**Exhibit 10.21**

 

**PREPAYMENTAGREEMENT**

 

THIS PREPAYMENT AGREEMENT is dated as of June 28, 2005, and isbeing entered into by and among Alliance Gaming Corporation, a Nevadacorporation (“Alliance”), Robert Luciano, Jr. (“Luciano”), and Luciano, astrustee of the Robert Luciano Family Trust dated February 27, 1995, asamended (“Holder”).

 

RECITALS

 

WHEREAS, Alliance issued an Unsecured Subordinated Promissory Notedated December 30, 2004 in the principal sum of $28,000,000 (the “PromissoryNote”) to Luciano, as trustee of the Holder, for the benefit of the SellerGroup.

 

WHEREAS, pursuant to the terms of the Promissory Note, Alliance mayprepay the amounts due under the Promissory Note at any time in cash or by thedelivery of shares of Alliance’s common stock, par value $0.10 per share (the “AllianceShares”) and Alliance desires to prepay a portion of the Promissory Note bypayment of Alliance Shares on June [28], 2005 (the “Prepayment Date”).

 

WHEREAS, Luciano, as trustee of the Holder, has instructed and directedAlliance that the Alliance Shares constituting the prepayment should be paiddirectly to the members of the Seller Group in the manner set forth herein.

 

NOW THEREFORE, for good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.             Definitions. Capitalized terms not otherwise defined herein shall have the meaningsset forth in that certain Amended and Restated Stock Purchase Agreement datedas of March 2, 2004, and as amended by that certain Amendment No. 1dated as of December 30, 2004, by and among Alliance, Sierra Design Group,a Nevada corporation, Luciano and the Holder, as sole stockholder of SierraDesign Group.

 

2.             Instruction by Luciano. Luciano, as trustee of the Holder, herebyinstructs and directs Alliance that the Alliance Shares constituting theprepayment should be paid directly to the members of the Seller Group asfollows:

 

(a)           Each individual listed on Schedule 1 that has executed and delivered toAlliance by 5:00 p.m. PDT on the day immediately prior to the PrepaymentDate, an Investor Representation Letter and Acknowledgement Agreement in theform attached as Exhibit A hereto (the “Acknowledgement”), shall receivehis share of the prepayment in a number of unregistered Alliance Shares equalto one-half of the individual’s *pro**rata*percentage (set forth on Schedule 1hereto) of the Outstanding Balance plus accrued and unpaid interest thereon, *divided by*the average per share closingprice of the Alliance Shares on the New York Stock Exchange for the 20 businessdays immediately prior to the Prepayment Date.

 

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(b)           Luciano shall receive payment in Alliance Shares in an amount equal to$14 million minus the aggregate amount in principal paid under Section 2(a), *plus*accrued and unpaid interest thereon, *divided by*the average per share closingprice of the Alliance Shares on the New York Stock Exchange for the 20 businessdays immediately prior to the Prepayment Date (such amount, the “LucianoPrepayment”).

 

3.             Prepayment Procedures. Upon the Prepayment Date, Luciano shallcancel and deliver the Promissory Note to Alliance. Alliance will issue toLuciano, as trustee of the Holder and for the benefit of such individuals,within two business days thereof, a new promissory note identical in form tothe Promissory Note in the principal sum of $14 million. Any fractional AllianceShares that result from the calculation of the prepayment amount in Section 2shall be rounded up to the nearest whole Alliance Share.

 

4.             Representation and Warranties of Luciano. Luciano represents and warrants to Alliancethat he:

 

(a)           is an “Accredited Investor”, as such term is defined in Rule 501(a) ofRegulation D promulgated under the Securities Act of 1933, as amended;

 

(b)           has such knowledge and experience in financial business matters that heis capable of evaluating the merits and risks of the prospective investment inthe Alliance Shares; and

 

(c)           (i) is receiving Alliance Shares under this Agreement and isacquiring the Alliance Shares for investment for his own account, not as anominee or agent, and not with a view to the resale or distribution of any partthereof in violation of the Securities Act, (ii) has no present intentionof selling, granting any participation in, or otherwise distributing any of theshares of Alliance Shares issued hereunder otherwise than pursuant to aneffective registration statement under the Securities Act or in a transactionexempt from the registration requirements under the Securities Act andapplicable state securities laws and (iii) has no contract, undertaking,agreement or arrangement with any person to sell, transfer or grantparticipations to such person or to any third person, with respect to any ofthe Alliance Shares issued hereunder.

 

5.             Restrictive Legend. Each certificate representing (a) theAlliance Shares, and (b) any other securities issued in respect of theAlliance Shares upon any stock split, stock dividend, recapitalization, merger,consolidation or similar event, shall be stamped or otherwise imprinted withlegends in the following form (in addition to any legend required under applicablestate securities and gaming laws):

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FORINVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THEABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OFCOUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO ITSTATING THAT

 

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SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERYREQUIREMENTS OF SAID ACT.”

 

6.             Registration of the Alliance Shares. Except as restricted by applicable law, as soonas practicable after Alliance files its Form 10-K for the fiscal yearending June 30, 2005 with the Commission, Alliance shall prepare and filewith the Commission a registration statement (“Shelf Registration Statement”)on an appropriate form as provided in the applicable rules and regulationsof the Commission to register under the Securities Act of 1933, as amended (the“Securities Act”) the offer and sale of the Alliance Shares prepaid pursuant tothis Agreement to Luciano and the individuals listed in Schedule 1 thathave timely executed and delivered the Acknowledgement, from time to time inaccordance with the methods of distribution set forth in the Shelf RegistrationStatement and Rule 415 under the Securities Act.

 

7.             Registration Procedures. Alliance shall use its best efforts to keepthe Shelf Registration Statement continuously effective, supplemented andamended as required by the Securities Act, in order to permit the ShelfRegistration Statement to be usable by Luciano and the individuals listed in Schedule 1that have timely executed and delivered the Acknowledgement for a period fromthe date the Shelf Registration Statement is declared effective by theCommission until the earlier of (i) the second anniversary thereof or (ii) thedate upon which all the Alliance Shares covered by the Shelf RegistrationStatement have been sold pursuant thereto. Alliance shall cause the ShelfRegistration Statement and any amendment or supplement thereto, (A) tocomply in all material respects with the applicable requirements of the SecuritiesAct; and (B) not to contain any untrue statement of a material fact oromit to state a material fact required to be stated therein or necessary inorder to make the statements therein not misleading. The parties herebyacknowledge that Alliance shall have no obligation to distribute the AllianceShares covered by the Shelf Registration Statement through an underwritten offering.

 

8.             Expenses of Registration. Alliance shall bear all fees associatedwith the filing of the Shelf Registration Statement including: (i) allregistration and filing fees, (ii) all fees and expenses of compliancewith federal securities laws and state “blue sky” or securities laws, (iii) allexpenses of printing, (iv) all fees and disbursements of legal counsel toAlliance, (v) all application fees in connection with the listing of theAlliance Shares on a national securities exchange, (vi) all fees anddisbursements of independent public accountants for Alliance and (vii) thereasonable fees and disbursements of not more than one law firm or counsel toact as counsel for the members of the Seller Group. Notwithstanding theforegoing, Alliance shall not be responsible for any selling commissions orstock transfer taxes associated with the distribution of the Alliance Shares.

 

9.             Miscellaneous.

 

(a)           *Complete Agreement.*This Agreement, the Schedules and thedocuments delivered or to be delivered pursuant to this Agreement contain orwill contain the entire agreement among the parties with respect to thetransactions contemplated hereby and shall supersede all prior orcontemporaneous oral or written negotiations, commitments, agreements andunderstandings with respect to such subject matter.

 

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(b)           *Notices.*All notices, requests, demands and othercommunications hereunder shall be in writing and shall be deemed given ifdelivered personally or by facsimile transmission (with subsequent letterconfirmation by mail) or three days after being mailed by certified or registeredmail, postage prepaid, return receipt requested, to the parties, theirsuccessors in interest or their assignees at the following addresses, or atsuch other addresses as the parties may designate by written notice in themanner aforesaid:

 
| If  to Alliance;            | Alliance  Gaming Corporation          |
|-----------------------------|---------------------------------------|
|                        | 6601  South Bermuda Road              |
|                        | Las  Vegas, Nevada 89119              |
|                        | Facsimile:                            | (702)  896-7990 |
|                        | Attention:                            | Legal  Department |
|                        |                                  |   |
| With  a copy (which does    |                                  |   |
| not  constitute notice) to: | Gibson,  Dunn & Crutcher LLP |
|                        | 333  South Grand Avenue               |
|                        | Los  Angeles, California 90071-3197   |
|                        | Facsimile:                            | (213)  229-7520 |
|                        | Attention:                            | Peter  F. Ziegler, Esq. |
|                        |                                  |   |
| If  to Luciano or Holder:   | Mr. Robert  Luciano              |
|                        | c/o  Sierra Design Group              |
|                        | 300  Sierra Manor Dr.                 |
|                        | Reno,  Nevada 89511                   |
|                        | Telecopy:                             | (775)  850-1501 |
|                        | Attention:                            | Robert  Luciano |
|                        |                                  |   |
| With  a copy (which does    |                                  |   |
| not  constitute notice) to: | Lionel,  Sawyer & Collins    |
|                        | 1100  Bank of America Plaza           |
|                        | 50  West Liberty Street               |
|                        | Reno,  Nevada 89501                   |
|                        | Facsimile:                            | (775)  788-8682 |
|                        | Attention:                            | Dan  Reaser |

 

(c)           *Governing Law.*This Agreement shall be governed by, andconstrued and enforced in accordance with, the internal law, and not the lawpertaining to conflicts or choice of law, of the State of Nevada.

 

(d)           *Fees and Expenses.*Except as provided for in Section 7, theparties shall bear their own attorneys’, accountants’ and other fees, costs andexpenses incurred in connection with the negotiation and the consummation ofthe transactions contemplated hereby.

 

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(e)           *Attorneys’ Fees and Costs.*Should any party institute any action orproceeding in any court to enforce any provision of this Agreement, theprevailing party shall be entitled to receive from the losing party reasonableattorneys’ fees and costs incurred in such action or proceeding, whether or notsuch action or proceeding is prosecuted to judgment.

 

(f)            *Counterparts.*This Agreement may be executed by facsimilecopy and in multiple counterparts, each of which shall be deemed an original,but all of which when taken together shall constitute one and the sameinstrument.

 

***[Signature Page follows]***

 

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**IN WITNESS****WHEREOF,** eachof the parties has executed this Prepayment Agreement as of the date firstwritten above.

 

 
| **LUCIANO**  | /s/ Robert Luciano                                   |                       |
|--------------|------------------------------------------------------|----------------------------|
|         | Robert  Luciano                                      |                       |
|         |                                                 |                       |
|         |                                                 |                       |
| **HOLDER**   | Robert Luciano Family  Trust dated                   |
|         | February 27, 1995, as  amended                       |
|         |                                                 |
|         |                                                 |                       |
|         | /s/ Robert Luciano                                   |                       |
|         | Name: Robert Luciano                                 |                       |
|         | Title: Trustee                                  |                       |
|         |                                                 |                       |
|         |                                                 |                       |
| **ALLIANCE** | ALLIANCE  GAMING CORPORATION,  a Nevada Corporation  |
|         |                                                 |                       |
|         |                                                 |                       |
|         | By:                                                  |  /s/ Steven DesChamps |   |
|         | Name:     Steven  DesChamps |                       |
|         | Title:       CFO  |                       |
|              |                                                      |                            |  |

 

[signature page to Prepayment Agreement]

 

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**Schedule 1**

 
| **Name** | ** **         | **Pro Rata Percentage** | ** ** |
|----------|--------------------|-------------------------|------------|
| 1.       | Robert Crowder (A) |                    | 2.6288     | % |
| 2.       | Loren Nelson (A)   |                    | 2.1288     | % |
| 3.       | Craig Bullis       |                    | 2.4428     | % |
| 4.       | Warren White       |                    | 2.2148     | % |
| 5.       | Lars Perry         |                    | 1.8064     | % |
| 6.       | Thomas Taxon       |                    | 1.7910     | % |
| 7.       | Walter Eisele      |                    | 0.4540     | % |
| 8.       | Michael Delaney    |                    | 0.4540     | % |

 

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**EXHIBIT A**

** **

**INVESTOR REPRESENTATION LETTERAND ACKNOWLEDGEMENT AGREEMENT**

 

THIS INVESTOR REPRESENTATION LETTER AND ACKNOWLEDGMENT AGREEMENT (this “Acknowledgment”)is dated as of June [   ], 2005, and is being entered into byand between                                       ,an individual and a member of the Seller Group (the “Seller Group Member”), andAlliance Gaming Corporation, a Nevada corporation (“Alliance”).

 

RECITALS

 

WHEREAS, Alliance issued an Unsecured Subordinated Promissory Notedated December 30, 2004 in the principal sum of $28,000,000 (the “PromissoryNote”) to Luciano, as trustee of the Robert Luciano Family Trust dated February 27,1995, as amended (“Trust”), for the benefit of the Seller Group.

 

WHEREAS, pursuant to the terms of the Promissory Note, Alliance mayprepay the amounts due under the Promissory Note at any time in cash or by thedelivery of such number of shares of Alliance’s common stock, par value $0.10per share (the “Alliance Shares”).

 

WHEREAS, Luciano, as trustee of the Trust, has instructed and directedAlliance that the Alliance Shares constituting the prepayment should be paiddirectly to certain members of the Seller Group in the manner set forth in thePrepayment Agreement by and among Alliance, Luciano and the Trust (the “PrepaymentAgreement”).

 

WHEREAS, pursuant to the Prepayment Agreement, the Seller Group Memberis receiving Alliance Shares in respect of one-half of his interest in thePromissory Note.

 

NOW, THEREFORE, for good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties agree as follow:

 

1.             Definitions. Capitalized terms not otherwise defined herein shall have the meaningsset forth in that certain Amended and Restated Stock Purchase Agreement datedas of March 2, 2004, and as amended by that certain Amendment No. 1dated as of December 30, 2004, by and among Alliance, Sierra Design Group,a Nevada corporation, Luciano and the Trust, as sole stockholder of SierraDesign Group.

 

2.             Representation and Warranty of each SellerGroup Member. The SellerGroup Member represents and warrants that he:

 

**[FOR THE ACCREDITED INVESTORS]**

 

(a)           is an “Accredited Investor”, as such term is defined in Rule 501(a) ofRegulation D promulgated under the Securities Act of 1933, as amended;

 

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(b)           has such knowledge and experience in financial business matters that heis capable of evaluating the merits and risks of the prospective investment inthe Alliance Shares; and

 

(c)           (i) is receiving Alliance Shares under this Agreement and isacquiring the Alliance Shares for investment for his own account, not as anominee or agent, and not with a view to the resale or distribution of any partthereof in violation of the Securities Act, (ii) has no present intentionof selling, granting any participation in, or otherwise distributing any of theshares of Alliance Shares otherwise than pursuant to an effective registrationstatement under the Securities Act or in a transaction exempt from the registrationrequirements under the Securities Act and applicable state securities laws and (iii) hasno contract, undertaking, agreement or arrangement with any person to sell,transfer or grant participations to such person or to any third person, withrespect to any of the Alliance Shares.

 

**[FOR THE NON-ACCREDITED INVESTORS]**

 

(a)           has such knowledge and experience in financial business matters that heis capable of evaluating the merits and risks of the prospective investment inthe Alliance Shares;

 

(b)           has received (i) the Annual Report on form 10-K, as amended, ofAlliance for its fiscal year ended June 30, 2004, (ii) the QuarterlyReports on Form 10-Q of Alliance for the quarters ended September 30,2004, December 31, 2004 and March 31, 2005, (iii) the Proxy Statementfor the Annual Meeting of Alliance held on December 8, 2004 and (iv) anycurrent reports on Form 8-K of Alliance filed with the Securities andExchange Commission since March 31, 2005; and

 

(c)           (i) is receiving Alliance Shares under this Agreement and isacquiring the Alliance Shares for investment for his own account, not as anominee or agent, and not with a view to the resale or distribution of any partthereof in violation of the Securities Act, (ii) has no present intentionof selling, granting any participation in, or otherwise distributing any of theshares of Alliance Shares otherwise than pursuant to an effective registrationstatement under the Securities Act or in a transaction exempt from theregistration requirements under the Securities Act and applicable statesecurities laws and (iii) has no contract, undertaking, agreement or arrangementwith any person to sell, transfer or grant participations to such person or toany third person, with respect to any of the Alliance Shares.

 

3.             Acknowledgment and Consent. The Seller Group Member hereby acknowledgesand agrees that the delivery and payment of Alliance Shares pursuant to thePrepayment Agreement dated June [   ], 2005, constitutesthe prepayment in full of one-half of the amount of the Outstanding Balanceplus the accrued and unpaid interest thereon owed to him under the PromissoryNote.

 

***[Signature Page follows]***

 

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**IN WITNESS WHEREOF,** each of the parties has executed this Investor Representation Letterand Acknowledgement Agreement as of the date first written above.

 

 
| **ALLIANCE**            | ALLIANCE  GAMING CORPORATION, |
|-------------------------|-------------------------------|
| ** **              | a  Nevada Corporation         |
| ** **              |                          |
| ** **              | By:                           |   |   |
| ** **              | Name:                         |
| ** **              | Title:                        |
| ** **              |                          |
| ** **              |                          |
| **SELLER GROUP MEMBER** |                          |   |
| ** **              | Name:                         |
|                         |                               |  |  |  |

 

[signature page to InvestorRepresentation Letter and Acknowledgment Agreement]

 

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