**Exhibit 10.40**

 

**AMENDMENT TOHADDRILL EMPLOYMENT AGREEMENT**

 

ThisAmendment to the Employment Agreement (the “Amendment”) is made andentered into as of December 22, 2004 (the “Effective Date”), by andbetween Alliance Gaming Corporation, a Nevada corporation (the “Company”),and Richard Haddrill, currently residing at 3394 Knollwood Drive, Atlanta,Georgia  30305 (“Haddrill”).

 

WHEREAS,the Company and Haddrill are parties to that certain Employment Agreement datedas of June 30, 2004 (the “Employment Agreement”) pursuant to whichHaddrill is employed as the Company’s Chief Executive Officer;

 

WHEREAS,pursuant to the Employment Agreement, the Company granted to Haddrillnon-statutory stock options to acquire 500,000 shares of the Company’s commonstock (the “Options”) and 377,030 restricted stock units (the “RestrictedStock Units”) under the Company’s Amended and Restated 2001 Long TermIncentive Plan (the “Plan”); and

 

WHEREAS,the Company and Haddrill desire to amend the Employment Agreement to grantadditional non-statutory stock options and restricted stock units and to modifythe date by which Haddrill is to acquire the Alliance Stock (as such term isdefined herein).

 

NOWTHEREFORE, on the basis of the foregoing premises and in consideration of themutual covenants and agreements contained herein, the parties hereto agree asfollows:

 

1.                                       As of the Effective Date, the Company shallgrant Haddrill additional non-statutory stock options to acquire 300,000 sharesof the Company’s common stock under the Plan (the “Additional Options”),at an exercise price per share equal to the fair market value of a share of theCompany’s common stock as of the Effective Date (as determined in accordancewith the Plan).  The Additional Optionsshall vest and be subject to the terms and conditions set forth on Schedule A-1hereto.

 

2.                                       As of the Effective Date, the Company shallgrant Haddrill a number of additional restricted stock units under the Plan(the “Additional Restricted Stock Units”), in an amount equal to $1.9million, as calculated in accordance with Schedule B-1 hereto.  The Additional Restricted Stock Units shallvest and be subject to the terms and conditions set forth on Schedule B-1hereto.

 

3.                                       Sections 8(a), (b), (c) and (d)(i) of theEmployment Agreement are hereby amended and restated in their entirety to readas follows:

 

“8.                                 Payments Upon Termination or Change ofControl.

 

(a)                                  If Haddrill’s employment is terminated underparagraph 7(a) or 7(d) hereof, (i) the Company shall have no further obligationunder this Agreement, except the obligation to pay Haddrill an amount equal tothe portion of his compensation 

 

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andout-of-pocket business expenses as may be accrued and unpaid on the date oftermination and (ii) Haddrill shall be entitled to retain the rights grantedhereunder to [a] that number of Restricted Stock Units and AdditionalRestricted Stock Units that have vested through the date of termination inaccordance with the vesting schedules set forth on Schedules B and B-1,respectively, hereof and [b] that number of Options and Additional Options thathave vested in accordance with the vesting schedules set forth in Schedules Aand A-1, respectively, hereof.  All non-vestedRestricted Stock Units, Additional Restricted Stock Units, Options andAdditional Options shall be immediately forfeited.

 

(b)                                 If Haddrill’s employment is terminated underparagraphs 7(b) or 7(c) hereof, (i) the Company shall [a] pay Haddrill anamount equal to the portion of his compensation and out-of-pocket businessexpenses as may be accrued and unpaid on the date of termination; [b] payHaddrill severance pay in an amount equal to the base salary for a period ofone year from the date of termination or until the expiration of this Agreement,whichever first occurs; and (ii) Haddrill shall be entitled to retain therights granted hereunder to [a] the Restricted Stock Units and AdditionalRestricted Stock Units to the extent provided in Schedules B and B-1,respectively, hereof; provided that the Restricted Stock Units and AdditionalRestricted Stock Units shall be pro rated through the 12-month period followingthe month in which the date of termination occurs (i.e., the number ofRestricted Stock Units and Additional Restricted Stock Units to which Haddrillshall be entitled shall be equal to the aggregate of all  Restricted Stock Units and AdditionalRestricted Stock Units multiplied by a fraction, the numerator of which shallbe the number of partial or whole months served by Haddrill under thisAgreement from and after the Commencement Date plus 12, and the denominator ofwhich shall be 36), and [b] (i) all Options in which price targets have beenachieved at the date of termination regardless of the time vesting requirement,(ii) the portion of Additional Options pro rated through the month in which thedate of termination occurs and (iii) all other time vesting options withrespect to which the price targets have not been achieved (“Time VestedOptions”) shall be pro rated through the month in which the date oftermination occurs; provided that the Time Vested Options shall be exercisableonly to the extent the price targets are achieved within the time periodsspecified on Schedule A attached hereto. Except as provided herein, all non-vested Restricted Stock Units,Additional Restricted Stock Units, Options and Additional Options shall beimmediately forfeited.

 

(c)                                  If Haddrill’s employment is terminated underparagraph 7(e) or 7(f), (i) the Company shall [a] pay to Haddrill or Haddrill’sEstate, as the case may be, an amount equal to the portion of his compensationand out-of-pocket business expenses as may be accrued and unpaid as of the dateof his termination; and [b] pay Haddrill or Haddrill’s Estate the base salaryfor a period of one year from the date of Haddrill’s termination of employmentor until expiration of the term of this Agreement, whichever occurs first; and(ii) Haddrill or Haddrill’s Estate shall be entitled to retain the rightsgranted hereunder to [a] that number of Restricted Stock Units and AdditionalRestricted Stock Units that have vested through the date of termination inaccordance with the vesting schedules set forth on Schedules B and B-1,respectively, hereof and [b] the number of Options and Additional Options thathave vested at the date of termination in accordance with the vesting schedulesset forth in Schedules A and A-1, respectively, 

 

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hereof.  Except as provided herein, all non-vestedRestricted Stock Units, Additional Restricted Stock Units, Options andAdditional Options shall be immediately forfeited.

 

(d)                                 (i) Upon a Change of Control, as hereinafterdefined, [a] the Company shall pay to Haddrill $980,000, and [b] Haddrill shallbe entitled to retain the rights granted hereunder to [1] all of the RestrictedStock Units and Additional Restricted Stock Units granted to him irrespectiveof the vesting schedules or distribution provisions set forth on Schedules Band B-1, respectively, hereof; provided that he shall not be entitled toreceive a distribution of the shares represented by the Restricted Stock Unitsor Additional Restricted Stock Units until the occurrence of one of thedistribution events listed in Section 409A(a)(2)(a) of the Internal Revue Code(the “Code”) and [2] all of the Options and Additional Options granted to himirrespective of the vesting schedules set forth in Schedules A and A-1,respectively, hereof, and all such Restricted Stock Units, AdditionalRestricted Stock Units, Options and Additional Options shall vestimmediately.  Notwithstanding paragraphs8(a) through (c), upon a Change of Control the Company shall have no furtherobligations under this Agreement other than as set forth in this paragraph8(d).  For purposes of this paragraph8(d), “Change of Control” shall mean (i) the acquisition, directly orindirectly, by any unaffiliated person, entity or group (a “Third Party”)of beneficial ownership of more than 50% of the combined voting power of theCompany’s then outstanding voting securities entitled to vote generally in theelection of directors; (ii) consummation of (1) a reorganization, merger orconsolidation of the Company, or (2) a liquidation or dissolution of theCompany or (3) a sale of all or substantially all of the assets of the Company(whether such assets are held directly or indirectly) to a Third Party; or(iii) the individuals who as of the date of this Agreement are members of theBoard of Directors (together with any directors elected or nominated by amajority of such individuals) cease for any reason to constitute at least amajority of the members of the Board of Directors; except that any event ortransaction which would be a “Change of Control” under (i) or (ii) (1) of thisdefinition, shall not be a Change of Control if persons who were the equityholders of the Company immediately prior to such event or transaction (otherthan the acquiror in the case of a reorganization, merger or consolidation),immediately thereafter, beneficially own more than 50% of the combined votingpower of the Company’s or the reorganized, merged or consolidated company’sthen outstanding voting securities entitled to vote generally in the electionof directors.”

 

4.                                       Section 9 of the Employment Agreement ishereby amended and restated in its entirety to read as follows:

 

“9.                                 Purchase of Company Stock. Prior to the June 30, 2005, Haddrill shall, subject to the Company’spolicies relating to the purchase of shares of the Company’s common stock bypersons deemed to be Insiders, increase his holdings of shares of the Company’scommon stock (such holdings of shares, the “Alliance Stock”) to a pointat which, as of June 30, 2005, such holdings have an aggregate acquisition costto Haddrill of at least $1.0 million. Subject to his compliance with applicable State and Federal securitieslaws, Haddrill shall be entitled to sell the Alliance Stock commencing on theearlier of (i) October 1, 2007 or (ii) the day after he is no longer employedas CEO of the Company under this Agreement.”

 

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5.                                       Except as expressly modified by thisAmendment, the Employment Agreement shall remain unchanged and shall remain infull force and effect.

 

*[signatures on next page]*

 

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INWITNESS WHEREOF, the Company and Haddrill have duly executed this Amendment asof the date first above written.

 

 
|   | ALLIANCE  GAMING CORPORATION |
|--------|------------------------------|
|   |                         |
|   |                         |
|   | By:                          |   |   |
|   | Name:                        |   |   |
|   | Title:                       |   |   |
|   |                         |   |   |
|   |                         |   |   |
|   | By:                          |   |   |
|   | Name:                        |   |   |
|   | Title:                       |   |   |
|   |                         |
|   |                         |
|   |                         |   |
|   | Richard  Haddrill            |
|        |                              |  |  |  |  |  |

 

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**Schedule A-1**

 

**ADDITIONAL OPTIONS**

 

1.                                       The Company shall issue to Haddrill 300,000Additional Options under the Company’s Amended and Restated 2001 Long TermIncentive Plan (the “Plan”).

 

2.                                       Except as otherwise provided in theEmployment Agreement, as amended, the Additional Options shall vest asfollows:  (i) 200,000 Additional Optionsshall vest in one-third equal installments on each of October 1, 2005, October1, 2006 and October 1, 2007, if Haddrill is continuously employed by the Companyas Chief Executive Officer until each such respective vesting date, and (ii)the remaining 100,000 Additional Options shall vest on October 1, 2007, ifHaddrill is continuously employed by the Company as Chief Executive Officerthrough that date.

 

3.                                       Once the Additional Options becomeexercisable hereunder, they shall remain exercisable until October 1, 2014without regard to whether Haddrill continues to be employed by the Companyprior to or on such date.

 

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**Schedule B-1**

 

**ADDITIONAL RESTRICTED STOCK UNITS**

 

1.                                       The Company shall issue to HaddrillAdditional Restricted Stock Units (“Additional RSUs”) under the Company’sAmended and Restated 2001 Long Term Incentive Plan (the “Plan”) in anumber determined by dividing $1.9 million by the average per share closingprice of the Company’s common stock on the stock exchange in which the stock isprincipally traded for the 20 business days immediately prior to the date ofthe grant or such other method as the parties shall mutually agree to, providedthat such method complies with the Plan.

 

2.                                       Except as provided in the EmploymentAgreement, as amended, the Additional RSUs will vest on October 1, 2010;provided that the vesting of 50% of the Additional RSUs will be accelerated toeach of October 1, 2005 and October 1, 2006 upon the attainment in each case ofstrategic and/or financial measures specified for the approximately nine monthperiod ending October 1, 2005 and for the twelve month period ending October 1,2006 to be mutually agreed to between the Board of Directors and Mr. Haddrill.

 

3.                                       Each vested Additional RSU representsHaddrill’s right to receive one (1) share of Company common stock, as follows:

 

a.               75% of the shares represented by the vestedAdditional RSUs shall be issued to Haddrill (1) on the later of (a) October 1,2007 or (b) the date that is six (6) months following the date Haddrill’semployment with the Company terminates for any reason or such shorter period asmay be permissible pursuant to regulations promulgated under Section 409A ofthe Internal Revenue Code (the “Code”), or (2) in the event the EmploymentAgreement, as amended, is terminated prior to October 1, 2007, on the date thatis six (6) months following the date Haddrill’s employment with the Company isterminated or such shorter period as may be permissible pursuant to regulationspromulgated under Section 409A of the Code.

 

b.              The remaining 25% of the shares representedby the vested Additional RSUs shall be issued to Haddrill (1) on the later of(a) October 1, 2008 or (b) the date that is six (6) months following the dateHaddrill’s employment with the Company terminates for any reason or suchshorter period as may be permissible pursuant to regulations promulgated underSection 409A of the Code, or (2) in the event the Employment Agreement, asamended, is terminated prior to October 1, 2007, on the date that is six (6)months following the date Haddrill’s employment with the Company is terminatedor such shorter period as may be permissible pursuant to regulationspromulgated under Section 409A of the Code.

 

4.                                       Except as provided in the EmploymentAgreement, as amended, if Haddrill ceases to be the CEO, all nonvestedAdditional RSUs shall be immediately forfeited.

 

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