not yet
asserted demands under these contracts although such demands may be imminent.
The Company intends to pursue a restructuring of the contracts although no
assurance can be given that such a restructuring would be successfully
negotiated. The outcome of this issue is not anticipated to have a material
effect on the financial position, results of operations or cash flows of the
Company. A provision for doubtful accounts of approximately $3.5 million and
$6.3 million on all receivables with recourse is included in the Company's
allowance for doubtful accounts at December 31, 1994 and 1995, respectively.
On or about June 19, 1995, three purported class actions were filed in the
Chancery Court of Delaware by Company's stockholders against the Company and its
directors (the "Fiorella, Cignetti and Neuman Actions"). The Fiorella and Neuman
Actions, in identical complaints alleged that the Company's directors had
breached their fiduciary duties of good faith, fair dealing, loyalty and candor
by approving the Merger Agreement with WMS ("WMS Merger") instead of the
unsolicited tender offer transaction proposed by Alliance ("Alliance Proposal"),
by not properly exposing the Company for sale, and by failing to take all
reasonable steps to maximize stockholder value. These actions sought injunctions
to prevent the Company from proceeding with, consummating or closing the WMS
Merger, and to rescind it should it be consummated, as well as compensatory
damages. The Cignetti Action made similar allegations, and also alleged that
F-66
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
the Company had in place a shareholders' right plan, commonly know as a "poison
pill." The Cignetti Action sought an injunction requiring the Company to
negotiate with all bona fide parties or other potential acquirees or to conduct
an unencumbered market check in a manner designed to maximize shareholder value,
and preventing the Company from implementing any unlawful barriers to the
acquisition of the Company by any third party or taking other actions that would
lessen its attractiveness as an acquisition candidate. The Cignetti Action also
specifically requested an injunction barring triggering of the Company's alleged
"poison pill" until full consideration was given to the Alliance Proposal
(subsequently superseded by the execution of the Merger Agreement with
Alliance), and sought compensatory damages.
Also on or about June 19, 1995, a purported class action was filed in the
Delaware Court of Chancery by a Company stockholder against the Company and its
directors and Alliance (the "Strougo Action"). The Strougo Action alleged that
the Alliance Proposal (subsequently superseded by the execution of the Alliance
Merger Agreement) to acquire the Company stock was at a grossly unfair and
inadequate price; that the Company's directors had breached their fiduciary
duties by failing seriously to consider potential purchasers for the Company
other than Alliance; and that the transaction proposed by Alliance was wrongful,
unfair and harmful to the Company's public stockholders. The Strougo Action
sought a declaration that defendants had breached their fiduciary duties; an
injunction preventing the consummation of the Alliance transaction or requiring
its rescission; an order requiring defendants to permit a stockholders'
committee to participate in any process undertaken in connection with the sale
of the Company; and compensatory damages.
On or about July 6, 1995, the plaintiffs in the Fiorella, Cignetti, Neuman
Actions and the Strougo Action (collectively, the "Stockholder Plaintiffs")
filed with the Court a motion to consolidate the four actions.
On or about July 27, 1995, certain of the Stockholder Plaintiffs filed an
amended complaint (the "Amended Fiorella Action") that adopted certain
allegations concerning self-dealing by the Company's directors in connection
with the WMS Merger; added a claim relating to the Company's alleged failure to
hold an annual meeting as required and added WMS as defendant. The Amended
Fiorella Action also alleged that the Company intended, in violation of Delaware
law, to sell Wulff without first seeking stockholder approval of the sale. The
action sought an order enjoining defendants from proceeding with, consummating
or closing the WMS Merger, or rescinding it if it closed; preventing the sale of
Wulff without prior stockholder approval; declaring invalid the Company's
agreement to pay WMS a fee if the WMS Merger is terminated by the Company in
certain circumstances; compelling an auction of the Company and the provision of
due diligence to Alliance; scheduling an immediate meeting of the Company
stockholders; and awarding compensatory damages. The Company believes these
lawsuits to be without merit and intends to vigorously defend these actions.
On October 23, 1995, WMS instituted a suit in New York State Court against
the Company for the Company's failure to pay $4.8 million upon termination of
the WMS Merger. The Company believes this lawsuit to be without merit and
intends to vigorously defend this action. On November 22, 1995, the Company
answered the complaint and brought counterclaims against WMS alleging that WMS
repudiated and breached the WMS Merger by, among other things, failing to act in
good faith toward the consummation of the WMS Merger, advising the Company that
it would not perform as agreed but would impose new conditions on the WMS
Merger, acting in excess of its authority and undermining the ability of the
Company to perform the WMS Merger. On February 8, 1996 WMS moved for summary
judgement. The Company's response to that action is presently due on March 15,
1996. Pursuant to the Merger Agreement, Alliance has agreed to indemnify the
directors and officers of the Company in certain circumstances.
In June 1995, BEC asserted that a certain agreement between BEC and the
Company (the "Non-compete Agreement") prohibits the use by the Company of the
tradename "Bally" if it is merged with a company that is in the casino business
within or without the United States and operates such business prior to January
8, 1999. The Company believes such a claim is entirely without merit since the
restriction referred
F-67
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
to expired on January 8, 1996 and in any event does not relate to the use of the
"Bally" tradename, which is covered by the License Agreement. The restriction in
the Non-compete Agreement will not have any impact on the combined company after
the Merger since the effective time of the Alliance Merger contemplates a
closing of the Alliance Merger after the restriction in the Non-compete
Agreement lapses. BEC has not reasserted this position since it was informed by
the Company in July 1995 that the restriction lapses on January 8, 1996.
Consequently, the Company believes BEC has determined not to contest the
Company's position.
On February 16, 1996, the Company received notice from BEC alleging that the
Company has violated the License Agreement by, among other things, granting to
Marine Midland Business Loans, Inc. ("Marine Midland"), the lender which
provides Bally Gaming, Inc.'s revolving line of credit, a security interest in
general intangibles. In such notice, BEC also stated that as a result of the
foregoing, it was immediately terminating the License Agreement. The Company
does not believe that it has violated the terms of the License Agreement and the
Company will defend its position against BEC's claims.
BEC has also asserted that its permission is required for use of the "Bally"
tradename by any entity other than the Company and that a merger between the
Company and another company would violate the terms of the License Agreement.
The Company has denied these claims and believes that the surviving company in
the Alliance Merger will be permitted to use the "Bally" tradename in accordance
with the terms of such License Agreement. The Company believes that no breach of
such License Agreement is caused by the Alliance Merger and use of the "Bally"
tradename by the surviving corporation. In a letter dated November 9, 1995, BEC
reasserted its position. On November 20, 1995, Alliance, the Alliance Merger
Subsidiary and the Company commenced an action against BEC in Federal District
Court in Delaware seeking a declaratory judgment, among other things, that the
surviving company in the Alliance Merger will be permitted to use the "Bally"
tradename in accordance with the terms of the License Agreement, and seeking
injunctive relief (the "Alliance Action"). On November 28, 1995, BEC commenced
an action against the Company, Bally Gaming, Inc., Alliance and the Alliance
Merger Subsidiary in Federal District Court in New Jersey to enjoin the
defendants from using the "Bally" tradename (the "BEC Action"). The BEC Action
alleges that the Company's continued use of the tradename after the Alliance
Merger will (1) constitute a prohibited assignment of the Company's rights to
use the tradename and (2) exceed the scope of the license granted to the Company
because the Company will be under the control of Alliance. Also on November 28,
1995, BEC filed a motion to dismiss, transfer to New Jersey, or stay the
Alliance Action pending resolution of the BEC Action. On December 15, 1995 BEC
filed a motion to dismiss, transfer to New Jersey or stay the Alliance Action
pending resolution of the BEC Action. On December 15, 1995, BEC filed a motion
for a preliminary injunction in the BEC Action. At a hearing on January 17,
1996, the court declined to issue a preliminary injunction, but held BEC's
motion in abeyance pending the defendant's motion to dismiss and for summary
judgment, which defendants had filed on December 26, 1995. After a second
hearing on February 20, 1996 the court stated it would attempt to rule on both
motions in fourteen days. The Company, Bally Gaming Inc., Alliance and the
Alliance Merger Subsidiary intend to vigorously defend their position in these
actions.
In 1994, after an intensive federal investigation of Gaming's former
distributor, eighteen individuals were indicted on charges of racketeering and
fraud against Gaming and the Louisiana regulatory system. Among those indicted
were the former distributor's stockholders, directors, employees and others
alleged to be associated with organized crime. Fifteen entered pleas of guilty
before trial and the remaining three were convicted in October 1995. Gaming was
never a subject or target of the federal investigation.
Prior to the conclusion of the federal case, the Company's activities with
regard to its former VLT distributor in Louisiana were the subject of inquiries
by gaming regulators and a report by the New Jersey Division of Gaming
Enforcement ("DGE") dated August 24, 1995. The New Jersey Casino Control
Commission ("CCC") has indicated that it may hold a hearing on the matter, but
no date has been set at this time.
F-68
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The New Jersey report makes no specific recommendations for action by the CCC.
The gaming authorities in Ontario, Canada, who have investigated the matters,
have issued a gaming registration to the Company's subsidiary Bally Gaming, Inc.
on February 8, 1996.
The DGE's report is similar in many respects to one prepared by the
President of the Louisiana Economic Development and Gaming Corporation ("LEDGC")
in January 1995. Hearings on that report were held in January 1995 and on
February 7, 1995 the Board of Directors of the LEDGC found all of the
allegations in its President's report to be without merit and granted a license
to the Company and has announced that it will continue to monitor the Company's
conduct in light of any further information disclosed as a result of the trial
of the eighteen defendants (all of whom have now plead, or been found, guilty)
and other regulatory proceedings. In November 1995, the operator of the land
based casino in New Orleans filed for bankruptcy reorganization and ceased
operations. That action resulted in the termination of funding for the LEDGC
regulatory operations and, shortly thereafter, the Attorney General of Louisiana
took control of the agency and effectively closed its operations. LEDGC's
President and employees were dismissed. The foregoing occurred prior to the
completion of review of the Company's pending application.
The Company believes that the information contained in the DGE's report does
not differ in any material respect from the prior report to the LEDGC the
conclusions of which were found to be without merit in February 1995. An adverse
determination by a gaming regulator in any jurisdiction could result in the loss
of the Company's ability to do business in that jurisdiction. Further regulatory
scrutiny in other jurisdictions would be likely to follow. The Company would
appeal any adverse finding, as was the case when the Company successfully
appealed the LEDGC President's decision in January 1995.
On September 25, 1995, the Company was named as defendant in a class action
lawsuit filed in the United States District Court, District of Nevada, by Larry
Schreier on behalf of himself and all others similarly situated (the
"plaintiffs"). The plaintiffs filed suit against the Company and approximately
45 other defendants (each a "defendant," and collectively the "defendants").
Each defendant is involved in the gaming business as either a gaming machine
manufacturer, distributor, or casino operator. The class action lawsuit arises
out of alleged fraudulent marketing and operation of casino video poker machines
and electronic slot machines. The plaintiffs allege that the defendants have
engaged in a course of fraudulent and misleading conduct intended to induce
people in playing their gaming machines based on a false belief concerning how
those machines actually operate as well as the extent to which there is actually
an opportunity to win on any given play. The plaintiffs allege that the
defendants' actions constitute violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and give rise to claims of common law fraud
and unjust enrichment. The plaintiffs are seeking monetary damages in excess of
one billion dollars, and are asking that any damage awards be trebled under
applicable federal law. The Company believes the plaintiffs' lawsuit to be
without merit and intends to vigorously defend these actions.
While the ultimate results of the matters described above are not presently
known, management does not expect that the results will have a material adverse
effect on the Company's results of operations, financial position or cash flows.
The Company and its subsidiaries are from time to time also subject to
litigation incidental to the conduct of their business. The Company believes
that the results of such litigation and other pending legal proceedings will not
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
CONCENTRATION OF CREDIT RISK
The financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts and notes
receivable and customer obligations guaranteed by the Company.
F-69
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Product sales and the resulting receivables are concentrated in specific
legalized gaming regions. The Company also distributes its products through
third party distributors resulting in distributor receivables. At December 31,
1995 net accounts and notes receivable, including obligations of various
customers which are guaranteed by the Company, by region as a percentage to
total net receivables are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------
WULFF GAMING SYSTEMS TOTAL
----- ------ ------- ------
<S> <C> <C> <C> <C>
Germany................................................................................... 47.0% --% --% 47.0%
Mississippi Riverboats.................................................................... -- 9.5 -- 9.5
Other Riverboat Casinos................................................................... -- 1.3 -- 1.3
Nevada.................................................................................... -- 15.0 1.8 16.8
Atlantic City............................................................................. -- 2.0 2.0 4.0
International............................................................................. -- 8.0 1.6 9.6
Louisiana................................................................................. -- 1.6 .1 1.7
New Mexico Indian Casinos................................................................. -- 5.6 .2 5.8
Other Indian Casinos...................................................................... -- 1.8 .3 2.1
Others individually less than 5%.......................................................... -- 2.2 -- 2.2
--
----- ------ ------
47.0% 47.0% 6.0% 100.0%
--
--
----- ------ ------
----- ------ ------
</TABLE>
Gaming's receivables and customer obligations guaranteed by Gaming and/or
the Company, from riverboat casinos and casinos on Indian land generally
represent sales to recently opened casinos and, in many cases, new customers to
Gaming. Approximately 43% of the accounts and notes receivable and customer
obligations guaranteed by the Company at December 31, 1995 relate to these
emerging markets including approximately 25% to three customers operating in
Mississippi. Receivables and customer obligations guaranteed by the Company from
emerging market customers contain increased risk factors compared to receivables
at Wulff or other traditional markets for Gaming.
In early 1995, the Governor of the State of New Mexico signed compacts with
certain Indian tribes to permit casino gaming on tribal lands in New Mexico.
These compacts went through appropriate federal approval processes and a number
of casinos began operating. In July 1995 the Supreme Court of New Mexico found
that the Governor did not have proper authority to sign the compacts. The Indian
tribes have filed a lawsuit in federal court to seek resolution to this issue.
Gaming and Systems had sold product to the Indian tribes prior to this ruling.
At December 31, 1995, the Company has $5.5 million in accounts and notes
receivable from an operator of two casinos for two different Indian tribes
including $2.1 million of trade receivables sold to a third party with recourse
to Gaming. This operator is currently four months ahead on payments. No
provision for doubtful accounts for this customer has been included in the
accompanying financial statements at December 31, 1995. Management believes the
receivable is properly valued at December 31, 1995. As events change during 1996
management will reevaluate its estimate of the realizability of the receivable.
CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating financial statements are presented to provide
information regarding Bally Gaming, Inc., as guarantor of the Senior Secured
Notes, and Bally Wulff Automaten GmbH and Bally Wulff Vertriebs GmbH, because
substantially all of the common stock of these entities is pledged as collateral
for the Senior Secured Notes. The results herein are presented by each legal
entity rather than by business segment as presented elsewhere in these financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations. Such business segment information of Bally Gaming, Inc.,
Automaten and Vertriebs includes an allocation of parent company revenues and
expenses whereas the following consolidating financial statements do not reflect
these allocations to the subsidiaries. The notes to consolidating financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto.
F-70
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY BALLY BALLY CONSOLIDATING BALLY GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
--------- --------- -------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,362 $ 7,487 $ 355 $ -- $ -- $ 9,204
Accounts and notes receivable, net of
allowance for doubtful accounts of
$19, $5,659 and $6,604 for Automaten,
Vertriebs and Gaming................. 2,813 46,342 38,773 2,903 (6,199) 84,632
Inventories, net:
Raw materials and work-in-process... 5,063 -- 16,019 -- -- 21,082
Finished goods...................... 2,442 9,413 17,599 -- (1,077) 28,377
--------- --------- -------- -------- ------------- --------------
7,505 9,413 33,618 -- (1,077) 49,459
Other current assets.................. 1,446 2,957 650 196 (175) 5,074
--------- --------- -------- -------- ------------- --------------
Total current assets.............. 13,126 66,199 73,396 3,099 (7,451) 148,369
Long-term notes receivables, net of
allowance for doubtful accounts of $35
and $8,163 for Vertriebs and Gaming.... -- 1,186 4,372 -- -- 5,558
Long-term receivables from affiliate.... 23,314 -- -- 29,014 (52,328) --
Property, plant and equipment, at cost:
Land.................................. -- 332 1,025 -- -- 1,357
Buildings and leasehold
improvements......................... 1,648 7,705 9,909 -- -- 19,262
Machinery and equipment............... 11,174 7,072 8,390 -- -- 26,636
Furniture, fixtures and equipment..... 828 2,181 5,335 -- (2,269) 6,075
Less accumulated depreciation......... (11,615) (5,978) (11,844 ) -- 465 (28,972)
--------- --------- -------- -------- ------------- --------------
Property, plant and equipment,
net.............................. 2,035 11,312 12,815 -- (1,804) 24,358
Intangible assets, less accumulated
amortization of $197, $11,131, $69 and
$1,212 for Automaten, Vertriebs, Gaming
and Parent............................. -- 5,773 181 5,456 -- 11,410
Investment in subsidiaries.............. -- -- -- 90,766 (90,766) --
Other assets............................ 337 586 113 1,511 -- 2,547
--------- --------- -------- -------- ------------- --------------
$38,812 $85,056 $90,877 $129,846 $(152,349) $192,242
--------- --------- -------- -------- ------------- --------------
--------- --------- -------- -------- ------------- --------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable...................... $ 411 $ 4,064 $18,880 $ 891 $ (4,974) $ 19,272
Accrued liabilities and other
payables:
Compensation and benefit related
liabilities........................ 2,287 612 2,433 630 -- 5,962
Interest............................ -- -- -- 1,890 -- 1,890
Other............................... 1,461 4,065 4,495 186 (734) 9,473
--------- --------- -------- -------- ------------- --------------
3,748 4,677 6,928 2,706 (734) 17,325
Current maturities of long-term
debt................................. -- 13,756 1,350 894 -- 16,000
--------- --------- -------- -------- ------------- --------------
Total current liabilities......... 4,159 22,497 27,158 4,491 (5,708) 52,597
Long-term payables to affiliate......... -- 26,741 29,014 -- (55,755) --
10 3/8% Senior Secured Notes due 1998,
net of unamortized discount of $458.... -- -- -- 39,542 -- 39,542
Other long-term debt, less current
maturities............................. -- 5,006 7,927 1,287 -- 14,220
Commitments and contingencies
Stockholders' equity:
Preferred stock....................... -- -- -- -- -- --
Common stock.......................... 2,638 15,142 -- 107 (17,780) 107
Additional paid-in-capital............ 19,191 6,455 34,596 73,852 (66,336) 67,758
Retained earnings (accumulated
deficit)............................. 6,199 1,433 (7,818 ) 11,550 (6,129) 5,235
Cumulative translation adjustments.... 6,625 7,782 -- (206) (641) 13,560
Unearned compensation................. -- -- -- (777) -- (777)
--------- --------- -------- -------- ------------- --------------
Total stockholders' equity.......... 34,653 30,812 26,778 84,526 (90,886) 85,883
--------- --------- -------- -------- ------------- --------------
$38,812 $85,056 $90,877 $129,846 $(152,349) $192,242
--------- --------- -------- -------- ------------- --------------
--------- --------- -------- -------- ------------- --------------
</TABLE>
See accompanying notes.
F-71
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY
BALLY BALLY BALLY CONSOLIDATING GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 1,353 $ 3,240 $ 933 $ -- $ -- $ 5,526
Accounts and notes receivable, net of
allowance for doubtful accounts of $19,
$7,201, and $9,061 for Automaten, Vertriebs
and Gaming................................. 1,804 51,110 38,948 4,772 (9,458) 87,176
Inventories, net:
Raw materials and work-in-process........... 4,974 -- 11,092 -- -- 16,066
Finished goods.............................. 3,548 12,340 21,020 -- (1,383) 35,525
----------- ----------- --------- --------- ------------- -------------
8,522 12,340 32,112 -- (1,383) 51,591
Other current assets........................ 1,236 1,443 651 560 93 3,983
----------- ----------- --------- --------- ------------- -------------
Total current assets...................... 12,915 68,133 72,644 5,332 (10,748) 148,276
Long-term notes receivables, net of allowance
for doubtful accounts of $48 and $7,821 for
Vertriebs and Gaming......................... -- 1,654 8,327 -- -- 9,981
Long-term receivables from affiliate.......... 23,208 -- -- 28,380 (51,588) --
Property, plant and equipment, at cost:
Land........................................ -- 332 1,025 -- -- 1,357
Buildings and leasehold improvements........ 1,571 8,375 9,925 -- -- 19,871
Machinery and equipment..................... 11,913 9,617 8,798 -- -- 30,328
Furniture, fixtures and equipment........... 812 2,520 5,909 -- (3,079) 6,162
Less accumulated depreciation............... (12,964) (8,787) (13,587) -- 864 (34,474)
----------- ----------- --------- --------- ------------- -------------
Property, plant and equipment, net.......... 1,332 12,057 12,070 -- (2,215) 23,244
Intangible assets, less accumulated
amortization of $11,527, $94 and $2,099 for
Vertriebs, Gaming and Parent................. -- 6,089 156 4,569 -- 10,814
Investment in subsidiaries.................... -- -- -- 90,766 (90,766) --
Other assets.................................. 332 561 113 497 498 2,001
----------- ----------- --------- --------- ------------- -------------
$ 37,787 $ 88,494 $ 93,310 $ 129,544 $ (154,819) $ 194,316
----------- ----------- --------- --------- ------------- -------------
----------- ----------- --------- --------- ------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable............................ $ 557 $ 6,386 $ 19,342 $ 31 $ (7,760) $ 18,556
Accrued liabilities and other payables:
Compensation and benefit related
liabilities.............................. 2,335 955 2,318 -- -- 5,608
Interest.................................. -- -- -- 1,890 -- 1,890
Other..................................... 1,472 3,546 4,293 617 (20) 9,908
----------- ----------- --------- --------- ------------- -------------
3,807 4,501 6,611 2,507 (20) 17,406
Current maturities of long-term debt........ -- 14,333 212 412 -- 14,957
----------- ----------- --------- --------- ------------- -------------
Total current liabilities................. 4,364 25,220 26,165 2,950 (7,780) 50,919
Long-term payables to affiliate............... -- 26,421 28,380 -- (54,801) --
10 3/8% Senior Secured Notes due 1998, net of
unamortized discount of $344................. -- -- -- 39,656 -- 39,656
Other long-term debt, less current
maturities................................... -- 4,721 9,435 1,175 -- 15,331
Commitments and contingencies
Stockholders' equity:
Preferred stock............................. -- -- -- -- -- --
Common stock................................ 2,638 15,142 -- 108 (17,780) 108
Additional paid-in-capital.................. 19,191 6,455 34,596 74,439 (66,336) 68,345
Retained earnings(accumulated deficit)...... 2,155 286 (5,273) 11,969 (7,295) 1,842
Cumulative translation adjustments.......... 9,439 10,249 7 (206) (827) 18,662
Unearned compensation....................... -- -- -- (547) -- (547)
----------- ----------- --------- --------- ------------- -------------
Total stockholders' equity................ 33,423 32,132 29,330 85,763 (92,238) 88,410
----------- ----------- --------- --------- ------------- -------------
$ 37,787 $ 88,494 $ 93,310 $ 129,544 $ (154,819) $ 194,316
----------- ----------- --------- --------- ------------- -------------
----------- ----------- --------- --------- ------------- -------------
</TABLE>
See accompanying notes.
F-72
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales.............................. $ 42,437 $ 100,287 $ 59,709 $ -- $ (37,862) $ 164,571
Other.............................. 1,497 3,083 807 1,479 (2,730) 4,136
----------- ---------- ---------- --------- ------------- -------------
43,934 103,370 60,516 1,479 (40,592) 168,707
----------- ---------- ---------- --------- ------------- -------------
Costs and expenses:
Cost of sales...................... 26,937 81,611 51,888 -- (38,726) 121,710
Selling, general and
administrative.................... 6,737 19,608 24,498 6,531 (17) 57,357
Provision (credit) for doubtful
receivables....................... (13) 326 7,363 500 -- 8,176
----------- ---------- ---------- --------- ------------- -------------
33,661 101,545 83,749 7,031 (38,743) 187,243
----------- ---------- ---------- --------- ------------- -------------
Operating income (loss).............. 10,273 1,825 (23,233) (5,552) (1,849) (18,536)
Interest expense..................... 21 1,873 2,849 2,180 (2,499) 4,424
----------- ---------- ---------- --------- ------------- -------------
Income (loss) before income taxes and
extraordinary gain.................. 10,252 (48) (26,082) (7,732) 650 (22,960)
Provision (benefit) for income
taxes............................... 3,705 (557) 10 -- 1,084 4,242
----------- ---------- ---------- --------- ------------- -------------
Income (loss) before extraordinary
gain................................ 6,547 509 (26,092) (7,732) (434) (27,202)
Extraordinary gain on early
extinguishment of debt.............. -- -- 3,759 -- -- 3,759
----------- ---------- ---------- --------- ------------- -------------
Net income (loss).................... $ 6,547 $ 509 $ (22,333) $ (7,732) $ (434) $ (23,443)
----------- ---------- ---------- --------- ------------- -------------
----------- ---------- ---------- --------- ------------- -------------
</TABLE>
See accompanying notes.
F-73
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales............................. $ 47,419 $ 99,218 $ 130,452 $ -- $ (45,771) $ 231,318
Other............................. 1,189 3,578 776 2,856 (3,525) 4,874
----------- ---------- ---------- --------- ------------- -------------
48,608 102,796 131,228 2,856 (49,296) 236,192
----------- ---------- ---------- --------- ------------- -------------
Costs and expenses:
Cost of sales..................... 30,988 79,589 91,107 -- (44,625) 157,059
Selling, general and
administrative................... 6,656 19,408 28,135 5,862 (72) 59,989
Provision for doubtful
receivables...................... 11 1,894 3,858 -- -- 5,763
----------- ---------- ---------- --------- ------------- -------------
37,655 100,891 123,100 5,862 (44,697) 222,811
----------- ---------- ---------- --------- ------------- -------------
Operating income (loss)............. 10,953 1,905 8,128 (3,006) (4,599) 13,381
Interest expense.................. 2 1,648 3,871 4,486 (3,239) 6,768
----------- ---------- ---------- --------- ------------- -------------
Income (loss) before income taxes... 10,951 257 4,257 (7,492) (1,360) 6,613
Provision (benefit) for income
taxes.............................. 3,885 (1,019) 1,685 (1,465) (266) 2,820
----------- ---------- ---------- --------- ------------- -------------
Net income (loss)................... $ 7,066 $ 1,276 $ 2,572 $ (6,027) $ (1,094) $ 3,793
----------- ---------- ---------- --------- ------------- -------------
----------- ---------- ---------- --------- ------------- -------------
</TABLE>
See accompanying notes.
F-74
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY
BALLY BALLY CONSOLIDATING GAMING
BALLY WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales............................ $ 52,263 $ 117,618 $ 127,985 $ -- $ (53,395) $ 244,471
Other............................ 889 3,477 1,155 2,911 (3,591) 4,841
----------- ---------- ---------- ---------- ------------- -------------
53,152 121,095 129,140 2,911 (56,986) 249,312
----------- ---------- ---------- ---------- ------------- -------------
Costs and expenses:
Cost of sales.................... 35,337 95,483 85,270 -- (52,959) 163,131
Selling, general and
administrative.................. 7,433 22,492 30,365 5,044 (45) 65,289
Provision for doubtful
receivables..................... -- 1,697 5,015 -- -- 6,712
Unusual charges.................. 799 1,038 125 3,854 -- 5,816
----------- ---------- ---------- ---------- ------------- -------------
43,569 120,710 120,775 8,898 (53,004) 240,948
----------- ---------- ---------- ---------- ------------- -------------
Operating income................... 9,583 385 8,365 (5,987) (3,982) 8,364
Interest expense................... 1 1,398 4,155 4,613 (3,314) 6,853
----------- ---------- ---------- ---------- ------------- -------------
Income (loss) before income
taxes............................. 9,582 (1,013) 4,210 (10,600) (668) 1,511
Provision (benefit) for income
taxes............................. 3,987 134 1,665 (1,380) 498 4,904
----------- ---------- ---------- ---------- ------------- -------------
Net income (loss).................. $ 5,595 $ (1,147) $ 2,545 $ (9,220) $ (1,166) $ (3,393)
----------- ---------- ---------- ---------- ------------- -------------
----------- ---------- ---------- ---------- ------------- -------------
</TABLE>
See accompanying notes.
F-75
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF BALLY WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 6,547 $ 509 $ (22,333) $ (7,732) $ (434) $ (23,443)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Extraordinary gain on early extinguishment
of debt...................................... -- -- (3,759) -- -- (3,759)
Depreciation and amortization................. 1,609 2,466 2,221 1,557 250 8,103
Deferred income taxes......................... -- 163 -- -- -- 163
Provision for doubtful receivables............ (13) 326 7,363 500 -- 8,176
Provision for inventory valuation reserves.... -- -- 6,156 -- -- 6,156
(Gain) loss on disposals of property, plant
and equipment................................ (40) 15 89 -- -- 64
Changes in operating assets and liabilities:
Accounts and notes receivable............... 6,842 (3,384) (15,213) (957) (4,936) (17,648)
Inventories................................. (2,987) 3,411 (15,290) -- (211) (15,077)
Other current assets........................ (824) 481 126 (423) (894) (1,534)
Accounts payable and accrued liabilities.... (2,759) (5,814) 12,060 423 5,807 9,717
Other........................................... -- -- -- -- (466) (466)
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) operating
activities................................. 8,375 (1,827) (28,580) (6,632) (884) (29,548)
----------- ----------- ----------- --------- ------------- -------------
Cash flows from investing activities:
Net assets of distribution business acquired.... -- (8,382) -- -- -- (8,382)
Purchases of property, plant and equipment...... (1,541) (3,298) (1,628) -- -- (6,467)
Proceeds from disposals of property, plant and
equipment...................................... 57 585 449 -- -- 1,091
Other........................................... -- -- 110 -- 241 351
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) investing
activities................................. (1,484) (11,095) (1,069) -- 241 (13,407)
----------- ----------- ----------- --------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of Senior Secured Notes.... -- -- -- 40,000 -- 40,000
Net change in lines of credit..................... -- 20,825 5,667 2,219 -- 28,711
Repayments of long-term debt...................... -- (7,376) (415) (21,970) -- (29,761)
Change in payables to/receivables from
affiliates....................................... -- -- 21,170 (21,813) 643 --
Exercise of stock warrants........................ -- -- -- 30 -- 30
Intercompany dividends............................ (8,167) -- -- 8,167 -- --
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) financing
activities................................. (8,167) 13,449 26,422 6,633 643 38,980
Effect of exchange rate changes on cash........... (69) (320) -- -- -- (389)
----------- ----------- ----------- --------- ------------- -------------
Increase (decrease) in cash and cash
equivalents...................................... (1,345) 207 (3,227) 1 -- (4,364)
Cash and cash equivalents, beginning of period.... 1,844 4,400 3,556 -- -- 9,800
----------- ----------- ----------- --------- ------------- -------------
Cash and cash equivalents, end of period.......... $ 499 $ 4,607 $ 329 $ 1 $ -- $ 5,436
----------- ----------- ----------- --------- ------------- -------------
----------- ----------- ----------- --------- ------------- -------------
Supplemental cash flows information:
Operating activities include cash payments
(receipts) for interest and income taxes as
follows:
Interest paid................................. $ 22 $ 942 $ 327 $ 1,619 $ -- $ 2,910
Income taxes paid (received).................. 5,732 1,077 -- (355) -- 6,454
Investing activities exclude the following
non-cash activities:
Exchange of income tax receivable for
intangible assets and equipment.............. -- -- 454 1,515 -- 1,969
Financing activities exclude the following
non-cash activities:
Issuance of restricted stock awards........... -- -- -- 1,150 -- 1,150
</TABLE>
See accompanying notes.
F-76
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF BALLY WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ 7,066 $ 1,276 $ 2,572 $ (6,027) $ (1,094) $ 3,793
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............... 2,556 2,491 1,974 1,342 (92) 8,271
Deferred income taxes....................... (415) (56) -- -- 175 (296)
Provision for doubtful receivables.......... 11 1,894 3,858 -- -- 5,763
Provision for inventory valuation........... -- -- 2,230 -- -- 2,230
(Gain) loss on disposals of property, plant
and equipment.............................. -- 6 (89) -- -- (83)
Changes in operating assets and liabilities:
Accounts and notes receivable............. (2,237) (3,099) (9,783) (644) (60) (15,823)
Inventories............................... 1,096 476 (5,573) -- 112 (3,889)
Other current assets...................... 286 (1,711) 139 572 1 (713)
Accounts payable and accrued
liabilities.............................. 1,708 (342) 2,396 (912) (120) 2,730
Other....................................... 450 (759) -- 183 (633) (759)
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) operating
activities............................. 10,521 176 (2,276) (5,486) (1,711) 1,224
----------- ----------- ----------- --------- ------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment.... (3,086) (4,363) (2,088) -- -- (9,537)
Proceeds from disposals of property, plant and
equipment.................................... -- 1,414 335 -- -- 1,749
Other......................................... -- -- 268 -- 1,129 1,397
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) investing
activities............................. (3,086) (2,949) (1,485) -- 1,129 (6,391)
----------- ----------- ----------- --------- ------------- -------------
Cash flows from financing activities:
Net change in lines of credit................. -- 16,192 4,419 812 -- 21,423
Repayments of long-term debt.................. -- (11,675) (704) (813) -- (13,192)
Change in payables to/receivables from
affiliates................................... -- -- 72 (654) 582 --
Dividends to/from affiliate................... (6,654) 514 -- 6,140 -- --
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) financing
activities............................. (6,654) 5,031 3,787 5,485 582 8,231
Effect of exchange rate changes on cash....... 82 622 -- -- -- 704
----------- ----------- ----------- --------- ------------- -------------
Increase (decrease) in cash and cash
equivalents.................................. 863 2,880 26 (1) -- 3,768
Cash and cash equivalents, beginning of
year......................................... 499 4,607 329 1 -- 5,436
----------- ----------- ----------- --------- ------------- -------------
Cash and cash equivalents, end of year........ $ 1,362 $ 7,487 $ 355 $ -- $ -- $ 9,204
----------- ----------- ----------- --------- ------------- -------------
----------- ----------- ----------- --------- ------------- -------------
Supplemental cash flows information:
Operating activities include cash payments
(receipts) for interest and income taxes as
follows:
Interest paid............................... $ 3 $ 981 $ 789 $ 4,199 $ -- $ 5,972
Income taxes paid (received)................ 4,038 (105) 12 75 -- 4,020
Investing activities exclude the following
non-cash activities:
Capital contribution to affiliate........... -- -- -- (5,492) -- (5,492)
Long-term notes received from sale of
assets..................................... -- -- 517 -- -- 517
Financing activities exclude the following
non-cash activities:
Capital contribution from affiliate......... 899 4,593 -- -- -- 5,492
Issuance of Company common stock under
compensation agreement..................... -- -- -- 222 -- 222
Issuance of notes payable for license
agreement.................................. -- -- -- 1,465 -- 1,465
</TABLE>
See accompanying notes.
F-77
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF BALLY WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ 5,595 $ (1,147) $ 2,545 $ (9,220) $ (1,166) $ (3,393)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............... 2,602 3,120 2,029 1,312 (110) 8,953
Deferred income taxes....................... -- 63 -- -- (841) (778)
Provision for doubtful receivables.......... -- 1,697 5,015 -- -- 6,712
Provision for inventory valuation........... -- -- 1,955 -- -- 1,955
Provision for writedown of building to be
sold....................................... -- 812 -- -- -- 812
(Gain) loss on disposals of property, plant
and equipment.............................. (17) 67 (2) -- -- 48
Changes in operating assets and liabilities:
Accounts and notes receivable............... 1,223 (2,855) (8,672) -- -- (10,304)
Inventories................................. (393) (2,140) 142 -- 224 (2,167)
Other current assets........................ (119) 1,763 (1) (364) -- 1,279
Accounts payable and accrued liabilities.... 239 1,240 (1,235) (1,139) 1,473 578
Other, net.................................... (1) (402) 7 819 (323) 100
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) operating
activities............................... 9,129 2,218 1,783 (8,592) (743) 3,795
----------- ----------- ----------- --------- ------------- -------------
Cash flows from investing activities:
Purchases of property, plant and
equipment.................................... (1,694) (5,468) (1,078) -- -- (8,240)
Proceeds from disposals of property, plant and
equipment.................................... 24 1,728 5 -- -- 1,757
Other......................................... -- -- (10) -- 260 250
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) investing
activities............................... (1,670) (3,740) (1,083) -- 260 (6,233)
----------- ----------- ----------- --------- ------------- -------------
Cash flows from financing activities:
Net change in lines of credit................. -- (1,273) 1,632 -- -- 359
Repayments of long-term debt.................. -- (2) (2,287) (620) 1 (2,908)
Change in payables to/receivables from
affiliates................................... 2,058 (2,058) 533 (1,015) 482 --
Exercise of stock options..................... -- -- -- 588 -- 588
Dividends to/from affiliates.................. (9,639) -- -- 9,639 -- --
----------- ----------- ----------- --------- ------------- -------------
Cash provided by (used in) financing
activities............................... (7,581) (3,333) (122) 8,592 483 (1,961)
Effect of exchange rate changes on cash....... 113 608 -- -- -- 721
----------- ----------- ----------- --------- ------------- -------------
Increase (decrease) in cash and cash
equivalents.................................. (9) (4,247) 578 -- -- (3,678)
Cash and cash equivalents, beginning of
period....................................... 1,362 7,487 355 -- -- 9,204
----------- ----------- ----------- --------- ------------- -------------
Cash and cash equivalents, end of period...... $ 1,353 $ 3,240 $ 933 $ -- $ -- $ 5,526
----------- ----------- ----------- --------- ------------- -------------
----------- ----------- ----------- --------- ------------- -------------
Supplemental cash flows information:
Operating activities include cash payments
(receipts) for interest and income taxes as
follows:
Interest paid............................... $ 1 $ 1,335 $ 1,178 $ 4,374 $ -- $ 6,888
Income taxes paid (refunded), net........... 3,104 (1,694) 85 306 -- 1,801
</TABLE>
See accompanying notes.
F-78
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
These notes to consolidating financial statements should be read in
conjunction with the consolidated financial statements and notes thereto.
Certain reclassifications have been made to prior years' financial
statements to conform with the 1995 presentation.
Hereafter, references to the Company are to the subsidiaries of Bally Gaming
International, Inc.
RESEARCH AND DEVELOPMENT
The Company expenses product research and development costs as incurred.
Research and development costs for the years ended December 31, 1993, 1994 and
1995 were:
<TABLE>
<CAPTION>
BALLY GAMING
BALLY WULFF BALLY WULFF BALLY GAMING, INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. INC.
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1993................................... $ 3,350 $ -- $ 4,440 $ 7,790
----------- ----- ------ ------
----------- ----- ------ ------
1994................................... $ 3,546 $ -- $ 5,199 $ 8,745
----------- ----- ------ ------
----------- ----- ------ ------
1995................................... $ 3,561 $ -- $ 5,639 $ 9,200
----------- ----- ------ ------
----------- ----- ------ ------
</TABLE>
ACCOUNTS AND NOTES RECEIVABLE
The following table represents, at December 31, 1995, scheduled collections
of accounts and notes receivable (net of allowances for doubtful accounts) by
year:
<TABLE>
<CAPTION>
CONSOLIDATING BALLY GAMING
BALLY WULFF BALLY WULFF BALLY AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS GAMING, INC. PARENT ADJUSTMENTS INC.
----------- ----------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1996.................... $ 1,804 $ 51,110 $ 38,948 $ 4,772 $ (9,458) $ 87,176
1997.................... -- 1,464 6,786 -- -- 8,250
1998.................... -- 190 1,541 -- -- 1,731
----------- ----------- ------------ --------- ------------- -------------
$ 1,804 $ 52,764 $ 47,275 $ 4,772 $ (9,458) $ 97,157
----------- ----------- ------------ --------- ------------- -------------
----------- ----------- ------------ --------- ------------- -------------
</TABLE>
LONG-TERM DEBT
Aggregate annual maturities of long-term debt for the five years after
December 31, 1995 are:
<TABLE>
<CAPTION>
BALLY GAMING
BALLY WULFF BALLY GAMING, INTERNATIONAL,
VERTRIEBS INC. PARENT INC.
----------- ------------- --------- -------------
<S> <C> <C> <C> <C>
1996..................................... $ 14,333 $ 212 $ 412 $ 14,957
1997..................................... 1,572 9,435 456 11,463
1998..................................... 3,149 -- 40,468 43,617
1999..................................... -- -- 251 251
2000..................................... -- -- -- --
----------- ------ --------- -------------
Total.................................... $ 19,054 $ 9,647 $ 41,587 $ 70,288
----------- ------ --------- -------------
----------- ------ --------- -------------
</TABLE>
F-79
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
OTHER REVENUES
Other revenues for the year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
BALLY BALLY CONSOLIDATING BALLY GAMING
WULFF WULFF BALLY AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS GAMING, INC. PARENT ADJUSTMENTS INC.
--------- --------- ------------ ------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest.......................................... $ 294 $2,932 $608 $2,943 $(3,239) $3,538
Currency transaction gain (loss).................. 3 52 2 (87) -- (30)
Other............................................. 892 594 166 -- (286) 1,366
--------- --------- ----- ------ ------------- ------
$1,189 $3,578 $776 $2,856 $(3,525) $4,874
--------- --------- ----- ------ ------------- ------
--------- --------- ----- ------ ------------- ------
</TABLE>
Other revenues for the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
BALLY BALLY CONSOLIDATING BALLY GAMING
WULFF WULFF BALLY AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS GAMING, INC. PARENT ADJUSTMENTS INC.
--------- --------- ------------ ------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest.......................................... $362 $2,626 $ 962 $2,979 $(3,314) $3,615
Currency transaction gain (loss).................. -- 62 (29) (68) (18) (53)
Other............................................. 527 789 222 -- (259) 1,279
--------- --------- ------ ------ ------------- ------
$889 $3,477 $1,155 $2,911 $(3,591) $4,841
--------- --------- ------ ------ ------------- ------
--------- --------- ------ ------ ------------- ------
</TABLE>
UNUSUAL CHARGES
During the year ended December 31, 1995, Parent and Bally Gaming, Inc.
incurred approximately $3.9 million and $.1 million, respectively, in legal,
accounting, investment banking, public and investor relations and printing costs
in connection with the merger agreement with WMS Industries, Inc., which has
since been terminated, Alliance's tender offer and consent solicitation and the
pending Alliance Merger. All of these costs have been expensed as incurred. Such
costs will continue to be incurred in 1996.
During the fourth quarter of 1995, Vertriebs recorded a non-recurring charge
of $.8 million to writedown to net realizable value a building to be sold. The
provision was based on a strategic decision to sell the building as Wulff's
other distribution offices adequately covered the geographic region that would
have been served by this facility.
During 1995, Wulff increased the amount of value added tax reserves by $1.0
million as a result of developments to date in an ongoing quadrennial audit of
Wulff's tax returns for the years 1988 through 1991. While no written claim or
assessment has been issued, the German tax authorities have orally proposed
preliminary adjustments which range from $1.4 million (which has been accrued)
to $5.0 million. The Company has accrued the liability as, based on current
developments, the Company's estimate of the ultimate outcome and its experience
in contesting these matters, it is probable that a liability has been incurred
and a range of costs can be reasonably estimated. As the scope of the liability
is better determined, there could be changes in the estimate of the ultimate
liability. Management believes that the preliminary proposed adjustments are
without merit and the ultimate results of the audit will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
F-80
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE INDICATED)
COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum lease
payments at December 31, 1995 under operating leases that have initial or
remaining lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
BALLY GAMING
BALLY WULFF BALLY WULFF BALLY INTERNATIONAL,
AUTOMATEN VERTRIEBS GAMING, INC. INC.
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
1996.............................................. $ 608 $1,610 $ 918 $ 3,136
1997.............................................. 608 1,505 640 2,753
1998.............................................. -- 1,157 597 1,754
1999.............................................. -- 878 483 1,361
2000.............................................. -- 680 441 1,121
Thereafter........................................ -- 767 1,077 1,844
----------- ----------- ------ -------
$1,216 $6,597 $4,156 $11,969
----------- ----------- ------ -------
----------- ----------- ------ -------
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was:
<TABLE>
<CAPTION>
BALLY GAMING
BALLY WULFF BALLY WULFF BALLY INTERNATIONAL,
AUTOMATEN VERTRIEBS GAMING, INC. PARENT INC.
----------- ----------- ------------ ------ --------------
<S> <C> <C> <C> <C> <C>
1993.............................................. $680 $1,519 $ 405 $-- $2,604
----- ----------- ------ ------ ------
----- ----------- ------ ------ ------
1994.............................................. $621 $1,604 $ 487 $-- $2,712
----- ----------- ------ ------ ------
----- ----------- ------ ------ ------
1995.............................................. $615 $1,731 $1,221 $ 2 $3,569
----- ----------- ------ ------ ------
----- ----------- ------ ------ ------
</TABLE>
F-81
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------- -------------------- --------------------
1994 1995 1994 1995 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Revenues................................. $ 61.7 $ 68.3 $ 58.9 $ 69.2 $ 49.3 $ 51.5 $ 66.3 $ 60.3
Gross profit............................. 19.4 24.8 17.6 23.9 16.3 17.7 25.8 19.8
Operating income (loss).................. 4.0 6.7 2.7 4.6 1.2 (1.3) 5.5 (1.6)
Net income (loss)........................ 1.3 2.8 1.6 1.1 (1.4) (3.8) 2.2 (3.5)
Net income (loss) per share of common
stock................................... $ 0.12 $ 0.27 $ 0.15 $ 0.10 $ (0.13) $ (0.35) $ 0.21 $ (0.33)
WULFF
Revenues................................. $ 29.1 $ 36.0 $ 21.4 $ 35.5 $ 26.4 $ 27.0 $ 34.2 $ 32.2
Gross profit............................. 10.0 12.4 5.6 11.9 8.9 9.3 14.5 8.9
Operating income (loss).................. 2.5 3.8 (0.4) 3.0 2.5 0.8 4.6 (2.0)
Net income (loss)........................ 1.1 1.4 (0.1) 1.0 1.3 (0.3) 3.0 (2.4)
GAMING
Revenues................................. $ 30.2 $ 28.0 $ 35.0 $ 33.0 $ 21.4 $ 24.0 $ 31.3 $ 23.4
Gross profit............................. 7.4 8.6 9.2 9.0 5.2 7.0 9.2 5.9
Operating income (loss).................. 1.0 1.0 1.8 0.6 (1.8) (1.6) 0.6 (2.2)
Net income (loss)........................ (0.3) (0.6) 0.4 (0.9) (3.2) (3.0) (1.1) (3.7)
SYSTEMS
Revenues................................. $ 3.0 $ 6.1 $ 4.3 $ 4.2 $ 2.8 $ 2.4 $ 3.3 $ 8.0
Gross profit............................. 2.0 3.9 2.8 3.0 2.2 1.5 2.1 5.0
Operating income......................... 0.5 2.1 1.3 1.0 0.5 (0.5) 0.3 2.6
Net income............................... 0.5 2.1 1.3 1.0 0.5 (0.5) 0.3 2.6
</TABLE>
F-82
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------ MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 5,526 $ 2,009
Accounts and notes receivable, net of allowance for doubtful accounts of $16,281 and
$17,054............................................................................ 87,176 82,872
Inventories, net:
Raw materials and work-in process................................................. 16,066 17,342
Finished goods.................................................................... 35,525 34,619
------------ -----------
51,591 51,961
Other current assets................................................................ 3,983 4,450
------------ -----------
Total current assets.......................................................... 148,276 141,292
Long-term notes receivable, net of allowance for doubtful accounts of $7,869 and
$7,887............................................................................... 9,981 9,696
Property, plant and equipment, net.................................................... 23,244 23,615
Intangible assets, less accumulated amortization of $13,720 and $14,045............... 10,814 10,417
Other assets.......................................................................... 2,001 1,916
------------ -----------
$ 194,316 $ 186,936
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 18,556 $ 14,707
Accrued liabilities and other payables.............................................. 17,406 16,258
Current maturities of long-term debt................................................ 14,957 24,678
------------ -----------
Total current liabilities......................................................... 50,919 55,643
------------ -----------
10 3/8 Senior Secured Notes due 1998, net of unamortized discount of $344 and $312.... 39,656 39,688
Other long-term debt, less current maturities......................................... 15,331 5,605
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock..................................................................... -- --
Common stock........................................................................ 108 108
Additional paid-in capital.......................................................... 68,345 68,345
Retained earnings................................................................... 1,842 1,329
Cumulative translation adjustments.................................................. 18,662 16,708
Unearned compensation............................................................... (547) (490)
------------ -----------
Total stockholders' equity........................................................ 88,410 86,000
------------ -----------
$ 194,316 $ 186,936
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-83
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1995 1996
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues:
Sales.................................................................................... $ 67,658 $ 57,435
Other.................................................................................... 631 1,109
----------- -----------
68,289 58,544
----------- -----------
Costs and expenses:
Cost of sales............................................................................ 43,500 37,757
Selling, general and administrative...................................................... 16,998 16,526
Provision for doubtful receivables....................................................... 1,154 991
Unusual charges.......................................................................... -- 996
----------- -----------
61,652 56,270
----------- -----------
Operating income........................................................................... 6,637 2,274
Interest expense........................................................................... 1,733 1,665
----------- -----------
Income before income taxes................................................................. 4,904 609
Provision for income taxes................................................................. 2,042 1,122
----------- -----------
Net income (loss).......................................................................... $ 2,862 $ (513)
----------- -----------
----------- -----------
Net income (loss) per common share......................................................... $0.27 $(0.05 )
----------- -----------
----------- -----------
Weighted average number of common shares and common stock equivalents outstanding.......... 10,751 10,805
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-84
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN- RETAINED TRANSLATION UNEARNED STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTS COMPENSATION EQUITY
----------- ----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ $ 108 $ 68,345 $ 1,842 $ 18,662 $ (547) $ 88,410
Net loss.......................... -- -- (513) -- -- (513)
Foreign currency translation
adjustments...................... -- -- -- (1,954) -- (1,954)
Amortization of unearned
compensation..................... -- -- -- -- 57 57
----------- ----------- ----------- ------------ ------ ------------
Balance at March 31, 1996........... $ 108 $ 68,345 $ 1,329 $ 16,708 $ (490) $ 86,000
----------- ----------- ----------- ------------ ------ ------------
----------- ----------- ----------- ------------ ------ ------------
</TABLE>
<TABLE>
<CAPTION>
COMMON
STOCK
SHARE AMOUNTS ISSUED
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Balance at December 31, 1995
and March 31, 1996..................................................................................... 10,800
-----------
-----------
</TABLE>
See accompanying notes.
F-85
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $ 2,862 $ (513)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization.......................................................... 1,440 1,898
Provision for doubtful receivables..................................................... 1,154 991
Provision for inventory valuation...................................................... 158 538
Changes in operating assets and liabilities............................................ (10,795) (4,299)
Other, net............................................................................... (424) (372)
----------- -----------
Cash used in operating activities...................................................... (5,605) (1,757)
Cash flows from investing activities:
Purchases of property, plant and equipment............................................... (2,232) (2,733)
Proceeds from disposals of property, plant and equipment................................. 410 554
Other.................................................................................... (286) (39)
----------- -----------
Cash used in investing activities...................................................... (2,108) (2,218)
Cash flows from financing activities:
Net change in lines of credit............................................................ 2,602 817
Repayments of long-term debt............................................................. (914) (227)
----------- -----------
Cash provided by financing activities.................................................. 1,688 590
Effect of exchange rate changes on cash.................................................... 780 (132)
----------- -----------
Decrease in cash and cash equivalents...................................................... (5,245) (3,517)
Cash and cash equivalents, beginning of period............................................. 9,204 5,526
----------- -----------
Cash and cash equivalents, end of period................................................... $ 3,959 $ 2,009
----------- -----------
----------- -----------
Supplemental cash flows information:
Operating activities include cash payments for interest and income taxes as follows:
Interest paid............................................................................ $ 2,721 $ 2,598
Income taxes paid........................................................................ 1,333 1,264
</TABLE>
See accompanying notes.
F-86
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Bally Gaming International, Inc. (the "Company") was formed in August 1991
by Bally Entertainment Corporation ("BEC") to consolidate the gaming machine
manufacturing and distribution operations of BEC. These operations are conducted
in Germany under the name Bally Wulff ("Wulff") and in the United States under
the name Bally Gaming ("Gaming") and Bally Systems ("Systems"). Wulff designs,
manufactures (through its wholly-owned subsidiary Bally Wulff Automaten GmbH,
"Automaten") and distributes (through its wholly-owned subsidiary Bally Wulff
Vertriebs GmbH. ("Vertriebs")) wall-mounted, coin-operated, armless gaming
machines similar to slot machines known as wall machines and also distributes
recreational and amusement machines manufactured by third parties. Gaming
designs, manufactures and distributes electronic slot machines and video gaming
machines. Systems designs, assembles and sells computerized slot monitoring
systems for slot and video gaming machines. In three transactions dated November
1991, July 1992, and September 1993, BEC divested all of its interests in the
Company.
The accompanying condensed consolidated financial statements reflect all
adjustments which management believes necessary to present fairly the financial
position, results of operations and cash flows of the Company. All such
adjustments are of a normal recurring nature. Interim results may not
necessarily be indicative of results which may be expected for any other interim
period or for the year as a whole. The accompanying condensed consolidated
financial statements should be read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
The condensed consolidated balance sheet at December 31, 1995 was derived
from audited financial statements, but does not include all disclosures required
under generally accepted accounting principles.
Certain reclassifications have been made to prior years' financial
statements to conform with the 1996 presentation.
MERGER AGREEMENT, TENDER OFFER AND RELATED LITIGATION
On October 17, 1995 the Board of Directors of the Company approved an
Agreement and Plan of Merger with Alliance Gaming Corporation ("Alliance") which
was subsequently amended as of January 23, 1996 ("Merger Agreement"). Pursuant
to the Merger Agreement, the Company will merge with a subsidiary of Alliance
("Alliance Merger Subsidiary") with the Company being the surviving corporation
and becoming a wholly-owned subsidiary of Alliance ("Merger"). The Merger
Agreement and certain mutual waivers entered into by the parties provide that
the Company's stockholders will have the right to receive, in exchange for each
of their issued and outstanding shares of the Company's common stock (i) an
amount of cash determined by dividing $76,700,000 by the number of shares
("Converted Shares") of the Company's common stock outstanding immediately prior
to the effective time of the Merger (other than shares which are held by the
Company, Alliance or their respective subsidiaries) ("Cash Consideration"), plus
interest accruing at a rate of 5.5% per annum from May 3, 1996 to the effective
time of the merger, (ii) a fraction of a share of common stock, $.10 par value,
of Alliance ("Alliance Common Stock") having a value determined in accordance
with the Merger Agreement of $.30 (the "Common Stock Consideration") and (iii)
that number of shares (or fractions thereof) of 15% Non-Voting Junior Special
Stock, Series B, $.10 par value, of Alliance (the "Series B Special Stock")
having a value determined in accordance with the Merger Agreement equal to
$11.40 less the Cash Consideration, plus dividends accruing at a rate of 15% per
annum from May 3, 1996. The obligations of Alliance and the Company to
consummate the Merger are subject to various conditions, including obtaining
requisite regulatory approvals and Alliance's obtaining $150 million in
financing on commercially reasonable terms, at least two-thirds of which must be
in the form of bank debt, other debt having a term of at least four years or
equity. In conjunction with the Merger Agreement, Alliance terminated its
unsolicited tender offer and consent solicitation and withdrew its litigation
against the Company and the Company withdrew its litigation against Alliance.
The Company and Alliance have extended the unilateral termination date of the
Merger Agreement until June 18, 1996.
F-87
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt and lines of credit consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
10 3/8% Senior Secured Notes due 1998, net of unamortized discount
of $344 and $312................................................... $ 39,656 $ 39,688
-------- --------------
-------- --------------
Other long-term debt:
Wulff revolving lines of credit................................... $ 15,905 $ 16,289
Bally Gaming, Inc. revolving line of credit....................... 9,400 9,332
Notes payable 5% to 12%........................................... 4,983 4,662
Less current maturities........................................... (14,957) (24,678)
-------- --------------
$ 15,331 $ 5,605
-------- --------------
-------- --------------
</TABLE>
INCOME TAXES
The Company's effective tax rate in the 1995 and 1996 periods differs from
the U.S. statutory rate of 35% principally due to a higher effective tax rate on
income earned in Germany and the lack of current tax benefits available for
losses in the U.S.
RESEARCH AND DEVELOPMENT
Wulff, Gaming and Systems expense product research and development costs as
incurred. Research and development costs were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Wulff................................................................................ $ 853 $ 868
Gaming............................................................................... 971 877
Systems.............................................................................. 473 502
--------- ---------
$ 2,297 $ 2,247
--------- ---------
--------- ---------
</TABLE>
UNUSUAL CHARGES
During the quarter ended March 31, 1996, the Company incurred approximately
$1.0 million in legal, accounting, investment banking, public and investor
relations and printing costs in connection with the pending Merger. All of these
costs have been expensed as incurred.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed by dividing net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents outstanding totaling 10,751,299 and 10,805,262 for the three months
ended March 31, 1995 and 1996, respectively.
COMMITMENTS AND CONTINGENCIES
In conjunction with sales by Gaming, with recourse to Gaming and/or the
Company, of certain trade receivables to third parties, Gaming and/or the
Company have guaranteed amounts due from various customers of approximately
$16.7 million at March 31, 1996. It is possible that one or more of Gaming's
customers whose obligation has been guaranteed by Gaming and/or the Company may
be unable to make payments as such become due. In this case Gaming and/or the
Company may become responsible for repayment of at least a portion of such
amounts over the term of the receivables. At March 31, 1996, amounts due from
one customer under three contracts totaling $3.7 million were past due and these
amounts and subsequent installments have not been paid. In general, under the
terms of these contracts, Gaming and/or the Company may be responsible for
monthly payments of the outstanding obligations. The
F-88
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
third party holder of these contracts has not yet asserted demands under these
contracts although such demands may be imminent. The Company intends to pursue a
restructuring of the contracts although no assurance can be given that such a
restructuring would be successfully negotiated. The outcome of this issue is not
anticipated to have a material effect on the financial position, results of
operations or cash flows of the Company. A provision for doubtful accounts of
approximately $6.6 million on all receivables with recourse is included in the
Company's allowance for doubtful accounts at March 31, 1996.
During 1995, Wulff increased the amount of value added tax reserves by $1.0
million as a result of developments to date in an ongoing quadrennial audit of
Wulff's returns for the years 1988 through 1991. While no written claim or
assessment has been issued, the German tax authorities have orally proposed
preliminary adjustments which range from $1.4 million (which has been accrued)
to $5.0 million. The Company has accrued the liability as, based on current
developments, the Company's estimate of the ultimate outcome and its experience
in contesting these matters, it is probable that a liability has been incurred
and a range of costs can be reasonably estimated. As the scope of the liability
is better determined, there could be changes in the estimate of the ultimate
liability. Management believes that the preliminary proposed adjustments are
without merit and the ultimate results of the audit will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
In early 1995, the Governor of the State of New Mexico signed compacts with
certain Indian tribes to permit casino gaming on tribal lands in New Mexico.
These compacts went through appropriate federal approval processes and a number
of casinos began operating. In July 1995 the Supreme Court of New Mexico found
that the Governor did not have proper authority to sign the compacts. The Indian
tribes have filed a lawsuit in federal court to seek resolution to this issue.
Gaming and Systems had sold product to the Indian tribes prior to this ruling.
At March 31, 1996, the Company has $4.6 million in accounts and notes receivable
from an operator of two casinos for two different Indian tribes including $1.9
million of trade receivables sold to a third party with recourse to Gaming. This
operator is currently four months ahead on payments. No provision for doubtful
accounts for this customer has been included in the accompanying financial
statements at March 31, 1996. Management believes the receivable is properly
valued at March 31, 1996. As events change during 1996, management will
reevaluate its estimate of the realizability of the receivable.
On or about June 19, 1995, three purported class actions were filed in the
Chancery Court of Delaware by Company stockholders against the Company and its
directors (the "Fiorella, Cignetti and Neuman Actions"). The Fiorella and Neuman
Actions in identical complaints alleged that the Company's directors had
breached their fiduciary duties of good faith, fair dealing, loyalty and candor
by approving the merger agreement with WMS Industries Inc. ("WMS Merger")
instead of the unsolicited tender offer transaction proposed by Alliance
("Alliance Proposal"), by not properly exposing the Company for sale, and by
failing to take all reasonable steps to maximize stockholder value. These
actions sought injunctions to prevent the Company from proceeding with,
consummating or closing the WMS Merger, and to rescind it should it be
consummated, as well as compensatory damages. The Cignetti Action made similar
allegations, and also alleged that the Company had in place a shareholders'
right plan, commonly known as a "poison pill". The Cignetti Action sought an
injunction requiring the Company to negotiate with all BONA FIDE parties or
other potential acquirees or to conduct an unencumbered market check in a manner
designed to maximize shareholder value and preventing the Company from
implementing any unlawful barriers to the acquisition of the Company by any
third party or taking other actions that would lessen its attractiveness as an
acquisition candidate. The Cignetti Action also specifically requested an
injunction barring triggering of the Company's alleged "poison pill" until full
consideration was given to the Alliance Proposal (subsequently superseded by the
execution of the Merger Agreement with Alliance) ("Alliance Merger"), and sought
compensatory damages.
Also on or about June 19, 1995, a purported class action was filed in the
Delaware Court of Chancery by a Company stockholder against the Company and its
directors and Alliance (the "Strougo Action"). The
F-89
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Strougo Action alleged that the Alliance Proposal (subsequently superseded by
the execution of the Alliance Merger Agreement) to acquire the Company stock was
at a grossly unfair and inadequate price; that the Company's directors had
breached their fiduciary duties by failing seriously to consider potential
purchasers for the Company other than Alliance; and that the transaction
proposed by Alliance was wrongful, unfair and harmful to the Company's public
stockholders. The Strougo Action sought a declaration that defendants had
breached their fiduciary duties; an injunction preventing the consummation of
the Alliance transaction or requiring its rescission; an order requiring
defendants to permit a stockholders' committee to participate in any process
undertaken in connection with the sale of the Company; and compensatory damages.
On or about July 6, 1995, the plaintiffs in the Fiorella, Cignetti, Neuman
Actions and the Strougo Action (collectively, the "Stockholder Plaintiffs")
filed with the Court a motion to consolidate the four actions.
On or about July 27, 1995, certain of the Stockholder Plaintiffs filed an
amended complaint (the "Amended Fiorella Action") that adopted certain
allegations concerning self-dealing by the Company's directors in connection
with the WMS Merger, added a claim relating to the Company's alleged failure to
hold an annual meeting as required and added WMS as defendant. The Amended
Fiorella Action also alleged that the Company intended, in violation of Delaware
law, to sell Wulff without first seeking stockholder approval of the sale. The
action sought an order enjoining defendants from proceeding with, consummating
or closing the WMS Merger, or rescinding if it closed; preventing the sale of
Wulff without prior stockholder approval; declaring invalid the Company's
agreement to pay WMS a fee if the WMS Merger is terminated by the Company in
certain circumstances; compelling an auction of the Company and the provision of
due diligence to Alliance, scheduling an immediate meeting of the Company
stockholders; and awarding compensatory damages. The Company believes these
lawsuits to be without merit and intends to vigorously defend these actions.
On October 23, 1995, WMS instituted a suit in New York State Court against
the Company for the Company's failure to pay $4.8 million upon termination of
the WMS Merger. The Company believes the lawsuit to be without merit and intends
to vigorously defend this action. On November 22, 1995, the Company answered the
complaint and brought counterclaims against WMS alleging that WMS repudiated and
breached the WMS Merger by, among other things, failing to act in good faith
toward the consummation of the WMS Merger, advising the Company that it would
not perform as agreed but would impose new conditions on the WMS Merger, acting
in excess of its authority and undermining the ability of the Company to perform
the WMS Merger. On February 8, 1996 WMS moved for summary judgment. On April 2,
1996, the Company opposed WMS's motion for summary judgment and cross-moved for
summary judgment. Pursuant to the Merger Agreement, Alliance has agreed to
indemnify the directors and officers of the Company under certain circumstances.
In June 1995, BEC asserted that a certain agreement between BEC and the
Company (the "Non-compete Agreement") prohibits the use by the Company of the
tradename "Bally" if it is merged with a company that is in the casino business
within or without the United States and operates such business prior to January
8, 1999. The Company believes such a claim is entirely without merit since the
restriction referred to expired on January 8, 1996 and in any event does not
relate to the use of the "Bally" tradename, which is covered by the License
Agreement. The restriction in the Non-compete Agreement will not have any impact
on the combined company after the Merger since the effective time of the
Alliance Merger contemplates a closing of the Alliance Merger after the
restriction in the Non-compete Agreement lapses. BEC has not reasserted this
position since it was informed by the Company in July 1995 that the restriction
lapses on January 8, 1996. Consequently, the Company believes BEC has determined
not to contest the Company's position.
On February 16, 1996, the Company received notice from BEC alleging that the
Company has violated the License Agreement by, among other things, granting to
Marine Midland Business Loans, Inc. ("Marine Midland"), the lender which
provides Bally Gaming, Inc.'s revolving line of credit, a security interest in
F-90
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
general intangibles. In such notice, BEC also stated that as a result of the
foregoing, it was immediately terminating the License Agreement. The Company
does not believe that it has violated the terms of the License Agreement and the
Company will defend its position against BEC's claims.
BEC has also asserted that its permission is required for use of the "Bally"
tradename by any entity other than the Company and that the Merger would violate
the terms of the License Agreement. The Company has denied these claims and
believes that the surviving company in the Alliance Merger will be permitted to
use the "Bally" tradename in accordance with the terms of the License Agreement.
The Company believes that no breach of such License Agreement is caused by the
Alliance Merger and the use of the "Bally" tradename by the surviving
corporation. In a letter dated November 9, 1995, BEC reasserted its position. On
November 20, 1995, Alliance, the Alliance Merger Subsidiary and the Company
commenced an action against BEC in Federal District Court in Delaware seeking a
declaratory judgment, among other things, that the surviving company in the
Alliance Merger will be permitted to use the "Bally" tradename in accordance
with the terms of the License Agreement, and seeking injunctive relief (the
"Alliance Action"). On November 28, 1995, BEC commenced an action against the
Company, Bally Gaming, Inc., Alliance and the Alliance Merger Subsidiary in
Federal District Court in New Jersey to enjoin the defendants from using the
"Bally" tradename (the "BEC" Action). The BEC Action alleges that the Company's
continued use of the tradename after the Alliance Merger will (1) constitute a
prohibited assignment of the Company's rights to use the tradename and (2)
exceed the scope of the license granted to the Company because the Company will
be under the control of Alliance. Also on November 28, 1995, BEC filed a motion
to dismiss, transfer to New Jersey, or stay the Alliance Action pending
resolution of the BEC action. On December 15, 1995 BEC filed a motion to
dismiss, transfer to New Jersey or stay the Alliance Action pending resolution
of the BEC Action. On December 15, 1995, BEC filed a motion for a preliminary
injunction in the BEC Action. At a hearing on January 17, 1996, the court
declined to issue a preliminary injunction, but held BEC's motion in abeyance
pending the defendant's motion to dismiss and for summary judgment, which
defendants had filed on December 26, 1995. Thereafter the parties advised the
court that they are negotiating a settlement of the BEC Action. On March 29,
1996, at the court's request, the parties entered into a consent order providing
for the administrative dismissal of the BEC Action, subject to its reopening
should the settlement not be consummated. If the parties do not agree on a
settlement, the Company, Bally Gaming, Inc., Alliance and the Alliance Merger
Subsidiary intend to vigorously defend their position in these actions.
In 1994, after an intensive federal investigation of Gaming's former
distributor, eighteen individuals were indicted on charges of racketeering and
fraud against Gaming and the Louisiana regulatory system. Among those indicted
were the former distributor's stockholders, directors, employees and others
alleged to be associated with organized crime. Fifteen entered pleas of guilty
before trial and the remaining three were convicted in October 1995. The
Company, its subsidiaries and its current employees were not subject to such
investigation.
Prior to the conclusion of the federal criminal case, the Company's
activities with regard to its former VLT distributor in Louisiana were the
subject of inquiries by gaming regulators and a report by the New Jersey
Division of Gaming Enforcement ("DGE") dated August 24, 1995. The New Jersey
Casino Control Commission ("CCC") has indicated that it may hold a hearing on
the matter, but no date has been set at this time. The New Jersey report makes
no specific recommendations for action by the CCC. The gaming authorities in
Ontario, Canada, who have investigated the matters, issued a gaming registration
to the Company's subsidiary Bally Gaming, Inc. on February 8, 1996.
The DGE's report is similar in many respects to one prepared by the
President of the Louisiana Economic Development and Gaming Corporation ("LEDGC")
in January 1995. Hearings on that report were held in January 1995. On February
7, 1995 the Board of Directors of the LEDGC found all of the allegations in its
President's report to be without merit and granted a license to the Company and
has announced that it will continue to monitor the Company's conduct in light of
any further information disclosed as a result of the trial of the eighteen
defendants (all of whom have now pled, or been found, guilty)
F-91
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and other regulatory proceedings. In November 1995, the operator of the
land-based casino in New Orleans filed for bankruptcy reorganization and ceased
operations. That action resulted in the termination of funding for the LEDGC
regulatory operation and shortly thereafter the Attorney General of Louisiana
took control of the agency and effectively closed its operations. LEDGC's
President and employees were dismissed. The foregoing occurred prior to
completion of review of the Company's pending application.
The Company believes that the information contained in the DGE's report does
not differ in any material respect from the prior report to the LEDGC the
conclusions of which were found to be without merit in February 1995. An adverse
determination by a gaming regulator in any jurisdiction could result in the loss
of the Company's ability to do business in that jurisdiction. Further regulatory
scrutiny in other jurisdictions would be likely to follow. The Company would
appeal any adverse finding, as was the case when the Company successfully
appealed the LEDGC President's decision in January 1995.
On September 25, 1995, the Company was named as defendant in a class action
lawsuit filed in the United States District Court, District of Nevada, by Larry
Schreier on behalf of himself and all others similarly situated (the
"plaintiffs"). The plaintiffs filed suit against the Company and approximately
45 other defendants (each a "defendant," and collectively the "defendants").
Each defendant is involved in the gaming business as either a gaming machine
manufacturer, distributor, or casino operator. The class action lawsuit arises
out of alleged fraudulent marketing and operation of casino video poker machines
and electronic slot machines. The plaintiffs allege that the defendants have
engaged in a course of fraudulent and misleading conduct intended to induce
people in playing their gaming machines based on a false belief concerning how
these machines actually operate as well as the extent to which there is actually
an opportunity to win on any given play. The plaintiffs allege that the
defendants' actions constitute violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and give rise to claims of common law fraud
and unjust enrichment. The plaintiffs are seeking monetary damages in excess of
one billion dollars, and are asking that any damage awards be trebled under
applicable federal law. The Company believes the plaintiffs' lawsuit to be
without merit and intends to vigorously defend these actions.
While the ultimate results of the matters described above are not presently
known, management does not expect that the results will have a material adverse
effect on the Company's results of operations, financial position or cash flows.
The Company and its subsidiaries are from time to time also subject to
litigation incidental to the conduct of their business. The Company believes
that the results of such litigation and other pending legal proceedings will not
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements are presented to
provide information regarding Bally Gaming, Inc., as guarantor of the Senior
Secured Notes, and Automaten and Vertriebs, because substantially all of the
common stock of these entities is pledged as collateral for the Senior Secured
Notes. The results herein are presented by each legal entity rather than by
business segment as presented elsewhere in these financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Such business segment information for Gaming and Wulff includes an
allocation of parent company revenues and expenses whereas the following
condensed consolidating financial statements do not reflect these allocations to
the subsidiaries. The condensed consolidating financial statements should be
read in conjunction with the notes to the condensed consolidated financial
statements provided herein, as well as the notes to the Company's consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
F-92
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC PARENT ADJUSTMENTS INC.
----------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,353 $ 3,240 $ 933 $ -- $ -- $ 5,526
Accounts and notes receivable, net of
allowance for doubtful accounts of
$19, $7,201 and $9,061 for Automaten,
Vertriebs and Gaming................. 1,804 51,110 38,948 4,772 (9,458) 87,176
Inventories, net:
Raw materials and work-in-process... 4,974 -- 11,092 -- -- 16,066
Finished goods...................... 3,548 12,340 21,020 -- (1,383) 35,525
----------- --------- --------- ---------- ------------- -------------
8,522 12,340 32,112 -- (1,383) 51,591
Other current assets.................... 1,236 1,443 651 560 93 3,983
----------- --------- --------- ---------- ------------- -------------
Total current assets.................. 12,915 68,133 72,644 5,332 (10,748) 148,276
Long-term notes receivable, net of
allowance for doubtful accounts of $48
and $7,821 for Vertriebs and Gaming.... -- 1,654 8,327 -- -- 9,981
Long-term receivables from affiliate.... 23,208 -- -- 28,380 (51,588) --
Property, plant and equipment, net...... 1,332 12,057 12,070 -- (2,215) 23,244
Intangible assets, less accumulated
amortization of $11,527, $94 and $2,099
for Vertriebs, Gaming and Parent....... -- 6,089 156 4,569 -- 10,814
Investment in subsidiaries.............. -- -- -- 90,766 (90,766) --
Other assets............................ 332 561 113 497 498 2,001
----------- --------- --------- ---------- ------------- -------------
$ 37,787 $ 88,494 $ 93,310 $ 129,544 $ (154,819) $ 194,316
----------- --------- --------- ---------- ------------- -------------
----------- --------- --------- ---------- ------------- -------------
</TABLE>
(Continued)
F-93
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALLY BALLY CONSOLIDATING BALLY GAMING
BALLY WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC PARENT ADJUSTMENTS INC.
----------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 557 $ 6,386 $ 19,342 $ 31 $ (7,760) $ 18,556
Accrued liabilities and other
payables............................. 3,807 4,501 6,611 2,507 (20) 17,406
Current maturities of long-term
debt................................. -- 14,333 212 412 -- 14,957
----------- --------- --------- ---------- ------------- -------------
Total current liabilities........... 4,364 25,220 26,165 2,950 (7,780) 50,919
Long-term payables to affiliate......... -- 26,421 28,380 -- (54,801) --
10 3/8% Senior Secured Notes due 1998,
net of unamortized discount of $344 -- -- -- 39,656 -- 39,656
Other long-term debt, less current
maturities............................. -- 4,721 9,435 1,175 -- 15,331
Commitments and contingencies
Stockholders' equity:
Preferred stock....................... -- -- -- -- -- --
Common stock.......................... 2,638 15,142 -- 108 (17,780) 108
Additional paid-in-capital............ 19,191 6,455 34,596 74,439 (66,336) 68,345
Retained earnings (accumulated
deficit) 2,155 286 (5,273) 11,969 (7,295) 1,842
Cumulative translation adjustments.... 9,439 10,249 7 (206) (827) 18,662
Unearned compensation................. -- -- -- (547) -- (547)
----------- --------- --------- ---------- ------------- -------------
Total stockholders' equity.......... 33,423 32,132 29,330 85,763 (92,238) 88,410
----------- --------- --------- ---------- ------------- -------------
$ 37,787 $ 88,494 $ 93,310 $ 129,544 $ (154,819) $ 194,316
----------- --------- --------- ---------- ------------- -------------
----------- --------- --------- ---------- ------------- -------------
</TABLE>
F-94
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALLY BALLY BALLY CONSOLIDATING BALLY GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 502 $ 2,626 $ (1,119) $ -- $ -- $ 2,009
Accounts and notes receivable, net of
allowance for doubtful accounts of $30,
$7,319 and $9,705 for Automaten, Vertriebs
and Gaming................................. 2,890 48,566 35,951 5,331 (9,866) 82,872
Inventories, net:
Raw materials and work-in-process......... 5,295 -- 12,047 -- -- 17,342
Finished goods............................ 3,426 13,231 19,684 -- (1,722) 34,619
----------- --------- --------- ---------- ------------- -------------
8,721 13,231 31,731 -- (1,722) 51,961
Other current assets........................ 1,028 1,655 731 837 199 4,450
----------- --------- --------- ---------- ------------- -------------
Total current assets.................... 13,141 66,078 67,294 6,168 (11,389) 141,292
Long-term notes receivable, net of allowance
for doubtful accounts of $66 and $7,821 for
Vertriebs and Gaming......................... -- 2,052 7,644 -- -- 9,696
Long-term receivables from affiliate.......... 24,325 -- -- 25,170 (49,495) --
Property, plant and equipment; net............ 1,149 12,703 11,866 -- (2,103) 23,615
Intangible assets, less accumulated
amortization of $11,597, $100 and $2,348 for
Vertriebs, Gaming and Parent................. -- 5,947 150 4,320 -- 10,417
Investment in subsidiaries.................... -- -- -- 90,766 (90,766) --
Other assets.................................. 313 524 113 449 517 1,916
----------- --------- --------- ---------- ------------- -------------
$ 38,928 $ 87,304 $ 87,067 $ 126,873 $ (153,236) $ 186,936
----------- --------- --------- ---------- ------------- -------------
----------- --------- --------- ---------- ------------- -------------
</TABLE>
(Continued)
F-95
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS--(CONTINUED)
MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALLY
BALLY BALLY BALLY CONSOLIDATING GAMING
WULFF WULFF GAMING AND OTHER INTERNATIONAL
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- --------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 831 $ 5,637 $ 16,365 $ 31 $ (8,157) $ 14,707
Accrued liabilities and other payables....... 4,315 3,891 6,045 1,907 100 16,258
Current maturities of long-term debt......... -- 14,765 9,460 453 -- 24,678
----------- --------- --------- ---------- ------------- ------------
Total current liabilities.............. 5,146 24,293 31,870 2,391 (8,057) $ 55,643
Long-term payables to affiliate................ -- 27,484 25,170 -- (52,654) --
10 3/8% Senior Secured Notes due 1998, net of
unamortized discount of $312.................. -- -- -- 39,688 -- 39,688
Other long-term debt, less current
maturities.................................. -- 4,578 15 1,012 -- 5,605
Commitments and contingencies
Stockholders' equity:
Preferred stock.............................. -- -- -- -- -- --
Common stock................................. 2,638 15,142 -- 108 (17,780) 108
Additional paid-in-capital................... 19,191 6,455 34,596 74,439 (66,336) 68,345
Retained earnings (accumulated deficit)...... 3,546 87 (4,571) 9,931 (7,664) 1,329
Cumulative translation adjustments........... 8,407 9,265 (13) (206) (745) 16,708
Unearned compensation........................ -- -- -- (490) -- (490)
----------- --------- --------- ---------- ------------- ------------
Total stockholders' equity................... 33,782 30,949 30,012 83,782 (92,525) 86,000
----------- --------- --------- ---------- ------------- ------------
$ 38,928 $ 87,304 $ 87,067 $ 126,873 $ (153,236) $ 186,936
----------- --------- --------- ---------- ------------- ------------
----------- --------- --------- ---------- ------------- ------------
</TABLE>
F-96
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALLY
BALLY BALLY BALLY CONSOLIDATING GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales................................ $ 18,742 $ 31,186 $ 33,991 $ -- $ (16,261) $ 67,658
Other................................ 282 732 127 335 (845) 631
----------- --------- --------- --------- ------------- -------------
19,024 31,918 34,118 335 (17,106) 68,289
----------- --------- --------- --------- ------------- -------------
Costs and expenses:
Cost of sales........................ 10,859 26,475 21,690 -- (15,524) 43,500
Selling, general and
administrative...................... 2,292 5,782 7,387 1,533 4 16,998
Provision for doubtful receivables... 9 130 1,015 -- -- 1,154
----------- --------- --------- --------- ------------- -------------
13,160 32,387 30,092 1,533 (15,520) 61,652
----------- --------- --------- --------- ------------- -------------
Operating income (loss)................ 5,864 (469) 4,026 (1,198) (1,586) 6,637
Interest expense....................... -- 329 1,038 1,161 (795) 1,733
----------- --------- --------- --------- ------------- -------------
Income (loss) before income taxes...... 5,864 (798) 2,988 (2,359) (791) 4,904
Provision (benefit) for income taxes... 2,677 (363) 1,048 (995) (325) 2,042
----------- --------- --------- --------- ------------- -------------
Net income (loss)...................... $ 3,187 $ (435) $ 1,940 $ (1,364) $ (466) $ 2,862
----------- --------- --------- --------- ------------- -------------
----------- --------- --------- --------- ------------- -------------
</TABLE>
F-97
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALLY
BALLY BALLY BALLY CONSOLIDATING GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales................................ $ 12,947 $ 28,025 $ 28,311 $ -- $ (11,848) $ 57,435
Other................................ 143 751 335 671 (791) 1,109
----------- --------- --------- --------- ------------- -------------
13,090 28,776 28,646 671 (12,639) 58,544
----------- --------- --------- --------- ------------- -------------
Costs and expenses:
Cost of sales........................ 8,540 22,289 18,440 -- (11,512) 37,757
Selling, general and
administrative...................... 2,009 6,032 7,503 959 23 16,526
Provision for doubtful receivables... 12 360 619 -- -- 991
Unusual charges...................... -- -- 50 946 -- 996
----------- --------- --------- --------- ------------- -------------
10,561 28,681 26,612 1,905 (11,489) 56,270
----------- --------- --------- --------- ------------- -------------
Operating income (loss)................ 2,529 95 2,034 (1,234) (1,150) 2,274
Interest expense....................... -- 330 972 1,113 (750) 1,665
----------- --------- --------- --------- ------------- -------------
Income (loss) before income taxes...... 2,529 (235) 1,062 (2,347) (400) 609
Provision (benefit) for income taxes... 1,138 (36) 360 (309) (31) 1,122
----------- --------- --------- --------- ------------- -------------
Net income (loss)...................... $ 1,391 $ (199) $ 702 $ (2,038) $ (369) $ (513)
----------- --------- --------- --------- ------------- -------------
----------- --------- --------- --------- ------------- -------------
</TABLE>
F-98
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALLY BALLY BALLY CONSOLIDATING BALLY GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- ----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 3,187 $ (435) $ 1,940 $ (1,364) $ (466) $ 2,862
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization................ 516 652 514 248 (490) 1,440
Provision for doubtful receivables........... 9 130 1,015 -- -- 1,154
Provision for inventory valuation............ -- -- 158 -- -- 158
Changes in operating assets and
liabilities................................. (3,927) (845) (6,574) (1,116) 1,667 (10,795)
Other, net..................................... -- -- -- -- (424) (424)
----------- ----------- --------- --------- ------ -------------
Cash provided by (used in) operating
activities................................ (215) (498) (2,947) (2,232) 287 (5,605)
Cash flows from investing activities:
Purchases of property, plant and equipment..... (386) (1,296) (550) -- -- (2,232)
Proceeds from disposals of property, plant and
equipment..................................... 11 399 -- -- -- 410
Other.......................................... -- -- -- -- (286) (286)
----------- ----------- --------- --------- ------ -------------
Cash used in investing activities.......... (375) (897) (550) -- (286) (2,108)
Cash flows from financing activities:
Net changes in lines of credit -- (388) 2,592 -- -- 2,204
Repayments of long-term debt................... -- (1) (396) (118) (1) (516)
Change in payables to/receivables from
affiliates.................................... -- (2,285) (65) 2,350 -- --
----------- ----------- --------- --------- ------ -------------
Cash provided by (used in) financing
activities................................ -- (2,674) 2,131 2,232 (1) 1,688
Effect of exchange rate changes on cash.......... 132 648 -- -- -- 780
----------- ----------- --------- --------- ------ -------------
Decrease in cash and cash equivalents............ (458) (3,421) (1,366) -- -- (5,245)
Cash and cash equivalents, beginning of period... 1,362 7,487 355 -- -- 9,204
----------- ----------- --------- --------- ------ -------------
Cash and cash equivalents, end of period......... $ 904 $ 4,066 $ 1,011 $ -- $ -- $ 3,959
----------- ----------- --------- --------- ------ -------------
----------- ----------- --------- --------- ------ -------------
</TABLE>
F-99
<PAGE>
BALLY GAMING INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALLY BALLY BALLY CONSOLIDATING BALLY GAMING
WULFF WULFF GAMING, AND OTHER INTERNATIONAL,
AUTOMATEN VERTRIEBS INC. PARENT ADJUSTMENTS INC.
----------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 1,391 $ (199) $ 702 $ (2,038) $ (369) $ (513)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation an amortization.................. 233 905 426 355 (21) 1,898
Provision for doubtful receivables:........... 12 360 619 -- -- 991
Provision for inventory valuation:............ -- -- 538 -- -- 538
Changes in operating assets and
liabilities:................................. (581) (2,393) (1,072) (1,045) 792 (4,299)
Other, net:..................................... -- 7 (20) -- (359) (372)
----------- --------- --------- --------- ----- -------------
Cash provided by (used in) operating
activities:................................ 1,055 (1,320) 1,193 (2,728) 43 (1,757)
Cash flows from investing activities:
Purchase of property, plant and equipment....... (82) (2,428) (223) -- -- (2,733)
Proceeds from disposals of property, plant and
equipment...................................... -- 554 -- -- -- 554
Other........................................... -- 3 1 -- (43) (39)
----------- --------- --------- --------- ----- -------------
Cash used in investing activities........... (82) (1,871) (222) -- (43) (2,218)
Cash flows from financing activities:
Net change in lines of credit................... -- 885 (68) -- -- 817
Repayments of long-term debt.................... -- -- (104) (123) -- (227)
Change in payables to/receivables from
affiliates..................................... (1,787) 1,787 (2,851) 2,851 -- --
----------- --------- --------- --------- ----- -------------
Cash provided by (used in) financing
activities................................. (1,787) 2,672 (3,023) 2,728 -- 590
Effect of exchange rate changes on cash........... (37) (95) -- -- -- (132)
----------- --------- --------- --------- ----- -------------
Decrease in cash and cash equivalents............. (851) (614) (2,052) -- -- (3,517)
Cash and cash equivalents, beginning of period.... 1,353 3,240 933 -- -- 5,526
----------- --------- --------- --------- ----- -------------
Cash and cash equivalents, end of period.......... $ 502 $ 2,626 $ (1,119) $ -- $ -- $ 2,009
----------- --------- --------- --------- ----- -------------
----------- --------- --------- --------- ----- -------------
</TABLE>
F-100
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation by Reference............................................... ii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 19
The Merger and Related Financings........................................ 28
Use of Proceeds.......................................................... 30
Dividend Policy.......................................................... 31
Capitalization........................................................... 31
Unaudited Pro Forma Condensed Combined Financial Information............. 33
Notes To Unaudited Pro Forma Condensed Combined Financial Information.... 37
Supplemental Analysis of Adjusted Operating Cash Flow.................... 42
Forecast of Operations................................................... 44
Summary of Significant Assumptions and Accounting Policies for the
Forecast................................................................ 47
Selected Historical Financial Information of Alliance.................... 57
Selected Historical Financial Information of BGII........................ 59
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 61
Business................................................................. 78
Gaming Regulation and Licensing.......................................... 97
Management............................................................... 107
Security Ownership of Certain Beneficial Holders and Management.......... 110
Certain Relationships and Related Transactions........................... 114
Description of Certain Other Indebtedness................................ 115
Description of the Senior Secured Notes.................................. 117
Description of Capital Stock............................................. 140
Material Federal Income Tax Consequences to Holders of Preferred Stock... 144
Underwriting............................................................. 147
Legal Matters............................................................ 148
Experts.................................................................. 148
Available Information.................................................... 149
Index to Financial Statements............................................ F-1
</TABLE>
[LOGO]
$140,000,000 % SENIOR SECURED NOTES DUE 2003
$15,000,000 15% NON-VOTING SENIOR
PAY-IN-KIND
SPECIAL STOCK, SERIES B
PROSPECTUS
JEFFERIES & COMPANY, INC.
WASSERSTEIN PERELLA SECURITIES, INC.
LADENBURG, THALMANN & CO. INC.
June , 1996
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An itemized statement of the estimated amount of all expenses in connection
with the distribution of the securities registered hereby is as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 48,276
Blue Sky fees and expenses...................................... 10,000
NASD fee........................................................ 14,500
Legal fees and expenses......................................... 616,000
Accounting fees and expenses.................................... 375,000
Printing and engraving expenses................................. 375,000
Trustee and Registrar fees...................................... 5,000
Miscellaneous................................................... 125,000
---------
Total....................................................... $1,568,776
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI of the Company's Articles of Incorporation limits the liability
of the Company's directors and officers. It provides that a director or officer
of the Company will not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director or officer,
except for liability (i) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law or (ii) for the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes. It also
provides that any repeal or modification of the foregoing provision of the
stockholders of the Company will be prospective only, and will not adversely
affect any limitation on the personal liability of a director or officer of the
Company existing at the time of such repeal or modification.
Section 78.300 of the Nevada Revised Statutes provides:
1. The directors of a corporation shall not make dividends or other
distributions to stockholders except as provided by such section.
2. In case of any willful or grossly negligent violation of the
provisions of such section, the directors under whose administration the
violation occurred, except those who caused their dissent to be entered upon
the minutes of the meeting of the directors at the time, or who not then
being present caused their dissent to be entered on learning of such action,
are jointly and severally liable, at any time within 3 years after each
violation, to the corporation, and, in the event of its dissolution or
insolvency, to its creditors at the time of the violation, or any of them,
to the lesser of the full amount of the dividend made or of any loss
sustained by the corporation by reason of the dividend or other distribution
to stockholders.
However, Section 78.751 of the Nevada Revised Statutes permits the
Registrant to indemnify its directors and officers as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except any action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, has no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its
II-1
<PAGE>
equivalent, does not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and that, with
respect to any criminal action or proceeding, he had reasonable cause to
believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually
and reasonably incurred by him in connection with the defense or settlement
of the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines, upon application, that in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense
of any claim, issue or matter herein, he must be indemnified by the
corporation against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless offered by a
court or advanced pursuant to subsection 5, must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or
proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(d) If a quorum of directors who were not parties to the act,
suit or proceeding so orders, by independent legal counsel in a
written opinion.
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under
any contract or otherwise by law.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Preferred Stock Underwriting Agreement (incorporated herein by
reference to Alliance's Form S-2, Registration Number 333-02145, and
subsequent amendments thereto).
*1.2 -- Form of Senior Secured Note Underwriting Agreement.
2.1 -- Agreement and Plan of Merger among Alliance, BGII Acquisition Corp. and BGII,
dated as of October 18, 1995, as amended and restated (incorporated herein by
reference to Alliance's Form S-4, Registration Number 333-02799, and
subsequent amendments thereto).
2.2 -- Basic Agreement, dated as of October 29, 1993, among United Gaming, Inc., The
Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel, and
exhibits thereto (incorporated herein by reference to Alliance's Form 8-K
dated October 29, 1993).
2.3 -- Letter Agreement, dated as of November 5, 1993, among United Gaming, Inc.,
Capital Gaming International, Inc., I.G. Davis, Jr. and John E. Dell, with
exhibits thereto (incorporated herein by reference to Alliance's Form 8-K
dated November 5, 1993).
2.4 -- Consolidation Agreement, dated March 29, 1995 among Alliance, United Gaming
Rainbow, Inc., RCC, RCVP, NGM, HFS, National Gaming Corporation, Rainbow
Development Corporation and Leigh Seippel and John A. Barrett, Jr.
(incorporated herein by reference to Alliance's Form 8-K dated March 29,
1995).
2.5 -- Offer to Purchase Common Shares of Bally Gaming International, Inc., dated
July 28, 1995 (incorporated herein by reference to Alliance's Schedule 14D-1
and Schedule 13D dated July 28, 1995).
3.1 -- Restated Articles of Incorporation of the Registrant, as amended (incorporated
herein by reference to Alliance's Form S-2, Registration Number 33-72990, and
subsequent amendments thereto).
3.2 -- Revised By-Laws of the Registrant (incorporated herein by reference to
Alliance's Form 10-K for the year ended June 30, 1994).
4.1 -- Certificate of Designations, Preferences and Relative, Participating, Optional
and Other Special Rights of Special Stock and Qualifications, Limitations and
Restrictions thereof of 15% Non-Voting Senior Pay-in-Kind Special Stock,
Series B (incorporated herein by reference to Alliance's Form S-4,
Registration Number 333-01527, and subsequent amendments thereto).
4.2 -- Form of Certificate evidencing 15% Non-Voting Senior Pay-in-Kind Special
Stock, Series B (incorporated herein by reference to Alliance's Form S-4,
Registration Number 333-01527, and subsequent amendments thereto).
4.3 -- Common Stock Purchase Warrant issued to Alfred H. Wilms upon execution of his
loan commitment with Video Services, Inc. (incorporated herein by reference to
Alliance's Form 8-K dated March 31, 1992).
4.4 -- Indenture, dated as of September 14, 1993, between United Gaming, Inc. and
NationsBank of Texas, N.A., as Trustee in respect of Alliance's 7 1/2%
Convertible Subordinated Debentures due 2003 (incorporated herein by reference
to Alliance's Form S-2, Registration Number 33-72990, and subsequent
amendments thereto).
4.5 -- Form of 7-1/2% Convertible Subordinated Debenture due 2003 (included in
Exhibit 4.5, above).
4.6 -- Registration Rights Agreement, dated as of September 21, 1993, by and among
United Gaming, Inc., Donaldson Lufkin & Jenrette Securities Corporation,
Oppenheimer & Co., Inc. and L.H. Friend, Weinress & Frankson, Inc.
(incorporated herein by reference to Alliance's Form S-2, Registration Number
33-72990, and subsequent amendments thereto).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
*4.7 -- Form of Senior Secured Note Indenture (including form of Senior Secured Note
and Guarantee).
*4.8 -- Form of Collateral Documents.
4.9 -- Certificate of Designations, Preferences and Relative, Participating, Optional
and Other Special Rights of Special Stock and Qualifications, Limitations and
Restrictions thereof of 11 1/2% Non-Voting Junior Convertible Pay-in-Kind
Special Stock, Series E (incorporated herein by reference to Alliance's
Schedule E-4 (Amendment No. 1) dated May 9, 1996).
4.10 -- Form of Indenture between Alliance and The Bank of New York, as Trustee in
respect of Alliance's 7 1/2% Convertible Senior Subordinated Debentures due
2003 (incorporated herein by reference to Alliance's Schedule E-4 (Amendment
No. 1) dated May 9, 1996).
*5.1 -- Opinion of Milbank, Tweed, Hadley & McCloy as to legality of the Senior
Secured Notes being registered.
10.1 -- Loan and Warrant Agreement dated March 24, 1992 between United Gaming, Inc.,
Video Services, Inc. and Alfred H. Wilms (incorporated herein by reference to
Alliance's Form 8-K dated March 31, 1992).
10.2 -- Lease, dated August 3, 1988, as amended April 6, 1989, from Walter Schwartz to
Alliance for Alliance's corporate headquarters building at 4380 Boulder
Highway, Las Vegas, Nevada (incorporated herein by reference to Alliance's
Form 10-K for the year ended June 30, 1989).
10.3 -- Employment Agreement between United Gaming, Inc. and John W. Alderfer
(incorporated herein by reference to Alliance's Form 10-Q for the quarter
ended March 31, 1993).
10.4 -- Amendment to Employment Agreement between United Gaming, Inc. and John W.
Alderfer (incorporated herein by reference to Alliance's Form 10-K for the
year ended June 30, 1994).
10.5 -- Letter Agreement dated June 25, 1993 among United Gaming, Inc. and
Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation
and, as to certain provisions, Alfred H. Wilms, including Exhibit A (Form of
Securities Purchase Agreement), Exhibit B (Form of Stockholders Agreement),
Exhibit C (Form of Certificate of Designations of Non-Voting Junior
Convertible Preferred Stock), Exhibit D (Form of Warrant Agreement), and
Exhibit E (Form of press release) thereto (incorporated herein by reference to
Alliance's Form 8-K dated June 25, 1993).
10.6 -- Advisory Agreement, dated June 25, 1993 among United Gaming, Inc., Gaming
Systems Advisors, L.P. and, as to certain provisions, Mr. Alfred H. Wilms,
including Exhibit A (Form of Warrant Agreement) and Exhibit B (Form of press
release) thereto (incorporated herein by reference to Alliance's Form 8-K
dated June 25, 1993).
10.7 -- United Gaming, Inc. 1991 Long-Term Incentive Stock Option Plan (incorporated
herein by reference to Alliance's Form S-8 Registration Number 33-45811 and
Registration Number 33-75308).
10.8 -- Gaming and Technology, Inc. 1984 Employee Stock Option Plan (incorporated
herein by reference to Alliance's Form S-8 Registration Number 2-98777).
10.9 -- Agreement, dated as of September 14, 1993, by and among United Gaming, Inc.,
Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation,
Gaming Systems Advisors, L.P. and Alfred H. Wilms (incorporated herein by
reference to Alliance's Form 8-K dated September 21, 1993).
10.10 -- Warrant Agreement, dated as of September 21, 1993, by and between United
Gaming, Inc. and Kirkland-Ft. Worth Investment Partners, L.P. relating to
warrants to purchase 2.75 million shares of Common Stock (incorporated herein
by reference to Alliance's Form 8-K dated September 21, 1993).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
10.11 -- Warrant Agreement, dated as of September 21, 1993, by and between United
Gaming, Inc. and Gaming Systems Advisors, L.P. relating to warrants to
purchase 1.25 million shares of Common Stock (incorporated herein by reference
to Alliance's Form 8-K dated September 21, 1993).
10.12 -- Stockholders Agreement, dated as of September 21, 1993, by and among United
Gaming, Inc., Kirkland-Ft. Worth Investment Partners, L.P., Kirkland
Investment Corporation, Gaming Systems Advisors, L.P. and Alfred H. Wilms
(incorporated herein by reference to Alliance's Form 8-K dated September 21,
1993).
10.13 -- Amendment to Stockholders Agreement dated as of October 20, 1994 (incorporated
herein by reference to Alliance's Form S-8 Registration Number 33-45811 and
Registration Number 33-75308).
10.14 -- Selling Stockholder Letter Agreement dated as of March 20, 1995 (incorporated
herein by reference to Alliance's Form S-3 Registration Number 33-58233).
10.15 -- Securities Purchase Agreement, dated as of September 21, 1993, by and among
United Gaming, Inc., Kirkland-Ft. Worth Investment Partners, L.P. and Kirkland
Investment Corporation (incorporated herein by reference to Alliance's Form
8-K dated September 21, 1993).
10.16 -- Executive Severance Agreement with Shannon L. Bybee dated July 15, 1993
(incorporated herein by reference to Alliance's Form 10-Q dated September 30,
1993).
10.17 -- Amendment to Executive Severance Agreement with Shannon L. Bybee dated July
15, 1993 (incorporated herein by reference to Alliance's Form 10-K for the
year ended June 30, 1994).
10.18 -- Secured Promissory Note, dated as of October 29, 1993, from John A. Barrett,
Jr. and Leigh Seippel to United Gaming, Inc. (incorporated herein by reference
to Alliance's Form 8-K dated October 29, 1993).
10.19 -- Escrow Agreement, dated as of October 29, 1993, among United Gaming, Inc., The
Rainbow Casino Corporation, John A. Barrett, Jr., Leigh Seippel and Butler,
Snow, O'Mara, Stevens & Cannada (incorporated herein by reference to
Alliance's Form 8-K dated October 29, 1993).
10.20 -- Pledge Agreement, dated as of October 29, 1993, among United Gaming, Inc. (as
secured party) and The Rainbow Casino Corporation, John A. Barrett, Jr. and
Leigh Seippel (as pledgors) (incorporated herein by reference to Alliance's
Form 8-K dated October 29, 1993).
10.21 -- Management Agreement, dated as of October 29, 1993, among Rainbow Casino-
Vicksburg Partnership, L.P., The Rainbow Casino Corporation and Mississippi
Ventures, Inc., as manager (incorporated herein by reference to Alliance's
Form 8-K dated October 29, 1993).
10.22 -- Letter Agreement, dated as of December 10, 1993, among United Gaming, Inc.,
Capital Gaming International, Inc. and I.G.Davis, Jr. (incorporated herein by
reference to Alliance's Form 8-K dated December 10, 1993).
10.23 -- Loan and Security Agreement, dated as of August 2, 1993, between United
Gaming, Inc., Alfred H. Wilms and Video Services, Inc. (incorporated herein by
reference to Alliance's Form S-2, Registration Number 33-72990 and subsequent
amendments thereto).
10.24 -- Warrant Agreement, dated as of August 2, 1993, between United Gaming, Inc. and
Alfred H. Wilms (incorporated herein by reference to Alliance's Form S-2,
Registration Number 33-72990 and subsequent amendments thereto).
10.25 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between United
Gaming, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated herein by reference to Alliance's Form S-2, Registration Number
33-72990 and subsequent amendments thereto).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
10.26 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between United
Gaming, Inc. and Oppenheimer & Co. Inc. (incorporated herein by reference to
Alliance's Form S-2, Registration Number 33-72990 and subsequent amendments
thereto).
10.27 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between United
Gaming, Inc. and L.H. Friend, Weinress & Frankson, Inc. (incorporated herein
by reference to Alliance's Form S-2, Registration Number 33-72990 and
subsequent amendments thereto).
10.28 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between United
Gaming, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated herein by reference to Alliance's Form S-2, Registration Number
33-72990 and subsequent amendments thereto).
10.29 -- Consulting Agreement, dated as of November 8, 1993, between David A. Scheinman
and United Gaming, Inc. (incorporated herein by reference to Alliance's Form
S-2, Registration Number 33-72990 and subsequent amendments thereto).
10.30 -- Letter Agreement, dated as of March 3, 1994, by and among United Native
American Gaming, Inc., USA Gaming of Native America, Inc., USA Gaming, Inc.
and others (incorporated herein by reference to Alliance's Form 8-K dated
March 7, 1994).
10.31 -- Letter Agreement, dated as of February 25, 1994, among United Gaming, Inc.,
The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel
(incorporated herein by reference to Alliance's Form 8-K dated March 15,
1994).
10.32 -- Letter Agreement, dated as of June 29, 1994, among United Gaming, Inc., The
Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel, consented
to by HFS Gaming Corporation (incorporated herein by reference to Alliance's
Form 8-K dated August 11, 1994).
10.33 -- Letter Agreement, dated as of July 16, 1994, among United Gaming, Inc., The
Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel, consented
to by HFS Gaming Corporation (incorporated herein by reference to Alliance's
Form 8-K dated August 11, 1994).
10.34 -- Second Amendment to Casino Financing Agreement, dated as of August 11, 1994,
among United Gaming, Inc., United Gaming Rainbow, Inc., Rainbow
Casino-Vicksburg Partnership, L.P., The Rainbow Casino Corporation, John A.
Barrett, Jr., Leigh Seippel and HFS Gaming Corporation (incorporated herein by
reference to Alliance's Form 8-K dated August 11, 1994).
10.35 -- Partnership Agreement of Rainbow Casino-Vicksburg Partnership, L.P., dated as
of July 8, 1994 (incorporated herein by reference to Alliance's Form 8-K dated
August 11, 1994).
10.36 -- Second Amended and Restated Agreement of Limited Partnership, dated March 29,
1995, between United Gaming Rainbow and RCC (incorporated herein by reference
to Alliance's Form 8-K dated March 29, 1995).
10.37 -- Promissory Note, dated as of July 16, 1994, from United Gaming Rainbow, Inc.
to The Rainbow Casino Corporation (incorporated herein by reference to
Alliance's Form 8-K dated August 11, 1994).
10.38 -- Pledge Agreement, dated as of July 16, 1994, from United Gaming Rainbow, Inc.
to The Rainbow Casino Corporation (incorporated herein by reference to
Alliance's Form 8-K dated August 11, 1994).
10.39 -- Promissory Note, dated as of July 16, 1994, from John A. Barrett, Jr. and
Leigh Seippel to United Gaming, Inc. (incorporated herein by reference to
Alliance's Form 8-K dated August 11, 1994).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
10.40 -- Escrow Agreement, dated as of August 11, 1994, among United Gaming Rainbow,
Inc., The Rainbow Casino Corporation, John A. Barrett, Jr., Leigh Seippel and
Butler, Snow, O'Mara, Stevens & Cannada, together with Agreement dated
February 7, 1994, as amended July 11, 1994 between Rainbow Casino-Vicksburg
Partnership, L.P. and the City of Vicksburg, Mississippi (incorporated herein
by reference to Alliance's Form 8-K dated August 11, 1994).
10.41 -- Employment Agreement between United Gaming, Inc. and Johnann McIlwain
(incorporated herein by reference to Alliance's Form 10-K for the year ended
June 30, 1994).
10.42 -- Settlement Agreement, dated December 4, 1994, by and among Alliance, United
Gaming of Iowa, Inc., GDREC and Joseph and Paula Zwack (incorporated herein by
reference to Alliance's Form S-2, Registration Number 33-72990 and subsequent
amendments thereto).
10.43 -- Employment Agreement, dated August 15, 1994, between Alliance and Steve
Greathouse (incorporated herein by reference to Alliance's Form S-3,
Registration Number 33-58233).
10.44 -- Warrant Agreement, dated August 15, 1994, between Alliance and Steven
Greathouse (incorporated herein by reference to Alliance's Form S-3,
Registration Number 33-58233).
10.45 -- Agreement, dated September 1, 1994, between Alliance and Craig Fields
(incorporated herein by reference to Alliance's Form S-3, Registration Number
33-58233).
10.46 -- Warrant Agreement, dated September 1, 1994, between Alliance and Craig Fields
(incorporated herein by reference to Alliance's Form S-3, Registration Number
33-58233).
10.47 -- Agreement, dated March 20, 1995, between Alliance and Joel Kirschbaum
(incorporated herein by reference to Alliance's Form S-3, Registration Number
33-58233).
10.48 -- Letter Agreement, dated March 29, 1995, among United Gaming Rainbow, RCC,
Leigh Seippel, John A. Barrett, Jr. and Butler, Snow, O'Mara, Stevens &
Cannada (incorporated herein by reference to Alliance's Form 8-K dated March
29, 1995).
10.49 -- Class A Note Payable, dated March 29, 1995, issued by RCVP to United Gaming
Rainbow (incorporated herein by reference to Alliance's Form 8-K dated March
29, 1995).
10.50 -- Class B Note Payable, dated March 29, 1995, issued by RCVP to United Gaming
Rainbow (incorporated herein by reference to Alliance's Form 8-K dated March
29, 1995).
10.51 -- Class B Note Payable, dated March 29, 1995, issued by RCVP to National Gaming
Mississippi, Inc. (incorporated herein by reference to Alliance's Form 8-K
dated March 29, 1995).
10.52 -- Release, dated March 29, 1995, by United Gaming Rainbow and Alliance and their
affiliates of RCC, Rainbow Development Corporation, John A. Barrett, Jr. and
Leigh Seippel and their affiliates (other than RCVP) (incorporated herein by
reference to Alliance's Form 8-K dated March 29, 1995).
10.53 -- Release, dated March 29, 1995, by RCC, Rainbow Development Corporation, John
A. Barrett, Jr. and Leigh Seippel and their affiliates (other than RCVP) of
United Gaming Rainbow and Alliance and their affiliates (incorporated herein
by reference to Alliance's Form 8-K dated March 29, 1995).
*10.54 -- Agreement, dated March 31, 1995 between Anthony DiCesare and Alliance Gaming
Corporation.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
10.55 -- Trademark License Agreement, dated November 11, 1991 between Bally
Manufacturing Corporation and Bally Gaming International, Inc. (incorporated
herein by reference to exhibit 10(i)(d) included in BGII's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991).
10.56 -- Amended and Restated Trademark License Agreement, dated July 8, 1992, by and
between Bally Gaming International, Inc. and Bally Manufacturing Corporation
(incorporated herein by reference to exhibit 10(i)(d) included in BGII's
Registration Statement on Form S-1 No. 33-48347 filed on July 9, 1992).
10.57 -- Agreement, dated January 8, 1993 by and between Bally Gaming International,
Inc. and Bally Manufacturing Corporation (incorporated herein by reference to
exhibit 10(i)(p) included in BGII's Annual Report on Form 10-K for the period
ended December 31, 1992).
10.58 -- Second Amendment to Trademark License Agreement and Settlement Agreement,
dated March 31, 1995, by and between Bally Entertainment Corporation and Bally
Gaming International, Inc. (incorporated herein by reference to Exhibit I,
included in BGII's Current Report on Form 8-K dated April 3, 1995).
10.59 -- 1991 Incentive Plan of Bally Gaming International, Inc. (incorporated herein
by reference to exhibit 10(iii)(a) included in BGII's Registration Statement
No. 33-42227 on Form S-1, effective November 8, 1991).
10.60 -- Amendment No. 1 to the 1991 Incentive Plan of Bally Gaming International, Inc.
effective February 6, 1992 (incorporated herein by reference to exhibit
10(iii)(b) included in BGII's Registration Statement No. 33-42227 on Form S-1
effective November 1, 1991).
10.61 -- Amendment No. 2 to 1991 Incentive Plan of Bally Gaming International Inc.
(incorporated herein by reference to exhibit 99(e) included in BGII's
Registration Statement No. 33-71154 on Form S-3 filed on November 1, 1993).
10.62 -- 1991 Non-Employee Directors' Option Plan of Bally Gaming International, Inc.
(incorporated herein by reference to exhibit 10(iii)(f) included in BGII's
Annual Report on Form 10-K for the fiscal y ear ended December 31, 1991).
10.63 -- Amendment No. 1 to the 1991 Non-Employee Directors' Option Plan of Bally
Gaming International, Inc. (incorporated herein by reference to exhibit
10(iii)(g) included in BGII's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991).
10.64 -- Bally Gaming International, Inc. 1992 Restricted Stock Performance Plan
(incorporated herein by reference to exhibit 99(d) included in BGII's
Registration Statement on Form S-3 filed on November 1, 1993).
10.65 -- Award Agreement (Performance Units), dated June 8, 1994, by and between
Richard Gillman and Bally Gaming International, Inc. (incorporated herein by
reference to exhibit 10(iii)(g) included in BGII's Annual Report on Form 10-K
for the period ended December 31, 1994).
10.66 -- Award Agreement (Performance Units), dated June 8, 1994, by and between Hans
Kloss and Bally Gaming International, Inc. (incorporated herein by reference
to exhibit 10(iii)(h) included in BGII's Annual Report on Form 10-K for the
period ended December 31, 1994).
10.67 -- Award Agreement (Performance Units), dated June 8, 1994, by and between Neil
Jenkins and Bally Gaming International, Inc.(incorporated herein by reference
to exhibit 10(iii)(i) included in BGII's Annual Report on Form 10-K for the
period ended December 31, 1994).
10.68 -- Bally Gaming International, Inc. 1994 Stock Option Plan for Non-Employee
Directors, as amended (incorporated herein by reference to exhibit 10(iii)(k)
included in BGII's Annual Report on Form 10-K for the period ended December
31, 1994).
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------- ------------------------------------------------------------------------------
<C> <C> <S>
10.69 -- Employment Agreement, effective January 1, 1993, between Bally Gaming
International, Inc. and Richard Gillman (incorporated herein by reference to
exhibit 10(iii)(j) included in BGII's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
10.70 -- Amendment, dated June 8, 1994, to the Employment Agreement, effective as of
January 1, 1993, between Richard Gillman and Bally Gaming International, Inc.
(incorporated herein by reference to exhibit 10(iii)(m) included in BGII's
Annual Report on Form 10-K for the period ended December 31, 1994).
10.71 -- Employment Agreements, as amended, between Hans Kloss and each of Bally Wulff
Automaten GmbH and Bally Wulff Vertriebs GmbH (incorporated herein by
reference to exhibit 10(iii)(b) included in BGII's Registration Statement No.
33-42227 on Form S-1, effective November 8, 1991).
10.72 -- Third Amendments, dated June 2, 1993, to Employment Agreements between Hans
Kloss and each of Bally Wulff Automaten GmbH and Bally Wulff Vertriebs GmbH
(incorporated herein by reference to exhibit 99(c) included in BGII's
Registration Statement No. 33-71154 on Form S-3 filed on November 1, 1993).
10.73 -- Employment Agreement, effective as of May 15, 1993, between Bally Gaming
International, Inc., Bally Gaming, Inc. and Hans Kloss (incorporated herein by
reference to exhibit 99(b) included in BGII's Registration Statement No.
33-71154 on Form S-3 filed on November 1, 1993).
10.74 -- Amendment, dated June 8, 1994, to the Employment Agreement effective as of May
15, 1993, between Hans Kloss and Bally Gaming International, Inc.
(incorporated herein by reference to exhibit 10(iii)(q) included in BGII's
Annual Report on Form 10-K for the period ended December 31, 1994).
10.75 -- Employment Agreement, dated June 30, 1994, between Neil Jenkins and Bally
Gaming International, Inc. (incorporated herein by reference to exhibit
10(iii)(r) included in BGII's Annual Report on Form 10-K for the period ended
December 31, 1994).
10.76 -- Employment Agreement, dated as of March 24, 1995, between Scott D.
Schweinfurth and Bally Gaming International, Inc. (incorporated herein by
reference to exhibit 10(iii)(z) included in BGII's Annual Report on Form
10-K/A for the period ended December 31, 1994).
*10.77 -- Third Amendment to Trademark License Agreement and Settlement Agreement, dated
May 10, 1996, by and between Bally Entertainment Corporation, Alliance Gaming
Corporation and BGII Acquisition Corp.
*12 -- Statement re computation of ratios.
*23.1 -- Consent of KPMG Peat Marwick LLP.
*23.2 -- Consent of Coopers & Lybrand L.L.P.
*23.3 -- Consent of Milbank, Tweed, Hadley & McCloy (included in its opinion filed as
Exhibit 5).
24 -- Power of Attorney (included on signature page).
*25 -- Statement of Eligibility of Trustee.
</TABLE>
- ------------------------
* Filed herewith.
II-9
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act will be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions set forth in response to Item 15, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Alliance Gaming
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
ALLIANCE GAMING CORPORATION
By: /s/ JOHN W. ALDERFER
--------------------------------------------
Name: John W. Alderfer
Title: Senior Vice President--Finance and
Administration, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE* Chairman of the Board of Directors,
------------------------------------------- President and Chief Executive Officer May 24, 1996
Steve Greathouse (Principal Executive Officer)
Senior Vice President-Finance and
/s/ JOHN W. ALDERFER Administration, Chief Financial Officer
------------------------------------------- and Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ANTHONY DICESARE*
------------------------------------------- Director and Executive Vice May 24, 1996
Anthony DiCesare President-Development
------------------------------------------- Director (Vice Chairman of the Board) May 24, 1996
Dr. Craig Fields
/s/ JOEL KIRSCHBAUM*
------------------------------------------- Director May 24, 1996
Joel Kirschbaum
</TABLE>
II-11
<PAGE>
<TABLE>
<C> <S> <C>
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
/s/ DAVID ROBBINS*
------------------------------------------- Director May 24, 1996
David Robbins
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-12
<PAGE>
The Registrant and each person whose signature appears below hereby
authorizes John W. Alderfer, David D. Johnson, Steve Greathouse and Anthony
DiCesare (the "Agents") to file one or more amendments (including post-effective
amendments) to this registration statement, which amendments may make such
changes in this registration statement as such Agent deems appropriate, and to
file any new registration statement (and any post-effective amendment thereto)
which registers additional securities of the same classes and for the same
offering as this registration statement in accordance with Rule 462(b) under the
Securities Act (each, a "462(b) Registration Statement"), and the Registrant and
each such person hereby appoints each such Agent as attorney-in-fact to execute
in the name and on behalf of the Registrant and each such person, individually
and in each capacity stated below, any such amendments to this registration
statement and any such 462(b) Registration Statements.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Alliance Holding
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
ALLIANCE HOLDING COMPANY
By: /s/ STEVE GREATHOUSE
--------------------------------------
Name: Steve Greathouse
Title: President/Treasurer/Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE Director, President and Treasurer
------------------------------------------- (Principal Executive Officer, Financial May 24, 1996
Steve Greathouse and Accounting Officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BGII Acquisition
Corp. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
BGII ACQUISITION CORP.
By: /s/ STEVE GREATHOUSE*
--------------------------------------
Name: Steve Greathouse
Title: President/Treasurer/Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE* Director, President and Treasurer
------------------------------------------- (Principal Executive Officer, Financial May 24, 1996
Steve Greathouse and Accounting Officer)
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, APT Games, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
APT GAMES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- Director and President May 24, 1996
Steve Greathouse (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Casino
Electronics, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
CASINO ELECTRONICS, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President May 24, 1996
Steve Greathouse (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Foreign Gaming
Ventures, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
FOREIGN GAMING VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President May 24, 1996
Steve Greathouse (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United Coin
Machine Co. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
UNITED COIN MACHINE CO.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. MIODUNSKI*
------------------------------------------- President May 24, 1996
Robert L. Miodunski (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ STEVE GREATHOUSE*
------------------------------------------- Director May 24, 1996
Steve Greathouse
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, APT Coin
Machines, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
APT COIN MACHINES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. SAXTON*
------------------------------------------- President May 24, 1996
Robert L. Saxton (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Trolley Stop,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
TROLLEY STOP, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. SAXTON*
------------------------------------------- President May 24, 1996
Robert L. Saxton (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Plantation
Investments, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
PLANTATION INVESTMENTS, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. SAXTON*
------------------------------------------- President May 24, 1996
Robert L. Saxton (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mizpah
Investments, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
MIZPAH INVESTMENTS, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. SAXTON*
------------------------------------------- President May 24, 1996
Robert L. Saxton (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United Games,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
UNITED GAMES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President May 24, 1996
Steve Greathouse (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Slot Palace,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
SLOT PALACE, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. SAXTON*
------------------------------------------- President May 24, 1996
Robert L. Saxton (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, WCAL, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
WCAL, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ ROBERT L. SAXTON*
------------------------------------------- President May 24, 1996
Robert L. Saxton (Principal Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Double Eagle
Hotel & Casino, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
DOUBLE EAGLE HOTEL & CASINO, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, FCJI, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
FCJI, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ JOHN W. ALDERFER President and Treasurer (Principal
------------------------------------------- Executive, Financial and Accounting May 24, 1996
John W. Alderfer Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United Native
American, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
UNITED NATIVE AMERICAN, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Financial and May 24, 1996
Steve Greathouse Accounting Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Native American
Investments, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
NATIVE AMERICAN INVESTMENTS, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Director and Treasurer (Principal May 24, 1996
John W. Alderfer Financial and Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Oregon Ventures,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
OREGON VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Indiana Gaming
Ventures, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
INDIANA GAMING VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mississippi
Ventures, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
MISSISSIPPI VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United Gaming of
Iowa, Inc. certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
UNITED GAMING OF IOWA, INC.
By: /s/ STEVE GREATHOUSE*
--------------------------------------
Name: Steve Greathouse
Title: President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE* President and Treasurer (Principal
------------------------------------------- Executive, Financial and Accounting May 24, 1996
Steve Greathouse Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United Gaming
Rainbow certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 24, 1996.
UNITED GAMING RAINBOW
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mississippi
Ventures II, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
MISSISSIPPI VENTURES II, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Vermont
Financial Ventures, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-2 and has duly caused
this registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
VERMONT FINANCIAL VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Missouri
Ventures II, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
MISSOURI VENTURES II, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Director and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- Director and President (Principal May 24, 1996
Steve Greathouse Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Director and Treasurer (Principal May 24, 1996
John W. Alderfer Financial and Accounting Officer)
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Louisiana
Ventures, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
LOUISIANA VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Alpine Willow
Investments, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
ALPINE WILLOW INVESTMENTS, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Chief Executive
Officer/Secretary/Chief
Financial Officer/Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
Chief Executive Officer/Secretary/ Chief
/s/ JOHN W. ALDERFER Financial Officer/Director (Principal
------------------------------------------- Executive, Financial and Accounting May 24, 1996
John W. Alderfer Officer)
</TABLE>
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Kansas Gaming
Ventures, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
KANSAS GAMING VENTURES, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- President (Principal Executive Officer) May 24, 1996
Steve Greathouse
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pennsylvania
Gaming Ventures I, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement or amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 24, 1996.
PENNSYLVANIA GAMING VENTURES I, INC.
By: /s/ JOHN W. ALDERFER
--------------------------------------
Name: John W. Alderfer
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEVE GREATHOUSE*
------------------------------------------- Director and President (Principal May 24, 1996
Steve Greathouse Executive Officer)
/s/ JOHN W. ALDERFER
------------------------------------------- Treasurer (Principal Financial and May 24, 1996
John W. Alderfer Accounting Officer)
/s/ ALFRED H. WILMS*
------------------------------------------- Director May 24, 1996
Alfred H. Wilms
</TABLE>
*By: /s/ JOHN W. ALDERFER
- -----------------------------------------
John W. Alderfer,
as Attorney-in-fact
II-41
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ---------------------- ------------------------------------------------------------------------ -----
<C> <C> <S> <C>
1.1 -- Form of Preferred Stock Underwriting Agreement (incorporated herein by
reference to Alliance's Form S-2, Registration Number 333-02145, and
subsequent amendments thereto).
*1.2 -- Form of Senior Secured Note Underwriting Agreement.
2.1 -- Agreement and Plan of Merger among Alliance, BGII Acquisition Corp. and
BGII, dated as of October 18, 1995, as amended and restated
(incorporated herein by reference to Alliance's Form S-4, Registration
Number 333-02799, and subsequent amendments thereto).
2.2 -- Basic Agreement, dated as of October 29, 1993, among United Gaming,
Inc., The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh
Seippel, and exhibits thereto (incorporated herein by reference to
Alliance's Form 8-K dated October 29, 1993).
2.3 -- Letter Agreement, dated as of November 5, 1993, among United Gaming,
Inc., Capital Gaming International, Inc., I.G. Davis, Jr. and John E.
Dell, with exhibits thereto (incorporated herein by reference to
Alliance's Form 8-K dated November 5, 1993).
2.4 -- Consolidation Agreement, dated March 29, 1995 among Alliance, United
Gaming Rainbow, Inc., RCC, RCVP, NGM, HFS, National Gaming Corporation,
Rainbow Development Corporation and Leigh Seippel and John A. Barrett,
Jr. (incorporated herein by reference to Alliance's Form 8-K dated March
29, 1995).
2.5 -- Offer to Purchase Common Shares of Bally Gaming International, Inc.,
dated July 28, 1995 (incorporated herein by reference to Alliance's
Schedule 14D-1 and Schedule 13D dated July 28, 1995).
3.1 -- Restated Articles of Incorporation of the Registrant, as amended
(incorporated herein by reference to Alliance's Form S-2, Registration
Number 33-72990, and subsequent amendments thereto).
3.2 -- Revised By-Laws of the Registrant (incorporated herein by reference to
Alliance's Form 10-K for the year ended June 30, 1994).
4.1 -- Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of Special Stock and Qualifications,
Limitations and Restrictions thereof of 15% Non-Voting Senior
Pay-in-Kind Special Stock, Series B (incorporated herein by reference to
Alliance's Form S-4, Registration Number 333-01527, and subsequent
amendments thereto).
4.2 -- Form of Certificate evidencing 15% Non-Voting Senior Pay-in-Kind Special
Stock, Series B (incorporated herein by reference to Alliance's Form
S-4, Registration Number 333-01527, and subsequent amendments thereto).
4.3 -- Common Stock Purchase Warrant issued to Alfred H. Wilms upon execution
of his loan commitment with Video Services, Inc. (incorporated herein by
reference to Alliance's Form 8-K dated March 31, 1992).
4.4 -- Indenture, dated as of September 14, 1993, between United Gaming, Inc.
and NationsBank of Texas, N.A., as Trustee in respect of Alliance's
7 1/2% Convertible Subordinated Debentures due 2003 (incorporated herein
by reference to Alliance's Form S-2, Registration Number 33-72990, and
subsequent amendments thereto).
4.5 -- Form of 7-1/2% Convertible Subordinated Debenture due 2003 (included in
Exhibit 4.5, above).
4.6 -- Registration Rights Agreement, dated as of September 21, 1993, by and
among United Gaming, Inc., Donaldson Lufkin & Jenrette Securities
Corporation, Oppenheimer & Co., Inc. and L.H. Friend, Weinress &
Frankson, Inc. (incorporated herein by reference to Alliance's Form S-2,
Registration Number 33-72990, and subsequent amendments thereto).
</TABLE>
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*4.7 -- Form of Senior Secured Note Indenture (including form of Senior Secured
Note and Guarantee).
*4.8 -- Form of Collateral Documents.
4.9 -- Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of Special Stock and Qualifications,
Limitations and Restrictions thereof of 11 1/2% Non-Voting Junior
Convertible Pay-in-Kind Special Stock, Series E (incorporated herein by
reference to Alliance's Schedule E-4 (Amendment No. 1) dated May 9,
1996).
4.10 -- Form of Indenture between Alliance and The Bank of New York, as Trustee
in respect of Alliance's 7 1/2% Convertible Senior Subordinated
Debentures due 2003 (incorporated herein by reference to Alliance's
Schedule E-4 (Amendment No. 1) dated May 9, 1996).
*5.1 -- Opinion of Milbank, Tweed, Hadley & McCloy as to legality of the Senior
Secured Notes being registered.
10.1 -- Loan and Warrant Agreement dated March 24, 1992 between United Gaming,
Inc., Video Services, Inc. and Alfred H. Wilms (incorporated herein by
reference to Alliance's Form 8-K dated March 31, 1992).
10.2 -- Lease, dated August 3, 1988, as amended April 6, 1989, from Walter
Schwartz to Alliance for Alliance's corporate headquarters building at
4380 Boulder Highway, Las Vegas, Nevada (incorporated herein by
reference to Alliance's Form 10-K for the year ended June 30, 1989).
10.3 -- Employment Agreement between United Gaming, Inc. and John W. Alderfer
(incorporated herein by reference to Alliance's Form 10-Q for the
quarter ended March 31, 1993).
10.4 -- Amendment to Employment Agreement between United Gaming, Inc. and John
W. Alderfer (incorporated herein by reference to Alliance's Form 10-K
for the year ended June 30, 1994).
10.5 -- Letter Agreement dated June 25, 1993 among United Gaming, Inc. and
Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment
Corporation and, as to certain provisions, Alfred H. Wilms, including
Exhibit A (Form of Securities Purchase Agreement), Exhibit B (Form of
Stockholders Agreement), Exhibit C (Form of Certificate of Designations
of Non-Voting Junior Convertible Preferred Stock), Exhibit D (Form of
Warrant Agreement), and Exhibit E (Form of press release) thereto
(incorporated herein by reference to Alliance's Form 8-K dated June 25,
1993).
10.6 -- Advisory Agreement, dated June 25, 1993 among United Gaming, Inc.,
Gaming Systems Advisors, L.P. and, as to certain provisions, Mr. Alfred
H. Wilms, including Exhibit A (Form of Warrant Agreement) and Exhibit B
(Form of press release) thereto (incorporated herein by reference to
Alliance's Form 8-K dated June 25, 1993).
10.7 -- United Gaming, Inc. 1991 Long-Term Incentive Stock Option Plan
(incorporated herein by reference to Alliance's Form S-8 Registration
Number 33-45811 and Registration Number 33-75308).
10.8 -- Gaming and Technology, Inc. 1984 Employee Stock Option Plan
(incorporated herein by reference to Alliance's Form S-8 Registration
Number 2-98777).
10.9 -- Agreement, dated as of September 14, 1993, by and among United Gaming,
Inc., Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment
Corporation, Gaming Systems Advisors, L.P. and Alfred H. Wilms
(incorporated herein by reference to Alliance's Form 8-K dated September
21, 1993).
10.10 -- Warrant Agreement, dated as of September 21, 1993, by and between United
Gaming, Inc. and Kirkland-Ft. Worth Investment Partners, L.P. relating
to warrants to purchase 2.75 million shares of Common Stock
(incorporated herein by reference to Alliance's Form 8-K dated September
21, 1993).
</TABLE>
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10.11 -- Warrant Agreement, dated as of September 21, 1993, by and between United
Gaming, Inc. and Gaming Systems Advisors, L.P. relating to warrants to
purchase 1.25 million shares of Common Stock (incorporated herein by
reference to Alliance's Form 8-K dated September 21, 1993).
10.12 -- Stockholders Agreement, dated as of September 21, 1993, by and among
United Gaming, Inc., Kirkland-Ft. Worth Investment Partners, L.P.,
Kirkland Investment Corporation, Gaming Systems Advisors, L.P. and
Alfred H. Wilms (incorporated herein by reference to Alliance's Form 8-K
dated September 21, 1993).
10.13 -- Amendment to Stockholders Agreement dated as of October 20, 1994
(incorporated herein by reference to Alliance's Form S-8 Registration
Number 33-45811 and Registration Number 33-75308).
10.14 -- Selling Stockholder Letter Agreement dated as of March 20, 1995
(incorporated herein by reference to Alliance's Form S-3 Registration
Number 33-58233).
10.15 -- Securities Purchase Agreement, dated as of September 21, 1993, by and
among United Gaming, Inc., Kirkland-Ft. Worth Investment Partners, L.P.
and Kirkland Investment Corporation (incorporated herein by reference to
Alliance's Form 8-K dated September 21, 1993).
10.16 -- Executive Severance Agreement with Shannon L. Bybee dated July 15, 1993
(incorporated herein by reference to Alliance's Form 10-Q dated
September 30, 1993).
10.17 -- Amendment to Executive Severance Agreement with Shannon L. Bybee dated
July 15, 1993 (incorporated herein by reference to Alliance's Form 10-K
for the year ended June 30, 1994).
10.18 -- Secured Promissory Note, dated as of October 29, 1993, from John A.
Barrett, Jr. and Leigh Seippel to United Gaming, Inc. (incorporated
herein by reference to Alliance's Form 8-K dated October 29, 1993).
10.19 -- Escrow Agreement, dated as of October 29, 1993, among United Gaming,
Inc., The Rainbow Casino Corporation, John A. Barrett, Jr., Leigh
Seippel and Butler, Snow, O'Mara, Stevens & Cannada (incorporated herein
by reference to Alliance's Form 8-K dated October 29, 1993).
10.20 -- Pledge Agreement, dated as of October 29, 1993, among United Gaming,
Inc. (as secured party) and The Rainbow Casino Corporation, John A.
Barrett, Jr. and Leigh Seippel (as pledgors) (incorporated herein by
reference to Alliance's Form 8-K dated October 29, 1993).
10.21 -- Management Agreement, dated as of October 29, 1993, among Rainbow
Casino-Vicksburg Partnership, L.P., The Rainbow Casino Corporation and
Mississippi Ventures, Inc., as manager (incorporated herein by reference
to Alliance's Form 8-K dated October 29, 1993).
10.22 -- Letter Agreement, dated as of December 10, 1993, among United Gaming,
Inc., Capital Gaming International, Inc. and I.G.Davis, Jr.
(incorporated herein by reference to Alliance's Form 8-K dated December
10, 1993).
10.23 -- Loan and Security Agreement, dated as of August 2, 1993, between United
Gaming, Inc., Alfred H. Wilms and Video Services, Inc. (incorporated
herein by reference to Alliance's Form S-2, Registration Number 33-72990
and subsequent amendments thereto).
10.24 -- Warrant Agreement, dated as of August 2, 1993, between United Gaming,
Inc. and Alfred H. Wilms (incorporated herein by reference to Alliance's
Form S-2, Registration Number 33-72990 and subsequent amendments
thereto).
10.25 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between
United Gaming, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated herein by reference to Alliance's Form S-2,
Registration Number 33-72990 and subsequent amendments thereto).
</TABLE>
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10.26 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between
United Gaming, Inc. and Oppenheimer & Co. Inc. (incorporated herein by
reference to Alliance's Form S-2, Registration Number 33-72990 and
subsequent amendments thereto).
10.27 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between
United Gaming, Inc. and L.H. Friend, Weinress & Frankson, Inc.
(incorporated herein by reference to Alliance's Form S-2, Registration
Number 33-72990 and subsequent amendments thereto).
10.28 -- Common Stock Purchase Warrant, dated as of September 21, 1993, between
United Gaming, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated herein by reference to Alliance's Form S-2,
Registration Number 33-72990 and subsequent amendments thereto).
10.29 -- Consulting Agreement, dated as of November 8, 1993, between David A.
Scheinman and United Gaming, Inc. (incorporated herein by reference to
Alliance's Form S-2, Registration Number 33-72990 and subsequent
amendments thereto).
10.30 -- Letter Agreement, dated as of March 3, 1994, by and among United Native
American Gaming, Inc., USA Gaming of Native America, Inc., USA Gaming,
Inc. and others (incorporated herein by reference to Alliance's Form 8-K
dated March 7, 1994).
10.31 -- Letter Agreement, dated as of February 25, 1994, among United Gaming,
Inc., The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh
Seippel (incorporated herein by reference to Alliance's Form 8-K dated
March 15, 1994).
10.32 -- Letter Agreement, dated as of June 29, 1994, among United Gaming, Inc.,
The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel,
consented to by HFS Gaming Corporation (incorporated herein by reference
to Alliance's Form 8-K dated August 11, 1994).
10.33 -- Letter Agreement, dated as of July 16, 1994, among United Gaming, Inc.,
The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel,
consented to by HFS Gaming Corporation (incorporated herein by reference
to Alliance's Form 8-K dated August 11, 1994).
10.34 -- Second Amendment to Casino Financing Agreement, dated as of August 11,
1994, among United Gaming, Inc., United Gaming Rainbow, Inc., Rainbow
Casino-Vicksburg Partnership, L.P., The Rainbow Casino Corporation, John
A. Barrett, Jr., Leigh Seippel and HFS Gaming Corporation (incorporated
herein by reference to Alliance's Form 8-K dated August 11, 1994).
10.35 -- Partnership Agreement of Rainbow Casino-Vicksburg Partnership, L.P.,
dated as of July 8, 1994 (incorporated herein by reference to Alliance's
Form 8-K dated August 11, 1994).
10.36 -- Second Amended and Restated Agreement of Limited Partnership, dated
March 29, 1995, between United Gaming Rainbow and RCC (incorporated
herein by reference to Alliance's Form 8-K dated March 29, 1995).
10.37 -- Promissory Note, dated as of July 16, 1994, from United Gaming Rainbow,
Inc. to The Rainbow Casino Corporation (incorporated herein by reference
to Alliance's Form 8-K dated August 11, 1994).
10.38 -- Pledge Agreement, dated as of July 16, 1994, from United Gaming Rainbow,
Inc. to The Rainbow Casino Corporation (incorporated herein by reference
to Alliance's Form 8-K dated August 11, 1994).
10.39 -- Promissory Note, dated as of July 16, 1994, from John A. Barrett, Jr.
and Leigh Seippel to United Gaming, Inc. (incorporated herein by
reference to Alliance's Form 8-K dated August 11, 1994).
</TABLE>
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10.40 -- Escrow Agreement, dated as of August 11, 1994, among United Gaming
Rainbow, Inc., The Rainbow Casino Corporation, John A. Barrett, Jr.,
Leigh Seippel and Butler, Snow, O'Mara, Stevens & Cannada, together with
Agreement dated February 7, 1994, as amended July 11, 1994 between
Rainbow Casino-Vicksburg Partnership, L.P. and the City of Vicksburg,
Mississippi (incorporated herein by reference to Alliance's Form 8-K
dated August 11, 1994).
10.41 -- Employment Agreement between United Gaming, Inc. and Johnann McIlwain
(incorporated herein by reference to Alliance's Form 10-K for the year
ended June 30, 1994).
10.42 -- Settlement Agreement, dated December 4, 1994, by and among Alliance,
United Gaming of Iowa, Inc., GDREC and Joseph and Paula Zwack
(incorporated herein by reference to Alliance's Form S-2, Registration
Number 33-72990 and subsequent amendments thereto).
10.43 -- Employment Agreement, dated August 15, 1994, between Alliance and Steve
Greathouse (incorporated herein by reference to Alliance's Form S-3,
Registration Number 33-58233).
10.44 -- Warrant Agreement, dated August 15, 1994, between Alliance and Steven
Greathouse (incorporated herein by reference to Alliance's Form S-3,
Registration Number 33-58233).
10.45 -- Agreement, dated September 1, 1994, between Alliance and Craig Fields
(incorporated herein by reference to Alliance's Form S-3, Registration
Number 33-58233).
10.46 -- Warrant Agreement, dated September 1, 1994, between Alliance and Craig
Fields (incorporated herein by reference to Alliance's Form S-3,
Registration Number 33-58233).
10.47 -- Agreement, dated March 20, 1995, between Alliance and Joel Kirschbaum
(incorporated herein by reference to Alliance's Form S-3, Registration
Number 33-58233).
10.48 -- Letter Agreement, dated March 29, 1995, among United Gaming Rainbow,
RCC, Leigh Seippel, John A. Barrett, Jr. and Butler, Snow, O'Mara,
Stevens & Cannada (incorporated herein by reference to Alliance's Form
8-K dated March 29, 1995).
10.49 -- Class A Note Payable, dated March 29, 1995, issued by RCVP to United
Gaming Rainbow (incorporated herein by reference to Alliance's Form 8-K
dated March 29, 1995).
10.50 -- Class B Note Payable, dated March 29, 1995, issued by RCVP to United
Gaming Rainbow (incorporated herein by reference to Alliance's Form 8-K
dated March 29, 1995).
10.51 -- Class B Note Payable, dated March 29, 1995, issued by RCVP to National
Gaming Mississippi, Inc. (incorporated herein by reference to Alliance's
Form 8-K dated March 29, 1995).
10.52 -- Release, dated March 29, 1995, by United Gaming Rainbow and Alliance and
their affiliates of RCC, Rainbow Development Corporation, John A.
Barrett, Jr. and Leigh Seippel and their affiliates (other than RCVP)
(incorporated herein by reference to Alliance's Form 8-K dated March 29,
1995).
10.53 -- Release, dated March 29, 1995, by RCC, Rainbow Development Corporation,
John A. Barrett, Jr. and Leigh Seippel and their affiliates (other than
RCVP) of United Gaming Rainbow and Alliance and their affiliates
(incorporated herein by reference to Alliance's Form 8-K dated March 29,
1995).
*10.54 -- Agreement, dated March 31, 1995 between Anthony DiCesare and Alliance
Gaming Corporation.
</TABLE>
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10.55 -- Trademark License Agreement, dated November 11, 1991 between Bally
Manufacturing Corporation and Bally Gaming International, Inc.
(incorporated herein by reference to exhibit 10(i)(d) included in BGII's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991).
10.56 -- Amended and Restated Trademark License Agreement, dated July 8, 1992, by
and between Bally Gaming International, Inc. and Bally Manufacturing
Corporation (incorporated herein by reference to exhibit 10(i)(d)
included in BGII's Registration Statement on Form S-1 No. 33-48347 filed
on July 9, 1992).
10.57 -- Agreement, dated January 8, 1993 by and between Bally Gaming
International, Inc. and Bally Manufacturing Corporation (incorporated
herein by reference to exhibit 10(i)(p) included in BGII's Annual Report
on Form 10-K for the period ended December 31, 1992).
10.58 -- Second Amendment to Trademark License Agreement and Settlement
Agreement, dated March 31, 1995, by and between Bally Entertainment
Corporation and Bally Gaming International, Inc. (incorporated herein by
reference to Exhibit I, included in BGII's Current Report on Form 8-K
dated April 3, 1995).
10.59 -- 1991 Incentive Plan of Bally Gaming International, Inc. (incorporated
herein by reference to exhibit 10(iii)(a) included in BGII's
Registration Statement No. 33-42227 on Form S-1, effective November 8,
1991).
10.60 -- Amendment No. 1 to the 1991 Incentive Plan of Bally Gaming
International, Inc. effective February 6, 1992 (incorporated herein by
reference to exhibit 10(iii)(b) included in BGII's Registration
Statement No. 33-42227 on Form S-1 effective November 1, 1991).
10.61 -- Amendment No. 2 to 1991 Incentive Plan of Bally Gaming International
Inc. (incorporated herein by reference to exhibit 99(e) included in
BGII's Registration Statement No. 33-71154 on Form S-3 filed on November
1, 1993).
10.62 -- 1991 Non-Employee Directors' Option Plan of Bally Gaming International,
Inc. (incorporated herein by reference to exhibit 10(iii)(f) included in
BGII's Annual Report on Form 10-K for the fiscal y ear ended December
31, 1991).
10.63 -- Amendment No. 1 to the 1991 Non-Employee Directors' Option Plan of Bally
Gaming International, Inc. (incorporated herein by reference to exhibit
10(iii)(g) included in BGII's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
10.64 -- Bally Gaming International, Inc. 1992 Restricted Stock Performance Plan
(incorporated herein by reference to exhibit 99(d) included in BGII's
Registration Statement on Form S-3 filed on November 1, 1993).
10.65 -- Award Agreement (Performance Units), dated June 8, 1994, by and between
Richard Gillman and Bally Gaming International, Inc. (incorporated
herein by reference to exhibit 10(iii)(g) included in BGII's Annual
Report on Form 10-K for the period ended December 31, 1994).
10.66 -- Award Agreement (Performance Units), dated June 8, 1994, by and between
Hans Kloss and Bally Gaming International, Inc. (incorporated herein by
reference to exhibit 10(iii)(h) included in BGII's Annual Report on Form
10-K for the period ended December 31, 1994).
10.67 -- Award Agreement (Performance Units), dated June 8, 1994, by and between
Neil Jenkins and Bally Gaming International, Inc.(incorporated herein by
reference to exhibit 10(iii)(i) included in BGII's Annual Report on Form
10-K for the period ended December 31, 1994).
10.68 -- Bally Gaming International, Inc. 1994 Stock Option Plan for Non-Employee
Directors, as amended (incorporated herein by reference to exhibit
10(iii)(k) included in BGII's Annual Report on Form 10-K for the period
ended December 31, 1994).
</TABLE>
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10.69 -- Employment Agreement, effective January 1, 1993, between Bally Gaming
International, Inc. and Richard Gillman (incorporated herein by
reference to exhibit 10(iii)(j) included in BGII's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.70 -- Amendment, dated June 8, 1994, to the Employment Agreement, effective as
of January 1, 1993, between Richard Gillman and Bally Gaming
International, Inc. (incorporated herein by reference to exhibit
10(iii)(m) included in BGII's Annual Report on Form 10-K for the period
ended December 31, 1994).
10.71 -- Employment Agreements, as amended, between Hans Kloss and each of Bally
Wulff Automaten GmbH and Bally Wulff Vertriebs GmbH (incorporated herein
by reference to exhibit 10(iii)(b) included in BGII's Registration
Statement No. 33-42227 on Form S-1, effective November 8, 1991).
10.72 -- Third Amendments, dated June 2, 1993, to Employment Agreements between
Hans Kloss and each of Bally Wulff Automaten GmbH and Bally Wulff
Vertriebs GmbH (incorporated herein by reference to exhibit 99(c)
included in BGII's Registration Statement No. 33-71154 on Form S-3 filed
on November 1, 1993).
10.73 -- Employment Agreement, effective as of May 15, 1993, between Bally Gaming
International, Inc., Bally Gaming, Inc. and Hans Kloss (incorporated
herein by reference to exhibit 99(b) included in BGII's Registration
Statement No. 33-71154 on Form S-3 filed on November 1, 1993).
10.74 -- Amendment, dated June 8, 1994, to the Employment Agreement effective as
of May 15, 1993, between Hans Kloss and Bally Gaming International, Inc.
(incorporated herein by reference to exhibit 10(iii)(q) included in
BGII's Annual Report on Form 10-K for the period ended December 31,
1994).
10.75 -- Employment Agreement, dated June 30, 1994, between Neil Jenkins and
Bally Gaming International, Inc. (incorporated herein by reference to
exhibit 10(iii)(r) included in BGII's Annual Report on Form 10-K for the
period ended December 31, 1994).
10.76 -- Employment Agreement, dated as of March 24, 1995, between Scott D.
Schweinfurth and Bally Gaming International, Inc. (incorporated herein
by reference to exhibit 10(iii)(z) included in BGII's Annual Report on
Form 10-K/A for the period ended December 31, 1994).
*10.77 -- Third Amendment to Trademark License Agreement and Settlement Agreement,
dated May 10, 1996, by and between Bally Entertainment Corporation,
Alliance Gaming Corporation and BGII Acquisition Corp.
*12 -- Statement re computation of ratios.
*23.1 -- Consent of KPMG Peat Marwick LLP.
*23.2 -- Consent of Coopers & Lybrand L.L.P.
*23.3 -- Consent of Milbank, Tweed, Hadley & McCloy (included in its opinion
filed as Exhibit 5).
24 -- Power of Attorney (included on signature page).
*25 -- Statement of Eligibility of Trustee.
</TABLE>
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* Filed herewith.
<PAGE>
Alliance Gaming Corporation
__% Senior Secured Notes due 2003
UNDERWRITING AGREEMENT
June __, 1996
JEFFERIES & COMPANY, INC.
LADENBURG, THALMANN & CO. INC.
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard
Los Angeles, California 90025
Ladies and Gentlemen:
Subject to the terms and conditions herein contained, Alliance Gaming
Corporation, a Nevada corporation (the "Company"), and the guarantors listed in
Schedule I hereto (collectively, the "Guarantors" and, together with the
Company, the "Issuers"), jointly and severally propose to issue and, as
applicable, sell to Jefferies & Company, Inc. ("Jefferies") and Ladenburg,
Thalmann & Co. Inc. ("Ladenburg" and, together with Jefferies, the
"Underwriters") an aggregate of $140,000,000 principal amount of the Company's
___% Senior Secured Notes due 2003 (the "Notes") and the related guarantees (the
"Guarantees") by the Guarantors (collectively, the "Securities"). The
Securities are to be issued pursuant to the provisions of an Indenture (the
"Indenture") to be dated as of June __, 1996, by and among the Issuers and
United States Trust Company of New York, a national banking association, as
trustee (the "Trustee").
Capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Prospectus (as hereinafter defined). Unless
the context otherwise requires, all references herein to "the Company" shall be
deemed to give effect to the acquisition by the Company or its subsidiaries
(collectively, the "Subsidiaries"), as applicable, of all of the capital stock
of Bally Gaming International, Inc. ("BGII") pursuant to the Agreement and Plan
of Merger (the "Merger Agreement"), dated October 18, 1995, as amended and
restated prior to the date hereof, by and among the Company, BGII Acquisition
<PAGE>
Corp. and BGII, at or prior to consummation of the issuance of the Securities.
All references herein to the "Subsidiaries" shall be deemed to include BGII and
its subsidiaries unless the context otherwise requires. Concurrently with the
issuance of the Securities and consummation of the Merger, the Company is
proposing to issue and sell (i) ______ shares (and an additional ____ shares
subject to an over-allotment option) of its 15% Non-Voting Pay-in-Kind Senior
Special Stock, Series B, $10.00 par value per share (the "Preferred Stock")
pursuant to an underwriting agreement (the "Preferred Stock Underwriting
Agreement"), to be dated as of the date hereof, by and among the Company and
each of Jefferies and Ladenburg, as underwriters and (ii) _____ shares of its
Common Stock, $.10 par value per share (the "Common Stock") pursuant to a letter
agreement by and between the Company and Banque Indosuez dated March 22, 1996
(the "Subscription Agreement"). In addition, at such time $______ aggregate
principal amount of Alliance's 7 1/2% Convertible Senior Subordinated Debentures
due 2003 (the " New Convertible Debentures") issued in connection with
Alliance's exchange offer (the "Exchange Offer") consummated on June __, 1996,
will automatically be converted (the "Automatic Conversion") into ___ shares of
Common Stock and ____ shares of its Non-Voting Junior Convertible Pay-in-Kind
Special Stock, Series E, par value $.10 per share (the "Junior Preferred
Stock").
1. REGISTRATION STATEMENT AND PROSPECTUS. The Issuers have prepared
and filed with the Securities and Exchange Commission (the "Commission"), in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated pursuant thereto
(collectively, the "Act"), a registration statement on Form S-2 (No. 333-02147)
with respect to the Securities, including a preliminary prospectus, subject to
completion, relating to the Securities. The registration statement, as amended
at the time it becomes effective (including a registration statement (if any)
filed pursuant to Rule 462(b) under the Act, all financial statements and
exhibits and the information, if any, contained in a prospectus that is deemed
to be a part of the registration statement at the time of its effectiveness
pursuant to Rule 430A or Rule 434 under the Act), and including all documents
incorporated by reference therein pursuant to Item 12 of Form S-2 under the Act,
is hereinafter referred to as the "Registration Statement," and the prospectus
constituting a part of the Registration Statement, in the form first furnished
to the Underwriters and used to confirm sales of the Securities and including
all documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the Act, is hereinafter referred to as the "Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to the
terms and conditions contained in this Agreement, the Issuers jointly and
severally agree to issue and sell to the Underwriters, and each Underwriter
agrees, several-
-2-
<PAGE>
ly and not jointly, to purchase from the Issuers, Securities in the respective
principal amount set forth opposite the name of such Underwriter in Schedule II
hereto, plus such amount, if any, as they may individually become obligated to
purchase pursuant to Section 9 hereof, at a purchase price per Security equal to
the percentage of the principal amount thereof set forth in the table on the
cover page of the Prospectus under the heading "Proceeds to the Company" (the
"Purchase Price").
3. DELIVERY AND PAYMENT. Delivery to you of and payment for the
Securities shall be made at 10:00 A.M., New York City time, on the third or
fourth business day, unless otherwise permitted by the Commission pursuant to
Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (such time and date being referred to as the "Closing Date"), following
the date of the initial public offering of the Securities as advised by
Jefferies to the Company, at the offices of Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022, or such other place as you
shall reasonably designate. The Closing Date and the location of delivery of
and the form of payment for the Securities may be varied by agreement among
Jefferies and the Company.
The Securities in definitive form shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date, and shall be made available to
you at the offices of Jefferies (or at such other place as shall be acceptable
to you) for inspection not later than 10:00 A.M., New York City time, no later
than the business day next preceding the Closing Date. Definitive Securities
shall be delivered to you on the Closing Date, with any transfer taxes payable
upon initial issuance thereof duly paid by the Issuers, for your respective
accounts against payment of the Purchase Price by check or checks payable in, or
wire transfer of, same day funds to the order of the Company.
4. AGREEMENTS OF THE ISSUERS. Each of the Issuers jointly and
severally agrees with each of you that:
(a) It will, if the Registration Statement has not heretofore become
effective under the Act, and, if necessary or required by law, file an
amendment to the Registration Statement or, if necessary pursuant to Rule
430A under the Act, a post-effective amendment to the Registration
Statement, in each case as soon as practicable after the execution and
delivery of this Agreement, and will use its best efforts to cause the
Registration Statement or such post-effective amendment to become effective
at the earliest possible time. If the Registration Statement has become
effective
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and the Issuers, omitting from the Prospectus certain information in
reliance upon Rule 430A of the Act, elect not to file a post-effective
amendment pursuant to Rule 430A of the Act, it will file the form of
Prospectus required by Rule 424(b) of the Act within the time period
specified by Rule 430A and Rule 424(b) of the Act. The Issuers will
otherwise comply fully and in a timely manner with the applicable
provisions of Rule 424 and Rule 430A under the Act.
(b) It will advise you promptly and, if requested by any of you,
confirm such advice in writing, (i) when the Registration Statement has
become effective, if and when the Prospectus is sent for filing pursuant to
Rule 424 under the Act and when any post-effective amendment to the
Registration Statement becomes effective, (ii) of the receipt of any
comments from the Commission or any state securities commission or any
other regulatory authority that relate to the Registration Statement or
requests by the Commission or any state securities commission or any other
regulatory authority for any amendment or supplements to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement, or of the
suspension of qualification of the Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by the
Commission or any state securities commission or other regulatory
authority, and (iv) of the happening of any event during the period
referred to in paragraph (d) below which makes any statement of a material
fact made in the Registration Statement (as amended or supplemented from
time to time) untrue or which requires the making of any additions to or
changes in the Registration Statement (as amended or supplemented from time
to time) in order to make the statements therein not misleading or that
makes any statement of a material fact made in the Prospectus (as amended
or supplemented from time to time) untrue or which requires the making of
any addition to or change in the Prospectus (as amended or supplemented
from time to time) in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Issuers
shall use their best efforts to prevent the issuance of any stop order or
order suspending the qualification or exemption of the Securities under any
Federal or state securities or Blue Sky laws, and, if at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption of the Securities under any state securities or Blue Sky laws,
the Issuers shall use every effort to obtain the withdrawal or lifting of
such order at the earliest possible time.
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(c) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period in your reasonable judgment as
a prospectus is required by the Act, the Exchange Act or any Blue Sky or
state securities laws to be delivered in connection with sales of the
Securities by an Underwriter or a dealer, it will furnish to each
Underwriter and each dealer, without charge, as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as such
Underwriter or dealer may reasonably request.
(d) If during the period during which in your reasonable judgment you
are required to deliver a prospectus in connection with offers or sales of
Securities by you, any event shall occur as a result of which it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing as of the
date the Prospectus is delivered to an offeree or a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with applicable law, it will promptly prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not,
in the light of the circumstances existing as of the date the Prospectus is
so delivered, be misleading, and will comply with applicable law and will
promptly notify you of such event and amendment or supplement and furnish
to you without charge such number of copies thereof as you may reasonably
request.
(e) It will mail and make generally available to its security holders
as soon as practicable and as specified by Rule 158 under the Act, a
consolidated earning statement which shall satisfy the provisions of
Section 11(a) of the Act and Rule 158 thereunder and advise you in writing
when such statement has been made available.
(f) It will furnish to each of the Underwriters, without charge, two
(2) signed copies (plus one additional signed copy to your legal counsel)
of the Registration Statement, as first filed with the Commission, and of
each amendment or supplement to it, including each post-effective amendment
and all exhibits filed therewith or incorporated by reference therein, and
will furnish to each of the Underwriters, such number of conformed copies
of the Registration Statement as so filed and of each amendment to it,
including each post-effective amendment, but without exhibits, as you may
reasonably request.
(g) It will not file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effec-
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<PAGE>
tive, or make any amendment or supplement to the Prospectus, of which you
shall not previously have been advised and provided a copy of within two
business days prior to the filing thereof or to which you shall reasonably
object; and it will prepare and file with the Commission, promptly upon
your reasonable request, any amendment or supplement to the Registration
Statement or amendment or supplement to the Prospectus which in your sole
judgment may be necessary in connection with the distribution of the
Securities by you, and will use its best efforts to cause the same to
become effective as promptly as possible.
(h) Prior to any public offering of the Securities, it will cooperate
with you and your counsel in connection with the registration or
qualification of the Securities for offer and sale by the Underwriters
under the state securities or Blue Sky laws of such jurisdictions as you
may request. The Issuers will continue such qualification in effect so
long as required by law for distribution of the Securities and will file
such consents to service of process or other documents as may be necessary
in order to effect such registration or qualification (PROVIDED, that none
of the Issuers shall be obligated to qualify as a foreign corporation or
general partnership, as the case may be, in any jurisdiction in which it is
not so qualified or to take any action that would subject it to general
consent to service of process in any jurisdiction in which it is not now so
subject).
(i) It will timely complete all required filings and otherwise comply
fully in a timely manner with all provisions of the Exchange Act, and will
file promptly all reports and any definitive proxy or information
statements required to be filed by the Issuers with the Commission pursuant
to Sections 13(a), 13(c), 14(a) or 15(d) of the Exchange Act subsequent to
the date of the Prospectus and for so long as the delivery of a prospectus
is required in connection with the offer or sale of the Securities.
(j) So long as any of the Securities are outstanding, it will
furnish to you, without charge, a copy of each report or other publicly
available information of the Issuers furnished to holders of the Securities
or filed with the Commission, whether or not required by law or pursuant to
the Indenture, and such other publicly available information concerning the
Company or the Subsidiaries as you may reasonably request, at the same time
as such reports or other information are furnished to such holders.
(k) During the period beginning on the date of this Agreement and
continuing to and including the Closing Date, except as described in the
Prospectus with respect to the Transaction, effecting the Automatic
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Conversion and obtaining one or more working capital revolving facilities
(the "Working Capital Facilities") at Gaming and Wulff (providing for up to
$40 million borrowing availability, in aggregate), there will be no
transactions entered into by the Company or any of the Subsidiaries, which
are material with respect to the Company or any of the Subsidiaries, taken
individually or as a whole, and there will be no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock.
(l) It will not voluntarily claim, and will resist any attempts to
claim, the benefits of any usury laws against the holders of the
Securities.
(m) It will use the proceeds from the sale of the Securities in the
manner described in the Prospectus under the caption "Use of Proceeds" and
will make any filing required by Rule 463 of the Act.
(n) It will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after the Closing Date and to satisfy all conditions precedent to the
delivery of the Securities.
5. PAYMENT OF EXPENSES. Each of the Issuers jointly and severally
agrees with you that, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, it will pay and be responsible for
all costs, charges, liabilities, expenses, fees and taxes incurred in connection
with or incident to (i) the preparation, printing (including word processing),
filing, distribution and delivery under the Act of the Registration Statement
(including financial statements and exhibits), each preliminary prospectus, the
Prospectus and all amendments and supplements thereto, (ii) the registration
with the Commission and the issuance and delivery of the Securities, (iii) the
preparation, printing (including word processing), execution, distribution and
delivery of the Merger Agreement, this Agreement, the Indenture, the Pledge
Agreement (as defined in the Indenture), the Securities, the Preferred Stock
Underwriting Agreement, the Subscription Agreement, the Purchase Agreement
pursuant to which Alliance Holding Company will purchase all the shares of Bally
Wulff Automaten GmbH and Bally Wulff Vertreibs (the "Wulff Purchase Agreement")
and such other documents and agreements entered into or to be entered into in
connection with the Transaction (collectively, the "Operative Documents"), the
Preliminary and Final Blue Sky Memoranda, and all other agreements, memoranda,
reports, correspondence and other documents printed, distributed and delivered
in connection with the offering of the Securities, (iv) the registration or
qualification of the Securities for offer and sale under state securities or
Blue Sky laws of the jurisdictions pursuant to paragraph 4(h) above
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<PAGE>
(including, in each case, the fees and disbursements of counsel for the
Underwriters relating to such registration or qualification and any memoranda
relating thereto and any filing fees in connection therewith), (v) furnishing
such copies of the Registration Statement (including exhibits), Prospectus and
preliminary prospectus, and all amendments and supplements to any of them,
including any document incorporated by reference therein, as may be reasonably
requested by the Underwriters or by dealers, (vi) the filing, registration and
clearance with the National Association of Securities Dealers, Inc. (the "NASD")
of the Underwriters' compensation in connection with the offering of the
Securities (including, without limitation, any filing fees in connection
therewith), (vii) the fees charged by securities rating services for rating of
the Securities; (viii) distributing the terms of agreement relating to the
organization of the selling group to the members thereof by mail, telex or other
means of communication, (ix) any "qualified independent underwriter" as required
by Schedule E of the Bylaws of the NASD (including fees and disbursements of
counsel for such qualified independent underwriter), (x) the performance by the
Company and each of the Subsidiaries of its other obligations under this
Agreement and each of the other Operative Documents to which it is a party,
including (without limitation) the fees and expenses of the Trustee, the costs
of their personnel and other internal costs, the cost of printing and engraving
the certificates representing the Securities, and all expenses and taxes
incident to the sale and delivery of the Securities to you, and creating and
perfecting security interests in the Collateral, including, without limitation,
filing and recording fees and expenses and fees and expenses of counsel for the
Issuers for providing such opinions as you may reasonably request. The
Company's obligations pursuant to this Section 5 shall be in addition to any
liability or obligation the Company may otherwise have to the Underwriters or
any other person.
6. REPRESENTATIONS AND WARRANTIES. Each of the Issuers jointly and
severally represents and warrants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-2 under the
Act and when the Registration Statement became or becomes effective,
including on the date of any post-effective amendment, at the date of the
Prospectus (if different) and at the Closing Date, the Registration
Statement will comply in all material respects with the provisions of the
Act and the Trust Indenture Act of 1939, as amended, and the rules and
regulations thereunder (collectively, the "TIA"), and will not contain any
untrue statement of a
8
<PAGE>
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; the
Prospectus and each supplement or amendment thereto will not, at the date
of the Prospectus, at the date of any such supplement or amendment and at
the Closing Date, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties contained in
this paragraph (a) shall not apply to statements in or omissions from the
Registration Statement or the Prospectus (or any supplement or amendment to
them) made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Issuers in writing by or on behalf of such
Underwriter through Jefferies expressly for use therein. Each of the
Issuers acknowledges for all purposes under this Agreement (including this
paragraph and Section 7 hereof) that the statements set forth in [the last
paragraph of the cover page of the Prospectus and the second paragraph of
the section entitled "Underwriting" of the Prospectus] constitute the only
written information furnished to any of the Issuers by or on behalf of any
Underwriter through Jefferies expressly for use in the Registration
Statement, the preliminary prospectus or the Prospectus (or any amendment
or supplement to any of them) and that the Underwriters shall not be deemed
to have provided any information (and therefore are not responsible for any
statements or omissions) pertaining to any arrangement or agreement with
respect to any party other than the Underwriters. When the Registration
Statement became or becomes effective, including at the time of any post-
effective amendment, at the date of the Prospectus and any amendment or
supplement thereto (if different) and at the Closing Date, the Indenture
will have been qualified under and will conform in all material respects to
the requirements of the TIA. No contract or document of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement has not been
described and filed as required.
(b) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of the Form S-2 under the Act, at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder
(the "Exchange Act Regulations"), and, when read together and with the
other information in the Prospectus, at the time the Registration Statement
becomes effective and at all times subsequent thereto up to the Closing
Date, will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
(c) Each preliminary prospectus and the Prospectus, filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 or 430A under the Act, and
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<PAGE>
each Registration Statement filed pursuant to Rule 462(b) under the Act, if
any, complied when so filed in all material respects with the Act.
(d) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental body, agency
or official which prevents the issuance of the Securities, suspends the
effectiveness of the Registration Statement, prevents or suspends the use
of any preliminary prospectus or suspends the sale of the Securities in any
jurisdiction referred to in Section 4(h) hereof; no injunction, restraining
order or order of any nature by any Federal or state court of competent
jurisdiction has been issued with respect to the Company or any of the
Subsidiaries which would prevent or suspend the issuance or sale of the
Securities, the effectiveness of the Registration Statement, or the use of
any preliminary prospectus or Prospectus or in any jurisdiction referred to
in Section 4(h) hereof; no action, suit or proceeding before any court or
arbitrator or any governmental body, agency or official, domestic or
foreign, is pending against or, to the best knowledge of the Issuers, after
due inquiry, threatened against, the Company or any of the Subsidiaries
which, if adversely determined, could interfere with or materially
adversely affect the issuance of the Securities or in any manner draw into
question the validity of any of the Operative Documents; and the Company
and each of the Subsidiaries has complied in all material respects with
every request (unless otherwise withdrawn) of the Commission, or any
securities authority or agency of any jurisdiction for additional
information (to be included in the Registration Statement or the Prospectus
or otherwise).
(e) The Indenture has been duly authorized by each of the Issuers
and, when duly executed and delivered by each of the Issuers in accordance
with its terms, will be a legal, valid and binding agreement of each of the
Issuers, enforceable against each of the Issuers in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity) and except to the extent that a waiver of rights under any usury
laws may be unenforceable.
(f) The Notes have been duly authorized by the Company and, on the
Closing Date, will have been duly executed by the Company and will, when
issued, executed, authenticated and delivered in accordance with the
Indenture and paid for in accordance with the terms of this Agreement,
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to applicable
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bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or in equity) and, except to the extent that a
waiver of rights under any usury laws may be unenforceable, will be
entitled to the benefits of the Indenture and will conform in all material
respects to the descriptions thereof in the Prospectus. The Notes rank and
will rank on a parity with all senior indebtedness of the Company that is
outstanding on the date hereof or that may be incurred hereafter, and
unsubordinated to all other indebtedness of the Company that is outstanding
on the date hereof or that may be incurred hereafter, including, without
limitation, the outstanding 7 1/2% Convertible Subordinated Debentures due
2003 of the Company (the "Old Convertible Debentures").
(g) The Guarantees have been duly authorized by each of the
Guarantors and, on the Closing Date, will have been duly executed by each
of the Guarantors and will, when issued, executed, authenticated and
delivered in accordance with the Indenture, constitute legal, valid and
binding obligations of each of the Guarantors, enforceable against each of
the Guarantors in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity) and, except to
the extent that a waiver of rights under any usury laws may be
unenforceable, will be entitled to the benefits of the Indenture and will
conform in all material respects to the descriptions thereof in the
Prospectus. The Guarantees rank and will rank on a parity with all
unsubordinated indebtedness of the applicable Guarantor that is outstanding
on the date hereof or that may be incurred hereafter and senior to all
other indebtedness of the applicable Guarantor that is outstanding on the
date hereof and that may be incurred hereafter.
(h) This Agreement has been duly and validly authorized, executed and
delivered by each of the Issuers and constitutes a legal, valid and binding
agreement of each of the Issuers, enforceable against each of the Issuers
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity) and except to the extent that indemnification from liability
in connection with the Federal securities laws or the
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basis of allocation contained in the contribution provisions herein may be
unenforceable.
(i) Each of the other Operative Documents has been duly and validly
authorized by the Company and each of the Subsidiaries, as applicable,
and on the Closing Date, will have been duly executed and delivered by the
Company and each of the Subsidiaries, as applicable, in accordance with its
respective terms and will each be a legal, valid and binding agreement of
the Company and each of the Subsidiaries, as applicable, enforceable
against the Company and each of the Subsidiaries, as applicable, in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar
laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(j) Each of the Operative Documents, each of the elements of the
Transaction and the Automatic Conversion described in the Prospectus
conforms in all material respects to the description thereof contained in
the Prospectus.
(k) The Company and each of the Subsidiaries, as applicable, has all
the requisite corporate or partnership power and authority to execute,
deliver and perform its obligations under this Agreement and each of the
other Operative Documents to which it is a party, and to authorize, issue
and sell the Securities. The execution and delivery by the Company and
each of the Subsidiaries of this Agreement and the other Operative
Documents to which it is a party, the issuance and sale of the Securities,
the performance of the Operative Documents, the Automatic Conversion and
the consummation of the transactions contemplated hereby and thereby will
not conflict with or result in a breach or violation of (i) any of the
respective charters, bylaws or partnership agreements, as the case may be,
of the Company or any of the Subsidiaries (ii) any of the terms or
provisions of, or constitute a default or cause an acceleration of any
obligation under, or result in the imposition or creation of (or the
obligation to create or impose) any security interest, mortgage, pledge,
claim, lien, encumbrance or adverse interest of any nature (each, a "Lien")
other than Liens permitted under the Indenture, with respect to any
obligation, bond, agreement, note, debenture or any other evidence of
indebtedness or any indenture, mortgage, deed of trust or other agreement,
lease or instrument to which the Company or any of the Subsidiaries is a
party or by which they or any of them are bound, or to which any of the
properties or assets of the Company or any of the Subsidiaries is or may be
subject, or (iii) any
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Federal, state or local law, rule, administrative regulation or ordinance
or order of any court or governmental agency, body or official having
jurisdiction over the Company or any of the Subsidiaries or any of their
properties, except, in the case of clause (ii) or (iii), for such
conflicts, breaches, violations, defaults or Liens that could not
reasonably be expected to have, singly or in the aggregate, a material
adverse effect on the properties, plans, business, results of operations,
general affairs, management, condition (financial or otherwise), prospects,
or business affairs of the Company or the Subsidiaries (a "Material Adverse
Effect").
(l) No authorization, approval, consent or order of, or filing with,
any court or governmental body, agency or official, including from the
Nevada State Gaming Control Board and the Nevada Gaming Commission
(collectively, the "Nevada Gaming Authorities"), the Video Gaming Division
of the Gaming Enforcement Section of the Office of State Police within the
Department of Public Safety and Corrections of the State of Louisiana (the
"Louisiana Gaming Authorities"), the Mississippi Gaming Commission (the
"Mississippi Gaming Authorities"), the New Jersey Casino Control Commission
(the "New Jersey Gaming Authorities") (collectively, the "Gaming
Authorities"), is necessary in connection with the issuance and sale of,
the Securities the performance of the Operative Documents, the Automatic
Conversion and the consummation of the transactions contemplated hereby or
thereby, except such as may be required by the NASD or have been obtained
and under the Nevada Gaming Control Act (the "Nevada Gaming Laws"), the
Louisiana Video Draw Poker Devices Control Act (the "Louisiana Act"), the
Louisiana Riverboat Economic Development Act (together with the Louisiana
Act, the "Louisiana Gaming Laws"), the Mississippi Gaming Control Act (the
"Mississippi Gaming Laws") and the New Jersey Gaming Control Act (the "New
Jersey gaming Laws") (collectively, the "Gaming Laws"), the Act, the TIA or
state securities or Blue Sky laws or regulations. Neither of the Issuers
nor any of their affiliates is presently doing business with the government
of Cuba or with any person or affiliate located in Cuba.
(m) The Company and each of the Subsidiaries has been duly
incorporated and the Company and each of the Subsidiaries is validly
existing as a corporation or general partnership, as the case may be, under
the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority to carry on its business as it is currently
being conducted or is proposed to be conducted (as discussed in the
Prospectus) and to own, lease and operate its properties, as applicable,
and is duly qualified as a foreign corporation, authorized to do business
and is in good standing in each jurisdiction (each, a "Foreign
Jurisdiction") where the operation, ownership
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or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not
reasonably be expected to have, singly or in the aggregate, a Material
Adverse Effect.
(n) The consolidated capitalization as of December 31, 1995, of each
of the Company and BGII is as set forth in the Prospectus under the caption
"Capitalization" in the respective columns "Alliance Actual" and "BGII
Actual", and the consolidated capitalization of the Company will be as set
forth in the column "The Company Pro Forma as Adjusted." All of the issued
and outstanding shares of capital stock of the Company and each of the
Subsidiaries have been duly authorized and are, and in the case of the
Common Stock and Junior Preferred Stock to be issued upon the Automatic
Conversion will be, validly issued, fully paid and nonassessable. On the
Closing Date, except as disclosed in the Prospectus and for directors
qualifying shares, the Company will own, either directly or indirectly, all
of the outstanding capital stock of each of the Subsidiaries, including
BGII and its direct and indirect subsidiaries, free and clear of any Liens,
restrictions on transfer, agreements, voting trusts or other defects of
title whatsoever, other than transfer restrictions which may be imposed (i)
by law or by any of the Gaming Authorities, (ii) in the organizational
document of any such Subsidiary and (iii) such stock pledges granted by
Alliance in connection with the issuance of the Notes; the issuance of the
shares of capital stock by the Company upon the Automatic Conversion will
not be subject to preemptive or similar rights; except as disclosed in the
Prospectus, there are no outstanding subscriptions, rights, warrants,
options, calls, convertible or exchangeable securities or commitments of
sale related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interests in, the
Company or any Subsidiary.
(o) Neither the Company nor any of the Subsidiaries is (i) in
violation of its respective charter, bylaws or partnership agreements or
(ii) in default in the performance of any obligation, bond, agreement,
note, debenture or any other evidence of indebtedness or any indenture,
mortgage, deed of trust or other contract, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of
them is bound, or to which any of the property or assets of the Company or
any of the Subsidiaries is subject, except, in the case of clause (ii), for
such defaults that could not reasonably be expected to have, singly or in
the aggregate, a Material Adverse Effect.
(p) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, pending against or
affecting the Company or any of the Subsidiaries or any of their respective
assets
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or properties, which is required to be disclosed in the Registration
Statement or the Prospectus, or which could have a Material Adverse Effect,
or which could materially and adversely affect the performance by the
Company or any of the Subsidiaries of its obligations pursuant to this
Agreement and the Operative Documents or the transactions contemplated
hereby or thereby, in each case except as is disclosed in the Prospectus,
and, to the best knowledge of the Issuers, after due inquiry, no such
action, suit or proceeding is contemplated or threatened.
(q) (i) Neither the Company nor any of the Subsidiaries is in
violation of any Federal, state or local laws and regulations relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface
or subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of toxic
or hazardous substances, materials or wastes, or petroleum and petroleum
products ("Materials of Environmental Concern"), or otherwise relating to
the protection of human health and safety, or the storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations, except
to the extent that any such violation could not have a Material Adverse
Effect or otherwise require disclosure in the Prospectus; and (ii)(A)
neither the Company nor any of the Subsidiaries has received any
communication (written or oral), whether from a governmental authority or
otherwise, alleging any such violation or noncompliance, and there are no
circumstances, either past, present or that are reasonably foreseeable,
that may lead to such violation in the future, (B) there is no pending or
threatened claim, action, investigation or notice (written or oral) by any
person or entity alleging potential liability for investigatory, cleanup,
or governmental responses costs, or natural resources or property damages,
or personal injuries, attorney's fees or penalties relating to (x) the
presence, or release into the environment, of any Material of Environmental
Concern at any location owned or operated by the Company or any of the
Subsidiaries, now or in the past, or (y) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law
(collectively, "Environmental Claims") that could have a Material Adverse
Effect or otherwise require disclosure in the Prospectus, and (C) there are
no past or present actions, activities, circumstances, conditions, events
or incidents, that could form the basis of any Environmental Claim against
the Company or any Subsidiary or against any person or entity whose
liability for any Environmental Claim the Company or any Subsidiary has
retained or assumed either contractually or by operation of law.
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(r) Neither the Company nor any of the Subsidiaries is in violation
of any Federal, state or local law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable wage or hour laws,
except as could not have a Material Adverse Effect. There is (A) no
material unfair labor practice complaint pending against the Company or any
Subsidiary or, to the best knowledge of the Issuers, after due inquiry,
threatened against any of them, before the National Labor Relations Board
or any state or local labor relations board, and no material grievance or
material arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any Subsidiary
or, to the best knowledge of the Issuers, after due inquiry, threatened
against any of them, and (B) no labor dispute in which the Company or any
Subsidiary is involved nor, to the best knowledge of the Issuers, after due
inquiry, is any labor dispute imminent, other than routine disciplinary and
grievance matters. The Company and the Subsidiaries are in compliance in
all material respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder ("ERISA"); and no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) established or maintained by the Company or any of the
Subsidiaries or with respect to which the Company or the Subsidiaries are
obligated to make contributions. The Company and the Subsidiaries have not
incurred and do not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "employee benefit
plan" as such term is defined in Section 3(3) of ERISA or (ii) Sections
4971, 4975, or 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"). Each "employee benefit plan" established or maintained by the
Company and the Subsidiaries that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the
loss of such qualification.
(s) The Company and each of the Subsidiaries has good and marketable
title, free and clear of all Liens (except for Permitted Liens (as defined
in the Indenture)), to all property and assets described in the
Registration Statement as being owned by it and such properties and assets
are in the condition and suitable for use as so described. All leases to
which the Company or any of the Subsidiaries is a party are valid and
binding and no default has occurred and is continuing thereunder (in the
case of defaults by persons other than the Company and the Subsidiaries, to
the best knowledge of the Issuers, after due inquiry) and the Company and
the Subsidiaries enjoy peaceful and undisturbed possession under all such
leases to which any of
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them is a party as lessee with such exceptions as do not interfere with the
use made or proposed to be made by the Company or such Subsidiary.
(t) The Company and the Subsidiaries maintain insurance at least in
such amounts and covering at least such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses
in similar industries.
(u) KPMG Peat Marwick LLP, the firm of accountants that has audited
the applicable historical consolidated financial statements and supporting
schedules of the Company and its subsidiaries filed with the Commission as
part of the Registration Statement and the Prospectus are independent
public accountants with respect to the Company and the Subsidiaries, as
required by the Act. Coopers & Lybrand L.L.P., the firm of accountants
that has audited the applicable historical consolidated financial
statements and supporting schedules of BGII and its subsidiaries filed with
the Commission as part of the Registrations Statement and the Prospectus,
for the period commencing January 1, 1992 to present, and Ernst & Young,
the firm of accountants that has audited the applicable historical
consolidated financial statements and supporting schedules of BGII and its
subsidiaries for its fiscal year 1991, are each independent public
accountants with respect to BGII and its subsidiaries as required by the
Act. The historical consolidated financial statements of the Company and
BGII, together with related schedules and notes, set forth in the
Prospectus and the Registration Statement, comply as to form in all
material respects with the requirements of the Act and fairly present in
all material respects in accordance with GAAP (consistently applied except
as otherwise specified therein) the consolidated financial position of the
Company and BGII, as applicable, at the respective dates indicated and the
consolidated results of their operations and their consolidated cash flows,
as applicable, for the respective periods indicated. The PRO FORMA
financial statements contained in the Registration Statement (including the
financial statements appearing under the captions "Unaudited Pro Forma
Condensed Financial Information" and "Supplemental Analysis of Adjusted
Operating Cash Flow") have been prepared on a basis consistent with such
historical statements, except as specified therein, and give effect to
assumptions made on a reasonable basis. The historical ratio of deficit to
fixed charges of the Company and the PRO FORMA ratio of earnings to fixed
charges of the Company included in the Prospectus under the caption
"Selected Historical Financial Information of Alliance" have been
calculated in compliance with Item 503(d) of Regulation S-K promulgated by
the Commission. The other financial and statistical information and data
included in the Prospectus and in the Registration Statement, historical
and PRO FORMA, are
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<PAGE>
accurately presented and prepared in all material respects on a basis
consistent with such financial statements and the books and records of the
Company and BGII, as applicable.
(v) The forecasted financial statement information included in the
Registration Statement (i) are within the coverage of Rule 175(b) of the
Act, (ii) were made by the Issuers with a reasonable basis and in good
faith, (iii) have been prepared in accordance with Item 10 of Regulation S-
K of the Act and (iv) have been properly compiled on the bases described
therein. The assumptions used in the preparation of such forecasted
consolidated financial statement information (i) are all those the Issuers
believe are significant in forecasting the financial results of the Company
and (ii) reflect, for the relevant periods, a reasonable estimate of the
events, contingencies and circumstances described therein. Such forecasted
consolidated financial statement information presents each of the Issuers'
reasonable estimate of the expected consolidated results of operations,
except for the omission of non-operating items, income taxes, extraordinary
items and the calculation of net income for the forecasted periods.
(w) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and up to the
Closing Date, (i) neither the Company nor any of the Subsidiaries has
incurred any liabilities or obligations, direct or contingent, which are
material to the Company or the Subsidiaries, singly or in the aggregate,
nor entered into any transaction not in the ordinary course of business,
except as described in the Prospectus with respect to the Transaction and
the Working Capital Facilities, (ii) there has been no decision or judgment
in the nature of litigation, administrative or regulatory proceedings or
arbitration that could have a Material Adverse Effect and (iii) there has
not been any material adverse change or any development which could
reasonably be expected to involve, singly or in the aggregate, a material
adverse change, in the properties, plans, business, results of operations,
general affairs, management, condition (financial or otherwise), prospects
or business affairs of the Company or the Subsidiaries, singly or in the
aggregate (any of the items set forth in clauses (i), (ii) or (iii) of this
paragraph (v), a "Material Adverse Change").
(x) All material Tax (as defined below) returns required to be filed
by the Company and the Subsidiaries have been filed and all such returns
are true, complete, and correct in all material respects. All material
Taxes that are due or claimed to be due from the Company and the
Subsidiaries have been paid other than those (i) currently payable without
penalty or interest or (ii) being contested in good faith and by
appropriate proceedings and, in either case, for which adequate reserves
have been established on the books
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<PAGE>
and records of the Company and the Subsidiaries in accordance with GAAP.
The Company and the Subsidiaries are not parties to any pending action,
proceeding, inquiry, or investigation by any government authority for the
assessment or collection of Taxes, nor do the Company have any knowledge,
after due inquiry, of any such proposed or threatened action, proceeding,
inquiry, or investigation. For purposes of this agreement, the terms "Tax"
and "Taxes" shall mean all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto.
(y) (i) The Company, each of the Subsidiaries and each of the persons
listed under the caption "Management" in the Registration Statement has all
material certificates, consents, exemptions, orders, permits, licenses,
authorizations or other approvals or rights (each, an "Authorization") of
and from, and has made all material declarations and filings with, all
Federal, state, local and other governmental authorities, all self-
regulatory organizations and all courts and other tribunals, including,
without limitation, all such Authorizations with respect to engaging in
gaming operations and the manufacture of gaming machines in the State of
Nevada, Louisiana, Mississippi and New Jersey and the Federal Republic of
Germany or required to own, lease, license and use its properties and
assets and to conduct its current business in the manner described in or
contemplated by the Prospectus; (ii) all such Authorizations are valid and
in full force and effect; (iii) the Company, each of the Subsidiaries and
each of the persons listed under the caption "Management" in the
Registration Statement is in compliance in all material respects with the
terms and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities and governing bodies having
jurisdiction with respect thereto and (iv) other than the current
investigation being carried out by the State of New Jersey Division and
Land and Public Safety, Division of Gaming Enforcement in connection with
the operation of Worldwide Gaming of Louisiana, neither the Company nor any
Subsidiary nor any of the persons listed under the caption "Management" in
the Registration Statement has received any notice of proceedings relating
to the revocation or modification of any such Authorization and no such
Authorization contains any restrictions that are materially burdensome to
any of them. The Issuers, and to the best knowledge of the Issuers, each of
the persons listed under the caption "Management" in the Registration
Statement, do not have any reason to believe that any Gaming Authority is
considering modifying, limiting, conditioning, suspending, revoking or not
renewing any such Authorization of the Company, any of the Subsidiaries or
any of the persons listed under the caption "Management" in the
Registration Statement or that any Gaming Authority or any other govern-
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<PAGE>
mental agency is investigating the Company or any of the Subsidiaries or
related parties (other than normal overseeing reviews of the Gaming
Authorities incident to the gaming activities of the Company and the
Subsidiaries). None of the Issuers, and to the best knowledge of the
Issuers, none of the persons listed under the caption "Management" in the
Registration Statement, has any reason to believe that there is an existing
basis for any of the Gaming Authorities to deny the renewal of the current
gaming licenses held by any of them.
(z) The Company and each of the Subsidiaries possess the licenses,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names, (collectively, the
"Licensed Marks"), employed by them in connection with their businesses as
currently being conducted or as proposed to be conducted (as discussed in
the Prospectus). Except as disclosed in the Prospectus, after due inquiry,
there is no material claim, suit, action or proceeding pending and served
or threatened with respect to the validity of any of the Licensed Marks,
the infringement of any of the Licensed Marks by any third party or the
infringement of the rights of any third party arising out of the use of any
of the Licensed Marks.
(aa) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(ab) Neither the Company nor any agent acting on their behalf has
taken or will take any action that is reasonably likely to cause the
issuance or sale of the Securities to violate Regulation G, T, U, or X of
the Board of Governors of the Federal Reserve System, in each case as in
effect on the Closing Date.
(ac) Neither the Company nor any of the Subsidiaries is (i) an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended, or
(ii) a "holding company" or a "subsidiary company" of a holding company, or
an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
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<PAGE>
(ad) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(ae) Each certificate signed by any officer of any of the Issuers and
delivered to the Underwriters or counsel for the Underwriters in connection
therewith shall be deemed to be a representation and warranty by such
Issuer to each Underwriter as to the matters covered thereby.
7. INDEMNIFICATION.
(a) The Company and the Subsidiaries, jointly and severally, agree to
indemnify and hold harmless, each Underwriter and its affiliates and their
respective officers, shareholders, counsel, agents, employees, directors
and any person who controls such Underwriter or any of its affiliates
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, and the respective officers, shareholders, counsel, agents, employees
and directors of such persons (each Underwriter and each such other person
or entity being referred to herein as an "Indemnified Person"), to the
fullest extent lawful, from and against any and all losses, claims,
damages, judgments, actions, costs, assessments, expenses and other
liabilities (collectively, "Liabilities"), including without limitation and
as incurred, reimbursement of all reasonable costs of investigating,
preparing, pursuing, or defending any claim or action, or any investigation
or proceeding by any governmental agency or body, commenced or threatened,
including the reasonable fees and expenses of counsel to any Indemnified
Person directly or indirectly caused by, related to, based upon, arising
out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or
any amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading, except insofar as such Liabilities are caused by an untrue
statement or omission or alleged untrue statement or omission that is made
in reliance upon and in conformity with information relating to any
Underwriter furnished in writing to the Issuers by or on behalf of any such
Underwriter through Jefferies expressly for use in the Registration
Statement (or any amendment or supplement thereto) or the Prospectus (or
any amendment or supplement thereto) or any preliminary prospectus. The
Company shall notify you promptly of the institution, threat or assertion
of any claim, proceeding (including any governmental investigation) or
litigation in connec-
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<PAGE>
tion with the matters addressed by this Agreement which involves the
Company or an Indemnified Person.
(b) In case any action or proceeding (for all purposes of this
Section 7, including any governmental investigation) shall be brought or
asserted against any of the Indemnified Persons with respect to which
indemnity may be sought against the Company or any Subsidiary, such
Underwriter (or the Underwriter controlled by such controlling person)
shall promptly notify the Company in writing; PROVIDED, that the failure to
give such notice shall not relieve the Company or any of the Subsidiaries
of their obligations pursuant to this Agreement. Upon receiving such
notice, the Company shall be entitled to participate in any such action or
proceeding and to assume, at its sole expense, the defense thereof, with
counsel reasonably satisfactory to such Indemnified Person and, after
receipt of written notice from the Company to such Indemnified Person of
its election so to assume the defense thereof made within ten business days
after receipt of the notice from the Indemnified Person of such action or
proceeding, the Company and the Subsidiaries shall not be liable to such
Indemnified Person hereunder for legal expenses of other counsel
subsequently incurred by such Indemnified Person in connection with the
defense thereof, other than costs of investigation, unless (i) the Company
or such Subsidiary, as the case may be, agrees to pay such fees and
expenses, or (ii) the Company fails promptly to assume such defense or
fails to employ counsel reasonably satisfactory to such Indemnified Person
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both such Indemnified Person and the Company,
any of the Subsidiaries or an affiliate of any such person, and either (x)
there may be one or more legal defenses available to such Indemnified
Person that are different from or additional to those available to the
Company, any of the Subsidiaries or any such affiliate or (y) a conflict
may exist between such Indemnified Person and the Company, any of the
Subsidiaries or any such affiliate. In the event of any of clause (i),
(ii) and (iii) of the immediately preceding sentence, if such Indemnified
Person notifies the Company in writing, the Company shall not have the
right to assume the defense thereof and such Indemnified Person shall have
the right to employ its own counsel in any such action and the reasonable
fees and expenses of such counsel shall be paid, as incurred, by the
Company and the Subsidiaries, regardless of whether it is ultimately
determined that an Indemnified Person is not entitled to indemnification
hereunder, it being understood, however, that the Company and the
Subsidiaries shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) at any time for each such
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<PAGE>
Indemnified Person. The Company and each of the Subsidiaries agrees to be
liable for any settlement of such action or proceeding effected with the
Company's prior written consent, which consent will not be unreasonably
withheld, and the Company and each of the Subsidiaries agrees to indemnify
and hold harmless any Indemnified Person from and against any liabilities
by reason of any settlement of any action effected with the written consent
of the Company. The Company and each of the Subsidiaries agrees to be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 20 business days
after receipt by the Company of the aforesaid request for payment in
respect of an indemnification obligation pursuant hereto and (ii) the
Indemnified Person shall not have been reimbursed in accordance with such
request prior to the date of such settlement. Neither the Company nor any
of the Subsidiaries shall, without the prior written consent of each
Indemnified Person, settle or compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened
action, claim, litigation or proceeding in respect of which indemnification
or contribution may be sought pursuant hereto (whether or not any
Indemnified Person is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each
Indemnified Person from all liability arising out of such action, claim,
litigation or proceeding.
(c) Each of the Underwriters agrees, severally and not jointly, to
indemnify and hold harmless the Issuers, their directors, their officers
who sign the Registration Statement and any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Issuers, to the same extent as the foregoing indemnity from the Issuers and
the Subsidiaries to each of the Indemnified Persons, but only with respect
to claims and actions based on information relating to such Underwriter and
conforming to information furnished in writing by or on behalf of such
Underwriter through Jefferies expressly for use in the Registration
Statement, Prospectus or any preliminary prospectus, as applicable. In
case any action or proceeding (including any governmental investigation)
shall be brought or asserted against the Issuers, any of their directors,
any such officer, or any such controlling person based on the Registration
Statement, the Prospectus or any preliminary prospectus in respect of which
indemnity is sought against any Underwriter pursuant to the foregoing
sentence, the Underwriter shall have the rights and duties given to the
Issuers (except that if the Company shall have assumed the defense thereof,
such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and
the Issuers, their directors, any such
23
<PAGE>
officers and each such controlling person shall have the rights and duties
given to the Indemnified Person by Section 7(b) above.
(d) If the indemnification provided for in this Section 7 is finally
determined by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any Liabilities referred to herein, then
each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as
a result of such Liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Subsidiaries,
on the one hand, and the Underwriter, on the other hand, from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above, but
also the relative fault of the indemnifying parties and the indemnified
party, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Subsidiaries, on the one
hand, and any of the Underwriters (and its related Indemnified Persons), on
the other hand, shall be deemed to be in the same proportion as the total
proceeds from the Securities (net of underwriting discounts and commissions
but before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by such Underwriter, in
each case as set forth in the Prospectus. The relative fault of the
Company and the Subsidiaries, on the one hand, and the Underwriters, on the
other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact related to
information supplied by the Company and the Subsidiaries, on the one hand,
or by the Underwriters, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The indemnity and contribution obligations of the
Company and the Subsidiaries set forth herein shall be in addition to any
liability or obligation the Company and the Subsidiaries may otherwise have
to any Indemnified Person.
The Company, the Subsidiaries and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7(d)
were determined by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
judgments, liabilities or expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or
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<PAGE>
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 7, none of the Underwriters (and its related
Indemnified Persons) shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total underwriting discount
applicable to the Securities purchased by such Underwriter exceeds the
amount of any damages and related expenses which such of the Underwriters
(and its related Indemnified Persons) has otherwise been required to pay or
incur by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations to contribute pursuant to this Section 7(d)
are several in proportion to the respective aggregate principal amount of
Securities purchased by each of the Underwriters hereunder and not joint.
8. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters to purchase any Securities under this
Agreement are subject to the satisfaction of each of the following conditions on
the Closing Date:
(a) All the representations and warranties of the Issuers contained
in this Agreement shall be true and correct on the Closing Date with the
same force and effect as if made on and as of the Closing Date. All of the
representations and warranties of each of Issuers, as applicable, made in
the other Operative Documents (i) on the date made and (ii) on the Closing
Date, to the extent such document contains a representation or warranty
made on the Closing Date was or shall be true and correct on such date.
The Company and the Subsidiaries shall have performed or complied with all
of their obligations and agreements herein and therein contained and
required to be performed or complied with by them at or prior to the
Closing Date.
(b) (i) The Registration Statement shall have become effective (or,
if a post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective amendment shall have become effective
(or, if any Securities are sold in reliance upon Rule 430A of the Act and
no post-effective amendment is so required to be filed, the Prospectus
shall have been timely filed with the Commission in accordance with Section
4(a) hereof) not later than 5:30 p.m., New York City time, on the date of
this Agreement or at such later date and time as you may approve in
writing, (ii) at the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or, to the best
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<PAGE>
knowledge of the Issuers, after due inquiry, threatened by the Commission
and every request for additional information on the part of the Commission
shall have been complied with in all respects, and (iii) no stop order
suspending the sale of the Securities in any jurisdiction referred to in
Section 4(h) shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or, to the best knowledge of
the Issuers, after due inquiry, threatened.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency, body or official (including, without limitation, any Gaming
Authority), which would, as of the Closing Date, prevent the issuance of
the Securities or have a Material Adverse Effect; and no injunction,
restraining order or order of any nature by any Federal or state court
shall have been issued as of the Closing Date which would prevent the
issuance of the Securities or have a Material Adverse Effect. Subsequent
to the execution and delivery of this Agreement and prior to the Closing
Date, there shall not have been any downgrading or indication that such
securities have been placed on any "watch list" for possible downgrading,
nor shall any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's or any Subsidiary's securities by any nationally recognized
statistical rating organization, as such term is defined for purposes of
Rule 436(g)(2) of the Act.
(d) (i) Since the earlier of the date hereof or the dates of which
information is given in the Registration Statement and the Prospectus,
there shall not have been any Material Adverse Change, (ii) since the date
of the latest balance sheet included in the Registration Statement and the
Prospectus, there shall not have been any material adverse change, or any
development involving a prospective material adverse change, in respect, of
the Company or any of the Subsidiaries and (iii) the Company and each of
the Subsidiaries shall have no liability or obligation, direct or
contingent, that is material to the Company and the Subsidiaries, taken as
a whole, and which is not disclosed in the Registration Statement and the
Prospectus.
(e) You shall have received a certificate of each of the Issuers,
dated the Closing Date, in each case executed on behalf of the Issuer by
the Chief Executive Officer and the Chief Financial Officer of such Issuer,
as applicable, confirming the matters set forth in paragraphs (a), (b), (c)
and (d) of this Section 8.
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<PAGE>
(f) You shall have received an opinion (satisfactory to you and your
counsel), dated the Closing Date, of Milbank, Tweed, Hadley & McCloy,
counsel for the Issuers, to the effect that:
(i) the Registration Statement was declared effective in
compliance with the Act; any required filing of the Prospectus, and any
amendments or supplements thereto, pursuant to Rule 424(b), have been made
in the manner and within the time period required by Rule 424(b); to the
best of such counsel's knowledge, after due inquiry, no stop order
suspending the effectiveness of the Registration Statement or any part
thereof has been issued and no proceedings therefor have been instituted or
to the best of such counsel's knowledge, after due inquiry, are pending or
contemplated under the Act; and the Indenture has been duly qualified under
the TIA;
(ii) at the time it became effective and on the Closing Date,
the Registration Statement (excluding documents incorporated by reference
therein and except for the financial statements, the notes thereto and
related schedules and other financial data and financial forecasts included
therein as to which no opinion need be expressed) complied as to form in
all material respects with the applicable requirements of the Act and the
TIA;
(iii) the documents incorporated by reference in the Prospectus
(except for the financial statements, the notes thereto and related
schedules and other financial included therein, as to which no opinion need
be expressed), as of the dates they were filed with the Commission, appear
on their face to have been appropriately responsive in all material
respects to the requirements of the Exchange Act and the Exchange Act
Regulations.
(iv) each of BGII Acquisition Corp., Native American
Investments, Inc. and Alliance Holding Corp. (the "Delaware Subsidiaries")
is duly incorporated and is validly existing as a corporation, under the
laws of the State of its incorporation and has the requisite corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement and Prospectus;
(v) all of the issued and outstanding shares of capital stock of
the Delaware Subsidiaries have been duly authorized and validly issued, and
are fully paid and nonassessable, and the shares of capital stock of each
such Subsidiary are owned, directly or indirectly, by the Company, free and
clear of any Liens; except as disclosed in the Prospectus and to the best
of such counsel's knowledge, after due inquiry, there are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of
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sale or Liens related to or entitling any person to purchase or otherwise
to acquire any shares of capital stock of, or other ownership interest in,
any such Subsidiary;
(vi) the Company and each Subsidiary is duly qualified as a
foreign corporation or general partnership, as the case may be, in each
Foreign Jurisdiction, except where the failure to be so qualified could not
reasonably be expected to have, singly or in the aggregate, a material
adverse effect on the properties, plans, business, results of operation,
general affairs, management, condition (financial or otherwise) or business
affairs of the Company and the Subsidiaries; the Company and each
Subsidiary is in good standing under the laws of its jurisdiction of
incorporation and in each Foreign Jurisdiction.
(vii) each of the Delaware Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform all of the
obligations pursuant to this Agreement and each of the other Operative
Documents to which it is a party and to authorize, issue and sell the
Securities as contemplated by this Agreement; this Agreement and each of
the other Operative Documents has been duly authorized, executed and
delivered by the Company and each of the Subsidiaries, as applicable, and
constitutes a valid and legally binding obligation of each of the Company
and the Subsidiaries, as applicable, enforceable against each of the
Company and the Subsidiaries, as applicable, in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws and to general principles of equity
(regardless of whether enforcement is sought in a proceeding of law or in
equity) including, without limitation, the possible unavailability of
injunctive relief or any other equitable remedy and concepts of good faith
reasonableness, fair dealing and materiality and except to the extent that
indemnification from liability contained in this Agreement in connection
with the Federal securities laws may be unenforceable and the contribution
formulas specified in Section 7 of this Agreement may not be given effect;
(viii) the Notes have been duly authorized, executed and
delivered by the Company and, when authenticated in accordance with the
terms of the Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, the Notes will constitute
valid and legally binding obligations of the Company, enforceable against
the Company in accordance with their terms and entitled to the benefits of
the Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws then or thereafter
in effect relating to or affecting rights and remedies of creditors, and to
general
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principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), including, without limitation, the
possible unavailability of injunctive relief or other equitable remedy and
concepts of good faith reasonableness, fair dealing or materiality, and
except to the extent that a waiver of rights under any usury laws may be
unenforceable;
(ix) each of the Guarantees has been duly authorized, executed
and delivered by the Guarantors and, when executed and authenticated in
accordance with the provisions of the Indenture and delivered in accordance
with the terms of this Agreement, will constitute valid and binding
obligations of the Guarantors, enforceable against the Guarantors in
accordance with their respective terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity), including, without limitation, the possible unavailability
of injunctive relief or other equitable remedy and concepts of good faith
reasonableness, fair dealing or materiality, and except to the extent that
a waiver of rights or defenses under any usury laws may be unenforceable.
(x) the Indenture has been duly authorized, executed and
delivered by each of the Issuers and constitutes a valid and legally
binding agreement of each of the Issuers, enforceable against each of the
Issuers in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws then or thereafter in effect relating to or affecting rights and
remedies of creditors, and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity),
including, without limitation, the possible unavailability of injunctive
relief or other equitable remedy and concepts of good faith reasonableness,
fair dealing or materiality, and except to the extent that a waiver of
rights under any usury laws may be unenforceable;
(xi) this Agreement and each of the other Operative Documents
which is described in the Registration Statement and the Prospectus and
each element of the Transaction conforms in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus; the descriptions in the Registration Statement and the
Prospectus of legal proceedings and contracts to which any of the Issuers
or any of the Subsidiaries is a party have been reviewed by such counsel
and are accurate summaries thereof in all material respects (except for
financial data included therein or omitted therefrom, as to which counsel
need express no opinion);
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(xii) neither the Company nor any of the Subsidiaries is (a) an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended, or
(b) a "holding company" or a "subsidiary company" of a holding company, or
an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1935, as amended;
(xiii) to the best of such counsel's knowledge after due
inquiry, there are no legal or governmental proceedings required to be
described in the Registration Statement or Prospectus which are not
described as required, or any contracts or agreements to which the Company
or any of the Subsidiaries is a party or by which any of them may be bound
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement other
than those described therein or filed or incorporated by reference as
exhibits thereto; to the best of such counsel's knowledge, after due
inquiry, there is no current, pending or threatened action, suit or
proceeding before any court or governmental agency, authority or body or
any arbitrator involving the Company or any of the Subsidiaries or to which
any of their respective properties are subject of a character required to
be disclosed in the Registration Statement which is not adequately
disclosed in the Prospectus;
(xiv) to the best of such counsel's knowledge, after due
inquiry, no authorization, approval, consent or order of any court or
governmental body, agency or official, is necessary in connection with the
issuance of the Securities and the other transactions contemplated by this
Agreement and the other Operative Documents, including the Transaction,
except such as may be required by the NASD or have been obtained under the
Gaming Laws, the Act, the TIA or state securities or Blue Sky laws or
regulations.
(xv) the execution and delivery of the Operative Documents by
the Company and the Subsidiaries, as applicable, the issuance and sale of
the Securities, the performance of the Company's and each Subsidiary's
obligations pursuant to the Operative Documents, as applicable, and the
consummation of the transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of or constitute a default
or cause an acceleration of any obligation under, or result in the
imposition or creation of (or the obligation to create or impose) any Lien
with respect to (A) any of the respective charters, bylaws and partnership
agreement of the Company and each of the Subsidiaries, (B) any agreement or
instrument filed as an Exhibit to the Registration Statement, (C) any
applicable statute, rule or regulation under New York law, United States
Federal law or the Corporation Law of the State of Delaware, or (D) any
order of any New
30
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York or Delaware court or governmental agency, body or official having
jurisdiction over the Company or any of the Subsidiaries or any of their
properties, except in the case of clauses (B), (C) or (D), for such
conflicts, breaches, violations or defaults that could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect;
(xvi) to the best of such counsel's knowledge, after due
inquiry, no default exists in the due performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument
described in or filed as an Exhibit to the Registration Statement, except
for defaults which could not have a material adverse effect on the
properties, plans, business, results of operation, general affairs,
management, condition (financial or otherwise) or business affairs of the
Company and the Subsidiaries, in the aggregate;
(xvii) to the best of such counsel's knowledge, after due
inquiry, the Company and each of the Subsidiaries has the right to use the
Licensed Marks presently or proposed to be employed by it in connection
with its businesses as currently being conducted or as proposed to be
conducted (as discussed in the Prospectus), and, to the best of such
counsel's knowledge, after due inquiry, the Licensed Marks are free and
clear of Liens and any other rights of third parties and neither the
Company nor any of the Subsidiaries has received any notice, or has any
knowledge, of infringement or of conflict with asserted rights of others
with respect to any of the Licensed Marks;
(xviii) neither the consummation of the transactions
contemplated by this Agreement nor the sale, issuance, execution or
delivery of the Securities will violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System;
(xix) the offer and sale of the securities by the Company
pursuant to the Subscription Agreement does not require registration under
the Act; the offer and sale of such securities will not be subject to
integration with the offer and sale of any securities of the Company
pursuant to either of the Offerings, the Exchange Offer or the Automatic
Conversion;
(xx) the statements set forth in the Prospectus under the
caption "Material Income Tax Considerations for holders of Preferred Stock"
insofar as such statements constitute matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, are correct in all
material respects; and
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(xxi) the Merger has become effective under Delaware law.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and the Subsidiaries, representatives of BGII and their counsel,
representatives of KPMG Peat Marwick, independent public accountants for
the Company and the Subsidiaries, Coopers & Lybrand L.L.P., independent
public accountants for BGII and its subsidiaries, your representatives and
your counsel in connection with the preparation of the Registration
Statement and Prospectus and has considered the matters required to be
stated therein and the statements contained therein, and such counsel shall
advise you that, although (without limiting the opinions provided) such
counsel has not independently verified the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
Prospectus, on the basis of the foregoing, no facts came to such counsel's
attention that caused such counsel to believe that the Registration
Statement (including any Registration Statement filed under Rule 462(b) of
the Act (if any)), as amended or supplemented, at the time such
Registration Statement or any post-effective amendment became effective and
as of the date of such opinion, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (other than
information omitted therefrom in reliance on Rule 430A under the Act), or
the Prospectus, as amended or supplemented, as of its date and the Closing
Date, contained an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(g) You shall have received a signed opinion of Schreck, Jones,
Bernard, Woloson & Godfrey, Chartered, Nevada counsel for the Company,
dated as of the Closing Date, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) the Company and each of the Subsidiaries incorporated in the
State of Nevada (such Subsidiaries, other than Bally Gaming, Inc., being
referred to as the "Nevada Subsidiaries") has the requisite corporate power
and authority to execute, deliver and perform all of its obligations
pursuant to this Agreement and each of the other Operative Documents to
which it is a party and to authorize, issue and sell the Securities as
contemplated by this Agreement; the Indenture, this Agreement and each of
the other Operative Documents has been duly authorized, executed and
delivered by the Company, Bally Gaming, Inc. ("Gaming") and each of the
Nevada Subsidiaries, as applicable;
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(ii) the Notes have been duly authorized, executed and delivered
by the Company;
(iii) the Guarantees granted by Gaming and each of the Nevada
Subsidiaries have been duly authorized, executed and delivered by Gaming
and the Nevada Subsidiaries;
(iv) the Company and each of the Nevada Subsidiaries is duly
incorporated and is validly existing as a corporation, under the laws of
the State of Nevada and has the requisite corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus;
(v) all of the issued and outstanding capital stock of the
Company and the Nevada Subsidiaries has been duly authorized and validly
issued and is fully paid and nonassessable, and the shares of capital stock
of each of the Nevada Subsidiaries are owned, either directly or
indirectly, by the Company, free and clear of any perfected security
interest and, to such counsel's knowledge, after due inquiry, any other
security interests, claims or Liens; except as disclosed in the Prospectus
and, to the best of such counsel's knowledge, after due inquiry, there are
no outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or Liens related to or entitling any person
to purchase or otherwise to acquire any shares of capital stock of, or
other ownership interest in, any such Subsidiary;
(vi) the execution and delivery of the Operative Documents by
the Company and the Subsidiaries, as applicable, the issuance and sale of
the Securities, the performance of the Company's and each Subsidiary's
obligations pursuant to the Operative Documents, as applicable, and the
consummation of the transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of or constitute a default
or cause an acceleration of any obligation under, or result in the
imposition or creation of (or the obligation to create or impose) any Lien
with respect to (A) any of the respective charters and by-laws of any of
the Company, Gaming or the Nevada Subsidiaries, (B) any applicable statute,
rule or regulation under Nevada law, or (C) any order of any Nevada court
or governmental agency, body or official having jurisdiction over the
Company or any of the Subsidiaries or any of their properties, except, in
the case of clause (B) and (C), for such conflicts, breaches, violations or
defaults that could not reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect;
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<PAGE>
(vii) no authorization, approval, consent or order of the
Nevada Gaming Authorities or any other governmental body, agency or
official of the State of Nevada ("Nevada Authorities") is necessary in
connection with the issuance of the Securities and the due and valid
execution, delivery and performance by the Company or any of the
Subsidiaries, as the case may be, of this Agreement and the other Operative
Documents, as applicable, and any of the transactions contemplated hereby
of thereby to be entered into prior to or contemporaneously with such
agreements, except (a) as disclosed in the Registration Statement, (b) such
authorizations, approvals, consents or licenses of the Nevada Authorities
that have been obtained prior to the date of such opinion and (c) the
periodic and other filings and reporting requirements to which any of the
Company and the Subsidiaries are subject generally. Each of the Operative
Documents has been presented to the Nevada Gaming Authorities to the extent
required by the Nevada Gaming Laws, and such documents and the transactions
described therein have been approved by the Nevada Gaming Authorities to
the extent required by Nevada Gaming Laws. Such counsel has received no
notice that such approvals have been revoked, modified or rescinded as of
the date of such opinion;
(viii) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, the Company and each of its
subsidiaries has made all declarations and filings with the Nevada Gaming
Authorities necessary to use its properties and assets and to conduct its
business pursuant to Nevada Gaming Laws, as of the date of such opinion;
(b) no facts have come to the attention of such counsel that would lead
such counsel to believe that all authorizations of and from the Nevada
Gaming Authorities are not valid and in full force and effect as of the
date of such opinion; (c) no facts have come to the attention of such
counsel that would lead such counsel to believe that the Company and each
of its subsidiaries is not in compliance in all material respects with the
terms and conditions of all authorizations of and from the Nevada Gaming
Authorities and with the Nevada Gaming Laws, as of the date of such
opinion; and (d) as of the date of such opinion, such counsel has received
no notice of any proceedings relating to the revocation or modification of
any authority granted by any of the Nevada Gaming Authorities to the
Company and its subsidiaries, and such counsel is aware of no restrictions
imposed by any of the Nevada Gaming Authorities which would have a material
adverse effect on the properties, plans, results of operations, management,
condition (financial or otherwise) or business affairs of the Company or
its subsidiaries, in the aggregate; no facts have come to the attention of
such counsel that would lead such counsel to believe that any of the Nevada
Gaming Authorities is considering modifying, limiting, conditioning,
suspending, revoking or not renewing the licenses, permits,
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certificates, consents, orders, approvals and other authorizations from
such Nevada Gaming Authority (collectively, the "Gaming Licenses") of the
Company or any of its subsidiaries, except where such modification,
revocation, suspension, limitation or condition would not have a material
adverse effect on the properties, plans, results of operations, management,
condition (financial or otherwise) or business affairs of the Company or
its subsidiaries, in the aggregate; such counsel is aware of no notice
given to the Company or any of its subsidiaries that any of the Nevada
Gaming Authorities are investigating the Company or any of its subsidiaries
(other than normal overseeing reviews incident to the gaming activities of
the Company and its subsidiaries); and such counsel has received no notice
that the Company or any of its subsidiaries has any reason to believe there
is an existing basis for any of the Nevada Gaming Authorities to deny the
renewal of the Gaming Licenses held by the Company or any of its
subsidiaries;
(ix) each of the persons listed under the caption "Management"
in the Prospectus has been or will be qualified or licensed by the Nevada
Gaming Laws as required by the Nevada Gaming Laws;
(x) (a) the statements in the Prospectus under the captions
"Risk Factors--Strict Regulation by Gaming Authorities" and "Gaming
Regulation and Licensing - Nevada, fairly present the information with
respect to such Nevada Gaming Laws and proceedings thereunder; and (b) no
facts have come to the attention of such counsel that would lead such
counsel to believe that the statements listed in clause (a) of this
paragraph (i) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
such statements, in light of the circumstances under which they are made,
not misleading, or that the statements listed in clause (a) of this
paragraph (i), as contained in the Prospectus at the time of filing thereof
or on the date of such counsel's opinion, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading;
(xi) the Security and Pledge Agreement is effective under the
laws of the State of Nevada and the federal law of the United States to
create a valid security interest in all of the Company's and each
Subsidiary's rights in the capital stock of the Company's or such
Subsidiary's, as the case may be, subsidiaries described in the Security
and Pledge Agreement, whether now existing or hereafter acquired (the
"Collateral"), in favor of the Trustee to secure all obligations of the
Company as identified in the Pledge Agreement (including Company's capital
stock of the Company's subsidiaries
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payment obligations under the Indenture). The security interest of the
Trustee is a perfected, first priority security interest in the Collateral
under the laws of Nevada and the federal law of the United States.
(h) You shall have received an opinion of McDonald Carano Wilson
McCune Bergin Frankovich & Hicks, Nevada regulatory counsel for BGII, dated
as of the Closing Date, in form and substance satisfactory to counsel for
the Underwriters, to the effect that:
(i) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, each of BGII and Gaming (collectively,
the "Bally Guarantors") has made all declarations and filings with the
Nevada Gaming Authorities necessary to use its properties and assets and to
conduct its business pursuant to Nevada Gaming Laws, as of the date of such
opinion; (b) no facts have come to the attention of such counsel that would
lead such counsel to believe that all authorizations of and from the Nevada
Gaming Authorities are not valid and in full force and effect as of the
date of such opinion; (c) no facts have come to the attention of such
counsel that would lead such counsel to believe that each of the Bally
Guarantors is not in compliance in all material respects with the terms and
conditions of all authorizations of and from the Nevada Gaming Authorities
and with the Nevada Gaming Laws, as of the date of such opinion; and (d) as
of the date of such opinion, such counsel has received no notice of any
proceedings relating to the revocation or modification of any authority
granted by any of the Nevada Gaming Authorities to the Bally Guarantors,
and such counsel is aware of no restrictions imposed by any of the Nevada
Gaming Authorities which would have a material adverse effect on the
properties, plans, results of operations, management, condition (financial
or otherwise) or business affairs of the Bally Guarantors, in the
aggregate; no facts have come to the attention of such counsel that would
lead such counsel to believe that any of the Nevada Gaming Authorities is
considering modifying, limiting, conditioning, suspending, revoking or not
renewing the licenses, permits, certificates, consents, orders, approvals
and other authorizations from such Nevada Gaming Authority (collectively,
the "Gaming Licenses") of any of the Bally Guarantors, except where such
modification, revocation, suspension, limitation or condition would not
have a material adverse effect on the properties, plans, results of
operations, management, condition (financial or otherwise) or business
affairs of the Bally Guarantors, in the aggregate; such counsel is aware
of no notice given to any of the Bally Guarantors that any of the Nevada
Gaming Authorities are investigating any of the Bally Guarantors (other
than normal overseeing reviews incident to the gaming activities of the
Bally Guarantors); and such counsel has received no notice that any of the
Bally Guarantors has any reason to believe there is an existing
36
<PAGE>
basis for any of the Nevada Gaming Authorities to deny the renewal of the
Gaming Licenses held by any of the Bally Guarantors.
(i) You shall have received an opinion of Hoffman, Sutterfield,
Ensarat, a Professional corporation, Louisiana regulatory counsel for the
Issuers, dated as of the Closing Date, in form and substance satisfactory
to counsel for the Underwriters, to the effect that:
(i) each of Video Services, Inc. ("VSI") Video Distributing
Services, Inc. ("VDSI") and Southern Video Services, Inc. ("SVS" and,
together with VSI and VDSI, the "Louisiana Subsidiaries") has the
requisite corporate power and authority to execute, deliver and perform all
of its obligations pursuant to this Agreement and each of the other
Operative Documents to which it is a party; each of this Agreement and the
other Operative Documents has been duly authorized, executed and delivered
by each of the Louisiana Subsidiaries, as applicable;
(ii) each of the Louisiana Subsidiaries is duly incorporated and
is validly existing as a corporation, under the laws of the State of
Louisiana and has the requisite corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and Prospectus;
(iii) all of the issued and outstanding capital stock of the
Louisiana Subsidiaries has been duly authorized and validly issued and is
fully paid and nonassessable, and 49% of outstanding shares of capital
stock of each of the Louisiana Subsidiaries are owned, either directly or
indirectly, by the Company, free and clear of any perfected security
interest and, to such counsel's knowledge, after due inquiry, any other
security interests, claims or Liens; such capital stock owned by the
Company constitutes 100% of such capital stock with voting rights; except
as disclosed in the Prospectus and, to the best of such counsel's
knowledge, after due inquiry, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities, commitments of
sale or Liens related to or entitling any person to purchase or otherwise
to acquire any shares of capital stock of, or other ownership interest in,
any such Subsidiary; pursuant to the Articles of Incorporation of VSI, SVS
and VDSI, as the case may be, the Company is entitled to 71%, 60% and 71%
of the dividends of VSI, SVS and VDSI, respectively;
(iv) (a) the statements in the Prospectus under the captions
"Risk Factors--Strict Regulation by Gaming Authorities", "Risk Factors-
Ongoing BGII Regulatory Investigation" and "Gaming Regulation and
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Licensing - Louisiana", fairly present the information with respect to such
Louisiana Gaming Laws and proceedings thereunder; and (b) no facts have
come to the attention of such counsel that would lead such counsel to
believe that the statements listed in clause (a) of this paragraph (i)
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make such
statements, in light of the circumstances under which they are made, not
misleading, or that the statements listed in clause (a) of this paragraph
(i), as contained in the Prospectus at the time of filing thereof or on the
date of such counsel's opinion, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make such statements, in light of the circumstances
under which they were made, not misleading;
(v) the execution and delivery of the Operative Documents by the
Company and the Subsidiaries, as applicable, the issuance and sale of the
Securities, the performance of the Company's and each Subsidiary's
obligations pursuant to the Operative Documents, as applicable, and the
consummation of the transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of or constitute a default
or cause an acceleration of any obligation under, or result in the
imposition or creation of (or the obligation to create or impose) any Lien
with respect to (A) any of the respective charters and by-laws of any of
the Louisiana Subsidiaries, (B) any applicable statute, rule or regulation
under Louisiana law, or (C) any order of any Louisiana court or
governmental agency, body or official having jurisdiction over the Company
or any of the Subsidiaries or any of their properties, except, in the case
of clauses (B) and (C), for such conflicts, breaches, violations or
defaults that could not reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect;
(vi) no authorization, approval, consent or order of the
Louisiana Gaming Authorities or any other governmental body, agency or
official of the State of Louisiana ("Louisiana Authorities") is necessary
in connection with the issuance of the Securities and the due and valid
execution, delivery and performance by the Company or any of the
Subsidiaries, as the case may be, of this Agreement and the other Operative
Documents, as applicable, and any of the transactions contemplated hereby
of thereby to be entered into prior to or contemporaneously with such
agreements, except (a) as disclosed in the Registration Statement, (b) such
authorizations, approvals, consents or licenses of the Louisiana
Authorities that have been obtained prior to the date of such opinion and
(c) the periodic and other filings and reporting requirements to which any
of the Company and the Subsidiaries are subject generally. Each of the
Operative Documents has been presented to the Louisiana Gaming Authorities
to the extent required by
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the Louisiana Gaming Laws, and such documents and the transactions
described therein have been approved by the Louisiana Gaming Authorities to
the extent required by Louisiana Gaming Laws. Such counsel has received no
notice that such approvals have been revoked, modified or rescinded as of
the date of such opinion;
(vii) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, the Company and each of the
Subsidiaries has made all declarations and filings with the Louisiana
Gaming Authorities necessary to use its properties and assets and to
conduct its business pursuant to Louisiana Gaming Laws, as of the date of
such opinion; (b) no facts have come to the attention of such counsel that
would lead such counsel to believe that all authorizations of and from the
Louisiana Gaming Authorities are not valid and in full force and effect as
of the date of such opinion; (c) no facts have come to the attention of
such counsel that would lead such counsel to believe that the Company and
each of the Subsidiaries is not in compliance in all material respects with
the terms and conditions of all authorizations of and from the Louisiana
Gaming Authorities and with the Louisiana Gaming Laws, as of the date of
such opinion; and (d) as of the date of such opinion, such counsel has
received no notice of any proceedings relating to the revocation or
modification of any authority granted by any of the Louisiana Gaming
Authorities to the Company and the Subsidiaries, and such counsel is aware
of no restrictions imposed by any of the Louisiana Gaming Authorities which
would have a material adverse effect on the properties, plans, results of
operations, management, condition (financial or otherwise) or business
affairs of the Company or the Subsidiaries, in the aggregate; no facts have
come to the attention of such counsel that would lead such counsel to
believe that any of the Louisiana Gaming Authorities is considering
modifying, limiting, conditioning, suspending, revoking or not renewing the
licenses, permits, certificates, consents, orders, approvals and other
authorizations from such Louisiana Gaming Authority (collectively, the
"Gaming Licenses") of the Company or any of the Subsidiaries, except where
such modification, revocation, suspension, limitation or condition would
not have a material adverse effect on the properties, plans, results of
operations, management, condition (financial or otherwise) or business
affairs of the Company or the Subsidiaries, in the aggregate; such counsel
is aware of no notice given to the Company or any of the Subsidiaries that
any of the Louisiana Gaming Authorities are investigating the Company or
any of the Subsidiaries (other than normal overseeing reviews incident to
the gaming activities of the Company and the Subsidiaries); and such
counsel has received no notice that the Company or any of the Subsidiaries
has any reason to believe there is an existing basis for any of the
Louisiana Gaming
39
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Authorities to deny the renewal of the Gaming Licenses held by the Company
or any of the Subsidiaries; and
(viii) each of the persons listed under the caption "Management"
in the Prospectus has been or will be qualified or licensed by the
Louisiana Gaming Laws as required by the Louisiana Gaming Laws.
(j) You shall have received an opinion of Paul H. Johnson, Esq.
Mississippi regulatory counsel for the Company, dated as of the Closing
Date, in form and substance satisfactory to counsel for the Underwriters,
to the effect that:
(i) (a) the statements in the Prospectus under the captions "Risk
Factors--Strict Regulation by Gaming Authorities" and "Gaming Regulation
and Licensing - Mississippi", fairly present the information with respect
to such Mississippi Gaming Laws and proceedings thereunder; and (b) no
facts have come to the attention of such counsel that would lead such
counsel to believe that the statements listed in clause (a) of this
paragraph (i) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
such statements, in light of the circumstances under which they are made,
not misleading, or that the statements listed in clause (a) of this
paragraph (i), as contained in the Prospectus at the time of filing thereof
or on the date of such counsel's opinion, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading;
(ii) the execution and delivery of this Agreement and the other
Operative Documents by the Company and the Subsidiaries, as applicable, the
issuance and sale of the Securities, the performance of the Company's and
each Subsidiary's obligations pursuant to the Operative Documents, as
applicable, and the consummation of the transactions contemplated hereby
and thereby will not conflict with or result in a breach or violation of or
constitute a default or cause an acceleration of any obligation under, or
result in the imposition or creation of (or the obligation to create or
impose) any Lien with respect to (A) any applicable gaming statute, rule or
regulation under Mississippi law or (B) any outstanding order of
Mississippi court or governmental agency, body or official having
jurisdiction over the Company or any of the Subsidiaries or any of their
properties, except for such conflicts, breaches, violations or defaults
that could not reasonably be expected to have, singly or in the aggregate,
a Material Adverse Effect;
40
<PAGE>
(iii) no authorization, approval, consent or order of the
Mississippi Gaming Authorities or any other governmental body, agency or
official of the State of Mississippi ("Mississippi Authorities") is
necessary in connection with the issuance of the Securities and the due and
valid execution, delivery and performance by the Company or any of the
Subsidiaries, as the case may be, of this Agreement and the other Operative
Documents, as applicable, and any of the transactions contemplated hereby
of thereby to be entered into prior to or contemporaneously with such
agreements, except (a) as disclosed in the Registration Statement, (b) such
authorizations, approvals, consents or licenses of the Mississippi
Authorities that have been obtained prior to the date of such opinion and
(c) the periodic and other filings and reporting requirements to which any
of the Company and the Subsidiaries are subject generally. Each of the
Operative Documents has been presented to the Mississippi Gaming
Authorities to the extent required by the Mississippi Gaming Laws, and such
documents and the transactions described therein have been approved by the
Mississippi Gaming Authorities to the extent required by Mississippi Gaming
Laws. Such counsel has received no notice that such approvals have been
revoked, modified or rescinded as of the date of such opinion;
(iv) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, the Company and each of the
Subsidiaries has made all declarations and filings with the Mississippi
Gaming Authorities necessary to use its properties and assets and to
conduct its business pursuant to Mississippi Gaming Laws, as of the date of
such opinion; (b) no facts have come to the attention of such counsel that
would lead such counsel to believe that all authorizations of and from the
Mississippi Gaming Authorities are not valid and in full force and effect
as of the date of such opinion; (c) no facts have come to the attention of
such counsel that would lead such counsel to believe that the Company and
each of the Subsidiaries is not in compliance in all material respects with
the terms and conditions of all authorizations of and from the Mississippi
Gaming Authorities and with the Mississippi Gaming Laws, as of the date of
such opinion; and (d) as of the date of such opinion, such counsel has
received no notice of any proceedings relating to the revocation or
modification of any authority granted by any of the Mississippi Gaming
Authorities to the Company and the Subsidiaries, and such counsel is aware
of no restrictions imposed by any of the Mississippi Gaming Authorities
which would have a material adverse effect on the properties, plans,
results of operations, management, condition (financial or otherwise) or
business affairs of the Company or the Subsidiaries, in the aggregate; no
facts have come to the attention of such counsel that would lead such
counsel to believe that any of the Mississippi Gaming Authorities is
considering modifying, limiting,
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conditioning, suspending, revoking or not renewing the licenses, permits,
certificates, consents, orders, approvals and other authorizations from
such Mississippi Gaming Authority (collectively, the "Gaming Licenses") of
the Company or any of the Subsidiaries, except where such modification,
revocation, suspension, limitation or condition would not have a material
adverse effect on the properties, plans, results of operations, management,
condition (financial or otherwise) or business affairs of the Company or
the Subsidiaries, in the aggregate; such counsel is aware of no notice
given to the Company or any of the Subsidiaries that any of the Mississippi
Gaming Authorities are investigating the Company or any of the Subsidiaries
(other than normal overseeing reviews incident to the gaming activities of
the Company and the Subsidiaries); and such counsel has received no notice
that the Company or any of the Subsidiaries has any reason to believe
there is an existing basis for any of the Mississippi Gaming Authorities to
deny the renewal of the Gaming Licenses held by the Company or any of the
Subsidiaries; and
(v) each of the persons listed under the caption "Management" in
the Prospectus has been or will be qualified or licensed by the Mississippi
Gaming Laws as required by the Mississippi Gaming Laws.
(k) You shall have received an opinion of Kozlow, Seaton, Romanini &
Brooks, New Jersey regulatory counsel for the Company, dated as of the
Closing Date, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) (a) the statements in the Prospectus under the captions
"Risk Factors--Strict Regulation by Gaming Authorities" and "Gaming
Regulation and Licensing - New Jersey", fairly present the information with
respect to such New Jersey Gaming Laws and proceedings thereunder; and (b)
no facts have come to the attention of such counsel that would lead such
counsel to believe that the statements listed in clause (a) of this
paragraph (i) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
such statements, in light of the circumstances under which they are made,
not misleading, or that the statements listed in clause (a) of this
paragraph (i), as contained in the Prospectus at the time of filing thereof
or on the date of such counsel's opinion, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading;
42
<PAGE>
(ii) the execution and delivery of this Agreement and the other
Operative Documents by the Company and the Subsidiaries, as applicable, the
issuance and sale of the Securities, the performance of the Company's and
each Subsidiary's obligations pursuant to the Operative Documents, as
applicable, and the consummation of the transactions contemplated hereby
and thereby will not conflict with or result in a breach or violation of or
constitute a default or cause an acceleration of any obligation under, or
result in the imposition or creation of (or the obligation to create or
impose) any Lien with respect to (A) any applicable gaming statute, rule or
regulation under New Jersey law or (B) any outstanding order of New Jersey
court or governmental agency, body or official having jurisdiction over the
Company or any of the Subsidiaries or its properties, except for such
conflicts, breaches, violations or defaults that could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect;
(iii) no authorization, approval, consent or order of the New
Jersey Gaming Authorities or any other governmental body, agency or
official of the State of New Jersey ("New Jersey Authorities") is
necessary in connection with the issuance of the Securities and the due and
valid execution, delivery and performance by the Company or any of the
Subsidiaries, as the case may be, of this Agreement and the other Operative
Documents, as applicable, and any of the transactions contemplated hereby
of thereby to be entered into prior to or contemporaneously with such
agreements, except (a) as disclosed in the Registration Statement, (b) such
authorizations, approvals, consents or licenses of the New Jersey
Authorities that have been obtained prior to the date of such opinion and
(c) the periodic and other filings and reporting requirements to which any
of the Company and the Subsidiaries are subject generally. Each of the
Operative Documents has been presented to the New Jersey Gaming Authorities
to the extent required by the New Jersey Gaming Laws, and such documents
and the transactions described therein have been approved by the New Jersey
Gaming Authorities to the extent required by New Jersey Gaming Laws. Such
counsel has received no notice that such approvals have been revoked,
modified or rescinded as of the date of such opinion;
(iv) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, the Company and each of its
subsidiaries has made all declarations and filings with the New Jersey
Gaming Authorities necessary to use its properties and assets and to
conduct its business pursuant to New Jersey Gaming Laws, as of the date of
such opinion; (b) no facts have come to the attention of such counsel that
would lead such counsel to believe that all authorizations of and from the
New Jersey Gaming Authorities are not valid and in full force and effect as
of the
43
<PAGE>
date of such opinion; (c) no facts have come to the attention of such
counsel that would lead such counsel to believe that the Company and each
of its subsidiaries is not in compliance in all material respects with the
terms and conditions of all authorizations of and from the New Jersey
Gaming Authorities and with the New Jersey Gaming Laws, as of the date of
such opinion; and (d) as of the date of such opinion, such counsel has
received no notice of any proceedings relating to the revocation or
modification of any authority granted by any of the New Jersey Gaming
Authorities to the Company and its subsidiaries, and such counsel is aware
of no restrictions imposed by any of the New Jersey Gaming Authorities
which would have a material adverse effect on the properties, plans,
results of operations, management, condition (financial or otherwise) or
business affairs of the Company or its subsidiaries, in the aggregate; no
facts have come to the attention of such counsel that would lead such
counsel to believe that any of the New Jersey Gaming Authorities is
considering modifying, limiting, conditioning, suspending, revoking or not
renewing the licenses, permits, certificates, consents, orders, approvals
and other authorizations from such New Jersey Gaming Authority
(collectively, the "Gaming Licenses") of the Company or any of the
Subsidiaries, except where such modification, revocation, suspension,
limitation or condition would not have a material adverse effect on the
properties, plans, results of operations, management, condition (financial
or otherwise) or business affairs of the Company or its subsidiaries, in
the aggregate; such counsel is aware of no notice given to the Company or
any of its subsidiaries that any of the New Jersey Gaming Authorities are
investigating the Company or any of its subsidiaries (other than normal
overseeing reviews incident to the gaming activities of the Company and its
subsidiaries); and such counsel has received no notice that the Company or
any of its subsidiaries has any reason to believe there is an existing
basis for any of the New Jersey Gaming Authorities to deny the renewal of
the Gaming Licenses held by the Company or any of the Subsidiaries; and
(v) each of the persons listed under the caption "Management" in
the Prospectus has been or will be qualified or licensed by the New Jersey
Gaming Laws as required by the New Jersey Gaming Laws.
(l) You shall have received an opinion of Waters McPherson, McNeil,
New Jersey regulatory counsel for BGII and its subsidiaries, dated as of
the Closing Date, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, the BGII and its subsidiaries has made
all
44
<PAGE>
declarations and filings with the New Jersey Gaming Authorities necessary
to use its properties and assets and to conduct its business pursuant to
New Jersey Gaming Laws, as of the date of such opinion; (b) no facts have
come to the attention of such counsel that would lead such counsel to
believe that all authorizations of and from the New Jersey Gaming
Authorities are not valid and in full force and effect as of the date of
such opinion; (c) no facts have come to the attention of such counsel that
would lead such counsel to believe that the BGII and its subsidiaries is
not in compliance in all material respects with the terms and conditions of
all authorizations of and from the New Jersey Gaming Authorities and with
the New Jersey Gaming Laws, as of the date of such opinion; and (d) as of
the date of such opinion, such counsel has received no notice of any
proceedings relating to the revocation or modification of any authority
granted by any of the New Jersey Gaming Authorities to BGII and its
subsidiaries, and such counsel is aware of no restrictions imposed by any
of the New Jersey Gaming Authorities which would have a material adverse
effect on the properties, plans, results of operations, management,
condition (financial or otherwise) or business affairs of the BGII and its
subsidiaries, in the aggregate; no facts have come to the attention of such
counsel that would lead such counsel to believe that any of the New Jersey
Gaming Authorities is considering modifying, limiting, conditioning,
suspending, revoking or not renewing the licenses, permits, certificates,
consents, orders, approvals and other authorizations from such New Jersey
Gaming Authority (collectively, the "Gaming Licenses") of BGII and its
subsidiaries, except where such modification, revocation, suspension,
limitation or condition would not have a material adverse effect on the
properties, plans, results of operations, management, condition (financial
or otherwise) or business affairs of BGII and its subsidiaries, in the
aggregate; such counsel is aware of no notice given to BGII and its
subsidiaries that any of the New Jersey Gaming Authorities are
investigating BGII and its subsidiaries (other than normal overseeing
reviews incident to the gaming activities of BGII and its subsidiaries);
and such counsel has received no notice that BGII and its subsidiaries has
any reason to believe there is an existing basis for any of the New Jersey
Gaming Authorities to deny the renewal of the Gaming Licenses held by BGII
and its subsidiaries.
(m) You shall have received an opinion of Bruckhaus,Westrick,
Stegeman, German regulatory counsel for the Company, dated as of the
Closing Date, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) (a) the statements in the Prospectus under the captions
"Risk Factors--Strict Regulation by Gaming Authorities" and "Gaming
Regulation and Licensing - Germany", fairly present the information with
45
<PAGE>
respect to such German Gaming Laws and proceedings thereunder; and (b) no
facts have come to the attention of such counsel that would lead such
counsel to believe that the statements listed in clause (a) of this
paragraph (i) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
such statements, in light of the circumstances under which they are made,
not misleading, or that the statements listed in clause (a) of this
paragraph (i), as contained in the Prospectus at the time of filing thereof
or on the date of such counsel's opinion, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading;
(ii) the execution and delivery of this Agreement and the other
Operative Documents by the Company and the Subsidiaries, as applicable, the
issuance and sale of the Securities, the performance of the Company's and
each Subsidiary's obligations pursuant to the Operative Documents, as
applicable, and the consummation of the transactions contemplated hereby
and thereby will not conflict with or result in a breach or violation of or
constitute a default or cause an acceleration of any obligation under, or
result in the imposition or creation of (or the obligation to create or
impose) (A) any Lien with respect to any of the respective charters and by-
laws of any of the German Subsidiaries; (B) any applicable gaming statute,
rule or regulation under German law or (C) any outstanding order of German
court or governmental agency, body or official having jurisdiction over the
Company or any of the Subsidiaries or its properties , except, in the case
of clauses (B) and (C), for such conflicts, breaches, violations or
defaults that could not reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect;
(iii) no authorization, approval, consent or order of the
German Gaming Authorities or any other governmental body, agency or
official of the Federal Republic of Germany ("German Authorities") is
necessary in connection with the issuance of the Securities and the due and
valid execution, delivery and performance by the Company or any of the
Subsidiaries, as the case may be, of this Agreement and the other Operative
Documents, as applicable, and any of the transactions contemplated hereby
of thereby to be entered into prior to or contemporaneously with such
agreements, except (a) as disclosed in the Registration Statement, (b) such
authorizations, approvals, consents or licenses of the German Authorities
that have been obtained prior to the date of such opinion and (c) the
periodic and other filings and reporting requirements to which any of the
Company and the Subsidiaries are subject generally. Each of the Operative
Documents has
46
<PAGE>
been presented to the German Gaming Authorities to the extent required by
the German Gaming Laws, and such documents and the transactions described
therein have been approved by the German Gaming Authorities to the extent
required by German Gaming Laws. Such counsel has received no notice that
such approvals have been revoked, modified or rescinded as of the date of
such opinion;
(iv) except as disclosed in the Registration Statement, (a) to
the best knowledge of such counsel, the Company and each of the
Subsidiaries has made all declarations and filings with the German Gaming
Authorities necessary to use its properties and assets and to conduct its
business pursuant to German Gaming Laws, as of the date of such opinion;
(b) no facts have come to the attention of such counsel that would lead
such counsel to believe that all authorizations of and from the German
Gaming Authorities are not valid and in full force and effect as of the
date of such opinion; (c) no facts have come to the attention of such
counsel that would lead such counsel to believe that the Company and each
of the Subsidiaries is not in compliance in all material respects with the
terms and conditions of all authorizations of and from the German Gaming
Authorities and with the German Gaming Laws, as of the date of such
opinion; and (d) as of the date of such opinion, such counsel has received
no notice of any proceedings relating to the revocation or modification of
any authority granted by any of the German Gaming Authorities to the
Company and the Subsidiaries, and such counsel is aware of no restrictions
imposed by any of the German Gaming Authorities which would have a material
adverse effect on the properties, plans, results of operations, management,
condition (financial or otherwise) or business affairs of the Company or
the Subsidiaries, in the aggregate; no facts have come to the attention of
such counsel that would lead such counsel to believe that any of the German
Gaming Authorities is considering modifying, limiting, conditioning,
suspending, revoking or not renewing the licenses, permits, certificates,
consents, orders, approvals and other authorizations from such German
Gaming Authority (collectively, the "Gaming Licenses") of the Company or
any of the Subsidiaries, except where such modification, revocation,
suspension, limitation or condition would not have a material adverse
effect on the properties, plans, results of operations, management,
condition (financial or otherwise) or business affairs of the Company or
the Subsidiaries, in the aggregate; such counsel is aware of no notice
given to the Company or any of the Subsidiaries that any of the German
Gaming Authorities are investigating the Company or any of the Subsidiaries
(other than normal overseeing reviews incident to the gaming activities of
the Company and the Subsidiaries); and such counsel has received no notice
that the Company or any of the Subsidiaries has any reason to believe
there is an
47
<PAGE>
existing basis for any of the German Gaming Authorities to deny the renewal
of the Gaming Licenses held by the Company or any of the Subsidiaries.
(n) You shall have received an opinion of Shereff, Friedman, Hoffman
& Goodman, LLP, counsel for BGII, dated as of the Closing Date, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) Based on a review of the stock register of Gaming as of the date
hereof, there are ____ shares of common stock, no par value, of Gaming
issued and outstanding. Based on our review of Gaming's minute book, all
outstanding shares of Gaming Common Stock have been duly authorized and
issued and are fully paid, nonassessable and free of statutory preemptive
rights. BGII owns of record and, to our knowledge, beneficially all of the
outstanding shares of Gaming Common Stock free and clear of any perfected
security interests and, to our knowledge, any other security interest,
claims, liens, encumbrances or other restrictions on voting and
transferability.
(ii) BGII is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its properties and
conduct its business as presently conducted;
(iii) Gaming is a corporation duly authorized, validly existing
and in good standing under the laws of the State of Nevada; and
(iii) Each of the Operative Documents have been duly authorized,
executed and delivered by BGII, as the case may be.
(o) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps"),
counsel for the Underwriters in form and substance reasonably satisfactory
to you.
(p) You shall have received letters on and as of the date hereof as
well as on and as of the Closing Date (in the latter case constituting an
affirmation of the statements set forth in the former, based on limited
procedures), in form and substance satisfactory to you, from (A) KPMG Peat
Marwick LLP, independent public accountants for the Company and the
subsidiaries, with respect to the consolidated financial statements of the
Company and certain other financial information contained in the
Registration Statement and the Prospectus including, without limitation,
the financial
48
<PAGE>
forecasts and (B) Coopers & Lybrand L.L.P., independent public accountants
for BGII and its subsidiaries with respect to the consolidated financial
statements of BGII and certain other financial information contained in the
Registration Statement and the Prospectus for the period January 1, 1992 to
present and (C) Ernst & Young, independent public accountants for BGII and
its subsidiaries with respect to the consolidation financial statements of
BGII and certain other financial information contained in the Registration
Statement and the Prospectus for its fiscal year 1991.
(q) You shall have received a certificate of a financial officer of
the Company as to certain agreed upon accounting matters, in substantially
the form previously delivered to you.
(r) Prior to the Closing Date, the Issuers shall have furnished to
you or caused to be furnished to you such further information, certificates
and documents as you may reasonably request.
(s) The Company and the Subsidiaries shall not have failed at or
prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the
Company or the Subsidiaries at or prior to the Closing Date.
(t) Each element of the Transaction, other than the Note Offering,
shall have been consummated on substantially the terms described in the
Prospectus and the Registration Statement.
(u) All legal opinions and accountants "comfort letters" received in
connection with the Merger, whose form and substance shall have been
determined by the Company, shall be addressed to, or permit reliance on by,
and delivered to the Underwriters.
9. EFFECTIVE DATE OF AGREEMENT, DEFAULTS AND TERMINATION. This
Agreement shall become effective upon the later of (i) the execution and
delivery of this Agreement by the parties hereto, (ii) unless the Issuers intend
to rely on Rule 430A of the Act, the effectiveness of the Registration Statement
(including, if applicable, the registration statement filed pursuant to Rule
462(b) under the Act), and (iii) if the Issuers intend to rely on Rule 430A of
the Act, the earlier of the effectiveness of a post-effective amendment filed in
compliance with Rule 430A of the Act or the filing of a final prospectus
pursuant to Rule 424(b). Notwithstanding the foregoing, this Agreement shall not
become effective prior to the effectiveness of the Preferred Stock Underwriting
Agreement.
49
<PAGE>
This Agreement may be terminated at any time on or prior to the
Closing Date by Jefferies by notice to the Company if any of the following has
occurred: (i) subsequent to the date the Registration Statement is declared
effective or the date of this Agreement, any Material Adverse Change which, in
the judgment of Jefferies, impairs the investment quality of the Securities,
(ii) any outbreak or escalation of hostilities or other national or
international calamity or crisis or material adverse change in the financial
markets of the United States or elsewhere or any other substantial national or
international calamity or emergency if the effect of such outbreak, escalation,
calamity, crisis or emergency would, in Jefferies's judgment, make it
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (iii) any suspension or limitation of trading
generally in securities on the New York, American or Pacific Stock Exchanges or
the Nasdaq NMS, or the over-the-counter markets or any setting of minimum prices
for trading on such exchanges or markets, (iv) any declaration of a general
banking moratorium by either Federal or New York state authorities, (v) the
taking of any action by any Federal, state or local government or agency in
respect of its monetary or fiscal affairs that in Jefferies' judgment has a
material adverse effect on the financial markets in the United States, and
would, in Jefferies' judgment, make it impracticable or inadvisable to market
the Securities or to enforce contracts for the sale of the Securities, (vi) any
securities of the Company or any of the Subsidiaries shall have been downgraded
or placed on any "watch list" for possible downgrading or reviewed for a
possible change that does not indicate the direction of the possible change by
any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) of the Act, (vii) the enactment,
publication, decree or other promulgation of any Federal, state or local
statute, regulation, rule or order of any court or other governmental authority
which in the judgment of Jefferies could have a Material Adverse Effect or make
it inadvisable or impractical to market the Securities or (viii) the occurrence,
scheduling of or the announcement of, or published discussion regarding any
proposed, pending or threatened or contemplated investigation or inquest by a
court of other governmental authority in respect of any of the Issuers, any
Subsidiary or any person required to be licensed in connection therewith.
If this Agreement shall be terminated by the Underwriters pursuant to
clause (i), (vi), (vii) or (viii) of the second paragraph of this Section 9 or
because of the failure or refusal on the part of the Company or the Subsidiaries
to comply with the terms or to fulfill any of the conditions of this Agreement,
the Company and the Subsidiaries jointly and severally agree to reimburse you
for all reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred by the Underwriters, and (without
duplication) to fulfill the obligations of that certain engagement letters,
dated April 24, 1996, as amended and supplemented through the date hereof,
between the Company and Jefferies. Notwithstanding any termination of this
Agreement, the Company and the Subsidiaries shall be liable,
50
<PAGE>
jointly and severally, for all expenses which they agree to pay pursuant to
Section 5 hereof. If this Agreement is terminated pursuant to this Section 9,
such termination shall be without liability of any Underwriter to the Company or
any of the Subsidiaries.
If on the Closing Date any of the Underwriters shall fail or refuse to
purchase the Securities which it has agreed to purchase hereunder on such date,
and the aggregate principal amount of such Securities that such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase does not exceed 10% of the total principal amount of such Securities to
be purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated to purchase the Securities that such defaulting Underwriter
agreed but failed or refused to purchase on such date; PROVIDED that in no event
shall the aggregate principal amount of Securities that any Underwriter has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section 9 by an amount in excess of one-ninth of such principal amount of
Securities without the written consent of such Underwriter. If, on the Closing
Date, any of the Underwriters shall fail or refuse to purchase the Securities
and the total principal amount of Securities with respect to which such default
occurs exceeds 10% of the total amount of Securities to be purchased on such
date by all Underwriters and arrangements satisfactory to you and the Issuers
for the purchase of such Securities are not made within 48 hours after such
default, this Agreement shall terminate without liability on the part of the
non-defaulting Underwriter and the Issuers, except as otherwise provided in this
Section 9. In any such case that does not result in termination of this
Agreement, either you or the Issuers may postpone the Closing Date for not
longer than seven (7) days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve a
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
10. NOTICES. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to any of the Issuers, to it at
Alliance Gaming Corporation, 4380 Boulder Highway, Las Vegas, NV 89121,
Attention: David Johnson, Esq., with a copy to Milbank, Tweed, Hadley & McCloy,
1 Chase Manhattan Plaza, New York, New York 10005, Attention: Mark Weissler,
(b) if to any Underwriter, to Jefferies & Company, Inc., 11100 Santa Monica
Boulevard, Los Angeles, California 90071, Attention: Jerry Gluck, Esq., with a
copy to Ladenburg, Thalmann & Co. Inc., 540 Madison Avenue, 10th Floor New York,
New York 10022, Attention: Ronald J. Kramer and a copy to Skadden, Arps, Slate,
Meagher & Flom at 300 South Grand Avenue, Suite 3400, Los Angeles, California
90071, Attention: Nicholas P. Saggese, Esq. or (c) in any case to such other
address as the person to be notified may have requested in writing.
51
<PAGE>
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO
CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON BEHALF OF ITSELF AND
ITS SUBSIDIARIES HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION
WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE
MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL
JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE
COMPANY, ON BEHALF OF ITSELF AND THE SUBSIDIARIES IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH IT OR ITS SUBSIDIARIES MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
12. SEVERABILITY. Any determination that any provision of this
Agreement may be, or is, unenforceable shall not affect the enforceability of
the remainder of this Agreement.
13. SUCCESSORS. Except as otherwise provided, this Agreement has
been and is made solely for the benefit of and shall be binding upon the
Company, the Subsidiaries, the Underwriters, any Indemnified Person referred to
herein and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The terms "successors and assigns" shall
not include a purchaser of any of the Securities from any of the several
Underwriters merely because of such purchase.
14. CERTAIN DEFINITIONS. For purposes of this Agreement, (a)
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the
Securities Act.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in one or more counterparts, the executed
counterparts
52
<PAGE>
shall each be deemed to be an original, and all such counterparts shall together
constitute one and the same instrument.
16. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
17. SURVIVAL. The indemnity and contribution provisions and the
other agreements, representations and warranties of the Issuers, their partners,
officers and directors and of the Underwriters set forth in or made pursuant to
this Agreement shall remain operative and in full force and effect, and will
survive delivery of and payment for the Securities, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any of the Underwriters or by or on behalf of the Issuers or the partners,
officers or directors of the Issuers or any controlling person of the Issuers,
(ii) acceptance of the Securities and payment for them hereunder and (iii)
termination of this Agreement.
53
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Issuers and you.
Very truly yours,
ALLIANCE GAMING CORPORATION
By:
-------------------------------------
Name:
Title:
BGII ACQUISITION CORP.
By:
-------------------------------------
Name:
Title:
APT GAMES, INC.
By:
-------------------------------------
Name:
Title:
CASINO ELECTRONICS, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
FOREIGN GAMING VENTURES, INC.
By:
-------------------------------------
Name:
Title:
UNITED COIN MACHINE CO.
By:
-------------------------------------
Name:
Title:
APT COIN MACHINE CO.
By:
-------------------------------------
Name:
Title:
TROLLEY STOP, INC.
By:
-------------------------------------
Name:
Title:
PLANTATION INVESTMENTS, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
MIZPAH INVESTMENTS, INC.
By:
-------------------------------------
Name:
Title:
UNITED GAMES, INC.
By:
-------------------------------------
Name:
Title:
SLOT PALACE, INC.
By:
-------------------------------------
Name:
Title:
WCAL, INC.
By:
-------------------------------------
Name:
Title:
DOUBLE EAGLE HOTEL & CASINO, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
FCJI, INC.
By:
-------------------------------------
Name:
Title:
UNITED NATIVE AMERICAN, INC.
By:
-------------------------------------
Name:
Title:
NATIVE AMERICAN INVESTMENTS, INC.
By:
-------------------------------------
Name:
Title:
OREGON VENTURES, INC.
By:
-------------------------------------
Name:
Title:
INDIANA GAMING VENTURES, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
MISSISSIPPI VENTURES, INC.
By:
-------------------------------------
Name:
Title:
UNITED GAMING OF IOWA, INC.
By:
-------------------------------------
Name:
Title:
UNITED GAMING RAINBOW
By:
-------------------------------------
Name:
Title:
MISSISSIPPI VENTURES II, INC.
By:
-------------------------------------
Name:
Title:
VERMONT FINANCIAL VENTURES, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
MISSOURI VENTURES II, INC.
By:
-------------------------------------
Name:
Title:
LOUISIANA VENTURES, INC.
By:
-------------------------------------
Name:
Title:
VIDEO DISTRIBUTING SERVICES, INC.
By:
-------------------------------------
Name:
Title:
SOUTHERN VIDEO SERVICES, INC.
By:
-------------------------------------
Name:
Title:
ALPINE WILLOW INVESTMENTS, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
KANSAS GAMING VENTURES, INC.
By:
-------------------------------------
Name:
Title:
PENNSYLVANIA GAMING VENTURES I, INC.
By:
-------------------------------------
Name:
Title:
BALLY GAMING INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
BALLY GAMING, INC.
By:
-------------------------------------
Name:
Title:
ALLIANCE HOLDING CORP.
By:
-------------------------------------
Name:
Title:
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
By: JEFFERIES & COMPANY, INC.
By:
-------------------------------
Name:
Title:
By: LADENBURG, THALMANN & CO. INC.
By:
-------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
List of Guarantors State of Incorporation
- ------------------ ----------------------
BGII Acquisition Corp. Delaware
APT Games, Inc. Nevada
Casino Electronics, Inc. Nevada
Foreign Gaming Ventures, Inc. Nevada
United Coin Machine Co. Nevada
APT Coin Machines, Inc. Nevada
Trolley Stop, Inc. Nevada
Plantation Investments, Inc. Nevada
Mizpah Investments, Inc. Nevada
United Games, Inc. Nevada
Slot Palace, Inc. Nevada
WCAL, Inc. Nevada
Double Eagle Hotel & Casino, Inc. Nevada
FCJI, Inc. Nevada
United Native American, Inc. Nevada
Native American Investments, Inc. Delaware
Oregon Ventures, Inc. Nevada
Indiana Gaming Ventures, Inc. Nevada
Mississippi Ventures, Inc. Nevada
United Gaming of Iowa, Inc. Nevada
United Gaming Rainbow Nevada
Mississippi Ventures II, Inc. Nevada
Vermont Financial Ventures, Inc. Nevada
Missouri Ventures II, Inc. Nevada
Louisiana Ventures, Inc. Nevada
Alpine Willow Investments, Inc. California
Kansas Gaming Ventures, Inc. Nevada
Pennsylvania Gaming Ventures I, Inc. Nevada
Bally Gaming International,Inc Delaware
Bally Gaming, Inc. Nevada
Alliance Holding Corp. Delaware
<PAGE>
SCHEDULE II
Principal Amount
----------------
$
Jefferies & Company, Inc.
Ladenburg, Thalmann & Co. Inc.
------------
Total $140,000,000
------------
------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALLIANCE GAMING CORPORATION
AS THE ISSUER
AND
THE GUARANTORS REFERRED TO HEREIN
AND
UNITED STATES TRUST COMPANY OF NEW YORK
TRUSTEE
________________
INDENTURE
Dated as of June __, 1996
________________
$140,000,000 Aggregate Principal Amount of
__% Senior Secured Notes due 2003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
- ------- ---------
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 8.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 8.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . 8.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 8.8;
. . . . . . . . . . . . . . . . . . . . . . . . . 8.10;
. . . . . . . . . . . . . . . . . . . . . . . . . 12.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . 8.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 8.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . 8.6
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 8.6;
. . . . . . . . . . . . . . . . . . . . . . . 12.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 8.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . 5.7;
. . . . . . . . . . . . . . . . . . . . . . . 5.8;
. . . . . . . . . . . . . . . . . . . . . . . . . 12.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 2.2;
. . . . . . . . . . . . . . . . . . . . . . . 8.2;
. . . . . . . . . . . . . . . . . . . . . . . 12.4;
12.5
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 8.2;
. . . . . . . . . . . . . . . . . . . . . . . 12.4;
. . . . . . . . . . . . . . . . . . . . . . . 12.5
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(c)
. . . . . . . . . . . . . . . . . . . . . . . . . 4.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(c)
4.4
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
i
<PAGE>
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 8.5
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 2.9;
7.11;
8.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 7.13
316(a)(last sentence). . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 7.12
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.7;
. . . . . . . . . . . . . . . . . . . . . . . 7.12;
. . . . . . . . . . . . . . . . . . . . . . . . . 10.2
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
__________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
ii
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Incorporation by Reference of TIA . . . . . . . . . . . . . . 20
SECTION 1.3 Rules of Construction . . . . . . . . . . . . . . . . . . . . 20
ARTICLE II
THE SECURITIES
SECTION 2.1 Form and Dating.. . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.2 Execution and Authentication. . . . . . . . . . . . . . . . . 21
SECTION 2.3 Registrar and Paying Agent. . . . . . . . . . . . . . . . . . 22
SECTION 2.4 Paying Agent to Hold Assets in Trust. . . . . . . . . . . . . 23
SECTION 2.5 Securityholder Lists. . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.6 Transfer and Exchange.. . . . . . . . . . . . . . . . . . . . 23
SECTION 2.7 Replacement Securities. . . . . . . . . . . . . . . . . . . . 24
SECTION 2.8 Outstanding Securities. . . . . . . . . . . . . . . . . . . . 24
SECTION 2.9 Treasury Securities.. . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.10 Temporary Securities. . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.11 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.12 Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE III
REDEMPTION
SECTION 3.1 Right of Redemption.. . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.2 Redemption Pursuant to Applicable Laws. . . . . . . . . . . . 26
SECTION 3.3 Notices to Trustee. . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.4 Selection of Securities to Be Redeemed. . . . . . . . . . . . 27
SECTION 3.5 Notice of Redemption. . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.6 Effect of Notice of Redemption. . . . . . . . . . . . . . . . 29
SECTION 3.7 Deposit of Redemption Price . . . . . . . . . . . . . . . . . 29
SECTION 3.8 Securities Redeemed in Part . . . . . . . . . . . . . . . . . 30
iii
<PAGE>
PAGE
ARTICLE IV
SECURITY
SECTION 4.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.2 Recording; Opinions of Counsel. . . . . . . . . . . . . . . . 30
SECTION 4.3 Disposition of Certain Collateral . . . . . . . . . . . . . . 31
SECTION 4.4 Certain Releases of Collateral. . . . . . . . . . . . . . . . 32
SECTION 4.5 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.6 Suits to Protect the Collateral . . . . . . . . . . . . . . . 33
SECTION 4.7 Trustee's Duties. . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE V
COVENANTS
SECTION 5.1 Payment of Securities . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . 34
SECTION 5.3 Limitation on Restricted Payments . . . . . . . . . . . . . . 34
SECTION 5.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . 36
SECTION 5.6 Maintenance of Insurance. . . . . . . . . . . . . . . . . . . 36
SECTION 5.7 Compliance Certificate; Notice of Default . . . . . . . . . . 37
SECTION 5.8 Provision of Financial Statements . . . . . . . . . . . . . . 37
SECTION 5.9 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . 38
SECTION 5.10 Limitation on Transactions with Affiliates. . . . . . . . . . 38
SECTION 5.11 Limitation on Incurrence of Additional Indebtedness . . . . . 39
SECTION 5.12 Restriction on Sale and Issuance of Subsidiary Stock. . . . . 40
SECTION 5.13 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. . . . . . . . . . . . . . . . . . . . 41
SECTION 5.14 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.15 Limitation on Sales of Assets and Subsidiary
Stock; Event of Loss. . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.16 Future Subsidiary Guarantors. . . . . . . . . . . . . . . . . 45
SECTION 5.17 Limitation on Lines of Business . . . . . . . . . . . . . . . 45
SECTION 5.18 Limitation on Status as Investment Company. . . . . . . . . . 45
SECTION 5.19 Future Pledge Agreements. . . . . . . . . . . . . . . . . . . 45
iv
<PAGE>
PAGE
ARTICLE VI
SUCCESSORS
SECTION 6.1 Limitation on Merger, Sale or Consolidation . . . . . . . . . 46
SECTION 6.2 Successor Substituted . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.2 Acceleration of Maturity Date; Rescission and Annulment . . . 49
SECTION 7.3 Collection of Indebtedness and Suits for
Enforcement by Trustee. . . . . . . . . . . . . . . . . . . . 50
SECTION 7.4 Trustee May File Proofs of Claim. . . . . . . . . . . . . . . 51
SECTION 7.5 Trustee May Enforce Claims Without Possession of Securities . 51
SECTION 7.6 Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 7.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . 52
SECTION 7.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest . . . . . . . . . . . . . . . 53
SECTION 7.9 Rights and Remedies Cumulative. . . . . . . . . . . . . . . . 53
SECTION 7.10 Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . 53
SECTION 7.11 Control by Holders. . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.12 Waiver of Past Default. . . . . . . . . . . . . . . . . . . . 54
SECTION 7.13 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.14 Restoration of Rights and Remedies. . . . . . . . . . . . . . 55
ARTICLE VIII
TRUSTEE
SECTION 8.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.2 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 8.3 Individual Rights of Trustee. . . . . . . . . . . . . . . . . 57
SECTION 8.4 Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . 58
SECTION 8.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 8.6 Reports by Trustee to Holders . . . . . . . . . . . . . . . . 59
SECTION 8.7 Compensation and Indemnity. . . . . . . . . . . . . . . . . . 60
SECTION 8.8 Replacement of Trustee. . . . . . . . . . . . . . . . . . . . 61
SECTION 8.9 Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . 62
v
<PAGE>
PAGE
SECTION 8.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . 62
SECTION 8.11 Preferential Collection of Claims against Issuer. . . . . . . 62
ARTICLE IX
LEGAL DEFEASANCE AND COVENANT DEFEASANCE;
SATISFACTION AND DISCHARGE
SECTION 9.1 Option to Effect Legal Defeasance or Covenant Defeasance. . . 62
SECTION 9.2 Legal Defeasance and Discharge. . . . . . . . . . . . . . . . 62
SECTION 9.3 Covenant Defeasance.. . . . . . . . . . . . . . . . . . . . . 63
SECTION 9.4 Conditions to Legal or Covenant Defeasance. . . . . . . . . . 63
SECTION 9.5 Deposited U.S. Legal Tender and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.. . . . . 64
SECTION 9.6 Repayment to Issuer.. . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.7 Reinstatement.. . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.8 Satisfaction and Discharge of Indenture . . . . . . . . . . . 66
ARTICLE X
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.1 Supplemental Indentures Without Consent of Holders. . . . . . 66
SECTION 10.2 Amendments, Supplemental Indentures and Waivers with Consent
of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.3 Compliance with TIA . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.4 Revocation and Effect of Consents . . . . . . . . . . . . . . 69
SECTION 10.5 Notation on or Exchange of Securities . . . . . . . . . . . . 69
SECTION 10.6 Trustee to Sign Amendments, Etc.. . . . . . . . . . . . . . . 70
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION 11.1 Repurchase of Securities at Option of the Holder Upon Change
of Control. . . . . . . . . . . . . . . . . . . . . . . . . . 70
vi
<PAGE>
PAGE
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 TIA Controls. . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 12.3 Communications by Holders with Other Holders. . . . . . . . . 74
SECTION 12.4 Certificate and Opinion as to Conditions Precedent. . . . . . 74
SECTION 12.5 Statements Required in Certificate or Opinion . . . . . . . . 74
SECTION 12.6 Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . 75
SECTION 12.7 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 12.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 12.9 No Interpretation of Other Agreements . . . . . . . . . . . . 76
SECTION 12.10 No Recourse against Others. . . . . . . . . . . . . . . . . . 76
SECTION 12.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 12.12 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . 76
SECTION 12.13 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 12.14 Table of Contents, Headings, Etc. . . . . . . . . . . . . . . 76
SECTION 12.15 Gaming Laws . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 12.15 Consummation of Transaction Permitted . . . . . . . . . . . . 77
ARTICLE XIII
GUARANTY
SECTION 13.1 Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 13.2 Execution and Delivery of Guaranty. . . . . . . . . . . . . . 79
SECTION 13.3 Limitation on Merger, Consolidation, Etc. of Guarantors . . . 79
SECTION 13.4 Certain Bankruptcy Events . . . . . . . . . . . . . . . . . . 80
SECTION 13.5 Rights Under the Guaranty . . . . . . . . . . . . . . . . . . 80
SECTION 13.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 81
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PAGE
EXHIBITS
Exhibit A Form of Senior Secured Note due 2003 . . . . . . . . . . A-1
Exhibit B Form of Guaranty . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C Form of Pledge Agreement . . . . . . . . . . . . . . . . C-1
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INDENTURE, dated as of June __, 1996, among Alliance Gaming
Corporation, a Nevada corporation (the "Issuer"), the guarantor parties
signatory hereto (such parties, together with such other persons as may be
required from time to time to execute a Guaranty hereunder, are collectively
referred to herein as the "Guarantors"), and United States Trust Company of New
York, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the _____% Senior
Secured Notes due 2003 being issued by the Issuer and guaranteed by the
Guarantors.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"ACCELERATION NOTICE" shall have the meaning specified in Section 7.2.
"ACQUIRED INDEBTEDNESS" means Indebtedness or Disqualified Capital
Stock of any person existing at the time such person becomes a Subsidiary of the
Issuer, including by designation, or is merged or consolidated into or with the
Issuer or one of its Subsidiaries.
"ACQUISITION" means the purchase or other acquisition of any Person or
substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"AFFILIATE" means any person directly or indirectly controlling or
controlled by or under common control with the Issuer. For the purposes of this
definition, the term "control" means the power to direct the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise, PROVIDED,
that a Beneficial Owner of 10% or more of the total voting power normally
entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"APPROVALS" means all approvals, licenses (including Gaming Licenses),
permits, authorizations, findings and other filings necessary under applicable
gaming laws.
"ASSET SALE" shall have the meaning specified in Section 5.15.
"ASSET SALE OFFER" shall have the meaning specified in Section 5.15.
"ASSET SALE OFFER AMOUNT" shall have the meaning specified in Section
5.15.
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"ASSET SALE OFFER PERIOD" shall have the meaning specified in
Section 5.15.
"ASSET SALE OFFER PRICE" shall have the meaning specified in Section
5.15.
"ASSET SALE PURCHASE DATE" shall have the meaning specified in Section
5.15.
"ASSET SALE PUT DATE" shall have the meaning specified in Section
5.15.
"AUTHORIZED REPRESENTATIVE" of any person shall mean (i) in the case
of the Issuer, any person or persons that has or have been designated by the
Board of Directors of the Issuer to be an "Authorized Representative" under this
Indenture; and (ii) in the case of any Guarantor or other obligor, any Officer
of such party or, if such person has no Officers, any person or persons that
have been designated by the Board of Directors of the Issuer to be an
"Authorized Representative" of such person under this Indenture.
"AVERAGE LIFE TO STATED MATURITY" means, as of the date of
determination, with respect to any security or instrument, the quotient obtained
by dividing (i) the sum of (a) the product of the number of years from the date
of determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of each
such respective principal (or redemption) payment by (ii) the sum of all such
principal (or redemption) payments.
"BANKRUPTCY LAW" means Title 11, United States Code, as amended, or
any similar United States federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"BENEFICIAL OWNER" or "beneficial owner" for purposes of the
definition of Change of Control has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors of such person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
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"CAPITAL STOCK" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"CAPITALIZED LEASE OBLIGATION" of any Person means any obligation of
such Person or its Subsidiaries on a Consolidated basis under any capital lease
of real or personal property which, in accordance with GAAP, has been recorded
as a capitalized lease obligation.
"CASH EQUIVALENT" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED, that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits,
certificates of deposit, commercial paper and bankers' acceptances issued by the
parent corporation of any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million and commercial paper issued by
others rated at least A-2 or the equivalent thereof by Standard & Poor's Rating
Services or at least P-2 or the equivalent thereof by Moody's Investors Service,
Inc. and in each case maturing within one year after the date of acquisition,
(iii) repurchase agreements that are secured by a perfected security interest in
the types of securities described in clause (i) above, and (iv) money market
funds investing principally in the types of securities described in clauses (i)
and (ii) above.
"CHANGE OF CONTROL" means any of the following events:
(i) any person or group (as the term "person" or "group" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than an
Exempt Person becomes the beneficial owner of 50% or more of the Issuer's
capital stock having the power to vote in the election of directors under
ordinary circumstances ("Voting Stock"); or
(ii) there shall be consummated any consolidation or merger of the
Issuer that is not approved by at least a majority of the Continuing
Directors (A) in which the Issuer is not the continuing or surviving
corporation or (B) pursuant to which any Voting Stock of the Issuer would
be converted into cash, securities or other property, in each case other
than a consolidation or merger in which the holders of such Voting Stock
immediately prior thereto have at least a majority of the Voting Stock,
directly or indirectly, of the resulting or surviving corporation
immediately after the consolidation or merger; or
(iii) any person acquires all or substantially all of the assets of
the Issuer, in one transaction or a series of related transactions; or
(iv) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted
the Board of
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Directors of the Issuer, together with any Continuing Directors, cease for
any reason to constitute a majority of the Board of Directors of the Issuer
then in office.
"CHANGE OF CONTROL DATE" shall have the meaning specified in Section
11.1.
"CHANGE OF CONTROL OFFER" shall have the meaning specified in
Section 11.1.
"CHANGE OF CONTROL OFFER PERIOD" shall have the meaning specified in
Section 11.1.
"CHANGE OF CONTROL PURCHASE DATE" shall have the meaning specified in
Section 11.1.
"CHANGE OF CONTROL PURCHASE PRICE" shall have the meaning specified in
Section 11.1.
"CHANGE OF CONTROL PUT DATE" shall have the meaning specified in
Section 11.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means the Property and assets of the Issuer which, at the
time in question, is subject to the Liens created by the Collateral Agreements
or this Indenture.
"CONSOLIDATED COVERAGE RATIO" of any person on any date of
determination (the "Transaction Date") means the ratio, on a PRO FORMA basis, of
(a) the aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; PROVIDED, that for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of such Reference Period, (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a PRO FORMA basis as if the
average rate in effect from the beginning of the
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Reference Period to the Transaction Date had been the applicable rate for the
entire period, unless such Person or any of its Subsidiaries is a party to an
Interest Swap and Hedging Obligation (which shall remain in effect for the 12-
month period immediately following the Transaction Date) that has the effect of
fixing the interest rate on the date of computation, in which case such rate
(whether higher or lower) shall be used, (v) there shall be excluded from
Consolidated Fixed Charges any portion of such Consolidated Fixed Charges
related to any amount of Indebtedness that was outstanding during the Reference
Period but is not outstanding on the Transaction Date, except for Consolidated
Fixed Charges actually incurred with respect to Indebtedness borrowed (as
adjusted pursuant to clause (iv)) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect on the
Transaction Date and (vi) the Consolidated Fixed Charges of such Person
attributable to interest on any Indebtedness under a revolving credit facility
computed on a PRO FORMA basis will be computed based upon the average daily
balance of such Indebtedness during the Reference Period.
"CONSOLIDATED EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) Consolidated
income tax expense, (ii) Consolidated depreciation and amortization expense and
(iii) Consolidated Fixed Charges.
"CONSOLIDATED FIXED CHARGES" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and Interest Swap and Hedging
Obligations, in each case to the extent attributable to such period, (b) one-
third of Consolidated Rental Expense for such period attributable to operating
leases of such person and its Consolidated Subsidiaries, and (c) the amount of
dividends accrued or payable by such person or any of its Consolidated
Subsidiaries in respect of Disqualified Capital Stock (other than by
Subsidiaries of such person to such person or such person's Wholly-owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate determined in
good faith by the Issuer to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP and (y) interest expense attributable
to any Indebtedness represented by the guaranty by such person or a Subsidiary
of such person of an obligation of another person shall be deemed to be the
interest expense attributable to the Indebtedness guaranteed.
"CONSOLIDATED NET INCOME" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a Consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to
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the extent included in computing such net income (or loss) and without
duplication): (a) all gains (but not losses) which are either extraordinary (as
determined in accordance with GAAP) or are either unusual or nonrecurring
(including any gain from the sale or other disposition of assets outside the
ordinary course of business or from the issuance or sale of any Capital Stock),
(b) the net income, if positive, of any person, other than a Consolidated
Subsidiary, in which such person or any of its Consolidated Subsidiaries has an
interest, except to the extent of the amount of any dividends or distributions
actually paid in cash to such person or a Consolidated Subsidiary of such person
during such period, but in any case not in excess of such person's PRO RATA
share of such person's net income for such period, (c) the net income or loss of
any person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition, and (d) the net income, if positive, of any of
such person's Consolidated Subsidiaries to the extent that the declaration or
payment of dividends or similar distributions to the Issuer is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary; PROVIDED, that for the
purposes of determining Consolidated Net Income for any Reference Period which
includes any fiscal quarter ending on or prior to September 30, 1996, net income
shall be adjusted to exclude Alliance's net charge for inducement for early
conversion resulting from the Exchange Offer, the direct Merger costs of
Alliance and BGII and the unusual charges of Alliance and BGII, consisting of
BGII's costs relating to a regulatory investigation and legal proceedings in
Louisiana, provision to write-down to net realizable value the carrying value of
a building to be sold and provision to increase Wulff's tax reserves, and
Alliance costs relating to an executive signing bonus paid in Common Stock,
termination costs for certain officers and directors, and provision for impaired
assets of two development projects (each in an amount not to exceed, and in the
nature of, the amounts disclosed in Alliance's and BGII's financial statements
appearing in the Prospectus).
"CONSOLIDATED NET WORTH" of any person at any date means, in the case
of a partnership, the partners' capital and, in the case of any other person,
the aggregate Consolidated stockholders' equity of such person (plus amounts of
equity attributable to preferred stock) and its Consolidated Subsidiaries, as
would be shown on the Consolidated balance sheet of such person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in Subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"CONSOLIDATED RENTAL EXPENSE" of any Person, for any period and
determined without duplication, means the aggregate rental obligations of such
Person and its Consolidated Subsidiaries (not including taxes, insurance,
maintenance and similar expenses that the lessee is obligated to pay under the
terms of the relevant leases), determined on a Consolidated basis in conformity
with GAAP, payable in respect of such period under leases of real or personal
property (net of income from subleases thereof, not including taxes, insurance,
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maintenance and similar expenses that the sublessee is obligated to pay under
the terms of such sublease), whether or not such obligations are reflected as
liabilities or commitments on a Consolidated balance sheet of such Person and
its Subsidiaries or in the notes thereto, excluding, however, in any event, (i)
that portion of Consolidated Fixed Charges of such Person representing payments
by such Person or any of its Consolidated Subsidiaries in respect of Capitalized
Lease Obligations and (ii) in the case of the Issuer or its Subsidiaries, that
portion of rental obligations in respect of revenue-sharing arrangements or
space lease arrangements used in the Issuer's gaming machine management
operations.
"CONSOLIDATED SUBSIDIARY" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired), the
financial statements of which are Consolidated for financial statement reporting
purposes with the financial statements of such person in accordance with GAAP.
"CONSOLIDATION" means, with respect to any Person, the consolidation
of the accounts of such Person and each of its Subsidiaries if and to the extent
the accounts of such Person and each of its Subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied. The term "Consolidated" shall have a similar meaning.
"CONTINUING DIRECTOR" means a director of the Issuer who was either
(i) a member of the Board of Directors of the Issuer on the date hereof or (ii)
subsequently became a director of the Issuer and whose election or nomination
for election is approved or recommended by a vote of a majority of the Board of
Directors of the Issuer, which majority includes a majority of the then existing
Continuing Directors then on the Board of Directors of the Issuer.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any person, (a) an
Equity Interest of such person that, by its terms or by the terms of any
security into which it is convertible, exercisable or exchangeable, is, or upon
the happening of an event or the passage of time would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by such
person or any of its Subsidiaries, in whole or in part, on or prior to the
Stated Maturity of the Securities and (b) with respect to any Subsidiary of such
person (including with respect to any Subsidiary of the Issuer), any Equity
Interests other than any common equity with no preference, privileges, or
redemption or repayment provisions.
"EQUITY INTEREST" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and shall in any event include any Capital Stock issued by, or
partnership interests in, such Person.
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"EVENT OF DEFAULT" shall have the meaning specified in Section 7.1.
"EVENT OF LOSS" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset, or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"EXCESS PROCEEDS" shall have the meaning specified in Section 5.15.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXEMPT PERSON" means (A) the Issuer, any subsidiary of the Issuer or
any employee benefit plan or stock ownership plan of either the Issuer or any
subsidiary of the Issuer or (B) any of Kirkland, KIC, GSA or Alfred H. Wilms, or
any of their respective Affiliates, or any successor to any of Kirkland, KIC or
GSA or any of their respective Affiliates by merger, sale or transfer of assets
or similar transaction, or by a transfer from Alfred H. Wilms to any estate
planning vehicle controlled by Mr. Wilms or established for the benefit of Mr.
Wilms' family or his estate.
"EXEMPTED AFFILIATE TRANSACTIONS" means (i) the continuation,
extension or renewal of any transaction entered into between the Issuer or any
Subsidiary and any Affiliate prior to the Issue Date, (ii) any agreement between
the Issuer, KIC, Kirkland, GSA or their respective Affiliates providing for the
payment by the Issuer of management or related fees in connection with providing
services to the Issuer in an aggregate amount not exceeding $1.4 million per
annum, plus reimbursement of reasonable related expenses, (iii) any agreement
between the Issuer and Alfred H. Wilms or any of his Affiliates providing for
the payment by the Issuer of consulting fees or similar fees in an aggregate
amount not to exceed $500,000 per annum, and (iv) any agreement between the
Issuer and Joel Kirschbaum or any of his Affiliates providing for the granting
of options or warrants, PROVIDED that such options or warrants will not be
payable in cash, notes payable or property.
"FAIR MARKET VALUE" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy and, with respect to any redemption of
Securities pursuant to the applicable gaming laws, means (a) the last sales
price regular way on the last trading day prior to the date of determination of
such value on the largest national securities exchange (or, if said Security is
not listed on a national securities exchange, on which such Securities shall
have traded on such trading day), or (b) if no such sales of such Securities
occurred on such trading day, the mean between the "bid" and "asked" prices on
such national securities exchange or as quoted on Nasdaq, as the case may be, on
such last trading day, or (c) if the Securities are not listed or quoted on any
national securities exchange or Nasdaq, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by Nasdaq or, if
bid and asked prices for the Securities have not been reported through Nasdaq,
the average of the bid and asked prices on such day as furnished by any New York
Stock Exchange member firm
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regularly making a market in the Securities, selected for such purpose by the
Issuer, or (d) if none of the clauses (a) through (c) are applicable, the fair
market value of such Securities as of the date of determination as determined in
such manner as shall be satisfactory to the Issuer, which shall be entitled to
rely for such purpose on the advice of any firm of investment bankers or
securities dealers having familiarity with the Securities.
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"GAMING AUTHORITY" means any governmental agency which regulates
gaming in a jurisdiction in which the Issuer or any of its Subsidiaries conducts
gaming activities or activities related to the design, manufacture or
distribution or gaming machines, equipment or systems.
"GAMING LICENSES" means every material license, material franchise, or
other material authorization required to own, lease, operate or otherwise
conduct or manage riverboat, dockside or land-based gaming (including any
applicable liquor licenses) or to design, manufacture or distribute gaming
machines, equipment or systems in any state or jurisdiction where the Issuer or
any of its Subsidiaries conducts such business.
"GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision and whether now or hereafter in existence, or any
officer or official thereof, and any maritime authority.
"GSA" means Gaming Systems Advisors, L.P.
"GUARANTEED DEBT" of any Person means, without duplication, all
indebtedness of any other Person referred to in the definition of Indebtedness
contained herein guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through an
agreement (a) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness, (b) to purchase, sell or lease
(as lessee or lessor) property, or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss, (c) to supply funds to, or
in any other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (d) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor or (e) otherwise to assure a creditor against loss;
PROVIDED, that the term "guarantee" shall not include endorsements for
collection or deposit, in either case in the ordinary course of business.
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"GUARANTY" shall have the meaning provided in Section 13.1.
"HOLDER" or "SECURITYHOLDER" means the person in whose name a Security
is registered on the Registrar's books.
"INCURRENCE" shall have the meaning specified in Section 5.11.
"INCURRENCE DATE" shall have the meaning specified in Section 5.11.
"INDEBTEDNESS" of any person means, without duplication, (a) all
liabilities and obligations, contingent and otherwise, of such Person (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would and
continue to constitute ordinarily a trade payable to trade creditors, (iv)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks, (v) for the payment of money relating to any Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or reimbursement obligation
of such person with respect to any letter of credit; (b) all net obligations of
such person under Interest Swap and Hedging Obligations; (c) all liabilities and
obligations of others of the kind described in the preceding clause (a) or (b)
that such person has guaranteed or that is otherwise its legal liability or
which are secured by any assets or property of such person and all obligations
to purchase, redeem or acquire any Equity Interests; (d) any and all deferrals,
renewals, extensions, financings and refundings (whether direct or indirect) of,
or amendments, modifications, or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b) or (c), or this clause (d),
whether or not between or among the same parties; and (e) all Disqualified
Capital Stock of such person (valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
Board of Directors of the Issuer (or managing general partner of the Issuer) of
such Disqualified Capital Stock.
"INDENTURE" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"INDENTURE OBLIGATIONS" means the obligations of the Issuer and the
Guarantors pursuant to this Indenture and the Securities (and any other obligor
hereunder or under the Securities) now or hereafter existing, to pay principal
of and interest on the Securities when due and payable, whether on Maturity or
an Interest Payment Date, by acceleration, call for redemption, acceptance of
any Asset Sale Offer, Change of Control Offer, or otherwise, and
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interest on the overdue principal of, and (to the extent lawful) interest, if
any, on, the Securities and all other amounts due or to become due in connection
with this Indenture, the Securities and the Collateral Agreements, including any
and all extensions, renewals or other modifications thereof, in whole or in
part, and the performance of all other obligations of the Issuer and the
Guarantors (and any other obligor hereunder or under the Securities), including
all costs and expenses incurred by the Trustee or the Holders in the collection
or enforcement of any such obligations or realization upon the security of any
Collateral Agreements.
"INTEREST PAYMENT DATE" means the stated due date of an installment of
interest on the Securities.
"INTEREST SWAP AND HEDGING OBLIGATION" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"INVESTMENT" by any person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other Person; (b) the making by such person of any deposit with, or
advance, loan or other extension of credit to, such other person (including the
purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
person) or any commitment to make any such advance, loan or extension (but
excluding accounts receivable or deposits arising in the ordinary course of
business); (c) other than guarantees of Indebtedness of the Issuer or any
Subsidiary to the extent permitted by Section 5.11, the entering into by such
Person of any guarantee of, or other credit support or contingent obligation
with respect to, Indebtedness or other liability of such other Person; (d) the
making of any capital contribution by such person to such other person; and (e)
the designation by the Board of Directors of the Issuer of any person to be an
Unrestricted Subsidiary. Any such designation shall constitute an Investment in
an amount equal to the sum of (x) the net assets of such Subsidiary at the time
of the designation, unless in the case of this clause (x) the designation is
made at the time of an Acquisition of such Subsidiary by the Issuer or any of
its Subsidiaries, in which case the amount of consideration paid by the Issuer
and its Subsidiaries to effect such Acquisition (excluding Qualified Capital
Stock of the Issuer issued in connection therewith) shall be included in lieu
thereof and (y) the maximum amount of Guaranteed Debt of the Issuer and its
Subsidiaries in respect of the designated Subsidiary which is to be outstanding
immediately after such designation.
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"ISSUE DATE" means the date of first issuance of the Securities under
this Indenture.
"ISSUER REQUEST" means a written request of the Issuer in the form of
an Officers' Certificate.
"KIC" means Kirkland Investment Corporation.
"KIRKLAND" means Kirkland-Ft. Worth Investment Partners, L.P.
"LEGAL REQUIREMENTS" means all applicable laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, directions and requirements of all
governments, departments, commissions, boards, courts, authorities, agencies,
officials and officers of governments, federal, state and municipal.
"LEGAL HOLIDAY" shall have the meaning provided in Section 12.7.
"LIEN" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"MATURITY" when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein provided
or as provided in this Indenture, whether at final Stated Maturity, Change of
Control Purchase Date, Asset Sale Offer Purchase Date or the redemption date and
whether by declaration of acceleration, call for redemption or otherwise.
"NET CASH PROCEEDS" means the aggregate amount of cash or Cash
Equivalents received by the Issuer in the case of a sale of Qualified Capital
Stock and by the Issuer and its Subsidiaries in respect of an Asset Sale plus,
in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of the Issuer that were issued for cash on or
after the Issue Date, the amount of cash actually received by the Issuer upon
the issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary)
expenses (including, without limitation, the fees and expenses of legal counsel
and investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less the amount (estimated reasonably and in good faith by the Issuer) of
income, franchise, sales and other applicable taxes required to be paid by the
Issuer or any of its respective Subsidiaries in connection with such Asset Sale.
"NOTES" means the __% Senior Secured Notes due 2003 issued by the
Issuer, which, together with the Guaranty, form the Securities.
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"NOTE REGISTER" means the list of names and addresses of Holders held
by the Registrar of the Securities.
"OBLIGATION" means any principal, premium or interest payment, or
monetary penalty, or damages, due by the Issuer or the Guarantors under the
terms of the Securities or this Indenture.
"OFFER TO PURCHASE" means any Change of Control Offer or Asset Sale
Offer.
"OFFER TO PURCHASE PRICE" means any Change of Control Offer Price or
Asset Sale Offer Price.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, the
Treasurer or Assistant Treasurer, the Controller, or the Secretary or Assistant
Secretary of such Person.
"OFFICERS' CERTIFICATE" means, with respect to the Issuer or any
Guarantor, a certificate signed by two Authorized Representatives of the Issuer
or such Guarantor and otherwise complying with the requirements of Sections
12.4(1) and 12.5.
"OPINION OF COUNSEL" means a written opinion from legal counsel to the
Issuer or the Guarantors reasonably acceptable to the Trustee and which complies
with the requirements of Sections 12.4 and 12.5. Unless otherwise required by
this Indenture, the counsel may be in-house counsel to the Issuer or the
Guarantors.
"PAYING AGENT" shall have the meaning specified in Section 2.3.
"PERMITTED INDEBTEDNESS" means (a) Indebtedness incurred by the Issuer
to any Subsidiary, and any Indebtedness incurred by any Subsidiary of the Issuer
to any other Subsidiary or to the Issuer; PROVIDED, that, in the case of
Indebtedness of the Issuer, such obligations shall be unsecured and subordinated
in all respects to the Issuer's obligations pursuant to the Securities, and the
date of any event that causes such Subsidiary to no longer be a Subsidiary shall
be an Incurrence Date; (b) Interest Swap and Hedging Obligations relating to
Indebtedness of the Issuer or any Subsidiary, as the case may be; PROVIDED that
the notional principal amount of such Interest Swap and Hedging Obligation does
not exceed the principal amount of the Indebtedness to which such Interest Swap
and Hedging Obligation relates; (c) Indebtedness in connection with one or more
commercial letters of credit or bankers' acceptances issued for the account of
the Issuer or any Subsidiary for the purchase of goods or services in the
ordinary course of business; (d) Indebtedness in respect of performance,
completion, guarantee, surety or similar bonds, provided by the Issuer or any
Subsidiary in the ordinary course of business; (e) Indebtedness in respect of
any bond or surety obligation in order to prevent the loss or material
impairment of or to obtain a Gaming License or as otherwise required by an order
of any Gaming Authority to the extent required by applicable law and consistent
in character and amount with customary industry practice, PROVIDED, that the
aggregate amount of Indebtedness incurred pursuant to clauses (c), (d) and (e)
outstanding at any one time shall not exceed $5.0
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million in the aggregate; (f) reimbursement obligations with respect to letters
of credit in respect of workers' compensation claims consistent in character and
amount with customary industry practice; (g) Indebtedness consisting of
obligations, contingent or otherwise, in respect of incremental additions after
the Issue Date to off-balance sheet financing of accounts receivable
("Receivables Financing") in existence on the Issue Date pursuant to the terms
of such factoring arrangements; and (h) Indebtedness consisting of Receivables
Financing incurred after the Issue Date, PROVIDED, that any such Indebtedness
will be deemed Indebtedness incurred pursuant to clause (e) of Section 5.11,
subject to the limitations on the aggregate amount thereof contained therein.
"PERMITTED INVESTMENT" means (a) Investments in any of the Securities;
(b) Cash Equivalents; (c) intercompany notes to the extent permitted under the
definition of "Permitted Indebtedness"; (d) loans, advances or investments
existing on the Issue Date (after giving effect to the Transaction the terms of
such); (e) any Investment consisting of the extension of credit to customers
consistent with industry practice in the ordinary course of business; (f)
accounts and notes receivable if credited or acquired in the ordinary course of
business and payable or dischargeable on commercially reasonable terms; (g)
Investments in Wholly-owned Subsidiaries (including Investments as a direct
result of which a person becomes a Wholly-owned Subsidiary); and (h) Investments
consisting of non-cash proceeds from Asset Sales permitted by this Indenture.
"PERMITTED LIENS" means:
(a) Liens existing on the Issue Date (after giving effect to the
Transaction);
(b) Liens imposed by governmental authorities for taxes, assessments
or other charges not yet subject to penalty or which are being contested in good
faith and by appropriate proceedings, if adequate reserves with respect thereto
are maintained on the books of the Issuer in accordance with GAAP;
(c) statutory Liens of carriers, warehousemen, mechanics,
materialmen, landlords, repairmen or other like Liens arising by operation of
law in the ordinary course of business, PROVIDED, that (i) the underlying
obligations are not overdue for a period of more than 60 days, or (ii) such
Liens are being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto are maintained on the books of the Issuer
in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other
than borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do not
in any case materially detract from the value of the property subject thereto
(as such property is used by the Issuer or
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any of its Subsidiaries) or interfere with the ordinary conduct of the business
of the Issuer or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting in an Event of
Default with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workmen's compensation, unemployment insurance and other types
of social security legislation;
(h) Liens securing the Notes;
(i) Liens securing Indebtedness of a person of a person existing at
the time such person becomes a Wholly-owned Subsidiary or is merged with or into
the Issuer or a Wholly-owned Subsidiary or Liens securing Indebtedness incurred
in connection with an Acquisition, PROVIDED, that such Liens were in existence
prior to the date of such acquisition, merger or consolidation, were not
incurred in anticipation thereof, and do not extend to any other assets;
(j) Liens arising from Indebtedness permitted to be incurred under
clause (c) of Section 5.11, PROVIDED, that such Liens relate to the property
which is subject to such Indebtedness;
(k) Liens on accounts receivable, inventory, general intangibles and
associated documents and instruments, Bally Gaming, Inc.'s current headquarters
and sites and the Equity Interests in Wulff, in each case securing Indebtedness
permitted to be incurred under clause (e) of Section 5.11;
(l) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of the business
of the Issuer or any of its Subsidiaries or materially detracting from the value
of the relative assets of the Issuer or any Subsidiary; and
(m) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
Holders of the Securities than the terms of the Liens securing such Refinancing
Indebtedness, PROVIDED, that the Indebtedness secured is not increased and the
Lien is not extended to any additional assets or property.
"PERSON" or "PERSON" means any individual, corporation, limited or
general partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"PRINCIPAL" or "PRINCIPAL" of any Indebtedness (including the
Securities) means the principal of such Indebtedness plus any applicable
premium, if any, on such Indebtedness.
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"PROPERTY" or "PROPERTY" means any right or interest in or to property
or assets of any kind whatsoever, whether real, personal or mixed and whether
tangible, intangible, contingent, indirect or direct.
"PROSPECTUS" shall refer to the prospectus, dated ________, 1996, in
connection with the offering of the Securities, as the same may be amended or
supplemented prior to the Issue Date.
"PURCHASE MONEY INDEBTEDNESS" of any person means any Indebtedness of
such person to any seller or other person incurred to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) or
construction of any real or personal tangible property which in the good faith
judgment of the Issuer is directly related to a Related Business of the Issuer
and which is incurred substantially concurrently with such acquisition, lease or
construction and is secured only by the assets so financed or other property
acquired for use therewith.
"PURCHASE PRICE" means any Change of Control Purchase Price or Asset
Sale Offer Price.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of the Issuer that
is not Disqualified Capital Stock.
"QUALIFIED EXCHANGE" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Equity Interests or Indebtedness
of the Issuer issued after the Issue Date with the Net Cash Proceeds received by
the Issuer from the substantially concurrent sale of Qualified Capital Stock or
any exchange of Qualified Capital Stock for any Equity Interests or Indebtedness
issued after the Issue Date.
"RECORD DATE" means a Record Date specified in the Securities whether
or not such Record Date is a Business Day.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the applicable form of Security.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the redemption price for such redemption set forth in Paragraph
5 in the applicable form of Security.
"REFERENCE PERIOD" with regard to any person means the four full
fiscal quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the Securities or this Indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantial-
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ly concurrently to repay, redeem, defease, refund, refinance, discharge or
otherwise retire for value, in whole or in part, or (b) constituting an
amendment, modification or supplement to, or a deferral or renewal of ((a) and
(b) above are, collectively, a "Refinancing"), any Indebtedness or Disqualified
Capital Stock in a principal amount or, in the case of Disqualified Capital
Stock, liquidation preference, not to exceed (after deduction of reasonable and
customary fees and expenses incurred in connection with the Refinancing) the
lesser of (i) the principal amount or, in the case of Disqualified Capital
Stock, liquidation preference, of the Indebtedness or Disqualified Capital Stock
so refinanced and (ii) if such Indebtedness being refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; PROVIDED, that (A) such Refinancing
Indebtedness of any Subsidiary of the Issuer shall only be used to refinance
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
Refinancing Indebtedness shall (x) not have an Average Life to Stated Maturity
shorter than the Indebtedness or Disqualified Capital Stock to be so refinanced
at the time of such Refinancing and (y) in all respects, be no less subordinated
or junior, if applicable, to the rights of Holders of the Securities than was
the Indebtedness or Disqualified Capital Stock to be so refinanced and (C) such
Refinancing Indebtedness shall have no installment of principal (or redemption
payment) scheduled to come due earlier than the Stated Maturity of any
installment of principal of the Indebtedness or Disqualified Capital Stock to be
so refinanced which was scheduled to come due prior to the Stated Maturity of
the Securities or a final Stated Maturity or redemption date, as applicable, of
the Indebtedness or Disqualified Capital Stock to be so refinanced.
"REGISTRAR" shall have the meaning specified in Section 2.3.
"RELATED BUSINESS" means the business conducted (or proposed to be
conducted) by the Issuer and its Subsidiaries as of the Issue Date (after giving
effect to the Transaction), including the management and operation of gaming
machines and casinos, the design, manufacture and distribution of gaming
machines, equipment, monitoring and systems and amusement equipment, and other
gaming-related business, including but not limited to amusements, arcades and
lottery-related activities, and any and all businesses that in the good faith
judgment of the Board of Directors of the Issuer are materially related
businesses.
"REQUIRED REGULATORY REDEMPTION" means a redemption by the Issuer of
any of a Holder's Securities pursuant to, and in accordance with, any order of
any Gaming Authority with appropriate jurisdiction and authority relating to a
Gaming License, or to the extent necessary in the good faith judgment of the
Issuer to prevent the loss, failure to obtain or material impairment to or to
secure the reinstatement of, any material Gaming License, where such redemption
or acquisition is required because the Holder or beneficial owner of such
Security is required to be found suitable or to otherwise qualify under any
gaming laws and is found unsuitable, or not found suitable or so qualified
within a reasonable period of time.
"RESTRICTED INVESTMENT" means, in one or a series of related
transactions, any Investment, other than Permitted Investments.
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"RESTRICTED PAYMENT" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such person or any parent or Subsidiary of such person, (b)
any payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person, (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase,
redemption, or other acquisition or retirement for value of, any payment in
respect of any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such person or a parent or Subsidiary
of such person prior to the scheduled maturity, any scheduled repayment of
principal, or scheduled sinking fund payment, as the case may be, of such
Subordinated Indebtedness and (d) any Restricted Investment by such person;
PROVIDED, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Capital Stock of an issuer
to the extent payable solely in shares of Qualified Capital Stock of such
issuer, or (ii) any dividend, distribution or other payment, directly or
indirectly, to the Issuer, or to any of its Wholly-owned Subsidiaries, by any of
its Subsidiaries.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this Indenture such SEC is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"SECURITIES" means the Senior Secured Notes due 2003, together with
the Guaranties thereof, as amended or modified from time to time in accordance
with the terms hereof, issued under this Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITYHOLDER." See "HOLDER."
"SIGNIFICANT SUBSIDIARY" shall have the meaning provided under
Regulation S-X of the Securities Act, as in effect on the Issue Date.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 2.12.
"STATED MATURITY" when used with respect to any Security, means ____,
2003 and, when used with respect to any other Indebtedness or Disqualified
Capital Stock, means the dates specified in such other instrument as the fixed
date on which the principal thereof or such installment of principal is due and
payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Issuer or a
Subsidiary that is subordinated in right of payment to the Notes or such
Subsidiary's Guarantee, as applicable, in any respect or has a Stated Maturity
on or after the Stated Maturity of the Securities (excluding the Securities).
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"SUBSIDIARY," with respect to any Person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, (ii) any other Person (other than a corporation) in
which such Person, one or more Subsidiaries of such Person, or such Person and
one or more Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest, or (iii) a
partnership in which such Person or a Subsidiary of such Person is, at the time,
a general partner and in which such Person, directly or indirectly, at the date
of determination thereof has a majority ownership interest. Notwithstanding the
foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the Issuer or
of any Subsidiary of the Issuer. Unless the context otherwise requires,
Subsidiary means each direct and indirect subsidiary of the Issuer.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939,
as amended.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"TRUST OFFICER" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice president,
assistant vice president, secretary, assistant secretary or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer of
the corporate trust department (or any successor group) of the Trustee to whom
such trust matter is referred because of his knowledge of and familiarity with
the particular subject.
"UNRESTRICTED SUBSIDIARY" means any direct or indirect subsidiary of
the Issuer that does not own any Capital Stock of, or own or hold any Lien on
any property of, the Issuer or any other Subsidiary of the Issuer and that, at
the time of determination, shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Issuer); PROVIDED, that (a) such subsidiary shall
not engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (b) neither immediately prior thereto nor after
giving PRO FORMA effect to such designation would there exist a Default or Event
of Default and (c) either (x) such subsidiary, at the time of designation
thereof, has no assets, (y) such subsidiary is designated an "Unrestricted
Subsidiary" at the time of acquisition by the Issuer or a Subsidiary in the case
of subsidiaries acquired after the Issue Date or (z) immediately after giving
effect to such designation, on a PRO FORMA basis, the Issuer could incur at
least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio in paragraph
(a) of Section 5.11. The Board of Directors of the Issuer may designate any
Unrestricted Subsidiary to be a Subsidiary, PROVIDED, (i) no Default or Event of
Default is existing or will occur as a consequence thereof and (ii) immediately
after giving effect to such designation, on a PRO FORMA basis, the Issuer could
incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio in
paragraph (a) of Section 5.11. Each such designation shall be evidenced by
filing with the Trustee a certified copy of the resolution giving
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effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United States
of America as at the time of payment is legal tender for the payment of public
and private debts.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary all the Equity Interests
of which are owned by the Issuer or one or more Wholly-owned Subsidiaries of the
Issuer, except for directors' qualifying shares or shares owned by foreign
nationals, in each case to the extent required by applicable law.
SECTION 1.2 INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"COMMISSION" means the SEC.
"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITYHOLDER" means a Holder or a Securityholder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee.
"OBLIGOR" on the indenture securities means the Issuer, each Guarantor
and any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein, have the meanings assigned to them thereby.
SECTION 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
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(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article,
Section or other subdivision; and
(vii) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1 FORM AND DATING.
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of EXHIBIT A hereto, and
each Note shall be endorsed with the Guaranty substantially in the form of
EXHIBIT B hereto, each of which Exhibits is incorporated into and made a part of
this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. The Issuer shall approve the
form of the Securities and any notation, legend or endorsement on them. Any
such notations, legends or endorsements not contained in the form of Note
attached as EXHIBIT A hereto or the form of Guaranty attached as EXHIBIT B
hereto shall be delivered in writing to the Trustee. Each Security shall be
dated the date of its authentication.
The terms and provisions contained in the form of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Issuer, the Guarantors and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Authorized Representatives shall sign, or one Authorized
Representative shall sign and one Authorized Representative shall attest to, the
Securities for the Issuer by manual or facsimile signature. The Issuer's seal
shall be impressed, affixed, imprinted, or reproduced on the Securities and may
be in facsimile form.
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If an Authorized Representative whose signature is on a Security was
an Authorized Representative at the time of such execution but no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless and the Issuer shall nevertheless be bound by the
terms of the Securities and this Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security, but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $140,000,000 upon a written order of the
Issuer in the form of an Officers' Certificate. The Officers' Certificate shall
specify the amount of Securities to be authenticated and the date on which the
Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $140,000,000, except as
provided in Section 2.7. Upon the written order of the Issuer in the form of an
Officers' Certificate, the Trustee shall authenticate Securities in substitution
of Securities originally issued to reflect any name change of the Issuer.
The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Issuer, any Affiliate of the Issuer or
any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Issuer shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
in the Borough of Manhattan, The City of New York where Securities may be
presented for payment ("Paying Agent") and an office or agency where notices and
demands to or upon the Issuer in respect of the Securities may be served.
Unless a Default or Event of Default has occurred and is continuing, the Issuer
or any of its Subsidiaries may act as Registrar or Paying Agent, except that,
for the purposes of Articles III, IX, XI and Section 5.15 and as otherwise
specified in this Indenture, neither the Issuer, any Guarantor nor any other
obligor on the Securities nor any Affiliate of the Issuer, any Guarantor or such
other obligor shall act as Paying Agent. The Registrar shall keep a register of
the Securities and of their transfer and exchange. The Issuer may have one or
more co-Registrars and one or more additional Paying Agents. The term "Paying
Agent" includes any additional Paying Agent. The Issuer hereby initially
appoints the Trustee as Registrar and Paying Agent, and the Trustee hereby
initially agrees so to act until such time as the Trustee has resigned or a
successor has
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been appointed. The Issuer may change any Registrar, Paying Agent or co-
Registrar without notice to any Holder.
The Issuer shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Issuer shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Issuer fails to maintain a Registrar or Paying Agent, the Trustee
shall act as such.
SECTION 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST.
The Issuer shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest on, the Securities (whether such
assets have been distributed to it by the Issuer, a Guarantor or any other
obligor on the Securities), and shall notify the Trustee in writing of any
Default by the Issuer, a Guarantor or any other obligor on the Securities in
making any such payment. If the Issuer, a Guarantor, any other obligor on the
Securities or a Subsidiary of the Issuer acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund for the benefit of
the Holders or the Trustee. The Issuer at any time may require a Paying Agent
to distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have
been delivered by the Issuer or any Guarantor to the Paying Agent, the Paying
Agent (if other than the Issuer, a Guarantor or any other obligor on the
Securities) shall have no further liability for such assets.
SECTION 2.5 SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Issuer shall furnish to the
Trustee on or before the third Business Day preceding each Interest Payment Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee reasonably may require of the names and
addresses of Holders. The Trustee, the Registrar and the Issuer shall provide a
current securityholder list to any Gaming Authority upon demand.
SECTION 2.6 TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar or a co-Registrar with
a request to register the transfer of such Securities or to exchange such
Securities for an equal principal amount of Securities of other authorized
denominations, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its reasonable requirements for such transaction
are met; PROVIDED, HOWEVER, that the Securities surrendered for transfer or
exchange
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shall be duly endorsed or accompanied by a written instrument of transfer in
form reasonably satisfactory to the Issuer and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit registrations of transfers and exchanges, the Issuer and the
Guarantors shall execute and the Trustee shall authenticate Securities at the
Registrar's or co-Registrar's request. No service charge shall be made for any
registration of transfer or exchange, but the Issuer may require payment of a
sum sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer taxes,
assessments, or similar governmental charge payable upon exchanges or transfers
pursuant to Section 2.2, 2.10, 3.5, 5.15, 10.5, or 11.1). Except for a Required
Regulatory Redemption pursuant to Section 3.2 or an order of any Gaming
Authority, the Registrar or co-Registrar shall not be required to register the
transfer of or exchange of (a) any Security selected for redemption in whole or
in part pursuant to Article Three, except the unredeemed portion of any Security
being redeemed in part, or (b) any Security for a period beginning 15 Business
Days before the mailing of a notice of an offer to repurchase pursuant to
Section 5.15 or of a notice to redeem Securities pursuant to Article III and
ending at the close of business on the day of such mailing.
SECTION 2.7 REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Trustee, to the Trustee to the effect that the Security has been lost,
destroyed or wrongfully taken, the Issuer shall issue, the Guarantors shall
endorse, and the Trustee shall authenticate a replacement Security if the
Trustee's requirements are met. If required by the Trustee or the Issuer, such
Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Issuer and the Trustee, to protect the Issuer, the
Guarantors, the Trustee or any Agent from any loss which any of them may suffer
if a Security is replaced. The Issuer may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the Issuer,
and, to the extent of the Guaranty, the Guarantors.
SECTION 2.8 OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because an obligor or
an Affiliate of the Issuer holds the Security, except as provided in Section
2.9.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a BONA FIDE purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
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If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Issuer, the Guarantors (or any other obligor on the Securities) or an
Affiliate of the Issuer or any Guarantor (or such other obligor)) holds U.S.
Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal and interest due on the Securities payable on that date and payment of
the Securities called for redemption is not otherwise prohibited, then on and
after that date such Securities cease to be outstanding and interest on them
ceases to accrue unless any such obligor defaults in its obligations with
respect thereto.
SECTION 2.9 TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Issuer, any Guarantor or any other obligor on
the Securities and Affiliates of the Issuer, shall be disregarded, except that,
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, amendment, supplement, waiver or consent, only
Securities that the Trustee knows or has reason to know are so owned shall be
disregarded.
SECTION 2.10 TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Issuer may
prepare, the Guarantors shall endorse and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Issuer reasonably and
in good faith considers appropriate for temporary Securities. Without
unreasonable delay, the Issuer shall prepare, the Guarantors shall endorse and
the Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until so exchanged, the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as permanent Securities
authenticated and delivered hereunder.
SECTION 2.11 CANCELLATION.
The Issuer at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Issuer or any Guarantor (or any other obligor on the Securities)
or an Affiliate of the Issuer or any Guarantor (or such other obligor)), and no
one else, shall cancel and, at the written direction of the Issuer, shall
dispose of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.7, the Issuer may not issue new Securities
to replace Securities it has paid or delivered to the Trustee for cancellation.
No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section 2.11, except as expressly
permitted in the form of Securities and as permitted by this Indenture.
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SECTION 2.12 DEFAULTED INTEREST.
If the Issuer defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) interest on the
defaulted interest, to the persons who are Holders on a Record Date (or at the
Issuer's option a subsequent special record date) which date shall be the
fifteenth day next preceding the date fixed by the Issuer for the payment of
defaulted interest, whether or not such day is a Business Day, unless the
Trustee fixes another record date. At least 15 days before the subsequent
special record date, the Issuer shall mail to each Holder with a copy to the
Trustee a notice that states the subsequent special record date, the payment
date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
ARTICLE III
REDEMPTION
SECTION 3.1 RIGHT OF REDEMPTION.
Redemption of Securities shall be made only in accordance with this
Article III. At its election, the Issuer may redeem the Securities in whole or
in part, at any time on or after _______, 2000, at the Redemption Prices
specified under the caption "Redemption" in the Form of Security attached as
EXHIBIT A hereto, plus accrued and unpaid interest to the applicable Redemption
Date. Except as provided in this paragraph, Section 3.2 and paragraph 5 of the
Securities, the Securities may not otherwise be redeemed at the option of the
Issuer.
SECTION 3.2 REDEMPTION PURSUANT TO APPLICABLE LAWS.
Notwithstanding the provisions of this Indenture, if any Gaming
Authority does not waive the qualification requirements as to any Securityholder
(whether the record owner or beneficial owner) and requires that such
Securityholder be qualified under regulations adopted by such Gaming Authority
as a financial source to and as a holder of securities of the Issuer, then, in
such event, such Securityholder must qualify under such regulations. If a
Securityholder does not so qualify, the Securityholder must dispose of its
interest in the Securities, within 30 days after the Issuer's receipt of notice
of such finding (or within such earlier date as such Gaming Authority may
require), or the Issuer may redeem the Securities of such Holder, in whole or in
part, pursuant to, and in accordance with, a Required Regulatory Redemption.
Notwithstanding any other provision of this Indenture, the Securities of such
Holder shall also be redeemable at any time pursuant to, and in accordance with,
a Required Regulatory Redemption. If the redemption of any Security is required
pursuant to this Section 3.2, then the Redemption Price shall be the principal
amount thereof, plus accrued and unpaid interest to the date on which such
Holder receives notice of disqualification (or such lesser amount as may be
required by applicable law or by order of any Gaming Authority). The Issuer
shall tender the Redemption Price, plus accrued and unpaid interest to such
date, to the Trustee no less than 30 and no more than 60 days after the Issuer
gives the Securityholder or owner of a beneficial or voting interest
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written notice of redemption, or such earlier date as may be required by
applicable law. The Issuer shall notify the Trustee of any disposition or
redemption required under this Section 3.2, and upon receipt of such notice, the
Trustee shall not accord any rights or privileges under this Indenture or any
Security to any Securityholder or owner of a beneficial or voting interest who
is required to dispose of any Security or tender it for redemption, except to
pay the Redemption Price, plus accrued and unpaid interest through the date on
which such Securityholder or owner receives notice of disqualification (or such
lesser amount as may be required by applicable law or by order of any Gaming
Authority), upon tender of such Security.
SECTION 3.3 NOTICES TO TRUSTEE.
If the Issuer elects to redeem Securities pursuant to Article III
(including, without limitation, Section 3.2), it shall notify the Trustee in
writing of the date on which the applicable Securities are to be redeemed
("Redemption Date") and the principal amount thereof to be redeemed and whether
it wants the Trustee to give notice of redemption to the Holders.
The Issuer shall give each notice to the Trustee provided for in this
Section 3.3 at least 30 days before the Redemption Date (unless a shorter notice
shall be required by applicable law or by order of any Gaming Authority). Any
such notice may be cancelled at any time prior to notice of such redemption
being mailed to any Securityholder and shall thereby be void and of no effect.
SECTION 3.4 SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed pursuant to the
first paragraph of Paragraph 5 thereof, the Trustee shall, if applicable, select
from among such Securities to be redeemed PRO RATA or by lot or by such other
method as the Trustee shall determine to be fair and appropriate and in such
manner as complies with any applicable legal and stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Issuer in
writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
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SECTION 3.5 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before each Redemption Date
(unless another notice period shall be required by applicable law or by order of
any Gaming Authority), the Issuer shall mail a notice of redemption by first
class mail, postage prepaid, to each Holder whose Securities are to be redeemed
(unless a shorter notice period shall be required by applicable law) to such
Holder's last address as then shown upon the Note Register. At the Issuer's
request, the Trustee shall give the notice of redemption in the Issuer's name
and at the Issuer's expense. Each notice for redemption shall identify the
Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, plus the amount of accrued and unpaid
interest to be paid upon such redemption;
(3) the name, address and telephone number of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the Redemption
Price;
(5) that, unless (a) the Issuer defaults in its obligation to deposit
U.S. Legal Tender with the Paying Agent in accordance with Section 3.7 or (b)
such redemption payment is prevented for any reason, interest on Securities
called for redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Securities is to receive payment of
the Redemption Price, plus accrued and unpaid interest to the Redemption Date
(or such lesser amount as may be required by applicable law or by order of any
Gaming Authority), upon surrender to the Paying Agent of the Securities called
for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount, equal to $1,000 or any integral multiple thereof, of such
Security to be redeemed and that, after the Redemption Date, and upon surrender
of such Security, a new Security or Securities in aggregate principal amount
equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be redeemed,
as well as the aggregate principal amount of such Securities to be redeemed;
(8) the CUSIP number of the Securities to be redeemed;
(9) in the case of a Required Regulatory Redemption, the
circumstances pursuant to which such Required Regulatory Redemption is being
effected; and
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(10) that the notice is being sent pursuant to this Section 3.5 and
pursuant to the redemption provisions of Paragraph 5 of the Securities.
SECTION 3.6 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.5,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price, plus accrued and unpaid interest to the Redemption
Date. Upon surrender to the Trustee or Paying Agent, such Securities called for
redemption shall be paid at the Redemption Price, plus accrued and unpaid
interest to the Redemption Date (or such lesser amount as may be required by
applicable law or by order of any Gaming Authority); PROVIDED that if the
Redemption Date is after a regular Record Date and on or prior to the
corresponding Interest Payment Date, the accrued interest constituting part of
the Redemption Price shall be payable to the Holder of the redeemed Securities
registered on the relevant Record Date; and PROVIDED, FURTHER, that if a
Redemption Date is a Legal Holiday, payment shall be made on the next succeeding
Business Day and no interest shall accrue for the period from such Redemption
Date to such succeeding Business Day.
SECTION 3.7 DEPOSIT OF REDEMPTION PRICE.
On or before the Redemption Date, the Issuer shall deposit with the
Paying Agent (other than the Issuer, any of the Guarantors (or any other obligor
on the Securities) or an Affiliate of the Issuer or any of the Guarantors or any
other obligor on the Securities), U.S. Legal Tender sufficient to pay the
Redemption Price, plus accrued and unpaid interest to the Redemption Date (or
such lesser amount as may be required by applicable law or by order of any
Gaming Authority), of all Securities to be redeemed on such Redemption Date
(other than Securities or portions thereof called for redemption on that date
that have been delivered by the Issuer to the Trustee for cancellation). The
Paying Agent shall promptly return to the Issuer any U.S. Legal Tender so
deposited which is not required for that purpose upon the written request of the
Issuer.
If the Issuer complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prevented for any reason, interest on the Securities to be
redeemed will cease to accrue on the applicable Redemption Date (or such earlier
date as may be required by applicable law or by order of any Gaming Authority),
whether or not such Securities are presented for payment. Notwithstanding
anything herein to the contrary, if any Security surrendered for redemption in
the manner provided in the Securities shall not be so paid upon surrender for
redemption because of the failure of the Issuer to comply with the preceding
paragraph and the other provisions of this Article III, interest shall continue
to accrue and be paid from and including the Redemption Date (or such earlier
date) until such payment is made on the unpaid principal, and, to the extent
lawful, on any interest not paid on such unpaid principal, in each case at the
rate and in the manner provided in Section 5.1 hereof and the Securities.
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SECTION 3.8 SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is to be redeemed in part, the
Issuer shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge, a new Security or Securities equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
SECURITY
SECTION 4.1 SECURITY INTEREST.
(a) In order to secure the prompt and complete payment and
performance in full of the Indenture Obligations, the Issuer, the Guarantors and
the Trustee have entered into this Indenture and the Collateral Agreements, as
applicable, required to be entered into on the Issue Date. Each Holder, by
accepting a Security, agrees to all of the terms and provisions of this
Indenture and the Collateral Agreements.
(b) The Collateral as now or hereafter constituted shall be held
for the equal and ratable benefit of the Holders without preference, priority or
distinction of any thereof over any other by reason of difference in time of
issuance, sale or otherwise, as the only security for the Indenture Obligations.
(c) The provisions of TIA Section 314(d), and the provisions of
TIA Section 314(c)(3) to the extent applicable by specific reference in this
Article IV, are hereby incorporated by reference herein as if set forth in their
entirety, except that, as set forth in Section 4.4, TIA Section 314(d) need not
be complied with in certain respects.
SECTION 4.2 RECORDING; OPINIONS OF COUNSEL.
(a) Each of the Issuer and the Guarantors warrants and
represents that it has caused to be executed and delivered and covenants that it
will promptly cause to be executed and delivered, filed and recorded, all
instruments and documents, and has done and will do or will cause to be done all
such acts and other things, at the Issuer's expense, as are necessary to effect
and maintain valid and perfected Liens in the Collateral as required under the
Collateral Agreements. Each of the Issuer and the Guarantors shall, as promptly
as practicable, cause to be executed and delivered, filed and recorded all
instruments and do all acts and other things as may be required by law to
perfect, maintain and protect the Liens under the Collateral Agreements and
herein. Each of the Issuer and the Guarantors warrants and represents that it
has caused to be executed and delivered, and covenants that it will promptly
cause to be executed and delivered, filed and recorded all instruments and
documents, and has done and will do or will cause to be done all such acts and
other things, at the Issuer's expense, as are necessary to
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effect and maintain valid and perfected Liens in the Collateral as required
under the Collateral Agreements.
(b) The Issuer shall furnish to the Trustee, concurrently with
or promptly after the execution and delivery of this Indenture and the
Collateral Agreements and promptly after the execution and delivery of any
amendment thereto or any other instrument of further assurance, an Opinion(s) of
Counsel stating that, in the opinion of such counsel, subject to customary
exclusions and exceptions reasonably acceptable to the Trustee, either (i) this
Indenture, the Collateral Agreements, any such amendment and all other
instruments of further assurance have been properly recorded, registered and
filed and all such other action has been taken to the extent necessary to make
effective such valid Liens and to perfect such Liens intended to be created by
this Indenture and the Collateral Agreements, and reciting the details of such
action, or (ii) no such action is necessary to effect and maintain in full force
and effect the validity and perfection of the Liens under the Collateral
Agreements and hereunder.
(c) The Issuer shall furnish to the Trustee, on or prior to
August 15 of each year, commencing in 1997, an Opinion(s) of Counsel, dated as
of such date, stating that, in the opinion of such counsel, subject to customary
exclusions and exceptions reasonably acceptable to the Trustee, either (A) all
such action has been taken with respect to the recording, registering, filing,
rerecording and refiling of the Collateral Agreements, financing statements,
continuation statements and all other instruments of further assurance as is
necessary to maintain the validity and perfection of Liens under the Collateral
Agreements and hereunder in full force and effect and reciting the details of
such action, and stating that all financing statements and continuation
statements have been executed and filed and such other actions taken that are
necessary fully to preserve and protect the rights of the Holders and the
Trustee hereunder and under the Collateral Agreements, or (B) no such action is
necessary to maintain in full force and effect the validity and perfection of
the Liens under the Collateral Agreements and hereunder.
SECTION 4.3 DISPOSITION OF CERTAIN COLLATERAL.
(a) The Issuer and its Subsidiaries may, without requesting the
release or consent of the Trustee, but otherwise subject to the requirements of
this Indenture and the Collateral Agreements:
(i) convey, sell, lease, transfer or otherwise dispose of, free from
the Liens under the Collateral Agreements and hereunder, assets pursuant to and
in accordance with Sections 6.1 and 13.3 of this Indenture;
(ii) convey, sell, transfer, assign or otherwise dispose of assets to
any Wholly-owned Subsidiaries of the Issuer so long as they continue to be
subject to a Lien under the Collateral Agreements;
(iii) convey, sell, transfer, assign or otherwise dispose of assets
in a transaction comprising a Restricted Investment permitted under clause (B)
of the second paragraph of Section 5.3; and
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(iv) sell, assign, transfer, license or otherwise dispose of, free
from the Liens under the Collateral Agreements and hereunder, any assets or
property in accordance with Section 5.15 (including, without limitation,
pursuant to Section 5.15(a)); PROVIDED that the proceeds of such sale,
assignment, transfer, license or other disposition are applied in the manner set
forth in Section 5.15.
(b) Notwithstanding the provisions of subsection (a) above, the
Issuer shall not dispose of or transfer (by lease, assignment, license, sale or
otherwise) or pledge, mortgage or otherwise encumber Collateral pursuant to the
provisions of Section 4.3(a) with a fair value of 10% or more of the aggregate
fair value of all Collateral then existing in any calendar year.
(c) In the event that the Issuer or any Guarantor have sold,
exchanged, or otherwise disposed of or propose to sell, exchange or otherwise
dispose of any portion of the Collateral which under the provisions of this
Section 4.3 may be sold, exchanged or otherwise disposed of by the Issuer or any
Guarantor without consent of the Trustee, and the Issuer requests the Trustee to
furnish a written disclaimer, release or quitclaim of any interest in such
property under the Collateral Agreements, the Trustee shall execute such an
instrument prepared by the Issuer or a Guarantor, upon delivery to the Trustee
of an Officers' Certificate by the Issuer reciting the sale, exchange or other
disposition made or proposed to be made and describing in reasonable detail the
property affected thereby, and certifying that such property is property which
by the provisions of this Section 4.3 may be sold, exchanged or otherwise
disposed of or dealt with by the Issuer or the Guarantors without any release or
consent of the Trustee or the Holders; PROVIDED, that the Trustee shall have no
liability thereunder (except for its gross negligence or willful misconduct) and
all costs and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) shall be paid by the Issuer. The Trustee shall be
authorized to conclusively rely on such certification.
(d) Any disposition of Collateral made in compliance with the
provisions of this Section 4.3 shall be deemed not to impair the Liens under the
Collateral Agreements and hereunder in contravention of the provisions of this
Indenture.
SECTION 4.4 CERTAIN RELEASES OF COLLATERAL.
Subject to applicable law, the release of any Collateral from Liens
created by the Collateral Agreements or the release of, in whole or in part, the
Liens created by the Collateral Agreements will not be deemed to impair the
Collateral Agreements in contravention of the provisions of this Indenture if
and to the extent the Collateral or Liens are released pursuant to, and in
accordance with, the applicable Collateral Agreements and pursuant to, and in
accordance with, the terms hereof. To the extent applicable, without
limitation, the Issuer, each Guarantor and each other obligor, if any, on the
Securities shall cause TIA Section 314(d), relating to the release of property
or securities from the Liens of the Collateral Agreements, to be complied with.
Any certificate or opinion required by TIA Section 314(d) may be made by two
Authorized Representatives, except in cases in which TIA Section 314(d) requires
that such certificate or opinion be made by an independent person. The Issuer
shall not be required under this Indenture to deliver to the
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Trustee any certificates or opinions required to be delivered pursuant to
Section 314(d) of the TIA in connection with releases of Collateral in
accordance with Section 4.3(a) (ii) hereunder, unless TIA Section 314(d) would
require such certificate or opinion to be made by an independent person.
SECTION 4.5 PAYMENT OF EXPENSES.
On demand of the Trustee, the Issuer forthwith shall pay or
satisfactorily provide for all reasonable expenditures incurred by the Trustee
under this Article IV, including the reasonable fees and expenses of counsel,
and all such sums shall be a Lien upon the Collateral and shall be secured
thereby.
SECTION 4.6 SUITS TO PROTECT THE COLLATERAL.
Subject to Section 4.1 of this Indenture and to the provisions of the
Collateral Agreements, the Trustee shall have power to institute and to maintain
such suits and proceedings as it may deem expedient to prevent any impairment of
the Collateral by any acts which may be unlawful or in violation of the
Collateral Agreements or this Indenture, including the power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid or if the enforcement of, or compliance
with, such enactment, rule or order would impair the security interests in
contravention of this Indenture or be prejudicial to the interests of the
Holders or the Trustee. The Trustee shall give notice to the Issuer promptly
following the institution of any such suit or proceeding.
SECTION 4.7 TRUSTEE'S DUTIES.
The powers and duties conferred upon the Trustee by this Article IV
are solely to protect the Collateral and shall not impose any duty upon the
Trustee to exercise any such powers and duties, except as expressly provided in
this Indenture, the Collateral Agreements or the TIA. The Trustee shall not be
under any duty to the Issuer or any Guarantor whatsoever to make or give any
presentment, demand for performance, notice of nonperformance, protest, notice
of protest, notice of dishonor, or other notice or demand in connection with any
Collateral, or to take any steps necessary to preserve any rights against prior
parties except as expressly provided in this Indenture or the Collateral
Agreements. The Trustee shall not be liable to the Issuer or any Guarantor for
failure to collect or realize upon any or all of the Collateral, or for any
delay in so doing, nor shall the Trustee be under any duty to the Issuer or any
Guarantor to take any action whatsoever with regard thereto. The Trustee shall
have no duty to the Issuer or any Guarantor to comply with any recording,
filing, or other legal requirements necessary to establish or maintain the
validity, priority or enforceability of the Liens in, or the Trustee's rights in
or to, any of the Collateral.
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ARTICLE V
COVENANTS
SECTION 5.1 PAYMENT OF SECURITIES.
The Issuer shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities and this Indenture.
An installment of principal of or interest on the Securities shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than the
Issuer, any of the Guarantors (or any other obligor on the Securities) or an
Affiliate of either of the Issuer or any of the Guarantors (or such other
obligor)) holds for the benefit of the Holders, on or before 10:00 a.m. New York
City time on that date, U.S. Legal Tender deposited and designated for and
sufficient to pay the installment.
The Issuer shall pay interest on overdue principal and on overdue
installments of interest at the rate specified in the Securities compounded
semi-annually, to the extent lawful.
SECTION 5.2 MAINTENANCE OF OFFICE OR AGENCY.
The Issuer shall maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Issuer in respect of the
Securities and this Indenture may be served. No service charge will be made for
any registration of transfer, exchange or redemption of Securities, but the
Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. The Issuer shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Issuer shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.2.
The Issuer may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Issuer of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Issuer shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency. The
Issuer hereby initially designates the Corporate Trust Office of the Trustee as
such office.
SECTION 5.3 LIMITATION ON RESTRICTED PAYMENTS.
The Issuer and the Guarantors will not, and will not permit any of
their Subsidiaries to, directly or indirectly, make any Restricted Payment if,
after giving effect to such Restricted Payment on a PRO FORMA basis, (1) a
Default or an Event of Default shall have
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occurred and be continuing, (2) the Issuer is not permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio in
paragraph (a) of Section 5.11, or (3) the aggregate amount of all Restricted
Payments made by the Issuer and its Subsidiaries, including after giving effect
to such proposed Restricted Payment, from and after the Issue Date, would exceed
the sum of (a) 50% of the aggregate Consolidated Net Income of the Issuer for
the period (taken as one accounting period) commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) 100% of the aggregate Net
Cash Proceeds received by the Issuer from the issuance of Qualified Capital
Stock of the Issuer after the Issue Date (whether upon the exercise of options,
warrants or other rights or otherwise), other than (i) to a Subsidiary and (ii)
to the extent applied in connection with a Qualified Exchange.
The foregoing clauses (2) and (3) of the immediately preceding
paragraph, however, will not prohibit (A) the redemption by the Issuer or any
Subsidiary of any Equity Interest if (i) counsel to the Issuer delivers an
opinion that failure to so redeem would subject the Issuer to a materially
adverse action by a Gaming Authority (or, if applicable, a failure so to act
with a materially adverse consequence to the Issuer) and (ii) the Issuer
determines (as evidenced by a resolution of its Board of Directors delivered to
the Trustee) that such adverse action or failure so to act would be likely to
have a material adverse effect on the Issuer or is required to preserve a Gaming
License, (B) Restricted Investments, PROVIDED, that, after giving PRO FORMA
effect to such Restricted Investment, the aggregate amount of all such
Restricted Investments made on or after the Issue Date that are outstanding
(after giving effect to any such Investments that are returned or repaid to the
Issuer or to any Wholly-owned Subsidiary, without restriction, in cash or
property on or prior to the date of any such calculation) at any time does not
exceed $10.0 million, (C) the payment of scheduled dividends on the Preferred
Stock to the extent such dividends are not permitted to be paid in-kind pursuant
to the terms thereof as in effect on the Issue Date (which dividends will be 8%
per annum compounding quarterly for the sixth and seventh years, and 15% per
annum compounding quarterly for the eighth year, following the Issue Date), (D)
a Qualified Exchange, (E) the payment of any dividend on Qualified Capital Stock
within 60 days after the date of its declaration if such dividend could have
been made on the date of such declaration in compliance with the foregoing
provisions, (F) the purchase of Capital Stock held by employees of the Issuer or
any Subsidiary pursuant to any stock ownership or option plan in an aggregate
amount not to exceed $1.0 million in any one 12-month period and $5.0 million in
the aggregate, (G) the payment of any dividend or distribution by RCVP, VSI, SVS
and VDSI to minority holders of their respective Equity Interests not in excess
of such holders' pro rata share of dividends or distributions in accordance with
the applicable terms of such entities' respective charters, bylaws or agreements
as in effect on the Issue Date, (H) prepayments made with respect to the Amended
VSI Loan as in effect on the Issue Date, (I) loans or advances to officers,
directors and employees of the Issuer or any Subsidiary after the Issue Date in
an aggregate amount not to exceed $1.0 million at any one time outstanding, and
(J) any redemption, retirement, repurchase or other acquisition of the Preferred
Stock in accordance with its terms (at a price of not more than par) with the
Net Cash Proceeds received by the Issuer from the substantially concurrent sale
of Qualified Capital Stock or any exchange of
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Qualified Capital Stock for Preferred Stock. The full amount of any Restricted
Payment made pursuant to the foregoing clauses (B), (C), (E), (F), (G), (I) and
(J) of the immediately preceding sentence, however, will be deducted in the
calculation of the aggregate amount of Restricted Payments available to be made
thereafter referred to in clause (3) of the immediately preceding paragraph.
SECTION 5.4 CORPORATE EXISTENCE.
Subject to Article VI, the Issuer shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate or other existence of each of its Subsidiaries in
accordance with the respective organizational documents of each of them and the
rights (charter and statutory) and corporate or partnership franchises of the
Issuer and each of its Subsidiaries; PROVIDED, HOWEVER, that the Issuer shall
not be required to preserve, with respect to itself or any of its Subsidiaries,
any right or franchise if (a) the Board of Directors of the Issuer shall
determine reasonably and in good faith that the preservation thereof is no
longer desirable in the conduct of the business of the Issuer and (b) the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 5.5 PAYMENT OF TAXES AND OTHER CLAIMS.
The Issuer shall, and shall cause each of its Subsidiaries to, pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges (including
withholding taxes and any penalties, interest and additions to taxes) levied or
imposed upon the Issuer or any of its Subsidiaries or properties and assets of
the Issuer or any of its Subsidiaries and (ii) all lawful claims, whether for
labor, materials, supplies, services or anything else, which have become due and
payable and which by law have or may become a Lien upon the property and assets
of the Issuer or any of its Subsidiaries; PROVIDED, HOWEVER, that neither the
Issuer nor its Subsidiaries shall be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which disputed amounts adequate reserves have been
established in accordance with GAAP.
SECTION 5.6 MAINTENANCE OF INSURANCE.
The Issuer and the Guarantors will, and will cause their Subsidiaries
to, from and at all times after the Issue Date until the Securities have been
paid in full, have and maintain in effect insurance with responsible carriers
against such risks and in such amounts as is customarily carried by similar
businesses with such deductibles, retentions, self insured amounts and
coinsurance provisions as are customarily carried by similar businesses of
similar size, including, without limitation, property and casualty, and with
respect to insurance on the Collateral, shall have provided insurance
certificates evidencing such insurance to the Trustee prior to the Issue Date
and shall thereafter provide such certificates prior to the anniversary or
renewal date of each such policy, which certificate shall expressly state the
expiration date for each policy listed. All insurance with respect to the
Collateral required under this Indenture (except for workers'
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compensation) shall name the Issuer and the Trustee as additional insureds or
loss payees, as the case may be, with losses in excess of $ million payable
jointly to the Issuer and the Trustee (unless a Default or an Event of Default
has occurred and is then continuing, in which case all losses are payable solely
to the Trustee), with no recourse against the Trustee for the payment of
premiums, deductibles, commissions or club calls, and for at least 30 days
notice of cancellation. All such insurance policies will be issued by carriers
having an A.M. Best & Company, Inc. rating of A- or higher and a financial size
category of not less than X, or if such carrier is not rated by A.M. Best &
Company, Inc., having the financial stability and size deemed appropriate by an
opinion from a reputable insurance broker.
SECTION 5.7 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Issuer shall deliver to the Trustee, within 120 days
after the end of each of its fiscal years, an Officers' Certificate complying
(whether or not required) with Section 314(a)(4) of the TIA and stating that a
review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Authorized Representatives with a view to determining whether the Issuer has or
has caused to be, kept, observed, performed and fulfilled its obligations under
this Indenture and the Collateral Agreements and further stating, as to each
such Authorized Representative signing such certificate, whether or not the
signer knows of any failure by the Issuer or any of its Subsidiaries to comply
with any conditions or covenants in this Indenture and, if such signer does know
of such a failure to comply, the certificate shall describe such failure with
particularity. The Officers' Certificate shall also notify the Trustee should
the relevant fiscal year end on any date other than the current fiscal year end
date.
(b) So long as not contrary to the then current recommendation
of the American Institute of Certified Public Accountants, the Issuer shall
deliver to the Trustee within 120 days after the end of each of its fiscal years
a written report of a firm of independent certified public accountants with an
established national reputation stating that in conducting their audit for such
fiscal year, nothing has come to their attention that caused them to believe
that the Issuer or any of its Subsidiaries was not in compliance with the
provisions set forth in Section 5.3, 5.11 or 5.15 of this Indenture or any of
the provisions of the Collateral Agreements.
(c) The Issuer shall, so long as any of the Securities are
outstanding, deliver to the Trustee, immediately upon becoming aware of any
Default or Event of Default under this Indenture, an Officers' Certificate
specifying such Default or Event of Default and what action the Issuer is taking
or proposes to take with respect thereto. The Trustee shall not be deemed to
have knowledge of a Default or an Event of Default unless one of its trust
officers receives notice of the Default or Event of Default giving rise thereto
from the Issuer or any of the Holders.
SECTION 5.8 PROVISION OF FINANCIAL STATEMENTS.
Whether or not the Issuer is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Issuer shall deliver to the Trustee
and to each Holder, within 15
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days after it is or would have been required to file such with the Commission,
annually and quarterly financial statements substantially equivalent to
financial statements that would have been included in reports filed with the
Commission, if the Issuer were subject to the requirements of Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only, a
report thereon by the Issuer's certified independent public accounts as such
would be required in such reports to the Commission, and, in each case, together
with a management's discussion and analysis of financial condition and results
of operations which would be so required. Notwithstanding anything contrary
herein the Trustee shall have no duty to review such documents for purposes of
determining compliance with any provisions of this Indenture.
SECTION 5.9 WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Issuer and each of the Guarantors covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law wherever enacted which would
prohibit or forgive the Issuer or any Guarantor from paying all or any portion
of the principal of or interest on the Securities as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that they may
lawfully do so) the Issuer and each Guarantor hereby expressly waives all
benefit or advantage of any such law insofar as such law applies to the
Securities, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 5.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Issuer will not, and will not permit any Subsidiary to, directly
or indirectly, enter into any transaction or series of transactions on or after
the Issue Date with any Affiliate of the Issuer (other than the Issuer or a
Wholly-owned Subsidiary) (an "Affiliate Transaction"), unless (i) such
transaction or series of transactions is on terms no less favorable to the
Issuer or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate, (ii) if such
transaction or series of transactions involves aggregate consideration equal to
or greater than $1.0 million, a committee of directors of the Issuer that are
disinterested with respect to such transaction shall approve by resolution
certifying that such transaction or series of transactions complies with clause
(i) above, and (iii) if such transaction or series of transactions involves
aggregate consideration equal to or greater than $5.0 million, the Issuer
receives a written opinion from an investment banking firm of national standing
or, in the case of a transaction involving a sale or transfer of assets subject
to valuation such as real estate, an appraisal by a nationally recognized
appraisal firm, that such transaction or series of transactions is fair to the
Issuer from a financial point of view.
In addition, the Issuer will not, and will not permit any of its
Subsidiaries to, pay any management, consulting or related fees to Kirkland, KIC
or their respective Affiliates pursuant to any agreement between any of such
entities and the Issuer or any of its Affiliates if a Default or Event of
Default has occurred and is continuing.
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Notwithstanding the foregoing, nothing contained in this Section 5.10
will apply to (a) transactions between the Issuer or any Subsidiary and any
employee of the Issuer or any Subsidiary that are entered into in the ordinary
course of business, (b) the payment of reasonable and customary regular fees and
expenses to directors of the Issuer, (c) Exempted Affiliate Transactions, (d)
Restricted Payments permitted by clauses (F), (G) and (I) of the second
paragraph of Section 5.3, or (e) any other transactions that do not involve, in
the aggregate for all such transactions, the payment of more than $250,000 in
consideration in any one calendar year.
SECTION 5.11 LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS.
Except as set forth below in this Section 5.11, the Issuer and the
Guarantors will not, and will not permit any of their Subsidiaries to, directly
or indirectly, issue, assume, guaranty, incur, become directly or indirectly
liable with respect to (including as a result of an Acquisition), or otherwise
become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness
(including Acquired Indebtedness) or any Disqualified Capital Stock.
Notwithstanding the foregoing:
(a) if (i) no Default or Event of Default shall have occurred
and be continuing at the time of, or would occur after giving effect on a PRO
FORMA basis to, such incurrence of Indebtedness or Disqualified Capital Stock
and (ii) on the date of such incurrence (the "Incurrence Date"), the
Consolidated Coverage Ratio of the Issuer for the Reference Period immediately
preceding the Incurrence Date, after giving effect on a PRO FORMA basis to such
incurrence of such Indebtedness or Disqualified Capital Stock and, to the extent
set forth in the definition of Consolidated Coverage Ratio, the use of proceeds
thereof, would be at least 2.0 to 1 for incurrences on or prior to ,
1997 and at least 2.25 to 1 for incurrences thereafter (the "Debt Incurrence
Ratio"), then the Issuer may incur such Indebtedness or Disqualified Capital
Stock, PROVIDED, that except in the case of Acquired Indebtedness, such
Indebtedness incurred pursuant to this clause (a) has an Average Life to Stated
Maturity that exceeds the remaining Average Life to Stated Maturity of the
Securities and has a Stated Maturity for its final scheduled principal or (in
the case of Disqualified Capital Stock) redemption payment, as applicable, later
than the Stated Maturity for the final scheduled principal payment of the
Securities;
(b) the Issuer or any Guarantor may incur Indebtedness evidenced
by the Securities and represented by this Indenture up to the amounts stated
herein as of the date hereof;
(c) the Issuer or any Subsidiary may incur Purchase Money
Indebtedness, Capitalized Lease Obligations and Indebtedness secured only by the
current BGII headquarters and site (the "BGII Site Indebtedness") (including any
Indebtedness issued to refinance, replace or refund such Indebtedness) on or
after the Issue Date, PROVIDED, that (i) the aggregate amount of such
Indebtedness incurred on or after the Issue Date and outstanding at any time
pursuant to this paragraph (c) shall not exceed $20.0 million, and (ii) such
Indebtedness other than BGII Site Indebtedness shall not constitute less than
75% nor more than 100% of the cost
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(determined in accordance with GAAP) to the Issuer or such Subsidiary, as
applicable, of the property so purchased, constructed or leased;
(d) the Issuer or any Subsidiary, as applicable, may incur
Refinancing Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, of such person described in clauses (a) and (b) of
this Section 5.11 or with respect to Indebtedness which is outstanding on the
Issue Date (after giving effect to the Transaction) so long as such Refinancing
Indebtedness is secured only by the assets (if any) that secured the
Indebtedness so refinanced;
(e) Bally Gaming, Inc., Wulff and their Subsidiaries may incur
Indebtedness under one or more working capital facilities in an aggregate amount
outstanding at any time (including any Indebtedness which refinances, replaces
or refunds such Indebtedness) of up to $40.0 million, less any amounts
outstanding pursuant to clause (h) of the definition of "Permitted Indebtedness"
contained herein;
(f) the Issuer or any Subsidiary may incur Permitted
Indebtedness;
(g) the Issuer or any Subsidiary may incur Indebtedness in an
aggregate amount outstanding at any time (including any Indebtedness issued to
refinance, replace, or refund such Indebtedness) of up to $7.5 million; and
(h) any Subsidiary may incur Acquired Indebtedness in an
aggregate amount outstanding at any time of up to $7.5 million; PROVIDED,
HOWEVER, that the Consolidated Coverage Ratio of the Issuer for the Reference
Period immediately preceding the Incurrence Date thereof, after giving effect on
a PRO FORMA basis to such incurrence of Acquired Indebtedness and, to the extent
set forth in the definition of Consolidated Coverage Ratio, the use of proceeds
thereof, would be at least 2.25 to 1.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Issuer
(including upon designation of any subsidiary or other Person as a Subsidiary)
or is merged with or into or consolidated with the Issuer or a Subsidiary of the
Issuer shall be deemed to have been incurred at the time such Person becomes
such a Subsidiary of the Issuer or is merged with or into or consolidated with
the Issuer or a Subsidiary of the Issuer, as applicable.
SECTION 5.12 RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK.
The Issuer and the Guarantors will not sell, and will not permit any
of their Subsidiaries to issue or sell, any Equity Interests of any Subsidiary
of the Issuer to any Person other than the Issuer or a Wholly-owned Subsidiary
of the Issuer, except for (i) directors' qualifying shares or shares owned by
foreign nationals, in each case to the extent required by applicable law, (ii)
Equity Interests of RCVP, VSI, SVS and VDSI outstanding on the Issue Date (after
giving effect to the Transaction) and not owned by Wholly-owned Subsidiaries,
and (iii) the issuance and sale of all, but not less than all, of the Equity
Interests of any Subsidiary of the
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Issuer held by the Issuer or any Subsidiary in compliance with the other
provisions of the Indenture.
SECTION 5.13 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES.
The Issuer and the Guarantors will not, and will not permit any of
their Subsidiaries to, directly or indirectly, create, assume or suffer to exist
any consensual restriction on the ability of any Subsidiary of the Issuer to pay
dividends or make other distributions to or on behalf of, or otherwise to
transfer assets or property to or on behalf of, or to pay any obligation to or
on behalf of, or make or pay loans or advances to or on behalf of, the Issuer or
any Subsidiary of the Issuer, except (a) restrictions imposed by the Securities
or this Indenture, (b) restrictions imposed by applicable law or by Gaming
Authorities on entities possessing a Gaming License, (c) existing restrictions
under Indebtedness outstanding on the Issue Date (after giving effect to the
Transaction) and any Refinancing Indebtedness with respect thereto which is
permitted by Section 5.11, PROVIDED, that any restriction imposed by such
Refinancing Indebtedness is no more restrictive than that imposed by such
Indebtedness as of the Issue Date, (d) restrictions under any Acquired
Indebtedness not incurred in violation of this Indenture or any agreement
relating to any property, asset, or business acquired by the Issuer or any of
its Subsidiaries, which restrictions in each case existed at the time of
acquisition, were not put in place in connection with or in anticipation of such
acquisition and are not applicable to any person, other than the person
acquired, or to any property, asset or business, other than the property, assets
and business so acquired, (e) restrictions imposed by Indebtedness incurred
under clause (e) of Section 5.11, PROVIDED, that such restrictions are no more
restrictive than those imposed by the Issuer's existing working capital
facilities immediately prior to the Issue Date, (f) restrictions with respect
solely to a Subsidiary of the Issuer imposed pursuant to a binding agreement
which has been entered into for the sale or disposition of all or substantially
all of the Equity Interests or assets of such Subsidiary, PROVIDED, that such
restrictions apply solely to the Equity Interests or assets of such Subsidiary
which are being sold and (g) restrictions on transfer contained in Permitted
Liens, PROVIDED, that such restrictions relate only to the transfer of the
property subject thereto. Notwithstanding the foregoing, customary provisions
restricting subletting or assignment of any lease entered into in the ordinary
course of business, consistent with industry practice shall not in and of
themselves be considered a restriction on the ability of the applicable
Subsidiary to transfer such agreement.
SECTION 5.14 LIMITATION ON LIENS.
The Issuer will not, and will not permit any Subsidiary to, create,
incur, assume or suffer to exist any Lien of any kind, other than Permitted
Liens, upon any of their respective assets now owned or acquired on or after the
date of this Indenture or upon any income or profits therefrom.
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SECTION 5.15 LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK;
EVENT OF LOSS.
The Issuer and the Guarantors will not, and will not permit any of
their Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of their
respective property, business or assets, including by merger or consolidation
(in the case of a Subsidiary), and including any sale or other transfer or
issuance of any Equity Interests of any Subsidiary of the Issuer, whether by the
Issuer or a Subsidiary of either or through the issuance, sale or transfer of
Equity Interests by a Subsidiary of the Issuer (an "Asset Sale"), unless:
(1) (a) within 270 days after the date of such Asset Sale, the
Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
optional redemption of the Securities in accordance with the terms of this
Indenture or to the repurchase of the Securities pursuant to an irrevocable,
unconditional cash offer by the Issuer (the "Asset Sale Offer") to repurchase
Securities at a purchase price (the "Asset Sale Offer Price") of 100% of
principal amount, together with accrued and unpaid interest to the date of
payment, made within 240 days of such Asset Sale or (b) within 270 days
following such Asset Sale, the Asset Sale Offer Amount is invested in assets and
property (other than notes, bonds, obligations and securities) which in the good
faith judgment of the Board of Directors of the Issuer will immediately
constitute or be part of a Related Business of the Issuer or such Subsidiary (if
it continues to be a Subsidiary) immediately following such transaction or (c)
within 270 days following such Asset Sale, the Asset Sale Offer Amount is
applied to the repayment of any Indebtedness of the Issuer or any Subsidiary
which is secured by the assets subject to such Asset Sale, as required by the
terms thereof,
(2) with respect to any Asset Sale or related series of Asset
Sales involving securities, property or assets with an aggregate fair market
value in excess of $5.0 million, at least 75% of the consideration for such
Asset Sale or series of related Asset Sales consists of cash or Cash
Equivalents,
(3) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a PRO FORMA
basis, to, such Asset Sale, and
(4) the Board of Directors of the Issuer determines in good
faith that the Issuer or such Subsidiary, as applicable, receives Fair Market
Value for such Asset Sale.
For purposes of this Section 5.15 with respect to the application of
the Net Cash Proceeds thereof, the receipt by the Issuer or any of its
Subsidiaries of proceeds due to an Event of Loss shall constitute an Asset Sale,
which Asset Sale shall be deemed to occur upon receipt of such proceeds. All
Net Cash Proceeds from an Event of Loss shall be invested or used to repurchase
Securities, all within the period and as otherwise provided above in clause (1)
of the first paragraph of this Section 5.15.
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An Asset Sale Offer may be deferred until the accumulated Net Cash
Proceeds from Asset Sales not applied to the uses set forth in (1)(b) or (c)
above (the "Excess Proceeds") exceeds $15.0 million. Each Asset Sale Offer
shall remain open for 20 Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable law (the
"Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the
Issuer shall apply the Asset Sale Offer Amount, plus an amount equal to accrued
interest, to the purchase of all Securities properly tendered (on a pro rata
basis if the Asset Sale Offer Amount is insufficient to purchase all such
Securities so tendered) at the Asset Sale Offer Price (together with accrued
interest). To the extent that the aggregate amount of Securities tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the
Issuer may use any remaining Net Cash Proceeds for general corporate purposes as
otherwise permitted by this Indenture, and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero. For purposes of (2) above, total
consideration received means the total consideration received for such Asset
Sales minus the amount of (a) Indebtedness secured by the assets sold and
assumed or repaid by a transferee as required thereunder and (b) property that
within 90 days of such Asset Sale is converted into Cash or Cash Equivalents.
Notwithstanding the foregoing provisions of the prior paragraphs:
(i) the Issuer and its Subsidiaries may, in the ordinary
course of business, convey, sell, lease, transfer, assign, or
otherwise dispose of inventory acquired and held for resale in the
ordinary course of business;
(ii) the Issuer and its Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and
in accordance with Section 6.1 of this Indenture;
(iii) the Issuer and its Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the
proper conduct of the business of the Issuer or such Subsidiary, as
applicable; and
(iv) the Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets to the Issuer or any of its
Wholly-owned Subsidiaries.
Notwithstanding the foregoing, the Issuer will not, and will not permit any of
its Subsidiaries to, directly or indirectly make any Asset Sale of any of the
Equity Interests of any Subsidiary except pursuant to the provisions of Section
5.12.
Notice of an Asset Sale Offer shall be sent, not later than 20
Business Days prior to the close of business on the Asset Sale Put Date (as
defined below), by first-class mail, by the Issuer to each Holder at its
registered address, with a copy to the Trustee. The notice to the
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Holders shall contain all information, instructions and materials required by
applicable law or otherwise material to such Holders' decision to tender
Securities pursuant to the Asset Sale Offer. The notice, which (to the extent
consistent with this Indenture) shall govern the terms of the Asset Sale Offer,
shall state:
(l) that the Asset Sale Offer is being made pursuant to
such notice and this Section 5.15;
(2) the Asset Sale Offer Amount, the Excess Proceeds
Amount, the Asset Sale Offer Price (including the amount of accrued and unpaid
interest), the Asset Sale Put Date, and the "Asset Sale Purchase Date," which
Asset Sale Purchase Date shall be on or prior to 30 Business Days (or later, if
required by law) following the date the Excess Proceeds Amount was greater than
$15.0 million;
(3) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest if interest is then
accruing;
(4) that, unless the Issuer defaults in depositing U.S.
Legal Tender with the Paying Agent (which may not for purposes of this Section
5.15, notwithstanding anything in this Indenture to the contrary, be the Issuer
or any Affiliate of the Issuer) in accordance with the last paragraph of this
clause (b), any Security, or portion thereof, accepted for payment pursuant to
the Asset Sale Offer shall cease to accrue interest after the Asset Sale
Purchase Date;
(5) that Holders electing to have a Security, or portion
thereof, purchased pursuant to an Asset Sale Offer will be required to surrender
their Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent (which may not for
purposes of this Section 5.15, notwithstanding any other provision of this
Indenture, be the Issuer or any Affiliate of the Issuer) at the address
specified in the notice prior to the close of business on the third Business Day
prior to the Asset Sale Purchase Date (the "Asset Sale Put Date");
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent (which may not for purposes
of this Section 5.15, notwithstanding any other provision of this Indenture, be
the Issuer or any Affiliate of the Issuer) receives, up to the close of business
on the Asset Sale Put Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder is withdrawing and a statement that such Holder is withdrawing his
election to have such principal amount of Securities purchased;
(7) that if Securities in a principal amount in excess of
the principal amount of Securities to be acquired pursuant to the Asset Sale
Offer are tendered and not withdrawn, the Issuer shall purchase Securities on a
PRO RATA basis (with such adjustments as may be deemed appropriate by the Issuer
so that only Securities in denominations of $1,000 or integral multiples of
$1,000 shall be acquired);
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(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such
Asset Sales.
No later than 12:00 noon New York City time on an Asset Sale Purchase
Date, the Issuer shall (i) accept for payment Securities or portions thereof
properly tendered pursuant to the Asset Sale Offer (on a PRO RATA basis if
required pursuant to paragraph (7) above), (ii) deposit with the Paying Agent
U.S. Legal Tender sufficient to pay the Asset Sale Offer Price (plus accrued
interest) for all Securities or portions thereof so accepted and (iii) deliver
to the Trustee Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof being purchased by the Issuer.
The Paying Agent shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the Asset Sale Offer Price for such
Securities, and the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased portion
of the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Issuer to the Holder thereof.
SECTION 5.16 FUTURE SUBSIDIARY GUARANTORS.
The Issuer and the Guarantors covenant and agree that they shall cause
each person that is or becomes a Subsidiary of the Issuer (other than RCVP, VSI,
SVS, VDSI and Wulff) to execute a Guaranty in the form of EXHIBIT B hereto and
will cause such Subsidiary to enter into a supplemental indenture for the
purpose of jointly and severally guaranteeing, on a senior basis, the Indenture
Obligations.
SECTION 5.17 LIMITATION ON LINES OF BUSINESS.
Neither the Issuer nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which in the good faith judgment of the Board of
Directors of the Issuer is a Related Business.
SECTION 5.18 LIMITATION ON STATUS AS INVESTMENT COMPANY.
None of the Issuer or any of its Subsidiaries shall become required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or otherwise become subject to regulation
under the Investment Company Act.
SECTION 5.19 FUTURE PLEDGE AGREEMENTS.
If, subsequent to the Issuance Date, the Issuer or any of its
Subsidiaries shall acquire any Equity Interests or any securities convertible
into or exchangeable for Equity Interests ("After Acquired Shares") in a Person
which, immediately after giving effect to such
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Acquisition, would be a Subsidiary, then as a condition to such Acquisition, the
Issuer shall cause such Subsidiary to enter into a pledge agreement with respect
to such After Acquired Shares substantially in the form of Exhibit C, and take
such other action as shall be necessary to provide the Trustee with a perfected
first priority security interest in the pledgor's respective rights, title and
interest in and to such After Acquired Shares. Such After Acquired Shares shall
constitute Collateral which is subject to the provisions of this Indenture,
including Article IV hereof.
ARTICLE VI
SUCCESSORS
SECTION 6.1 LIMITATION ON MERGER, SALE OR CONSOLIDATION.
The Issuer will not, directly or indirectly, consolidate with or merge
with or into another person or sell, lease, convey or transfer all or
substantially all of its assets (computed on a Consolidated basis), whether in a
single transaction or a series of related transactions, to another person or
group of affiliated persons or adopt a plan of liquidation, unless:
(a) either (i) the Issuer is the continuing entity or (ii) the
resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation is a corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes by supplemental
indenture all of the obligations of the Issuer in connection with the Securities
and this Indenture;
(b) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a PRO FORMA basis to such transaction;
(c) immediately after giving effect to such transaction on a PRO
FORMA basis, the Consolidated Net Worth of the Consolidated surviving or
transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation is at least equal to
90% of the Consolidated Net Worth of the Issuer immediately prior to such
transaction; and
(d) immediately after giving effect to such transaction on a PRO
FORMA basis, the Consolidated resulting, surviving or transferee entity or, in
the case of a plan of liquidation, the entity which receives the greatest value
from such plan of liquidation would immediately thereafter be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio
set forth in paragraph (a) of Section 5.11.
The Issuer shall also deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that (a) such consolidation, merger,
sale, assignment, conveyance, transfer, lease or disposition and such
supplemental indenture comply with this Indenture and (b)
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this transaction shall not impair the rights and powers of the Trustee and
Holders of the Securities thereunder.
For purposes of the first sentence of this Section 6.1, the transfer
(by lease, assignment or otherwise) of all or substantially all of the
properties and assets of one or more Subsidiaries, the Issuer's interest in
which constitutes all or substantially all of the properties and assets of the
Issuer shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Issuer.
SECTION 6.2 SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Issuer or consummation of a plan of
liquidation in accordance with Section 6.1, the successor corporation formed by
such consolidation or into which the Issuer is merged or to which such transfer
is made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under the
Indenture with the same effect as if such successor corporation had been named
therein as the Issuer, and the Issuer (except in the case of a lease) shall be
released from the obligations under the Securities and this Indenture except
with respect to any obligations that arise from, or are related to, such
transaction.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1 EVENTS OF DEFAULT.
"Event of Default," whenever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the failure by the Issuer to pay any installment of interest
on the Securities as and when the same becomes due and payable and the
continuance of any such failure for 30 days;
(b) the failure by the Issuer to pay all or any part of the
principal, or premium, if any, on the Securities when and as the same becomes
due and payable at maturity, at redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase Price
or the Asset Sale Offer Price, or otherwise;
(c) the failure by the Issuer or any Subsidiary to observe or
perform any other covenant or agreement contained in the Securities or this
Indenture and (other than a
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default in the performance, or breach of a covenant that is specifically dealt
with elsewhere in this section) the continuance of such failure for a period of
60 days after written notice is given to the Issuer by the Trustee or to the
Issuer and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding, specifying such default and requiring
that it be remedied;
(d) a default in Indebtedness of the Issuer or any of its
Subsidiaries with an aggregate outstanding principal amount in excess of $10.0
million as a result of which the maturity of such Indebtedness has been
accelerated prior to its Stated Maturity;
(e) final unsatisfied judgments not covered by insurance
aggregating in excess of $10.0 million shall have been rendered at any one time
against the Issuer or any of its Subsidiaries and not stayed, bonded or
discharged within 60 days;
(f) there shall have been the entry by a court having
jurisdiction in the premises of (i) a decree or order for relief in respect of
the Issuer or any of its Significant Subsidiaries in an involuntary case or
proceeding under any applicable Bankruptcy Law or (ii) a decree or order
adjudging the Issuer or any of its Significant Subsidiaries bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or composition of
or in respect of the Issuer or any of its Significant Subsidiaries under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Issuer or any of its Significant Subsidiaries or of any substantial part of
their property, or ordering the winding-up or liquidation of their affairs, and
the continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days;
(g)(i) the Issuer or any of its Significant Subsidiaries
commences a voluntary case or proceeding under any applicable Bankruptcy Law or
any other case or proceeding to be adjudicated bankrupt or insolvent, or (ii)
the Issuer or any of its Significant Subsidiaries consents to the entry of a
decree or order for relief in respect of the Issuer or such Significant
Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy
Law or to the commencement of any bankruptcy or insolvency case or proceeding
against it, or (iii) the Issuer or any of its Significant Subsidiaries files a
petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, or the Issuer or any of its Significant
Subsidiaries consents to (1) the filing of such petition or the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Issuer or such Significant Subsidiary or
of any substantial part of its property, (2) the making by it of an assignment
for the benefit of creditors or (3) the admission by it in writing of its
inability to pay its debts generally as they become due, or (iv) the taking of
corporate or partnership action by the Issuer or any of its Significant
Subsidiaries in furtherance of any such action in this paragraph (g); and
(h) an event of default under any of the Collateral Agreements.
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Notwithstanding the 60-day period and notice requirement contained in
Section 7.1(c) above, (i) with respect to a default under Article XI, the 60-day
period referred to in Section 7.1(c) shall be deemed to have begun as of the
date the Change of Control notice is required to be sent in the event that the
Issuer has not complied with the provisions of Section 11.1, and the Trustee or
Holders of at least 25% in principal amount of the outstanding Securities
thereafter give the notice of default referred to in Section 7.1(c) to the
Issuer and, if applicable, the Trustee; PROVIDED, HOWEVER, that if the breach or
default is a result of a default in the payment when due of the Change of
Control Purchase Price, such default shall be deemed, for purposes of this
Section 7.1, to arise no later than on such due date; and (ii) with respect to a
default under Section 5.15, the 60-day period referred to in Section 7.1(c)
shall be deemed to have begun as of the date the notice of an Offer to Purchase
is required to be sent in the event that the Issuer has not complied with the
provisions of Section 5.15 requiring the giving of such notice, and the Trustee
or Holders of at least 25% in principal amount of the outstanding Securities
thereafter give the notice of default referred to in Section 7.1(c) to the
Issuer and, if applicable, the Trustee; PROVIDED, HOWEVER, that if the breach or
default is a result of a default in the payment when due of the Offer to
Purchase Price, such default shall be deemed, for purposes of this Section 7.1,
to arise no later than on such due date.
SECTION 7.2 ACCELERATION OF MATURITY DATE; RESCISSION AND ANNULMENT.
If an Event of Default (other than as specified in clauses (f) and (g)
of Section 7.1) occurs and is continuing, then in every such case, unless the
principal of all the Securities shall have already become due and payable,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of the Securities then outstanding, by notice in writing to the Issuer (and to
the Trustee if such notice is given by such Holders) (an "Acceleration Notice"),
may, and the Trustee at the request of such Holders shall, declare all unpaid
principal of, premium, if any, and accrued interest on all Securities to be due
and payable immediately. If an Event of Default specified in clause (f) or (g)
of Section 7.1 relating to the Issuer or any Significant Subsidiary occurs, then
all principal and accrued interest thereon shall be immediately due and payable
on all outstanding Securities without any declaration or other act of the
Trustee or any Holder.
After a declaration of acceleration, but before a judgment or decree
for payment of the money due has been obtained by the Trustee, the Holders of a
majority in aggregate principal amount of Securities outstanding, by written
notice to the Issuer and the Trustee, may annul such declaration if:
(a) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Securities,
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(iii) the principal of and premium, if any, on any
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities,
and
(iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities;
and
(b) all Events of Default, other than the non-payment of
principal of the Securities which have become due solely by such
declaration of acceleration, have been cured or waived.
Notwithstanding the previous sentence of this Section 7.2, no
annulment of a declaration of acceleration shall be effective for any Event of
Default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of greater than a simple majority of
the outstanding principal amount of the Securities, unless such specified
percentage of affected Holders agree, in writing, to annul such declaration of
acceleration. No such annulment shall cure or waive any subsequent default or
impair any right consequent thereon.
SECTION 7.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Issuer covenants that if an Event of Default in payment of
principal, premium, or interest specified in Section 7.1(a) and (b) occurs and
is continuing, the Issuer shall, upon demand of the Trustee, pay to it, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal, premium (if any) and interest, and, to the
extent that payment of such interest shall be legally enforceable, interest on
any overdue principal (premium, if any) and on any overdue interest, at the rate
borne by the Securities, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including
compensation to, and expenses, disbursements and advances of the Trustee, its
agents and counsel.
If the Issuer fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Issuer or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Issuer or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 7.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Issuer or any other obligor upon the
Securities or the property of the Issuer or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Issuer for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise to take any and
all actions under the TIA, including
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents
as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 8.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 7.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
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SECTION 7.6 PRIORITIES.
Any money collected by the Trustee pursuant to this Article VII shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 8.7;
SECOND: To the Holders in payment of the amounts then due and
unpaid for principal of, premium (if any) and interest on, the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according
to the amounts due and payable on such Securities for principal, premium
(if any) and interest, respectively; and
THIRD: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
The Trustee may, but shall not be obligated to, fix a record date and
payment date for any payment to the Holders under this Section 7.6.
SECTION 7.7 LIMITATION ON SUITS.
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in principal amount of
then outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and
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(E) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
a majority in principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 7.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and interest on, such Security on the
Maturity dates of such payments as expressed in such Security (in the case of
redemption, the Redemption Price on the applicable Redemption Date, in the case
of a Change of Control, the Change of Control Purchase Price on the applicable
Change of Control Purchase Date, and, in the case of an Asset Sale, the Asset
Sale Offer Price on the Asset Sale Purchase Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 7.9 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 7.10 DELAY OR OMISSION NOT WAIVER.
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VII or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
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SECTION 7.11 CONTROL BY HOLDERS.
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee, PROVIDED, that
(1) such direction shall not be in conflict with any
rule of law or with this Indenture,
(2) the Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders not taking part
in such direction, and
(3) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
SECTION 7.12 WAIVER OF PAST DEFAULT.
Subject to Section 7.8, the Holder or Holders of not less than a
majority in aggregate principal amount of then outstanding Securities may, by
written notice to the Trustee on behalf of all Holders, prior to the declaration
of acceleration of the maturity of the Securities, waive any past default
hereunder and its consequences, except a default
(A) in the payment of the principal of, premium,
if any, or interest on, any Security as specified in clauses (a) and
(b) of Section 7.1, or
(B) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the Holder
of each outstanding Security affected or Holders of more than a simple
majority in principal amount of the Securities, as applicable;
provided, however, that such a default may be waived upon the
affirmative vote of the requisite principal amount of the Securities.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 7.13 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security
by its acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
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such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 7.13 shall not apply to any suit instituted
by the Issuer, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, or
premium (if any) or interest on, any Security on or after the Maturity of such
Security.
SECTION 7.14 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Issuer, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE VIII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 8.1 DUTIES OF TRUSTEE.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no
covenants or obligations shall be implied in or read into this
Indenture which are adverse to the Trustee.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the
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opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 8.1.
(2) The Trustee shall comply with any order or
directive of a Gaming Authority that the Trustee submit an application
for any license, finding of suitability or other approval pursuant to
any Gaming Law and will cooperate fully and completely in any
proceeding related to such application.
(3) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(4) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 7.11.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section
8.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Issuer.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
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SECTION 8.2 RIGHTS OF TRUSTEE.
Subject to Section 8.1:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 12.4 and 12.5. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture or the TIA.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Except with respect to Section 5.1, the Trustee shall have
no duty to inquire as to the performance of the Issuer's covenants in Article V.
In addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Sections
7.1(a), 7.1(b) and 5.1, or (ii) any Default or Event of Default of which the
Trustee shall have received written notification or obtained actual knowledge.
SECTION 8.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of any of the Securities, may make loans to, accept deposits
from, and perform services for the Issuer or its Affiliates, and may otherwise
deal with the Issuer, any of its Subsidiaries, or their respective Affiliates
with the same rights it would have if it were not Trustee. Any Agent
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may do the same with like rights. However, the Trustee must comply with
Sections 8.10 and 8.11.
SECTION 8.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be responsible for any
statement in the Securities, other than the Trustee's certificate of
authentication, or the use or application of any funds received by a Paying
Agent other than the Trustee.
SECTION 8.5 NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any) of, or interest on, any Security
(including the payment of the Change of Control Purchase Price on the Change of
Control Purchase Date, the Redemption Price on the Redemption Date and the Asset
Sale Offer Amount on the Asset Sale Purchase Date, as the case may be), the
Trustee may withhold the notice if and so long as a Trust Officer in good faith
determines that withholding the notice is in the interest of the
Securityholders.
SECTION 8.6 REPORTS BY TRUSTEE TO HOLDERS.
(a) SECURITIES LAW REQUIREMENTS. If required by law, within 60
days after each August 15, beginning with the August 15 following the date of
this Indenture, the Trustee shall mail to each Securityholder a brief report
dated as of such August 15 that complies with TIA Section 313(a). If required
by law, the Trustee also shall comply with TIA Sections 313(b) and 313(c).
The Issuer shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Issuer and filed with the SEC and each stock exchange, if
any, on which the Securities are listed.
(b) GAMING LICENSE REQUIREMENTS. The Trustee will provide any
applicable Gaming Authority with:
(1) copies of all notices, reports and other written
communications which the Trustee gives to Holders;
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(2) a list of Holders promptly after the original issuance
of the Securities and a list of Holders [eight months and two months] prior to
the expiration date of each then-current Gaming License held by the Issuer or
its Subsidiaries;
(3) notice of any Event of Default under this Indenture or
of any Default, any acceleration of the Indebtedness evidenced or secured
hereby, the institution of any legal actions or proceedings before any court or
governmental authority in respect of this Indenture or the Collateral
Agreements, the entering into or taking possession of any property constituting
the Collateral and any rescission, annulment or waiver in respect of an Event of
Default;
(4) notice of the removal or resignation of the Trustee
within five Business Days thereof;
(5) notice of any transfer or assignment of rights under
this Indenture (but no transfers or assignments of the Securities) or the
Collateral Agreements within five Business Days thereof; and
(6) a copy of any amendment to the Securities, this
Indenture or the Collateral Agreements within five Business Days of the
effectiveness thereof.
The notice specified in clause (3) above shall be in writing and, except as set
forth below, shall be given within five Business Days after the Trustee has
transmitted the notice required by Section 8.5. In the case of any notice in
respect of any Event of Default, such notice shall be accompanied by a copy of
any notice from the Holders, or a representative thereof or the Trustee, to the
defaulting Person and, if accompanied by any such notice to the defaulting
Person, shall be given simultaneously with the giving of any such notice to the
defaulting Person. In the case of any legal actions or proceedings, such notice
shall be accompanied by a copy of the complaint or other initial pleading or
document.
The Trustee shall in accordance with the limitations set forth herein
cooperate with any applicable Gaming Authority in order to provide such Gaming
Authority with information and documentation relevant to compliance with clause
(3) above and as otherwise required by any applicable gaming law.
The Issuer will advise the Trustee of the expiration date of any then-
current Gaming License held by the Issuer or any of its Subsidiaries at least
nine months prior to the expiration thereof and the Trustee until so advised may
assume that such Gaming License has not expired.
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SECTION 8.7 COMPENSATION AND INDEMNITY.
The Issuer shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Issuer shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel.
The Issuer shall indemnify the Trustee (in its capacity as Trustee)
and each of its officers, directors, attorneys-in-fact and agents for, and hold
it harmless against, any claim, demand, expense (including but not limited to
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel), loss or liability incurred by them without negligence, bad faith or
willful misconduct on their part, arising out of or in connection with the
administration of this trust and their rights or duties hereunder including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. The Trustee shall notify the Issuer promptly of any claim
asserted against the Trustee for which it may seek indemnity. The Issuer shall
defend the claim and the Trustee shall provide reasonable cooperation at the
Issuer's expense in the defense. The Trustee may have separate counsel and the
Issuer shall pay the reasonable fees and expenses of such counsel; PROVIDED,
that the Issuer will not be required to pay such fees and expenses if it assumes
the Trustee's defense and there is no conflict of interest between the Issuer
and the Trustee in connection with such defense. The Issuer need not pay for
any settlement made without its written consent. The Issuer need not reimburse
any expense or indemnify against any loss or liability to the extent incurred by
the Trustee through its negligence, bad faith or willful misconduct.
To secure the Issuer's payment obligations in this Section 8.7, the
Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 7.1 (f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Issuer's obligations under this Section 8.7 and any lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Issuer's obligations pursuant to Article IX and any rejection or
termination of this Indenture under any Bankruptcy Law.
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SECTION 8.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Issuer in writing. The
Holder or Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Issuer and the Trustee in
writing and may appoint a successor trustee with the Issuer's consent. The
Issuer may remove the Trustee if:
(1) the Trustee fails to comply with Section 8.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver, Custodian, or other public officer takes
charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuer.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Immediately after that
and provided that all sums owing to the Trustee provided for in Section 8.7 have
been paid, the retiring Trustee shall transfer all property held by it as
Trustee to the successor Trustee, subject to the lien provided in Section 8.7,
the resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 8.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
8.8, the Issuer's obligations under Section 8.7 shall continue for the benefit
of the retiring Trustee.
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SECTION 8.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 8.10 ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA Section
310(a)(1) and TIA Section 310(a)(5). The Trustee shall have a combined capital
and surplus of at least $25,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA Section 310(b).
SECTION 8.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE IX
LEGAL DEFEASANCE AND COVENANT DEFEASANCE;
SATISFACTION AND DISCHARGE
SECTION 9.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Issuer may elect to have either Section 9.2 or 9.3 be applied to
all outstanding Securities upon compliance with the conditions set forth below
in this Article IX.
SECTION 9.2 LEGAL DEFEASANCE AND DISCHARGE.
The Issuer may at its option, at any time within one year of the
Stated Maturity of the Securities and upon the Issuer's exercise under
Section 9.1 of the option applicable to this Section 9.2, elect to have its
obligations and the obligations of the Guarantors discharged with respect to all
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
means that the Issuer shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of Section 9.5 and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its, and the Guarantors' (to the extent applicable), other
obligations under such Securities and this Indenture and the Collateral
Agreements (insofar as they relate to the Securities or the Guaranties), the
Collateral shall be released from the Liens in favor of the Securities and the
Indenture shall cease to be of further effect as to all outstanding Securities,
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except for the following which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders to receive solely from the
trust fund described in Section 9.4, and as more fully set forth in such
section, payments in respect of the principal of, premium, if any, and interest
on such Securities when such payments are due, (b) the Issuer's obligations with
respect to such Securities under Sections 2.4, 2.6, 2.7, 2.10 and 5.2, (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Issuer's obligations in connection therewith and (d) the Legal Defeasance
provisions of this Article IX. Subject to compliance with this Article IX, the
Issuer may exercise its option under this Section 9.2 notwithstanding the prior
exercise of its option under Section 9.3 with respect to the Securities.
SECTION 9.3 COVENANT DEFEASANCE.
Upon the Issuer's exercise under Section 9.1 of the option applicable
to this Section 9.3, the Issuer and the Guarantors shall be released from their
respective obligations under the covenants contained in Sections 5.3, 5.6, 5.7,
5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.17, 5.19, 13.3 and Articles VI and XI with
respect to the outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Securities shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder, and any
omission to comply with such covenants shall not constitute a Default or Event
of Default with respect to the Securities. For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Securities, the Issuer
and the Guarantors need not comply with and shall have no liability in respect
of any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and the Liens of the Trustee under the
Collateral Agreements (insofar as they relate to the Securities or the
Guaranties) shall be deemed to have been paid and discharged, but, except as
specified above, the remainder of this Indenture and such Securities shall be
unaffected thereby. In addition, upon the Issuer's exercise under Section 9.1
of the option applicable to this Section 9.3, Sections 7.1(d), 7.1(e), 7.1(h)
and 7.1(i) shall not constitute Events of Default.
SECTION 9.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 9.2 or Section 9.3 to the outstanding Securities, unless otherwise
specified herein:
(a) the Issuer must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Securities, U.S. Legal Tender, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on such
Securities on the stated date for payment thereof or on the redemption date of
such principal or installment of principal of, premium, if any, or interest on
such Securities, and the Holders of Securities must have a valid, perfected,
exclusive security interest in such trust;
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(b) in the case of Legal Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to Trustee confirming that (A) the Issuer has received from, or there
has been published by the Internal Revenue Service, a ruling or (B) since the
date of this Indenture, there has been a change in the applicable Federal income
tax law, in either case to the effect that, and based thereon, such opinion of
counsel shall confirm that, the Holders of such Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the Holders of such Securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of such Covenant Defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the Issuer or
any of its Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound;
(f) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer with the intent
of preferring the Holders of such Securities over any other creditors of the
Issuer or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Issuer or others; and
(g) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers' Certificate, (a) through
(f) and, in the case of the opinion of counsel, clauses (a) (with respect to the
validity and perfection of the security interest), (b), (c) and (e) of this
Section have been complied with.
SECTION 9.5 DEPOSITED U.S. LEGAL TENDER AND U.S. GOVERNMENT
OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 9.6, all U.S. Legal Tender and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 9.5, the
"Trustee") pursuant to Section 9.4 in respect of the outstanding Securities
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities and this Indenture, to the payment, either
directly or through any
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Paying Agent as the Trustee may determine, to the Holders of such Securities of
all sums due and to become due thereon in respect of principal, premium, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Issuer agrees to pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 9.4 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Article IX to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon the request of
the Issuer any U.S. Legal Tender or U.S. Government Obligations held by it as
provided in Section 9.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
9.4(a)), are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 9.6 REPAYMENT TO ISSUER.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Issuer on its request; and the
Holder of such Security shall thereafter look only to the Issuer for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Issuer cause to be published once, in the NEW YORK TIMES and THE
WALL STREET JOURNAL (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Issuer.
SECTION 9.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 9.2 or 9.3, as
the case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Issuer's obligations under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to Section 9.2
or 9.3 until such time as the Trustee or Paying Agent is permitted to apply such
money in accordance with Section 9.2 and 9.3, as the case may be; PROVIDED,
HOWEVER, that, if the Issuer makes any payment of principal of or interest on
any Security following the reinstatement of its obligations, the Issuer shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
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If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Securities when due, then the obligations of the Issuer and
the Guarantors under the Indenture and the Collateral Agreements will be
revived, and no such defeasance will be deemed to have occurred.
SECTION 9.8 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall, upon Issuer Request, cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities herein expressly provided for) and the Trustee, on demand of and at
the expense of the Issuer and the Guarantors, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when all Securities
theretofore authenticated and delivered (other than (i) Securities which have
been destroyed, lost or stolen and which have been replaced or paid as provided
in Section 2.7 and (ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Issuer and thereafter
repaid to the Issuer or discharged from such trust, as provided in Section 9.6)
have been delivered to the Trustee for cancellation; the Issuer and the
Guarantors have paid or caused to be paid all other sums payable hereunder by
the Issuer and the Guarantors; and the Issuer and the Guarantors have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel each stating
that all conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer and the Guarantors to the Trustee under Section 7.6
shall survive.
ARTICLE X
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder, the Issuer and the Guarantors, when
authorized by Board Resolutions, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, or may amend,
modify or supplement the Securities, this Indenture, or any of the Collateral
Agreements, in form satisfactory to the Trustee and the Issuer, for any of the
following purposes:
(1) to cure any ambiguity, defect, or inconsistency,
or to make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with the
provisions of this Indenture, provided such action pursuant to this
clause (1) shall not adversely affect the interests of any Holder in
any respect;
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(2) to add to the covenants of the Issuer for the
benefit of the Holders, or to surrender any right or power herein
conferred upon the Issuer or to make any other change that does not
adversely affect the rights of any Holder; PROVIDED, that the Issuer
has delivered to the Trustee an Opinion of Counsel stating that such
change does not adversely affect the rights of any Holder;
(3) to provide for additional collateral for or for
guarantors of the Securities;
(4) to provide for uncertificated Securities in
addition to or in place of certificated Securities;
(5) to evidence the succession of another person to
the Issuer, and the assumption by any such successor of the
obligations of the Issuer, herein and in the Securities in accordance
with Article VI; or
(6) to comply with the TIA.
The terms of any document entered into pursuant to this Section shall
be subject to prior approval, if required, of any applicable Gaming Authority.
SECTION 10.2 AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS WITH
CONSENT OF HOLDERS.
Subject to Section 7.8 and the last sentence of this paragraph, with
the consent of the Holders of not less than a majority in aggregate principal
amount of then outstanding Securities, by written act of said Holders delivered
to the Issuer and the Trustee, the Issuer, the Guarantors (each when authorized
by Board Resolutions) and the Trustee may amend or supplement any of the
Collateral Agreements, this Indenture, any supplemental indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Collateral Agreements, this Indenture or the Securities
or of modifying in any manner the rights of the Holders under any of the
Collateral Agreements, this Indenture or the Securities. Subject to Section 7.8
and the last sentence of this paragraph, the Holder or Holders of a majority in
aggregate principal amount of then outstanding Securities may waive compliance
by the Issuer with any provision of the Collateral Agreement, this Indenture or
the Securities. Notwithstanding the foregoing provisions of this Section 10.2,
no such amendment, supplemental indenture or waiver shall,
(a) without the consent of the Holder of each outstanding
Security affected thereby:
(i) change the Stated Maturity on any Security, or
reduce the principal amount thereof or the rate (or
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extend the time for payment) of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or the
coin or currency in which, any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date), or reduce
the Change of Control Purchase Price or the Asset Sale Offer Price or alter
the provisions (including the defined terms used therein) of Article III in
a manner adverse to the Holders, or make the Securities subordinated in
right of payment to any other Indebtedness of the Issuer;
(ii) reduce the percentage in principal amount of
outstanding Securities, the consent of whose Holders is required for any
such amendment, supplemental indenture or waiver provided for in this
Indenture; or
(iii) modify any of the waiver provisions, except to
increase any required percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Security affected thereby.
(b) without the consent of the Holders of at least 66-2/3% in
aggregate principal amount of the then outstanding Securities modify the
obligations of the Issuer pursuant to Article XI to make and consummate a Change
of Control Offer or modify any of the provisions or definitions with respect
thereto in a manner adverse to the Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuer shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Issuer to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 10.2 or
10.4 becomes effective, it shall bind each Holder, subject to the limitations
set forth above.
In connection with any amendment, supplement or waiver under this
Article X, the Issuer may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
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The terms of any document entered into pursuant to this Section shall
be subject to prior approval, if required, of any applicable Gaming Authority.
SECTION 10.3 COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 10.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Issuer or the person designated by the Issuer as the person to whom consents
should be sent if such revocation is received by the Issuer or such person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the Issuer
notwithstanding the provisions of the TIA. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date, and only those persons (or their
duly designated proxies), shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder; PROVIDED, that any such waiver shall not impair or
affect the right of any Holder to receive payment of principal and premium of
and interest on a Security, on or after the respective dates set for such
amounts to become due and payable expressed in such Security, or to bring suit
for the enforcement of any such payment on or after such respective dates.
SECTION 10.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Issuer or the Trustee
so determines, the Issuer in exchange for the Security shall issue, the
Guarantors shall endorse and the Trustee shall authenticate a new Security that
reflects the changed terms.
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Any failure to make the appropriate notation or to issue a new Security shall
not affect the validity of such amendment, supplement or waiver.
SECTION 10.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article X, PROVIDED, that the Trustee may, but shall
not be obligated to, execute any such amendment, supplement or waiver which
affects the Trustee's own rights, duties or immunities under this Indenture.
The Trustee shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article X is authorized or
permitted by this Indenture.
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION 11.1 REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON
CHANGE OF CONTROL.
(a) In the event that a Change of Control (the date on which
such event occurs being referred to as the "Change of Control Date") occurs,
each Holder of Securities shall have the right, at such Holder's option, subject
to the terms and conditions hereof, to require the Issuer to repurchase all or
any part of such Holder's Securities (PROVIDED, that the principal amount of
such Securities must be $1,000 or an integral multiple thereof) on a date (the
"Change of Control Purchase Date") that is no later than 60 days after the
occurrence of such Change of Control, at a cash price (the "Change of Control
Purchase Price") equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Change of Control Purchase Date.
(b) In the event that, pursuant to this Section 11.1, the Issuer
shall be required to commence an offer to purchase Securities (a "Change of
Control Offer"), the Issuer shall follow the procedures set forth in this
Section 11.1 as follows:
(1) within 30 days following any Change of Control,
the Issuer or the Trustee (upon the request and at the expense of the
Issuer) shall send, by first-class mail, a notice to each of the
Securityholders, at his address appearing in the Note Register, which
(to the extent consistent with this Indenture) shall govern the terms
of the Change of Control Offer and shall state:
(i) that the Change of Control Offer is being
made pursuant to this Section 11.1;
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(ii) the Change of Control Purchase Price
together with accrued and unpaid interest;
(iii) the purchase date for such validly tendered
Securities, which date shall be a business day no earlier than 45 days nor
later than 60 days from the date such notice is mailed;
(iv) the Change of Control Put Date (as defined
below);
(v) that any Security or portion thereof not
tendered or accepted for payment will continue to accrue interest;
(vi) that, unless (a) the Issuer defaults in
depositing U.S. Legal Tender with the Paying Agent (which may not for
purposes of this Section 11.1, notwithstanding anything in this Indenture
to the contrary, be the Issuer or any of the Guarantors or any Affiliate of
any of the Guarantors (or any other obligor on the Securities) or any
Affiliate of the Issuer (or such other obligor)) in accordance with the
last paragraph of this clause (b) or (b) such Change of Control payment is
prevented for any reason, any Security or portion thereof accepted for
payment pursuant to the Change of Control Offer shall cease to accrue
interest after the Change of Control Purchase Date;
(vii) that Holders electing to have a Security,
or portion thereof, purchased pursuant to a Change of Control Offer will be
required to surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Security completed, to the
Paying Agent (which may not for purposes of this Section 11.1,
notwithstanding anything in this Indenture to the contrary, be the Issuer
or any of the Guarantors or any Affiliate of any of the Guarantors (or any
other obligor on the Securities) or any Affiliate of the Issuer (or such
other obligor)) at the address specified in the notice prior to the close
of business on the fifth Business Day prior to the Change of Control
Purchase Date (the "Change of Control Put Date");
(viii) that Holders will be entitled to withdraw
their elections, in whole or in part, if the Paying Agent (which may not
for purposes of this Section 11.1, notwithstanding anything in this
Indenture to the contrary, be the Issuer or any of the Guarantors or any
Affiliate of any of the Guarantors (or any
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other obligor on the Securities) or any Affiliate of the Issuer (or such
other obligor)) receives, up to the close of business on the Change of
Control Put Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement that such Holder is
withdrawing his election to have such principal amount of Securities
purchased; and
(ix) a brief description of the events resulting
in such Change of Control.
(2) the Change of Control Offer shall commence within
30 days following the Change of Control Date;
(3) the Change of Control Offer shall remain open for
20 Business Days following its commencement and no longer, except to
the extent that a longer period is required by applicable law (the
"Change of Control Offer Period");
(4) within 5 Business Days following the expiration of
a Change of Control Offer Period (and in any event not earlier than 45
days nor later than 60 days following the mailing of the notice
described above), the Issuer shall purchase all of the tendered
Securities at the Change of Control Purchase Price together with
accrued interest to the Change of Control Purchase Date;
(5) if the Change of Control Purchase Date is on or
after an interest payment record date and on or before the related
interest payment date, any accrued interest will be paid to the Person
in whose name a Security is registered at the close of business on
such record date, and no additional interest will be payable to
Securityholders who tender Securities pursuant to the Change of
Control Offer and who are paid on the Change of Control Purchase Date;
and
(6) the Issuer shall provide the Trustee with notice
of the Change of Control Offer at least 5 Business Days before the
commencement of any Change of Control Offer.
On or before the Change of Control Purchase Date, the Issuer shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the Change of Control Purchase Price (including accrued
and unpaid interest) of all Securities so tendered and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate listing
the Securities or portions thereof being purchased. The Paying Agent will
promptly mail to the Holders of Securities so accepted payment in an amount
equal to the Change of Control Purchase Price (together with accrued and unpaid
interest), and the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased
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portion of the Security surrendered. Any Securities not so accepted shall be
promptly mailed or delivered by the Issuer to the Holder thereof. The Issuer
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Purchase Date.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 12.2 NOTICES.
Any notices or other communications to the Issuer, any Guarantor or
the Trustee required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Issuer or any Guarantor:
Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
Attention: Corporate Secretary
Telephone: (702) 435-4200
if to the Trustee:
United States Trust Company of New York
_________________
_________________
Attention: _________________
Telephone: _________________
The Issuer, the Guarantors or the Trustee by notice to each other
party may designate additional or different addresses as shall be furnished in
writing by such party. Any notice or communication to the Issuer, the
Guarantors or the Trustee shall be deemed to have been given or made as of the
date so delivered, if personally delivered; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and 5 Business Days after mailing if
sent
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by registered or certified mail, postage prepaid (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be deemed to have
been given upon the date so mailed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Issuer, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).
SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Issuer to the Trustee to take
any action under this Indenture, the Issuer shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of such counsel, all such conditions precedent have been complied
with.
SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of each such person, such condition or covenant has been complied
with; PROVIDED, HOWEVER, that with respect to matters of fact an
Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
SECTION 12.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 12.7 LEGAL HOLIDAYS.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York are not required to be open. If a payment date is a Legal Holiday in New
York, New York, payment may be made at such place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
SECTION 12.8 GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE ISSUER AND THE GUARANTORS HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH OF THE ISSUER AND
THE GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY SECURITYHOLDER TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COM-
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MENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE ISSUER OR ANY OF THE
GUARANTORS IN ANY OTHER JURISDICTION.
SECTION 12.9 NO INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Issuer or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10 NO RECOURSE AGAINST OTHERS.
A direct or indirect partner, director, officer, employee or
stockholder, as such, past, present or future of the Issuer, the Guarantors or
any successor entity shall not have any personal liability in respect of the
obligations of the Issuer or the Guarantors under the Securities or this
Indenture by reason of his or its status as such partner, director, officer,
employee or stockholder, except to the extent such is an Issuer or a Guarantor.
Each Securityholder by accepting a Security waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
SECTION 12.11 SUCCESSORS.
All agreements of the Issuer or the Guarantors in this Indenture and
the Securities shall bind their successors. All agreements of the Trustee in
this Indenture shall bind its successor.
SECTION 12.12 DUPLICATE ORIGINALS.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 12.13 SEVERABILITY.
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 12.14 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
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SECTION 12.15 GAMING LAWS.
This Indenture, the Collateral Agreements, the Securities and the
security interests thereunder are subject to the Nevada Gaming Control Act and
the rules and regulations thereunder, the Louisiana Video Draw Poker Devices
Control Law and the rules and regulations thereunder, the Mississippi Gaming
Control Act and the rules and regulations thereunder, and applicable gaming
legislation, rules and regulations of the Federal Republic of Germany
(collectively, the "Gaming Regulations") (and the Issuer represents and warrants
that all requisite approvals thereunder have been obtained), and the exercise of
remedies under the Collateral Agreements with respect to the Collateral will be
subject to the Gaming Regulations.
SECTION 12.16 CONSUMMATION OF TRANSACTION PERMITTED.
Nothing contained herein shall be deemed to restrict or prevent in any
manner the consummation of the Transaction (including the Wulff Realignment).
ARTICLE XIII
GUARANTY
SECTION 13.1 GUARANTY.
(a) In consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each of the Guarantors,
jointly and severally, hereby irrevocably and unconditionally guarantees on a
senior basis (collectively, the "Guaranty"), to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Notes or the obligations of the Issuer under this Indenture or the Notes,
that: (w) the principal and premium (if any) of and interest on the Notes will
be paid in full when due, whether at the maturity or interest payment date, by
acceleration, call for redemption, upon an Offer to Purchase, or otherwise, and
interest on the overdue principal and interest, if any, of the Notes, if lawful,
and all other obligations of the Issuer to the Holders or the Trustee under this
Indenture or the Notes will be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Notes; (x) all other
obligations of the Issuer to the Holders or the Trustee under this Indenture or
the Notes will be promptly paid in full or performed, all in accordance with the
terms of this Indenture and the Notes; and (y) in case of any extension of time
of payment or renewal of any Notes or any of such other obligations, they will
be paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at maturity, by acceleration, call for redemption,
upon an Offer to Purchase or otherwise. Failing payment when due of any amount
so guaranteed for whatever reason, each Guarantor shall be obligated to pay the
same before failure so to pay becomes an Event of Default. This Guaranty is a
guarantee of payment and not of collection. Failing payment when due of any
amount so guaranteed for whatever reason, the Guarantors shall be jointly and
severally obligated to pay the same before failure to so pay becomes an Event of
Default.
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(b) Each Guarantor hereby agrees that its obligations with
regard to this Guaranty shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any delays in obtaining or realizing upon or
failures to obtain or realize upon collateral, the recovery of any judgment
against the Issuer, any action to enforce the same or any other circumstances
that might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Issuer, any right to require a proceeding first against the Issuer or
right to require the prior disposition of the assets of the Issuer to meet its
obligations, protest, notice and all demands whatsoever and covenants that this
Guaranty will not be discharged except by complete performance of the
obligations contained in the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or
otherwise to return to the Issuer or any Guarantor, or any Custodian, Trustee,
or similar official acting in relation to the Issuer or such Guarantor, any
amount paid by either of the Issuer or such Guarantor to the Trustee or such
Holder, this Guaranty, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Guarantor agrees that it will not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor further agrees that, as between such
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(i) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Section 7.2 for the purposes of this Guaranty, notwithstanding any
stay, injunction or other prohibition preventing such acceleration as to the
Issuer of the obligations guaranteed hereby, and (ii) in the event of any
declaration of acceleration of those obligations as provided in Section 7.2,
those obligations (whether or not due and payable) will forthwith become due and
payable by each of the Guarantors for the purpose of this Guaranty.
(d) It is the intention of each Guarantor and the Issuer that
the obligations of each Guarantor hereunder shall be in, but not in excess of,
the maximum amount permitted by applicable law. Accordingly, if the obligations
in respect of the Guaranty would be annulled, avoided or subordinated to the
creditors of any Guarantor by a court of competent jurisdiction in a proceeding
actually pending before such court as a result of a determination both that such
Guaranty was made without fair consideration and, immediately after giving
effect thereto, such Guarantor was insolvent or unable to pay its debts as they
mature or left with an unreasonably small capital, then the obligations of such
Guarantor under such Guaranty shall be reduced by such court if and to the
extent such reduction would result in the avoidance of such annulment, avoidance
or subordination; PROVIDED, HOWEVER, that any reduction pursuant to this
paragraph shall be made in the smallest amount as is strictly necessary to reach
such result. For purposes of this paragraph, "fair consideration",
"insolvency", "unable to pay its debts as they mature", "unreasonably small
capital" and the effective times of reductions, if any, required by this
paragraph shall be determined in accordance with applicable law. The provisions
of this Section 13.1(d) shall survive until the Notes are no longer outstanding.
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SECTION 13.2 EXECUTION AND DELIVERY OF GUARANTY.
To evidence its Guaranty set forth in Section 13.1, each Guarantor
agrees to execute a Guaranty substantially in the form annexed hereto as Exhibit
B and that this Indenture shall be executed on behalf of such Guarantor by two
Officers or an Officer and an Assistant Secretary by manual or facsimile
signature.
Each Guarantor agrees that its Guaranty set forth in Section 13.1
shall remain in full force and effect and apply to all the Notes notwithstanding
any failure to endorse on each Note a notation of such Guaranty.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note to which a Guaranty relates, the
Guaranty shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guaranty set forth in
this Indenture on behalf of each Guarantor.
SECTION 13.3 LIMITATION ON MERGER, CONSOLIDATION, ETC. OF GUARANTORS.
No Guarantor shall consolidate or merge with or into (whether or not
such Guarantor is the surviving person) another person (other than the Issuer or
another Guarantor) unless (i) subject to the provisions of the following
paragraph, the person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture and (if required) additional Collateral
Agreements in form reasonably satisfactory to the Trustee, pursuant to which
such person shall unconditionally guarantee, on a senior basis, all of such
Guarantor's obligations under such Guarantor's Guaranty, this Indenture and the
Notes on the terms set forth herein, (ii) immediately before and immediately
after giving effect to such transaction on a PRO FORMA basis, no Default or
Event of Default shall have occurred or be continuing, and (iii) immediately
after such transaction, the surviving person holds all permits required for
operation of the business of, and such entity is controlled by a person or
entity (or has retained a person or entity which is) experienced in, or
otherwise holds all permits (including those required from Gaming Authorities)
to operate its business.
Upon the sale or disposition (whether by merger, stock purchase, asset
sale or otherwise) of a Subsidiary Guarantor or all of its assets to an entity
which is not a Subsidiary Guarantor or the designation of a Subsidiary to become
an Unrestricted Subsidiary, which transaction is otherwise in compliance with
this Indenture (including, without limitation, Section 5.15), such Subsidiary
Guarantor will be deemed released from its obligations under its Guaranty of the
Notes; PROVIDED, HOWEVER, that any such termination shall occur only to the
extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, any Indebtedness of the Issuer or any other Subsidiary
shall also terminate upon release, sale or transfer.
79
<PAGE>
SECTION 13.4 CERTAIN BANKRUPTCY EVENTS.
Each Guarantor hereby covenants and agrees that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Issuer, such Guarantor shall not file (or join in any filing of), or otherwise
seek to participate in the filing of, any motion or request seeking to stay or
to prohibit (even temporarily) execution on the Guaranty and hereby waives and
agrees not to take the benefit of any such stay of execution, whether under
Section 362 or 105 of the United States Bankruptcy Code or otherwise.
SECTION 13.5 RIGHTS UNDER THE GUARANTY.
No payment by any Guarantor pursuant to the provisions hereof to the
Trustee shall entitle such Guarantor to any payment out of any Collateral held
by the Trustee under this Indenture or any Collateral Agreements.
(a) Each of the Guarantors waives notice of the issuance, sale
and purchase of the Notes and notice from the Trustee or the holders from time
to time of any of the Notes of their acceptance and reliance on this Guaranty.
(b) Notwithstanding any payment or payments made by the
Guarantors by reason of this Guaranty, the Guarantors shall not be subrogated to
any rights of the Trustee or any Holder of the Notes against the Issuer until
all the Notes shall have been paid or deemed to have been paid within the
meaning of this Indenture. Any payment made by the Guarantors by reason of this
Guaranty shall be in all respects subordinated to the full and complete payment
or discharge under this Indenture of all obligations guaranteed hereby, and no
payment by the Guarantors by reason of this Guaranty shall give rise to any
claim of the Guarantors against the Trustee or any Holder of the Notes. Unless
and until the Notes shall have been paid or deemed to have been paid within the
meaning of this Indenture, none of the Guarantors will assign or otherwise
transfer any such claim against the Issuer to any other person.
(c) No set-off, counterclaim, reduction or diminution of any
obligation or any defense of any kind or nature (other than performance by the
Guarantor of its obligation hereunder) which the Guarantor may have or assert
against the Trustee or any holder of any Notes shall be available hereunder to
the Guarantor against the Trustee.
(d) Each Guarantor agrees to pay all costs, expense and fees,
including all reasonable attorneys' fees, which may be incurred by the Trustee
in enforcing or attempting to enforce the Guaranty or protecting the rights of
the Trustee or the Holders of Notes, if any, in accordance with this Indenture.
80
<PAGE>
SECTION 13.6 SEVERABILITY.
In case any provision of this Guaranty shall be invalid, illegal or
unenforceable, that portion of such provision that is not invalid, illegal or
unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
81
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
ALLIANCE GAMING CORPORATION
By:
-------------------------------------
Name:
Title:
Attest:
-------------------
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
-------------------------------------
Name:
Title:
Attest:
-------------------
<PAGE>
GUARANTORS
----------------------------------------
By:
-------------------------------------
Name:
Title:
Attest:
-------------------
<PAGE>
EXHIBIT A
[FORM OF SECURITY]
ALLIANCE GAMING CORPORATION
% SENIOR SECURED NOTES
DUE 2003
No. $
CUSIP ___________
Alliance Gaming Corporation, a Nevada corporation (herein called the
"Issuer," which term includes any successor entity under the Indenture
hereinafter referred to), for value received, hereby promise to pay to
______________, or registered assigns, the principal sum of
___________________________________________ Dollars, on ______, 2003.
Interest Payment Dates: __________ and ___________.
Record Dates: ________ and __________.
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
A-1
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Instrument to be duly
executed under its corporate seal.
Dated:
Attest: ALLIANCE GAMING CORPORATION
By:
- ------------------------------ -------------------------
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as trustee
By:
-----------------------------
Authorized Signatory
Dated:
A-2
<PAGE>
ALLIANCE GAMING CORPORATION.
__% SENIOR SECURED NOTESDUE 2003
1. INTEREST.
Alliance Gaming Corporation, a Nevada corporation (the "Issuer"),
promises to pay interest on the principal amount of this Security at the rate of
__% per annum from the date of issuance or from the most recent Interest Payment
Date to which interest has been paid or provided for. Interest on this Security
will be payable semiannually on ________ and _________, commencing ____________,
1996, to the person in whose name this Security is registered at the close of
business on ________ or __________, preceding such Interest Payment Date (each,
a "Record Date"). Interest on this Security will be computed on the basis of a
360-day year, consisting of twelve 30-day months.
2. METHOD OF PAYMENT.
The Issuer shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender Securities to a Paying Agent to collect principal payments.
Except as provided below, the Issuer shall pay principal and interest in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for payment of public and private debts ("U.S. Legal Tender").
The Issuer may deliver any such interest payment to the Paying Agent or the
Issuer may mail any such interest payment to a Holder at the Holder's registered
address. Notwithstanding the preceding two sentences, in the case of Securities
of which The Depository Trust Issuer or its nominee is the Holder, such payments
must be made by wire transfer of Federal funds.
3. PAYING AGENT AND REGISTRAR.
Initially, United States Trust Company of New York (the "Trustee")
will act as Paying Agent and Registrar. The Issuer may change any Paying Agent,
Registrar or Co-registrar without notice to the Holders. The Issuer or any of
their Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or Co-registrar.
4. INDENTURE.
The Issuer issued the Securities under an Indenture, dated as of
June __, 1996 (the "Indenture"), between the Issuer, the Guarantors named
therein and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by
A-3
<PAGE>
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The Securities are subject to all such terms, and Holders of Securities are
referred to the Indenture and said Act for a statement of them. The Securities
are senior, secured obligations of the Issuer limited in aggregate principal
amount to $140,000,000.
5. REDEMPTION.
The Securities are redeemable in whole or from time to time in part at
any time on and after _____, 2000, at the option of the Issuer, at the
Redemption Price (expressed as a percentage of principal amount) set forth
below, if redeemed during the 12-month period commencing _____ of each of the
years indicated below, in each case, together with any accrued but unpaid
interest to the Redemption Date. Except as provided in the next paragraph, the
Securities may not otherwise be redeemed at the option of the Issuer.
12-Month
Period Beginning June Redemption Price
--------------------- ----------------
2000 . . . . . . . . . . %
2001 . . . . . . . . . . %
2002 and thereafter . . . . . . . . . . 100.000%
Any Gaming Authority with appropriate jurisdiction and authority
relating to a Gaming License held by the Issuer or an Affiliate or wholly owned
Subsidiary of the Issuer may require a Holder to be qualified under any
applicable law administered by such Governmental Authority. If a Holder does
not so qualify, the Holder must dispose of its interest in the Securities,
within 30 days after the Issuer's notice of such finding (or within such earlier
date as such Gaming Authority may require), or the Issuer may redeem such
Securities to the extent necessary in the reasonable, good faith judgment of the
Board of Directors of the Issuer, to prevent the loss, failure to obtain or
material impairment or to secure the reinstatement of any material Gaming
License. If a Holder does not qualify under any applicable law administered by
any Gaming Authority, the Issuer may redeem such Securities to the extent
necessary in the reasonable, good faith judgment of the Board of Directors of
the Issuer, to prevent the loss, failure to obtain or material impairment or to
secure the reinstatement of any material Gaming License. In such event, the
Redemption Price shall be the principal amount thereof, plus accrued and unpaid
interest to the date of redemption (or such lesser amount as may be required by
applicable law or by order of any Gaming Authority).
Any redemption of the Securities shall comply with Article III of the
Indenture.
A-4
<PAGE>
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed by first class mail at least 30
days but not more than 60 days before the Redemption Date (unless another notice
period shall be required by applicable law or by order of any Gaming Authority)
to each Holder of Securities to be redeemed at his registered address.
Securities in denominations larger than $1,000 may be redeemed in part, but only
in $1,000 integrals.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent (other than the Issuer or an Affiliate
of the Issuer) on such Redemption Date, the Securities called for redemption
will cease to bear interest and the only right of the Holders of such Securities
will be to receive payment of the Redemption Price, including any accrued and
unpaid interest to the Redemption Date, unless the Issuer defaults on such
payment.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption.
8. PERSONS DEEMED OWNERS.
The registered Holder of a Security may be treated as the owner of it
for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Issuer at its written request. After that, all liability of the Trustee and
such Paying Agent(s) with respect to such money shall cease.
10. LEGAL DEFEASANCE OR COVENANT DEFEASANCE PRIOR TO REDEMPTION OR MATURITY.
If the Issuer, within one year of the final Stated Maturity of the
Securities in the case of Legal Defeasance, or at any time in the case of
Covenant Defeasance, deposits with the Trustee, in trust, for the benefit of the
Holders, U.S. Legal Tender, non-callable government securities or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Trustee, to
pay the principal of, premium, if any and interest on the Securities to
redemption or maturity and complies with the other provisions of the Indenture
relating thereto, the Issuer may elect to have
A-5
<PAGE>
its obligations discharged, in the case of a Legal Defeasance (in which case the
Indenture would cease to be of further effect, except as to certain limited
obligations and to the rights of Holders to receive payments when due from the
trust funds therefor), or, in the case of a Covenant Defeasance, to be
discharged from certain provisions of the Indenture and the Securities
(including the financial covenants, but excluding its obligation to pay the
principal of and interest on the Securities).
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of a simple
majority, 66 2/3% or 100% in aggregate principal amount of the Securities then
outstanding, as applicable, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders of
the same specified percentage of aggregate principal amount of the Securities
then outstanding. Without notice to or consent of any Holder, the parties
thereto may amend or supplement the Indenture, the Collateral Agreements or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, or make any other change that does not adversely affect the rights
of any Holder of a Security.
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Issuer
and its Subsidiaries to, among other things, incur additional Indebtedness and
Disqualified Capital Stock, make payments in respect of its Equity Interests,
enter into transactions with Affiliates, incur Liens, sell assets, merge or
consolidate with any other person and sell, lease, transfer or otherwise dispose
of substantially all of its properties or assets. The limitations are subject
to a number of important qualifications and exceptions. The Issuer must
annually report to the Trustee on compliance with such limitations.
13. CHANGE OF CONTROL.
In the event there shall occur any Change of Control, each Holder of
Securities shall have the right, at such Holder's option but subject to the
limitations and conditions set forth in the Indenture, to require the Issuer to
purchase on the Change of Control Purchase Date in the manner specified in the
Indenture, all or any part (in integral multiples of $1,000) of such Holder's
Securities at a Change of Control Purchase Price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the Change
of Control Purchase Date.
A-6
<PAGE>
14. SECURITY.
In order to secure the obligations under the Indenture, the Issuer,
the Guarantors and the Trustee have entered into the Collateral Agreements in
order to create and govern security interests in certain assets of the Issuer,
the Guarantors and their Subsidiaries.
15. SALE OF ASSETS.
The Indenture imposes certain limitations on the ability of the Issuer
or any of its Subsidiaries to sell assets. In the event the proceeds from a
permitted Asset Sale exceed certain amounts, as specified in the Indenture, the
Issuer and the Guarantors will be required either to reinvest the proceeds of
such Asset Sale in their business or to repay certain indebtedness and to make
an offer to purchase each Holder's Securities at 100% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the Asset Sale
Purchase Date.
16. GAMING LAWS.
The rights of the Holder of this Security and any owner of any
beneficial interest in this Security are subject to the gaming laws, regulations
and the jurisdiction and requirements of the Gaming Authorities and the further
limitations and requirements set forth in the Indenture.
17. SUCCESSORS.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
18. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may require reasonable security or indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations, Holders of a majority in aggregate principal amount of
the Securities then outstanding may direct the Trustee in its exercise of any
trust or power.
19. TRUSTEE DEALINGS WITH ISSUER.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of any of the Securities, make loans
to, accept deposits from, and perform services for the Issuer or their
Affiliates, and may otherwise deal with the Issuer or its Affiliates with the
same rights it would have if it were not the Trustee.
A-7
<PAGE>
20. NO RECOURSE AGAINST OTHERS.
No direct or indirect partner, director, officer, employee or
stockholder, as such, past, present or future of the Issuer, any Guarantor or
any successor entity shall have any personal liability in respect of the
obligations of the Issuer or any Guarantor under the Indenture or the Securities
or the guarantees thereof by reason of his or its status as such partner,
director, officer, employee or stockholder, except to the extent such is an
Issuer or a Guarantor. Each Holder of a Security by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
21. AUTHENTICATION.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
22. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuer will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-8
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
_________________ and irrevocably appoint ___________ agent to transfer this
Security on the books of the Issuer. The agent may substitute another to act
for him.
Dated: __________ Signed: ___________________________________________________
(Sign exactly as your name appears on the other side of this
Security)
Signature guarantee should be made by a guarantor institution participating in
the Securities Transfer Agents Medallion Program or in such other guarantee
program acceptable to the Trustee.
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Issuer
pursuant to any of the following provisions of the Indenture, check the
appropriate box:
/ / Section 5.15; / / Article XI.
If you want to elect to have only part of this Security purchased by
the Issuer pursuant to the Indenture, state the principal amount you want to be
purchased: $________
Date: ________________ Signature: ____________________________________________
(Sign exactly as your name appears on the other side of
this Security)
A-10
<PAGE>
EXHIBIT B
FORM OF GUARANTY
For value received, __________________, a __________________
[corporation/partnership], hereby irrevocably, unconditionally guarantees, on a
senior [secured] basis, to the Holder of any __% Senior Secured Note due 2003
(the "Security") of Alliance Gaming Corporation (the "Issuer") upon which this
Guaranty is endorsed, the due and punctual payment, as set forth in the
Indenture (the "Indenture") among the Issuer, the guarantors named therein and
United States Trust Company of New York, as trustee (the "Trustee") pursuant to
which such Security and this Guaranty were issued, of the principal of, premium
(if any) and interest on such Security when and as the same shall become due and
payable for any reason according to the terms of such Security and Article XIII
of the Indenture. The guaranty of the Security upon which this Guaranty is
endorsed will not become effective until the Trustee signs the certificate of
authentication on such Security.
--------------------------------------
By:
-----------------------------------
Attest:
-------------------------------
B-1
<PAGE>
MTHM DRAFT
5/11/96
FORM OF NEVADA PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of June __, 1996 among ALLIANCE
GAMING CORPORATION, a corporation duly organized and validly existing under the
laws of the State of Nevada (the "COMPANY"); each of the Subsidiaries of the
Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature
pages hereof and any other Subsidiaries of the Company required from time to
time to be guarantors of the Company's obligations under the Indenture (as
hereinafter defined) (individually, a "SUBSIDIARY GUARANTOR" and, collectively,
the "SUBSIDIARY GUARANTORS" and, together with the Company, the "OBLIGORS"); and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (the "TRUSTEE").
The Company, the Subsidiary Guarantors and the Trustee are parties to
an Indenture dated as of June __, 1996 (as modified and supplemented and in
effect from time to time, the "INDENTURE"), providing, subject to the terms and
conditions thereof, for the issuance by the Company of its __% Senior Secured
Notes due 2003 (the "NOTES") in an aggregate principal amount not exceeding
$140,000,000, which shall be guaranteed (the "GUARANTEES") on a senior basis by
each Subsidiary Guarantor.
It is a condition precedent to the purchase of the Notes by the
underwriters thereof from the Company that the Obligors shall have executed and
delivered this Agreement to the Trustee for the ratable benefit of the holders
of the Notes.
To induce the purchase of the Notes by the holders thereof from time
to time and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Obligor has agreed to pledge
and grant a security interest in the Collateral (as hereinafter defined) as
security for the Secured Obligations (as so defined). Accordingly, the parties
hereto agree as follows for the benefit of the holders of the Notes:
Section 1. DEFINITIONS. Terms defined in the Indenture are used
herein as defined therein. In addition, as used herein:
"ACCOUNTS" shall have the meaning ascribed thereto in Section 3(d)
hereof.
"COLLATERAL" shall have the meaning ascribed thereto in Section 3
hereof.
<PAGE>
-2-
"COLLATERAL ACCOUNT" shall have the meaning ascribed thereto in
Section 4.01 hereof.
"COPYRIGHT COLLATERAL" shall mean all Copyrights, whether now owned or
hereafter acquired by any Obligor, including each Copyright identified in
Annex 2 hereto.
"COPYRIGHTS" shall mean all copyrights, copyright registrations and
applications for copyright registrations, including, without limitation,
all renewals and extensions thereof, the right to recover for all past,
present and future infringements thereof, and all other rights of any kind
whatsoever accruing thereunder or pertaining thereto.
"DOCUMENTS" shall have the meaning ascribed thereto in Section 3(j)
hereof.
"EQUIPMENT" shall have the meaning ascribed thereto in Section 3(h)
hereof.
"GAMING AUTHORITY" shall mean any governmental agency which regulates
gaming in a jurisdiction in which the Company or any of its Subsidiaries
conducts gaming activities or activities related to the design, manufacture
or distribution of gaming machines, equipment or systems.
"INSTRUMENTS" shall have the meaning ascribed thereto in Section 3(e)
hereof.
"INTELLECTUAL PROPERTY" shall mean, collectively, all Copyright
Collateral, all Patent Collateral and all Trademark Collateral, together
with (a) all inventions, processes, production methods, proprietary
information, know-how and trade secrets; (b) all licenses or user or other
agreements granted to any Obligor with respect to any of the foregoing, in
each case whether now or hereafter owned or used, other than the licenses
or other agreements with respect to the Copyright Collateral, the Patent
Collateral or the Trademark Collateral listed in Annex 5 hereto; (c) all
information, customer lists, identification of suppliers, data, plans,
blueprints, specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards, processing
standards, performance standards, catalogs, computer and automatic
machinery software and programs; (d) all field repair data, sales data and
other information relating to sales or service of products now or hereafter
manufactured; (e) all accounting information and all media
<PAGE>
-3-
in which or on which any information or knowledge or data or records may be
recorded or stored and all computer programs used for the compilation or
printout of such information, knowledge, records or data; and (f) all
licenses, consents, permits, variances, certifications and approvals of
governmental agencies now or hereafter held by any Obligor, other than any
licenses granted by any Gaming Authority and any other intellectual
property which is not assignable by its terms or pursuant to restrictions
imposed by any Gaming Authority.
"INTERCOMPANY NOTES" shall mean all indebtedness owed by any
Subsidiary Guarantor of the Company to the Company or to any Subsidiary
Guarantor now or hereafter held, owned or acquired by the Company or any
Subsidiary Guarantor, together with any notes and instruments representing
the same, including on the date hereof the Intercompany Notes set forth in
Annex 7.
"INVENTORY" shall have the meaning ascribed thereto in Section 3(f)
hereof.
"ISSUERS" shall mean, collectively, the respective entities identified
beneath the names of the Obligors on Annex 1 hereto under the caption
"ISSUER".
"MOTOR VEHICLES" shall mean motor vehicles, tractors and trailers,
whether or not the title thereto is governed by a certificate of title or
ownership.
"PATENT COLLATERAL" shall mean all Patents, whether now owned or
hereafter acquired by any Obligor, including each Patent identified in
Annex 3 hereto.
"PATENTS" shall mean all patents and patent applications, including,
without limitation, the inventions and improvements described and claimed
therein together with the reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, all income, royalties,
damages and payments now or hereafter due and/or payable under and with
respect thereto, including, without limitation, damages and payments for
past or future infringements thereof, the right to sue for past, present
and future infringements thereof, and all rights corresponding thereto
throughout the world.
"PLEDGED STOCK" shall have the meaning ascribed thereto in
Section 3(a) hereof.
<PAGE>
-4-
"SECURED OBLIGATIONS" shall mean, collectively, (a) in the case of the
Company, the principal of and interest on the Notes and all other
obligations of the Company under the Indenture, (b) in the case of the
Subsidiary Guarantors, all obligations of the Subsidiary Guarantors under
the Indenture (including, without limitation, in respect of their
respective Guarantees under Section 13.1 of the Indenture) and (c) all
obligations of the Obligors to the Trustee hereunder.
"STOCK COLLATERAL" shall mean, collectively, the Collateral described
in clauses (a) through (c) of Section 3 hereof and the proceeds of and to
any such property and, to the extent related to any such property or such
proceeds, all books, correspondence, credit files, records, invoices and
other papers.
"TRADEMARK COLLATERAL" shall mean all Trademarks, whether now owned or
hereafter acquired by any Obligor, including each Trademark identified in
Annex 4 hereto. Notwithstanding the foregoing, the Trademark Collateral
does not and shall not include any Trademark that would be rendered
invalid, abandoned, void or unenforceable by reason of its being included
as part of the Trademark Collateral.
"TRADEMARKS" shall mean all trade names, trademarks and service marks,
logos, trademark and service mark registrations, and applications for
trademark and service mark registrations, including, without limitation,
all renewals of trademark and service mark registrations, all rights
corresponding thereto throughout the world, the right to recover for all
past, present and future infringements thereof, all other rights of any
kind whatsoever accruing thereunder or pertaining thereto, together, in
each case, with the product lines and goodwill of the business connected
with the use of, and symbolized by, each such trade name, trademark and
service mark.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in
effect from time to time in the State of New York.
Section 2. REPRESENTATIONS AND WARRANTIES. Each Obligor represents
and warrants to the Trustee that:
(a) Such Obligor is the sole record or registered owner of the
Collateral in which it purports to grant a
<PAGE>
-5-
security interest pursuant to Section 3 hereof, with sole dispositive power
with respect thereto, and no Lien exists or will exist upon such Collateral
at any time (and no right or option to acquire the same exists in favor of
any other Person), except for Liens permitted under Section __ of the
Indenture and except for the pledge and security interest in favor of the
Trustee created or provided for herein, which pledge and security interest
constitute a first priority perfected pledge and security interest (except
as otherwise specified herein with respect to certain assets identified on
Annex 9 hereto) in and to all of such Collateral (other than Intellectual
Property registered or otherwise located outside of the United States of
America).
(b) The Pledged Stock represented by the certificates identified
under the name of such Obligor in Annex 1 hereto is, and all other Pledged
Stock in which such Obligor shall hereafter grant a security interest
pursuant to Section 3 hereof will be, duly authorized, validly existing,
fully paid and non-assessable and none of such Pledged Stock is or will be
subject to any contractual restriction, or any restriction under the
charter or by-laws of the respective Issuer of such Pledged Stock, upon the
transfer of such Pledged Stock (except for any such restriction contained
herein or permitted under the Indenture or as required by the Nevada Gaming
Laws (as hereinafter defined)).
(c) Except as otherwise set forth in Annex 1 hereto, the Pledged
Stock represented by the certificates identified under the name of such
Obligor in Annex 1 hereto constitutes all of the issued and outstanding
Equity Interests of any class of the Issuers and said Annex 1 correctly
identifies, as at the date hereof, the respective Issuers of such Pledged
Stock, the respective class and par value of the shares or other evidences
of Equity Interests comprising such Pledged Stock and the respective number
of shares or other evidences of Equity Interests (and registered owners
thereof) represented by each such certificate.
(d) Annexes 2, 3 and 4 hereto, respectively, set forth under the name
of such Obligor a complete and correct list of all Copyrights, Patents and
Trademarks owned by such Obligor on the date hereof; except pursuant to
licenses and other user agreements entered into by such Obligor in the
ordinary course of business, such Obligor owns and possesses the right to
use, and has done nothing to authorize or enable any other Person to use,
any Copyright, Patent or Trademark listed in said Annexes 2, 3 and 4, and
all
<PAGE>
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registrations listed in said Annexes 2, 3 and 4 are valid and in full force
and effect; except as may be set forth in said Annex 5, such Obligor owns
and possesses the right to use all Copyrights, Patents and Trademarks.
(e) Annex 5 hereto sets forth a list of all licenses and other user
agreements excluded from the definition of Intellectual Property on the
date hereof.
(f) To such Obligor's knowledge, (i) except as set forth in such
Annexes, there is no violation by others of any right of such Obligor with
respect to any Copyright, Patent or Trademark listed in Annexes 2, 3 and 4
hereto, respectively, under the name of such Obligor and (ii) such Obligor
is not infringing in any respect upon any Copyright, Patent or Trademark of
any other Person; and no proceedings have been instituted or are pending
against such Obligor or, to such Obligor's knowledge, threatened, and no
claim against such Obligor has been received by such Obligor, alleging any
such violation, except as may be set forth in said Annex 5.
(g) Such Obligor does not own any Trademarks registered in the United
States of America to which the last sentence of the definition of Trademark
Collateral applies.
(h) Any goods now or hereafter produced by such Obligor or any of its
Subsidiaries included in the Collateral have been and will be produced in
compliance with the requirements of the Fair Labor Standards Act, as
amended.
(i) The chief executive office of each Obligor is as set forth on
Annex 11 hereto.
Section 3. COLLATERAL. As collateral security for the prompt payment
in full when due (whether at stated maturity, by acceleration or otherwise) of
the Secured Obligations, each Obligor hereby pledges and grants to the Trustee a
security interest in all of such Obligor's right, title and interest in the
following property, whether now owned by such Obligor or hereafter acquired and
whether now existing or hereafter coming into existence (all being collectively
referred to herein as "COLLATERAL"):
(a) the evidences of Equity Interests of the Issuers represented by
the certificates identified in Annex 1 hereto under the name of such
Obligor and all other Equity
<PAGE>
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Interests of whatever class of the Issuers, and all other Equity Interests
which are subject to this pledge pursuant to Section 5.19 of the Indenture
or Section 7.11 hereof, now or hereafter owned by such Obligor, in each
case together with the certificates evidencing the same (collectively,
the "PLEDGED STOCK");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock, in each case together with the
certificates evidencing the same;
(c) without affecting the obligations of such Obligor under any
provision prohibiting such action hereunder or under the Indenture, in the
event of any consolidation or merger in which an Issuer is not the
surviving corporation, all evidences of each class of Equity Interests of
the successor corporation (unless such successor corporation is such
Obligor itself) formed by or resulting from such consolidation or merger,
in each case together with the certificates evidencing the same (the
Pledged Stock, together with all other certificates, shares, securities,
properties or moneys as may from time to time be pledged hereunder pursuant
to clause (a) or (b) above and this clause (c) being herein collectively
called the "STOCK COLLATERAL");
(d) all accounts and general intangibles (as defined in the Uniform
Commercial Code) of such Obligor constituting any right to the payment of
money, including (but not limited to) all moneys due and to become due to
such Obligor in respect of any loans or advances or for Inventory or
Equipment or other goods sold or leased or for services rendered, all
moneys due and to become due to such Obligor under any guarantee (including
a letter of credit) of the purchase price of Inventory or Equipment sold by
such Obligor and all tax refunds, other than the accounts, general
intangibles and moneys due and to become due of Bally Gaming, Inc. (such
accounts, general intangibles and moneys due and to become due being herein
called collectively "ACCOUNTS");
<PAGE>
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(e) all instruments, chattel paper or letters of credit (each as
defined in the Uniform Commercial Code) of such Obligor evidencing,
representing, arising from or existing in respect of, relating to, securing
or otherwise supporting the payment of, any of the Accounts, including (but
not limited to) promissory notes, drafts, bills of exchange and trade
acceptances (herein collectively called "INSTRUMENTS");
(f) all inventory (as defined in the Uniform Commercial Code) of such
Obligor, all goods obtained by such Obligor in exchange for such inventory,
and any products made or processed from such inventory including all
substances, if any, commingled therewith or added thereto, other than the
inventory and other such items of Bally Gaming, Inc. (herein collectively
called "INVENTORY");
(g) all Intellectual Property;
(h) all other accounts or general intangibles not constituting
Intellectual Property or Accounts, other than any accounts or general
intangibles which are not assignable by their terms or pursuant to
restrictions imposed by any Gaming Authority;
(i) all equipment (as defined in the Uniform Commercial Code) of such
Obligor (herein collectively called "EQUIPMENT");
(j) each contract and other agreement of such Obligor relating to the
sale or other disposition of Inventory or Equipment;
(k) all documents of title (as defined in the Uniform Commercial
Code) or other receipts of such Obligor covering, evidencing or
representing Inventory or Equipment (herein collectively called
"DOCUMENTS");
(l) all rights, claims and benefits of such Obligor against any
Person arising out of, relating to or in connection with Inventory or
Equipment purchased by such Obligor, including, without limitation, any
such rights, claims or benefits against any Person storing or transporting
such Inventory or Equipment;
(m) the Collateral Account and all property credited thereto;
<PAGE>
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(n) the Intercompany Notes and all moneys or property representing
interest thereon; and
(o) all other tangible and intangible personal property and fixtures
of such Obligor, including, without limitation, all proceeds, products,
offspring, accessions, rents, profits, income, benefits, substitutions and
replacements of and to any of the property of such Obligor described in the
preceding clauses of this Section 3 (including, without limitation, any
proceeds of insurance thereon and all causes of action, claims and
warranties now or hereafter held by any Obligor in respect of any of the
items listed above) and, to the extent related to any property described in
said clauses or such proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other papers, including
without limitation all tapes, cards, computer runs and other papers and
documents in the possession or under the control of such Obligor or any
computer bureau or service company from time to time acting for such
Obligor;
provided, however, that (i) the encumbered assets identified on Annex 8 hereto
which by the terms of the agreements pursuant to which they are encumbered do
not permit pari passu or junior liens shall not constitute Collateral, and (ii)
with respect to the encumbered assets identified on Annex 9 hereto, whether now
owned by the Obligor specified therein or hereafter acquired and whether now
existing or hereafter coming into existence, the security interest granted
hereunder shall be pari passu with or junior to the existing lien on such
assets, in each case as specified in Annex 9 hereto.
Section 4. CASH PROCEEDS OF COLLATERAL.
4.01 COLLATERAL ACCOUNT. Pursuant to Section __ of the Indenture,
there is hereby established with the Trustee a cash collateral account (the
"COLLATERAL ACCOUNT") in the name and under the control of the Trustee into
which there shall be deposited from time to time the cash proceeds of any of the
Collateral (including proceeds of insurance thereon) and into which the Obligors
may from time to time deposit any additional amounts that any of them wishes to
pledge to the Trustee as additional collateral security hereunder. The balance
from time to time in the Collateral Account shall constitute part of the
Collateral hereunder and shall not constitute payment of the Secured Obligations
until applied as hereinafter provided. However, at any time following the
occurrence and during the
<PAGE>
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continuance of an Event of Default, the Trustee may in its discretion apply or
cause to be applied (subject to collection) the balance from time to time
outstanding to the credit of the Collateral Account to the payment of the
Secured Obligations in the manner specified in Section 5.09 hereof. The balance
from time to time in the Collateral Account shall be subject to withdrawal only
as provided herein or in the Indenture.
4.02 PROCEEDS OF ACCOUNTS. At any time after the occurrence and
during the continuance of an Event of Default, each Obligor shall, upon the
request of the Trustee, instruct all account debtors and other Persons obligated
in respect of all Accounts to make all payments in respect of the Accounts
directly to the Trustee (by instructing that such payments be remitted to a post
office box which shall be in the name and under the control of the Trustee) for
deposit into the Collateral Account. All payments made to the Trustee, as
provided in the preceding sentence, shall be immediately deposited in the
Collateral Account. In addition to the foregoing, each Obligor agrees that, at
any time after the occurrence and during the continuance of an Event of Default,
if the proceeds of any Collateral hereunder (including the payments made in
respect of Accounts) shall be received by it, such Obligor shall, upon the
request of the Trustee, as promptly as possible deposit such proceeds into the
Collateral Account. Until so deposited, all such proceeds shall be held in
trust by such Obligor for and as the property of the Trustee and shall not be
commingled with any other funds or property of such Obligor.
4.03 INVESTMENT OF BALANCE IN COLLATERAL ACCOUNT. Amounts on deposit
in the Collateral Account shall be invested from time to time in such Cash
Equivalents as the respective Obligor through the Company (or, after the
occurrence and during the continuance of a Default, the Trustee) shall
determine, which Cash Equivalents shall be held in the name and be under the
control of the Trustee, provided that at any time after the occurrence and
during the continuance of an Event of Default, the Trustee may in its discretion
at any time and from time to time elect to liquidate any such Cash Equivalents
and to apply or cause to be applied the proceeds thereof to the payment of the
Secured Obligations in the manner specified in Section 5.09 hereof.
Section 5. FURTHER ASSURANCES; REMEDIES. In furtherance of the grant
of the pledge and security interest pursuant to Section 3 hereof, the Obligors
hereby jointly and severally agree with the Trustee as follows:
<PAGE>
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5.01 DELIVERY AND OTHER PERFECTION. Each Obligor shall:
(a) if any of the shares, securities, moneys or property required to
be pledged by such Obligor under clauses (a), (b) and (c) of Section 3
hereof are received by such Obligor, forthwith either (x) transfer and
deliver to the Trustee such shares or securities so received by such
Obligor (together with the certificates for any such shares and securities
duly endorsed in blank or accompanied by undated stock powers duly executed
in blank), all of which thereafter shall be held by the Trustee, pursuant
to the terms of this Agreement, as part of the Collateral or (y) take such
other action as the Trustee shall deem necessary or appropriate to duly
record the Lien created hereunder in such shares, securities, moneys or
property in said clauses (a), (b) and (c);
(b) deliver and pledge to the Trustee any and all Instruments,
endorsed and/or accompanied by such instruments of assignment and transfer
in such form and substance as the Trustee may request; provided, that so
long as no Default shall have occurred and be continuing, the Trustee
shall, promptly upon request of an Obligor through the Company, make
appropriate arrangements for making any Instrument pledged by such Obligor
available to such Obligor for purposes of presentation, collection or
renewal (any such arrangement to be effected, to the extent deemed
appropriate by the Trustee, against trust receipt or like document);
(c) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that may
be necessary or desirable (in the judgment of the Trustee) to create,
preserve, perfect or validate the security interest granted pursuant hereto
or to enable the Trustee to exercise and enforce its rights hereunder with
respect to such pledge and security interest, including, without
limitation, causing any or all of the Stock Collateral to be transferred of
record into the name of the Trustee or its nominee (and the Trustee agrees
that if any Stock Collateral is transferred into its name or the name of
its nominee, the Trustee will thereafter promptly give to the respective
Obligor copies of any notices and communications received by it with
respect to the Stock Collateral pledged by such Obligor hereunder),
provided that notices to account debtors in respect of any Accounts or
Instruments shall be subject to the provisions of clause (i) below;
<PAGE>
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(d) without limiting the obligations of such Obligor under
Section 5.04(c) hereof, upon the acquisition after the date hereof by such
Obligor of any Equipment covered by a certificate of title or ownership,
cause the Trustee to be listed as the lienholder on such certificate of
title and within 120 days of the acquisition thereof deliver evidence of
the same to the Trustee;
(e) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Trustee may reasonably require in order to reflect the
security interests granted by this Agreement;
(f) furnish to the Trustee from time to time (but, unless a Default
shall have occurred and be continuing, no more frequently than
semiannually) statements and schedules further identifying and describing
the Copyright Collateral, the Patent Collateral and the Trademark
Collateral, respectively, and such other reports in connection with the
Copyright Collateral, the Patent Collateral and the Trademark Collateral,
as the Trustee may reasonably request, all in reasonable detail;
(g) promptly upon request of the Trustee, following receipt by the
Trustee of any statements, schedules or reports pursuant to clause (f)
above, modify this Agreement by amending Annexes 2, 3 and/or 4 hereto, as
the case may be, to include any Copyright, Patent or Trademark that becomes
part of the Collateral under this Agreement;
(h) permit representatives of the Trustee, upon reasonable notice, at
any time during normal business hours to inspect and make abstracts from
its books and records pertaining to the Collateral, and permit
representatives of the Trustee to be present at such Obligor's place of
business to receive copies of all communications and remittances relating
to the Collateral, and forward copies of any notices or communications
received by such Obligor with respect to the Collateral, all in such manner
as the Trustee may require; and
(i) upon the occurrence and during the continuance of any Default,
upon request of the Trustee, promptly notify (and such Obligor hereby
authorizes the Trustee so to notify) each account debtor in respect of any
Accounts or Instruments that such Collateral has been assigned to the
Trustee hereunder, and that any payments due or to become
<PAGE>
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due in respect of such Collateral are to be made directly to the Trustee.
5.02 OTHER FINANCING STATEMENTS AND LIENS. Except as otherwise
permitted under Section ___ of the Indenture, without the prior written consent
of the Trustee, no Obligor shall file or suffer to be on file, or authorize or
permit to be filed or to be on file, in any jurisdiction, any financing
statement or like instrument with respect to the Collateral in which the Trustee
is not named as the sole secured party.
5.03 PRESERVATION OF RIGHTS. The Trustee shall not be required to
take steps necessary to preserve any rights against prior parties to any of the
Collateral.
5.04 SPECIAL PROVISIONS RELATING TO CERTAIN COLLATERAL.
(a) STOCK COLLATERAL.
(1) Except with respect to any existing ownership of less than all of
the Equity Interests of any Issuer as set forth on Annex 1 or as may be required
by any Gaming Authority, the Obligors will cause the Stock Collateral to
constitute at all times 100% of the total amount of each class of Equity
Interests of each Issuer then outstanding.
(2) So long as no Event of Default shall have occurred and be
continuing, the Obligors shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Stock Collateral for all
purposes not inconsistent with the terms of this Agreement, the Indenture, the
Notes or any other instrument or agreement referred to herein or therein,
provided that the Obligors jointly and severally agree that they will not vote
the Stock Collateral in any manner that is inconsistent with the terms of this
Agreement, the Indenture, the Notes, the Guarantees or any such other instrument
or agreement; and the Trustee shall execute and deliver to the Obligors or cause
to be executed and delivered to the Obligors all such proxies, powers of
attorney, dividend and other orders, and all such instruments, without recourse,
as the Obligors may reasonably request for the purpose of enabling the Obligors
to exercise the rights and powers that they are entitled to exercise pursuant to
this Section 5.04(a)(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Obligors shall be entitled to receive and
<PAGE>
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retain any dividends on the Stock Collateral paid in cash out of earned surplus.
(4) If any Event of Default shall have occurred, then so long as such
Event of Default shall continue, and whether or not the Trustee exercises any
available right to declare any Secured Obligation due and payable or seeks or
pursues any other relief or remedy available to it under applicable law or under
this Agreement, the Indenture, the Notes, the Guarantees or any other agreement
relating to such Secured Obligation, all dividends and other distributions on
the Stock Collateral shall be paid directly to the Trustee and retained by it in
the Collateral Account as part of the Stock Collateral, subject to the terms of
the Indenture and this Agreement, and, if the Trustee shall so request in
writing, the Obligors jointly and severally agree to execute and deliver to the
Trustee appropriate additional dividend, distribution and other orders and
documents to that end, provided that if such Event of Default is cured, any such
dividend or distribution theretofore paid to the Trustee shall, upon request of
the Obligors (except to the extent theretofore applied to the Secured
Obligations), be returned by the Trustee to the Obligors.
(b) INTELLECTUAL PROPERTY.
(1) For the purpose of enabling the Trustee to exercise rights and
remedies under Section 5.05 hereof at such time as the Trustee shall be lawfully
entitled to exercise such rights and remedies, and for no other purpose, each
Obligor hereby grants to the Trustee, to the extent assignable, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to such Obligor) to use, assign, license or sublicense any of the
Intellectual Property
now owned or hereafter acquired by such Obligor, wherever the same may be
located, including in such license reasonable access to all media in which any
of the licensed items may be recorded or stored and to all computer programs
used for the compilation or printout thereof.
(2) Notwithstanding anything contained herein to the contrary, but
subject to the provisions of Section __ of the Indenture that limit the right of
the Obligors to dispose of their property, so long as no Event of Default shall
have occurred and be continuing, the Obligors will be permitted to exploit, use,
enjoy, protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of the
business of the Obligors. In furtherance of the foregoing, unless an Event of
Default shall
<PAGE>
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have occurred and be continuing the Trustee shall from time to time, upon the
request of the respective Obligor through the Company, execute and deliver any
instruments, certificates or other documents, in the form so requested, that
such Obligor through the Company shall have certified are appropriate (in their
judgment) to allow them to take any action permitted above (including
relinquishment of the license provided pursuant to clause (1) immediately above
as to any specific Intellectual Property). Further, upon the payment in full of
all of the Secured Obligations and cancellation or termination of the Commitment
or earlier expiration of this Agreement or release of the Collateral, the
Trustee shall grant back to the Obligors the license granted pursuant to
clause (1) immediately above. The exercise of rights and remedies under
Section 5.05 hereof by the Trustee shall not terminate the rights of the holders
of any licenses or sublicenses theretofore granted by the Obligors in accordance
with the first sentence of this clause (2).
5.05 EVENTS OF DEFAULT, ETC. During the period during which an Event
of Default shall have occurred and be continuing and the Notes shall have become
due and payable in accordance with the terms of the Indenture:
(a) each Obligor shall, at the request of the Trustee, assemble the
Collateral owned by it at such place or places, reasonably convenient to
both the Trustee and such Obligor, designated in its request;
(b) the Trustee may make any reasonable compromise or settlement
deemed desirable with respect to any of the Collateral and may extend the
time of payment, arrange for payment in installments, or otherwise modify
the terms of, any of the Collateral;
(c) the Trustee shall have all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform Commercial
Code (whether or not said Code is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and remedies
to which a secured party is entitled under the laws in effect in any
jurisdiction where any rights and remedies hereunder may be asserted,
including, without limitation, the right, to the maximum extent permitted
by law, to exercise all voting, consensual and other powers of ownership
pertaining to the Collateral as if the Trustee were the sole and absolute
owner thereof (and each Obligor agrees to take all such action as may be
appropriate to give effect to such right);
<PAGE>
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(d) the Trustee in its discretion may, in its name or in the name of
the Obligors or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for
any of the Collateral, but shall be under no obligation to do so; and
(e) the Trustee may, upon ten Business Days' prior written notice to
the Obligors of the time and place, with respect to the Collateral or any
part thereof that shall then be or shall thereafter come into the
possession, custody or control of the Trustee or any of its agents, sell,
lease, assign or otherwise dispose of all or any part of such Collateral,
at such place or places as the Trustee deems best, and for cash or for
credit or for future delivery (without thereby assuming any credit risk),
at public or private sale, without demand of performance or notice of
intention to effect any such disposition or of the time or place thereof
(except such notice as is required above or by applicable statute and
cannot be waived), and the Trustee or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral so disposed
of at any public sale (or, to the extent permitted by law, at any private
sale) and thereafter hold the same absolutely, free from any claim or right
of whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of the Obligors, any such demand, notice and right or equity
being hereby expressly waived and released. In the event of any sale,
assignment, or other disposition of any of the Trademark Collateral, the
goodwill connected with and symbolized by the Trademark Collateral subject
to such disposition shall be included, and the Obligors shall supply to the
Trustee or its designee, for inclusion in such sale, assignment or other
disposition, all Intellectual Property relating to such Trademark
Collateral. The Trustee may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for the sale, and such sale may
be made at any time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this
Section 5.05, including by virtue of the exercise of the license granted to the
Trustee in Section 5.04(b) hereof, shall be applied in accordance with
Section 5.09 hereof.
5.06 DEFICIENCY. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to
<PAGE>
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Section 5.05 hereof are insufficient to cover the costs and expenses of such
realization and the payment in full of the Secured Obligations, the Obligors
shall remain liable for any deficiency.
5.07 REMOVALS, ETC. Without at least 30 days' prior written notice
to the Trustee, no Obligor shall (i) maintain any of its books and records with
respect to the Collateral at any office or maintain its principal place of
business at any place, or permit any Inventory or Equipment to be located
anywhere, other than at the address indicated beneath the signature of the
Company to the Indenture or at one of the locations identified in Annex 6 hereto
under its name or in transit from one of such locations to another or
(ii) change its name, or the name under which it does business, from the name
shown on the signature pages hereto.
5.08 REGISTRATION RIGHTS, ETC. (a) If the Trustee determines that
the registration of any of the securities identified on Annex 10 hereto under,
or other compliance with, the Securities Act of 1933, as amended (the
"Securities Act"), or any similar Federal or state law is desirable, upon or at
any time after an Event of Default and acceleration of the Notes, subject to any
applicable requirements under Nevada Gaming Laws, the Obligors will use their
best efforts to cause such registration or compliance to be effectively made, at
no expense to the Trustee or to the Holders, and to continue any such
registration effective for such time as may be reasonably necessary in the
opinion of the Trustee. The Obligors will reimburse the Trustee upon demand for
any expenses incurred by the Trustee (including reasonable attorneys' fees)
incurred in connection therewith, which obligation to pay such expenses shall be
secured hereunder.
(b) The Obligors recognize that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, or if the
Trustee determines that it is desirable to sell any of the Stock Collateral in
one or more private sales, subject to any applicable requirements under Nevada
Gaming Laws, the Trustee may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Obligors
acknowledge that any such private sales may be at prices and on terms less
favorable to the Trustee than those obtainable through a public sale without
such restrictions, and, notwithstanding such circumstances, agree that any such
private
<PAGE>
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sale shall be deemed to have been made in a commercially reasonable manner and
that the Trustee shall have no obligation to engage in public sales and no
obligation to delay the sale of any Collateral for the period of time necessary
to permit the respective Issuer or issuer thereof to register it for public
sale.
(c) The Obligors further agree to do or cause to be done all such
other acts and things as may be necessary to make such sale or sales of all or
any part of the Stock Collateral valid and binding and in compliance with any
and all applicable law, rules, regulations, orders or decrees, all at the
Obligors' expense. The Obligors further agree that a breach of any of the
covenants contained in this Agreement will cause irreparable injury to the
Trustee, as secured party, for which the Trustee would have no adequate remedy
at law in respect of such breach and, as a consequence, agrees that each and
every covenant contained in this Section 5.08 shall be specifically enforceable
against the Obligors and the Obligors waive and agree not to assert any defenses
against an action for specific performance of such covenants.
(d) The Trustee shall incur no liability as a result of the sale of
the Collateral, or any part thereof, at any private sale pursuant to
Section 5.05 hereof conducted in a commercially reasonable manner. Each Obligor
hereby waives any claims against the Trustee arising by reason of the fact that
the price at which the Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale or was less
than the aggregate amount of the Secured Obligations, even if the Trustee
accepts the first offer received and does not offer the Collateral to more than
one offeree.
5.09 APPLICATION OF PROCEEDS. The proceeds of any collection, sale
or other realization of all or any part of the Collateral pursuant hereto, and
any other cash at the time held by the Trustee under Section 4 hereof or this
Section 5, shall be applied by the Trustee in the manner set forth in Section __
of the Indenture.
As used in this Section 5, "PROCEEDS" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Obligors or any issuer of or obligor on
any of the Collateral.
<PAGE>
-19-
5.10 ATTORNEY-IN-FACT. Without limiting any rights or powers granted
by this Agreement to the Trustee while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default the Trustee is hereby appointed the attorney-in-fact of each Obligor for
the purpose of carrying out the provisions of this Section 5 and taking any
action and executing any instruments that the Trustee may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Trustee shall be entitled under
this Section 5 to make collections in respect of the Collateral, the Trustee
shall have the right and power to receive, endorse and collect all checks made
payable to the order of any Obligor representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
5.11 PERFECTION. Prior to or concurrently with the execution and
delivery of this Agreement, each Obligor shall (i) file such financing
statements and other documents in such offices as the Trustee may request to
perfect the security interests granted by Section 3 of this Agreement and (ii)
deliver to the Trustee all certificates identified in Annex 1 hereto and all
Intercompany Notes identified in Annex 7 hereto, accompanied by undated stock
powers or instruments of transfer duly executed or assigned in blank.
5.12 TERMINATION; RELEASE. When all Secured Obligations and all
obligations under the Indenture shall have been paid in full, this Agreement
shall terminate, and the Trustee shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or on the order of the respective Obligor and to be released
and canceled all licenses and rights referred to in Section 5.04(b) hereof. The
Lien provided for under this Agreement shall be automatically terminated and
released, without any action on the part of the Trustee or any Holder, on any
Collateral conveyed, sold, transferred, assigned or otherwise disposed of
pursuant to Section ___ of the Indenture. The Trustee shall also execute and
deliver to the respective Obligor upon such termination or release such Uniform
Commercial Code termination statements and such other documentation as shall be
reasonably requested by the respective Obligor to effect the termination and
release of the Liens on the Collateral.
<PAGE>
-20-
5.13 FURTHER ASSURANCES. Each Obligor agrees that, from time to time
upon the written request of the Trustee, such Obligor will execute and deliver
such further documents and do such other acts and things as the Trustee may
reasonably request in order fully to effect the purposes of this Agreement.
Section 6. REGULATORY MATTERS. The Obligors and the Trustee
acknowledge and agree that:
(a) The terms and provisions of this Agreement and the rights and
obligations created hereunder shall be subject to compliance with all applicable
gaming laws, rules and regulations of the Nevada Gaming Authorities (the "Nevada
Gaming Laws").
(b) Without limiting the generality of the foregoing:
(1) all required prior approvals under applicable Nevada Gaming Laws
will be obtained in connection with the Trustee's exercise of (A) any of the
remedies set forth in Section 5 or (B) any of the voting and consensual rights
afforded the Trustee under Section 5.04(a)(2) upon the occurrence of an Event of
Default including, without limitation, any separate prior approvals required in
connection with the sale, transfer or other disposition of the Collateral; and
(2) the approval of this Agreement under the Nevada Gaming Laws shall
not be deemed to constitute an approval, either express or implied, of any of
the actions of the Trustee permitted hereunder to the extent that such actions
require a separate prior approval under the Nevada Gaming Laws, and in the event
such separate prior approval is required, the Trustee shall not take such action
without prior receipt of such separate approval.
(c) Each Obligor agrees to assist the Trustee in obtaining all
approvals of the Nevada Gaming Authorities or any other Governmental Authority
that are required by law for or in connection with any action or transaction
contemplated by this Agreement and, at the Trustee's reasonable request upon the
occurrence and during the continuation of an Event of Default, to prepare, sign
and file with the appropriate Nevada Gaming Authorities the transferor's portion
of any application for consent to the transfer of control thereof necessary or
appropriate under applicable Nevada Gaming Laws for approval of any sale or
transfer of the Collateral pursuant to the exercise of the Trustee's remedies
under Section 5.
<PAGE>
-21-
Section 7. MISCELLANEOUS.
7.01 NO WAIVER. No failure on the part of the Trustee to exercise,
and no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by the Trustee of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies herein are cumulative and are not
exclusive of any remedies provided by law.
7.02 NOTICES. All notices, requests, consents and demands hereunder
shall be in writing and telecopied or delivered to the intended recipient at its
"Address for Notices" specified pursuant to Section _____ of the Indenture and
shall be deemed to have been given at the times specified in said Section _____.
7.03 EXPENSES. The Obligors jointly and severally agree to reimburse
the Trustee for all reasonable costs and expenses of the Trustee (including,
without limitation, the reasonable fees and expenses of legal counsel) in
connection with (i) any Default and any enforcement or collection proceeding
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (w) performance by the Trustee of any obligations
of the Obligors in respect of the Collateral that the Obligors have failed or
refused to perform, (x) bankruptcy, insolvency, receivership, foreclosure,
winding up or liquidation proceedings, or any actual or attempted sale, or any
exchange, enforcement, collection, compromise or settlement in respect of any of
the Collateral, and for the care of the Collateral and defending or asserting
rights and claims of the Trustee in respect thereof, by litigation or otherwise,
including expenses of insurance, (y) judicial or regulatory proceedings and (z)
workout, restructuring or other negotiations or proceedings (whether or not the
workout, restructuring or transaction contemplated thereby is consummated) and
(ii) the enforcement of this Section 7.03, and all such costs and expenses shall
be Secured Obligations entitled to the benefits of the collateral security
provided pursuant to Section 3 hereof.
7.04 AMENDMENTS, ETC. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by the Company
and the Trustee. Any such amendment or waiver shall be binding upon the
Trustee, each holder of any of the Secured Obligations and each Obligor.
7.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the respective
<PAGE>
-22-
successors and assigns of each Obligor, the Trustee and each holder of any of
the Secured Obligations (provided, however, that no Obligor shall assign or
transfer its rights hereunder without the prior written consent of the Trustee).
7.06 CAPTIONS. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
7.07 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.08 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
7.09 AGENTS AND ATTORNEYS-IN-FACT. The Trustee may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
7.10 SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Trustee in order
to carry out the intentions of the parties hereto as nearly as may be possible
and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
7.11 ADDITIONAL OBLIGORS. As contemplated by the Indenture,
Subsidiaries of the Company required after the date hereof to become a
"Guarantor" under the Indenture and/or an "Obligor" under this Agreement shall
do so by executing and delivering to the Trustee a Guarantee in the form
satisfactory to the Trustee. Accordingly, upon the execution and delivery of
any such Guarantee by any such Subsidiary, such Subsidiary shall automatically
and immediately, and without any further action on the part of any Person,
become an "Obligor" for all purposes of this Agreement, and Annex 1 hereto shall
be deemed to be supplemented in the manner specified in said Guarantee.
<PAGE>
-23-
7.12 ASSUMPTION OF OBLIGATIONS; INDENTURE TO GOVERN. Notwithstanding
any provision in this Agreement to the contrary, this Agreement shall not
restrict the Company's ability to effect the Assumption of Obligations in
accordance with the Indenture. If any term hereof shall be construed to be
inconsistent with the provisions of the Indenture, the provisions of the
Indenture shall govern.
<PAGE>
-24-
IN WITNESS WHEREOF, the parties hereto have caused this Pledge and
Security Agreement to be duly executed and delivered as of the day and year
first above written.
ALLIANCE GAMING CORPORATION
By _________________________
Title:
SUBSIDIARY GUARANTORS
APT GAMES, INC.
By ________________________
Title:
BALLY GAMING INTERNATIONAL, INC.
By ________________________
Title:
CASINO ELECTRONICS, INC.
By ________________________
Title:
UNITED COIN MACHINES, INC.
By ________________________
Title:
<PAGE>
-25-
APT COIN MACHINES, INC.
By ________________________
Title:
PLANTATION INVESTMENTS, INC.
By ________________________
Title:
MIZPAH INVESTMENTS, INC.
By ________________________
Title:
SLOT PALACE, INC.
By ________________________
Title:
WCAL, INC.
By ________________________
Title:
BALLY GAMING, INC.
By _________________________
Title:
<PAGE>
-26-
FCJI, INC.
By ________________________
Title:
ALLIANCE HOLDING COMPANY
By ________________________
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By _________________________
Title:
<PAGE>
ANNEX 1
PLEDGED STOCK
[See Section 2(b) and (c)]
ALLIANCE GAMING CORPORATION
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ----------- ----------------
APT Games, Inc. 002 Alliance Gaming 100 shares of
Corporation common stock,
no par value
Casino 012 Alliance Gaming 400 shares of
Electronics, Inc. Corporation common stock, no
par value
Alliance Holding 001 Alliance Gaming 100 shares of
Company Corporation common stock, no par
value
<PAGE>
-2-
APT GAMES, INC.
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ----------- ----------------
United Coin 002 APT Games, 2,500 shares of
Machine Co. Inc. common stock, par
value $.10 per share
APT Coin 001 APT Games, 100 shares of
Machines, Inc. Inc. common stock,
no par value
Mizpah 002 APT Games, 100 shares of
Investments, Inc. Inc. common stock,
no par value
Plantation 003 APT Games, 100 shares of
Investments, Inc. Inc. common stock,
no par value
WCAL, Inc. 001 APT Games, 100 shares of
Inc. common stock,
no par value
Slot Palace, 001 APT Games, 100 shares of
Inc. Inc. common stock,
no par value
<PAGE>
-3-
ALLIANCE HOLDING COMPANY
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ----------- ----------------
Bally Gaming Alliance Holding 9,799,501 shares of
International, Inc. Company common stock, par
value $.01 per share
<PAGE>
-4-
BALLY GAMING INTERNATIONAL, INC.
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ----------- ----------------
Bally Gaming, 001 Bally Gaming 100 shares of
Inc. International, Inc. common stock,
no par value
<PAGE>
-5-
WCAL, Inc.
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ----------- ----------------
FCJI, Inc. 002 WCAL, Inc. 100 shares of
common stock, par
value $.10 per share
<PAGE>
ANNEX 2
LIST OF COPYRIGHTS, COPYRIGHT REGISTRATIONS AND
APPLICATIONS FOR COPYRIGHT REGISTRATIONS
[See Section 2(d)]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
Title Date Filed Registration No. Effective Date
- ---------------------------------------------------------------
<PAGE>
ANNEX 3
LIST OF PATENTS AND PATENT APPLICATIONS
[See Section 2(d)]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
File Patent Country Registration No. Date
- ---------------------------------------------------------
<PAGE>
ANNEX 4
LIST OF TRADE NAMES, TRADEMARKS, SERVICES MARKS,
TRADEMARK AND SERVICE MARK REGISTRATIONS AND
APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS
[See Section 2(d)]
U.S. TRADEMARKS
[Complete for each Obligor:]
[NAME OF OBLIGOR]
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- -------------------------------------------------------
<PAGE>
-2-
FOREIGN TRADEMARKS
[Complete for each Obligor:]
[NAME OF OBLIGOR]
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ---------------------------------------------------------------
<PAGE>
ANNEX 5
LIST OF EXCLUDED CONTRACTS, LICENSES AND OTHER AGREEMENTS
[See Section 2(d), (e) and (f)]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
ANNEX 6
LIST OF LOCATIONS
[See Section 5.07]
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
ANNEX 7
LIST OF INTERCOMPANY NOTES
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
ANNEX 8
LIST OF EXCLUDED COLLATERAL
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
ANNEX 9
LIST OF ENCUMBERED ASSETS
[Complete for each Obligor, specifying nature of security interest:]
[NAME OF OBLIGOR]
<PAGE>
ANNEX 10
LIST OF SECURITIES SUBJECT TO REGISTRATION RIGHTS
<PAGE>
ANNEX 11
LIST OF CHIEF EXECUTIVE OFFICES
[Complete for each Obligor:]
[NAME OF OBLIGOR]
<PAGE>
Exhibit 5.1
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
May 24, 1996
Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
Re: Alliance Gaming Corporation
Senior Secured Notes due 2003
Ladies and Gentlemen:
We are acting as special counsel for Alliance Gaming Corporation, a Nevada
corporation ("Alliance"), in connection with the proposed offering (the
"Offering") of $140,000,000 principal amount of Alliance's Senior Secured Notes
due 2003 (the "Notes"). The Notes are to be issued pursuant to an Indenture
(the "Indenture") proposed to be entered into between Alliance and United States
Trust Company of New York, as trustee. The Notes are to be guaranteed by
certain subsidiaries of Alliance, identified in the Indenture (the "Guarantors")
pursuant to guarantees set forth in the Indenture (the "Guarantees", and
together with the Notes, the "Securities"). In connection with the Offering,
Alliance has filed a registration statement on Form S-2 (the "Registration
Statement") with the Securities and Exchange Commission for the purpose of
registering the Securities under the Securities Act of 1933, as amended.
We have examined originals, or copies certified to our satisfaction, of
such corporate records of Alliance and the Guarantors, certificates of public
officials, certificates of officers and representatives of Alliance and the
Guarantors and other documents as we have deemed necessary as a basis for the
opinions hereinafter expressed. In our examination we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals and the conformity with the originals of all documents submitted
to us as copies. As to various questions of fact material to such opinions we
have, when relevant facts were not independently established, relied upon
certifications by officers of Alliance and the Guarantors and other appropriate
persons and statements contained in the Registration Statement.
Based on the foregoing, and having regard to legal considerations which we
deem relevant, we are of the opinion that when the Indenture is duly authorized,
<PAGE>
executed and delivered, and when the Securities have been duly authorized,
executed, authenticated and issued in accordance with the terms of the Indenture
and delivered against payment therefor in accordance with the terms of the
underwriting agreement pursuant to which the Securities will be offered, the
Securities will constitute legal, valid and binding obligations of Alliance or
the Guarantors, as the case may be, entitled to the benefits of, and subject to
the provisions of, the Indenture, and except (a) as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability affecting the enforcement of creditors' rights, and (b)
that such enforceability may be limited by the application of general principles
of equity (regardless of whether considered in a proceeding in equity or at
law), including without limitation (i) the possible unavailability of specific
performance, injunctive relief or any other equitable remedies and (ii) concepts
of materiality, reasonableness, good faith and fair dealing.
We wish to point out that the obligations of Alliance and the Guarantors,
and the rights and remedies of the trustee, under the Indenture may be subject
to possible limitations upon the exercise of remedial or procedural provisions
contained therein, but such limitations do not in our opinion (but subject to
the foregoing qualifications) make the remedies and procedures that will be
afforded to the trustee inadequate for the practical realization of the
substantive benefits purported to be provided to the trustee by the Indenture.
We do not express any opinion as to the applicability to the obligations of
any Guarantor (or the enforceability of such obligations) of Section 548 of
chapter 11 of Title 11 of the United States Code, as amended, or any other
provision of law related to fraudulent conveyances, transfers or obligations.
We do not express any opinion as to matters governed by any laws other than
the laws of the State of New York and the Federal laws of the United States of
America.
We hereby consent to the reference to us under the heading "Legal Matters"
in the Prospectus constituting a part of the Registration Statement and to the
filing of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
Milbank, Tweed, Hadley & McCloy
<PAGE>
AGREEMENT
AGREEMENT dated March 31, 1995 by and between Alliance Gaming
Corporation, a Nevada corporation (the "Company"), and Anthony L. DiCesare, an
individual (the "Executive").
RECITALS:
A. The Company considers it important and in its best interest and
the best interest of its stockholders to foster the retention and engagement of
key senior personnel, and the Company desires to retain the services of the
Executive in such capacity, on the _____ and subject to the conditions provided
in this Agreement.
B. The Executive desires to accept such engagement by the Company and
to render services to the Company, on the terms and subject to the conditions
provided in this Agreement.
AGREEMENT:
The parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to retain the services of
the Executive, and the Executive agrees to be retained by the Company, to render
services to the Company for the period, at the rate of compensation and upon the
other terms and conditions set forth in this Agreement.
2. TERM. The term of the Executive's employment under this Agreement
(the "Term") shall commence on the date hereof and shall continue through and
including July 14, 1997, unless earlier terminated specifically as provided in
this Agreement (the date of any termination of this Agreement or the expiration
of the Term, as provided herein, the "Termination Date").
3. POSITION AND DUTIES.
(a) POSITION. Subject to the remainder of Section 3(a), the Executive
shall serve as Executive Vice President--Development and as a member of the
Board. In such capacity, the Executive shall be the senior most executive
engaged in the Company's development activities. During his employment
hereunder, the Executive shall report directly to the Company's Chief Executive
Officer and to the Company's Board of Directors (the "Board"). The Executive
shall, if so elected by the stockholders of the Company (and subject to existing
stockholders' agreements of the Company), serve on the Board from time to time,
for successive periods of such election(s) and for
<PAGE>
2
such period as shall be agreed to by the Executive, subject, in each case, to
the continued election thereto by the Company's stockholders. It is
contemplated that, to the extent requested by the Company, the Executive shall
devote all or substantially all of his business time to the fulfillment of his
duties hereunder, as contemplated by Section 3(b) below.
In the event that the Executive shall fail to be elected to the Board
or shall otherwise resign from or be removed from the Board during the Term, as
a result of action by the stockholders of the Company (at a regular or special
meeting thereof), including their failure to so elect the Executive, or
otherwise, then, notwithstanding any such event (but subject to the remainder of
this Agreement, including without limitation, Sections 7 and 8 below), (i) the
Executive shall nonetheless continue to render the services to the Company
otherwise provided in this Agreement to be rendered by the Executive, (ii) the
Company shall otherwise continue to furnish the compensation and other
remunerations to the Executive otherwise provided in this Agreement to be
furnished, and (iii) the parties shall, if appropriate, reasonably agree to an
amendment or modification to this Agreement appropriately to reflect such state
of affairs.
(b) DUTIES. During the Term, the Executive shall, subject to
supervision by the Board, have the authority and power to perform such duties as
are consistent with those of an Executive Vice President of the Company. During
the Term, the Executive shall perform the duties contemplated by such title and
such other duties, consistent with his experience and abilities, as may be
properly assigned to the Executive by the Board or the Company's Chief Executive
Officer. The Executive shall use his best efforts to further the interests of
the Company and at all times conduct himself in a manner which reflects credit
upon the Company. It is contemplated that the Executive shall render services
to the Company from an office established by the Company in New York, New York;
however, the parties acknowledge and agree that the Executive may be required to
travel extensively during the Term in fulfilling his duties hereunder (including
numerous trips to Las Vegas, Nevada).
4. COMPENSATION AND REIMBURSEMENT OF EXPENSES.
(a) COMPENSATION. For purposes of this Agreement, each consecutive 12
month period during the Term ending on each March 31st during the Term shall be
referred to as an "Engagement Year." For services rendered by the Executive
under this Agreement, the Company shall pay to the Executive as compensation
<PAGE>
3
during each Engagement Year during the Term, a base amount of compensation (the
"Base Compensation") at an annual rate of $250,000 per year (prorated for any
partial Engagement Years). Increases in the Base Salary shall be considered by
the Board no less frequently than annually, commencing at the end of the first
Employment Year hereunder and will be based upon criteria applicable to other
senior executives of the Company; it being understood, however, that the award
of any such increase shall be in the sole discretion of the Board (with the
Executive not voting on such determination). The Base Compensation shall be
payable in equal bi-weekly installments, commencing with the end of the pay
period which next follows the commencement of the Term, and shall be subject to
customary payroll deductions (i.e., for social security, federal, state and
local taxes and other amounts customarily withheld from the compensation of
members of the Board and/or employees of the Company).
(b) BONUS. The Executive shall be eligible to receive from the
Company, within 120 days of the end of each Engagement Year, a cash bonus in
respect of such Engagement Year (the "Annual Bonus"), which shall be based upon
all relevant criteria, including without limitation, (i) the performance of the
Company and/or the operations of the Company for which the Executive is
primarily or exclusively responsible, during such Engagement Year, based upon
customary financial and other criteria, such as but not limited to, return on
the Company's consolidated stockholders' equity and total capital (i.e.,
stockholders' equity and total debt), performance of the Company's Common Stock,
par value $.10 per share (the "Common Stock"), and the Company's and such
operations' absolute and relative amounts of consolidated cash flow, operating
income and net income, and the comparison of such results with the Company's and
such operations' budgets and projections therefor and (ii) the performance of
the Executive in rendering services to the Company; it being understood that the
Company shall not be obligated to pay to the Executive any Annual Bonus and the
payment, if any, and amount thereof shall be solely within the discretion of the
Board (with the Executive not voting on such determination). It is also
contemplated that the Compensation Committee of the Board shall formulate
specific criteria and performance targets for the determination of the Annual
Bonus, if any. The Annual Bonus shall be subject to customary payroll
deductions (i.e., for social security, federal, state and local taxes and other
amount customarily withheld from the compensation of members of the Board and/or
employees of the Company).
<PAGE>
4
(c) OPTIONS. The Executive shall be eligible to receive from time to
time employee and/or directors' stock options in accordance with the customary
practices of the Company; it being understood that it is the contemplation of
the Company and the Executive that the Executive shall receive employee and/or
directors' stock options in amounts and on terms and conditions that are
consistent with those granted to other senior executives and board members of
the Company from time to time.
(d) REIMBURSEMENT OF EXPENSES. Consistent with established policies
of the Company as in effect from time to time, the Company shall pay to or
reimburse the Executive for all reasonable and actual out-of-pocket expenses,
including without limitation, travel, hotel and similar expenses, incurred by
the Executive from time to time in performing his obligations under this
Agreement.
5. BENEFITS.
(a) BENEFIT PLANS. The payments provided in Section 4 above are in
addition to any benefits to which the Executive may be, or may become, entitled
under any of the Company's benefit plans or programs for which members of the
Board or senior executive officers of the Company are or shall become eligible.
In addition, the Executive shall be eligible to receive during the Term benefits
and emoluments which are consistent with the benefits and emoluments provided to
all members of the Board or senior executive officers of the Company.
(b) VACATION. The Executive shall be entitled to reasonable periods
of vacation and sick leave consistent with his role as a member of the Board or
senior executive officers of the Company.
(c) NO REDUCTION. There shall be no material reduction or diminution
of the benefits provided in this Section 5 during the Term unless (i) the
Executive shall have provided his consent to such reduction or diminution, (ii)
an equitable arrangement (embodied in an ongoing substitute or alternative
benefit or plan) has been made with respect to such benefit or plan or (iii)
such reduction is part of a program of across-the-board benefit reductions
similarly affecting the senior executive officers of the Company or members of
the Board.
<PAGE>
5
6. BENEFITS PAYABLE UPON DISABILITY.
(a) DISABILITY BENEFITS. During any period of Disability (as defined
below) occurring during the Term, the Company shall continue to pay to the
Executive the Base Compensation as provided herein and continue to extend to him
the benefits described in Sections 4 and 5 hereof; it being understood that if
disability benefits are provided under any disability insurance similar policy
maintained by the Company (or maintained by the Executive, the cost of which is
reimbursed or paid by the Company), payments under such policy shall be
considered as payments by the Company and shall offset any Base Compensation
payable to the Executive under this Agreement. As used in this Agreement,
"Disability" shall mean the inability (as determined by a majority of the
remaining members of the Board (other than the Executive) voting for such
determination) of the Executive to render services to the Company, as provided
herein;, as a result of physical or mental infirmity or disability.
(b) SERVICES DURING DISABILITY. During the Term, notwithstanding any
Disability, the Executive shall, to the extent that he is physically and
mentally able to do so, furnish information, assistance and services to the
Company, and, upon the reasonable request in writing on behalf of the Board (as
determined by a majority of the remaining members of the Board (other than the
Executive) voting for such determination), from time to time, he shall make
himself available to the Company to undertake reasonable assignments and fulfill
his duties hereunder, consistent with his current position with the Company and
his physical and mental health.
7. TERMINATION. This Agreement shall be terminated in accordance
with the provisions of this Section 7, in which case the provision of Section 8
below shall be applicable.
(a) UPON EXPIRATION OF THE TERM. This Agreement shall terminate in
accordance with Section 2 above.
(b) BY THE COMPANY. In addition to the provisions of Section 7(a)
above, this Agreement is subject to earlier termination by the Company, as
follows:
(i) DEATH OF EXECUTIVE. If the Executive dies, this Agreement
shall terminate. The Termination Date being the day of the Executive's
death.
<PAGE>
6
(ii) DISABILITY. If the Executive has been absent from service
to the Company, as required in this Agreement, for a period of 90 days or
more as a result of Disability during any consecutive 180-day period during
the Term, the Company shall have the right to terminate this Agreement (as
determined by a majority of the remaining members of the Board (other than
the Executive) voting for such determination), the Termination Date being
15 days after notice thereof is provided to the Executive.
(iii) TERMINATION BY THE COMPANY FOR CAUSE. The Company shall
have the right to terminate the Executive's engagement under this Agreement
for Cause (as defined below), the Termination Date to be immediately upon
notice thereof from the Company to the Executive. For purposes of this
Agreement, "Cause" shall mean the Executive's (A) conviction of any
misdemeanor involving moral turpitude or any felony, (B) misappropriation
or embezzlement from the Company, (C) denial or rejection of any gaming
license or permit issued by the State of Nevada (or any applicable agency
or political subdivision) or any other jurisdiction in or from which the
denial of a gaming license or permit could materially adversely affect the
Company's business, or commission of any act which could reasonably be
expected to result in such denial or rejection, (D) any breach during the
Term of Sections 10 or 11 below or (E) the persistent refusal, after
written notice, to undertake the Executive's duties or obligations
hereunder.
(iv) NO TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company
shall not have the right to terminate the Executive's engagement hereunder
for any reason not -specifically set forth in clauses (i), (ii) or (iii) of
this Section 7(b).
(c) BY THE EXECUTIVE. In addition to the provisions of Section 1(a)
above, this Agreement is subject to earlier termination by the Executive, as
follows:
(i) TERMINATION BY THE EXECUTIVE FOR JUST CAUSE. The Executive
shall have the right to terminate his employment under this Agreement upon
the occurrence of a material breach of this Agreement by the Company, which
the parties agree shall be limited to (A) a reduction by the Company in the
Base Salary below the minimum Base Salary specified in Section 4(a) above
or the failure of the Company to pay to the Executive any portion of the
Base
<PAGE>
7
Salary within 30 days of the time that any such amount is due and payable
hereunder or (B) the assignment to the Executive of duties and
responsibilities that are materially inconsistent with those of a senior
executive of the Company, in each case, in the cases of clauses 6 (A) and
(B), which has not been cured by the Company after 30 days' written notice
from the Executive to the Company; provided, that in the case of three such
material breaches (and notice thereof), the Executive shall hereafter have
the right to terminate this Agreement immediately upon notice to the
Company in the case of a subsequent material breach. In the event that the
Executive elects to terminate this Agreement as a result of the events
described in clauses (A) or (B) above, Executive shall exercise such right
within 10 days after the lapsing of the 30 day period referred to above in
this clause (i) (assuming that the Company shall have failed to cure such
material breach within such period), or, as applicable, within 10 days of
any additional material breach giving rise to an immediate right of
termination; thereafter, such right to terminate shall no longer be
exercisable. The Termination Date shall be a date specified by the
Executive, which shall be between 30 and 45 days after the date of the
applicable notice giving rise to a termination, by the Executive to the
Company.
(ii) TERMINATION BY THE EXECUTIVE WITHOUT JUST CAUSE. The
Executive shall have the right to terminate the Executive's employment
under this Agreement for any other reason not set forth in clause (i) of
this Section 7(c), the Termination Date being 15 days after notice thereof
from the Executive to the Company.
8. EFFECT OF TERMINATION. The following provisions shall be
applicable in the event of the termination of this Agreement as provided in
Section 7 above.
(a) EXPIRATION OF TERM. Upon termination of this Agreement as
provided in Section 7(a) above, this Agreement shall terminate and be of no
further force and effect, except as provided in Sections 11, 12 and 13(b) below,
which shall survive such termination, and no additional payments, liabilities or
obligations shall be due and owing from either party to the other.
(b) DEATH. Upon the termination of this Agreement as provided in
Section 7(b)(i) above, the Company shall pay to the Executive's estate (i) an
amount equal to the sum of (A) the
<PAGE>
8
compensation otherwise payable to the Executive hereunder for the six-month
period following the Termination Date, payable within 180 days after the
Termination Date (but not earlier than any recovery of insurance proceeds in
respect thereof, as provided below), and (B) any Annual Bonus for the Employment
Year in which the Termination Date occurs that the Board determines would
otherwise have been payable had the Executive not died, which Annual Bonus shall
be reduced by prorating it through the Termination Date, payable, in the case of
this clause (B), at the time such payment would otherwise be due and payable
hereunder, and (ii) expense reimbursement amounts accrued through the
Termination Date, at the time such payment would otherwise be due and payable
thereunder, and neither party shall have any further liability or obligation to
the other, except as provided in Section 12 below, which shall survive the
Termination Date. Notwithstanding the provisions of clause (i) above, the
Company shall have the right to provide for either or both of the payments
described therein by purchasing life insurance on the Executive's life itself or
reimbursing to the Executive the cost of the premiums in respect of such life
insurance which shall be purchased directly by the Executive; in the event that
either or both of such insurance coverages is obtained, such payments shall be
made solely from such insurance coverages and not from the Company and shall
constitute the Executive's estate's or heirs' sole remedy in respect of such
payments.
In the event that the Executive shall own any employee or directors' stock
options as of the Termination Date, an amount equal to 50% of any such options
which are unvested as of the Termination Date shall vest and become exercisable
by virtue of any termination under Section 7(b)(i) and, notwithstanding the
provisions of the Company's Stock Option Plan pursuant to which such options may
have been granted, the Executive's estate shall have a period of two years from
the Termination Date to exercise such options.
(c) DISABILITY. Upon the termination of this Agreement as provided in
Section 7(b)(ii) above, the Company shall pay to the Executive (i) an amount
equal to the compensation otherwise payable to the Executive hereunder for the
six-month period following the Termination Date, and (ii) any Annual Bonus for
the Employment Year in which the Termination Date occurs that the Board
determines would otherwise have been payable had the Executive not become
Disabled, which Annual Bonus shall be reduced by prorating it through the
Termination Date, in each case, payable at the times such payments would
otherwise be due and payable hereunder; provided, in the case of clauses (i) and
<PAGE>
9
(ii) above, that the Executive continues to comply with his covenants in
Sections 10 (during the shorter of (A) 12 months from the Termination Date and
(B) the remainder of the Term had such termination under Section 7(b)(ii) above
not occurred) and 11 below, as provided therein, and (iii) expense reimbursement
amounts accrued through the Termination Date, at the time such payment would
otherwise be due and payable thereunder, and neither party shall have any
further liability or obligation to the other, except that the provisions of
Sections 10, 11, 12 and 13(b) below shall survive the Termination Date, to the
extent provided therein, with the provisions of such Section 10 surviving for
the shorter of (A) 12 months from the Termination Date and (B) the remainder of
the Term had such termination not occurred. Notwithstanding the provisions of
clauses (i) and (ii) above, the Company shall have the right to provide for
either or both of such payments by either purchasing disability insurance itself
in respect of the Executive or reimbursing to the Executive the cost of the
premiums in respect of such disability insurance which shall be purchased
directly by the Executive; in the event that either or both of such insurance
coverages is obtained, such payments shall be made solely from such insurance
coverages and not from the Company and shall constitute the Executive's sole
remedy in respect of such payments.
In the event that the Executive shall own any employee or directors' stock
options as of the Termination Date, an amount equal to 50% of any such options
which are unvested as of the Termination Date shall vest and become exercisable
by virtue of any termination under Section 7(b)(ii) and, notwithstanding the
provisions of the Company's Stock Option Plan pursuant to which such options may
have been granted, the Executive shall have a period of two years from the
Termination Date to exercise such options.
(d) TERMINATION BY THE COMPANY FOR CAUSE. Upon the termination of
this Agreement as provided in Section 7(b)(iii) above, the Company shall pay to
the Executive (i) the accrued and unpaid Base Salary, if any, through the
Termination Date and (ii) expense reimbursement amounts accrued through the
Termination Date, at the time such payments are otherwise due and payable
thereunder, and neither party shall have any further liability or obligation to
the other, except that the provisions of Sections 10, 11, 12 and 13(b) below
shall survive the Termination Date, to the extent provided therein, with the
provisions of such Section 10 surviving for the shorter of (A) 12 months from
the Termination Date and (B) the remainder of the Term had such termination not
occurred. No unvested employee or
<PAGE>
10
directors' stock options shall vest or become exercisable by virtue of any
termination under Section 7(b)(iii) and any and all rights thereto then
possessed by the Executive shall be terminated and of no further force and
effect.
(e) TERMINATION BY THE EXECUTIVE FOR JUST CAUSE. Upon termination of
this Agreement as provided in Section 7(c)(i) above, the Company shall pay to
the Executive (i) the Base Salary which would otherwise be payable hereunder in
respect of the remainder of the Term; provided, that the Executive continues to
comply with the covenants in Section 11 below, as provided therein, and (ii)
expense reimbursement amounts accrued through the Termination Date, in each
case, in the case of clause (i) and (ii) above, at the time such payments are
otherwise due and payable thereunder, and neither party shall have any further
liability or obligation to the other, except that the provisions of Sections 11,
12 and 13(b) below shall survive the Termination Date, to the extent provided
therein; it being understood that the covenants in Section 10 below shall be of
no further force and effect following the Termination Date. All unvested
employee or directors' stock option, if any, shall vest or become exercisable
(in accordance with the Plan) by virtue of any termination under Section
7(c)(i).
(f) TERMINATION BY THE EXECUTIVE WITHOUT JUST CAUSE. Upon the
termination of this Agreement as provided in Section 7(c)(ii) above, the Company
shall pay to the Executive (i) the accrued and unpaid Base Salary, if any,
through the Termination Date, (ii) expense reimbursement amounts accrued through
the Termination Date and (iii) Base Salary at a rate of 50% of the Base Salary
otherwise in effect on the Termination Date per calendar year during the period
that the provisions of Section 10 shall be in effect, as provided below, at the
time such payments are otherwise due and payable thereunder, and neither party
shall have any further liability or obligation to the other, except that the
provisions of Sections 10, 11, 12 and 13(b) below shall survive the Termination
Date, to the extent provided therein, with the provisions of such Section 10
surviving for the shorter of (A) 12 months from the Termination Date and (B) the
remainder of the Term had such termination not occurred. During such period
that the provisions of Section 10 are in effect, the Executive shall continue to
be eligible to receive the benefits provided in Section 5 above. No unvested
employee or directors' options shall vest or become exercisable by virtue of any
termination under Section 7(c)(ii) above and any and all rights thereto to such
unvested options then possessed by the Executive shall be terminated and of no
further force and effect.
<PAGE>
11
9. FEDERAL INCOME TAX AND OTHER WITHHOLDINGS. The Company shall
withhold from any benefits payable pursuant to this Agreement such federal,
state, city or other taxes and other amounts as may be required to be withheld
pursuant to any applicable law or governmental regulations or ruling and shall
timely pay over to the appropriate governmental or other authorities the amount
withheld, together with any additional amounts required to be paid by the
Company in respect thereof.
10. NON-COMPETITION. The Executive covenants and agrees that he will
not at any time during the Term and, to the extent provided for in the
applicable subsections of Section 8 above, up to a period of 12 months
thereafter as provided in such subsections in Section 8 above, directly or
indirectly, whether as employee, owner, partner, agent, director, officer,
consultant, stockholder (except as the beneficial owner of not more than 5% of
the outstanding shares of a corporation, any of the capital stock of which is
listed on any national or regional securities exchange or quoted in the daily
listing of over-the-counter market securities and, in each case, in which the
Executive does not undertake any management or operational or advisory role) or
in any other capacity, for his own account or for the benefit of any person or
entity, establish, engage or be connected with or in any manner any person or
entity which is at the time engaged in a business which is on the date hereof or
on any applicable Termination Date in competition with the business of the
Company (or any of its subsidiaries or affiliates)
11. CONFIDENTIAL INFORMATION AND NON-DISPARAGEMENT. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company and
its stockholders all secret, confidential or proprietary information, knowledge
or data relating to the Company (and any of its subsidiaries or affiliates),
which shall have been obtained by the Executive during or by reason of his
engagement by the Company, in accordance with the principles of NRS 600A.010 et
seq. (the so-called Uniform Trade Secrets Act). During and after the end of the
Term, the Executive shall not, without the prior written consent of the Company,
communicate or divulge any such information, knowledge or data to any person or
entity other than the Company (or such applicable subsidiaries or affiliates)
and those designated by them which would result in any misappropriation under
and as defined in such Act, except that, during his engagement hereunder, in
furtherance of the business and for the benefit of the Company, the Executive
may provide confidential information as appropriate to attorneys,
<PAGE>
12
accountants, financial institutions or other persons or entities engaged in
business with the Company from time to time.
(b) Each of the parties agrees that from and after any termination or
expiration of the Term, neither shall, publicly or privately, disparage or make
any statements (written or oral) that could impugn the integrity, acumen
(business or otherwise), ethics or business practices, of the other, except, in
each case, to the extent (but solely to the extent) necessary in any judicial or
arbitral action to enforce the provisions of this Agreement.
12. INDEMNIFICATION AND LIABILITY INSURANCE.
(a) INDEMNIFICATION. The Company shall indemnify and hold the
Executive harmless, to the fullest extent legally permitted by Section 78.751 of
the Nevada Corporation Code (as amended and in effect from time to time) against
any and all expenses, liabilities and losses (including without limitation,
reasonable attorneys' fees and disbursements of counsel reasonably satisfactory
to the Company), incurred or suffered by him in connection with his service as a
member of the Board during the Term, in each case, except to the extent of the
Executive's negligence or willful misconduct.
(b) INSURANCE. The Company shall maintain, for the benefit of the
Executive, a directors' and officers' liability insurance policy insuring the
Executive's service as a member of the Board during the Term in accordance with
its customary practices as in effect from time to time during the Term. The
parties acknowledge and agree that such policy may cover other directors and
officers of the Company in addition to the Executive.
13. GENERAL PROVISIONS.
(a) ASSIGNMENT. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Executive or the Company without the prior
written consent of the other; provided, that (i) in the event of the Executive's
Death during the Term, the Executive's estate and his heir, executors,
administrators, legatees and distributees shall have the rights and obligations
set forth herein, as provided herein, and (ii) nothing contained in this
Agreement shall limit or restrict the Company's ability to merge or consolidate
or effect any similar transaction with any other entity, irrespective of whether
the Company is the surviving entity; provided, that such surviving entity shall
<PAGE>
13
continue to be bound by the provisions hereof binding upon the Company.
(b) MATERIAL INDUCEMENTS. The provisions of Sections 10 and 11 above
are material inducements to the Company entering into and performing this
Agreement; accordingly, in the event of any breach of such provisions by the
Executive, in addition to all other remedies at law or in equity possessed by
the Company, the Company shall have the right to terminate and not pay any
amounts payable to the Executive hereunder.
(c) BINDING AGREEMENT. This Agreement shall be binding upon, and
inure to the benefit of, the Executive and the Company and their respective
heirs, executors, administrators, legatees and distributees, successors and
permitted assigns.
(d) AMENDMENT OF AGREEMENT. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto.
(e) SEVERABILITY. If, for any reason, any provision of this Agreement
is determined to be invalid or unenforceable, such invalidity or lack of
enforceability shall not affect any other provision of this Agreement not so
determined to be invalid or unenforceable, and each such other provision shall,
to the full extent consistent with applicable law, continue in full force and
effect, irrespective of such invalid or unenforceable provision.
(f) EFFECT OF PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto respecting the Executive's employment
by the Company, and supersedes any prior agreement between the Company and the
Executive relating to the retention of the Executive as an employee of the
Company. Nothing contained in this Agreement shall affect in any manner
whatsoever any of the agreements or instruments executed on or prior to the date
hereof among the Executive or any of his affiliates on the one hand, and the
Company or any other party (including without limitation, Kirkland-Ft. Worth
Investment Partners, L.P., Kirkland Investment Corporation, Gami Systems
Advisors, L.P., GSA, Inc. or Joel Kirschbaum), on the other hand.
(g) NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered, if sent by telecopy or by
hand, (ii) one business day after sending, if sent by reputable
<PAGE>
14
overnight courier service, such as Federal Express, or (iii) three business days
after being mailed, if sent by United States certified or registered mail,
return receipt requested, postage prepaid. Notices shall be sent by one of the
methods described above; provided, that any notice sent by telecopy shall also
be sent by any other method permitted above. Notices shall be sent, if to the
Executive, to 129 West 69th Street, New York, New York 10023; telecopy no. (212)
888-1253; and if to the Company, to Alliance Gaming Corporation, 4380 Boulder
Highway, Las Vegas, Nevada 89121; telecopy no. (702) 454-0478, directed to the
attention of the Board with copies to the Chairman, the Chief Executive Officer
and the Secretary of the Company; or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
(h) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
(i) ARBITRATION. In the event of a dispute or controversy arising
under or in connection with this Agreement (except, at the option of the
Company, Sections 10 and 11 above), the Executive shall give the Company or the
Company shall give the Executive, as applicable, a written demand for relief.
If the dispute or controversy is not resolved, it shall be settled exclusively
by arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of
the American Arbitration Association (or if such association does not then
conduct business in such city, another arbitral panel reasonably satisfactory to
each party) then in effect. Judgment shall be entered on the arbitrator's award
in any court having jurisdiction over the parties hereto.
(j) INDULGENCES, ETC. Neither the failure nor any delay on the part
of either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence.
<PAGE>
15
(k) HEADINGS. The headings of sections and paragraphs herein are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
(l) GOVERNING LAW. This Agreement has been executed and delivered in
the State of Nevada, and its validity, interpretation, performance, and
enforcement shall be governed by the laws of such State, without regard to
principles of conflicts of laws.
[The remainder of this page is left blank.]
<PAGE>
16
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has signed this
Agreement, all as of the date first set forth above.
Alliance Gaming Corporation
By: /s/ Steve Greathouse
----------------------------------
Steve Greathouse
President and Chief Executive Officer
/s/ Anthony L. DiCesare
-------------------------------------
Anthony L. DiCesare
<PAGE>
THIRD AMENDMENT TO
TRADEMARK LICENSE AGREEMENT
AND SETTLEMENT AGREEMENT
This Agreement is made as of May 10, 1996, by and between Bally
Entertainment Corporation ("Bally"), Alliance Gaming Corporation ("Alliance")
and BGII Acquisition Corp. ("Acquisition Corp.").
WHEREAS, Bally and Bally Gaming International, Inc. ("BGI") entered into a
Trademark License Agreement dated as of November 11, 1991, pursuant to which
Bally granted BGI the right to use the name "Bally";
WHEREAS, Bally and BGI entered into an Amended and Restated Trademark
License Agreement dated as of July 8, 1992 (the "FIRST AMENDED AGREEMENT") and
later entered into a Second Amendment to Trademark License Agreement and
Settlement Agreement dated as of March 31, 1995 (the "SECOND AMENDED AGREEMENT")
in connection with BGI's use of the name "Bally";
WHEREAS, BGI and Alliance have entered into an agreement and plan of
merger, pursuant to which BGI and Acquisition Corp. will be merged, with BGI the
entity surviving the merger as a whollyowned subsidiary of Alliance (the
"Merger");
WHEREAS, BGI, Alliance and Acquisition Corp. have instituted an action (the
"DELAWARE ACTION") against Bally in the United
<PAGE>
States District Court for the District of Delaware (the "DELAWARE Court"), and
Bally has instituted an action (the "New Jersey ACTION") against BGI, Alliance
and Acquisition Corp. in the United States District Court for the District of
New Jersey (the "NEW JERSEY COURT");
WHEREAS, the parties hereto wish to provide for a further amendment of the
trademark license agreement, to take effect immediately upon closing of the
Merger or a substantially similar transaction, in order to resolve and settle
the Delaware Action and the New Jersey Action;
WHEREAS, it is the intention of Alliance and the expectation of Bally that,
upon the closing of the Merger or a substantially similar transaction, Alliance,
as the sole stockholder of BGI, will cause BGI and BGI's subsidiary, Bally
Gaming, Inc., to become signatories to this Agreement; and
WHEREAS, prior to the execution and delivery of this Agreement, the parties
to the New Jersey Action and the Delaware Action have executed and filed a
Consent Order (the "NEW JERSEY ORDER") with the New Jersey Court, a copy of
which is annexed hereto as Exhibit A, and an Order (the "Delaware Order") with
the Delaware Court, a copy of which is annexed hereto as Exhibit B.
2
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Subject to the provisions of Paragraphs 12 and 14 hereof, Bally hereby
withdraws its objections to the change of control over BGI's rights under the
Trademark License Agreement, as hereinafter defined, by operation of the Merger
or any substantially similar transaction by which Alliance will obtain such
control, and Bally hereby consents thereto.
2. The First Amended Agreement and Second Amended Agreement shall
continue in full force and effect, subject to the addition of the following
provisions on the Effective Date, as hereinafter defined, which provisions shall
be deemed to be made a part of the First Amended Agreement and the Second
Amended Agreement as if set forth in full therein (collectively, the "TRADEMARK
LICENSE AGREEMENT") and said First Amended Agreement and Second Amended
Agreement are annexed hereto and made a part hereof. In the event of any
conflict between the terms and provisions of the First Amended Agreement and the
Second Amended Agreement, the terms and provisions of the Second Amended
Agreement shall apply and control, and in the event of
3
<PAGE>
any conflict between the terms and provisions of this Agreement and either or
both of the First Amended Agreement and the Second Amended Agreement, the terms
and provisions of this Agreement shall apply and control.
3. (a) Commencing on the closing date of the Merger or a substantially
similar transaction (the "EFFECTIVE DATE"), BGI shall pay Bally $35.00 per
machine for each gaming machine sold or leased by BGI in each of the next five
12-month periods (each 12-month period, a "Royalty Period"). After the first
five Royalty Periods, this Paragraph 3(a) shall cease to have effect (except
with respect to any unpaid amounts due in respect of any of such first five
Royalty Periods) and the payment provisions contained in Paragraph 11(a) of the
Second Amended Agreement shall apply for the remaining term or any extensions of
the Trademark License Agreement.
(b) Notwithstanding anything to the contrary herein contained, no
royalty shall be payable on account of or with respect to the sale or lease by
BGI of German wall machines.
4. Commencing on the Effective Date, the minimum royalties for each
Royalty Period shall be $1,000,000 for the first five Royalty Periods. After the
first five Royalty Periods, the minimum royalty payment by BGI shall be $500,000
for each Royalty
4
<PAGE>
Period during the remaining term of the Trademark License Agreement or any
extensions thereof. Such minimum royalty amounts shall be due and payable under
any and all circumstances and, in particular, irrespective of the quantity of
gaming machines sold or leased and whether or not any gaming machines are sold
or leased.
5. (a) In the event that BGI erroneously makes a royalty payment in
excess of the amounts due under this Agreement or the Second Amended Agreement,
Bally shall refund the excess amount of such payment within 30 days after
receipt of (i) such excess amount and (ii) written notice from BGI specifying
the excess amount of such payment.
(b) The provisions of this Agreement shall not be deemed to affect
Bally's rights regarding rebates and pricing as provided in Paragraphs 2 through
4 of the Second Amended Agreement.
6. (a) (i) A merger, or a sale of assets or stock, of BGI or a merger,
or a sale of stock, of BGI's direct or indirect parent corporation to or with a
person or entity (other than a Bally Competitor, as hereinafter defined) that,
at the closing of such sale or merger, (x) is licensed or has an affiliate that
is licensed by the Nevada Gaming Commission to engage in the Gaming
5
<PAGE>
Machine Business in Nevada and (y) is licensed or qualified or has an affiliate
that is licensed or qualified by the New Jersey Casino Control Commission
("CCC"), or has a pending application to be licensed or qualified by the CCC and
is also lawfully permitted, while such application is pending, to engage in the
Gaming Machine Business in New Jersey, or (ii) a pledge of assets of BGI as
collateral security for any financings obtained by BGI or its direct or indirect
parents, which pledge may contain a sublicense of rights under the Trademark
License Agreement to allow disposition of gaming machine collateral covered
thereby (such sales, mergers and pledges being referred to herein collectively
as "ELIGIBLE DISPOSITIONS") shall be permitted without any requirement of
consent from Bally and, notwithstanding anything to the contrary contained in
this Agreement, the First Amended Agreement, or the Second Amended Agreement,
shall not (in the case of either clause (i) or (ii) immediately above) be deemed
to contravene the Trademark License Agreement, including, among others,
Paragraphs 1 and 9 of the First Amended Agreement, only if, before the
effectuation of each Eligible Disposition, each of the applicable conditions set
forth in paragraph 6(b) below shall have been satisfied (provided that, unless
Bally shall have received not less than five (5) days
6
<PAGE>
prior written notice describing the proposed disposition, notice under Section
10.A.(b) of the First Amended Agreement shall be deemed to have been given on
the date any such disposition is effectuated if any such condition is not
satisfied by such date in accordance with the provisions of this Agreement).
(b) If such pledge involves any of BGI's rights under the Trademark
License Agreement or gaming machines created pursuant to the exercise of such
rights ("Inventory"), then any arrearages in royalty payments due under the
Trademark License Agreement shall have been cured prior to or simultaneously
with the making of any such pledge (it being understood that Bally shall reserve
its rights with respect to any default under the Trademark License Agreement
that exists and is not cured prior to or simultaneously with the making of any
Eligible Disposition). Any Eligible Disposition consisting of either the sale of
all or substantially all the assets of BGI or a merger of BGI in connection with
which BGI will not be the surviving entity shall be subject to the further
condition precedent that the prospective transferee or prospective surviving
entity, as the case may be, shall have agreed in writing, without any condition
or other qualification, to be bound by the provisions of the Trademark License
Agreement. Any Eligible Disposition consisting
7
<PAGE>
of a pledge of rights under the Trademark License Agreement or Inventory shall
be subject to the further condition precedent that the prospective pledgee shall
have acknowledged and agreed in writing, without any condition or other
qualification, that (i) any transfer (whether by foreclosure or otherwise) of
Inventory effected by such pledgee shall be subject to the royalty and rebate
provisions of the Trademark License Agreement, so that the pledgee shall have
paid or cause to be paid to Bally, simultaneously with any such transfer, the
royalty per machine due to Bally by reason of such transfer; (ii) any transfer
(whether by foreclosure or otherwise) of rights under the Trademark License
Agreement effected by such pledgee shall be subject to the condition precedent
that the prospective transferee shall have agreed in writing to be bound by the
provisions of the Trademark License Agreement; and (iii) any foreclosure by such
pledgee (whether involving stock or assets of BGI or any of its affiliates) that
would result in any transfer or change in ownership or control, direct or
indirect, of BGI or BGI's rights under the Trademark License Agreement, shall
comply with all the provisions of the Trademark License Agreement applicable
thereto (including, without limitation, the provisions
8
<PAGE>
of Paragraph 9 of the First Amended Agreement and Paragraph 6 of this
Agreement).
(c) As used in this Agreement and in Paragraph 9 of the First Amended
Agreement, the terms "assignment" and "assign" shall be deemed to apply to any
sale, assignment, merger, pledge or other transfer by BGI or its affiliates,
successors or assigns, including but not limited to changes in corporate form or
ownership, affecting or pertaining to, directly or indirectly, the rights of BGI
under the Trademark License Agreement. Any assignment or other transfer by BGI,
its affiliates, successors or assigns which is not an Eligible Disposition but
which does not constitute a direct transfer of the Trademark License Agreement
or any rights thereunder by BGI (or any successor licensee) shall be deemed not
to contravene the Trademark License Agreement, including, among others,
Paragraphs 1 and 9 of the First Amended Agreement, except as provided in
Paragraph 6(d) below.
(d) Any assignment that results or would result in a Bally Competitor
(hereinafter defined) holding (i) five (5%) percent or more of the voting
securities of BGI or any of its post-assignment affiliates or its successors or
assigns; (ii) any security convertible into five (5%) percent or more of such
9
<PAGE>
voting securities, or (iii) a contractual right or power to control, directly or
indirectly (through an affiliate or otherwise), BGI or any of its successors or
assigns, or any of the rights of BGI or any of its successors or assigns under
the Trademark License Agreement, shall be deemed an assignment in contravention
of Paragraph 9 of the First Amended Agreement (and shall not constitute an
Eligible Disposition). Accordingly, BGI acknowledges that Bally intends to
withhold its consent with respect to any such assignment. As used herein, the
term "BALLY COMPETITOR" means (i) any person or entity (including Alliance and
any affiliate of Alliance that is the surviving entity or acquiror in connection
with any such assignment) that, prior to the closing of any assignment or as a
result thereof, is licensed or qualified or is in the process of applying to
become licensed or qualified to own and/or operate (through one or more
affiliates or otherwise) one or more casinos that has or have, or is/are under
construction and planned to have, in the aggregate, (x) 50,000 sq. ft. or more
of casino floor space in either New Jersey or Nevada, without taking into
account such square footageas was held by Alliance and its affiliates prior to
any such assignment or (y) either (1) 100,000 sq. ft. or more of casino floor
space in North America, without taking into account
10
<PAGE>
such square footage as was held by Alliance and its affiliates prior to any such
assignment, or (2) 150,000 sq. ft. or more of casino floor space in North
America, taking into account such square footage as was held by Alliance and its
affiliates prior to any such assignment (provided, however, that this clause
(y)(2) shall not cause Alliance to be deemed a Bally Competitor by reason of
casino square footage following any assignment with an entity having no casino
square footage), or (ii) any person or entity, other than an institutional
investor or individual that is not required to be licensed or otherwise
qualified under applicable gaming law (it being understood that the granting of
a "passive investor" or similar waiver to an institutional or individual
investor shall not render such person "licensed or otherwise qualified under
applicable gaming law" for purposes of this clause), that owns or has the right
to acquire or receive, directly or indirectly (through an affiliate or
otherwise), 10% or more of the equity interest of or income generated by any
person or entity described in clause (i) immediately above. The provisions of
this Paragraph 6(d) shall not apply with respect to the Merger.
(e) The provisions of paragraphs 6(a) through 6(d) shall become
effective on the Effective Date.
11
<PAGE>
7. This Agreement and the First Amended Agreement and the Second Amended
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New Jersey, without regard to the conflicts of law principles
thereof.
8. Any judicial proceedings initiated in connection with this Agreement,
the First Amended Agreement and/or the Second Amended Agreement shall be brought
solely before the state or federal courts, or administrative tribunals, within
the State of New Jersey.
9. The Trademark License Agreement shall be binding upon and enforceable
against BGI, Bally, and their respective affiliates and successors and assigns.
10. The Trademark License Agreement, as amended hereby on the Effective
Date, shall continue in full force and effect for at least five years from the
Effective Date (the provisions of Paragraph 12 of the Second Amended Agreement
remaining in full force and effect except as modified by the foregoing, so that
the Trademark License Agreement may be terminated at BGI's election after the
expiration of such five year period and then only by BGI's compliance with the
other provisions thereof that have not been modified by this Paragraph 10).
12
<PAGE>
11. Simultaneously with the closing of the Merger or a substantially
similar transaction, the plaintiffs and defendants named in the New Jersey
Action and the Delaware Action shall execute, deliver and cause to be filed,
with the New Jersey Court, a Stipulation of Settlement in the form annexed
hereto as Exhibit C, and, with the Delaware Court, a Stipulation of Dismissal in
the form annexed hereto as Exhibit D; Bally shall execute and deliver to BGI,
Alliance and Acquisition Corp. a Release identical in form and content to the
Release annexed hereto as Exhibit E; and BGI, Alliance and Acquisition Corp.
shall execute and deliver to Bally a Release identical in form and content to
the Release annexed hereto as Exhibit F. As sole stockholder of BGI following
the Merger or a substantially similar transaction, Alliance will cause BGI and
Bally Gaming, Inc. to execute this Agreement on the Effective Date, will cause
BGI to execute the Stipulations of Dismissal, and will cause BGI and Bally
Gaming, Inc. to execute the Release as required by this Paragraph 11.
12. The provisions of paragraph 11 above notwithstanding, if either (i)
the Merger or a substantially similar transaction fails to close by the date
mutually agreed by BGI and Alliance (which mutually agreed date, as of the
execution of this
13
<PAGE>
Agreement, is June 18, 1996), or (ii) the closing of the Merger or a
substantially similar transaction has not occurred within 120 days following the
date of the New Jersey Order, then, upon the earlier to occur or clauses (i) and
(ii), Bally shall have the right to terminate this Agreement effective
immediately upon giving written notice of such termination to Alliance, and
Alliance shall have the right to terminate this Agreement effective immediately
upon giving written notice of such termination to Bally. In such event, this
Agreement shall be deemed void AB INITIO except as to this Paragraph 12 and
Paragraphs 13 and 14, the New Jersey Action shall be subject to reinstatement in
accordance with the New Jersey Order, and the Delaware Action shall be subject
to reinstatement in accordance with the Delaware Order. Subject to the
provisions of this Agreement, the parties reserve all their respective rights
and remedies in connection with the New Jersey Action and the Delaware Action
(including, without limitation, such rights as Bally may have under and arising
out of that certain default and termination letter from Bally to BGI et al.
dated February 15, 1996).
13. To induce Bally to file the New Jersey Order and to execute this
Agreement, and for other consideration, the receipt
14
<PAGE>
and sufficiency of which are hereby acknowledged, Alliance hereby irrevocably
agrees as follows: (a) Alliance shall pay legal fees of Bally in the amount of
$240,000, by check payable to the law firm of Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A., on the earlier of June 19, 1996 or the Effective
Date, plus the amount of all legal fees and other costs incurred in connection
with the enforcement of the foregoing payment obligation; (b) such payment
obligations shall be absolute and unconditional and shall not be subject to any
defense, set-off or counterclaim (whether by Alliance, BGI or any other person
or entity) under any circumstances whatsoever (including, but not limited to,
any delay respecting the Merger or the failure or refusal of anyone to
consummate the Merger); and (c) such payment(s) shall be non-refundable.
14. Except for Paragraphs 12 and 13 and this Paragraph 14, this Agreement
shall be null and void if notice of termination is given by either Bally or
Alliance as provided in Paragraph 12 above. If this Agreement is so terminated
by Bally or Alliance under Paragraph 12 above, this Agreement shall not be
admissible, and the substance of its terms shall not be referred to, in any
court of law or before any administrative or other tribunal, except for the
provisions of Paragraph 12 of this Agreement and
15
<PAGE>
except in connection with a suit by Bally against Alliance to collect legal fees
under Paragraph 13, and except in response to a request for disclosure by gaming
or other regulators. In the event this Agreement is terminated by Bally or
Alliance under Paragraph 12 above, Bally, Alliance and Acquisition Corp. each
may assert all positions, and seek to enforce all its rights and remedies,
existing prior to the execution of this Agreement.
15. This Agreement may be executed in counterparts, each of which will be
deemed to be an original and all of which together constitute the same
agreement.
IN WITNESS WHEREOF, as of the date first written above, the parties have
caused this Agreement to be executed as of the date and year first above
written.
BALLY ENTERTAINMENT CORPORATION
By:________________________________
ALLIANCE GAMING CORPORATION
By:________________________________
BGII ACQUISITION CORP.
By:________________________________
16
<PAGE>
The undersigned acknowledge and agree to be bound by and to perform under
the provisions of this Agreement, as of and from the date below written.
BALLY GAMING, INC.
By:________________________________
BALLY GAMING INTERNATIONAL, INC.
By:________________________________
June __, 1996
17
<PAGE>
[EXHIBIT A]
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
________________________x
BALLY ENTERTAINMENT Civil Action No. 95C7650 (JHR)
CORPORATION,
Plaintiff,
- -vs-
BALLY GAMING INTERNATIONAL CONSENT ORDER
INC., BALLY GAMING, INC.
ALLIANCE GAMING CORPORATION
and BGII ACQUISITION CORP.,
Defendants
______________________x
This matter having been opened to the Court jointly by plaintiff Bally
Entertainment Corporation and defendants Bally Gaming International, Inc.
("BGII"), Bally Gaming, Inc., Alliance Gaming Corporation and BGII Acquisition
Corp. ("Acquisition"); and the parties having advised the Court that they are
negotiating a settlement contingent upon the merger of BGII and Acquisition (the
"Merger"); and the parties having agreed to the administrative dismissal of this
action and to its reopening should the settlement not be consummated; and for
good cause shown,
IT IS, on this 29th day of March 1996,
ORDERED that this action be, and hereby is, dismissed without costs and
without prejudice to the right of any party to apply to the Court by letter to
reopen the action within sixty (60) days from date of this Order upon a showing
of good cause; and it is further
ORDERED that any party may apply to the Court by letter before the end of
the 60-day period to request an extension of sixty (60) additional days in which
to apply to reopen the action; and it is further
ORDERED that if the settlement should not be consummated, good cause to
reopen the action will be deemed to have been established.
18
<PAGE>
/s/Joseph H. Rodriguez J.D.C
_____________________________
JOSEPH H RODRIGUEZ J.D.C.
APPROVED AS TO FORM AND CONTENT:
/s/Clive S. Cummis
- --------------------------
Clive S. Cummis (CC-33774)
SILLS CUMMIS ZUCKERMAN RADIN
TISCHMAN EPSTEIN & GROSS, P.A.
Counsel for Bally Entertainment Corporation
/s/Kenneth D. McPherson, Jr.
- --------------------------
Kenneth D. McPherson, Jr. (KM-8899)
WATERS, MCPHERSON, MCNEILL, P.C.
Counsel for Bally Gaming International, Inc.
and Bally Gaming, Inc.
/s/Gilbert L. Brooks
- --------------------------
Gilbert L. Brooks (GB-3196)
KOZLOV, SEATON, ROMANINI & BROOKS
Counsel for Alliance Gaming Corporation
and BGII Acquisition Corp.
[EXHIBIT B]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ALLIANCE GAMING CORPORATION,
BGII ACQUISITION CORPORATION, AND
BALLY GAMING INTERNATIONAL, INC.
INC. C.A. NO. 95716
(MMS)
Plaintiffs,
v.
BALLY ENTERTAINMENT CORPORATION,
Defendant.
ORDER
This matter having been opened to the Court jointly by plaintiffs Alliance
Gaming Corporation, BGII Acquisition Corporation ("Acquisition"), Bally Gaming
International, Inc. ("BGII") and defendant Bally Entertainment Corporation, and
the
19
<PAGE>
parties having advised the Court that they have negotiated a settlement
contingent upon the merger of BGII and Acquisition; and the parties having
agreed to the dismissal of this action and to its reopening should the
settlement not be consummated; and for good cause shown.
IT IS, on this 24th day of April, 1996.
Ordered that this action be, and hereby is, dismissed without costs and
without prejudice to the right of any party to apply to the Court by letter to
reopen the action within sixty (60) days from date of this Order upon a showing
of good cause; and it is further
ORDERED that any party may apply to the Court by letter before the end of
the 60-day period to request an extension of sixty (60) additional days in which
to apply to reopen the action; and is further
ORDERED that if the settlement should not be consummated, good cause to
reopen the action will be deemed to have been established.
/s/ Murray M. Schwartz U.S.D.J.
------------------------------
MURRAY M. SCHWARTZ, U.S.D.J.
APPROVED AS TO FORM AND CONTENT:
/s/ Richard D. Heins
- ------------------------------
Richard D. Heins
ASHBY & GEDDES
One Rodney Square, Suite 302
P.O. Box 1150
Wilmington, DE 19899
/s/ Michael D. Goldman
- ------------------------------
Michael D. Goldman
Peter J. Walsh, Jr.
POTTER ANDERSON & CORROON
902 Market Street
P.O. Box 951
Wilmington, DE 19899
/s/ Henry E. Gallagher, Jr.
- ------------------------------
Henry E. Gallagher, Jr.
CONNOLLY BOVE LODGE & HUTZ
1220 Market Building
20
<PAGE>
P.O. Box 2207
Wilmington, DE 19899
[EXHIBIT C]
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BALLY ENTERTAINMENT CORPORATION
Plaintiff,
- v - Civil Action No.
95 CV 6050 (JHR)
BALLY GAMING INTERNATIONAL
INC., BALLY GAMING, INC.,
ALLIANCE GAMING CORPORATION
and BGII ACQUISITION CORP.,
STIPULATION OF SETTLEMENT
This matter having been resolved by the parties, IT IS HEREBY STIPULATED
AND AGREED, by and between undersigned attorneys of record for all parties
pursuant to Fed. R. Civ. P. 41(a), that this action is hereby dismissed with
prejudice and without costs to any party.
Dated: __________, 1996
- ------------------------------
Clive S. Cummis (CC-3774)
SILLS CUMMIS ZUCKERMAN RADIN
TISCHMAN EPSTEIN & GROSS, P.A.
One Riverfront Plaza
Newark, New Jersey 07102-5400
(201) 643-7000
- ------------------------------
Gilbert L. Brooks (GB-3196)
KOZLOV, SEATON, ROMANINI
& BROOKS
1940 Route 70, East, Suite 200
Cherry Hill, New Jersey 08003
(609) 424-8200
21
<PAGE>
- ------------------------------
Kenneth D. McPherson, Jr. (KM-8899)
WATERS, MCPHERSON, MCNEILL, P.C.
300 Lighting Way
P.O. Box 1560
Secaucus, New Jersey 07096
(201) 863-4400
[EXHIBIT D]
DRAFT - 3/21/96 11:16 am
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ALLIANCE GAMING CORPORATION,
BGII ACQUISITION CORP.,
and BALLY GAMING INTERNATIONAL, INC.
Plaintiffs, C.A. No. 95-716 (MMS)
v.
BALLY ENTERTAINMENT CORPORATION,
Defendant
STIPULATION OF DISSMISSAL
Pursuant to Fed. R. Civ. P. 41(a)(1), the parties to the above action
hereby stipulate and agree to its dismissal with prejudice.
POTTER ANDERSON & CORROON
- ------------------------------
Michael D. Goldman (ID #268)
350 Delaware Trust Company
P.O. Box 951
Wilmington, DE 19899
(302) 984-6000
Attorneys for Plaintiff
Bally Gaming International Inc.
CONNOLLY, BOVE, LODGE & HUTZ
- ------------------------------
Henry E. Gallagher, Jr. (ID #495)
22
<PAGE>
1220 Market Building
P.O. Box 2207
Wilmington, DE 19899
(302) 658-9141
Attorneys for Plaintiffs
Alliance Gaming Corporation
and BGII Acquisition Corp.
ASHBY & GEDDES
- ------------------------------
Stephen E. Jenkins (I.D. #2152)
Richard D. Heins (I.D. #3000)
One Rodney Square
P.O. Box 1150
Wilmington, DE 19899
(302) 654-188
Attorneys for Defendant
Bally Entertainment Corporation
Dated: _________________ 1996
[EXHIBIT E]
RELEASE
BALLY ENTERTAINMENT CORPORATION, a Delaware corporation having its
principal place of business at 8700 West Bryn Mawr Avenue, Chicago, Illinois
(the "RELEASOR"), for valuable consideration, does hereby release, remise, aquit
and discharge BALLY GAMING INTERNATIONAL INC., a Delaware corporation having its
principal place of business at 6601 South Bermuda Road, Las Vegas, Nevada, BALLY
GAMING, INC., a Nevada corporation having its principal place of business at
2501 Fire Road, Absecon, New Jersey, ALLIANCE GAMING CORPORATION., a Delaware
corporation having its principal place of business at 4380 Boulder Highway, Las
Vegas, Nevada, and BGII ACQUISITION CORP., a Delaware corporation having its
principal place of business at 4380 Boulder Highway, Las Vegas, Nevada, and all
their shareholders, directors, officers, agents, employees and representatives
(collectively, the "RELEASEES"), from any and all claims which the RELEASOR (a)
has asserted, or that directly or indirectly arise out of or relate to the
claims or allegations asserted in its Complaint dated November 28, 1995 or its
proposed Amended Complaint dated February 19, 1996 in the action styled BALLY
ENTERTAINMENT CORPORATION V. BALLY GAMING INTERNATIONAL, INC., BALLY GAMING
INC., ALLIANCE GAMING CORPORATION AND BGII
23
<PAGE>
ACQUISITION CORP., United States District Court, District of New Jersey, Civil
Action No. 95 CV 6050 (JHR), and (b) may have that directly or indirectly arise
out of or relate to the claims or allegations made by certain RELEASES in their
Complaint dated November 20, 1995 in the action styled ALLIANCE GAMING
CORPORATION, BGII ACQUISITION CORP., AND BALLY GAMING INTERNATIONAL, INC. V.
BALLY ENTERTAINMENT CORPORATION, United States District Court, District of
Delaware, C.A. No. 95-716 (MMS).
This Release is being executed pursuant to and in accordance with the
Stipulation of Settlement effective _________________________________ 1996, by
and between the RELEASOR and the RELEASES.
THIS RELEASE MAY NOT BE CHANGED ORALLY.
IN WITNESS WHEREOF, THE RELEASOR has hereunto set its hand and seal on the
__ day of ____________ 1996.
BALLY ENTERTAINMENT CORPORATION
by: ___________________________________
[EXHIBIT F]
RELEASE
BALLY GAMING INTERNATIONAL, INC., a Delaware corporation having its
principal place of business at 6601 South Bermuda Road, Las Vegas, Nevada, BALLY
GAMING, INC., a Nevada corporation having its principal place of business at
25501 Fire Road, Absecon, New Jersey, ALLIANCE GAMING CORPORATION, a Nevada
corporation having its principal place of business at 4380 Boulder Highway, Las
Vegas, Nevada, and BGII ACQUISITION CORP., a Delaware corporation having its
principal place of business at 4380 Boulder Highway, Las Vegas, Nevada,
collectively, the "RELEASORS," for valuable consideration, do hereby release,
remise, acquit and discharge BALLY ENTERTAINMENT CORPORATION, a Delaware
corporation having its principal place of business at 8700 West Bryn Mawr
Avenue, Chicago, Illinois, and all its shareholders, directors, officers, agents
employees and representatives, collectively, the "RELEASEE," from any and all
claims which (a) the RELEASEE," from any and all claims which (a) the RELEASORS
may have that directly or indirectly arise out of or relate to the claims or
allegations made by the RELEASEE in its Complaint dated November 28, 1995 or its
proposed Amended Complaint dated February 19, 1996 in the action styled BALLY
ENTERTAINMENT CORPORATION V. BALLY GAMING INTERNATIONAL, INC., BALLY GAMING,
INC., ALLIANCE GAMING
24
<PAGE>
CORPORATION AND BGII ACQUISITION CORP., United States District Court, District
of New Jersey, Civil Action No. 95 CV 6050 (JHR), and which (b) certain
RELEASORS have asserted, or that directly or indirectly arise out of or relate
to the claims or allegations asserted, in the their Complaint dated November 20,
1995 in the action styled ALLIANCE GAMING CORPORATION, BGII ACQUISITION CORP.,
AND BALLY GAMING INTERNATIONAL, INC. V. BALLY ENTERTAINMENT CORPORATION, United
States District Court, District of Delaware, C.A. No. 95-716 (MMS).
This Release is being executed pursuant to and in accordance with the
Stipulation of Settlement effective _________________________________, 1996, by
and between the RELEASORS and the RELEASEE.
THIS RELEASE MAY NOT BE CHANGED ORALLY.
IN WITNESS WHEREOF, the RELEASORS have hereunto set their hand and seal on
the ___ day of ___________ 1996.
BALLY GAMING INTERNATIONAL, INC.
By: _________________________________
BALLY GAMING, INC.
By: _________________________________
ALLIANCE GAMING CORPORATION
By: _________________________________
BGII ACQUISITION CORP.
By: _________________________________
25
<PAGE>
EXHIBIT 12
ALLIANCE GAMING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDEND
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, MARCH 31
---------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
-------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net loss................................... $(15,816) $(4,680) $(3,650) $(13,128) $(10,752) $ (6,793) $(14,829)
Income taxes............................... (5,958) -- -- 241 265 394 581
Imputed interest on rents(1)............... 16,485 16,524 19,839 22,584 22,030 16,548 17,070
Interest and debt discount amortization.... 4,663 4,505 5,046 6,830 8,133 5,844 6,341
-------- ------- ------- -------- -------- -------- --------
Earnings (loss) as defined for ratio..... $ (626) $16,349 $21,235 $ 16,527 $ 19,676 $ 15,993 $ 9,163
-------- ------- ------- -------- -------- -------- --------
-------- ------- ------- -------- -------- -------- --------
Fixed Charges:
Imputed interest on rents(1)............... $ 16,485 $16,524 $19,839 $ 22,584 $ 22,030 16,548 17,070
Interest and debt discount amortization.... 4,663 4,505 5,046 6,830 8,133 $ 5,844 $ 6,341
-------- ------- ------- -------- -------- -------- --------
Fixed charges as defined for ratio....... $ 21,148 $21,029 $24,885 $ 29,414 $ 30,163 $ 22,392 $ 23,411
-------- ------- ------- -------- -------- -------- --------
-------- ------- ------- -------- -------- -------- --------
Ratio of earnings to fixed charges........... -- -- -- -- -- -- --
-------- ------- ------- -------- -------- -------- --------
-------- ------- ------- -------- -------- -------- --------
Amounts by which earnings were inadequate to
cover fixed charges......................... $(21,774) $(4,680) $(3,650) $(12,887) $(10,487) $ (6,399) $(14,248)
-------- ------- ------- -------- -------- -------- --------
-------- ------- ------- -------- -------- -------- --------
Pro forma fixed charge for Preferred Stock
dividend....................................
Amount by which pro forma earnings were
inadequate to cover fixed charges and
Preferred Stock
dividend....................................
<CAPTION>
PRO FORMA COMBINED
FINANCIAL INFORMATION
----------------------------------------
NINE MONTH NINE MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, MARCH 31, MARCH 31,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Earnings:
Net loss................................... $(3,719) $ (2,255) $(11,329)
Income taxes............................... 2,555 2,055 1,508
Imputed interest on rents(1)............... 21,843 10,945 10,721
Interest and debt discount amortization.... 23,229 17,413 16,922
---------- ------------ ------------
Earnings (loss) as defined for ratio..... $43,908 $ 28,158 $ 17,822
---------- ------------ ------------
---------- ------------ ------------
Fixed Charges:
Imputed interest on rents(1)............... $21,843 $ 10,945 $ 10,721
Interest and debt discount amortization.... 23,229 17,413 16,922
---------- ------------ ------------
Fixed charges as defined for ratio....... $45,072 $ 28,358 $ 27,643
---------- ------------ ------------
---------- ------------ ------------
Ratio of earnings to fixed charges........... -- -- --
---------- ------------ ------------
---------- ------------ ------------
Amounts by which earnings were inadequate to
cover fixed charges......................... $(1,164) $ (200) $ (9,821)
---------- ------------ ------------
---------- ------------ ------------
Pro forma fixed charge for Preferred Stock
dividend.................................... (8,039) (5,916) (5,916)
---------- ------------
Amount by which pro forma earnings were
inadequate to cover fixed charges and
Preferred Stock
dividend.................................... $(9,203) $ (6,116) $(15,737)
---------- ------------
---------- ------------
</TABLE>
- ------------------------
(1) Imputed interest on rents is calculated by taking 33% of total rents in each
period presented.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Alliance Gaming Corp.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the registration statement. As noted
under the captions "Forecast of Operations" and "Experts", KPMG Peat Marwick LLP
has not examined the Forecast presented under "Forecast of Operations" and,
accordingly we do not express an opinion or any other form of assurance with
respect thereto.
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
May 24, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 of
our report, dated February 13, 1996, on our audits of the consolidated financial
statements of Bally Gaming International, Inc. We also consent to the reference
to our firm under the caption "Experts." As noted under the captions "Forecast
of Operations" and "Experts," Coopers & Lybrand L.L.P. neither examined nor
compiled nor had any other involvement with the preparation of the accompanying
prospective financial information included in this registration statement and,
accordingly, we do not express an opinion or any other form of assurance with
respect thereto, nor do we assume any responsibility for such prospective
financial information.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
May 24, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
Section 305(b)(2) _______
__________________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
__________________________
ALLIANCE GAMING CORPORATION
(Exact name of OBLIGOR as specified in its charters)
Nevada 88-0104066
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
4380 BOULDER HIGHWAY
LAS VEGAS, NEVADA 89121
(702) 435-4200
(Address of principal executive offices)
__________________________
% Senior Secured Note Due 2003
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3. VOTING SECURITIES OF THE TRUSTEE
2,999,020 shares of Common Stock - par value $5 per share
4. TRUSTEESHIPS UNDER OTHER INDENTURES
Not applicable.
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS
Not applicable.
<PAGE>
- 3 -
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS
Not applicable.
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS
Not applicable.
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE
Not applicable.
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE
Not applicable.
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITIES HOLDERS OF THE OBLIGOR
Not applicable.
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR
Not applicable.
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE
Not applicable.
13. DEFAULTS BY THE OBLIGOR
Not applicable.
14. AFFILIATIONS WITH THE UNDERWRITERS
Not applicable.
<PAGE>
- 4 -
15. FOREIGN TRUSTEE
Not applicable.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on October 6, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 in an amended filing
to an original Registration Statement filed on August 28,
1995 (Registration No. 33-96262).
T-1.2 - Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on October 6, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 in an amended filing
to an original Registration Statement filed on August 28,
1995 (Registration No. 33-96262).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of May 21, 1996, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and will
rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
_____________________
<PAGE>
- 5 -
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 21st day of May, 1996.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ John Guiliano
---------------------------------------
John Guiliano
Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
----------------------
By: S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1995
---------------------------------------
($ IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 86,275
Short-Term Investments 50
Securities, Available for Sale 676,970
Loans 1,257,372
Less: Allowance for Credit Losses 13,254
----------
Net Loans 1,244,118
Premises and Equipment 57,692
Other Assets 129,999
----------
TOTAL ASSETS $2,195,104
----------
----------
LIABILITIES
Deposits:
Non-Interest Bearing $ 471,642
Interest Bearing 1,306,996
----------
Total Deposits 1,778,638
Short-Term Credit Facilities 114,789
Accounts Payable and Accrued Liabilities 146,307
----------
TOTAL LIABILITIES $2,039,734
----------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 41,944
Retained Earnings 96,878
Unrealized Gains on Securities Available
for Sale (Net of Taxes) 1,553
----------
TOTAL STOCKHOLDER'S EQUITY 155,370
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,195,104
----------
----------
I, RICHARD E. BRINKMANN, SENIOR VICE PRESIDENT & COMPTROLLER of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
/s/ Richard E. Brinkman
- -----------------------
Signature of Officer
February 12, 1996
- -----------------------
Date
