0000922423-95-000194.txt : 19950914 0000922423-95-000194.hdr.sgml : 19950914 ACCESSION NUMBER: 0000922423-95-000194 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 ITEM INFORMATION: Acquisition or disposition of assets FILED AS OF DATE: 19950912 SROS: NYSE 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04281 FILM NUMBER: 95572900 BUSINESS ADDRESS: STREET 1: 4380 BOULDER HGWY CITY: LAS VEGAS STATE: NV ZIP: 89121 BUSINESS PHONE: 7024354200 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 8-K 1 ================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: September 11, 1995 (Date of earliest event reported) ALLIANCE GAMING CORPORATION a Nevada corporation (Exact name of registrant as specified in its charter) Nevada 0-4281 88-0104066 (State or other (Commission (I.R.S.Employer jurisdiction of File No.) Identification incorporation of No.) organization) 4380 Boulder Highway Las Vegas, Nevada 89121 (Address of principal executive offices, including zip code) (702) 435-4200 (Registrant's telephone number, including area code) ================================================================= ITEM 5. OTHER EVENTS As previously reported in its Schedule 14D-1 and Amendment No. 2 to Schedule 13D (as amended), dated July 28, 1995, on July 28, 1995 Alliance Gaming Corporation (the "Company") commenced a tender offer to acquire up to 4.4 million shares of common stock, par value $.01 per share, of Bally Gaming International, Inc. ("BGII"). On August 25, 1995, as reported in the Company's press release attached hereto as Exhibit 5.1 under Item 7 and incorporated herein by reference, the Company announced that pursuant to its previously announced August 14th agreement with BGII and WMS Industries, Inc. ("WMS"), it had extended the expiration of its currently pending tender offer for shares of BGII until September 12, 1995. The number of shares validly tendered did not include the one million shares already owned by Alliance Gaming. Pursuant to such agreement, certain litigation between the parties was temporarily suspended. On September 1, 1995, as reported in the Company's press release attached hereto as Exhibit 5.2 under Item 7 and incorporated herein by reference, the Company announced it had accepted firm commitments for $65 million in financing to fund its tender offer of $12.50 cash per share for 4.4 million shares of BGII. The financing commitments included $35 million in senior financing to be provided by Foothill Capital Corp., and $30 million in senior subordinated financing to be provided by Cerberus Partners, L.P. and affiliates of Canyon Partners, Incorporated. These commitments replaced the expressions of interest furnished to the Company earlier by two banks. The financing is not conditioned on due diligence, and the Company therefore expects to be in a position to close its tender offer immediately following regulatory approval, presently anticipated to occur in the end of September. Accordingly, the Company has extended its tender offer until 12 o'clock midnight New York time on Friday, September 29, 1995. Upon closing the tender offer, the Company would have majority control of BGII. No additional funds would be necessary to consummate the merger. On September 5, 1995, BGII commenced a litigation against the Company and the Company's wholly-owned subsidiary, BGII Acquisition Corp. ("Acquisition"), in the United States District Court for the District of Delaware alleging, among other things, certain misrepresentations under the federal securities laws. A copy of such Complaint is filed as Exhibit 5.3 under Item 7 and incorporated herein by reference. On September 6, 1995, WMS commenced a litigation against the Company, Acquisition and the board of directors of the Company and John Does 1-5 in the United States District Court for the Southern District of New York alleging certain misrepresentations and similar causes of action to the Delaware litigation as well as tortious interference with the WMS/BGII merger agreement. A copy of such complaint is filed as Exhibit 5.4 under Item 7 and incorporated herein by reference. The Company believes that neither of these litigations is meritorious, and it intends vigorously to defend them to monitor developments and continue its pursuit of acquiring BGII. -2- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits 1. Exhibit 5.1. Press release dated August 25, 1995. 2. Exhibit 5.2. Press release dated September 1, 1995. 3. Exhibit 5.3. Complaint between BGII as plaintiff, and the Company and BGII Acquisition Corp. as defendants, dated September 5, 1995. 4. Exhibit 5.4. Summons in a Civil Action between WMS Industries, Inc. as plaintiff, and the Company, BGII Acquisition Corp. and the Company's Board of Directors as co-defendants dated September 6, 1995. -3- 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 hereunto duly authorized. ALLIANCE GAMING CORPORATION Date: September 11, 1995 By: /s/ Steve Greathouse -------------------------- Name: Steve Greathouse Title: Chairman/President/ Chief Executive Officer -4- INDEX TO EXHIBITS 1. Exhibit 5.1. Press release dated August 25, 1995. 2. Exhibit 5.2. Press release dated September 1, 1995. 3. Exhibit 5.3. Complaint between BGII as plaintiff, and the Company and BGII Acquisition Corp. as defendants, dated September 5, 1995. 4. Exhibit 5.4. Summons in a Civil Action between WMS Industries, Inc. as plaintiff, and the Company, BGII Acquisition Corp. and the Company's Board of Directors as co-defendants dated September 6, 1995. -5- EX-99.1 2 Exhibit 5.1 CONTACTS: Media: Investors: Andrew Baer Johnann McIlwain John Alderfer Josh Pekarsky Alliance Gaming Alliance Gaming Kekst and Company (702) 435-4200 (702) 435-4200 (212) 593-2655 FOR IMMEDIATE RELEASE ALLIANCE GAMING EXTENDS BALLY GAMING TENDER OFFER LAS VEGAS, NEVADA, August 25, 1995 -- Alliance Gaming Corporation (NASDAQ:ALLY) announced today that pursuant to its previously announced August 14th agreement with Bally Gaming International, Inc. and WMS Industries, Inc., it has extended the expiration of its currently pending tender offer for shares of Bally Gaming until September 12, 1995. As of 12:00 midnight New York time, August 24, 1995, 1,296,659 shares had been validly tendered into the offer. This does not include the one million shares already owned by Alliance Gaming. EX-99.2 3 Exhibit 5.2 CONTACTS: Media: Investors: Andrew Baer Johnann McIlwain John Alderfer Josh Pekarsky Alliance Gaming Alliance Gaming Kekst and Company (702) 435-4200 (702) 435-4200 (212) 593-2655 FOR IMMEDIATE RELEASE ALLIANCE GAMING RECEIVES FIRM FINANCING COMMITMENTS TO FUND BALLY GAMING OFFER -- No Longer Requires Due Diligence to Complete Offer -- LAS VEGAS, NEVADA, SEPTEMBER 1, 1995 -- Alliance Gaming Corporation (NASDAQ:ALLY) announced today that it has accepted firm commitments for $65 million in financing to fund its tender offer of $12.50 cash per share for 4.4 million shares of Bally Gaming International, Inc. This financing is not conditioned on due diligence, and Alliance therefore will be able to close its tender offer immediately following regulatory approval, which it anticipates obtaining by the end of September. Accordingly, Alliance is extending its tender offer until 12 o'clock midnight New York time on Friday, September 29, 1995. The number of shares currently tendered is approximately 1,000,000. Upon closing the tender offer, Alliance Gaming will have majority control of Bally Gaming and expects to complete the subsequent merger of the two companies by Thanksgiving. No additional funds will be necessary to consummate the merger. As announced previously, Alliance Gaming is prepared to raise its offer to $13.00 cash per Bally Gaming share if the Bally Gaming break-up fee arrangement with WMS is invalidated. The financing commitments include $35 million in senior financing to be provided by Foothill Capital Corp., and $30 million in senior subordinated financing to be provided by Cerberus Partners, L.P. and affiliates of Canyon Partners, Incorporated. These commitments replace the expressions of interest furnished to Alliance earlier by two banks. Steve Greathouse, Alliance's Chairman and Chief Executive Officer, stated, "Our ability to obtain firm financing commitments not conditioned on due diligence demonstrates the overwhelming economic and business rationale for our combination with Bally Gaming." Alliance also outlined in a letter mailed today to Bally Gaming shareholders why it believes its offer is superior to the lower- value, more conditional and less timely WMS proposal that has been embraced by Bally Gaming's directors. The full text of the letter follows: September 1, 1995 Dear Fellow Bally Gaming Stockholder: We are pleased to report that, despite the continued resistance of the Bally Gaming board of directors, Alliance has continued advancing toward our goal of acquiring Bally Gaming and delivering superior and immediate value to our fellow stockholders. We have just accepted $65 million in firm financing commitments to provide all the funding we need to close our $12.50 cash offer for $4.4 million shares of Bally Gaming common stock. These commitments are not conditioned on any due diligence concerning Bally Gaming and do not require any cooperation from Bally Gaming's management. Furthermore, we anticipate obtaining all regulatory approvals required to close our tender offer by the end of September and delivering cash for the shares purchased immediately thereafter. Accordingly, we have extended our tender offer to September 29, 1995. At that time, we will have majority control of Bally Gaming and we expect to complete the merger of the two companies by Thanksgiving. We can then execute our strategic plan to capitalize on Bally Gaming's unrealized long-term potential. We believe the table below dramatically shows the superiority of our offer over the lower-value, more conditional and less timely WMS proposal embraced by Bally Gaming's directors: Alliance WMS -------- --- . $12.50 cash offer for $4.4 . WMS stock for all million shares -- $13.00 if Bally shares; possible small Gaming's break-up fee arrangement cash distribution, if with WMS is invalidated; Alliance any, conditioned on stock for the remainder potential sale of Bally Wulff above a specified price -2- PAGE . Cash tender offer to be . No plan to close before completed by September 29; back- January 31, 1996 (as set end merger by Thanksgiving forth in the WMS-Bally Gaming Merger Agreement); regulatory application not anticipated to be heard before November . Subject only to customary . Conditioned on sale of conditions Bally Wulff for a set minimum price . Back-end exchange ratio not . Exchange ratio fixed up set until merger, subject to an front; Bally stockholders appropriate collar; Bally Gaming bear the risk of WMS stockholders significantly pro- stock price fluctuation tected against Alliance stock price fluctuations . Continuous unlimited Nevada . Regulatory uncertainty; gaming license for 25 years received only two-year limited gaming license Another important factor to consider is the value of the stock that makes up part of our offer. We are primarily a technology-driven company. As the country's largest gaming device route operator, we own and operate over 5,700 gaming devices, including our own highly sophisticated, proprietary machines. This route generates consistent and strong annual recurring cash flow, primarily from multi-year contracts with established businesses in prime locations. With this stable cash flow as our base, we are very confident that once we have acquired Bally Gaming we can quickly and easily achieve an appropriate capital structure favorable to the long-term growth and profitability of the combined companies. This will enable us to take advantage of our superior technological resources and vision to rapidly bring to market advanced gaming devices and systems. As for WMS, it has managed to obtain only a two-year probationary license to sell gaming devices in Nevada, despite its plea to the Nevada Gaming Control Board that "the company's future business would be severely limited" by such a time-restricted license (p. 161, Gaming Control Board hearing transcript, 8/9/95). This means that two years from now, WMS will have to again submit to a full regulatory review with no guarantee of approval. Thus, having sold off Bally Gaming's highly profitable international business -- and having given up Bally Gaming's existing unlimited -3- PAGE license -- the company could find itself, just two years from now, barred from its largest domestic gaming market. You should also know that in addition to its two-year gaming license to do business in Nevada, WMS needs a separate change of control approval before it can acquire Bally Gaming. In August, WMS revealed before the Gaming Control Board that it expects this change of control application to be considered by the Board "in three, four [or] five months." Thus, based on its own statements, WMS expects to complete the regulatory approval process sometime between November 1995 and January 1996. Because of this lengthy interval, Bally Gaming stockholders will bear the risk of future fluctuations in the WMS stock price. Consider that the value of the WMS stock consideration has fluctuated between $12.86 and $10.04 per Bally Gaming share since the letter of intent was announced on April 18, 1995. Finally, you should remember that in the announcement of its initial letter of intent with Bally Gaming, WMS stated that it would exchange 0.6 of its shares or higher for each Bally Gaming share. Instead, it lowered its offer. Other than for our presence, there is no guarantee they won't do it again. Why would Bally Gaming's directors favor the inferior WMS offer? Self-interest may be at work here. Bally Gaming has disclosed that in connection with the proposed WMS merger, its three senior executives will receive in the aggregate at least $15 million in severance and other compensation. It is also worth noting that Bally Wulff is likely to be sold to a group of Bally Gaming's own directors. Now that we have secured financing, we expect to close our offer by the end of September. We are prepared to seek your consent to remove Bally Gaming's directors should they continue to oppose our offer. Approximately 1,000,000 shares have been tendered into our offer not including the one million shares we already own. If you have not already done so, please tender your shares into the Alliance Gaming offer so that we can continue to move forward. We look forward to your continued support. -4- If you have any questions, please call Georgeson & Company Inc. at (800) 223-2064. Yours sincerely, Steven Greathouse Chairman, President and Chief Executive Officer -5- EX-99.3 4 EXHIBIT 5.3 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE BALLY GAMING INTERNATIONAL, INC., ) ) Plaintiff, ) ) v. ) C.A. No. 95-538 ) ALLIANCE GAMING CORPORATION ) and BGII ACQUISITION CORP., ) ) Defendants. ) COMPLAINT --------- Plaintiff Bally Gaming International, Inc., by its undersigned attorneys, complaining of defendants, alleges as follows: Introduction and Summary ------------------------ 1. The shareholders of plaintiff Bally Gaming International, Inc. ("Bally") and the securities markets have been falsely led to believe by defendants Alliance Gaming Corporation ("Alliance") and its wholly-owned subsidiary, BGII Acquisition Corp. ("Bidder"), that the partial, hostile tender offer they have made for shares of Bally (the "Alliance Offer") is a first step in the acquisition of the entire equity interest in Bally for the same consideration pursuant to a proposed future merger. Alliance has played a game of "now you see it, now you don't" with respect to the financing of its Offer, first assuring Bally shareholders and the markets that financing was present in PAGE one form, only to turn around later and present financing in another, totally different form. The Bally shareholders and the markets were also told at one point that Alliance planned to solicit consents to elect a majority of Bally directors pledged to support the Alliance Offer (assuming the Offer was adequately financed), but they have since been told that the consent solicitation may or may not take place. 2. In fact, the Alliance Offer was designed by Alliance (the two defendants are sometimes collectively called "Alliance") to be, and is, misleading, coercive and illusory, for a variety of reasons. Concealed from Bally shareholders and from the markets generally, among other things, are the facts that: -- Alliance has an undisclosed principal, Richard Rainwater, whose crucial role in Alliance will cause embarrassment and licensing difficulties for Rainwater and Alliance. -- Alliance is severely underfunded and overleveraged, such that it will be unable, once it acquires a majority of Bally stock and once it is combined with Bally, to cause Bally to repay substantial indebtedness that will immediately come due, to issue stock of real value in a back-end merger or to go forward as a viable company. -- Alliance's so-called tender offer is not designed to permit Alliance to acquire all shares of Bally at the same price, but is instead a vehicle to permit Alliance to attempt to interfere with and disrupt the merger agreement that has been entered into between Bally and WMS Industries, Inc. ("WMS"). Uncertainties concerning the back- end merger will have the effect of coercing shareholders into tendering their stock to Alliance even if they would prefer the merger with WMS. If sufficient Bally stock is tendered to Alliance to permit it to replace the directors of Bally with its own designees, they will then "negotiate" a merger agreement on Alliance's terms. -2- -- The centerpiece of Alliance's on-again, off- again consent contest is the false appearance that Alliance has made a desirable offer for Bally that Bally's directors have improperly rejected, and as a result, Alliance must conceal the fact that it has received extraordinary cooperation from Bally's board. 3. Alliance and the Bidder have made several public statements and have filed and caused to be publicly disseminated a Schedule 14D-1 (the "14D-1/Proxy Statement"), that purport to make certain disclosures about the Alliance Offer, Alliance and Bally. Because the Offer is the first step in a consent and/or proxy solicitation, the 14D-1/Proxy Statement must also be treated as a proxy statement subject to the appropriate laws and regulations. 4. In furtherance of defendants' aforesaid plan, the statements and the 14D-1/Proxy Statement have knowingly been crafted so as to be at the time they were made replete with misrepresentations and omissions, detailed below, on the subjects of: (a) the interests behind Alliance; (b) the financing for its Alliance Offer; (c) the financial condition of a combined Alliance/Bally entity; (d) Alliance's plans for Bally, including the likelihood of a proxy contest and the terms of any future merger between Alliance and Bally; (e) the history of Alliance's negotiations with Bally, including the opportunities afforded to Alliance to conduct due diligence of Bally; (f) the obstacles to a rapid Alliance/Bally combination, including regulatory approvals and a non-competition agreement to which Bally is party; and (g) the proposed WMS merger. 5. In addition, Alliance, acting through the Bidder, has filed a preliminary consent statement (the "Preliminary Consent Statement") that is available to the public that contains misrepresentations and omissions on many of the same subjects as the 14D-1/Proxy Statement, and additionally omits other information crucial to the Bally shareholders to whom it is addressed, such as any information at all about the WMS merger -3- agreement. Alliance has also mailed a letter soliciting consents to Bally shareholders (the "August 8 Letter"). The Preliminary Consent Statement and the August 8 Letter also contain misstatements and omissions. Finally, Alliance made certain announcements and mailed an additional letter to Bally shareholders on September 1, 1995 (the "September 1 Announcements") that substantially alter certain of Alliance's earlier "disclosures", and repeat and re-embellish many of its misrepresentations. 6. By reason of these misstatements and omissions, defendants have violated sections 14(d) and (e) of the Securities Exchange Act of 1934 (the "Exchange Act") and Regulation 14D promulgated by the Securities and Exchange Commission (the "SEC") thereunder, and they should be required to make corrective disclosures before proceeding with their offer. Moreover, because Alliance is preserving the possibility that it may be engaging in a consent solicitation that involves both the election of directors and a decision as to a merger, it is in violation of section 14(a) of the Exchange Act and Regulation 14A thereunder, because it is soliciting proxies without having properly filed the requisite statements, and pursuant to a false and misleading proxy statement. Jurisdiction and Venue ---------------------- 7. Jurisdiction is conferred on this Court by the provisions of 28 U.S.C. Sections 1331 and 1337 and 15 U.S.C. Section 78aa. 8. Venue is proper in this Court pursuant to 28 U.S.C. Section 1391 and 15 U.S.C. Section 78aa. Parties ------- 9. Bally is incorporated under the laws of Delaware and has its principal place of business in Las Vegas, Nevada. Bally's main business is the design and manufacture of electronic gaming machines. 10. Alliance is incorporated under the laws of Nevada and has its principal place of business in Las Vegas, Nevada. Alliance owns, operates, installs, manages and services gaming devices and operates two casinos. -4- 11. The Bidder is incorporated under the laws of Delaware, has its principal place of business at Alliance's principal office, was organized for the sole purpose of making the Alliance Offer and has conducted no other business. Background ---------- Alliance -------- 12. Several years ago, Alliance (then known as United Gaming) was taken over by investors led by Richard Rainwater with the intention of using Alliance as a vehicle to make acquisitions in the gaming industry. For reasons detailed below, these principals of Alliance, although they dominate the company, are unwilling or unable to be publicly identified as controlling a gambling enterprise, and accordingly, upon information and belief, embarked upon a scheme to accomplish their ends without complying with gaming licensing regulations. To that end, these principals have pushed Joel Kirschbaum to the fore as their sole identified representative, while they have falsely described themselves as passive, limited partners. They have not, however, conducted themselves as passive investors. 13. Recently, Alliance raised approximately $85 million in an offering of convertible debt securities. The purpose of the offering was to finance expansion through acquisitions, and Alliance announced (as reflected in contemporaneous research reports) that its ability to complete such transactions was enhanced by the presence among its leading investors of Rainwater and Kirschbaum, who had reputations respectively as an aggressive doer of deals and a successful investment banker. To date, however, Alliance has failed to invest the proceeds of the offering, and, upon information and belief, is having difficulty servicing its bonds, which trade at a substantial discount. In order to salvage both its finances and its reputation, Alliance is desperate to do a deal with Bally. Negotiations ------------ 14. Between one and two years ago, Bally's directors concluded that in order for Bally to achieve its potential it would need to find a strategic partner, either to invest additional equity capital in Bally or to combine with it synergistically. Management was instructed to seek out such a partner, and the performance criteria of senior management's -5- incentive compensation were adjusted to reflect these new objectives. 15. Alliance is one of the companies with whom Bally has explored a possible combination. Alliance representatives have frequently met with Bally's directors, officers, operating personnel, lawyers and investment bankers, and have been given the free opportunity to ask questions about Bally and obtain limited non-public information. 16. Alliance has repeatedly sought to acquire additional non-public information from Bally, which it has told Bally it needs in order to obtain financing for a business combination. Indeed, Alliance representatives have told Bally on several occasions that Alliance cannot obtain financing to undertake a hostile takeover of Bally. 17. Despite its desire to acquire additional non- public information about Bally, Alliance has steadfastly declined and refused to enter into the standard confidentiality/stand- still agreement that Bally has requested in return. The agreement Bally proffered to Alliance is substantially identical to the agreement it proffered to WMS, and that was in fact signed by WMS before it obtained any non-public information about Bally. 18. Instead, Alliance claimed to be concerned that Bally did not truly want to enter into a major transaction, a fear it purported to retain even as events demonstrated Bally's seriousness. Accordingly, Alliance insisted on retaining its ability to "protect itself" and to make a hostile offer for Bally in certain circumstances. Bally has objected to this tack, noting both (i) that it is not customary for one company to seek the assistance of another company's directors in procuring non- public information needed to evaluate a possible transaction and obtain financing for that transaction and still preserve its option to go over the directors' heads; and (ii) that Alliance's insistence was inconsistent with its repeated representations that it could not, in any event, accomplish a hostile takeover. 19. At certain points in the negotiations, Rainwater took an active role, at one point acknowledging that Alliance's position on a stand-still agreement has been irrational, and pledging to cause Alliance to enter into a standard stand-still agreement. 20. At one dinner meeting, Rainwater and other Alliance representatives shook hands with Bally representatives on a deal pursuant to which Alliance would have paid $13.00 per -6- share for Bally. In addition, Rainwater promised to strengthen the balance sheet of the combined entity by providing a new equity investment of approximately $50 million. 21. The following day, however, after a formal presentation made to Bally's board, in which Rainwater stressed his strategic vision for the combined companies and his record as a successful investor, Rainwater advised Bally that he was not prepared to commit himself to such an investment. 22. On April 17, 1995, as Bally publicly announced, it entered into a letter of intent with WMS providing for a period during which Bally would consider no transactions other than one with WMS. That period expired 25 days after execution of the letter of intent, however, and although Bally announced it would continue to work toward a merger agreement with WMS, it confirmed, in response to an inquiry from Alliance, that the exclusivity period had ended. Not until several weeks later -- when Bally and WMS had virtually completed their negotiations -- did Alliance again propose a deal to Bally. 23. Even at that late date, Bally wanted to be sure that Alliance had every opportunity to present its position to Bally. To that end, a combination meeting/conference call was held involving the senior representatives of Bally and Alliance, including the chief executives of both companies, at which Alliance strenuously argued that its deal was in Bally's best interests. 24. One matter that was of great concern to Bally was the nature of Alliance's financing commitments -- especially given Alliance's history of losses and existing high leverage. Bally told Alliance that it anticipated that negotiations with WMS would soon reach fruition, and that Bally needed to know how firm or contingent Alliance's financing was in order to permit it rationally to compare the two proposals and not put the more secure one at risk. Originally, Alliance told Bally that it had two banks lined up, but refused to name them unless Bally agreed to pay Alliance $700,000 in the event no Alliance/Bally transaction occurred. Bally declined so to commit itself. 25. Thereafter, Bally learned the identity of Alliance's banks when Alliance publicly disclosed it in a misleading letter and press release that dramatically understated the conditional nature of the banks' commitments. Bally immediately asked to meet with the banks in order to assess their commitment and ascertain whether the banks were aware of and had considered certain specific due diligence issues that WMS had already considered and incorporated into its offer. Alliance -7- PAGE refused to permit such a meeting unless Bally permitted the banks at the same time to obtain such additional non-public information as they might desire. 26. Despite this unsettling uncertainty about Alliance's financing, when Bally's Board met on June 21, 1995, to consider the alternatives available to Bally, it decided to treat the Alliance proposal as if the needed financing were absolutely secure. Nonetheless, after extensive analysis and advice from experts, the Board concluded that the WMS proposal was superior to the Alliance proposal, financially and otherwise, and in the better interest of shareholders, and it voted unanimously (with one abstention) to execute a merger agreement with WMS. This was done immediately following the vote. 27. Thereafter, contradicting Alliance's assurances to Bally and to the public that its financing commitments were firm subject only to due diligence concerning Bally, the Schedule 13D filed by Alliance on June 28, 1995 and its exhibits revealed that the "commitments" were subject also to due diligence of Alliance itself and, more importantly, to Alliance's obtaining commitments from other sources for permanent financing to replace the financing in question. The WMS Merger Agreement ------------------------ 28. The agreement between Bally and WMS provides for the stockholders of Bally to receive for each outstanding share of Common Stock of Bally, 0.55 shares of Common Stock of WMS. 29. The agreement provides that prior to the consummation of the merger, Bally must either sell its German operations for net proceeds of at least $55 million or must recapitalize the German operations and distribute the equity of those operations to Bally stockholders in a manner that would permit Bally to be debt-free at the time of the merger with WMS. Bally's stockholders will be entitled to receive, in addition to the 0.55 shares of WMS stock, any amounts in excess of $55 million realized by Bally if the German operations are sold, or shares of the German operations if they are spun off. 30. The WMS merger agreement contemplates a Bally shareholder meeting in late October 1995 at which the shareholders will be asked to approve the merger and the sale or spinoff of the German operations, as well as to elect directors. It is anticipated that the merger will close in January 1996, after the expiration of a non-competition agreement to which Bally is party. -8- The Alliance Offer ------------------ 31. On July 25, 1995, Alliance announced that it would commence a tender offer for sufficient shares of Bally to give it a majority when added to the 9.3% it already owned. Alliance's announcement named the two banks that it said had "indicated they are interested" in financing the offer, "subject, among other conditions, to satisfactory due diligence." 32. Alliance further announced: In a follow-up merger of the two companies after the tender offer, each Bally Gaming share will be acquired in exchange for Alliance stock valued at $12.50 per Bally Gaming share. The exact number of Alliance shares to be exchanged for each Bally Gaming share will be determined by averaging the closing price of Alliance shares during a ten day trading period ending five trading days prior to the merger, subject to an appropriate collar. (emphasis supplied.) 33. The announcement further stated that Alliance had commenced litigation in Delaware to enjoin, among other things, progress on the merger agreement between Bally and WMS. In that connection, Alliance quoted its chief executive officer, Steve Greathouse, as saying: Our bid is clearly superior to the WMS bid, which was so hastily accepted last month by Bally Gaming's Board. It is unfortunate that we have had to go to such extraordinary lengths just so we can receive the same basic access to information as was given by Bally's Gaming Board to WMS, in order for us to consummate the transaction that is better for Bally Gaming shareholders. * * * We think we can enhance Bally Gaming's operations and growth, so we're interested in acquiring the company. At the same time, as one of the major shareholders in Bally Gaming, we're interested in having the company sold to the highest bidder. The -9- PAGE objective of electing independent directors will be to facilitate the highest offer for Bally Gaming's share, no matter whom it comes from. 34. On July 27, 1995, as it publicly announced on the same day, Alliance asked the Delaware Court to require Bally to hold promptly an election for directors and to order that such election "not be coupled with a vote of the proposed WMS Industries merger". In that connection, Alliance represented to the Court that it "absolutely" intended to conduct a proxy contest with respect to the election of Bally directors. It said nothing about conducting a consent solicitation. Upon information and belief, Alliance has solicited various shareholders of Bally to support its demand for due diligence of Bally, which is, in effect, a solicitation of consents or proxies by Alliance to support an Alliance slate of directors and/or a merger with Alliance. 35. On July 28, 1995, Alliance commenced its Offer by filing and disseminating the 14D-1/Proxy Statement. The Consent Solicitation ------------------------ 36. On August 8, 1995, Alliance publicly announced its intention to solicit the consent of Bally shareholders to elect a majority of Bally directors. Upon information and belief, it had been Alliance's intention for at least several weeks to conduct a consent solicitation. 37. The directors to be elected would be committed, inter alia, to permitting Alliance to conduct due diligence of Bally, and to accepting Alliance's Offer if they are "satisfied with Alliance's financing." While the new directors would also, according to Alliance, be committed to evaluate "any other offer or revised offer providing greater value to Bally stockholders", it is clear that they will not approve the merger with WMS if they conclude that Alliance has adequate financing. No other condition beyond financing to the directors' approval of the Alliance Offer was stated to exist. 38. Also on August 8, Alliance filed the Preliminary Consent Statement with the SEC and mailed the August 8 Letter soliciting consents to Bally shareholders. The Preliminary Consent Statement stated Alliance's intention of removing four of Bally's directors and replacing them with four "independent" directors (to be named later) pledged to a "program" of: -10- PAGE (i) permitting Alliance and its representatives to conduct a due diligence review of Bally; (ii) approving the Alliance Offer and taking action to expedite the consummation of the Offer and the proposed back-end merger, if they are "satisfied with the level of financial commitment provided by Alliance"; (iii) otherwise, resigning and permitting the remaining three Bally directors to proceed with the WMS merger; and (iv) evaluating and facilitating any "other offer or revised offer providing greater value to [Bally]'s stockholders". 39. The Preliminary Consent Statement stated that the Alliance slate also proposed to repeal certain unspecified Bally by-laws that "would adversely affect or impede" Alliance's program. Alliance conceded that it is unaware of any such by- laws, but darkly suggested that some may have been, or might in the future be, secretly adopted. 40. The Preliminary Consent Statement discussed the proposed back-end merger in the same terms as Alliance's July 25 announcement described above. The August 8 Letter summarized the program and claimed that the purpose of the consent solicitation was "to level the playing field." The Moratorium Agreement ------------------------ 41. On August 14, 1995, Bally, WMS and Alliance entered into an agreement (the "Moratorium") pursuant to which Alliance would not pursue implementation of its consent solicitation, or solicit proxies, until September 1, 1995. Alliance also agreed to extend its Offer until September 12, 1995, and the parties agreed to solicit neither tenders to the Offer nor rejections of the Offer until September 1, 1995. 42. The Moratorium also provided that Bally and WMS would not institute or threaten legal action against Alliance until September 1, 1995, and that in the event Bally or WMS instituted legal action on or after September 1, Alliance would raise no objection based on the delay. -11- PAGE 43. On August 25, 1995, pursuant to the Moratorium, Alliance extended the expiration date of its Offer to September 12, 1995. At the same time, Alliance announced that some 1.3 million shares of Bally stock had been tendered into the Offer. The September 1 Announcements ----------------------------- 44. On or about September 1, 1995, Alliance issued an announcement, filed an amendment to the 14 D-1/Proxy Statement and mailed a letter to shareholders that, in essence, conceded that the bridge facility it had previously touted as being a firm financing commitment was, in fact, no such thing. Alliance was now completely abandoning this facility (for which it had paid handsomely) and substituting for it loans from three totally new sources that were said to be really, truly firm this time -- not even dependent on due diligence. 45. The September 1 Announcements trumpeted that Alliance intended to close the Offer "immediately after regulatory approval is obtained, which Alliance anticipates will occur by the end of September", thus delivering "superior and immediate" value to Bally shareholders. Alliance added that it proposed to complete its back-end merger with Bally "by Thanksgiving." Alliance also extended its Offer until September 29, noting that approximately one million shares had been tendered into the Offer. 46. The September 1 Announcements also explained that, for the moment, Alliance did "not currently intend to proceed with its consent solicitation", but that it was "prepared to pursue its consent solicitation . . . if [Bally's directors] continue to oppose the Offer." 47. Finally, the September 1 Announcements contained a table that purported to show the superiority of the Offer to the WMS Merger on a variety of bases, including speed and certainty. -12- PAGE Misrepresentations and Omissions in the 14D-1/Proxy Statement and Related Documents -------------------------------------------------- Interests Behind Alliance ------------------------- 48. Section 9 of the 14D-1/Proxy Statement, "Certain Information Concerning the Purchaser and Alliance," disclosed that: Alliance may be deemed to be controlled by Kirkland Investment Corporation, a Delaware corporation ("KIC"), which holds a substantial amount of Alliance stock and warrants. KIC's principal business is acting as the general partner of Kirkland-Ft. Worth Investment Partners, L.P., a Delaware limited partnership engaged in making investments ("KFW"). On June 23, 1994, KIC was approved by the Nevada Commission (as defined in Section 15) to acquire control of Alliance and is deemed by the Nevada Commission to be a controlling person of Alliance. KIC currently has the right, pursuant to a stockholders agreement, to designate a majority of Alliance's board of directors. Joel Kirschbaum, a director of and consultant to Alliance, is the sole stockholder, officer and director of KIC. 49. Alliance has nowhere disclosed that the power (and money) behind KIC's investment in Alliance is Rainwater, who is upon information and belief a direct or indirect limited partner of KFW. Indeed, the Dallas Morning News has reported that Rainwater and KFW control Alliance through a $5 million investment. Upon information and belief, the other limited partners of KFW are friends and associates of Rainwater, and Rainwater's role at Alliance has been touted to Wall Street professionals. The statements in the 14D-1 are intentionally designed to conceal Rainwater's involvement in Alliance, as Alliance has informed Bally, because Rainwater is a part owner of the Texas Rangers baseball team, and major league baseball takes a dim view of baseball owners' having any ownership interest in any type of gambling enterprise. 50. During the 1994 Texas gubernatorial campaign of George W. Bush, Rainwater's position in both baseball and gambling became an issue. It was reported in the Dallas Morning -13- PAGE News that major league baseball was investigating a possible violation by Rainwater of baseball's ownership guidelines. 51. At that time, Rainwater professed that his interest in Alliance (then known as United Gaming) was "passive and small". However, in November 1993, Institutional Investor reported that Rainwater saw gambling as "one of the most interesting longterm businesses", and was planning "to build up United [Gaming], add to its capital in return for equity, and 'become a really large factor in this industry.'" More recently, in April 1995, Forbes reported that Rainwater's wife, Darla Moore, had been put "in charge" of "running" Rainwater's assets, and as part of that job, was "dismantling" Alliance. Rainwater has also told Bally that he is personally interested and involved in the Alliance approaches to Bally; he was present at a Bally board meeting where Alliance cannot consummate a hostile takeover of Bally. Bally's shareholders are entitled to know whether the principal behind Alliance's controlling shareholder is an active or passive investor, and what his role is in the Offer. 52. Moreover, given the substantial and key nature of Rainwater's investment in Alliance, Bally's shareholders are entitled to know whether Rainwater has plans to disinvest. During 1994, Rainwater was several times quoted as saying that if baseball ruled that his ownership interest in Alliance conflicted with his interest in the Rangers, he would divest himself of Alliance. This is nowhere disclosed in the 14D-1/Proxy Statement. Rainwater's role in Alliance also has a crucial impact on the likelihood of Alliance securing regulatory approval to acquire Bally (see below). Financing the Offer ------------------- 53. Section 10 of the 14D-1/Proxy Statement, "Source and Amount of Funds", contained the following: The amount of funds required to purchase 4,400,000 Shares pursuant to the Offer is $55,000,000. The Purchaser estimates that the total amount of funds required to purchase 4,400,000 Shares pursuant to the Offer, to refinance certain existing debt of [Bally] and to pay fees and expenses related to the Offer and the Proposed Merger will be approximately $175,000,000. These funds are expected to be provided from a combination of (i) up to $25,000,000 from available cash on hand of Alliance and (ii) $150,000,000 from senior secured borrowings by Alliance -14- PAGE pursuant to a senior bridge facility (the "Bridge Facility"). The Bridge Facility. Bankers Trust Company and Indosuez Capital (the "Banks") have furnished a letter dated June 15, 1995 expressing interest (the "Proposal Letter") in providing loans (the "Bridge Loans") under the Bridge Facility which are to be made available to Alliance in a principal amount of $75,000,000 each in connection with a tender offer for a number of Shares that (when added to the Shares already owned by Alliance) will constitute a majority of Shares on a fully diluted basis and a subsequent merger, on the general terms and conditions outlined in the summary term sheet attached to the Proposal Letter (the "Summary Term Sheet"). * * * The Proposal Letter provides that the commitment of the Banks to provide the Bridge Facility, if and when obtained, will contain certain conditions, including among others: (i) the Banks being satisfied with the completion of their due diligence with respect to [Bally] and their confirmatory due diligence with respect to Alliance (the Proposal Letter states that the Banks are satisfied with the results of their due diligence on Alliance to date);. . .(iv) the Banks being satisfied in their sole discretion with any arrangements regarding the permanent financing necessary to refinance the Bridge Facility. * * * The Banks have indicated that, as a condition to providing the Bridge Loans and depending on the outcome of their due diligence review of [Bally], they may require Alliance to obtain approximately $20,000,000 in equity financing. At the time Alliance sent the June 21 Letter described in Section 11, it had obtained a commitment for such financing conditioned on the transaction with [Bally] -15- PAGE being a negotiated transaction. Alliance, therefore, does not currently have a committed source for such equity financing. Alliance is highly confident, however, that it can raise the necessary equity if any is in fact required by the Banks after due diligence. (Emphasis supplied.) 54. The clear import of Alliance's public statements through August, including those in the 14D-1/Proxy Statement, was that Alliance had at the time assurances of sufficient financing to consummate the Alliance Offer. 55. A careful analysis of the disclosures, however, coupled with the statements made by Alliance to Bally concerning its inability to finance a hostile offer, revealed that there was no assurance at all of financing to consummate the Alliance Offer in its present, hostile form. 56. Although Alliance summarized the conditions to its being able to draw on the Banks' financing, it did not fully explain them or explain how unlikely they were to be satisfied. For example, Alliance did not clearly state that it was required to have arranged permanent financing to replace the proposed bridge financing before it could draw on the bridge financing (as set forth in the "Takeout Financing" section of the Banks' Summary Term Sheet in Exhibit (b) to the 14D-1/Proxy Statement), but only that "any" arrangements that exist must be satisfactory to the Banks. Alliance did not disclose even whether it had made any efforts to line up takeout financing, or what the results of such efforts had been. Finally, Alliance did not explain why it was "highly confident" that it would be able to raise $20 million in additional equity. 57. The result of all the foregoing was that, contrary to the impression the 14D-1/Proxy Statement sought to foster, there was no reasonable likelihood that Alliance would have the financing to consummate a hostile Offer. The September 1 Announcements in effect conceded that all the above was true with respect to the bridge facility described in the 14D-1/Proxy Statement by utterly abandoning the bridge facility in favor of completely new and different financing. 58. Given Alliance's history of hiding the ball with respect to its financing, shareholders and the markets may still justifiably be skeptical as to the true firmness of existing commitments, including whether Alliance has accurately described -16- PAGE to the new sources of financing the status of Bally indebtedness that will immediately come due should Alliance consummate the Offer (see below). The new financing is conditioned on, inter alia, there being no material adverse changes in Bally's financial condition. Financial Condition of Alliance/Bally ------------------------------------- 59. Given the financial information about Alliance and the Alliance Offer disclosed in the 14D-1/Proxy Statement -- $12.7 million of shareholder equity supporting $101 million of debt now, and an additional $65 million of debt to be incurred in the Offer at very high fees and interest -- and given that Alliance has flatly represented that its Offer and proposed back- end merger extend greater value to Bally shareholders than the WMS merger, it is crucial that Bally shareholders be given a full financial picture of the combined entity so that they can assess the likelihood of a merger ever taking place, the likely value of securities they would receive in such a merger, and the prospects of the company in which they would become shareholders. 60. Nonetheless, the 14D-1/Proxy Statement contained no pro forma financial statements for the combined companies, no projections of what such statements might look like, and no explanation of where the capital is to come from in order to permit the combined entity to go forward. The reason for this silence is that the financial condition of the combined companies would be disastrous. 61. In particular, Alliance nowhere addresses the fact that, pursuant to the Indenture governing approximately $40 million in outstanding Bally notes, the acquisition of 40% of Bally's voting stock by any person -- such as Alliance's consummation of its Offer -- would obligate Bally immediately to offer to purchase its notes from their holders within sixty days at 101% of the notes' principal amount plus accrued but unpaid interest. Upon information and belief, the holders of the notes consider that consummation of the Offer would trigger Bally's obligation, and intend to enforce the obligation and accept the offer to purchase the notes. Alliance says nothing of how Bally will meet this financial burden once Alliance has acquired a majority of its stock. Alliance's Plans for Bally -------------------------- 62. Closely related to the issue of the financial condition of the combined company is the crucial question of Alliance's ability and intention to consummate a back-end merger, -17- PAGE and the likely value of the securities to be offered to Bally shareholders in such a merger. 63. Although its press release stated that the back- end merger "will" take place, the 14D-1/Proxy Statement was not so positive. In section 12, Alliance stated: Alliance currently intends, as soon as practicable following consummation of the Offer, to propose and seek to consummate the Proposed Merger. The purpose of the Proposed Merger is to acquire all Shares not tendered and purchased pursuant to the Offer or otherwise. Pursuant to the Proposed Merger, each then outstanding Share (other than Shares owned by the [Bidder], Alliance or any of their subsidiaries, Shares held in the treasury of [Bally], and Shares owned by stockholders who perfect any available appraisal rights under the DGCL) would be converted into the right to receive an amount in shares of Alliance Common Stock (valued at their average closing price for a period of ten NNM trading days ending five NNM trading days prior to the Proposed Merger, subject to an appropriate collar) equal to the Offer Price. Depending upon a number of factors, Alliance may consider substituting cash in an amount equal to the Offer Price for some or all of the Proposed Merger consideration of Alliance Common Stock. * * * The precise timing and other details of any merger or other business combination transaction will depend on a variety of factors such as general economic conditions and prospects, the future prospects, asset value and earnings of [Bally], the number of Shares acquired by the [Bidder] pursuant to the Offer or otherwise, the receipt of the necessary approvals or consents of gaming regulators and the statutory requirements described above. The [Bidder] can give no assurance that a merger or other business combination will be proposed or that, if it is proposed, it will not be delayed or abandoned. The [Bidder] expressly reserves the right not to propose any merger or -18- PAGE similar business combination involving the [Bidder], or to propose a merger or other business combination on terms other than those set forth herein, and its ultimate decision could be affected by information hereafter obtained by the [Bidder], changes in general economic or market conditions or the business of Bally or other factors. (Emphasis supplied.) 64. Alliance has not told Bally shareholders whether the proposed merger "will", or only "may", take place. Moreover, given the woeful financial condition of a combined Alliance/Bally entity, Alliance owes it to the Bally shareholders to explain the "appropriate collar" it says will be applied to the valuation of Alliance stock to be offered to Bally shareholders if the back- end merger does occur. Alliance has not disclosed that either the collar will prevent the issuance of sufficient Alliance stock to make that stock worth $12.50 per share, or so much Alliance stock will have to be issued to Bally shareholders as to have an overwhelmingly dilutive effect. 65. In its August 8 announcement of its consent solicitation, moreover, Alliance promised that if its slate of directors was elected, Alliance would not reduce the "$12.50 offer price or the percentage of cash it is offering." Alliance did not waive its right to abandon, or modify the terms of, the proposed back-end merger. 66. In the September 1 Announcements, Alliance represented that it expected "to complete the merger" by Thanksgiving, but said nothing of the terms other than to repeat that there would be "an appropriate collar". 67. Alliance well knows that the confusion and uncertainty it is causing with respect to the likelihood and terms of a back-end merger with Bally will cause Bally shareholders to react like victims of the classic game of Prisoners' Dilemma: even knowing that all would be better off if they eschewed the Offer in order to accept the WMS merger, each shareholder will be concerned that other shareholders might seek to obtain $12.50 in immediate cash for all their shares by tendering their stock to Alliance. (This can happen only if sufficient shares are tendered to give Alliance a majority, but not more; if more shares than needed are tendered, then the tendered shares will be accepted on a pro-rata basis, with the unbought tendered shares returned to await the back-end merger.) Fearful of obtaining only whatever consideration Alliance offers -19- PAGE in a back-end merger if enough stock is tendered to give Alliance control, each shareholder will feel coerced to tender even if he regards the WMS merger as superior. 68. Alliance has been particularly waffling about another issue concerning Alliance's plans: its intention to conduct a contest for election of Bally directors. Also in section 12, the 14D-1/Proxy Statement stated: If the [Bidder] acquires, through the Offer or otherwise, voting power with respect to at least a majority of the outstanding Shares, it would have sufficient voting power to effect the Proposed Merger without the vote of any other stockholder of [Bally]. If, following the consummation of the Offer, a majority of the current members of the Board of Directors of [Bally] have not previously been replaced at an annual meeting or otherwise removed and do not either resign and cause nominees of the [Bidder] to be elected to fill the resulting vacancies or approve the Proposed Merger, then the [Bidder] intends to act by written consent to remove the members of the Board of Directors and to cause nominees of the [Bidder] to be elected to fill the resulting vacancies who intend to approve the Proposed Merger as soon as practicable thereafter, subject to the fiduciary duties they would have as directors of [Bally]. If as a result of issuances of additional Shares the [Bidder] does not obtain in the Offer voting power with respect to a majority of the outstanding Shares, the [Bidder] would nonetheless seek to take the foregoing steps. * * * Except as described in this Offer to Purchase, Alliance and the [Bidder] have no present plans or proposals that would result in (i) an extraordinary corporate transaction, such as a merger, consolidation, reorganization or liquidation involving [Bally] or any of its subsidiaries, (ii) a sale or transfer of a material amount of assets of [Bally] or any of its subsidiaries, (iii) any material change in the present -20- PAGE capitalization or dividend policy of [Bally], (iv) any other material change in [Bally]'s corporate structure or business, (v) causing a class of securities of [Bally] to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association or (vi) a class of equity securities of [Bally] becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act. (Emphasis supplied.) This was a flat statement that if Alliance obtained majority voting power in any way, it would vote to effect the merger with Bally, and that it had no other plans with respect to the sale of Bally. 69. That statement was totally inconsistent with (i) Alliance's press release statement that it intended to seek to elect independent directors to facilitate the sale of Bally at the highest possible price, no matter to whom; (ii) Alliance's similar representation in court on July 27, 1995; and (iii) the statement attributed to Alliance in the July 31, 1995 Mergers & Acquisitions Report to the effect that the Offer was really intended to point up the seriousness of Alliance's planned proxy fight which would result, if successful, in Bally's being put "up for sale to the highest bidder." Moreover, of course, the 14D- 1/Proxy Statement said nothing about Alliance's plans to conduct a consent solicitation to elect Bally directors, or the additional variations as to what those directors would be committed to do about the Alliance Offer or the WMS merger. Finally, in its September 1 Announcements, Alliance confusingly explained that it did not intend to conduct a consent solicitation, but that it might if Bally continued to oppose the Offer. Since nothing about the Offer has changed except (possibly) its financing, and since Bally has already explained that it prefers the WMS merger, Alliance must explain to Bally's shareholders what its intentions are with respect to a consent and/or proxy solicitation. History of Negotiations ----------------------- 70. Alliance's version of the history of its negotiations with Bally and its alleged efforts to obtain due diligence of Bally was set forth at length in section 11 of the 14D-1/Proxy Statement, "Contacts and Transactions with [Bally]; -21- PAGE Background of the Offer". The brunt of the story was that Alliance had continually sought, and had been continually denied, access to confidential information about Bally on a "level" basis with WMS. The same thrust appeared in Alliance's press releases. 71. The commentary and self-serving correspondence set forth in the 14D-1/Proxy Statement were false and misleading, and distorted the true history of the negotiations as set forth above. Obstacles to a Rapid Alliance/Rally Combination ----------------------------------------------- 72. Alliance represented in two letters quoted in section 11 of the 14D-1/Proxy Statement that it believed that it had a timing advantage over the WMS merger because (i) the cash portion of the Alliance Offer could be consummated immediately and (ii) Alliance would quickly obtain regulatory approval. These representations were repeated in the September 1 Announcements, in which Alliance claimed it could consummate the Offer by the and of September and the back-end merger by Thanksgiving. This is a false and misleading representation. 73. First, Alliance's purported ability to consummate the cash Offer immediately is premised on its analysis of a non- competition agreement to which Bally is a party, which analysis appeared in section 15 of the 14D-1/Proxy Statement, "Certain Legal Matters": Non-competition covenant. Alliance understands that [Bally] is a party to an agreement with Bally Entertainment Corporation ("Entertainment"), its former parent, that contains a provision requiring that [Bally] not (and requiring [Bally] to cause its affiliates (as defined) not to) engage in any business in which Entertainment or certain related parties are engaged. Following consummation of the Offer, Alliance believes that it will not become, and should not be deemed, an affiliate of [Bally] for this purpose. Alliance's casino operations (but not its route operations) are businesses in which Entertainment is engaged. The non- competition covenant expires an January 8, 1996, but contains a provision purporting to postpone the expiration for any period during which [Bally] is in violation of the covenant. Even if Alliance were deemed an -22- PAGE affiliate for this purpose following consummation of the Offer, Alliance believes that enforcement of the covenant against [Bally] in respect of Alliance's casino operations would be unreasonable and contrary to the public interest. Accordingly, Alliance does not believe the covenant would be interpreted to apply with respect of the Offer or the Proposal Merger. 74. The major error in this analysis is that Alliance stated no basis for its contentions that it would not be deemed an affiliate of Bally upon acquiring 51% of Bally's stock -- the agreement with Bally Entertainment defines "affiliate" to include just such a situation -- or that the public interest would prevent enforcement of the agreement. 75. The agreement would thus bar Alliance from consummating the Alliance Offer prior to January 8, 1996, or longer if Alliance caused Bally to violate it by acquiring 51% of Bally stock pursuant to the Offer. 76. Alliance has told Bally that it proposes to ignore the agreement and let Entertainment sue over the violation. What Alliance has failed to explain is that Entertainment is a substantial customer of Bally and the licensor of its name. Regardless of the enforceability of the agreement, therefore, it would be a very risky proposition to anger Entertainment. 77. As to regulatory approvals, Alliance set forth a lengthy explanation of the process in section 15 of the 14D1/Proxy Statement. What it did not set forth is (i) the need for Alliance to obtain prior approval before it accepts consents from enough Bally shareholders to obtain control of Bally, or (ii) the embarrassment and delay that will be caused by the need to reveal to regulators the role being played in Alliance by Rainwater and possibly others behind Alliance and its new sources of financing, and in particular the fact that Rainwater is assuming an enlarged role the gambling industry, and the potential conflict with his baseball interests, or (iii) the likelihood that regulators will reject an Alliance/Bally combination because of the financial instability of the combined entity, as set forth above. Upon information and belief, Alliance has previously concealed from regulators in various states that Rainwater is an active principal behind Alliance's controlling shareholder, but has instead represented that he is a passive investor and that he has no intent of having any active role in management decisions. Indeed, the Nevada Gaming Commission has ordered that Rainwater have no involvement in the -23- PAGE running of Alliance without prior approval. The disclosure of Rainwater's active role to the regulators will cause substantial delays in the approval process. Similarly, the unstable financial condition of Alliance and Bally after consummation of the Offer including the immediate obligation to repurchase $40 million in Bally notes), let alone after a merger, will cause delay in the regulatory approval process and possibly ultimate rejection. 78. Moreover, compliance by Alliance with federal securities laws, SEC rules and applicable state laws will render it possible for Alliance to affect a back-end merger with Bally "by Thanksgiving". 79. For all of these reasons, Alliance's representa- tions that it could get value to Bally's shareholders quickly were false and misleading. The WMS Merger -------------- 80. Relative speed of accomplishment is only one ground on which Alliance has falsely described its Offer as superior to the WMS merger. Detailed comparisons appeared in two letters quoted in section 11 of the 14D-1: We believe our offer is clearly superior to the WMS offer: 1. The price we are offering represents a substantial premium over your current market price and is higher than the value of the WMS offer. 2. The consideration is largely cash, giving your stockholders more certainty as to the value of our offer. 3. Our offer is not conditioned on disposition of substantial assets. 4. We believe our offer has a significant timing advantage over the WMS offer. Our transaction could be promptly completed in two stages to get the cash portion to your stockholders quickly. Also, we are well known to your regulators, are already licensed in Nevada and believe that we could quickly obtain the needed regulatory approvals. -24- PAGE 5. We are prepared to take appropriate steps to foster continuity of management. 6. We are familiar with BGII and its industry and believe we could quickly finalize a definitive agreement. * * * To turn now to the benefits of our offer: -- the price is higher. -- the consideration is largely cash. -- the cash portion of our deal could be done separately before a merger, speeding the delivery of value to your stockholders. -- the exchange ratio for our deal would not be set until the time of the merger, protecting your stockholders against the market risk they have been suffering with WMS. -- we are well known to your regu- lators and are confident we can get regulatory approval promptly. -- we believe that signing an agree- ment in principle with us would help you avoid a conflict between doing what is best for your stockholders and hastily accepting an inferior offer in order to forestall the embarrassment of possible imminent regulatory sanctions in New Jersey. -- our deal does not involve asset sales or other dispositions of questionable feasibility. -- we can bring advanced technology to bear on Bally's business in a way that will create significant value for both companies' shareholders while keeping your management team and momentum intact. -25- PAGE 81. Similar comparisons appeared in the September 1 Announcements. 82. The falsity of the timing comparison has been set forth above. Many of the other comparisons are equally false and misleading: (i) The price of the Alliance offer in not higher than that of the WMS merger when the following factors are taken into consideration: -- the low likely value of any back-end merger with Alliance (given the collar); -- the rising price of WMS stock ($22.75 as of September 1, 1995); and -- the likelihood that Bally shareholders will receive cash from proceeds of the sale of the German operations in excess of $55 million, which together with the higher price of WMS stock means the Bally shareholders will receive more than $12.50 per share. (ii) The fact that the Alliance Offer's consideration is largely cash does not make the Alliance Offer superior because: -- Bally shareholders will likely receive some cash in the WMS merger as well; -- any Bally shareholder who wishes to receive cash can sell highly liquid WMS stock on the New York Stock Exchange; and -- the structure of the consideration of the WMS merger makes the transaction largely tax-free to Bally shareholders, as contrasted with the fully taxable Alliance Offer. (iii) The "advantage" of not setting the exchange ratio for the Alliance back-end merger until the time of the merger is offset by: -- the rising price of WMS stock; -- the low value that Alliance stock will likely have once the companies are combined; -26- PAGE -- the collar and the extraordinary dilution that would result from the issuance of new Alliance shares; and -- the probability that no back-end merger with Alliance will ever take place, or that one other than the Proposed Merger will take place. (iv) Alliance knows full well that the sale of the German operations is not "of questionable feasibility". 83. Each and every one of the foregoing misstatements and omissions is material and was made knowingly by Alliance. Misrepresentations and Omissions in the Preliminary Consent Statement and August 8 Letter ------------------------------------------------- 84. The Preliminary Consent Statement repeated, and the August 8 Letter summarized, the misrepresentations and omissions of the 14D-1/Proxy Statement and Alliance's other public statements on the subjects of the interests behind Alliance, the financing for the Alliance Offer, the financial condition of a combined Alliance/Bally entity and the history of negotiations. 85. In addition, the following elements of disinformation were added to the mix by the Preliminary Consent Statement and the August 8 Letter, and remain of importance since Alliance has reserved its right to make a consent solicitation in certain circumstances: -- The Preliminary Consent Statement, like Alliance's July 25 announcement but unlike the 14D-1/Proxy Statement, did not contain a reservation of rights to abandon or modify the terms of the proposed back-end merger. This added to the market's confusion about whether the back-end merger will, or may, or never will take place, and increased the coercive effect of the Alliance Offer. -- Since the Alliance slate's program committed it to approve the Alliance Offer and proposed merger, subject only to financing, it is particularly important that Alliance provide sufficient information about the finances of the combined companies to permit an assessment of the viability of that entity. -27- PAGE But the Preliminary Consent Statement was devoid of such information. -- The program provided that either the newly- elected directors would be satisfied with the financing for the Alliance Offer, in which case they would accept and facilitate the Offer, or they would not be satisfied, in which case they would resign. This division of the universe of possibilities left no room for the consideration of facilitation of "other" offers for Bally, which the newly- elected directors were also somehow committed to undertake. Alliance must explain whether the directors will accept the Alliance offer subject only to financing or whether there are other circumstances in which they might reject the Offer. -- In speaking of "other" or "revised" offers that might provide "greater value" to Bally shareholders, it is clear that Alliance meant to exclude the WMS merger (which is not an "other" or "revised" offer). However, the Preliminary Consent Statement did not disclose that the WMS merger is, for the reasons stated above, at least not inferior to the Alliance Offer. -- Indeed, even more significantly, the Preliminary Consent Statement barely recognized the existence of the WMS merger, and said nothing whatsoever about its terms. It is impossible for any Bally shareholder rationally to decide whether to take a step virtually certain to lead to the acceptance of the Alliance Offer without being fully advised about the single alternative currently available, the WMS merger. -- The Preliminary Consent Statement attempted to foster a sense of suspicion of the present Bally board by falsely intimating that that board might secretly have adopted by-law amendments designed to entrench itself, when Alliance knew full well that the board had taken no such action. -- The Preliminary Consent Statement explained that Alliance did not believe that its -28- PAGE solicitation of sufficient consents to give it control of Bally would be an "acquisition of control" for regulatory purposes, and thus require prior approval, but it did not disclose that this belief was without basis in fact or law. -- The August 8 Letter explicitly and falsely stated that the "offer from WMS" was "lower" than the Alliance Offer, but gave no details at all about what the offer from WMS is. 86. Each and every one of the foregoing misstatements and omissions is material and was made knowingly by Alliance. FIRST CLAIM FOR RELIEF ---------------------- 87. Bally repeats and realleges each and every allegation of paragraphs 1 through 86 of this Complaint as if fully set forth herein. 88. Section 14(d) of the Exchange Act requires that tender offerors like Alliance file with the SEC a statement containing the information required by SEC rules. Rule 14d-3 thereunder requires that the statement be on Schedule 14D-1. Rule 14d-100 contains detailed filing instructions for Schedule 14D-1, which require the offeror to set forth fully and accurately, inter alia: (i) Item 2: The identity and background of all persons who control the offeror. (ii) Item 4: The source and amount of all funds to be used in the offer. (iii)Item 5: The purpose of the offer and all plans the offeror has for material changes in the ownership, control, structure or business of the target. (iv) Item 10: Additional information, including such additional material information as may be necessary to make the required statements, in light of the circumstances in which they are made, not materially misleading. 89. By reason of the aforesaid material misstatements and omissions, defendants have knowingly violated Section 14(d) and Rules 14d-3 and 14d-100 thereunder. -29- PAGE 90. If defendants are not preliminarily and permanently adjoined from violating the law, and from proceeding with its Offer without making corrective disclosures, Bally and its shareholders will suffer irreparable injury in that shareholders will be forced to make investment decisions concerning their Bally stock without full and adequate information. 91. Bally has no adequate remedy at law. SECOND CLAIM FOR RELIEF ----------------------- 92. Bally repeats and realleges each and every allegation of paragraphs 1 through 86 of this Complaint as if fully set forth herein. 93. Section 14(e) of the Exchange Act makes it unlawful for a tender offeror like Alliance to make any untrue statement of material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive or manipulative acts or practices in connection with its offer. 94. By reason of the aforesaid material misstatements and omissions, and the fact that the Alliance Offer is illusory, defendants have knowingly violated Section 14(e). 95. If defendants are not preliminarily and permanently enjoined from violating the law, and from proceeding with its Offer without making corrective disclosures, Bally and its shareholders will suffer irreparable injury in that shareholders will be force to make investment decisions concerning their Bally stock without full and adequate information. 96. Bally has no adequate remedy at law. THIRD CLAIM FOR RELIEF ---------------------- 97. Bally repeats and realleges each and every allegation of paragraphs 1 through 86 of this Complaint as if fully set forth herein. 98. Section 14 (a) of the Exchange Act prohibits proxy solicitation (including consent solicitation) in contravention of rules adopted thereunder by the SEC. Rule 14a-3 thereunder requires that no person may solicit proxies or consents without -30- PAGE first furnishing to those solicited a proxy statement containing the information specified in Schedule 14A. Rule 14a-5 sets forth details concerning the presentation of information in the proxy statement. Rule 14a-6 requires preliminary filing of proxy statements with the SEC except in certain circumstances. Rule 14a-9 prohibits solicitations of proxies or consents by means of any false or misleading statement. Rule 14a-101 sets forth detailed instructions concerning Schedule 14A. 99. By reason of the facts that, as aforesaid, defendants' purported Offer, their contacts with certain Bally shareholders, their Preliminary Consent Statement and their August 8 Letter constitute solicitations of consents with respect to action that involves both the election of directors and a merger; defendants had at the relevant times neither furnished to those solicited nor filed with the SEC the required proxy statements; and the 14D-1/Proxy Statement, Preliminary Consent Statement and August 8 Letter to shareholders are false and misleading, defendants have knowingly violated Section 14(a) and Rules 14a-3, 14a-5, 14a-6, 14a-9 and 14a-101 thereunder. 100. If defendants are not preliminarily and permanently enjoined from violating the law, and from proceeding to solicit consents until they have complied with the law, Bally and its shareholders will suffer irreparable injury in that shareholders will be forced to make investment decisions concerning their Bally stock without full and adequate information. 101. Bally has no adequate remedy at law. WHEREFORE, Bally demands judgment against defendants as follows: I. On the First Claim for Relief, an order preliminarily and permanently enjoining defendants and all those in active concert and participation with them from violating Section 14(d) of the Exchange Act and Regulation 14D thereunder, and from proceeding in any way with the Alliance Offer until they have made adequate corrective disclosures. II. On the Second Claim for Relief, an order preliminarily and permanently enjoining defendants and all those in active concert and participation with them from violating Section 14(a) of the Exchange Act, and from proceeding in any way with the Alliance Offer until they have made adequate corrective disclosures. -31- PAGE III. On the Third Claim for Relief, an order preliminarily and permanently enjoining defendants and all those in active concert and participation with them from violating Section 14(a) of the Exchange Act and Regulation 14A thereunder, and from soliciting any consent or proxy from any Bally shareholder until they have complied with the law. IV. Awarding Bally the costs of this suit, including reasonable attorneys' fees. V. Awarding Bally such other and further relief as may to the Court seem just and proper. POTTER ANDERSON & CORROON By__________________________________ OF COUNSEL: Michael D. Goldman (#268) Stephen C. Norman (#2686) SHEREFF, FRIEDMAN, HOFFMAN Michael A. Pittenger (#3212) & GOODMAN, LLP 350 Delaware Trust Building 919 Third Avenue Wilmington, Delaware 19801 New York, NY 10022 (302) 984-6000 (212) 758-9500 Attorneys for Plaintiff Dated: September 5, 1995 -32- EX-99.4EXHIBIT5.4 5 ================================================================= UNITED STATED DISTRICT COURT Southern District of New York ------------------------- --------------------------- WMS INDUSTRIES INC., SUMMONS IN A CIVIL ACTION Plaintiff, CASE NUMBER: v. ALLIANCE GAMING CORPORATION and BGII ACQUISITION CORP., JOEL KIRSCHBAUM, STEVEN GREATHOUSE, ANTHONY L. DICESARE, CRAIG FIELDS, DAVID ROBBINS, ALFRED W. WILMS AND JOHN DOES 1-5. Defendants. TO: (Name and Address of Defendant) Alliance Gaming Corporation BGII Acquisition Corp. 4380 Boulder Highway 4380 Boulder Highway Las Vegas, Nevada 89121 Las Vegas, Nevada 89121 See annexed schedule for additional defendants. YOU ARE HEREBY SUMMONED and required to file with Clerk of this Court and serve upon PLAINTIFF'S ATTORNEY (name and address) Arthur M. Handler, Esq. (AH0693) BURNS HANDLER & BURNS LLP 220 East 42nd Street, Suite 3000 New York, New York 10017 (212) 687-1300 an answer to the complaint which is herewith served upon you, within 20 days after service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint. /s/ James M. Parkson September 5, 1995 _________________________________ ______________________ CLERK DATE _________________________________ BY DEPUTY CLERK PAGE SCHEDULE TO SUMMONS ------------------- To: (Name and Address of Defendant) Joel Kirschbaum c/o Alliance Gaming Corporation 4380 Boulder Highway Las Vegas, Nevada 89121 Steven Greathouse c/o Alliance Gaming Corporation 4380 Boulder Highway Las Vegas, Nevada 89121 Anthony L. DiCesare c/o Alliance Gaming Corporation 4380 Boulder Highway Las Vegas, Nevada 89121 Craig Fields c/o Alliance Gaming Corporation 4380 Boulder Highway Las Vegas, Nevada 89121 David Robbins Kramer Levin Naftalis Nessen Kamin & Frankel 919 Third Avenue New York, New York 10022 Alfred W. Wilms c/o Alliance Gaming Corporation 4380 Boulder Highway Las Vegas, Nevada 89121 PAGE Arthur M. Handler (AH 0693) BURNS HANDLER & BURNS LLP Attorneys for Plaintiff 220 East 42nd Street, Suite 3000 New York, New York 10017 (212) 687-1300 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - X WMS INDUSTRIES INC., : COMPLAINT Plaintiff, --------- : - against - 95 Civ. 7710 (JSM) : ALLIANCE GAMING CORPORATION, BGII ACQUISITION CORP., JOEL : KIRSCHBAUM, STEVEN GREATHOUSE, ANTHONY L. DICESARE, CRAIG : FIELDS, DAVID ROBBINS, ALFRED W. WILMS AND JOHN DOES 1-5. : Defendants : - - - - - - - - - - - - - - - - - - X Plaintiff, WMS Industries Inc. ("WMS"), by its attorneys, Burns Handler & Burns LLP, for its complaint in this action respectfully alleges: Nature of Action ---------------- 1. This action seeks a preliminary and permanent injunction against the tender offer of defendants Alliance Gaming Corporation ("Alliance") and its wholly owned subsidiary BGII Acquisition Corp. ("BAC") to enjoin and prevent continuing and threatened violations by defendants of Sections 14(d) and (e) of Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. Section 78n(d) and (e), Regulation 14D promulgated under such Act by the Securities and Exchange Commission (the "SEC"), and state common and statutory law. These violations were and are being committed by defendants in furtherance of a conspiracy between and among defendants and others with the object of, among other things, (a) inducing stockholders to tender shares of Bally Gaming International, Inc. ("Bally Gaming") to defendants; (b) unlawfully obtaining control of the management and valuable assets of Bally Gaming; and (c) depriving WMS of the rights and benefits of its contractual agreement of merger with Bally Gaming dated as of June 21, 1995 (the "Merger Agreement"). PAGE 2. The defendants and others acting in concert with them have issued and disseminated untrue statements of material fact or have omitted to state material facts necessary to make statements made, in the light of the circumstances under which they are made, not misleading. Such persons have issued and disseminated false and misleading statements into the marketplace concerning defendants' tender offer for shares of Bally Gaming so as to mislead Bally Gaming stockholders and the public into tendering Bally Gaming shares to defendants and inducing such stockholders to thereby cause disapproval of the Merger Agreement between Bally Gaming and WMS. Defendants' tender offer is so materially deficient that no shares of Bally Gaming tendered in response to such offer may be lawfully acquired. 3. The defendants and those acting in concert with them have illegally and improperly interfered with WMS's Merger Agreement with Bally Gaming and have sought unlawfully to mislead Bally Gaming stockholders and the public regarding the relative economic benefits of the Merger Agreement as compared to defendants' tender offer. 4. By means of the aforesaid misrepresentations, omissions and illegal acts, defendants are seeking to compel Bally Gaming stockholders to make an immediate investment decision to tender their Bally Gaming shares to defendants, without defendants' compliance with the federal securities and other laws to the detriment of Bally Gaming stockholders, Bally Gaming and WMS. Defendants have by press release dated September 1, 1995, announced the extension of their tender offer to September 29, 1995. 5. Defendants' illegal acts will cause irreparable harm unless enjoined, since among other things, if the transaction proposed by defendants is consummated, it would result in a merger of Bally Gaming and the disappearance of Bally Gaming as an independent publicly owned entity. Jurisdiction and Venue ---------------------- 6. Jurisdiction of this action is predicated upon Section 27 of the 1934 Act, 15 U.S.C. Section 78aa, and involves a federal question, 28 U.S.C. Sections 1331 and 1337. Acts and transactions constituting violations hereinafter alleged took place in this District. Jurisdiction for the non-federal claims hereinafter alleged is based on the principle of pendent jurisdiction. Venue is proper within this district pursuant to 28 U.S.C. Section 1391(b) and 15 U.S.C. Section 78aa. -2- PAGE The Parties ----------- 7. Plaintiff WMS was and still is a corporation organized and existing under the laws of the State of Delaware with a principal office at 3401 North California Avenue, Chicago, Illinois. WMS is engaged in the design, manufacture and sale of coin-operated amusement games, video lottery terminals and gaming devices, the design and sale of home games and the ownership and operation of hotels and casinos in Puerto Rico. 8. Upon information and belief, defendant Alliance is a Nevada corporation with its principal place of business at 4380 Boulder Highway, Las Vegas, Nevada. Alliance operates gaming machines in Nevada and Louisiana, owns casinos in Mississippi and Nevada and develops gaming machines for its own use. 9. Upon information and belief, defendant BAC, a Delaware corporation, is a wholly owned subsidiary of defendant Alliance, with a principal office in Nevada. Upon information and belief, BAC was formed to acquire Bally Gaming and has not conducted any other activities since its organization. 10. Defendants Joel Kirschbaum, Steven Greathouse, Anthony L. DiCesare, Craig Fields, David Robbins and Alfred W. Wilms are each directors of Alliance. 11. Upon information and belief, Joel Kirschbaum is also the owner of Kirkland Investment Corp., which is the general partner of Kirkland-Fort Worth Investment Partners, L.P., which upon information and belief, controls approximately 11% of the outstanding shares of Alliance common stock. 12. John Does 1-5 are additional persons whose identity is presently unknown who authorized, directed and participated in the wrongful acts of the defendants set forth herein. Upon ascertaining the identity of such persons, the complaint will be amended to add them as parties defendant. STATEMENT OF FACTS ------------------ The Bally Gaming Negotiations ----------------------------- 13. On information and belief, Bally Gaming is a Delaware corporation with its principal place of business at 6601 South Bermuda Road, Las Vegas, Nevada. Bally Gaming is engaged -3- PAGE in the design and manufacture of gambling machines, including slot machines and video poker equipment. Bally Gaming is the second largest manufacturer of gaming devices in the United States, with approximately 15% of the market. Bally Gaming shares are traded in the over-the-counter market and prices are quoted on the Nasdaq National Market. There are presently outstanding approximately 10,750,000 shares of Bally Gaming common stock. 14. On information and belief and as publicly disclosed by Bally Gaming, representatives of Alliance and of Bally Gaming participated in extensive meetings during 1993 and 1994 in contemplation of a potential transaction between the two companies. In the course of these discussions, Bally Gaming requested and Alliance refused to sign a confidentiality and standstill agreement required by Bally Gaming which would have permitted Alliance to have access to certain non-public information of Bally Gaming, sometimes referred to as "due diligence information." 15. On April 17, 1995, Bally Gaming announced publicly that it had entered into a letter of intent with WMS for a merger between WMS and Bally Gaming. 16. As part of the letter of intent, WMS agreed to Bally Gaming's terms for a confidentiality and standstill agreement, which terms, upon information and belief, had been refused by Alliance, and WMS was then given access to certain Bally Gaming due diligence information. 17. After April 17, 1995 and during the months of April, May and June, 1995, WMS and Bally Gaming conducted negotiations towards a merger agreement. 18. On June 19, 1995, Alliance, by a letter to the Board of Directors of Bally Gaming and a related press release, announced that it was willing to pay $12.50 in a combination of cash and stock for each share of outstanding common stock of Bally Gaming. 19. Upon information and belief and as publicly disclosed by Bally Gaming, with respect to Alliance's offer, representatives of Bally Gaming raised concerns regarding the nature of Alliance's financing commitments, which appeared questionable given Alliance's history of losses and existing high leverage. Such concerns were underscored by the Schedule 13D filed by Alliance with the SEC on June 28, 1995, which revealed that its financing "commitments" were still subject to, among other things, due diligence of Alliance itself and to Alliance's -4- PAGE obtaining commitments from other sources for permanent financing to replace the financing in question. 20. Upon information and belief, Bally Gaming's Board of Directors met on June 21, 1995, and after extensive analysis and advice from experts (including a fairness opinion with respect to the WMS proposal from Ladenburg Thalmann & Co., Inc. ("Ladenburg"), Bally Gaming's financial advisor), the Board concluded that the WMS merger proposal was superior to the Alliance proposal, financially and otherwise, and in the better interest of Bally Gaming stockholders. The Bally Gaming Board of Directors approved the Merger Agreement with WMS and recommended that the Merger Agreement and the other transactions contemplated thereby be submitted to Bally Gaming's stockholders for their approval. 21. On June 20, 1995, the Board of Directors of WMS approved the WMS/Bally merger and the other transactions contemplated thereby and recommended approval and adoption of the Merger Agreement by the WMS stockholders. 22. On June 21, 1995, following the aforesaid meeting of Bally Gaming's Board of Directors, WMS and Bally Gaming executed the Merger Agreement, which provided that Bally Gaming be merged with WMS. 23. On June 22, 1995, WMS and Bally Gaming issued a joint press release announcing the Merger Agreement, which stated, inter alia: The Boards of both companies have concluded that the combination of WMS and Bally Gaming's domestic gaming machine business creates a powerful competitive force in the gaming industry. They believe that in combining these two companies, the strength of each partner is enhanced. In that press release, the Chairman of the Board of Bally Gaming stated: "After carefully reviewing the opportunities created by a combination with WMS and carefully evaluating the merits of the alternatives for the Company's future, the Board of our Company concluded that this business combination was in the best interest of our stockholders." The Merger Agreement -------------------- 24. Pursuant to the terms of the Merger Agreement, stockholders of Bally Gaming will receive 0.55 shares of common -5- PAGE stock of WMS for each outstanding share of common stock of Bally Gaming, plus additional consideration from the sale of Bally Gaming's German operations to the extent such sale price exceeds $55 million net. 25. As of September 5, 1995, given a closing price of $23.50 per share of WMS common stock and the fact that Bally Gaming has received a preliminary bid of $60 million for the German operations, the value of the Merger Agreement to a Bally Gaming stockholder is approximately $13.37 per share. Alliance's Hostile Tender Offer ------------------------------- 26. On July 25, 1995, more than a month after the public announcement of the Merger Agreement, Alliance issued a press release in which it announced that it would make a tender offer to purchase up to 4,400,000 shares of Bally Gaming at $12.50 per share. The offer was subject to Alliance being validly tendered a number of shares, which when combined with the shares Alliance already owned, would give Alliance ownership of a majority of Bally Gaming's outstanding common stock. At that time, Alliance owned one million shares, or 9.3% of Bally Gaming's approximately 10.75 million outstanding shares of common stock. 27. The press release also announced the commencement of litigation in Delaware Chancery Court against Bally Gaming to obtain the due diligence information Alliance had previously not obtained due to its failure to sign the requested confidentiality standstill agreement and to enjoin Bally Gaming from proceeding with the WMS merger. Alliance's July 25th press release also stated that if Alliance did not gain access to the due diligence information, it would engage in a proxy fight and nominate a slate of "independent" directors to replace a majority of Bally Gaming's Board of Directors. 28. On July 28, 1995, Alliance published a Notice of Offer to Purchase shares of Bally Gaming (the "Notice") in the New York Times, July 28, 1995, at p. D5, pursuant to which Alliance offered to purchase a number of shares of Bally Gaming common stock sufficient to give Alliance beneficial ownership of a majority of Bally Gaming's outstanding shares. The notice identified Donaldson, Lufkin & Jenrette Securities Corporation as Alliance's financial advisor. The Notice listed Georgeson & Company, Inc., Wall Street Plaza, New York, New York, as the Information Agent. The Depositary for tendered shares is Bankers Trust Company, New York, New York. The Notice stated that the tender offer expired on August 24, 1995 unless extended. The tender offer was subsequently extended to September 12, 1995 and -6- PAGE on September 1, 1995, Alliance announced that it was further extending the expiration for the tender offer to midnight on September 29, 1995. 29. On July 28, 1995 Alliance filed Schedule 14D-1, including Alliance's Offer to Purchase, with the SEC regarding its proposed tender offer. The Schedule 14D-1 and any amendments thereto are hereinafter referred to collectively as "the Alliance Tender Offer." 30. Alliance's Offer to Purchase was publicly distrib- uted through Georgeson & Company, Inc. 31. Pursuant to the Alliance Tender Offer, Alliance and BAC are seeking to purchase up to 4,400,000 shares of common stock of Bally Gaming for $12.50 net per share, and thereafter, on a subsequent back-end merger, to acquire the remaining Bally Gaming shares in exchange for shares of Alliance common stock. The Alliance shares issuable in the back-end merger would be valued at their average closing price for a period of 10 Nasdaq National Market trading days ending five days prior to consummation of the merger subject to an "appropriate", but unspecified, collar, purportedly equal to the price paid in the tender offer. 32. If the Alliance Tender Offer succeeds in inducing Bally Gaming stockholders to tender their shares and defendants become the owners of a majority of the outstanding Bally Gaming shares, defendants would have the voting power to cause the disapproval of the Merger Agreement without regard to the votes of the remaining Bally Gaming shares. 33. Upon consummation of the Alliance Tender Offer, the back-end merger will result in Bally Gaming being merged into Alliance or a subsidiary thereof and no longer existing as a separate entity. Bally Gaming's Response To The Alliance Tender Offer ---------------------------------------------------- 34. Upon information and belief and as publicly disclosed, on August 7, 1995, Bally Gaming's Board of Directors met to consider the Alliance Tender Offer. At that meeting, Bally Gaming's Board of Directors was advised by its financial advisor, Ladenburg, that in its opinion the transactions proposed by Alliance were not as favorable as the Merger Agreement with WMS, from a financial point of view, to Bally Gaming's stockholders and that Ladenburg could not render an opinion that the transactions proposed by Alliance were fair, from a financial point of view, to Bally Gaming's stockholders. -7- PAGE 35. On August 8, 1995, Bally Gaming announced in a press release that its Board of Directors had determined that the Alliance Tender Offer was inadequate, highly conditional and not in the best interest of Bally Gaming stockholders. In said release, Bally Gaming gave the following reasons, among others, for rejecting the Alliance Tender Offer: -- The opinion of Ladenburg, Thalmann & Co. Inc., an independent investment bank retained as BGII's financial advisor, that the two-step Alliance transaction is not as favorable, from a financial standpoint, as the merger with WMS Industries Inc. and that Ladenburg could not render an opinion that the two-step Alliance transaction is fair. -- A combination with perennially unprofitable Alliance would result in an unstable, undercapitalized, highly leveraged company which could raise licensing concerns among gaming industry regulators. -- The combined entity would have a negative tangible net worth of approximately $10 million and $250 million of debt. -- The illusory nature of Alliance's financing for the cash portion of the transaction, which consists solely of a $150 million "senior secured bridge facility," requires permanent financing and $20 million of additional equity, both of which Alliance admits it does not have. -- The dubious value of the back-end stock portion of the Alliance proposal, especially given the fact that Alliance has not reported an annual profit in the last five years, already has debt of $100 million, and would incur $150 million in additional debt to acquire Bally Gaming. -- Alliance's cash tender offer would be fully taxable to Bally Gaming shareholders. -- Alliance has not demonstrated that any synergies would result from a combination of BGII and Alliance. A combined entity would not have the resources to operate its business effectively or support growth. 36. Bally Gaming has filed a Schedule 14D-9 with the SEC formally responding to the Alliance Tender Offer including a copy of Bally Gaming's letter to its stockholders dated August 8, 1995 recommending that shares not be tendered in response to the Alliance Tender Offer. -8- PAGE Alliance's Consent Solicitation ------------------------------- 37. On August 8, 1995, Alliance issued a press release announcing that it had made a preliminary filing with the SEC for a consent solicitation to elect a majority of "independent" directors to the Bally Gaming Board of Directors. 38. On the same day, August 8, 1995, Alliance filed soliciting material with the SEC, which consisted of a letter to Bally Gaming stockholders. Alliance's letter reiterated its characterization of its offer to purchase Bally Gaming common stock at $12.50 per share, referred to the interest of Alliance's banks in financing the Alliance Tender Offer, stated that firm financing commitments could not be obtained without an opportunity to conduct due diligence as to Bally Gaming and asserted that Bally Gaming had refused to give Alliance access to such due diligence material. Alliance's letter further advised the Bally Gaming stockholders that Alliance has filed materials for a consent solicitation with the SEC to replace a majority of Bally Gaming's Board of Directors with "independent" directors. Notwithstanding Alliance's characterization of its proposed nominees as "independent," Alliance represented that the program of such "independent" directors would be as follows: . They will permit Alliance and its banks to conduct due diligence. . If, following due diligence, the independent directors are satisfied with Alliance's financing, they will accept Alliance's offer. . Otherwise the independent directors will resign, leaving the board under the control of three of Bally Gaming's current directors and leaving the WMS agreement intact. . They will evaluate any other offer or revised offer providing greater value to Bally Gaming stockholders. 39. On August 8, 1995, Alliance filed preliminary consent material with the SEC in connection with its proposed consent solicitation. Court Findings Of No Legal Entitlement By Alliance To Bally Gaming Due Diligence Information -------------------------------------------------- 40. On July 27, 1995, the Delaware Chancery Court ruled that Alliance's request for an order granting Alliance -9- PAGE immediate access to Bally Gaming's due diligence material was without legal support in the Court's cognizance and denied the request without prejudice to its being renewed on a showing of legal entitlement to such relief. On August 3, 1995, Alliance renewed the request for an order requiring immediate access to Bally Gaming's due diligence material. By order dated August 11, 1995, the Court denied such request and found no basis for such unprecedented extraordinary relief. The Moratorium Agreement ------------------------ 41. On August 14, 1995, Bally, WMS and Alliance, at the suggestion of Alliance, entered into an agreement (the "Moratorium") pursuant to which Alliance would not "pursue implementation of its consent solicitation" nor pursue solicitation of proxies prior to September 1, 1995. The expiration date of the Alliance tender offer was extended to September 12, 1995. 42. The Moratorium also provided that Bally and WMS would not institute or threaten legal action against Alliance until September 1, 1995, and that in the event Bally or WMS instituted legal action on or after September 1, Alliance would raise no objection based on the delay. 43. On August 25, 1995, pursuant to the Moratorium, Alliance extended the expiration date of the Alliance Tender Offer to September 12, 1995. At the same time, Alliance announced that some 1.3 million shares of Bally stock had been tendered into the Alliance Tender Offer. 44. The expressed purpose of the Moratorium was to permit the parties "to explore the resolution of certain outstanding disputes." Upon information and belief, although the Moratorium was at the initiative of Alliance, it did not then and never had any intention of exploring resolution of any disputes. Instead, having been denied Bally Gaming's due diligence material by the Delaware Chancery Court on August 11, 1995, Alliance, upon information and belief, knew that its professed financing could not be obtained and sought the Moratorium for the undisclosed purpose of attempting to obtain alternative financing which would not be subject to obtaining Bally Gaming due diligence information. The September 1st Amendment to the Alliance Tender Offer -------------------------------------------------------- 45. On September 1, 1995, Alliance filed with the SEC Amendment No. 8 to its Schedule 14D-1 (the "September 1st Amend- ment"). The September 1st Amendment announced the extension of -10- PAGE the Alliance Tender Offer to September 29, 1995. The Amendment further stated: On August 30, 1995, Foothill Capital Corporation ("Foothill") furnished Alliance with a letter (the "Senior Commitment Letter") providing a commitment to lend to Alliance on a senior basis -- not subject to due diligence - - an aggregate principal amount of $35,000,000 (the "Senior Loan") in connection with the Offer. See Exhibit (b)(2). On August 30, 1995, Canpartners Investment IV, LLC and Cerberus Partners, L.P. (collectively, the "Senior Subordinated Lenders") furnished Alliance with a letter (the "Senior Subordinated Commitment Letter" and, together with the Senior Commitment Letter, the "Commitment Letters") providing a commitment to lend to Alliance on a senior subordinated basis -- also not subject to due diligence -- an aggregate principal amount of $30,000,000 (the "Senior Subordinated Loan") in connection with the Offer. See Exhibit (b)(3). Alliance intends to use the funds to be provided pursuant to the Commitment Letters in place of the Bridge Facility described in the Proposal Letter referred to in Section 10 of the Offer to Purchase. . . . Alliance intends to recapitalize the combined companies promptly following the consummation of the Proposed Merger. Alliance presently intends to close its Offer immediately after regulatory approval is obtained, which Alliance anticipates will occur by the end of September. Since the financing provided by the Commitment Letters is not contingent on a due diligence review of the Company by Foothill or the Senior Subordinated Lenders, Alliance does not currently intend to proceed with its consent solicitation to replace certain members of the Board of Directors of the Company in order to obtain due diligence. However, Alliance is prepared to pursue its consent solicitation to replace the directors of the Company if they continue to oppose the Offer. The Senior Commitment Letter provides that the Senior Loan will mature one year from the date of consummation of the proposed financing (the "Senior Maturity Date"). The Senior Loan will earn interest at the rate of 13% per annum for the first six months of the loan and 15% per annum thereafter until the Senior Maturity Date, payable monthly in arrears. The Senior Loan will be guaranteed by certain of Alliance's subsidiaries and secured by substantially all assets of Alliance and such subsidiaries. The Senior Subordinated Commitment Letter provides that the Senior Subordinated Loan will mature two years from the -11- date of consummation of the proposed financing (the "Senior Subordinated Maturity Date"). The Senior Subordinated Loan will bear interest at the rate of 18% per annum until the Senior Subordinated Maturity Date. The Senior Subordinated Loan will be guaranteed by certain of Alliance's subsidiaries and secured by substantially all assets of Alliance and such subsidiaries, in each case on a subordinated basis. 46. As part of the September 1st Amendment, Alliance also filed as exhibits a press release dated September 1, 1995, commitment letters from Foothill Capital Corporation, Canpartners Investments IV, LLC and Cerberus Partners, L.P., fee letters from Canyon Capital Management, L.P. and Cerberus Partners, L.P. and a letter dated September 1, 1995 from Alliance to the stockholders of Bally Gaming. The press release and the letter to Bally Gaming stockholders are thus part of Alliance's Tender Offer and subject to the rules and regulations governing the same. 47. Among other things, the press release refers to the terms of the Merger Agreement as being "lower value, more conditional and less timely" than the Alliance Tender Offer. 48. The Alliance September 1, 1995 letter to Bally Gaming stockholders states, in pertinent part: Furthermore, we anticipate obtaining all regulatory approvals required to close our tender offer by the end of September . . . and we expect to complete the merger of the two companies by Thanksgiving. We believe the table below dramatically shows the superiority of our offer over the lower-value, more conditional and less timely WMS proposal embraced by Bally Gaming's directors: Alliance WMS -------- ---- . $12.50 cash offer for 4.4 . WMS stock for all shares; million shares - $13.00 possible small cash if Bally Gaming's break- distribution, if any, up fee arrangement with conditioned on potential WMS is invalidated; sale of Bally Wulff above Alliance stock for the a specified price remainder -12- PAGE . Cash tender offer to be . No plan to close before completed by September January 31, 1996 (as set 29; back-end merger by forth in the WMS - Bally Thanksgiving Gaming Merger Agreement); regulatory application not anticipate to be heard before November . Subject only to customary . Conditioned on sale of conditions Bally Wulff for a set minimum price . Back-end exchange ratio . Exchange ratio fixed up not set until merger, front; Bally stockholders subject to an appropriate bear the risk of WMS collar; Bally Gaming stock price fluctuation stockholders signif- icantly protected against Alliance stock price fluctuations . Continuous unlimited . Regulatory uncertainty; Nevada gaming license for received only two-year 25 years limited gaming license . . . We are primarily a technology-driven company. As the country's largest gaming device route operator, we own and operate over 5,700 gaming devices, including our own highly sophisticated, proprietary machines. This route generates consistent and strong annual recurring cash flow, primarily from multi-year contracts with established businesses in prime locations. With this stable cash flow as our base, we are very confident that once we have acquired Bally Gaming we can quickly and easily achieve an appropriate capital structure favorable to the long-term growth and profitability of the combined companies. * * * Finally, you should remember that in the announcement of its initial letter of intent with Bally Gaming, WMS stated that it would exchange 0.6 of its shares or higher for each Bally Gaming share. Instead, it lowered its offer. Other than for our presence, there is no guarantee they won't do so again. -13- PAGE DEFENDANTS' FALSE AND MISLEADING STATEMENTS AND OMISSIONS IN THEIR TENDER OFFER MATERIALS --------------------------------------------- 49. Defendants, in seeking to unfairly defeat the Merger Agreement and acquire control of Bally Gaming by unfair means, have permitted or caused to be filed and published to Bally Gaming's stockholders the Alliance Tender Offer and the amendments thereto, which make untrue statements of material fact or omit to state material facts necessary to make the statements made, in light of the circumstances under which they are made, not misleading. Defendants have also publicly disseminated press releases, letters and made other regulatory filings which contain untrue statements of material fact or omit to state material facts necessary to make the statements made, in light of the circumstances under which they are made, not misleading. 50. Upon information and belief, the individual defendants authorized, directed and participated in the making of such untrue statements of material fact or in omitting to state material facts necessary to make the statements made, in light of the circumstances under which they are made, not misleading. 51. Upon information and belief, John Does 1-5 autho- rized, directed and participated in the making of such untrue statements of material fact or in omitting to state material facts necessary to make the statements made, in light of the circumstances under which they are made, not misleading. Alliance's Failure To Disclose Its Intentions --------------------------------------------- 52. In its July 25th press release, Alliance had announced that it intended to nominate a slate of independent directors to replace a majority of Bally Gaming's Board of Directors at the next Bally Gaming annual meeting if Alliance did not gain due diligence information regarding Bally Gaming. Consistent with this approach, at the July 27th court appearance referred to in paragraph 35 above, Alliance sought to obtain a judicial order requiring an early meeting of Bally Gaming's stockholders for the purpose of holding elections for Bally Gaming's Board of Directors. 53. On or about July 31, 1995, it was reported in Mergers & Acquisition Report, that Alliance intended to nominate four people for seats on Bally Gaming's seven member Board of Directors and, if it succeeds, to put Bally Gaming up for sale to the highest bidder. -14- PAGE 54. Notwithstanding these facts, the Alliance Tender Offer did not disclose that it was Alliance's intention to wage a proxy battle rather than follow through toward completion of Alliance's Tender Offer. 55. The August 8th Alliance press release announced an intention to conduct a consent solicitation to elect a majority of "independent" directors to the Bally Gaming Board of Directors. 56. The September 1st Amendment states that "Alliance does not currently intend to proceed with its consent solicita- tion . . . . However, Alliance is prepared to pursue its consent solicitation . . . if they [Bally Gaming directors] continue to oppose the (Alliance Tender] Offer." 57. The Alliance Tender Offer is misleading because it is inconsistent with Alliance's public announcements and does not inform Bally Gaming's stockholders whether or not Alliance will conduct a consent solicitation, a proxy contest, both or neither. 58. Alliance states in the September 1st Amendment that "Alliance intends to recapitalize the combined companies promptly following the consummation of the proposed merger." This statement is misleading because it does not disclose how Alliance intends to effect such recapitalization. Among other things, the September 1st Amendment does not disclose whether Alliance proposes to modify the terms of existing financing, issue additional shares of stock thereby further diluting the value of the outstanding shares of common stock of the merged entities and/or sell off parts of the combined companies, such as the German operation known as Bally Wulff. 59. Alliance's representation of its intended recapitalization is further misleading because it does not set forth the reasons for such recapitalization and its effect on the public shareholders. Among other things, Alliance fails to disclose that, upon information and belief, Alliance could not effectively operate the combined companies as a going concern after the proposed merger because of the magnitude of the debt obligations to be assumed by the combined companies. The Alliance Tender Offer is therefore misleading by omitting facts necessary to inform Bally Gaming stockholders of the reason for the need to recapitalize. 60. The Alliance Tender Offer fails to disclose Alliance's intentions with respect to the refinancing of $40 million in Bally Gaming debt to FMR Corp. ("FMR"), described in paragraph 78 below, that is likely to become due by reason of the closing of the Alliance Tender Offer. -15- PAGE 61. The Alliance Tender Offer further fails to disclose Alliance's intentions with respect to refinancing of other Bally Gaming lines of credit which will become due upon a change in control of Bally Gaming, which lines of credit as of June 30, 1995 were at least $13 million. 62. Moreover, the September 1st letter from Alliance to Bally Gaming stockholders discloses that "with this stable cash flow [referring to the cash flow from its gaming device routes] as our base, we are very confident that once we have acquired Bally Gaming, we can quickly and easily achieve an appropriate capital structure." This statement is misleading because it omits to provide any basis for the purported "confidence" that such capital structure can be achieved "quickly and easily." The reference to a stable cash flow is insufficient: first, because such cash flow is not quantified; and second, because it is completely unexplained how the cash flow from Alliance's route operation can support a recapitali- zation of a merged company when it has been unable to support Alliance alone, which had net losses of $4.7 million, $3.6 million and $13.1 million, respectively, for fiscal years 1992, 1993 and 1994. 63. Bally Gaming stockholders are thereby being misled into tendering their shares to Alliance without being apprised of Alliance's true intentions. Alliance's Failure To Disclose The Rejection Of Its Offer By the Board of Directors of Bally Gaming -------------------------------------------- 64. The Alliance Tender Offer fails to disclose the material fact that on June 21, 1995, Bally Gaming's Board of Directors met and after extensive analysis of both the WMS offer and the Alliance June 19th offer, and with the advice of Bally Gaming's experts (including a fairness opinion with respect to the WMS proposal), the Bally Gaming Board of Directors decided that the WMS proposal was superior to the Alliance proposal, financially and otherwise, in the better interest of Bally Gaming stockholders, approved the Merger Agreement with WMS, recommended that the Merger Agreement and the other transactions contemplated thereby be submitted to Bally Gaming's stockholders for their approval, and thereby rejected the Alliance proposal. 65. The Alliance Tender Offer also fails to disclose the results of the August 7, 1995 Bally Gaming Board of Directors meeting which rejected the Alliance Tender Offer as inferior to the WMS transaction. -16- PAGE 66. By reason of the foregoing, the Alliance September 1, 1995 letter to Bally Gaming stockholders, which is part of the Alliance tender offer, is misleading because it omits to advise the Bally Gaming stockholders of the findings of the Bally Gaming Board of Directors, a fact necessary to make the comparison of the Alliance and WMS transactions in such letter not misleading. Alliance's Omission Of Adequate Financial Disclosure ---------------------------------------------------- 67. The absence of adequate financial disclosure in the Alliance Tender Offer makes it impossible for Bally Gaming's stockholders to evaluate the value of Alliance stock to be issued in the back-end merger contemplated in the Alliance Tender Offer. 68. Among other things, the Alliance Tender Offer fails to provide material pro forma financial information required to inform Bally Gaming stockholders of the financial condition of a combined Alliance-Bally Gaming business after giving effect to the proposed Alliance transaction. 69. The Alliance Tender Offer further fails to disclose the adverse financial effect on the combined Alliance- Bally business of the extraordinary financial fees to be incurred by Alliance, including the fees for the financing required to pay for the tender offer, which alone appears to amount to approximately $12 million. 70. The omission of such disclosure is material because such pro forma financial information would show a combined company with approximately $235 million of indebtedness and would clearly demonstrate that the combined company would not, on a pro forma historical basis, have the combined cash flow sufficient to service its debt. The material nature of such omission is further demonstrated by Alliance's statement in the September 1st Amendment that it "intends to recapitalize . . . promptly following the consummation of the Proposed Merger." 71. The Alliance Tender Offer omits material information relating to the proposed unspecified "appropriate collar" to be applied to the valuation of Alliance common stock in the back-end merger. No information is provided as to the details or range of the collar. Consequently, Bally Gaming's stockholders cannot determine whether the collar provides any meaningful protection or whether it is illusory. Among other things, the Alliance Tender Offer fails to disclose that the Bally Gaming stockholders could be left with then illiquid Bally Gaming stock should the back-end merger not be completed because the price falls below the appropriate but unspecified collar. -17- PAGE 72. The Alliance Tender Offer represents that the Alliance common stock to be issued for the back-end merger will be valued at an average price for ten (10) trading days ending five (5) days prior to the consummation of a proposed merger, and misleadingly implies that such valuation will result in the back- end merger being completed with Alliance common stock valued at $12.50. However, the Alliance Tender Offer fails to disclose that the value of its stock could fluctuate substantially in the five day period immediately preceding the consummation of the proposed merger (as often happens) when adjustments to the exchange ratio would not be protected by a collar, to the detriment of Bally Gaming stockholders. 73. The Alliance Tender Offer fails to inform Bally Gaming stockholders that the number of shares which Alliance will have to issue to Bally Gaming stockholders will more than double the number of shares of outstanding Alliance common stock and could result in substantial dilution with a substantial negative impact on the market price of said shares. 74. The Alliance Tender Offer fails to disclose the dilution of Alliance's common stock and the consequent effect on the market value of Alliance's common stock which would result from the issuance of additional shares of Alliance's common stock upon the exercise of existing Alliance options and warrants. Specifically, the Alliance Tender Offer fails to disclose that such exercise of existing options, warrants and convertible debt could result in the issuance of approximately sixteen million (16,000,000) additional Alliance shares. When compared to approximately eleven million (11,000,000) shares currently out- standing, it is material that the substantial resulting dilution is not disclosed. 75. The September 1st Amendment discloses that warrants for 500,000 shares of Alliance's common stock are to be received by certain of the lenders financing the Alliance Tender Offer. The Alliance Tender Offer is misleading in that it omits to disclose the fact that the issuance of such warrants will, upon exercise, dilute Alliance's common stock, and further fails to disclose the effect of this dilution on the value of Alliance's common stock. 76. The Alliance Tender Offer fails to disclose that the trading market for Alliance common stock is very thin and that the additional shares issuable in the back-end merger will likely create a market overhang that will have a severe depressing effect on the trading price of Alliance stock. Accordingly, regardless of the exchange ratio set by reason of the proposed collar, it will be a ratio based on the pre-merger -18- PAGE thin market for Alliance stock. The actual price at which Bally Gaming stockholders could sell Alliance shares after the back-end merger will likely be far less than the value for Alliance shares established by the formal exchange ratio, a material fact not disclosed by the Alliance Tender Offer. 77. Alliance fails to offer any opinion of an investment banker that its proposed two step transaction would be fair to Bally Gaming stockholders. Indeed, as set forth in paragraph 34 above, Bally Gaming's independent investment advisor, Ladenburg, has advised Bally Gaming that it could not render an opinion that the two step Alliance transaction was fair from a financial point of view to Bally Gaming stockholders. Accordingly, it is a material omission that the Alliance Tender Offer fails to disclose that the proposal does not meet the minimum standards for fairness from a financial point of view to Bally Gaming stockholders. 78. Upon information and belief, FMR is a lender to Bally Gaming, in the sum of approximately $40 million. Upon information and belief, such debt will, at the option of FMR, become due upon a change in control of Bally Gaming (defined as the acquisition at any time by any person of ownership of more than 40% of Bally Gaming common stock). Upon information and belief, Bally Gaming's other lines of credit will also become due upon completion of the Alliance Tender Offer. The Alliance Tender Offer fails to disclose these facts and that the closing of the Alliance Tender Offer may require Bally Gaming to repay said $40 million debt obligation to FMR and will require the repayment of Bally Gaming's lines of credit in the amount of at least $13 million. 79. The September 1st Amendment discloses that the interest on the $30 million portion of the financing for the Alliance Tender Offer from Canpartners and Cerberus will be 18% per annum over the two year life of such financing. This statement of interest is misleading because the fee letters from Canyon and Cerberus annexed as exhibits to the amendment require, among other fees, a fee of 2 1/2% of the principal amount of the loan every three months while the loan has not been paid in full. This amounts to an additional 10% per year, which though described as a fee, effectively raises the interest rate on the $30 million portion of the loan to 28%, a fact not disclosed by Alliance. -19- PAGE Alliance's Failure To Make Material Disclosures Regarding Its Own Financial Condition ----------------------------------- 80. The Alliance Tender Offer fails to fully disclose Alliance's precarious financial condition, insofar as it provides only "selected consolidated" financial statements without indica- tion of the specific financial information omitted and without disclosing the factual details for the conclusory information provided. For example, no explanation is disclosed for the fact that Alliance's 1994 losses ($13,128,000) are triple the 1993 losses ($3,650,000). Alliance also fails to disclose how a company with such increasing and historical losses can reasonably expect to conclude the subject transaction. Alliance also fails to disclose how, in view of the fact that its long term debt has increased over 150% from 1993 ($41,176,000) to 1995 ($101,409,000), Alliance can effect the recapitalization set forth in the September 1st Amendment. 81. The Alliance Tender Offer discloses that the loans for the Alliance Tender Offer will be secured by substantially all the assets of Alliance and its subsidiaries. It is material that the Alliance Tender Offer fails to disclose the impact of having substantially all assets utilized as security for financing, particularly for a company engaged in the slot machine business. Among other things, the Alliance Tender Offer fails to disclose that such a condition would necessarily impair its ability to provide customer financing, carry customer receivables or to engage in the required product development and promotion necessary in such business. Alliance's Material Omissions Regarding The Source And Amount Of Funds --------------------------------------- 82. The September 1st Amendment discloses that "Alliance intends to recapitalize the combined companies promptly following the consummation of the proposed merger." Alliance fails to disclose the source of funds for any such recapitalization or the status of its efforts to achieve the same. Both facts are material since it is apparent from Alliance's own statement that it cannot operate the combined companies as a going concern without such recapitalization. 83. Prior to the September 1st Amendment, the Alliance Tender Offer had described a letter from banks as "expressing interest" in providing a bridge loan facility while the actual term sheet filed by Alliance with the SEC contained the condition -20- PAGE that permanent financing be satisfactory to said banks as a condition of funding the bridge facility. Alliance's Tender Offer failed to disclose the lack of such permanent financing or the status of efforts to obtain same. In addition, the Alliance Tender Offer failed to disclose the source of funds for $20,000,000 in equity financing which Alliance stated it would likely need as a condition to the bridge loans and also failed to disclose the status of its efforts to obtain such funds. Alliance's continuing failure to make full disclosure with respect to its alleged financing arrangements has not been remedied by the September 1st Amendment, as alleged in paragraphs 75, 78-79 and 82 above. Alliance's Failure To Disclose Material Facts Regarding The Time Of Closing Of Its Proposed Transaction --------------------------------------- 84. The Alliance Tender Offer fails to disclose that the consummation of its offer will cause Bally Gaming to breach its non-competition agreements with Bally Entertainment Corporation ("Bally Entertainment"), Bally Gaming's former parent and an important customer of Bally Gaming. The non-competition agreement prohibits any affiliate of Bally Gaming from owning or operating casinos anywhere within or without the United States until after January 8, 1996. 85. The Merger Agreement with WMS contemplates a closing after January 8, 1996, because WMS owns and operates ho- tels/casinos, in Puerto Rico, thousands of miles from any casino owned by Bally Entertainment. The Alliance Tender Offer fails to disclose that Alliance owns and operates casinos in Nevada, in close geographic proximity to casinos owned by Bally Entertainment and that Alliance would be subject to the same restriction as Bally Gaming, and could therefore not complete the transaction any earlier than WMS without violating Bally Gaming's agreement with Bally Entertainment. 86. The Alliance Tender Offer states that its tender offer can be completed well in advance of the proposed merger between WMS and Bally Gaming. The Alliance Tender Offer fails to disclose that an earlier completion of its transaction will cause Bally Gaming to breach the aforesaid non-competition agreement. The statement by Alliance in the September 1, 1995 letter to Bally Gaming stockholders that it "expects to complete the merger of the two companies by Thanksgiving" is therefore misleading because it fails to disclose the true facts as to the non- competition agreement. -21- PAGE 87. Alliance's assertion that its 51% ownership of Bally Gaming after the tender offer would not make it an affiliate of Bally Gaming so as to preclude enforcement of the non-competition agreement is misleading, since, among other things, no support or analysis is provided for such conclusion and no opinion of counsel is included reflecting such unsupported conclusion. Accordingly, Bally Gaming stockholders who are being solicited to tender their shares to Alliance are not provided with any basis for evaluating such conclusion. 88. The Alliance Tender Offer also states that Alliance believes that enforcement of the covenant against Bally Gaming in respect of Alliance's casino operations would be "unreasonable and contrary to the public interest." This assertion is likewise misleading, since no basis for such assertion is set forth and Bally Gaming's stockholders are not provided with any support necessary to evaluate the validity of such conclusory assertion. The Alliance Tender Offer in this respect omits material facts regarding the reasons for the possible difference in the timing of the closing of the two transactions and the risks inherent in the approach Alliance has adopted. Alliance's Failures To Disclose Material Facts Regarding The WMS Merger ---------------------------------------- 89. The claims in the Alliance Tender Offer that Alliance's proposed transaction is superior to the WMS Merger Agreement are false and misleading because objective analysis of the components of the two competing transactions shows that the WMS Merger Agreement is superior to Alliance's proposed transaction, and Bally Gaming's financial advisors have so concluded. 90. The Alliance Tender Offer fails to disclose that the WMS price is higher than the price being offered by Alliance. The Alliance Tender Offer states that it is offering $12.50 per share. However, the Alliance Tender Offer fails to disclose that the WMS merger transaction, taking into account both the value of the WMS shares being offered and the additional payment to stockholders from the proposed sale of Bally Gaming's German operations, has a value to Bally Gaming's stockholders which exceeds $12.50 per Bally Gaming share in value. Indeed, as of September 5, 1995, the closing price of WMS common stock on the New York Stock Exchange was $23.50 per share and the value of the Merger Agreement for each share of Bally Gaming stock is approximately $13.37. -22- PAGE 91. The Alliance Tender Offer further fails to disclose that notwithstanding its characterization of its offer as $12.50 a share, its two-step offer for all of the Bally Gaming shares is substantially less in view of the uncertain nature of the back-end merger and the precarious financial condition of Alliance. 92. Although the Alliance Tender Offer discloses that its proposed transaction is a taxable event to Bally Gaming stockholders, the Alliance Tender Offer fails to disclose that the WMS Merger Agreement provides a tax free transaction to Bally Gaming stockholders. 93. The Alliance Tender Offer fails to disclose that the fact that the WMS transaction involves no up front cash is irrelevant, inasmuch as Bally Gaming stockholders who receive the highly liquid WMS common stock could sell them to obtain cash if desired, much more easily than they will be able to sell Alliance common stock received in the back-end merger given the thinness of the trading market for Alliance common stock, the undisclosed dilution in such common stock, and the precarious financial condition of Alliance. 94. The Alliance Tender Offer's disclosure regarding the break-up fee in the WMS Merger Agreement omits material facts necessary to make Alliance's statements not misleading. The Alliance Tender Offer fails to disclose that the break-up fees in the Merger Agreement are reciprocal and that, under certain circumstances, it is Bally Gaming rather than WMS which would receive the break-up fee. The Alliance Tender Offer also fails to disclose the material fact that the break-up fees are well within the reasonable range of break-up fees for other transactions of approximately the size of the WMS/Bally Gaming transaction. Additional Misleading Statements in Alliance's September 1, 1995 Letter to Bally Gaming Stockholders ----------------------------------------------------- 95. Alliance's September 1, 1995 letter to Bally Gaming stockholders has been made part of the Alliance Tender Offer by being filed by Alliance with the September 1st Amendment. 96. There are at least the following untrue and/or misleading statements in the September 1 letter: (a) The WMS proposal is not "lower value" than the Alliance proposal, for the reasons set forth in paragraph 90 above. Alliance's failure to disclose the true facts regarding the WMS proposal is therefore misleading. -23- PAGE (b) Alliance's statement that its back-end merger can be completed by Thanksgiving is untrue for the reasons set forth in paragraphs 84-88 above. (c) Alliance's statement that WMS received only a two-year limited gaming license in Nevada and that such license is probationary is untrue. The WMS license is not probationary and is not limited. It is a full license to operate for a period of two years. (d) Alliance describes itself as a "technology driven company." Such a statement is misleading because it fails to disclose the nature or significance of such technology. Its statement that it has "highly sophisticated, proprietary machines" is not sufficient to inform Bally Gaming stockholders as to whether Alliance possesses the requisite technology to develop new machines in an ever-changing field. In fact, in its 10-K filed with the SEC on September 28, 1994, Alliance stated that "the manufacturing process generally involves the assembly of standard components which are readily available from various sources." Nor does Alliance disclose the extent of past market acceptance of its products and the impact of the same on further development. The Alliance Tender Offer fails to disclose that Alliance is in fact primarily a gaming machine route operator and manager of casinos and gaming arcades. (e) Alliance's statements regarding confidence about achieving an appropriate capital structure are misleading for the reasons set forth in paragraphs 58-59 and 82 above. (f) Alliance's statement that WMS could reduce the number of shares it is offering is false because WMS has a contract to purchase Bally Gaming shares at .55 shares of WMS stock. (g) Alliance's statement that not setting the back-end exchange ratio until the merger is an advantage over the WMS merger is not true because (i) WMS stock has been rising in value, (ii) Alliance stock will likely have a low value upon the occurrence of the Alliance proposed merger, (iii) there are problems associated with the proposed Alliance collar and the dilution that will occur with the issuance of new Alliance shares, and (iv) the risk to Bally Gaming shareholders that no back-end merger would take place or that it will be different than the one presently proposed. -24- PAGE Defendants Failed To Disclose Material Facts Regarding Prior Negotiations With Bally Gaming ---------------------------------------------- 97. The Alliance Tender Offer falsely represents that Alliance's first meetings with Bally Gaming began in October 1994. However, the Alliance Tender Offer omits to disclose the material fact that the initial meetings were actually held in November 1993, almost one year earlier. The Alliance Tender Offer therefore fails to disclose the material fact that Alliance has had a substantial opportunity to attempt to negotiate a transaction with Bally Gaming and failed to demonstrate to the satisfaction of Bally Gaming's Board of Directors that its offer was in the best interests of Bally Gaming stockholders. 98. As set forth in paragraph 14 above, the Alliance Tender Offer fails to disclose that it was Alliance who declined to execute a requested confidentiality and standstill agreement with Bally Gaming. The Alliance Tender Offer also fails to disclose that the Delaware Chancery Court has twice rejected Alliance's request for Bally Gaming due diligence information on the ground of failure to show any legal entitlement thereto. 99. The Alliance Tender Offer fails to disclose that at one point in its negotiations with Bally Gaming, Alliance's representatives shook hands on a deal with Bally Gaming that involved a price of $13.00 per Bally Gaming share, plus an equity investment of $50 million, only to advise Bally Gaming the following day that Alliance was not prepared to commit itself to such an investment. 100. The Alliance Tender Offer fails to disclose that Alliance informed Bally Gaming at one point that it had two banks lined up to finance a transaction, but refused to name them, unless Bally Gaming agreed to pay Alliance $700,000 in the event no transaction occurred. Alliance's Failure To Disclose Its Non-Entitlement To Bally Gaming's Due Diligence Material ---------------------------------- 101. The Alliance Tender Offer falsely represents that Bally Gaming declined to execute a confidentiality and standstill agreement. In fact, upon information and belief, it was Alliance which refused to execute the confidentiality and standstill agreement which agreement was also offered to WMS by Bally Gaming and executed by WMS. -25- PAGE 102. On August 11, 1995, the Delaware Chancery Court found that Alliance did not obtain access to the due diligence material of Bally Gaming because it "refused to sign an agreement substantially identical to that signed by WMS" and that "WMS and Alliance were both offered access to Bally's due diligence materials on the condition that they sign a standard confidentiality and standstill agreement" which "Alliance refused to sign." Alliance's Tender Offer is false and misleading in creating the impression that Alliance had legal entitlement to such due diligence material and in failing to disclose that Alliance's inability to obtain such non-public information of Bally Gaming was due to Alliance's own refusal to execute Bally Gaming's proffered confidentiality and standstill agreement. 104. The Alliance Tender Offer misleadingly states that, in reliance on an opinion of counsel, Bally Gaming's provision of due diligence material to Alliance would not violate the Merger Agreement. Defendants omit the disclosure of material facts necessary to make their statement not misleading, to wit, they fail to disclose that providing such non-public information to Alliance would materially breach the Merger Agreement, in view of the rejection of the Alliance Tender Offer by Bally Gaming's Board of Directors and the determination of Bally Gaming's Board of Directors that the WMS transaction was superior. In addition, Alliance fails to disclose that such opinion is merely a general opinion and does not address the relevant facts and contract provisions of the Merger Agreement. Defendants, Failure To Make Material Disclosures Regarding Contingencies ------------------------------------ 105. The Alliance Tender Offer refers to "contingencies of the proposed combination" but fails to disclose any material facts and the triggering events so as to enable Bally Gaming stockholders to evaluate the likelihood of such contingencies in their assessment of the Alliance Tender Offer. Defendants state: The precise timing and other details of any merger or other business combination transaction will depend on a variety of factors such as general economic conditions and prospects, the future prospects, asset value and earnings of the Company [Bally Gaming], the number of Shares acquired by the Purchaser pursuant to the Offer or otherwise, the receipt of the necessary approvals or consents of gaming regulators and the statutory requirements described above. The Purchaser can give no assurance that a merger or other business combination will be proposed or that, if it is proposed, it -26- PAGE will not be delayed or abandoned. The Purchaser expressly reserves the right not to Propose any merger or similar business combination involving the Company [Bally Gaming], or to propose a merger or other business combination on terms other than those set forth herein, and its ultimate decision could be affected by information hereafter obtained by the Purchaser, changes in general economic or market conditions or in the business of the Company [Bally Gaming] or other factors. (emphasis added). The Alliance Tender Offer fails to disclose that the offer is therefore so contingent that it is really no offer or promise to do anything at all. Indeed, the Alliance Tender Offer is so contingent that it is materially misleading to make it appear to be a genuine offer. 106. The Alliance Tender Offer states that "depending upon a number of factors, Alliance may consider substituting cash in an amount equal to the offer price for some or all of the proposed merger consideration of Alliance common stock." The Alliance Tender Offer fails to disclose what factors might prompt such substitution, the source of such cash, and the likelihood that such cash will be available. 107. The Alliance Tender Offer's repeated references to $12.50 as the value of the consideration on the back-end merger is false and misleading in creating and attempting to create the impression that such figure represents the sum of market value of the equity securities and/or cash per Bally Gaming share to be exchanged on the back-end merger. In fact, in view of the all the defendants' stated contingencies there can be no assurance in regard to the market value or attractiveness of such securities to the investing public. Defendants' Failure To Disclose A Controlling Person - Richard Rainwater --------------------------------------------- 108. The Alliance Tender Offer fails to disclose the existence of Richard Rainwater ("Rainwater") as a controlling person of Alliance. Upon information and belief, Kirkland-Fort Worth Investment Partners, L.P. ("Kirkland-Forth Worth") owns or controls approximately 11% of Alliance's shares, as a result of a September 1993 investment of $5 million in exchange for 1.3 million shares of non-voting junior convertible special stock and warrants for the purchase of 2.75 million shares of common stock at $1.50 a share. Upon the exercise of such warrants, Kirkland- Fort Worth will own approximately 26% of the total shares outstanding of Alliance. -27- PAGE 109. Upon information and belief, Rainwater, his adult children and their trusts own approximately a 40% interest in Kirkland-Fort Worth. As a result of the foregoing, and the active role of Rainwater with respect to Alliance as set forth below, Rainwater is a controlling person of Kirkland-Fort Worth and through that entity, a controlling person of Alliance. 110. Rainwater is a well known investment analyst or investor having run investment portfolios for a number of large entities. Upon information and belief, his investments include a stake in the Texas Rangers baseball team and an interest in Columbia/RCA Health Care Corp. He is known in the financial community as the man who assisted the Bass family in obtaining a 25% stake in Walt Disney Co. and was active in the successful gubernatorial campaign of George W. Bush, son of the former President. 111. Upon information and belief, Rainwater is the person upon whom the financial community is relying in connection with the Alliance Tender Offer and without whose investment and reputation the Alliance Tender Offer would not be possible. 112. Upon information and belief, Rainwater took a leading role on behalf of Alliance in the negotiations between Alliance and Bally Gaming which commenced in November 1993, and led off the presentations made to representatives and directors of Bally Gaming. 113. The Alliance Tender Offer fails to disclose that, upon information and belief, the conditions on the license granted to Alliance by the Nevada Gaming Commission set forth in the eighth revised order of registration entered on February 23, 1995, prohibit Rainwater from any involvement in the management of Alliance, which would include conducting such negotiations with Bally Gaming without prior approval of the Nevada Gaming authorities. Upon information and belief, such approval has not been requested or obtained. 114. The Alliance Tender Offer fails to disclose that, upon information and belief, Rainwater's participation in the conduct of such negotiations in Alliance's efforts to acquire Bally Gaming could jeopardize Alliance's (a) ability to obtain regulatory approval from Nevada authorities of the proposed Alliance-Bally Gaming merger, (b) jeopardize Nevada gaming licenses and thereby (c) jeopardize Alliance's ability to remain in business. 115. The Alliance Tender Offer fails to disclose that Rainwater is not presently licensed as a controlling person of Alliance and that if the Nevada Gaming authorities requested that -28- PAGE he be licensed as a controlling person and he refused, it would jeopardize Alliance's licenses. The Alliance Tender Offer also fails to disclose that if Rainwater agreed to be licensed as a controlling person it could delay regulatory approval of the Al- liance transaction. 116. The Alliance Tender Offer's failure to disclose the foregoing matters regarding Rainwater represents material omissions which make the offer to purchase misleading. Other Public False and Misleading Statements by Defendants --------------------------------- 117. The August 8, 1995 letter from Alliance Gaming to Bally Gaming stockholders announcing the consent solicitation to replace a majority of Bally Gaming's Board of Directors with "independent directors" is an integral part of the Alliance Tender Offer scheme and repeats and reinforces the false and misleading statements in the Alliance Tender Offer and is false and misleading in at least the respects set forth in paragraphs 52-54, 83, 89-94, 98, 101 and 108-116 hereof. 118. The preliminary consent statement filed by Alliance with the SEC on August 8, 1995 is an integral part of the Alliance Tender Offer scheme and repeats and reinforces the false and misleading statements in the Alliance Tender Offer and is false and misleading in at least the respects set forth in paragraphs 52-54, 64-65, 67-74, 76-78, 80-81, 84-94, 97-116 hereof. 119. The August 8, 1995 press release from Alliance is an integral part of the Alliance Tender Offer scheme and repeats and reinforces the false and misleading statements in the Alliance Tender Offer and is false and misleading in at least the respects set forth in paragraphs 52-54, 89-94, 98, 101 and 108- 116 hereof. IRREPARABLE HARM ---------------- 120. Defendants' course of conduct constitutes a fraudulent, deceptive and manipulative act or practice in connection with a tender offer, in violation of Section 14(e) of the 1934 Act. 121. The Alliance Tender Offer omits material information and contains misstatements, such that the stock- holders of Bally Gaming will be misled, in violation of Section 14(e) of the 1934 Act. Such omissions and misstatements do and -29- PAGE will irreparably harm WMS by causing the stockholders of Bally Gaming to consider an incomplete and misleading offer in competition with the Merger Agreement and to the possible detriment and/or defeat of the Merger Agreement. 122. Defendants' course of conduct as alleged herein has injured WMS and the stockholders of Bally Gaming and, unless enjoined, defendants, conduct will continue to inflict upon WMS and Bally Gaming stockholders irreparable injury for which neither WMS nor the Bally Gaming stockholders has an adequate remedy at law. 123. Unless enjoined, defendants will proceed with the competing offer without having given Bally Gaming stockholders all the information concerning the Alliance common stock required by law which would enable those stockholders to make an informed investment decision between the hostile offer and the WMS Merger Agreement. 124. Bally Gaming stockholders have been and are threatened with irreparable injury because they are being forced to make an investment decision with respect to the Alliance Tender Offer and the Merger Agreement, without having the information about the Alliance Tender Offer required by law. Bally Gaming stockholders may thus make a decision which is not in their best interests based upon the misleading statements in the Alliance Tender Offer. 125. Moreover, WMS has been and will continue to be irreparably injured because its Merger Agreement must compete with an unregistered offering of securities and cash; the hostile offer requires an evaluation of a package which includes the equity securities as to which the investing public is deprived of required information and terms in violation of the requirements of the federal securities laws. WMS's interest in proceeding with its offer and having its offer evaluated on the merits and against the hostile offer may thus be defeated and will be unfairly damaged unless defendants are required to comply with the law. 126. Injunctive relief is necessary to preserve the status quo. If the Alliance Tender Offer is not enjoined, and Alliance completes both the tender offer and the subsequent back- end merger, Bally Gaming will become part of Alliance or of BAC. It will then cease existence as a separate entity. Injunctive relief is necessary so that such a position is not reached as a result of defendants' illegal actions. -30- PAGE COUNT I ------- (For violations of Section 14(e) of the 1934 Act) 127. Repeats and realleges paragraphs 1 through 126 hereof as if the same were set forth at length hereat. 128. Section 14 (e) of the 1934 Act prohibits untrue statements of material fact or the omission of facts which are necessary to make the facts therein not misleading in connection with a tender offer. 129. The above-stated misstatements and omissions of facts are material to any evaluation by Bally Gaming's stockholders with respect to the Alliance Tender Offer and the Merger Agreement. 130. Plaintiff will suffer irreparable harm unless defendants are enjoined from continuing with their misleading tender offer and ordered to comply with Section 14(e) of the 1934 Act and all SEC rules and regulations promulgated thereunder. The nature of the harm is that defendants have provided materially misleading and incomplete information to Bally Gaming stockholders in connection with a hostile offer intended to defeat WMS's Merger Agreement. The Merger Agreement with WMS may be nullified by defendants' unlawful acts. Any Bally Gaming stockholders that decide to tender their shares to Alliance absent full disclosure by Alliance and given the material misrepresentations that currently exist in the Alliance Tender Offer materials will be misled to their detriment, to Bally Gaming's detriment and to the detriment of WMS. The result of the so-called back-end merger will be the disappearance of Bally Gaming as a separate entity. 131. By reason of the foregoing, defendants have violated and continue to violate Section 14(e) of the 1934 Act. 132. Issuance of a preliminary injunction would not cause substantial harm to others because it would merely prevent anyone from relying on Alliance's faulty and erroneous documents. The public interest would be served by issuing the preliminary injunction. Plaintiff has no adequate remedy at law. -31- PAGE COUNT II -------- (For Violation of Section 14(d) of the 1934 Act) 134. Repeats and realleges paragraphs 1 through 126 hereof as if the same were set forth at length hereat. 135. Section 14(d) of the 1934 Act requires that tender offerors like Alliance file with the SEC a statement containing the information required by SEC Rules. Rule 14d-100 sets forth the information to be fully and accurately provided, including "such additional material information as may be necessary to make the required statements, in light of the circumstances in which they are made, not materially misleading." 136. By reason of the above-stated misstatements and omissions of material facts, defendants have violated and continue to violate section 14(d) of the 1934 Act. 137. Plaintiff will suffer irreparable harm as set forth above. 138. Issuance of a preliminary injunction would not cause substantial harm to others because it would merely prevent anyone from relying on Alliance's faulty and erroneous documents. The public interest would be served by issuing the preliminary injunction. 139. Plaintiff has no adequate remedy at law. COUNT III --------- (Tortious Interference With A Contract) 140. Repeats and realleges paragraphs 1 through 126 hereof as if the same were set forth at length hereat. 141. By the statements in the Alliance Tender Offer defendants, among other things, urge Bally Gaming to breach the Merger Agreement made with WMS. 142. The statements in the Alliance Tender Offer to the effect that granting Alliance due diligence would not breach the Merger Agreement are dishonest, unfair, fraudulent and deceitful. 143. But for Alliance's actions, no such breach would occur. -32- PAGE 144. Defendants' actions are tortiously interfering with the Merger Agreement, of which defendants are and have been aware. 145. WMS has been damaged by said tortious interference in an amount to be determined at trial. COUNT IV -------- (Tortious Interference With Prospective Advantage) 146. Repeats and realleges paragraphs 1 through 126 hereof as if the same were set forth at length hereat. 147. Defendants' course of conduct, as alleged in this complaint, constitutes an unlawful interference with WMS's prospective economic commercial advantage and its opportunity to compete and to complete the Merger Agreement negotiated by and between Bally Gaming and WMS, in violation of applicable state and common law. 148. WMS is entitled to damages in an amount to be determined at trial. WHEREFORE, plaintiff demands judgment as follows: (1) Enjoining and restraining defendants, their agents and employees and those acting in concert with them, permanently and during the pendency of this action, from directly or indirectly: (a) Acquiring or attempting to acquire any Bally, Gaming securities; (b) Continuing their present offer and making any further offers for, or requests or invitations for, tender of Bally Gaming securities; (c) Soliciting or arranging for the solicitation of offers to buy Bally Gaming securities; (d) Making any further public announcements concerning offers to acquire Bally Gaming securities; (e) Voting in person or by proxy any Bally Gaming securities; (f) Otherwise utilizing or attempting to utilize Bally Gaming securities as a means of controlling or affecting the management of Bally Gaming; -33- (g) Taking any steps to merge or otherwise effect a combination of Bally Gaming and Alliance or any subsidiary or affiliate of any of them; (h) Exercising or attempting to exercise, directly or indirectly, any influence in the management of Bally Gaming; (i) Taking any steps in furtherance of their unlawful plan to acquire control of Bally Gaming until defendants correct the misstatements and omissions detailed herein which may mislead Bally Gaming stockholders and conducts said offer in ac- cordance with the law. (2) Preliminarily and permanently enjoining defendants from interfering with or otherwise disrupting the Merger Agreement by and between WMS and Bally Gaming. (3) Preliminarily and permanently enjoining defendants from violating the 1934 Act in connection with the Merger Agreement and the Alliance Tender Offer, and from failing to disclose material facts necessary to make prior announcements not misleading. (4) Compelling defendants' to take corrective steps to rectify and cure the effects of its manipulative and fraudulent actions. (5) Granting WMS such judgment for damages and costs, including reasonable attorneys' fees as it has sustained or shall sustain as a result of the aforesaid violations of law. (6) Awarding such other and further relief as this Court deems just and proper. Dated: New York, New York September 6, 1995 BURNS HANDLER & BURNS LLP By:_________________________ Arthur M. Handler (AH 0693) Attorneys for Plaintiff WMS Industries Inc. 220 East 42nd Street Suite 3000 New York, New York 10017 (212) 687-1300 -34- PAGE Arthur M. Handler (AH 0693) BURNS HANDLER & BURNS LLP Attorneys for Plaintiff 220 East 42nd Street, Suite 3000 New York, New York 10017 (212) 687-1300 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - X : WMS INDUSTRIES INC., : Plaintiff, GENERAL RULE 9 : STATEMENT - against - : ALLIANCE GAMING CORPORATION, BGII ACQUISITION CORP., JOEL : 95 Civ. ____ (___) KIRSCHBAUM, STEVEN GREATHOUSE, ANTHONY L. DICESARE, CRAIG : FIELDS, DAVID ROBBINS, ALFRED W. WILMS AND JOHN DOES 1-5. : Defendants. : - - - - - - - - - - - - - - - - - X Pursuant to General Rule 9 of the rules of this Court, plaintiff WMS Industries Inc. hereby identifies any corporate parents, subsidiaries or affiliates of said parties which are publicly held as follows: not applicable. Dated: New York, New York September 6, 1995 BURNS HANDLER & BURNS LLP By:___________________________ Arthur M. Handler (AH0693) Attorneys for Plaintiff WMS Industries Inc. 220 East 42nd Street Suite 3000 New York, New York 10017 (212) 687-1300