UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-4281
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 No.)
6601 S. Bermuda Rd.
Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (702) 270-7600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The number of shares of Common Stock, $0.10 par value, outstanding as of
November 1, 1999 according to the records of the registrant's registrar and
transfer agent was 10,252,380.
<PAGE>
ALLIANCE GAMING CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1999
I N D E X
PART I. FINANCIAL INFORMATION Page
Item 1. Unaudited Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
June 30, 1999 and September 30, 1999 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended September 30, 1998 and 1999 4
Unaudited Condensed Consolidated Statements of Stockholders'
Deficiency for the three months ended September 30, 1999 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 1998 and 1999 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 33
<PAGE>
PART 1
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's, except share data)
<TABLE>
<CAPTION>
June 30, Sept. 30,
1999 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,930 $ 22,194
Accounts and notes receivable, net of allowance
for doubtful accounts of $12,705 and $13,150 92,665 95,606
Inventories, net of reserves of $7,077 and $6,319 46,138 50,651
Other current assets 11,423 11,384
------- -------
Total current assets 167,156 179,835
------- -------
Long-term notes receivable, net of allowance for
doubtful accounts of $991 and $942 5,782 5,403
Leased equipment, net of accumulated depreciation of
$5,111 and $6,470 10,981 13,640
Property, plant and equipment, net of accumulated
depreciation of $51,686 and $54,166 74,159 75,502
Excess of costs over net assets of acquired businesses,
net of accumulated amortization of $4,604 and $5,234 57,593 57,747
Intangible assets, net of accumulated amortization of
$18,351 and $19,630 26,854 26,004
Other assets, net reserves of $3,468 and $3,468 13,782 13,718
------- -------
Total assets $356,307 $371,849
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 17,372 $ 19,660
Accrued liabilities 39,196 33,053
Current maturities of long-term debt 1,927 1,944
------ ------
Total current liabilities 58,495 54,657
------- -------
Term loan facilities 134,096 133,845
Senior Subordinated Notes due 2007, net 149,298 149,311
Other long-term debt, less current maturities 33,385 51,150
Other liabilities 9,458 9,382
------- -------
Total liabilities 384,732 398,345
------- -------
Minority interest 1,983 1,337
Commitments and contingencies
Stockholders' deficiency:
Special Stock, 10,000,000 shares authorized:
Series E, $100 liquidation value; 153,802 shares
and 47,242 shares issued and outstanding 15,380 4,724
Common Stock, $.10 par value; 50,000,000 shares authorized;
9,791,000 and 10,252,000 shares issued and outstanding 979 1,034
Treasury stock at cost, 83,000 shares (522) (508)
Additional paid-in capital 129,991 141,030
Accumulated other comprehensive loss (15,986) (14,308)
Accumulated deficit (160,250) (159,085)
-------- --------
Total stockholders' deficiency (30,408) (27,833)
-------- --------
Total liabilities and stockholders' deficiency $356,307 $371,849
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In 000's, except per share data)
Three Months Ended September 30,
1998 1999
Revenues:
Gaming equipment and systems $ 21,942 $ 39,784
Wall machines and amusement games 20,611 14,676
Route operations 40,004 46,052
Casino operations 16,214 16,690
------- -------
98,771 117,202
Costs and expenses:
Cost of gaming equipment and systems 11,840 22,093
Cost of wall machines and amusement games 12,068 9,954
Cost of route operations 31,129 36,648
Cost of casino operations 6,816 6,619
Selling, general and administrative 21,012 23,618
Research and development 4,194 3,549
Depreciation and amortization 5,402 6,324
------ ------
92,461 108,805
Operating income 6,310 8,397
Other income (expense):
Interest income 232 114
Interest expense (7,903) (7,777)
Minority interest (539) (468)
Other, net (192) 256
------- ------
Income (loss) before income taxes (2,092) 522
Income tax provision (184) (77)
------ ------
Net income (loss) (2,276) 445
Special Stock dividends (406) -
------- ------
Net income (loss) applicable to common shares $(2,682) $ 445
======= ======
Basic and diluted earnings (loss) per share: $(0.28) $ 0.04
====== ======
Weighted average common shares outstanding 9,423 10,156
===== ======
Weighted average common and common
share equivalents outstanding 9,423 10,396
===== ======
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Three Months Ended September 30, 1999
(In 000's)
<TABLE>
<CAPTION>
Total
Accumulated Stock-
Additional Other holders'
Common Stock Series E Treasury Paid-in Comprehensive Accum. Equity
Shares Dollars Special Stock Stock Capital Loss Deficit (Deficiency)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1999 9,791 $ 979 $ 15,380 $ (522) $ 129,991 $ (15,986) $(160,250) $ (30,408)
Net income -- -- -- -- -- -- 445 445
Treasury shares issued upon
exercise of options -- -- -- 14 (4) -- -- 10
Special Stock dividends -- -- 442 -- -- -- -- 442
Shares issued upon conversion of
Special Stock 544 55 (11,098) -- 11,043 -- -- --
Foreign currency translation
adjustment -- -- -- -- -- 1,678 -- 1,678
------ ------ ------ ----- ------- ------- ------- -------
Balances at September 30, 1999 10,335 $ 1,034 $ 4,724 $ (508) $ 141,030 $ (14,308) $(159,805) $ (27,833)
====== ======= ======== ====== ========= ========= ========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In 000's)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,276) $ 445
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,402 6,324
Amortization of debt discounts 13 13
Write down of other assets 185 407
Gain on sale of assets (21) (18)
Provision for losses in (recovery of) doubtful
receivables (353) 523
Other (198) (596)
Net change in operating assets and liabilities:
Accounts and notes receivable 10,281 (1,873)
Inventories (4,420) (7,778)
Other current assets 2,692 118
Accounts payable (2,449) 2,246
Accrued liabilities (9,723) (5,896)
------ ------
Net cash provided by (used in) operating activities 4,031 (6,085)
Cash flows from investing activities:
Additions to property, plant and equipment (3,483) (4,502)
Proceeds from disposal of property and equipment 36 27
Additions to other long term assets (2,008) (1,187)
Net cash used in investing activities (5,455) (5,662)
Cash flows from financing activities:
Reduction of long-term debt (467) (387)
Net change in lines of credit 300 17,221
Proceeds from exercise of stock options and warrants 4,843 10
------ ------
Net cash provided by financing activities 4,676 16,844
Effect of exchange rate changes on cash 177 167
Cash and cash equivalents:
Increase for period 3,429 5,264
Balance, beginning of period 23,487 16,930
------ ------
Balance, end of period $26,916 $22,194
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 1998 and 1999
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which management believes are necessary to present fairly the
financial position, results of operations and cash flows of Alliance Gaming
Corporation ("Alliance" or the "Company") for the respective periods
presented. The results of operations for an interim period are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. The accompanying unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's annual report on Form 10-K as amended for the year ended June 30,
1999. All intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying condensed consolidated financial statements at June 30,
1999 were derived from audited consolidated financial statements, but do not
include all disclosures required under generally accepted accounting
principles. Certain reclassifications have been made to prior period
financial statements to conform with current period presentation.
2. 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.
Inventories, net of reserves, consist of the following at June 30, 1999 and
September 30, 1999:
June 30, Sept. 30,
1999 1999
(in 000's)
Raw materials $16,676 $17,938
Work-in-process 2,057 1,510
Finished goods 27,405 31,203
------ ------
Total inventories $46,138 $50,651
======= =======
<PAGE>
3. DEBT, LINES OF CREDIT
Long-term debt at June 30, 1999 and September 30, 1999 consists of the
following:
June 30, Sept. 30,
1999 1999
(in 000's)
10% Senior Subordinated Notes due 2007, net of
unamortized discount of $702,000 and $689,000 $149,298 $149,311
Term loan facilities:
Tranche B Term Loan 72,380 72,250
Tranche C Term Loan 38,744 38,666
Delayed Draw Term Facility 24,372 24,329
Revolving Credit Facility 32,200 50,062
Other, secured by related equipment 1,712 1,632
------- -------
318,706 336,250
Less current maturities 1,927 1,944
------- -------
Long-term debt, less current maturities $316,779 $334,306
======== ========
In August 1997 the Company completed a refinancing transaction whereby the
Company repaid its 12 7/8% Senior Notes, repurchased its 15% Series B
Special Stock, and issued $150 million of Senior Subordinated Notes and
entered into bank financing of $230 million. The bank financing provides for
(i) term loans in the aggregate amount of up to $140 million, comprised of a
$75 million tranche with a 7 1/2-year term (the "Tranche B Term Loan"), a
$40 million tranche with an 8-year term (the "Tranche C Term Loan"), and a
$25 million tranche with a 7 1/2-year term (the "Delayed Draw Term Facility"
and together with the Tranche B Term Loan and the Tranche C Term Loan, the
"Term Loan Facilities"); and (ii) a $90 million revolving credit facility
(the "Revolving Credit Facility") with a 6-year term. Each of these credit
facilities are variable rate borrowings in accordance with a credit grid.
The interest rates which are currently at the highest level of the credit
grid and maturity dates are as follows:
Interest Maturity
Rates Date
Tranche B Term Loan LIBOR + 3.25% January 31, 2005
Tranche C Term Loan LIBOR + 3.50% July 31, 2005
Delayed Draw Term Facility LIBOR + 3.25% January 31, 2005
Revolving Credit Facility LIBOR + 2.75% July 31, 2003
The Revolving Credit Facility also allows for German Deutschemark borrowings
at the euro deutschmark rate plus 2.75% (or 5.7% at September 30, 1999). In
an amendment to the bank credit agreement in October 1999, the Company has
agreed to keep the interest rate at the highest level of the credit grid
through December 31, 2000.
The bank facility is collateralized by substantially all domestic property
and is guaranteed by each domestic subsidiary of the U.S. Borrower and
German Subsidiaries (both as defined), other than the entity which holds the
Company's interest in its Louisiana operations and other non-material
subsidiaries (as defined), and secured by both a U.S. and German Pledge
Agreement (both as defined). The bank facility contains a number of
maintenance covenants and it and the Indenture have other significant
covenants that, among other things, restrict the ability of the Company and
certain of its subsidiaries to dispose of assets, incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, enter into certain acquisitions, repurchase equity interests
(as defined) or subordinated indebtedness, issue or sell equity interests of
the Company's subsidiaries (as defined), engage in mergers or acquisitions,
or engage in certain transactions with subsidiaries and affiliates, and that
otherwise restrict corporate activities.
The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are
general unsecured obligations of the Company, ranking subordinate in right
of payment to all Senior Debt (as defined) of the Company, including
indebtedness under the bank financing. The Senior Subordinated Notes will be
fully and unconditionally guaranteed on a joint and several senior
subordinated basis by all existing and future domestic Restricted
Subsidiaries (as defined) of the Company, subject to certain exceptions
including the partially-owned entities through which its Mississippi casino
and Louisiana route operations are conducted. The Subsidiary Guarantees (as
defined) are general unsecured obligations of the Guarantors, ranking
subordinate in right of payment to all Senior Debt of the Guarantors. The
Company will be able to designate other current or future subsidiaries as
Unrestricted Subsidiaries (as defined) under certain circumstances.
Unrestricted Subsidiaries will not be required to issue a Subsidiary
Guarantee and will not be subject to many of the restrictive covenants set
forth in the Indenture pursuant to which the Senior Subordinated Notes were
issued. The Indenture for the Company's Senior Subordinated Notes contains
various covenants, including limitations on incurrence of additional
indebtedness, on restricted payments and on dividend and payment
restrictions on subsidiaries. The Senior Subordinated Notes may not be
redeemed for the first five years. Upon the occurrence of a Change of
Control (as defined), the holders of the Senior Subordinated Notes will have
the right to require the Company to purchase their notes at a price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase.
4. INCOME TAXES
The Company's effective tax rate for the three months ended September 30,
1998 and 1999 differs from the statutory rate of 35% due to state income
taxes and the impact of taxes applicable to earnings of Bally Wulff. In
addition, earnings at the Company's domestic subsidiaries cannot be fully
offset by the utilization of net operating loss carryforwards.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the unaudited condensed
consolidated statements of cash flows. For the three months ended September
30, 1998 and 1999, the Company recorded the following significant non-cash
items:
Three months ended September 30,
1998 1999
(In 000's)
Reclassify other assets to property, plant
and equipment $ 108 $ 93
Dividends for Series E Special Stock 406 442
Reclassify inventory to equipment 459 3,694
Translation rate adjustment 5,593 1,511
Capitalized obligation incurred in acquisition
of route asset 652 -
Conversion of Series E Special Stock into common
shares - 11,098
6. LEGAL PROCEEDINGS
Litigation
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 filed
suit against BGII and approximately 45 other 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'
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
$1.0 billion, 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.
On July 20, 1999, Bally Gaming, Inc., sued International Game Technology in
the United States District Court for the District of New Jersey. The suit
alleged that provisions in IGT's contracts with Atlantic City casinos barred
the casinos from acquiring progressive systems from IGT's competitors,
thereby preserving IGT's monopoly in the lucrative Atlantic City progressive
market, violating federal and state antitrust laws and common law policies
against unfair competition and restraints of trade, and frustrating Bally's
efforts to launch its Thrillions wide-area progressive system in Atlantic
City. The lawsuit sought declaratory and injunctive relief, compensatory
damages, and other relief. The parties have agreed to a settlement pursuant
to which IGT will notify its Atlantic City customers that it will not
enforce the challenged contract provisions, and Bally will seek dismissal of
the suit.
On August 30, 1999, Cardivan Company, a subsidiary of Jackpot Enterprises,
Inc., filed an action in federal court in Nevada against Raley's and
Albertson's, Inc., in which Cardivan sought to forestall the loss of its
slot machine operations at fifteen Albertson's grocery stores in the Las
Vegas area after Albertson's, Cardivan's customer, sold the stores to
Raley's, with whom Alliance subsidiary United Coin Machine Co. has an
exclusive contract. The federal court granted a preliminary injunction
allowing Cardivan to continue operating machines at Raley's before trial,
effectively preventing United Coin, though not a party to the lawsuit, from
operating its machines there pursuant to its contract with Raley's. After
the federal court granted the preliminary injunction, Anchor Gaming moved to
intervene and to have the preliminary injunction extended to prohibit
Raley's from removing Anchor's slot machines at four other stores that
Albertson's sold to Raley's. The federal court granted the motion, allowing
Anchor to intervene. United Coin likewise moved to intervene, but the court
denied the motion. Raley's and Albertson's motions for summary judgment were
heard on November 10, 1999, and trial has been set on an expedited basis for
December 7, 1999. United Coin appealed the federal court's denial of its
motion to intervene to the Ninth Circuit Court of Appeals, but the court of
appeals has not yet acted. On September 23, 1999, United Coin sued Cardivan
Company and Anchor Gaming in Nevada state court for interference with
contractual relations and Albertson's and Raley's for breach of contract.
The state court denied United Coin's motions for preliminary relief,
deferring to the federal court. The state court also denied Cardivan's
motion for summary judgment on November 2, 1999. The Company intends to
continue vigorously pursuing its rights and remedies in both cases.
The Company is also a party to various lawsuits relating to routine matters
incidental to its business. Management does not believe that the outcome of
such litigation, including the matters above, in the aggregate, will have a
material adverse effect on the Company.
7. COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting of comprehensive income and its
components; however, the adoption of SFAS had no impact on the Company's net
income or stockholders' equity (deficiency). SFAS 130 requires the changes
in the cumulative translation adjustment account (which is a component of
stockholders' deficiency) to be included as a component of other
comprehensive income.
During the three months ended September 30, 1998 and 1999, total
comprehensive income amounted to $3.1 million and $2.1 million respectively.
8. SHARE REPURCHASE PLAN
In January 1999 the Company's Board of Directors approved a share repurchase
plan for up to 1.18 million shares of its Common Stock. Under the plan,
subject to price and market conditions, purchases of shares will be made
from time to time during calendar 1999 in the open market or in privately
negotiated transactions. As of September 30, 1999, the Company had
approximately 83,000 shares of common stock in treasury at a cost of
$508,000. The Company intends to use the acquired common stock to satisfy
obligations pursuant to the exercise of stock options under the Company's
stock option plans.
9. REVERSE STOCK SPLIT
On January 14, 1999 the Company's Board of Directors announced a
one-for-three-and-one-half reverse stock split of its Common Stock effective
February 1, 1999. The effects of the reverse split were to reduce the
authorized number of common shares from 175.0 million to 50.0 million and to
decrease the number of shares of Common Stock outstanding from 34.3 million
to 9.8 million. In connection with the reverse split, the share number,
exercise price and the trigger prices, as applicable, for the Company's
stock options and warrants were proportionately adjusted. In lieu of
fractional shares resulting from the reverse split, stockholders received a
cash payment from the sale of the aggregate fractional shares on the open
market. The reverse split also impacted the conversion ratio on the
Company's Series E Special Stock. Each share of Series E Special Stock is
now convertible into 4.859 shares of Common Stock instead of 17.007 shares.
All share and per share data included in these financial statements have
been restated to reflect the reverse split.
10. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income (loss)
applicable to common shares (the numerator) by the weighted-average number
of common shares outstanding (the denominator) for the period. The
computation of Diluted EPS is similar to Basic EPS, except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the potentially dilutive common shares
had been issued. Stock options and warrants are reflected in Diluted EPS by
application of the "Treasury Stock Method" which reduces the dilutive effect
by assuming that any proceeds from the exercise of the options and warrants
would be used to purchase common shares at the average market price during
the period. Series E Special Stock is reflected in Diluted EPS by
application of the "If-Converted Method" which assumes full conversion at
the beginning of the period.
The computation of Basic and Diluted EPS is as follows:
<TABLE>
<CAPTION>
Three months ended September 30, 1998
Income (Loss) Average Shares
(Numerator) (Denominator) EPS
(In 000's except share data)
<S> <C> <C> <C>
Basic EPS
Net loss $ (2,276)
Special Stock dividends (406)
Loss applicable to common shares (2,682) 9,423 $(0.28)
Effect of Dilutive Securities (a)
Stock options - -
Warrants - -
Convertible Series E Special Stock - -
------ ------
Diluted EPS $ (2,682) 9,423 $(0.28)
</TABLE>
(a) Stock options outstanding to purchase 11,000 common shares and Series E
Special Stock convertible into 674,000 common shares were not included in
the computation of Diluted EPS because to do so would have been
anti-dilutive. Additionally, stock options outstanding to purchase 1,522,000
common shares and warrants exercisable for 2,294,000 common shares were not
included in the computation of Diluted EPS because either (i) the exercise
price was greater than the average market price of the common shares during
the period or (ii) the contingent issue price was greater that the market
price of the common shares at the end of the period.
<TABLE>
<CAPTION>
Three months ended September 30, 1999
Income (Loss) Average Shares
(Numerator) (Denominator) EPS
<S> <C> <C> <C>
Basic EPS
Net income $ 445
Special Stock dividends -
----
Income applicable to common shares 445 10,156 $ 0.04
Effect of Dilutive Securities (a)
Stock options - 15
Warrants - -
Convertible Series E Special Stock - 225
---- ------
Diluted EPS $ 445 10,396 $ 0.04
</TABLE>
(a) Stock options outstanding to purchase about 1,479,000 common shares and
warrants exercisable for 929,000 common shares were not included in the
computation of Diluted EPS because either (i) the exercise price was greater
than the average market price of the common shares during the period or (ii)
the contingent issue price was greater that the market price of the common
shares at the end of the period
11. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in four business segments: (i) Gaming Equipment and
Systems designs, manufactures and distributes gaming machines and
computerized monitoring systems for gaming machines, (ii) Wall Machines and
Amusement Games designs, manufactures and distributes wall-mounted gaming
machines and distributes third party manufactured amusement games, (iii)
Route Operations owns and manages a significant installed base of gaming
machines, and (iv) Casino Operations owns and operates two regional casinos.
Operating income is the primary measure used in assessing segment
performance. Corporate office costs are generally not allocated except where
those costs can be specifically identified with a segment.
The tables below presents information as to the Company's revenues and
operating income:
Three Months Ended September 30,
1998 1999
(In $000's)
Revenues:
Gaming Equipment and Systems $ 21,942 $ 39,784
Wall Machines and Amusement Games 20,611 14,676
Route Operations 40,004 46,052
Casino Operations 16,214 16,690
------- -------
Total revenues $ 98,771 $117,202
======== ========
Intersegment revenues:
Gaming Equipment and Systems $ 177 $ 5,427
Wall Machines and Amusement Games 28 16
Route Operations - -
Casino Operations - -
----- -------
Total intersegment revenues $ 205 $ 5,443
====== =======
Operating income:
Gaming Equipment and Systems $ 147 $ 5,003
Wall Machines and Amusement Games 2,157 (1,830)
Route Operations 3,076 3,029
Casino Operations 4,862 5,964
Corporate/other (3,932) (3,769)
------ ------
Total operating income $ 6,310 $ 8,397
======= =======
The Company has operations based primarily in Germany and the United States.
The German operation's customers are a diverse group of operators of wall
machines and amusement games at arcades, hotels, restaurants and taverns,
primarily in Germany. Gaming Equipment and Systems' customers are primarily
casinos and gaming machine distributors in the United States and abroad.
Receivables of the German operations and Gaming Equipment and Systems are
generally collateralized by the related equipment.
The table below presents information as to the Company's revenues and
operating income by geographic region:
Three Months Ended September 30,
1998 1999
(In $000's)
Revenues:
United States $ 73,515 $ 94,580
Germany 23,366 16,946
Other foreign 1,890 5,676
------- -------
Total revenues $ 98,771 $117,202
======== ========
Operating income:
United States $ 3,979 $10,372
Germany 2,180 (2,007)
Other foreign 151 32
------ ------
Total operating income $ 6,310 $ 8,397
======= =======
12. UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS
The following unaudited condensed consolidating financial statements are
presented to provide certain financial information regarding guaranteeing
and non-guaranteeing subsidiaries in relation to the Company's Senior
Subordinated Notes which were issued in the Refinancing (see note 2). The
financial information presented includes Alliance Gaming Corporation (the
"Parent") and its wholly-owned guaranteeing subsidiaries (together the
"Parent and Guaranteeing Subsidiaries"), and the non-guaranteeing
subsidiaries Video Services, Inc., United Gaming Rainbow, BGI Australia Pty.
Limited, Bally Gaming de Puerto Rico, Inc., and Alliance Automaten GmbH &
Co. KG (the subsidiary that holds the Company's German interests) (together
the "Non-Guaranteeing Subsidiaries"). The notes to consolidating financial
statements should be read in conjunction with these consolidating financial
statements.
<PAGE>
CONSOLIDATING BALANCE SHEETS
June 30, 1999
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,065 $ 10,865 $ $ 16,930
Accounts and notes receivable, net 46,423 50,917 (4,675) 92,665
Inventories, net 30,513 16,154 (529) 46,138
Other current assets 8,510 2,913 11,423
------ ------ ------ -------
Total current assets 91,511 80,849 (5,204) 167,156
------- ------ ------ -------
Long-term notes receivable, net 99,961 1,797 (95,976) 5,782
Leased equipment, net 3,923 7,058 10,981
Property, plant and equipment, net 41,880 32,279 74,159
Excess of costs over net assets of
acquired businesses, net 38,904 18,689 57,593
Intangible assets, net 26,448 406 26,854
Investments in subsidiaries 86,993 (86,993)
Other assets, net 25,312 (7,337) (4,193) 13,782
------- ------- ------- -------
$414,932 $133,741 $(192,366) $356,307
======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $14,706 $ 2,666 $ $ 17,372
Accrued liabilities 26,771 13,746 (1,321) 39,196
Current maturities of long-term debt 6,175 3,299 (7,547) 1,927
------ ------ ------ ------
Total current liabilities 47,652 19,711 (8,868) 58,495
------ ------ ------ ------
Term loan facilities 134,096 134,096
Senior Subordinated Notes due 2007, net 149,298 149,298
Other long-term debt, less current
maturities 104,826 24,379 (95,820) 33,385
Other liabilities 7,370 2,330 (242) 9,458
------ ------ ------ ------
Total liabilities 443,242 46,420 (104,930) 384,732
------- ------ ------- -------
Minority interest 1,983 1,983
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock 15,380 15,380
Common Stock 979 17,832 (17,832) 979
Treasury stock (522) (522)
Additional paid-in capital 129,991 68,700 (68,700) 129,991
Accumulated other comprehensive loss (15,845) (16,143) 16,002 (15,986)
Retained earnings (accumulated
deficit) (160,276) 16,932 (16,906) (160,250)
------- ------ ------- --------
Total stockholders' equity
(deficiency) (30,293) 87,321 (87,436) (30,408)
------- ------ ------- -------
$414,932 $133,741 $(192,366) $356,307
======== ======== ========== ========
</TABLE>
See accompanying unaudited note.
<PAGE>
CONSOLIDATING BALANCE SHEETS
September 30, 1999
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,078 $ 13,116 $ $ 22,194
Accounts and notes receivable, net 50,001 50,255 (4,650) 95,606
Inventories, net 35,515 15,665 (529) 50,651
Other current assets 7,787 3,597 11,384
------ ------ ------ -------
Total current assets 102,381 82,633 (5,179) 179,835
------- ------- ------ -------
Long-term notes receivable, net 101,239 1,571 (97,407) 5,403
Leased equipment, net 6,537 7,103 13,640
Property, plant and equipment, net 42,069 33,433 75,502
Excess of costs over net assets of
acquired businesses, net 38,640 19,107 57,747
Intangible assets, net 25,599 405 26,004
Investment in subsidiaries 85,446 (85,446)
Other assets, net 26,612 (9,785) (3,109) 13,718
------- ------- ------- -------
$428,523 $134,467 $(191,141) $371,849
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 17,301 $ 2,359 $ $ 19,660
Accrued liabilities 20,948 13,718 (1,613) 33,053
Current maturities of long-term debt 4,712 3,367 (6,135) 1,944
------ ------ ------ ------
Total current liabilities 42,961 19,444 (7,748) 54,657
------- ------- ------ -------
Term loan facilities 133,845 133,845
Senior Subordinated Notes due 2007, net 149,311 149,311
Other long-term debt, less current
maturities 121,518 26,917 (97,285) 51,150
Other liabilities 7,267 2,330 (215) 9,382
------- ------- ------- -------
Total liabilities 454,902 48,691 (105,248) 398,345
------- ------- -------- -------
Minority interest 1,337 1,337
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock 4,724 4,724
Common Stock 1,034 17,832 (17,832) 1,034
Treasury stock (508) (508)
Additional paid-in capital 141,030 68,700 (68,700) 141,030
Accumulated other comprehensive income (14,167) (14,472) 14,331 (14,308)
Retained earnings (accumulated
deficit) (159,829) 13,716 (13,692) (159,805)
-------- ------- -------- --------
Total stockholders' equity
(deficiency) (27,716) 85,776 (85,893) (27,833)
------- ------- ------- --------
$428,523 $134,467 $(191,141) $371,849
======== ======== ========= ========
</TABLE>
See accompanying unaudited note.
<PAGE>
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1998
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $20,171 $ 3,072 $(1,301) $21,942
Wall machines and amusement games 20,622 (11) 20,611
Route operations 34,889 5,115 40,004
Casino operations 3,307 12,907 16,214
------ ------ ------ ------
58,367 41,716 (1,312) 98,771
Costs and expenses:
Cost of gaming equipment and systems 10,791 2,350 (1,301) 11,840
Cost of wall machines and amusement
games 12,079 (11) 12,068
Cost of route operations 27,816 3,313 31,129
Cost of casino operations 2,039 4,777 6,816
Selling, general and administrative 11,837 9,175 21,012
Research and development 3,436 758 4,194
Depreciation and amortization 3,672 1,730 5,402
------ ------ ------ -----
59,591 34,182 (1,312) 92,461
Operating income (1,224) 7,534 6,310
Earnings in consolidated subsidiaries 5,102 (5,102)
Other income (expense):
Interest income 315 104 (187) 232
Interest expense (7,701) (389) 187 (7,903)
Rainbow royalty 1,507 (1,507)
Minority interest (539) (539)
Other, net (13) (179) (192)
------ ------ ------ ------
Income (loss) before income taxes (2,553) 5,563 (5,102) (2,092)
Income tax benefit (provision) 277 (461) (184)
------ ------ ------ -------
Net income (loss) (2,276) 5,102 (5,102) (2,276)
Special Stock dividends (406) (406)
------ ------ ------ ------
Net income (loss)applicable to common
shares $(2,682) $5,102 $(5,102) $(2,682)
======== ====== ======== ========
</TABLE>
See accompanying unaudited note.
<PAGE>
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1999
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $37,524 $ 7,284 $(5,024) $39,784
Wall machines and amusement games 14,676 14,676
Route operations 41,231 4,821 46,052
Casino operations 4,128 12,562 16,690
------ ------ ------ ------
82,883 39,343 (5,024) 117,202
Costs and expenses:
Cost of gaming equipment and systems 21,056 6,061 (5,024) 22,093
Cost of wall machines and amusement
games 9,954 9,954
Cost of route operations 33,532 3,116 36,648
Cost of casino operations 2,112 4,507 6,619
Selling, general and administrative1 4,736 8,882 23,618
Research and development 2,811 738 3,549
Depreciation and amortization 4,417 1,907 6,324
------ ------ ------ ------
78,664 35,165 (5,024) 108,805
Operating income 4,219 4,178 8,397
Earnings in consolidated subsidiaries 1,947 (1,947)
Other income (expense):
Interest income 135 107 (128) 114
Interest expense (7,465) (438) 126 (7,777)
Rainbow royalty 1,475 (1,475)
Minority interest (468) (468)
Other, net 315 (59) 256
----- ----- ----- -----
Income before income taxes 158 2,313 (1,949) 522
Income tax benefit (provision) 289 (366) (77)
----- ----- ----- -----
Net income applicable to common shares $ 447 $1,947 $(1,949) $ 445
====== ====== ======== ======
</TABLE>
See accompanying unaudited note.
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1998
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(6,904) $11,558 $(623) $4,031
------- ------- ----- ------
Cash flows from investing activities:
Additions to property and equipment (2,732) (751) (3,483)
Proceeds from disposal of property and
equipment 28 8 36
Additions to other long term assets (2,008) (2,008)
------ ------ ----- ------
Net cash used in investing activities (4,712) (743) (5,455)
------ ------ ----- ------
Cash flows from financing activities:
Reduction of long-term debt (355) (735) 623 (467)
Net change in lines of credit 300 300
Proceeds from exercise of stock options
and warrants 4,843 4,843
Dividends received (paid) 12,862 (12,862)
------ ------- ----- -----
Net cash provided by (used in)
financing activities 17,650 (13,597) 623 4,676
------ ------- ---- ------
Effect of exchange rate changes on cash 177 177
Cash and cash equivalents:
Increase (decrease) for period 6,034 (2,605) 3,429
Balance, beginning of period 8,609 14,878 23,487
------ ------ ----- ------
Balance, end of period $14,643 $12,273 $ $26,916
======= ======= ======= =======
</TABLE>
See accompanying unaudited note.
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1999
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(10,996) $ 5,587 $ (676) $(6,085)
-------- ------- ------ -------
Cash flows from investing activities:
Additions to property and equipment (2,794) (1,708) (4,502)
Proceeds from disposal of property and
equipment 27 27
Additions to other long term assets (1,158) (29) (1,187)
------ ------ ----- ------
Net cash used in investing activities (3,952) (1,710) (5,662)
------ ------ ----- ------
Cash flows from financing activities:
Reduction of long-term debt (251) (812) 676 (387)
Net change in lines of credit 14,500 2,721 17,221
Proceeds from exercise of stock options
and warrants 10 10
Dividends received (paid) 3,700 (3,700)
------ ------ ----- ------
Net cash provided by (used in)
financing activities 17,959 (1,791) 676 16,844
------- ------ ---- ------
Effect of exchange rate changes on cash 2 165 167
Cash and cash equivalents:
Increase (decrease) for period 3,013 2,251 5,264
Balance, beginning of period 6,065 10,865 16,930
------ ------- ----- -------
Balance, end of period $ 9,078 $13,116 $ $22,194
======= ======= ====== =======
</TABLE>
See accompanying unaudited note.
<PAGE>
Debt and Lines of Credit
Long-term debt and lines of credit at June 30, 1999 consist of the following :
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
(in 000's)
<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2007, net of unamortized discount $149,298 $ $ $149,298
Term loan facilities:
Tranche B Term Loan 72,380 72,380
Tranche C Term Loan 38,744 38,744
Delayed Draw Term Facility 24,372 24,372
Revolving Credit Facility 12,900 19,300 32,200
Intercompany notes payable 96,701 6,666 (103,367)
Other 1,712 1,712
------- ------ -------- -------
394,395 27,678 (103,367) 318,706
Less current maturities 6,175 3,299 (7,547) 1,927
------- ------ ------- -------
Long-term debt, less current
maturities $388,220 $24,379 $(95,820) $316,779
======== ======= ======== ========
</TABLE>
Long-term debt and lines of credit at September 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
(in 000's)
<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2007, net of unamortized discount $149,311 $ $ $149,311
Term loan facilities:
Tranche B Term Loan 72,250 74,250
Tranche C Term Loan 38,666 38,666
Delayed Draw Term Facility 24,329 24,329
Revolving Credit Facility 27,400 22,662 50,062
Intercompany notes payable 97,430 5,990 (103,420)
Other 1,632 1,632
------- ------- -------- -------
409,386 30,284 (103,420) 336,250
Less current maturities 4,712 3,367 (6,135) 1,944
------- ------- ------- -------
Long-term debt, less current
maturities $404,674 $26,917 $(97,285) $334,306
======== ======= ========= ========
</TABLE>
See accompanying unaudited note.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1999, based on the terms of the $90.0 million Revolving Credit
Facility, the Company would have been able to borrow $73.7 million, of which the
Company had borrowings of approximately $50.1 million outstanding. The borrowing
base for the revolving credit facility consists of eligible receivables and
inventory, as defined in the credit agreement.
At September 30, 1999, the Company had $22.2 million in cash and cash
equivalents and $23.6 million in unborrowed availability on its revolving credit
facility pursuant to the borrowing base limitations contained in the credit
agreement. In addition, the Company had working capital of approximately $125.2
million, an increase of approximately $16.5 million from June 30, 1999, which is
explained below. Consolidated cash and cash equivalents at September 30, 1999
includes approximately $16.9 million of cash which is utilized in Casino and
Route Operations which is held in vaults, cages or change banks.
The Company is in compliance with the financial and maintenance covenants under
both the credit agreement for the Bank Facility as amended and the Indenture for
the Senior Subordinated Notes.
Management believes that cash flow from operating activities, cash and cash
equivalents held and the availability under the revolving credit facility will
provide the Company with sufficient capital resources and liquidity for ongoing
operating needs. At September 30, 1999, the Company had commitments for capital
expenditures of approximately $3.0 million related to the completion of the
Rainbow Casino expansion project.
Working Capital
During the three months ended September 30, 1999, working capital increased
$16.9 million to $125.3 million. The primary fluctuations in working capital
were: (i) an increase in accounts receivable resulting from greater revenues at
the Bally Gaming and Systems business unit, (ii) an increase in inventory due to
a larger number of product platforms to support at Bally Gaming and Systems,
(iii) a decrease in accrued liabilities due to payments of accrued interest
payable, (v) the impact of foreign exchange fluctuations between the dollar and
the deutschemark on all working capital categories, (vi) increases in accounts
payable based on the increase in inventory levels and timing of payments, and
(vii) the corresponding impact of the above listed items on cash and cash
equivalents.
Cash Flow
During the three months ended September 30, 1999 the Company used $6.1 million
of cash in operating activities resulting from net increases in accounts
receivable and inventory and a decrease in accrued liabilities, partially offset
by net income, an increase in depreciation and amortization and an increase in
accounts payable.
During the three months ended September 30, 1999 the Company used $5.7 million
of cash in investing activities primarily resulting from $4.5 million in capital
expenditures and $1.2 million in additions to other long-term assets including,
$0.3 million of payments made in acquiring the rights to manufacture and
distribute several gaming products, and $0.4 million of payments in acquiring
gaming rights of route locations.
During the three months ended September 30, 1999, $16.8 million was provided by
financing activities primarily resulting from additional borrowings from the
Company's revolving credit facility of $17.2, partially offset by $0.4 million
used to reduce the Company's long-term debt.
The following is a summary of the Company's earnings before interest, taxes,
depreciation and amortization (EBITDA) by business unit:
Three Months Ending September 30,
1998 1999
(In $000's)
Bally Gaming and Systems $ 960 $ 6,785
Wall Machines and Amusement Games 3,145 (610)
Route Operations 5,678 5,423
Casino Operations 5,442 6,473
Corporate Administrative Expenses (3,513) (3,350)
------- -------
EBITDA $11,712 $14,721
======= =======
The Company believes that the analysis of EBITDA is a useful adjunct to net
income, cash flow and other GAAP measurements. However, this 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.
The Bank Facility is collateralized by substantially all domestic property and
is guaranteed by each domestic subsidiary of the U.S. Borrower and German
Subsidiaries (both as defined), other than the entity which holds the Company's
interest in its Louisiana operations and other non-material subsidiaries (as
defined), and secured by both a U.S. and German Pledge Agreement (both as
defined). The Bank Facility contains a number of maintenance covenants and it
and the Indenture have other significant covenants that, among other things,
restrict the ability of the Company and certain of its subsidiaries to dispose
of assets, incur additional indebtedness, issue preferred stock, pay dividends
or make other distributions, enter into certain acquisitions, repurchase equity
interests (as defined) or subordinated indebtedness, issue or sell equity
interests of the Company's subsidiaries (as defined), engage in mergers or
acquisitions, or engage in certain transactions with subsidiaries and
affiliates, and that otherwise restrict corporate activities.
Sale of Route and Casino Businesses, Bally Wulff matters and bank amendment
The Company has retained investment bankers to explore the sale of its Nevada
and Louisiana Route businesses and its Mississippi and Nevada Casino businesses
which will enable management to focus on its core gaming machine and systems
businesses. The sales are conditioned on receiving offers acceptable to the
Company. The net proceeds from the sale of these non-core assets will be used in
part to repay the Company's bank debt. To facilitate the disposition of the
businesses, the Company has obtained an amendment to its bank credit agreement.
The amendment provides the lenders' consent to sell the businesses and provides
other financial flexibility to the Company. In addition, the bank amendment
provides that if the Company should elect to sell any of its non-core
businesses, any restructuring charges that may be incurred as a result of the
sales may be excluded from the determination of EBITDA used in the calculation
of the various financial covenant ratios.
The Company is also exploring various alternatives to return its Bally Wulff
operations to higher levels of profitability. The amendment to the credit
agreement provides the lenders' consent to a restructuring of the Bally Wulff
legal entities. In addition, the bank amendment provides that if the Company
should elect to effect a restructuring in Germany, any restructuring charges
that may be incurred at Bally Wulff as a result of the restructuring may be
excluded from the determination of EBITDA used in the calculation of the various
financial covenant ratios.
Customer Financing
Management believes that customer financing terms and leasing have become an
increasingly important competitive factor for the Gaming Equipment and Systems
and Wall Machine and Amusement Games business units, respectively. Competitive
conditions sometimes require Gaming Equipment and Systems to grant extended
payment terms on gaming machines, systems and other gaming equipment, especially
for sales in emerging markets. While these financings are normally
collateralized by such equipment, the resale value of the collateral in the
event of default may be less than the amount financed. 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. Bally Wulff provides customer financing for
approximately 20% of its sales and also provides lease financing to its
customers. Lease terms are generally for six months, but are also available for
12 and 43 month terms.
Year 2000
The Year 2000 readiness issue, which is common to most businesses, arises from
the inability of information systems, and other time and date sensitive products
and systems, to properly recognize and process date-sensitive information on and
beyond January 1, 2000. The result could create errors in information or system
failures. Assessments of the potential cost and effects of Year 2000 issues vary
significantly among businesses, and it is extremely difficult to predict the
actual impact. Recognizing this uncertainty, management has and is continuing to
actively analyze, assess and plan for various Year 2000 issues across its
businesses.
The Year 2000 issue has an impact on both information technology ("IT") systems
and non-IT systems, such as its manufacturing systems and physical facilities
including, but not limited to, security systems and utilities. Although
management believes that a majority of the Company's IT systems are Year 2000
ready, certain systems still have to be tested for Year 2000 readiness. The
Company plans to replace or upgrade those systems that are identified as
non-Year 2000 ready during the remainder of calendar 1999. Certain IT systems
previously identified as non-Year 2000 compliant are being upgraded or replaced.
Most of the systems identified have already been replaced. The Company is in the
process of completing the replacement on a system at its Louisiana route, and
one at its Rail City Casino. Both of these are underway and expected to be in
place by December 31, 1999. The Company has also completed the first significant
phase of its Year 2000 compliance on personal computer equipment, and expects to
achieve compliance by December 31, 1999. Non-IT system issues are more difficult
to identify and resolve. The Company continues to identify non-IT Year 2000
issues concerning its products and services, as well as its physical facility
locations. All non-IT areas identified are included in the company's formal
action plans to ensure minimal disruption to its business processes. Management
engaged outside consultants to assist and advise management in its assessment
process and has implemented their recommendations. A centralized project
management organization has been established to lead the Company through its
Year 2000 efforts. This organization includes dedicated outside resources and
internal business representatives. Although management believes that its efforts
will be successful and the costs will be immaterial (currently estimated between
$400,000 to $500,000 of which approximately $320,000 has been spent as of
September 30, 1999) to its consolidated financial position and results of
operations, it also recognizes that any failure or delay could cause a
disruption in its business and have a significant financial impact. To minimize
this potential impact, the Company has drafted Contingency Plans to support
critical business processes for each of its business units. The Company is now
finalizing those plans and assigning management responsibility for the tasks
involved, including the development of a Corporate Management Response Team and
a Year 2000 Recovery Administrator, and expects to complete this by November 30,
1999.
The Company has also initiated efforts to ensure the Year 2000 readiness of its
products and services. As part of its assessment of current products and
services, the Company has upgraded all current Bally Systems SDS customers to
version 7.0 software, for which the Company developed a Year 2000 compliance
"patch" which is being distributed. Version 7.1 of the software is Year 2000
compliant and is currently authorized for installation. Customers are also being
advised that the IBM or Unix operating systems they are using must also be
upgraded to versions that are Year 2000 compliant. Bally Systems has obtained
the operating system upgrades from the vendors and has offered to assist users
in installing the upgrade. The Company has also tested most of the current
products manufactured in the United States and Germany in recent years to
determine compliance with Year 2000. The Company is actively evaluating its
strategy and legal obligations for any communication to its customers. The
Gamblers Bonus system used in the Company's Nevada route operations has been
tested and found to be Year 2000 compliant.
Management continues to formulate new plans and update existing plans as it
progresses in its research and investigation. The Year 2000 readiness of its
customers varies, and the Company is encouraging its customers to evaluate and
prepare their own systems. These efforts by customers to address Year 2000
issues may affect the demand for certain products and services; however, the
impact on revenue or any change in revenue patterns is highly uncertain.
The Company has completed efforts to assess the Year 2000 readiness of its key
suppliers and business partners. The Company's direction in this effort was to
ensure the adequacy of resources and supplies to minimize any potential business
interruptions. As part of the Company's contingency plans, management has begun
to identify and solidify relationships with and access to alternative suppliers
and resources to ensure the support and continuation of its critical business
operations.
The Year 2000 issue presents a number of other risks and uncertainties that
could impact the Company, such as public utility failures, potential claims
against it for damages arising from products and services that are not Year 2000
compliant, and the responsibility of certain government and gaming commissions
of the various jurisdictions where the Company conducts business. While the
Company continues to believe the Year 2000 issues described above will not
materially affect its consolidated financial position or results of operations,
it remains uncertain as to what extent, if any, the Company may be impacted.
The Year 2000 readiness issue, which is common to most businesses, arises from
the inability of information systems, and other time and date sensitive products
and systems, to properly recognize and process date-sensitive information on and
beyond January 1, 2000. The result could create errors in information or system
failures. Assessments of the potential cost and effects of Year 2000 issues vary
significantly among businesses, and it is extremely difficult to predict the
actual impact. Recognizing this uncertainty, management has and is continuing to
actively analyze, assess and plan for various Year 2000 issues across its
businesses.
The Year 2000 issue has an impact on both information technology ("IT") systems
and non-IT systems, such as its manufacturing systems and physical facilities
including, but not limited to, security systems and utilities. Although
management believes that a majority of the Company's IT systems are Year 2000
ready, such systems still have to be tested for Year 2000 readiness. The Company
plans to replace or upgrade those systems that are identified as non-Year 2000
ready during calendar 1999. Certain IT systems previously identified as non-Year
2000 compliant are being upgraded or replaced which should be complete by June
30, 1999. Non-IT system issues are more difficult to identify and resolve. The
Company is actively identifying non-IT Year 2000 issues concerning its products
and services, as well as its physical facility locations. As non-IT areas are
identified, management formulates the necessary actions to ensure minimal
disruption to its business processes. Management has engaged outside consultants
to assist and advise management in this assessment process and the consultant's
final report and recommendation is forthcoming. Although management believes
that its efforts will be successful and the costs will be immaterial to its
consolidated financial position and results of operations, it also recognizes
that any failure or delay could cause a disruption in its business and have a
significant financial impact. To minimize this potential impact, the Company is
actively planning and designing a contingency plan to support critical business
processes.
The Company has also initiated efforts to ensure the Year 2000 readiness of its
products and services. The Company is actively evaluating its strategy and legal
obligations for any communication to its customers. As part of its assessment of
current products and services, the Company is currently upgrading all Bally
Systems SDS customers to version 7.0 software, for which the Company has
developed a Year 2000 compliance "patch" which is currently being distributed.
The Company plans to have all customers upgraded to version 7.0 by December
1998, and have the patch installed by July 1999. The Company is currently
shipping version 7.1 of the software, which is also Year 2000 compliant.
Customers are also being advised that the IBM or Unix operating systems they are
using must also be upgraded to versions that are Year 2000 compliant. Bally
Systems has obtained the operating system upgrades from the vendors and has
offered to assist users in installing the upgrade. The Company has also tested
most of the products manufactured in the United states and Germany in recent
years to determine compliance with Year 2000 and plans to advise customers what,
if any, non-compliance issues exist before December 31, 1998.
Based upon the results of research and investigation, management will formulate
further plans as necessary. The Year 2000 readiness of its customers varies, and
the Company is encouraging its customers to evaluate and prepare their own
systems. These efforts by customers to address Year 2000 issues may affect the
demand for certain products and services; however, the impact to the revenue or
any change in revenue patterns is highly uncertain.
The Company has also initiated efforts to assess the Year 2000 readiness of its
key suppliers and business partners. The Company's direction in this effort is
to ensure the adequacy of resources and supplies to minimize any potential
business interruptions. Management plans to complete this part of its Year 2000
readiness plan in the earlier part of calendar 1999. As part of the Company's
contingency plans, management will begin to identify and solidify relationships
with and access to alternative suppliers and resources to ensure the support and
continuation of its critical business operations.
The Year 2000 issue presents a number of other risks and uncertainties that
could impact the Company, such as public utility failures, potential claims
against it for damages arising from products and services that are not Year 2000
compliant, and the response ability of certain government and gaming commissions
of the various jurisdictions where the Company conducts business. While the
Company continues to believe the Year 2000 issues described above will not
materially affect its consolidated financial position or results of operations,
it remains uncertain as to what extent, if any, the Company may be impacted.
Euro Currency Conversion
The Company's Bally Wulff subsidiary uses the German deutschmark as its
functional currency. The new Euro currency will replace the deutschmark as well
as most other European currencies after a phase in period which begins January
1, 1999. As most of Bally Wulff's transactions are within Germany, the switch to
the Euro is not expected to have a material impact on revenues, expenses or
income. The Company's products can be brought into Euro compliance by moving a
switch inside the wall machine. The cost of the new front glass showing Euro
denominations will be borne be the customers.
The Company currently has borrowings outstanding on its line of credit facility,
a portion of which has a floating rate of interest tied to the Euro deutschmark
rate. Upon the full implementation of the Euro, as of January 1, 2002, the
interest rate will be tied to this new index. The impact of the change in this
index, if any, is not known and can not be quantified at this time.
Results of Operations:
Three Months Ended September 30, 1998 and 1999
General
The Company operates through four business units: (i) gaming equipment and
systems, (ii) wall machines and amusement games (consisting of the manufacture
and distribution of wall-mounted gaming machines and distribution of other
recreational and amusement machines), (iii) route operations and (iv) casino
operations.
The following tables set forth the combined revenues and operating income (loss)
for the four business units for the three months ended September 30, 1998 and
1999:
1998 1999
(In 000's)
Revenues:
Bally Gaming and Systems $ 21,942 $ 39,784
Wall Machines and Amusement Games 20,611 14,676
Route Operations 40,004 46,052
Casino Operations 16,214 16,690
------- -------
Total Revenues $ 98,771 $ 117,202
======== =========
Operating income (loss):
Bally Gaming and Systems $ 147 $ 5,003
Wall Machines and Amusement Games 2,157 (1,830)
Route Operations 3,076 3,029
Casino Operations 4,862 5,964
Corporate and Other (3,932) (3,769)
------ ------
Total operating income: $ 6,310 $ 8,397
======= =======
Bally Gaming and Systems
For the quarter ended September 30, 1999, Bally Gaming and Systems reported
revenues of $39.8 million, an 81% increase compared to revenues of $21.9 million
in the prior year quarter. The improvement was due primarily to a $10.5 million
increase in SDS 6000 game monitoring unit and related sales, a $3.1 million
increase in recurring revenue sources and increases in units shipped and the
average selling price of new gaming machines. Bally Gaming reported unit sales
of approximately 3,000 new gaming machines, an increase of 44% compared to unit
sales of approximately 2,100 in the prior year quarter, due primarily to an
overall increase in market demand and the successful introduction of new
products recently licensed in more jurisdictions. By market segment, Bally
Gaming's unit sales for the quarter consisted of approximately 200 units to the
Nevada and Atlantic City markets, 2,000 units to international markets and 800
units to riverboats, Native American and other domestic markets. Bally Gaming
reported revenues from the sale of new gaming machines of $18.3 million, an
increase of 61% compared to $11.4 million in the prior year quarter, due to
higher unit volume and a 16% increase in average selling prices over the prior
year quarter. Bally Systems reported revenues from SDS 6000 game monitoring unit
and related sales of $15.2 million, an increase of 224% compared to revenues of
$4.7 million in the prior year quarter. In addition, revenues from recurring
revenue sources were $4.2 million, an increase of 284% compared to revenues of
$1.1 million in the prior year quarter. At September 30, 1999 Bally Gaming and
Systems had an installed base of approximately 1,700 gaming machines that earn
revenue on a recurring basis compared to approximately 100 gaming machines at
September 30, 1998.
Gross margin for the quarter ended September 30, 1999 decreased to 44% compared
to 46% in the prior year quarter. The decrease was due primarily to an increase
in royalty expense, higher cost of goods sold and a greater provision for
inventory obsolescence in the current quarter, partially offset by a change in
product mix to higher margin gaming machines and greater revenues from higher
margin SDS Systems product and recurring revenue units. The gross margin for
recurring revenue sources was 57% or $2.4 million.
For the quarter ended September 30, 1999, Bally Gaming and Systems reported
operating income of $5.0 million compared to operating income of $0.1 million in
the prior year quarter. The improvement resulted from higher revenues and lower
research and development costs, partially offset by a decrease in gross margin
percentage and higher selling, general and administrative costs including a
higher provision for doubtful accounts, higher costs to support the recurring
revenue units and higher costs from the start of commercial sales in Australia
and an increase in depreciation expense as a result of the increase in the
installed base of recurring revenue units. Research and development costs
totaled $2.8 million, a decrease of 18 percent over the prior year quarter.
Wall Machines and Amusement Games
For the quarter ended September 30, 1999, the Wall Machines and Amusement Games
business unit reported revenues of $14.7 million, a 29% decrease against the
prior year quarter. The lower revenues resulted from a 28 percent decrease in
shipments of new wall machines, a 17% decrease in the average selling price of
new wall machines, a 10% decrease in leased machine revenues and a 37% decrease
in amusement game distribution revenues. The foreign currency fluctuation
between the dollar and the deutschmark decreased revenues by $0.6 million and
increased EBITDA by less than $0.1 million in the quarter ended September 30,
1999. The Company believes that the soft demand for new wall machines is due to
the potential changes in the laws regulating wall machines. The soft demand will
likely remain until the outcome of the proposed law changes is known. The
ultimate outcome and timing of the proposed changes is not determinable at this
time.
Wall Machines and Amusement Games continued to expand its leasing program
whereby new wall machines are leased to customers pursuant to operating leases.
These leases provide Wall Machines and Amusement Games with a stream of revenues
and cash flow over the life of the leases, which range from six months to three
and one half years. As of September 30, 1999 a total of 5,250 machines were
deployed in the leasing plan compared to 4,500 deployed at September 30, 1998.
The average monthly lease rate decreased by 6% compared to the prior year
quarter due to competitive pricing pressures.
For the quarter ended September 30, 1998, gross profit margin decreased to 32%
compared to 41% in the prior year quarter. This decrease was due to the
unfavorable impact of a higher volume of trade-ins of used equipment and a lower
fixed cost absorption rate, partially offset by sales of higher margin
progressive jackpot machines. Wall Machines and Amusement Games reported an
operating loss of $1.8 million compared to operating income of $2.2 million in
the prior year quarter, due primarily to lower revenues and margins and
increases in the provision for doubtful accounts and depreciation expense,
partially offset by lower selling, general and administrative expenses,
principally a decrease in marketing expenses.
Route Operations
For the quarter ended September 30, 1999, the Route Operations business unit
reported revenues of $46.1 million, an increase of 15% compared to revenues of
$40.0 million in the prior year quarter. Revenues for the Nevada operations
increased 18% as net win per gaming machine per day increased to $58.30 from
$52.60 in the prior year quarter, while the average number of gaming machines
increased to 7,610 from 7,140 in the prior year quarter resulting primarily from
machines added as a result of new locations and taking over the contracts to
operate locations previously served by competitors. Revenues continue to be
strong in Southern Nevada, particularly in Gamblers Bonus locations. As of
September 30, 1999, the Gamblers Bonus product was installed in approximately
2,800 gaming machines at 260 locations statewide or 37% of the installed base of
gaming machines. Revenues for the Louisiana operations decreased 6% due
primarily to the July 1, 1999 closing of two OTB's that, pursuant to a prior
vote, effective July 1, 1999 were required to close. This resulted in a 7%
decrease in the average number of gaming units deployed to 670. This decrease
was partially offset by a modest increase in net win per day per gaming machine
to $77.40 from $77.00 in the prior year quarter.
For the quarter ended September 30, 1999, cost of revenues increased 18% to
$36.6 million compared to $31.1 million in the prior year quarter. As a
percentage of revenues, cost of revenues increased to 80% from 78% in the prior
year quarter. Nevada route operations cost of revenues increased 20%, and as a
percentage of revenues increased to 81% from 80% in the prior year quarter, due
primarily to the lower margins in Southern Nevada route operations. The lower
margins resulted primarily from the impact of the start-up costs for the Raley's
stores where we can't operate and gaming machine rental costs which aggregated
$1.0 million. Louisiana operations cost of revenues decreased 6%, and as a
percentage of revenues remained consistent at 65% between quarters. The Route
Operations business unit reported operating income of $3.0 million, a decrease
of 2% compared to operating income of $3.1 million in the prior year quarter.
The decrease in operating income resulted primarily from higher operating costs
and higher selling, general and administrative expenses, primarily increased
marketing costs at the Nevada route operations, partially offset by higher
revenues.
Casino Operations
For the quarter ended September 30, 1999, the Casino Operations business unit
reported revenues of $16.7 million, an increase of 3% compared to revenues of
$16.2 million in the prior year quarter. This increase was a result of a 25%
increase at the Rail City Casino partially offset by a 3 percent decrease at the
Rainbow Casino. The revenue improvement at the Rail City Casino was attributable
to an increase in the average gaming machine net win per day of 22% to $72 from
$59 in the prior year quarter and an 11% increase in the average number of
gaming machines, partially offset by a lower table games revenue. Rainbow Casino
revenues decreased by 3% to $12.6 million as a result of an 11% decrease in the
average number of gaming machines, partially offset by an 11 percent increase in
net win per day per gaming machine to $170 from $153 in the prior year quarter.
The decrease in revenues was attributable to the adverse impact of temporarily
removing machines as part of the casino expansion and internal remodeling
projects. The expansion space at the Rainbow Casino is expected to open during
November 1999.
For the quarter ended September 30, 1999, the cost of revenues for Casino
Operations decreased 3% to $6.6 million compared to $6.8 million in the prior
year quarter and, as a percentage of revenues, improved to 40% from 42% in the
prior year quarter. The Casino Operations business unit reported operating
income of $5.9 million, an improvement of 23% compared to operating income of
$4.9 million in the prior year quarter. Rainbow Casino operating income
increased 12% to $5.0 million due primarily to lower selling, general and
administrative costs, partially offset by the decrease in revenues. Rail City
Casino operating income increased by 162% to $0.9 million due primarily to the
increase in revenues, partially offset by an increase in selling, general and
administrative costs, primarily gaming machine rent.
Consolidated
Total revenues for the quarter ended September 30, 1999 were $117.2 million, an
increase of 19% compared to revenues of $98.8 million in the prior year quarter.
The increase is due primarily to the aforementioned increases at the Bally
Gaming and Systems, Route Operations and Casino Operations business units,
partially offset by a decrease at the Wall Machines and Amusement Games business
unit.
Cost of revenues for the quarter ended September 30, 1999 was $75.3 million, an
increase of 22% compared to $61.9 million in the prior year quarter. Cost of
revenues as a percentage of total revenues increased slightly to 64% from 63% in
the prior year quarter. The increase was due primarily to the increases in costs
as a percentage of revenues at the Bally Gaming and Systems, the Wall Machines
and Amusement Games and the Route Operations business units, partially offset by
an improvement in costs as a percentage of revenues at Casino Operations.
Selling, general and administrative expenses for the quarter ended September 30,
1999 were approximately $23.6 million, an increase of 12% compared to costs of
$21.0 million for the prior year quarter. This increase is due to increases in
expenses at the Bally Gaming and Systems and the Route Operations business units
and an increase in the provision for doubtful accounts, partially offset by a
decrease in Corporate expenses, primarily in payroll and related costs, and
decreases in expenses at the Wall Machines and Amusement Games and the Casino
operations business units.
Research and development costs for the quarter ended September 30, 1999 were
approximately $3.5 million, a decrease of 15% compared to costs of $4.2 million
in the prior year quarter. This decrease is due to decreases in costs at the
Bally Gaming and Systems and the Wall Machines and Amusement Games business
units.
Depreciation and amortization for the quarter ended September 30, 1999 was
approximately $6.3 million, an increase of 17% compared to $5.4 million in the
prior year quarter. The increase was due primarily to increases at the Bally
Gaming and Systems and the Wall Machines and Amusement Games business units,
partially offset by decreases at the Route Operations and Casino Operations
business units.
Net Interest Expense and Income Taxes
Net interest expense in the three months ended September 30, 1999 remained
constant at $7.7 million between quarters as a lower average amount of total
borrowings was offset by slightly higher interest rates.
The Company recorded an income tax provision of $0.1 million in the 1999 quarter
compared to an income tax provision of $0.2 million in the prior year quarter.
The current quarter provision is due to various state income tax provisions.
* * * * *
The information contained in this Form 10-Q may contain "forward-looking"
statements within the meaning of section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1933, as amended, and is
subject to the safe harbor created thereby. Such information involves important
risks and uncertainties that could significantly affect results in the future
and, accordingly, such results may differ from those expressed in any forward
looking statements herein. Future operating results may be adversely affected as
a result of a number of factors such as the Company's high leverage, its holding
company structure, its operating history and recent losses, competition, risks
of product development, customer financing, sales to non-traditional gaming
markets, foreign operations, dependence on key personnel, strict regulation by
gaming authorities, gaming taxes and value added taxes, uncertain effect of
National Gambling Commission, and other risks including Year 2000 issues, as
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCOSURES ABOUT MARKET RISK
Refer to Part 1, Item 7A of the Company's annual report on Form 10-K, as
amended, for the fiscal year ended June 30, 1999. There have been no material
changes in market risks since the prior fiscal year end.
PART II
Item 1. Legal Proceedings
See "Notes to Unaudited Condensed Consolidated Financial Statements-
5. Legal Proceedings" for a description of certain legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4.5 Third Amendment and Consent among Alliance Gaming Corporation,
Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH and
various lenders, and Credit Suisse First Boston as
administrative agent, dated October 28, 1999 (omits certain
confidential information that has been filed separately with the
Commission pursuant to a Confidential Treatment Request)
10.82 Amended and Restated Executive Employment Agreement, effective
November 4, 1999 between the Company and Robert L. Miodunski
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
ALLIANCE GAMING CORPORATION
(Registrant)
By /s/ Robert Miodunski
----------------------------
Chief Operating Officer
(Principal Executive Officer)
By /s/ Scott D. Schweinfurth
----------------------------
Sr. Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
Exhibit 4.5
THIRD AMENDMENT AND CONSENT
* Omitted and filed separately with the Commission pursuant to a Confidential
Treatment Request.
THIRD AMENDMENT AND CONSENT (this "Amendment"), dated as of October
28, 1999, among ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S.
Borrower"), BALLY WULFF VERTRIEBS GMBH, a company with limited liability
organized under the laws of the Federal Republic of Germany ("Bally Wulff
Vertriebs"), BALLY WULFF AUTOMATEN GMBH, a company with limited liability
organized under the laws of the Federal Republic of Germany ("Bally Wulff
Automaten" and, together with Bally Wulff Vertriebs, the "German Borrowers," and
each a "German Borrower", and the German Borrowers, together with the U.S.
Borrower, the "Borrowers," and each a "Borrower"), the financial institutions
party to the Credit Agreement referred to below (the "Lenders") and CREDIT
SUISSE FIRST BOSTON, as Administrative Agent. Unless otherwise defined herein,
all capitalized terms used herein and defined in the Credit Agreement referred
to below are used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Lenders and the Administrative Agent are
parties to a Credit Agreement, dated as of August 8, 1997 (as amended, modified
or supplemented through, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, (i) the Banks hereby agree to grant (subject to the terms
and conditions hereof) the consents set forth herein and (ii) the parties hereto
wish to further amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
Article I: Consents
1. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement, the Lenders hereby agree that Bally Wulff
Automaten may merge with and into Bally Wulff Vertriebs with Bally Wulff
Vertriebs being the survivor of such merger (the "Merger"). It is understood and
agreed that (i) after giving effect to the Merger, Bally Wulff Vertriebs shall
succeed to all rights and obligations of Bally Wulff Automaten (including,
without limitation, all obligations under the Credit Agreement and the other
Credit Documents to which Bally Wulff Automaten is a party) and (ii) Bally Wulff
Vertriebs shall execute and deliver all documents requested by the
Administrative Agent in order to evidence or acknowledge such succession and/or
to ensure that after giving effect to the Merger the security interest of the
Collateral Agent in the Collateral (as defined in the German Security Documents)
remains perfected and in full force and effect. From and after the Third
Amendment Effective Date (as defined below), all references in the Credit
Agreement and the other Credit Documents to "Bally Wulff Automaten", the "German
Borrowers" and the "German Borrower" shall in each case be deemed to be a
reference to Bally Wulff Vertriebs.
2. Notwithstanding anything to the contrary contained in any
provision of the Credit Agreement or any of the other Credit Documents, the
Lenders hereby agree that, as an alternative to the Merger contemplated in the
preceding paragraph, Bally Wulff Vertriebs may merge with and into Bally Wulff
Automaten with Bally Wulff Automaten being the survivor of such merger (it being
understood and agreed that if such alternative merger occurs the provisions of
the preceding paragraph shall apply mutatis mutandis).
3. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement or elsewhere therein, the Lenders hereby agree that
(a) any subsidiary of either German Borrower may be merged with and into such
German Borrower with such German Borrower being the survivor of any such merger,
(b) any Subsidiary of either German Borrower may be merged with and into (or may
be liquidated or dissolved into) any Independent Subsidiary that is a
Wholly-Owned Foreign Subsidiary of such German Borrower or the German Parent,
and (c) either German Borrower may distribute to the German Parent, any of the
shares of capital stock or other ownership interests held by such German
Borrower in any Subsidiary of such German Borrower. It is understood and agreed
that, contemporaneous with any such transactions, the German Parent, the German
Borrowers and their respective Subsidiaries shall execute and deliver all
documents in form and substance satisfactory to the Administrative Agent
requested by the Administrative Agent in order to ensure that after giving
effect thereto, the security interest of the Collateral Agent in the Collateral
(as defined in the German Security Documents) remains fully perfected and in
full force and effect.
4. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement, the Lenders hereby agree that the U.S. Borrower
may sell the equity interest or other assets comprising its ownership interest
in RCVP, or may sell the business and assets of RCVP substantially as a whole
(any such sale being herein called the "RCVP Sale") provided that (i) no Default
or Event of Default then exists or would result therefrom, (ii) the
Administrative Agent shall have received (x) prior notice of such sale and (y)
the definitive purchase and sale agreement relating to such sale no later than
five days following the execution and delivery thereof, (iii) the total
consideration received by the U.S. Borrower therefor shall be in cash, paid at
the time of the closing of such sale (except for any portion thereof (A)
retained in an escrow account and payable pursuant to any indemnities or
purchase price adjustments contained in such agreement, or (B) payable pursuant
to post-closing adjustment arrangements entered into with respect to such sale)
and in a gross amount of at least $___________*, and (iv) 100% of the Net Sale
Proceeds therefrom are applied to repay outstanding Term Loans in accordance
with the requirements of 4.02(h) and (i) of the Credit Agreement but without
regard to Section 4.02(k) of the Credit Agreement
5. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement, the Lenders hereby agree that the U.S. Borrower
may sell its equity interests in United Coin Machine Company and Casino
Electronics Inc. or may sell the business and assets of such entities
substantially as a whole (any such sale being herein called the "Nevada Route
Operations Sale"), provided that (i) no Default or Event of Default then exists
or would result therefrom, (ii) the Administrative Agent shall have received (x)
prior notice of such sale and (y) the definitive sale and purchase agreement
relating to such sale no later than five days
<PAGE>
following the execution and delivery thereof, (iii) the total
consideration received by the U.S. Borrower therefor shall be cash and paid at
the time of the closing of such sale, at least $___________* (except for any
portion thereof (A) retained in an escrow account and payable pursuant to any
indemnities or purchase price adjustments contained in such agreement, or (B)
payable pursuant to post-closing adjustment arrangements entered into with
respect to such sale) and (iv) 100% of the Net Sales Proceeds therefrom are
applied to repay outstanding Term Loans in accordance with the requirements of
4.02(h) and (i) of the Credit Agreement but without regard to Section 4.02(k) of
the Credit Agreement.
6. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement, the Lenders hereby agree that the U.S. Borrower
may sell its equity interests in Plantation Investments, Inc. or may sell the
business and assets of such entity as a whole (any such sale being herein called
the "Rail City Sale"), provided that (i) no Default or Event of Default then
exists or would result therefrom, (ii) the Administrative Agent shall have
received (x) prior notice of such sale and (y) the definitive sale and purchase
agreement relating to such sale no later than five days following the execution
and delivery thereof, (iii) the total consideration received by the U.S.
Borrower therefor shall be cash and paid at the time of the closing of such sale
(except for any portion thereof (A) retained in an escrow account pursuant to
any indemnities or purchase price adjustments contained in such agreement, or
(B) payable pursuant to post-closing adjustment arrangements entered into with
respect to such sale), in a gross amount of at least $___________*, and (iv)
100% of the Net Sale Proceeds therefrom are applied to repay outstanding Term
Loans in accordance with the requirements of 4.02(h) and (i) of the Credit
Agreement but without regard to Section 4.02(k) of the Credit Agreement.
7. Notwithstanding anything to the contrary contained in Section
9.02 of the Credit Agreement, the Lenders hereby agree that the U.S. Borrower
may sell VSI, or may sell the business and assets of LVI and its subsidiaries,
VSI, SVS, and VDSI substantially as a whole (any such sale being herein called
the "Louisiana Route Operations Sale") provided that (i) no Default or Event of
Default then exists or would result therefrom, (ii) the Administrative Agent
shall have received (x) prior notice of such sale and (y) the definitive sale
and purchase agreement relating to such sale no later than five days following
the execution and delivery thereof, (iii) the total consideration received by
the U.S. Borrower therefor shall be cash and paid at the time of the closing of
such sale (except for any portion thereof (A) retained in an escrow account
pursuant to any indemnities or purchase price adjustments contained in such
agreement, or (B) payable pursuant to post-closing adjustment arrangements
entered into with respect to such sale), in a gross amount of at least
$___________*, and (iv) 100% of the Net Sale Proceeds therefrom are applied to
repay outstanding Term Loans in accordance with the requirements of 4.02(h) and
(i) of the Credit Agreement but without regard to Section 4.02(k) of the Credit
Agreement.
<PAGE>
Article II: Amendments and other Modifications
1. Section 3.03 of the Credit Agreement is hereby amended by
inserting the following text immediately after the second instance in the text
"Revolving Loan Commitment" appears in clause (i) thereof:
"(with the German Revolving Loan Sub-Commitment and the Non-German
Revolving Loan Sub-Commitment of each Lender to be reduced ratably based
on the amount of such German Revolving Loan Sub-Commitment or Non-German
Revolving Loan Sub-Commitment, as the case may be, compares to the
Revolving Loan Commitment of such Lender)"
2. Section 3.03 of the Credit Agreement is hereby further amended by
inserting the following new clauses (j) and (k) at the end thereof:
(j) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, upon the earlier of (x) the consummation of
the RCVP Sale and (y) the consummation of the Nevada Route Operations
Sale, the Total Revolving Loan Commitment shall be reduced to $80,000,000.
(k) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and
the Revolving Loan Commitment, the German Revolving Loan Sub-Commitment
and the Non-German Revolving Loan Sub-Commitment of each Lender) shall
terminate on the date upon which outstanding Revolving Loans and Swingline
Loans have been repaid in full (and any outstanding Letters of Credit have
been cash collateralized) as a result of proceeds received from any of the
RCVP Sale, the Nevada Route Operations Sale, the Rail City Sale or the
Louisiana Route Operations Sale.
3. Section 4.02 of the Credit Agreement is hereby further amended by
inserting the following new clauses (m) and (n) at the end thereof:
(m) In the event a mandatory repayment of Term Loans required
pursuant to the Third Amendment as a result of any of the RCVP Sale, the
Nevada Operations Sale, the Rail City Sale or the Louisiana Route
Operations Sale and such repayment exceeds the aggregate amount of Term
Loans then outstanding (or would be required if Term Loans were then
outstanding), in any such case, Swingline Loans and Revolving Loans shall
be repaid and/or outstanding Letters of Credit cash collateralized in the
aggregate amount, if any, by which the amount required to be applied
pursuant to the Third Amendment (determined as if an unlimited amount of
Term Loans were actually outstanding) exceeds the aggregate principal
amount of Term Loans then outstanding. Any such application required
pursuant to the preceding sentence shall be made as set forth below.
<PAGE>
(i) first, to prepay the principal of outstanding Swingline
Loans;
(ii) second, to the extent all Swingline Loans have been repaid
in full, or if no Swingline Loans are outstanding, to prepay the
principal of outstanding Revolving Loans; and
(iii) third, to the extent all Swingline Loans and Revolving
Loans have been repaid in full, or if no Swingline Loans or
Revolving Loans are outstanding, and if any Letters of Credit are
then outstanding, to cash collateralize Letter of Credit
Outstandings by depositing such proceeds into a collateral account
established by the Administrative Agent in an amount equal to such
Letter of Credit Outstandings.
(n) Each amount required to be applied to repay Revolving Loans or
to cash collateralize outstanding Letters of Credit shall be applied
(after conversion by the respective Borrower of any amounts received in
currency other than the relevant Applicable Currency or Applicable
Currencies into the respective Applicable Currency or Applicable
Currencies) (i) in the case of application of such amounts to Revolving
Loans, to repay the outstanding principal amount of Dollar Revolving Loans
and Deutsche Mark Revolving Loans (with each such currency of Revolving
Loans being allocated that percentage of the amount to be applied as is
equal to a fraction (expressed as a percentage) the numerator of which is
equal to the outstanding principal amount of such currency of Revolving
Loans (using the Dollar Equivalent thereof in the case of German Revolving
Loans) and the denominator of which is equal to the then outstanding
principal amount of all Revolving Loans (using the Dollar Equivalent
thereof in the case of German Revolving Loans) and (ii) in the case of
application of such amounts to outstanding Letters of Credit to cash
collateralize U.S. Letters of Credit and German Letters of Credit (with
each such currency of Letter of Credit being allocated that percentage of
the amount to be so applied as is equal to a fraction (expressed as a
percentage) the numerator of which is equal to the Stated Amount (using
the Dollar Equivalent thereof in the case of German Letters of Credit) of
such currency of such Letters of Credit and the denominator of which is
equal to the Stated Amount (using the Dollar Equivalent thereof in the
case of German Letters of Credit) of all outstanding Letter of Credit).
4. Section 9.02(ii) of the Credit Agreement is hereby amended by
inserting the following proviso at the end of such section immediately following
the words "after giving effect thereto":
"provided that notwithstanding anything to the contrary contained in
this Section 9.02(ii), the aggregate amount paid by the U.S.
Borrower in connection with any Permitted Acquisitions effected from
and after the Third Amendment Effective Date to and including
December 31, 2000, shall not exceed $15 million"
5. Notwithstanding anything to the contrary contained in Section
9.03 of the Credit Agreement, the Borrowers and the Lenders hereby agree that
until the Required Lenders otherwise agree in writing, neither the U.S. Borrower
nor any of its Subsidiaries shall be permitted to make any Restricted Payments
pursuant to Section 9.03(ii) of the Credit Agreement.
6. Notwithstanding anything to the contrary contained in Section
9.04 of the Credit Agreement, the Borrowers and the Lenders hereby agree that
until the Required Lenders otherwise agree in writing, neither the U.S. Borrower
nor any of its Subsidiaries shall be permitted to incur any Indebtedness
pursuant to Section 9.04(xiii) of the Credit Agreement.
7. Section 9.05(xx) of the Credit Agreement is hereby amended by
deleting the proviso appearing at the end thereof, and inserting the following
new proviso in lieu thereof:
"provided that all such Investments in excess of $2,000,000 made
after October 28, 1999 pursuant to this clause (xx) shall be in
___________*.
8. Notwithstanding anything to the contrary contained in Section
9.08 of the Credit Agreement, the Lenders and the Borrowers hereby agree that so
long as the U.S. Borrower has engaged, or is actively seeking to engage (as
determined by the Administrative Agent), an investment bank to sell RCVP and the
Nevada Route Operations, the Borrowers shall be required to maintain a
Consolidated Fixed Charge Coverage Ratio of the Borrowers for any Test Period
ending on or prior to ________________* of at least 1.00:1, provided that (a)(i)
if the requirement described above has not been (or ceases to be) satisfied and
(ii) after ________________*, the Borrowers shall be required to comply with
Section 9.08 of the Credit Agreement as otherwise provided in such Section, (b)
in any event, upon earlier to occur of consummation of the RCVP Sale or the
consummation of Nevada Route Operations Sales, the Borrowers shall no longer be
required to comply with Section 9.08 and (c) if the Borrowers have not entered
into a letter of intent for either the RCVP Sale or the Nevada Route Operations
Sale by ________________*, the Borrowers shall be required to comply with
Section 9.08 of the Credit Agreement as otherwise provided in such Section on
and after ________________*.
9. Notwithstanding anything to the contrary contained in Section
9.09 of the Credit Agreement, the Lenders and the Borrowers hereby agree that so
long as the U.S. Borrower has engaged, or is actively seeking to engage (as
determined by the Administrative Agent), an investment bank to sell RCVP and the
Nevada Route Operations, the Borrowers shall be required to maintain a
Consolidated Interest Coverage Ratio of the Borrowers for any Test Period ending
on or prior to ________________* of at least 1.35:1, provided that (a)(i) if the
requirement described above has not been (or ceases to be) satisfied and (ii)
after ________________*, the Borrowers shall be required to comply with Section
9.09 of the Credit Agreement as otherwise provided in such Section, (b) in any
event, upon the earlier to occur of the consummation of the RCVP Sale or the
consummation of the Nevada Route Operations Sale, the Borrowers shall be
required to maintain a Consolidated Interest Coverage Ratio of the Borrowers of
at least 1.35:1 for any Test Period ending after such earlier occurrence and (c)
if the Borrowers have not entered into a letter of intent for either the RCVP
Sale or the Nevada Route Operations Sale by ________________*, the Borrowers
shall be required to comply with Section 9.09 of the Credit Agreement as
otherwise provided in such Section on and after ________________*.
10. Notwithstanding anything to the contrary contained in Section
9.10 of the Credit Agreement, the Lenders and the Borrowers hereby agree so long
as the U.S. Borrower has engaged, or is actively seeking to engage (as
determined by the Administrative Agent), an investment bank to sell RCVP and the
Nevada Route Operations, the Borrowers shall be required to maintain a Leverage
Ratio of Borrowers for the period from December 31, 1999 to ________________* of
no greater than 6.25:1, provided that (a)(i) if the requirement described above
has not been (or ceases to be) satisfied and (ii) after ________________*, the
Borrowers shall be required to comply with Section 9.10 of the Credit Agreement
as otherwise provided in such Section, (b) in any event, upon the earlier to
occur of the consummation of the RCVP Sale or the Nevada Route Operations Sale,
the Borrowers shall no longer be required to comply with Section 9.10 of the
Credit Agreement and (c) if the Borrowers have not entered into a letter of
intent for either the RCVP Sale or the Nevada Route Operations Sale by
________________*, the Borrowers shall be required to comply with Section 9.10
of the Credit Agreement as otherwise provided in such Section on and after
________________*.
11. Notwithstanding anything to the contrary contained in Section
9.11 of the Credit Agreement, the Lenders and the Borrowers agree that so long
as the U.S. Borrower has engaged, or is actively seeking to engage (as
determined by the Administrative Agent), an investment bank to sell RCVP and the
Nevada Route Operations, the Borrowers shall be required to have Consolidated
EBITDA for any Test Period ending on or prior to ________________* of at least
$44,000,000, provided that (a)(i) if the requirement described has not been (or
ceases to be) satisfied and (ii) after ________________*, the Borrowers shall be
required to comply with Section 9.11 of the Credit Agreement as otherwise
provided in such Section, (b) in any event, upon the earlier to occur of the
consummation of the RCVP Sale or the consummation of the Nevada Route Operations
Sale, the Borrowers shall be required to have a Consolidated EBITDA of at least
$30,000,000 for any Test Period ending after such earlier occurrence and (c) if
the Borrowers have not entered into a letter of intent for either the RCVP Sale
or the Nevada Route Operations Sale by ________________*, the Borrowers shall be
required to comply with Section 9.11 of the Credit Agreement as otherwise
provided in such Section on and after ________________*.
12. The definition of "Consolidated EBITDA" appearing in Section 10
of the Credit Agreement is hereby amended by inserting the following sentence at
the end thereof:
"For the purposes of calculating Consolidated EBITDA for any period
ending on or prior to ________________*, any determination of Consolidated
Net Income shall be adjusted by adding thereto the amount of (i) any
restructuring charges taken during such period in connection with the RCVP
Sale, the Nevada Route Operations Sale, the Rail City Sale, the Louisiana
Route Operations Sale or any of the transactions contemplated in Section 1
of Article I of the Third Amendment (and in an aggregate amount not to
exceed $___________*) and (ii) ancillary transaction costs incurred in
connection with the RCVP Sale, the Nevada Route Operations Sale, the Rail
City Sale or the Louisiana Route Operations Sale."
13. Section 10 of the Credit Agreement is hereby further amended by
inserting the following definitions of "Louisiana Route Operations Sale",
"Nevada Route Operations Sale", "Rail City Sale", "RCVP Sale", "Third Amendment"
and "Third Amendment Effective Date" in the proper alphabetical order:
"Louisiana Route Operations Sale" shall have the meaning provided in
the Third Amendment.
"Nevada Route Operations Sale" shall have the meaning provided in
the Third Amendment.
"Rail City Sale" shall have the meaning provided in the Third
Amendment.
"RCVP Sale" shall have the meaning provided in the Third Amendment.
"Third Amendment" shall mean the Third Amendment and Consent, dated
as of October 28, 1999, among the Borrowers, the Lenders and the
Administrative Agent.
"Third Amendment Effective Date" shall mean October 28, 1999.
14. Notwithstanding the actual Leverage Ratio of the Borrowers,
until such time as the Required Lenders otherwise agree in writing, Level 4
pricing shall at all times from the Third Amendment Effective Date through and
including ________________* apply to the Applicable Commitment Commission
Percentage and the Applicable Margin.
Article III: Miscellaneous
1. This Amendment shall become effective on the date (the "Third
Amendment Effective Date") when (i) each Borrower, each other Credit Party and
the Required Lenders have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at the Notice Office and (ii)
the Borrowers shall have paid to the Administrative Agent for the account of
each Lender which executes and delivers the counterpart of this Amendment to the
Administrative Agent on or prior to 5:00 p.m. (New York time) on October 28,
1999, an amendment fee equal to 0.20% of the sum of such Lender's outstanding
(x) Term Loans (using the Dollar Equivalent thereof in the case of any Term
Loans denominated in a currency other than Dollars) and (y) Total Revolving Loan
Commitment, in each case on the Third Amendment Effective Date.
<PAGE>
2. In order to induce the Lenders to enter into this Amendment, each
Borrower hereby represents and warrants that (i) the representations and
warranties contained in Section 7 of the Credit Agreement are true and correct
in all material respects on and as of the Third Amendment Effective Date both
before and after giving effect to this Amendment (it being understood and agreed
that, as to any representation or warranty which by its terms is made as of a
specified date, each Borrower represents and warrants that such representation
and warranty is true and correct in all material respects only as of such
specified date) and (ii) there exists no Default or Event of Default on the
Third Amendment Effective Date both before and after giving effect to this
Amendment.
3. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the U.S. Borrower and the Administrative
Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
6. From and after the Third Amendment Effective Date, all references
in the Credit Agreement and in the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
* Omitted and filed separately with the Commission pursuant to a Confidential
Treatment Request.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
ALLIANCE GAMING CORPORATION
By
Name:
Title:
BALLY WULFF VERTRIEBS GMBH
By_______________________________
Name:
Title:
BALLY WULFF AUTOMATEN GMBH
By_______________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON,
Individually and as Administrative
Agent
By_______________________________
Name:
Title:
By_______________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By_______________________________
Name:
Title:
KZH ING-1 LLC
By_______________________________
Name:
Title:
SUMITOMO BANK OF CALIFORNIA
By_______________________________
Name:
Title:
THE MITSUBISHI TRUST AND BANKING CORP.
By_______________________________
Name:
Title:
SOUTHERN PACIFIC BANK
By_______________________________
Name:
Title:
CRESCENT/MACH I PARTNERS
By: TCW Asset Management Company, Its
Investment Advisor
By_______________________________
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By_______________________________
Name:
Title:
TCW LEVERAGED INCOME TRUST, L.P.
By_______________________________
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By_______________________________
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT INC., as
Collateral Manager
By_______________________________
Name:
Title:
<PAGE>
INDOSUEZ CAPITAL FUNDING III, LIMITED
By: Indosuez Capital, as Portfolio
Advisor
By_______________________________
Name:
Title:
DEEPROCK & COMPANY
By: Eaton Vance Management As
Investment Advisor
By_______________________________
Name:
Title:
ML CLO XII PILGRIM AMERICA (Cayman)
LTD.
By: Pilgrim Investments, Inc. as its
Investment Manager
By_______________________________
Name:
Title:
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By_______________________________
Name:
Title:
<PAGE>
ROYALTON COMPANY
By: Pacific Investment Management
Company
By: PIMCO Management Inc., a general
partner
By_______________________________
Name: Bradley W. Paulson
Title: Vice President
SENIOR DEBT PORTFOLIO
By: Boston Management and Research as
Investment Advisor
By_______________________________
Name:
Title:
KZH-CRESCENT CORP.
By_______________________________
Name:
Title:
PAMCO CAYMAN LTD.
By_______________________________
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I,
LTD.,
By: Cypresstree Investment Management
Company, Inc., as Portfolio
Manager
By_______________________________
Name:
Title:
TEXAS COMMERCE BANK
By_______________________________
Name:
Title:
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc., as
Collateral Manager
By_______________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:______________________________
Name:
Title:
ROYALTON COMPANY
By:Pacific Investment Management Company
By:PIMCO Management Inc., a general
partner
By:______________________________
Name:
Title:
CAPTIVA III FINANCE LTD., as advised
by Pacific Investment Management
Company
By:______________________________
Name:
Title:
MASSMUTUAL HIGH YIELD
PARTNERS I, LLC
By: HYP Management, Inc., as Managing
Member
By:_____________________________
Name:
Title:
Its:
CALIFORNIA BANK & TRUST
By:_____________________________
Name:
Title:
Exhibit 10.82
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT dated and effective as of November 4, 1999, by
and between ALLIANCE GAMING CORPORATION, a Nevada corporation, 6601 South
Bermuda Road, Las Vegas, Nevada 89119 (the "Company"), and ROBERT L. MIODUNSKI
(the "Executive").
The parties agree as follows:
1. Employment. The Company employs the Executive, and the Executive accepts
employment by the Company, on the terms and conditions set forth in this
Agreement.
1. Term. The term of the Executive's employment under this Agreement (the
"Term") shall commence on January 1, 1998, and, unless terminated earlier
pursuant to this Agreement, shall expire on December 31, 2001.
1. Position and Duties. The Executive shall serve as Chief Operating Officer
of the Company, President of Bally Gaming, Inc. and President of United
Coin Machine Co., and shall report to the Chief Executive Officer of the
Company and, in the absence of a Chief Executive Officer, to the Board of
Directors. The Executive shall perform the duties contemplated by such
title and such other duties, consistent with his experience and abilities,
as may be assigned to the Executive by the Board of Directors and Chief
Executive Officer of the Company. The Executive shall devote his full time
and efforts to the business and affairs of the Company, use his best
efforts to further the interests of the Company, and at all times conduct
himself in a manner that reflects credit on the Company. It is contemplated
that the Executive shall render services to the Company from the Company's
principal place of business; however, the parties acknowledge and agree
that the Executive may be required to travel extensively in fulfilling his
duties hereunder.
1. Compensation.
a. Salary. The Company shall pay the Executive a base salary of $325,000 a
year in installments on the regularly recurring paydays in accordance with the
Company's practice. Increases in the base salary shall be considered by the
Company at least annually, beginning with the completion of the first year of
employment and will be based on criteria applicable to other senior executives
of the Company, provided, however, that the award of any such increase shall be
at the sole discretion of the Company.
a. Bonuses. The Executive shall be paid, at the time of signing this
Agreement, a cash bonus in the sum of $100,000, and shall also be eligible to
receive a cash bonus from the Company each year. It is contemplated but not
certain that such annual bonus shall be between 50% and 100% of Executive's base
salary, based upon performance of the Company; it being understood, however,
that the Company shall not be obligated to pay any bonus, and the payment, if
any, and amount and timing of any such bonus shall be solely within the
discretion of the Company and may be based on any criteria the Company deems
relevant.
a. Options. The Executive shall receive options, pursuant to the Company's
1996 Long-Term Incentive Plan, to acquire 52,000 shares of the Common Stock of
the Company (the "New Options"). Of this total number, 17,334 options shall have
vested and become exercisable as of the date of this Amendment. The remaining
options shall vest and become exercisable as follows:
October 31, 2000 17,333 shares
October 31, 2001 17,333 shares
All of the New Options granted to Executive hereunder shall have an
exercise price equal to the closing price on the date of execution of this
Amendment, shall expire on October 31, 2009, and be subject to all terms and
restrictions on exercise set forth in the Company's 1996 Long Term Incentive
Stock Option Plan.
a. Reimbursement of expenses. In accordance with established policies and
procedures 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 but not limited to travel, hotel, and similar expenses,
incurred by the Executive from time to time in performing his obligations under
this Agreement.
a. Vacation. The Executive shall be entitled to annual paid vacation time,
prorated for any partial employment year, consistent with the Company's policy
applicable to its senior executives. The Executive also may accumulate and carry
forward unused vacation days from year to year consistent with Company policy.
The Executive shall also be entitled to reasonable periods of sick leave with
compensation and all paid holidays given by the Company to its senior executive
officers.
a. Other benefits. The Executive shall be entitled to other employment
benefits, including but not limited to life insurance, medical and
hospitalization, disability, and retirement benefits, consistent with the
benefits provided to other senior executives of the Company.
a. No Reduction. There shall be no material reduction or diminution of the
benefits provided in this section during the term of this Agreement unless (i)
the Executive consents, (ii) an equitable arrangement (embodied in a substitute
or alternative benefit or plan) is made with respect to such benefit or plan, or
(iii) the reduction is part of a program of across-the-board benefit reductions
similarly affecting the senior executive officers of the Company.
a. No later than ninety (90) days prior to the end of the scheduled
termination date set forth in Paragraph 2, the Company shall notify Executive
whether it intends to renew this Agreement for an additional term and also of
its intentions with respect to the enforcement of the restrictive covenants of
Paragraph 6(a).
1. Termination.
a. Disability. If the Executive, because of illness or incapacity, fails to
discharge his duties under this Agreement for six or more consecutive months or
for noncontinuous periods aggregating to twenty-two weeks in any twelve-month
period, the Company may terminate this Agreement on thirty days' notice,
whereupon the obligations of the Company and the rights of the Executive under
this Agreement shall terminate, except that:
i. The Company shall pay the Executive's salary on a pro-rata basis
through the date of termination, offset by any benefits payable to the
Executive under any disability insurance policy paid for by the
Company; and
i. One-half of any unvested Options shall vest and become exercisable by
the Executive's estate for two years after the date of the Executive's
death; and
i. The Executive shall have the right, at the Executive's expense, to the
assignment of any and all insurance policies or health protection
plans in accordance with the terms and conditions of those plans.
a. Death. In the event of the Executive's death, this Agreement shall
terminate as of the date of his death, in which case the obligations of the
Company and the rights of the Executive under this Agreement shall terminate
except that:
i. The Company shall continue to pay the Executive's salary for six
months after the date of death, offset by any benefits payable to the
Executive or the Executive's estate under any life insurance policy
paid for by the Company; and
i. The Company shall reimburse the Executive's estate for all expenses
incurred and reimbursable under section ; and
i. One-half of any unvested Options shall vest and become exercisable by
the Executive's estate for two years after the date of the Executive's
death.
a. Termination by Company for Cause.
i. The Company may terminate this Agreement for cause at any time
immediately on notice to the Executive, in which case the Company's
obligations and the Executive's rights under this Agreement shall
terminate. For purposes of this provision, the term "cause" includes,
but is not limited to:
(1) The Executive's insubordination, fraud, disloyalty, dishonesty,
willful misconduct, or gross negligence in the performance of the
Executive's duties under this Agreement, including willful failure to
perform such duties as may properly be assigned to the Executive under
this Agreement.
(1) The Executive's material breach of any provision of this Agreement.
(1) The Executive's failure to qualify (or having so qualified being
thereafter disqualified) under any suitability or licensing
requirement of any jurisdiction or regulatory authority to which the
Executive may be subject by reason of his position with the Company
and its affiliates or subsidiaries.
(1) The Executive's commission of a crime against the Company or violation
of any law, order, rule, or regulation pertaining to the Company's
business.
(1) The Executive's inability (other than because of death or disability
under sections and ) to perform the job functions and responsibilities
assigned in accordance with standards established, whether or not in
writing, from time to time by the Company, in its sole discretion.
(1) The Company obtains from any source information with respect to the
Executive or this Agreement that would, in the opinion of the Company,
jeopardize the gaming licenses, permits, or status of the Company or
any of its subsidiaries or affiliates with any gaming commission,
board, or similar regulatory or law enforcement authority.
i. Any termination by the Company for cause shall not be in limitation of
any other right or remedy the Company may have under this Agreement or
otherwise.
a. Termination by Company without cause. The Company may terminate this
Agreement at any time without cause (as defined in paragraph ), whereupon the
Company's obligations and the Executive's rights under this Agreement shall
terminate, except that:
i. The Company shall continue to pay the Executive's salary and furnish
the benefits described in paragraph for twelve months after the date
of termination, offset by any compensation and benefits received by
the Executive from other employment during that period; and
i. One-half of any unvested Options granted to Executive prior to this
Agreement shall vest and become exercisable by the Executive for two
years after the date of termination and, with respect to the New
Options, all New Options which would vest during the twelve calendar
months following the date of termination shall vest and become
exercisable, subject to all terms and restrictions on exercise set
forth in the Company's 1996 Long-Term Incentive Plan.
a. Termination by Executive with cause. If the Executive resigns with
cause, the Company's obligations and the Executive's rights under this Agreement
shall terminate, except that:
i. The Company shall continue to pay the Executive's salary and furnish
the benefits described in paragraph 4(f) for twelve months after the
date of termination, offset by any compensation and benefits received
by the Executive from other employment during that period; and
i. One-half of any unvested Options shall vest and become exercisable by
the Executive for two years after the date of termination.
As used in this provision, "cause" is limited to the Company's
failure to cure either of the following within thirty days after
demand by the Executive: (i) the Company's failure to pay any
portion of the base salary within thirty days after it is due, and
(ii) the assignment to the Executive of duties materially
inconsistent with the duties and position set forth in this
Agreement.
a. Termination by Executive without cause. If the Executive resigns without
cause (as defined in paragraph ), this Agreement shall terminate as of the date
of his resignation, and the Company's obligations and the Executive's rights
under this Agreement shall terminate.
a. Survival of restrictive covenants. Notwithstanding the expiration or
termination of this Agreement for any reason, the Executive's covenants in
section and his obligations under that section shall survive the termination of
this Agreement as set forth in that section.
1. Restrictive covenants.
a. Covenant not to compete.
i. During the term of this Agreement and for twelve months after its
termination for any reason (other than its expiration at the end of
its term pursuant to paragraph , except as otherwise provided in
paragraph ), the Executive will not, directly or indirectly, whether
as employee, owner, partner, agent, employee, officer, consultant,
advisor, stockholder (except as the beneficial owner of not more than
5 percent 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 the Executive's own account or for the benefit of
any person or entity, establish, engage, or be connected with any
person or entity that is at the time engaged in a business then in
competition with the business of the Company (which, for purposes of
this paragraph, shall include any of the Company's subsidiaries or
affiliates) in any area where the Company is doing business at the
time of termination. The Company and the Executive acknowledge and
agree that the Company's market is unlimited geographically and that
the scope and duration of the covenant in this paragraph are
reasonable and fair; however, if a court of competent jurisdiction
determines that this covenant is overbroad or unenforceable in any
respect, the Company and the Executive acknowledge and agree that the
covenant shall be enforced to the greatest extent any such court deems
appropriate, and such court may modify this covenant to that extent.
i. At the expiration of this Agreement at the end of its term under
paragraph , the Company may, in its sole and absolute discretion,
continue to pay the Executive the base salary set forth in paragraph
and the other benefits set forth in paragraph , in which case, and for
so long as the Company continues to do so, the Executive shall be
bound by the covenant set forth in paragraph .
a. Covenant not to solicit customers, employees, or consultants. Executive
shall not, directly or indirectly, during the term of this Agreement and for
twelve months after its expiration or termination for any reason, (i) solicit
the trade or patronage of any of the customers or prospective customers of the
Company (which, for purposes of this paragraph, shall include any of the
Company's subsidiaries or affiliates) or of anyone who has heretofore traded or
dealt with the Company, regardless of the location of such customers or
prospective customers of the Company with respect to any technologies, services,
products, trade secrets, or other matters in which the Company is active, or
(ii) aid or endeavor to solicit or induce any other employee or consultant of
the Company to leave the Company to accept employment of any kind with any other
person or entity.
a. Confidential Information and Non-Disparagement.
i. In accordance with NRS 600A.010 et seq. (the so-called Uniform Trade
Secrets Act), the Executive shall hold in a fiduciary capacity for the
benefit of the Company and its stockholders all secret, confidential,
and proprietary information, knowledge, and data relating to the
Company (and any of its subsidiaries or affiliates), obtained by the
Executive during or by reason of the Executive's employment by the
Company. During the term of this Agreement and after its expiration or
termination for any reason, the Executive shall not, without the prior
written consent of the Company or except as may be required by law,
communicate or divulge any such information, knowledge, or data to any
person or entity other than the Company (or as applicable its
subsidiaries or affiliates) and those designated by them that would
result in any misappropriation under and as defined in such Act,
except that, while employed by the Company, in furtherance of the
business and for the benefit of the Company, the Executive may provide
confidential information as appropriate to attorneys, accountants,
financial institutions, and other persons or entities engaged in
business with the Company from time to time.
i. Each of the Executive and the Company agrees that during the Term and
for a period of three years following any applicable termination date,
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) (i) necessary in
any judicial or arbitral action to enforce the provisions of this
Agreement or (ii) in connection with any judicial, regulatory or
administrative proceeding to the extent required by applicable laws.
For purposes of this Section 6(c)(ii), references to the Company
include its officers, directors, employees, consultants and
shareholders (which are reasonably known as such to the Executive) on
the date hereof and hereafter.
a. Standstill. During the term of this Agreement and for twelve months
after its expiration or termination for any reason, the Executive shall not,
singly or with any other person, directly or indirectly:
i. Propose, enter into, agree to enter into, or encourage any other
person to propose, enter into, or agree to enter into (i) any form of
business combination, acquisition, or other transaction relating to
the Company or any of its subsidiaries or affiliates, or (ii) any form
of restructuring, recapitalization, or similar transaction with
respect to the Company or any of its subsidiaries or affiliates; or
i. Acquire, or offer, propose, or agree to acquire, by tender offer,
purchase, or otherwise, any voting securities of the Company or of its
subsidiaries or affiliates, except through the exercise of options or
warrants beneficially owned as of the date of this Agreement; or
i. Make or in any way participate in any solicitation of proxies or
written consents with respect to voting securities of the Company or
any of its affiliates or subsidiaries (it being understood that the
mere execution of a proxy or written consent for his own securities
beneficially owned shall not be treated as constituting participation
in such a solicitation); or
i. Become a participant in any election contest with respect to the
Company or a nominee to or member of its board of directors or the
board of directors of any affiliate or subsidiary of the Company or
any of its affiliates or subsidiaries; or
i. Seek to influence any person with respect to the voting or disposition
of any voting securities of the Company or any of its affiliates or
subsidiaries; or
i. Demand a copy of the list of stockholders or other books and records
of the Company or any of its subsidiaries or affiliates; or
i. Participate in or encourage the formation of any partnership,
syndicate, or other group that owns or seeks or offers to acquire
beneficial ownership of any voting securities of the Company or any of
its affiliates or subsidiaries or that seeks to affect control of the
Company or any of its affiliates or subsidiaries or for the purpose of
circumventing any provision of this Agreement; or
i. Propose or support any director or slate of directors for nomination,
appointment, or election to the board of directors of the Company or
any of its affiliates or subsidiaries (it being understood that the
mere execution of a proxy or written shareholder consent for his own
securities beneficially owned shall not be treated as constituting
such support); or
i. Otherwise act to seek or to offer to control or influence, in any
manner, the management, the board of directors, or the policies of the
Company or any of its affiliates or subsidiaries; or
i. Seek to amend or change this provision.
a. The Executive acknowledges that the Company will suffer irreparable
injury, not readily susceptible of valuation in monetary damages, if the
Executive breaches any of his obligations under this section. Accordingly, the
Executive agrees that the Company will be entitled, at the Company's option, to
injunctive relief without the necessity of posting a bond against any breach or
prospective breach by the Executive of the Executive's obligations under this
section in any federal or state court of competent jurisdiction sitting in the
State of Nevada, in addition to monetary damages and any other remedies
available at law or in equity. The Executive hereby submits to the jurisdiction
of such courts for the purposes of any actions or proceedings instituted by the
Company to obtain such injunctive relief, and agrees that process may be served
on the Executive by registered mail, addressed to the last address of the
Executive known to the Company, or in any other manner authorized by law.
a. Material Inducements. The restrictive covenants and other provisions in
this section are material inducements to the Company entering into and
performing this Agreement. Accordingly, in the event of any breach of the
provisions of this section by the Executive, in addition to all other remedies
at law or in equity possessed by the Company, (i) the Company shall have the
right to terminate and not pay any amounts payable to the Executive under this
Agreement, (ii) all Options that are unexercised shall be immediately forfeited
and returned to the Company, and (iii) the Executive shall immediately account
to the Company and return to the Company an amount in cash equal to all profits
or benefits obtained or realized by the Executive by virtue of the ownership or
disposition of the Options.
a. For a period of two (2) years after the closing date of any transaction
in which the Company shall have sold, whether by merger, stock purchase, asset
purchase or other acquisition, all or substantially all of the stock or assets
of United Coin Machine Co., or the remaining term of the non-competition
provisions of Paragraph 6(a), whichever is shorter, the Executive shall not,
directly or indirectly, whether as employee, owner, partner, agent, officer,
consultant, advisor, stockholder (except as the beneficial owner of not more
than 5 percent 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 the Executive's own account or for
the benefit of any person or entity, be connected with United Coin Machine Co.,
any successor company or any person or entity that acquires United Coin Machine
Co., nor any other person or entity that is engaged in a business then in
competition with United Coin Machine Co. in any area where United Coin Machine
Co. is doing business during the time set forth above.
1. Indemnification and Liability Insurance. If the Executive is or during the
term of this Agreement becomes a director of or holds a corporate office
with the Company:
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
director or officer of the Company under this Agreement, in each case, except to
the extent of the Executive's intentional misconduct, fraud, or knowing
violation of law.
a. 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 director or officer or both of the Company (or any affiliate or
subsidiary of the Company) during the term of this Agreement in accordance with
its customary practices as in effect from time to time. The parties acknowledge
and agree that the policy may cover other officers and directors of the Company
in addition to the Executive.
1. Licenses and approvals. This Agreement is contingent on any necessary
approvals and licenses from any regulatory authorities having
jurisdiction over the parties or the subject matter of this Agreement.
Each party shall promptly apply to the appropriate regulatory
authorities for any licenses and approvals necessary for that party to
perform under this Agreement, shall diligently pursue its applications
and pay all associated costs and fees, and shall otherwise cooperate
with any requests, inquiries, or investigations of any regulatory
authorities or law enforcement agencies in connection with the
Company, its affiliates, or this Agreement. If any license or approval
necessary for either party to perform under this Agreement is denied,
suspended, or revoked, this Agreement shall be void, provided,
however, that if the denial, suspension, or revocation affects
performance of the Agreement in part only, the parties may be mutual
agreement continue to perform under this Agreement to the extent it is
unaffected by the denial, suspension, or revocation.
1. Compliance program. The parties acknowledge that Alliance Gaming
Corporation, as a company that operates and as the parent of companies
that operate under privileged licenses in a highly regulated industry,
maintains a compliance program to protect and preserve the name,
reputation, integrity, and good will of Alliance and its subsidiaries
and affiliates through a thorough review and determination of the
integrity and fitness, both initially and thereafter, of any person or
company that performs work for those companies or with which those
companies are otherwise associated, and to monitor compliance with the
requirements established by gaming regulatory authorities in various
jurisdictions around the world. This Agreement and the association of
the Company and its affiliates with the Executive are contingent on
the continued approval of Alliance and its compliance committee under
the Alliance compliance program. The parties shall cooperate with
Alliance and its compliance committee as reasonably requested by
Alliance or the committee and shall provide the committee with such
information as it may request. If Alliance, acting on the
recommendation of the committee, withdraws its approval of this
Agreement or one or more of the other parties, then this Agreement
shall be void and neither party shall have any rights thereunder.
1. General Provisions.
a. Arbitration. Any controversy or claim arising out of or relating to this
Agreement or its breach (except, at the option of the Company, a controversy or
claim arising out of or relating to section , which the Company may choose to be
adjudicated in a federal or state court sitting in Las Vegas, Nevada), shall be
settled by arbitration in Las Vegas, Nevada, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment on the
award rendered by the arbitrator or arbitrators may be entered in any court
having jurisdiction thereof. If any arbitration or other legal or equitable
action or proceeding is instituted to enforce any provisions of this Agreement,
the prevailing party shall be entitled to recover as costs such amounts as the
court or arbitrator may judge to be reasonable, including costs and attorneys'
fees.
a. Further assurances. Each party shall execute all documents and take all
other actions necessary to effect the provisions and purposes of this Agreement.
a. Entire agreement. This Agreement contains the entire agreement between
the parties and supersedes all other oral and written agreements previously
entered into by the parties concerning the same subject matter.
a. Modification, rescission, and assignment. This Agreement may be modified
or rescinded only with the written consent of both parties. Neither this
Agreement nor any right or interest under this Agreement shall be assignable by
either party without the written consent of the other, provided, that (i) if the
Executive dies during the term of this Agreement, the Executive's estate and his
heirs, executors, administrators, legatees, and distributees shall have the
rights and obligations as provided in this Agreement, 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 (including a split
up, spin off, or similar type transaction), provided that one or more of such
surviving entities continues to be bound by the provisions of this Agreement now
binding on the Company.
a. Controlling law; severability. Nevada law shall govern this Agreement
and its interpretation. If any provision is unenforceable for any reason, it
shall be deemed stricken from the Agreement but shall not otherwise affect the
intention of the parties or the remaining provisions of the Agreement.
a. Binding effect. This Agreement shall bind and inure to the benefit of
each of the parties and their respective heirs, successors, administrators,
executors, and assigns.
a. No third party benefits. This Agreement is for the benefit of the
parties and their permitted successors and assigns. The parties intend neither
to confer any benefit hereunder on any person, firm, or corporation other than
the parties hereto, nor that any such third party shall have any rights under
this Agreement.
a. Indulgence. 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.
a. Notices. All notices required by this Agreement must be in writing and
must be delivered, mailed, or telecopied to the addresses given above or such
other addresses as the parties may designate in writing.
a. Counterparts; facsimiles. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which, taken
together, shall constitute one and the same instrument. This Agreement may be
executed and delivered by exchange of facsimile copies showing the signatures of
the parties, and those signatures need not be affixed to the same copy. The
facsimile copies so signed will constitute originally signed copies of the same
consent requiring no further execution.
a. Captions; construction; drafting ambiguities. The captions in this
Agreement are for convenience only and shall not be used in interpreting it. In
interpreting this Agreement any change in gender or number shall be made as
appropriate to fit the context. Each party has reviewed and revised this
Agreement with independent counsel or has had the opportunity to do so. The rule
of construction that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or of any
amendments or exhibits to this Agreement.
1. Condition precedent. This Agreement is subject to approval by the
Company's board of directors and shall be of no force and effect until
that approval is given and is evidenced by a written resolution of the
board.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first set forth above.
"COMPANY" "EXECUTIVE"
Alliance Gaming Corporation
__________________________________
By: Robert L. Miodunski
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This schedule contains summary financial information excerpted from
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for the three months ended September 30, 1999.
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<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information excerpted
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</LEGEND>
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