-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfFF8mAbJhzuDD/ekG849I44gLXN6ZHTF13JzvXmkZb9SwLfi6c6U/bxuYYC7MZX b75cyWAtiN9RaBs3Ov8sOA== 0000002491-99-000014.txt : 19991117 0000002491-99-000014.hdr.sgml : 19991117 ACCESSION NUMBER: 0000002491-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE GAMING CORP CENTRAL INDEX KEY: 0000002491 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880104066 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04281 FILM NUMBER: 99753004 BUSINESS ADDRESS: STREET 1: 6601 S. BERMUDA RD. CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7028967700 MAIL ADDRESS: STREET 1: 4380 BOULDER HIGHWAY CITY: LAS VEGAS STATE: NV ZIP: 89121 FORMER COMPANY: FORMER CONFORMED NAME: UNITED GAMING INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GAMING & TECHNOLOGY INC DATE OF NAME CHANGE: 19890206 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED PATENT TECHNOLOGY INC DATE OF NAME CHANGE: 19830519 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 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. 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 PART 1 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In 000's, except share data)
June 30, Sept. 30, 1999 1999 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 ======== ========
See notes to unaudited condensed consolidated financial statements. 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. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY Three Months Ended September 30, 1999 (In 000's)
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) 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) ====== ======= ======== ====== ========= ========= ========= =========
See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In 000's)
Three Months Ended September 30, 1998 1999 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 ======= =======
See notes to unaudited condensed consolidated financial statements. 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 ======= ======= 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:
Three months ended September 30, 1998 Income (Loss) Average Shares (Numerator) (Denominator) EPS (In 000's except share data) 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)
(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.
Three months ended September 30, 1999 Income (Loss) Average Shares (Numerator) (Denominator) EPS 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
(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. CONSOLIDATING BALANCE SHEETS June 30, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries 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 ======== ======== ========== ========
See accompanying unaudited note. CONSOLIDATING BALANCE SHEETS September 30, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries 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 ======== ======== ========= ========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries 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) ======== ====== ======== ========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries 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 ====== ====== ======== ======
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF CASH FLOWS Three Months Ended September 30, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries 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 ======= ======= ======= =======
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF CASH FLOWS Three Months Ended September 30, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries 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 ======= ======= ====== =======
See accompanying unaudited note. Debt and Lines of Credit Long-term debt and lines of credit at June 30, 1999 consist of the following :
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries (in 000's) 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 ======== ======= ======== ========
Long-term debt and lines of credit at September 30, 1999 consist of the following:
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries (in 000's) 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 ======== ======= ========= ========
See accompanying unaudited note. 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. 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) EX-4.5 2 THIRD AMENDMENT AND CONSENT 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 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. 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. (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. 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. 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: 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: MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By_______________________________ Name: Title: 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: EX-10.82 3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT 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 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information excerpted from Form 10-K for the three months ended September 30, 1999. 1,000 3-MOS JUN-30-2000 SEP-30-1999 22,194 0 108,756 13,150 50,651 179,835 129,668 54,166 371,849 54,657 0 0 4,724 1,034 (33,591) 371,849 54,460 117,202 32,047 75,314 32,968 523 7,777 522 77 445 0 0 0 445 0.04 0.04
EX-27.2 5 RESTATED FINANCIAL DATA SCHEDULE
5 This schedule contains restated summary financial information excerpted from Form 10-K for the three months ended September 30, 1998. 1,000 3-MOS JUN-30-1999 SEP-30-1998 26,916 0 99,419 11,909 47,395 171,000 129,350 50,211 369,093 44,584 0 0 14,127 3,426 (32,975) 369,093 42,553 98,771 23,908 61,853 30,961 (353) 7,903 (2,092) 184 (2,276) 0 0 0 (2,276) (0.28) (0.28)
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