Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
Registration Statement Under the Securities Act of 1933
Alliance Gaming Corporation
(Exact name of registrant as specified in its charter)
Nevada 88-0104066
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6601 South Bermuda Road
Las Vegas, Nevada 89119
Telephone (702) 270-7600
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Scott D. Schweinfurth
Chief Financial Officer
Alliance Gaming Corporation
6601 South Bermuda Road
Las Vegas, Nevada 89119
Telephone (702) 270-7600
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copy to:
Lawrence Lederman, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Telephone (212) 530-5732
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement is declared
effective.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box.
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, other than securities offered only in connection
with dividend or interest reinvestment plans, please 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 statement 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
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Shares to Amount to Price Per Unit Offering Registration
be Registered (1) be Registered Unit (2) Price(2) Fee
Common Stock, $.10
par value 459,863 $3.31 $1,522,145 $461.26
15% Non-Voting Senior
Pay-in-Kind Special
Stock, Series B
$.10 par value 6,150 $100.00 $615,000 $186.36
(1) 459,863 shares of Common Stock (including 9,863 shares of Common Stock
issuable to the Selling Stockholders named herein upon exercise of
certain options) and 6,150 shares of Series B Special Stock issuable
to the Selling Stockholders named herein upon exercise of certain
options are being registered for resale by the Selling Stockholders
named herein.
(2) Estimated solely for the purposes of calculating the registration fee
in accordance with Rule 457(c) based on the average of the high and
low prices for the Company's Common Stock and Series B Special Stock
reported on the Nasdaq National Market System on April 14, 1997.
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, as amended, or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
[Red Herring Legend]
SUBJECT TO COMPLETION, DATED APRIL 18, 1997
459,863 shares of
Common Stock, $.10 par value
6,150 shares of
15% Non-Voting Senior Pay-in-Kind Special Stock,
Series B, $.10 par value
ALLIANCE GAMING CORPORATION
This Prospectus relates to 459,863 shares of Common Stock, $.10
par value ("Common Stock"), and 6,150 shares of 15% Non-Voting Senior Pay-
in-Kind Special Stock, Series B, $.10 par value ("Special Stock"), of
Alliance Gaming Corporation (the "Company") (such shares of Common Stock
and Special Stock being referred to as the "Shares") being offered on
behalf of certain stockholders of the Company (the "Selling Stockholders").
The Shares may be sold from time to time by the Selling Stockholders in
brokers' transactions or in transactions directly with a market maker
without soliciting or arranging for the solicitation of orders to buy the
Shares in anticipation of or in connection with such transactions or making
any payment in connection with the offer or sale of the Shares to any
person other than the broker who executes the order to sell the Shares.
See "Selling Stockholders" and "Plan of Distribution".
None of the proceeds from the sale of the Shares will be received
by the Company. The Company has agreed to bear certain expenses (other
than selling commissions and fees and expenses of counsel and other
advisors to the Selling Stockholders) in connection with the registration
of the Shares.
The Common Stock and Special Stock of the Company are quoted on
the Nasdaq National Market System ("Nasdaq NMS") under the symbols "ALLY"
and "ALLYP," respectively. On April 16, 1997, the last reported sale price
of the Common Stock and Special Stock on the Nasdaq NMS was $3.50 and
$100.875 per share, respectively.
THE SHARES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
THESE SHARES 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 SHARES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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 any 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.
The date of this Prospectus is April 18, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements, and other
information may be inspected and copied at the Public Reference Room of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
Commission's regional offices in Chicago (Northwest Atrium Center, Suite
1400, 500 West Madison Street, Chicago, IL 60661), and in New York (7 World
Trade Center, 13th Floor, New York, New York 10048). Copies of such
material may be obtained from the Public Reference Section of the
Commission 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates or through the Commission's web site (http://www.sec.gov).
The Company has filed with the Commission a registration
statement on Form S-3 (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Shares
offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission, and
the exhibits relating thereto, which have been filed with the Commission.
Copies of the Registration Statement and the exhibits are on file at the
offices of the Commission and may be obtained upon payment of the fees
prescribed by the Commission, examined without charge at the public
reference facilities of the Commission described above or through the
Commission's web site (http://www.sec.gov).
No persons have been authorized in connection with the offering
made hereby to give any information or to make any representations not
contained or incorporated by reference in this Prospectus, and any
information or representation not contained or incorporated herein must not
be relied upon as having been authorized by the Company, the Selling
Stockholders set forth under "Selling Stockholders" or any underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy by any person in any jurisdiction in which it is unlawful
for such person to make such an offer or solicitation. Neither the delivery
of this Prospectus at any time nor any sale made hereunder shall under any
circumstance imply that the information herein is correct as of any date
subsequent to the date hereof.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K and Form 10K/A for the
fiscal year ended June 30, 1996, its Quarterly Reports on Form 10-Q for the
periods ended September 30, 1996 and December 31, 1996, its Current Report
on Form 8-K filed with the Commission on October 28, 1996, and the
descriptions of the Common Stock contained in a registration statement
filed under the Exchange Act, which are on file with the Commission, are
incorporated in this Prospectus by reference and made a part hereof.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing such documents. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
The Company will furnish, without charge, to any person to whom a
copy of this Prospectus is delivered, including any beneficial owner, upon
such person's written or oral request, a copy of any and all of the
information filed by the Company that has been incorporated by reference in
this Prospectus (not including exhibits to the information that is
incorporated by reference herein unless such exhibits are specifically
incorporated by reference in such information). Requests for such copies
should be directed to the Company at 6601 South Bermuda Road, Las Vegas, NV
89119, Attention: Corporate Secretary (telephone number (702) 270-7600).
THE COMPANY
The Company 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. The Company 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. In addition, the Company acquired Bally Gaming International, Inc.
("BGII") on June 18, 1996, pursuant to an Agreement and Plan of Merger
dated October 18, 1995, as amended in January 1996 (the "Merger
Agreement"), with BGII Acquisition Corp., a wholly-owned subsidiary of the
Company merged with and into BGII, with BGII being the surviving
corporation and becoming a wholly-owned subsidiary of the Company (the
"Merger"). Through subsidiaries in the United States and Germany, the
Company is a leading designer, manufacturer and distributor of electronic
gaming machines. BGII also designs, assembles and sells computerized
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.
BGII's domestic subsidiary, Bally Gaming, Inc., has two business
units: first, a gaming machine business unit ("Gaming") and second, through
Bally Gaming Inc.'s Bally Systems division ("Systems"), a data system and
software and hardware support unit. Gaming designs, manufactures and
distributes a variety of electronic reel-type (or "slot") and video gaming
machines, with variations of design, payment features and coinage
acceptance. Systems designs, assembles and sells, primarily to casino
operators in the United States, computerized monitoring systems for slot
and video gaming machines which provide casino operators with data relative
to a machine's accounting, security and maintenance functions in a real
time environment. Systems markets its products and services primarily
through its own sales force.
The Company's German subsidiaries, which operate under the name
Bally Wulff, design, manufacture and distribute coin-operated, wall-mounted
machines and other recreational and amusement machines manufactured by
third parties, including pool tables, dart games, pinball machines,
jukeboxes and arcade games, to operators of arcades, taverns, hotels and
restaurants, in Germany. Product sales are made through Bally Wulff's 23
regional sales offices in Germany and through independent distributors.
The Company was incorporated under the name of Advanced Patent
Technology, Inc. under the law of the State of Nevada on September 26, 1968
and in 1983 changed its name to United Gaming, Inc. The Company's name was
changed from United Gaming, Inc. to Alliance Gaming Corporation on December
15, 1994. The Company's principal executive offices are located at 6601
South Bermuda Road, Las Vegas, Nevada 89119, and its telephone number is
(702) 270-7600.
RISK FACTORS
An investment in the Shares offered hereby involves a high degree
of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in or incorporated
by reference in this Prospectus and, in particular, the following:
High Leverage and Fixed Charges; Holding Company Structure; Working Capital
The Company has a substantial amount of indebtedness. As of
December 31, 1996, the Company had outstanding debt of approximately $178.6
million and a long-term debt to equity ratio of 2.6 to 1. If the Special
Stock were included in debt the pro forma long-term debt to equity ratio
would be 3.4 to 1. In addition, if the maximum amount of dividends on the
Special Stock were paid in kind, as anticipated, the liquidation value of
the Special Stock outstanding at December 31, 1996 would accrue to
approximately $160 million after seven years. The high level of
indebtedness and the amount of Special Stock of the Company has important
consequences, including without limitation the following: (i) significant
interest expense, cash dividend requirements (after five years), principal
repayment (primarily after seven years) and Special 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.
On a pro forma basis after giving effect to the Merger (assuming
the Merger occurred July 1, 1995) and the use of proceeds thereof, the
Company's earnings would have been inadequate to cover fixed charges
(excluding the imputed fixed charges for contingent rental expense related
to revenue-sharing agreements in its Nevada gaming machine management
operations of approximately $20 million annually) by approximately $31.5
million for the year ended June 30, 1996. The Company would have had
annual fixed charges (excluding the imputed fixed charges referred to in
the immediately preceding sentence) of approximately $24.5 million, plus
the fixed charge of $18.9 million related to the dividends on the Special
Stock (aggregating $10.9 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 11 1/2% Non-Voting Junior
Convertible Pay-in-Kind Special Stock, Series E, par value $.10 per share
(the "Series E Special Stock") of $1.4 million. For the six months ended
December 31, 1996 the Company's ratio of combined fixed charges and
preferred stock dividends was 1.01 to 1. 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 Shares.
The Company is a holding company, the only material assets of
which are equity interests in its subsidiaries (including BGII and its
subsidiaries). The ability of the Company to make interest and principal
payments on its obligations, including the $154 million aggregate principal
amount of 127/8% Senior Secured Notes due 2003 (the "Senior Secured
Notes"), and to pay cash dividends on the Special Stock, will depend on the
subsidiaries' ability to generate sufficient cash flow from operations and
distribute such amounts to the Company. Such entities' ability to make
these distributions may be restricted by obligations which may be incurred
in the future and by restrictions imposed by gaming authorities on licensed
enterprises.
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. 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.
Restrictions on Certain Activities
The Indenture pursuant to which the Senior Secured Notes were
issued (the "Indenture") provides that the Senior Secured Notes are
guaranteed by subsidiaries of the Company and secured by the stock thereof
and imposes restrictions on the Company and its subsidiaries, in addition
to restrictions imposed by existing instruments. Generally, the
restrictions contained in the Indenture 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.
Operating History - Recent Losses
The Company incurred net losses applicable to common shareholders
of $13.1 million, $10.8 million and $60.3 million for its fiscal years
ended June 30, 1994, 1995 and 1996, respectively, and a net loss applicable
to common shareholders of $1.2 million for the six months ended December
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.
Implementation of the Merger
The Company's future operations and earnings will be largely
dependent upon the Company's ability to integrate the business separately
conducted by the Company and BGII prior to the Merger. Prior to the
Merger, the Company and BGII operated 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 its
businesses with those of 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, 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, management expects that cost savings will be
achieved as a result of the integration of the Company and BGII. The
achievement of such savings is dependent however, upon the incurrence of
certain one-time expenditures as well as the successful integration of the
businesses. As such, there can be no assurance that the anticipated
savings will be achieved or sustained.
BGII currently supplies electronic gaming machines to certain
customers which are in competition with the Company. It is possible that,
because of such competition, certain of these customers may cease
purchasing electronic gaming machines from BGII after the Merger. The
Company does 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.
Change of Control
Following the Merger, the Company's formerly two largest
shareholders, Alfred Wilms and Joel Kirschbaum, who owned approximately 39%
and 10.3%, respectively, of the outstanding shares of Common Stock, own
approximately 15.8% and 1.5%, respectively, of the outstanding shares of
Common Stock. Accordingly, no one person or group holds 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 Kirkland Investment Corporation,
an entity controlled by Joel Kirschbaum, to the Company's seven-member
Board of Directors.
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 the
Company's gross profit margins for such operations. In addition, such
competition has required the Company 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 the
Company 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 the Company's
business strategy to one emphasizing profitability rather than market
share, the future success of the Company's gaming machine management
operations will continue to be dependent to some extent on its ability and
willingness to provide such financial inducements. Although the Company
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. As
discussed below, during November 1996, voters in Louisiana approved a
proposition to allow video poker to continue in six of the seven parishes
in which the Company operates off-track betting locations in the greater
New Orleans area. The Company will be allowed to continue to conduct
business in the one parish in which the Company operates where video poker
was voted down through June 30, 1999.
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.
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, 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. However, 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 Bally Gaming, Inc.'s domestic-
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.
For the twelve months ended December 31, 1996, Wulff provided
customer financing for approximately 20% of its sales.
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. In
December 1996, the Company's Chief Executive Officer stepped down. The
Company is currently searching for a successor.
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. The Company and its 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 its gaming machines in the jurisdictions in
which it currently does 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.
The Company currently has an agreement with Fair Grounds
Corporation, Jefferson Downs Corporation and Finish Line Management
Corporation to be the exclusive operator of video poker machines at the
only racetrack and ten associated OTBs in the greater New Orleans area. On
November 5, 1996 voters in Louisiana approved a proposition to allow video
poker to continue in six of the seven parishes in which the Company
operates off-track betting locations in the greater New Orleans area. In
addition, voters approved video poker in three parishes in the greater New
Orleans area where the Company currently does not operate. In the one
parish in which the Company operates where video poker was voted down, the
Company will be allowed to continue to conduct business through June 30,
1999. The two off-track betting locations in this parish accounted for 13%
of revenues and approximately $0.4 million of earnings before interest,
taxes, depreciation and amortization, net of minority interest, for the
Company's Video Services, Inc. operations in Louisiana. 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 Common Stock or Special
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
Common Stock or Special 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
Special 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 Common
Stock or Special Stock or to have any other relationship with the Company,
then the Company can be sanctioned, including 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.
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 Shares found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the Shares beyond such period of
time prescribed by a Gaming Authority may be guilty of a criminal offense.
Certain Litigation
The Company settled its litigation with WMS Industries, Inc. for $4.5
million, which has been paid. The lawsuit arose out of a dispute concerning
a break-up fee due under a proposed merger agreement between Bally Gaming
International, Inc. and WMS which was terminated. WMS had obtained a
judgment of $5.4 million against the Company and was also seeking recovery
fees and costs. This settlement will be treated as additional purchaase
price for acquisition of Bally Gaming International, Inc.
The Company has been named as a defendant in an action brought by
Canpartners Investments IV and Cerberus Partners, pending in the federal
district court for the Southern District of New York. The Company entered
into certain loan commitment letters with the plaintiffs in August 1995,
contemplating that the plaintiffs would lend approximately $30 million to
partially fund the Company's then pending hostile tender offer for BGII
The Company entered into a friendly Merger Agreement with BGII in October
1995 and did not use funds provided by the plaintiffs when effecting its
acquisition of BGII in June 1996. The plaintiffs have asserted claims
based upon the Company's alleged breach of loan commitment letters and
failure to pay termination fees in connection with such loan commitment,
and seek damages on various theories, ranging from $2.2 million (breach of
contract and fraudulent concealment) to in excess of $12 million (breach of
duty of good faith and fair dealing). The Company believes that it has
strong defenses and has filed a motion to dismiss the complaint. The
Company intends to defend the action vigorously.
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 value added taxes ("V.A.T"). The operations of Wulff had
benefited from a special tax rebate that was phased out from January 1,
1992 to January 1, 1994. 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.
There can be no assurance as to future increases in taxation on gaming
operations.
Potential Volatility of Market Prices
There can be no assurance with respect to the prices at which the
Common Stock and Special Stock will trade after the date hereof. The
trading price of the Common Stock and Special 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 Common Stock and Special Stock. A shift away from investor interest in
gaming in general could adversely affect the trading price of the Common
Stock and Special Stock.
Special Stock
The Special 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 Special
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 Special 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 to or pari
passu with the Special Stock. The Special Stock will be callable for cash
at any time at the Company's option at the Liquidation Value. The Special
Stock does not limit the Company's right to issue other series of special
stock ranking on a parity with or senior to the Special Stock as to receipt
of dividends or distributions. In addition, in the event of a bankruptcy
of the Company, the amount to which a holder of Special Stock is entitled
may be deemed to be the issue price thereof, plus accrued and unpaid
dividends, which amount is less than the liquidation value of $100 per
share (the "Liquidation Value"). These factors may adversely affect the
market price and marketability of the Special Stock.
Limitations on Net Operating Losses
The Company had net operating loss carryforwards ("NOLs") of
approximately $26.2 million, which are subject to an annual limitation on
their utilization under Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code").
DEFICIT OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
For the fiscal years ended June 30, 1992, 1993, 1994, 1995 and
1996, and as of and for the six months ended December 31, 1995, the Company
had a deficit of earnings to combined fixed charges and preferred stock
dividends of $4.7 million, $3.7 million, $12.9 million, $10.5 million,
$59.7 million, $8.6 million, respectively. For the six months ended
December 31, 1996, the Company had a combined ratio of earnings to fixed
charges of 1.01 to 1.
THE SELLING STOCKHOLDERS
The following table sets forth the name and the number of shares
of Common Stock and Special Stock beneficially owned by each of the Selling
Stockholders, the number of Shares to be offered by such Selling
Stockholder and the number of Shares to be owned beneficially by such
Selling Stockholder if all of the Shares offered hereby by such Selling
Stockholder are sold as described herein.
Shares of
Common Stock Shares of Special
Beneficially Shares of Stock Beneficially Shares of
Name of Selling Owned Before Common Stock OwnedBefore Special Stock
Stockholders Offering Being Offered Offering Being Offered
George Aronoff 2,050 1,972 1,283 1,230
Arthur Goldberg 1,972 1,972 1,230 1,230
Alan Maiss 7,924 5,917 3,694 3,690
Chris Kanoff 60,000 60,000 0 0
David St. Jean 35,000 30,000 377 0
Andrew Whittaker 15,000 15,000 0 0
M. Brent Stevens 15,000 15,000 0 0
Daniel Conwill, IV 15,000 15,000 0 0
Christopher Allick 15,000 15,000 0 0
Jefferies &
Company, Inc. 300,000 300,000 0 0
Because the Selling Stockholders may offer all or some of the
shares of Common Stock which they hold pursuant to the offering
contemplated by this Prospectus, and because the offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
number of shares that will be held by the Selling Stockholders after
completion of the offering.
Following the Merger, all options to purchase shares of BGII
common stock held by the Selling Stockholders became exercisable for merger
consideration (the "Options Shares"). The Company has agreed pursuant to
Section 6.5 of the Merger Agreement to register for resale by the Selling
Stockholders all of the Option Shares. Mr. Aronoff, Mr. Goldberg and Mr.
Maiss are former directors of BGII. Mr. Aronoff and Mr. Goldberg left the
Board of Directors of BGII in July 1992. Mr. Maiss left the Board of
Directors of BGII in April 1993.
As partial consideration of the financial advisory services
rendered by Jefferies & Company, Inc. ("Jefferies") in connection with the
Merger, the Company issued to Jefferies 450,000 shares of Common Stock,
150,000 shares of which were subsequently distributed to certain employees
at (Messrs. Kanoff, St. Jean, Whittaker, Stevens,Conwill and Allick),
collectively referred to as the "Jefferies Shares". The resale of the Jefferies
Shares is being registered herein. Jefferies also acted as managing underwriter
for an offering of the Special Stock and the Senior Secured Notes, as well as
dealer manager for an exchange offer undertaken by the Company.
PLAN OF DISTRIBUTION
The Shares covered hereby may be offered and sold by the Selling
Stockholders from time to time in brokers' transactions or in transactions
directly with a market maker without soliciting or arranging for the
solicitation of orders to buy the Shares in anticipation of or in
connection with such transactions or making any payment in connection with
the offer or sale of the Shares to any person other than the broker who
executes the order to sell the Shares. The Selling Stockholders are acting
independently of the Company in making decisions with respect to the timing
and size of each sale. The Company will not receive any of the proceeds
from the sale by the Selling Stockholders of the Common Stock or Special
Stock offered hereby.
In order to comply with the securities laws of certain states, if
required, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states
the Shares may not be sold unless they have been registered or qualified
for sale in the applicable state or any exemption from the registration or
qualification requirement is available and is complied with.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO
HOLDERS OF SPECIAL STOCK
The following is a description of the material Federal income tax
consequences to the original holders of Special 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 Special 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 Special Stock are capital assets in the hands of any holder.
Tax treatment of cash distributions and distributions of additional shares
of Special Stock
The Company believes the Special Stock will be deemed "participating"
Special Stock for purposes of Code section 305(b)(4). Consequently, the
Company believes that the quarterly distribution of additional shares of
Special Stock ("Distribution Shares") on the shares of Special 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 Special 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 Special 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"). 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 Special 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 Special 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 Special
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 Special
Stock for more than one year, and will be short-term if, as of the date of
payment, the holder held the shares of Special Stock for one year or less.
Short-term capital gain is subject to a maximum marginal 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 could be treated as a constructive distribution or series of
constructive distributions of additional shares of Special Stock to which
Code section 301(c) applies (as described in the immediately preceding
paragraph) and would be taken into account by the holder over the period
from the issue date to the mandatory redemption date of the Special 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 .25% times the
Liquidation Value times the number of complete years from the issue date
until the mandatory redemption date of the Special Stock. Holders would
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 Special 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.
As noted above, in the event the Liquidation Value 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. At the time of the Merger, the Company expected that the
Liquidation Value of a share of Special Stock or of a Distribution Share
would be greater than its issue price by more than a de minimis amount.
Based on recent market prices of shares of Special Stock at the time of
filing this Prospectus, however, the Company does not necessarily expect
the Liquidation Value of the Special Stock to exceed the issue price of any
Distribution Shares subsequently issued. The Company has also taken the
position that there will be no constructive distribution to holders prior
to the redemption date of the Special Stock with respect to any such excess
in respect of shares of Special Stock or Distribution Shares. Pursuant to
Treasury Regulation section 1.305-5(b)(5), the Company's determination is
binding on all holders of Special 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
Special 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 Special Stock
prior to redemption.
Redemption for Cash
If the Company redeems the holder's shares of Special Stock for cash,
the following would be applicable. Under the rules of Code section 302 a
redemption of shares of Special Stock by the Company for cash will be
treated as a distribution taxable as a dividend to redeeming stockholders
to the extent of the 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
Special 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 Special 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 Special 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
SPECIAL STOCK INCLUDING FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
VALIDITY OF SHARES
The validity of the shares offered hereby is being passed upon
for the Company by Schreck Morris, Las Vegas, Nevada.
EXPERTS
The consolidated financial statements of Alliance Gaming
Corporation and subsidiaries as of June 30, 1995 and 1996 and for each of
the years in the three-year period ended June 30, 1996 have been
incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses in connection with the issuance and distribution of
the securities covered hereby, other than underwriting commissions, are,
subject to further contingencies, estimated as follows:
Securities and Exchange Commission
Registration fee $ 700
Legal fees and expenses $10,000
Accounting fee and expenses $10,000
Miscellaneous $ 2,000
Total $22,700
These expenses will be borne by the Company.
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 General Corporation Law. 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 General Corporation Law provides:
1. The directors of a corporation shall not make distributions
to stockholders except as provided by applicable law.
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 distribution made or of any loss sustained by the corporation by
reason of the distribution to stockholders.
However, Section 78.751 of the Nevada General Corporation Law
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 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 consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, 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.
(6) The indemnification and advancement of expenses authorized
in or ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a
person seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection
2 or for the advancement of expenses made pursuant to subsection
5, may not be made to or on behalf of any director or officer if
a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing violation of
the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a person.
Item 16. Exhibits and Financial Statement Schedules.
Exhibit 2.1 - Amended and Restated Agreement and Plan of Merger
among Alliance Gaming Corporation, BGII Acquisition
Corp. and Bally Gaming International, Inc. (1)
2.2 - Mutual Waiver to Agreement and Plan of Merger
dated as of April 17, 1996 (2)
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 Special
Stock, Series B, $.10 par value, of Alliance Gaming
Corporation(3)
5.1 - Opinion of Schreck Morris
12.1 - Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
21.1 - Consent of Schreck Morris (included in
Exhibit 5.1)
23.1 - Consent of KPMG Peat Marwick LLP
24.1 - Power of Attorney (included on signature
page of this Registration Statement)
_________________________
(1) Incorporated by reference to Registrant's Form S-4 Reg. No.
333-01527.
(2) Incorporated by reference to Registrant's Form S-4 Reg. No.
333-2799.
(3) Incorporated by reference to Registrant's Form S-3 Reg. No.
333-10011.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information
with respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8, or Form F-3 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment 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.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement 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.
The Registrant and each person whose signature appears
below hereby authorizes Scott D. Schweinfurth and David D.
Johnson (the "Agents") to file one or more amendments (including
post-effective amendments) to the Registration Statement, which
amendments may make such changes in the registration statement as
such Agent deems appropriate, 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 the Registration Statement.
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 the requirements
for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on April 17, 1997.
PLEASE NOTE: The signature lines are done by using the Graphics
feature, Alt-F9, L(Line), Horizontal.
ALLIANCE GAMING CORPORATION
By: /s/ Scott D. Schweinfurth
Scott D. Schweinfurth
Chief Financial Officer
Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Scott D. Schweinfurth Sr. Vice President, Treasurer
Scott D. Schweinfurth & Chief Financial Officer April 17,1997
(Principal Accounting Officer,
Principal Financial Officer
& Principal Executive Officer)
/s/ David Robbins Director April 17, 1997
David Robbins
/s/ Jacques Andre Director April 17, 1997
Jacques Andre
/s/ Anthony L. DiCesare Director April 17, 1997
Anthony L. DiCesare
/s/ Dr. Craig Fields Director April 17, 1997
Dr. Craig Fields
/s/ Joel Kirschbaum Director April 17, 1997
Joel Kirschbaum
/s/ Alfred H. Wilms Director April 17, 1997
Alfred H. Wilms
EXHIBIT 5.1
April 17, 1997
Alliance Gaming Corporation
6601 South Bermuda Road
Las Vegas, Nevada 89119
Re: Alliance Gaming Corporation
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special Nevada counsel for Alliance
Gaming Corporation, a Nevada corporation (the "Company") in
connection with the registration for resale under the Securities
Act of 1933, as amended (the "Act"), of 459,863 shares of the
Company's Common Stock, par value $.10 per share ("Common Stock")
and 6,150 shares of 15% Non-Voting Senior Special Stock, Series
B, $.10 par value ("Special Stock" and, together with the Common
Stock, the "Shares") issuable to certain Selling Stockholders
upon exercise of certain options to purchase shares of stock of
Bally Gaming International, Inc. ("BGII"), pursuant to the
Company's Registration Statement on Form S-3 (the "Registration
Statement") to be filed with the Securities and Exchange
Commission (the "Commission").
In rendering the opinions hereinafter expressed, we
have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or
otherwise identified to our satisfaction as being true
reproductions of originals, of all such records, agreements and
other instruments, including the Registration Statement, and we
have obtained from officers and agents of the Company and from
public officials, and have relied upon, such certificates,
representations and assurances, as we have deemed necessary and
appropriate for the purpose of this opinion.
Without limiting the generality of the foregoing, in
our examination, we have assumed without independent
verification, that (i) each of the parties thereto has duly and
validly executed and delivered each instrument, document, and
agreement to which such party is a signatory, (ii) each natural
person executing any such instrument, document, or agreement is
legally competent to do so, (iii) all documents submitted to us
as originals are authentic, the signatures on all documents that
we examined are genuine, and all documents submitted to us as
certified, conformed, photostatic or facsimile copies conform to
the original document, and (iv) all corporate records made
available to us by the Company and all public records reviewed
are accurate and complete, and (v) at the Effective Time of the
merger pursuant to that certain Agreement and Plan of Merger
dated as of October 18, 1995, by and among the Company and BGII
Acquisition Corp., all outstanding options to purchase shares of
BGII common stock held by the Selling Stockholders were or became
fully vested and exercisable for the Shares.
Based upon the foregoing, and having regard to legal
considerations and other information we deem relevant, we are of
the opinion that, when the Shares have been registered for resale
under the Act, and when issued and sold by the Selling
Stockholders in accordance with the plan of distribution and the
prospectus covering the Shares and forming a part of the
Registration Statement, the Shares will be duly authorized,
validly issued, fully paid and non-assessable.
We are qualified to practice law in the State of
Nevada. The opinions set forth herein are expressly limited to
the laws of the State of Nevada and we do not purport to be
experts on, or to express any opinion herein concerning, or to
assume any responsibility as to the applicability to or the
effect on any of the matters covered herein of, the laws of any
other jurisdiction. We express no opinion concerning, and we
assume no responsibility as to laws or judicial decisions related
to, or any orders, consents or other authorizations or approvals
as may be required by, any federal law, including any federal
securities law, or any state securities or Blue Sky laws.
We hereby consent to this filing of this opinion as an
exhibit to the Registration Statement and the reference to this
firm therein. In giving this consent, we do not admit that we
are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.
Yours very truly,
SCHRECK MORRIS
EXHIBIT 12.1
<TABLE>
<CAPTION>
ALLIANCE GAMING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
Six Months
Fiscal Years Ended June 30, Ended Dec. 31
1992 1993 1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net Income (Loss). . . . $(4,680) $(3,650) $(13,128) $(10,752) $(59,897) $(9,431) $4,781
Income taxes . . . --- --- 241 265 755 788 4,588
Imputed interest on
rents(1) . . . . . 552 741 1,996 484 398 238 178
Interest and debt discount
amortization . . . . . 4,505 5,046 6,830 8,133 8,897 4,288 11,879
Earnings (loss) as
defined for ratio . . . . 377 2,137 (4,061) (1,870) (49,847) (4,117) 21,426
Fixed Charges:
Imputed interest on
rents(1) . . . . 552 741 1,996 484 398 238 178
Interest and debt
discount amortization . . . . 4,505 5,046 6,830 8,133 8,897 4,288 11,879
Fixed Charge for Preferred
Stock Dividends(2) . . . . --- --- --- --- 557 --- 9,216
Fixed Charges as
defined for ratio . . . . 5,057 5,787 8,826 8,617 9,852 4,526 21,273
Ratio of earnings to
fixed charges . . . . --- --- --- --- --- --- 1.01
Amounts by which earnings
were inadequate to
cover fixed charges . . . . (4,680) (3,650) (12,887) (10,487) (59,699) (8,643) ---
</TABLE>
(1) Imputed interest on rents is calculated by taking 33% of total
rents in each period presented.
(2) Computed as Preferred Stock Dividend/(100% - 35% tax rate).
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Alliance Gaming Corporation:
We consent to the use of our report incorporated herein by
reference and to the reference to our firm under the heading "Experts"
in the prospectus.
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
April 17, 1997
