Document:

Exhibit 10.1

 

HERBST GAMING, INC.

2010 EXECUTIVE INCENTIVE PLAN

 

Plan Objectives

 

In
recognition of the current financial position of Herbst Gaming, Inc. and
its wholly-owned subsidiaries (collectively, “HGI” or the “Company”), and given
the goal of improving financial and operating performance, the Company has
elected to adopt the Executive Incentive Plan (the “Incentive Plan”) set forth
herein (and the exhibits attached hereto) for the 2010 calendar year and any
subsequent period(s) as may be determined from time to time by the HGI
board of directors.  Among other things,
the Incentive Plan is designed to: i) incentivize each member of HGI’s
executive management team to perform at his / her highest level; ii) reward
members of the executive management team for increasing the value of the
enterprise through improved financial performance; iii) encourage HGI
executives to coordinate and collaborate as a team; and iv) compensate those
members of the executive management team whose workloads have increased, and/or
will increase, substantially due to the Company’s financial restructuring and
turnaround efforts.

 

Plan Participants

 

After
a comprehensive review of the HGI management team and the Company’s
organizational structure, 25 executives have been selected to participate in
the Incentive Plan (the “Eligible Executives”). 
The Eligible Executives were selected using various criteria including,
but not limited to, the following: i) the duties and responsibilities assigned
to the executive and the degree to which such duties / responsibilities are
critical to the future success of the organization; ii) the degree to which the
executive is likely to have a meaningful positive impact on the future
operating and financial performance of Company; iii) that the executive does
not hold an equity interest (either in the form of stock, options or warrants)
in the Company that would otherwise serve to incentivize and reward the
executive for achieving the desired financial and operating performance; and
iv) the executive agrees to waive (in writing) any right he/she may have
pursuant to an employment agreement (or otherwise) to any performance-based
compensation other than the Incentive Compensation (as defined below) to which
he/she would be entitled pursuant to the Incentive Plan for the period(s) during
which the Incentive Plan is intended to apply.

 

General Overview of the Plan

 

As
noted above, the universe of Eligible Executives consists of 25 members of the
HGI management team. The list of Eligible Executives may be expanded at the
Company’s sole discretion. The Eligible Executives as of the date hereof are
referenced at Exhibit 1 attached hereto. In connection with formulating
the Incentive Plan, the Eligible Executives have been grouped into five (5) subsets
based on the level of duties and

 

1

 

responsibilities
assigned to each and their potential impact on the future operating and
financial performance of the Company. 
The five (5) subsets of Eligible Executives are as follows:

 

Group 1 consists of Eligible Executives who have the most
significant corporate / Company-wide responsibilities and have a direct
reporting relationship to the Company’s Chief Executive Officer (hereinafter,
the “Group 1 Executives”). There are four (4) Group 1 Executives, each of
whom is specifically identified at Exhibit 1.

 

Group 2 consists of Eligible Executives who have regional
and/or business unit profit and loss responsibility (hereinafter, the “Group 2
Executives”).  There are five (5) Group
2 Executives, each of whom is specifically identified at Exhibit 1.

 

Group 3 consists of General Managers of HGI gaming
properties that have in the past generated and/or are budgeted to generate
annual EBITDA in excess of $5 million (hereinafter, the “Group 3 Executives”).(1) 
There are three (3) Group 3 Executives, each of whom is specifically
identified at Exhibit 1.

 

Group 4 consists of executives at the corporate level who
are responsible for critical corporate / Company-wide functions but whose scope
of duties and level of responsibilities are less than that of the Group 1
Executives (hereinafter, the “Group 4 Executives”).  There are seven (7) Group 4 Executives,
each of whom is specifically identified at Exhibit 1.

 

Group 5 consists of controllers / finance directors of the
larger HGI gaming properties (or a group of properties within a geographic
region) that have in the past generated and/or are budgeted to generate annual
EBITDA in excess of $5 million (hereinafter, the “Group 5 Executives”).  There are six (6) Group 5 Executives,
each of whom is specifically identified at Exhibit 1.

 

Each
Eligible Executive shall be eligible to earn incremental compensation over and
above his or her base salary (“Incentive Compensation”) based on the group to which
he/she is assigned, performance and the financial results achieved during the
period(s) covered by the Incentive Plan. 
The Incentive Compensation that can be earned under the Incentive Plan
ranges from 10% to 75%(2) (as a percentage of the annual base salary then
in effect) depending on the individual Eligible Executive and the group to
which he or she is assigned.  To the
extent an Eligible Executive and the Company have previously entered into an
employment agreement with respect to the executive’s services and such

 

(1) The
General Manager positions for the Sands Regency, Terrible’s Las Vegas and
Terrible’s St. Jo have been excluded because the General Managers of such
properties (i.e. Rob Medeiros, Mark Sterbens, Sr. and Craig Travers) have
been assigned to Group 2 due to their respective duties as Regional General
Managers.

(2) Represents
the “target” Incentive Compensation range for Eligible Executives assuming such
executives meet, but do not exceed, the annual EBITDAR targets (at the
100% level) for the Company and the relevant geographic regions, business units
and larger gaming properties.  Actual
Incentive Compensation earned could be materially above or below this range
depending on performance and /or financial results achieved.

 

2

 

employment
agreement provides for the executive to receive a performance bonus (or other
similar form of incentive compensation), such performance bonus (or other
similar form of incentive compensation) for any period during which the
Incentive Plan is in effect will be determined (and paid) in accordance with
the Incentive Plan in lieu of any other performance-based bonus (or other
similar form of incentive compensation) to which the Eligible Executive may
otherwise have been entitled during such period(s) pursuant to his/her
respective employment agreement; provided, however, the Eligible
Executive must execute the Acknowledgment
presented herewith prior to being paid any Incentive Compensation to which
he/she may otherwise be entitled under the Incentive Plan and shall not be
entitled to participate in the Incentive Plan unless such Acknowledgment
is executed by the Eligible Executive and returned to the Company’s General
Counsel by such date(s) as the Company may determine in its sole
discretion.  The
Incentive Plan is intended to be in effect for calendar year 2010 unless
otherwise indicated herein or in the exhibits hereto.  Extension of the Incentive Plan (or some
modified version thereof) to any period(s) beyond 2010 is subject to the
discretion of the HGI board of directors. 
In the event that the Company materially modifies the operating strategy
for one or more of its properties / business units, the 2010 operating budget(s) for
such property(ies) / business unit(s) (and HGI on a consolidated basis)
are subject to adjustment. Accordingly, any financial targets referenced in
this Incentive Plan and/or the exhibits hereto are subject to corresponding
adjustment.

 

Description of Plan (by Group)

 

Group 1
Executives shall be eligible to earn Incentive Compensation of
up to 75%(3) of their respective base salaries as in effect for 2010.  The Incentive Compensation for Group 1
Executives shall be divided into four (4) performance-based components
which are to be weighted as set forth at Exhibit 1.  The performance-based components are as
follows:

 

Workload Component — Because a
substantial portion of the workload associated with HGI’s financial
restructuring and turnaround efforts falls on the shoulders of the Group 1
Executives and is incremental to their “regular” duties, these individuals
worked exceptionally long hours during 2009 and are expected to continue to
work exceptionally long hours until such time as the Company’s operating
performance and financial position have substantially improved.  In respect of their significantly increased
workloads, Group 1 Executives will receive a portion of their Incentive
Compensation in the form of a temporary incremental upward adjustment equal to
specified percentages (as set forth at Exhibit 1) of their respective base
salaries as in effect during 2010 (the “Workload Component”).  The Workload Component shall be distributed
to the Group 1 Executives in four equal installments payable at the end of each
2010 calendar quarter.

 

(3) Represents
the “target” Incentive Compensation level assuming that actual EBITDAR meets,
but does not exceed, the annual EBITDAR target (at the 100% level) for
the Company.  Actual Incentive
Compensation earned could be materially above or below this level depending on
performance and /or financial results achieved.

 

3

 

Milestones Component -  Because each Group 1 Executive performs a
mission-critical corporate / Company-wide function(s), a portion (as set forth
at Exhibit 1) of the Incentive Compensation that each Group 1 Executive
will be eligible to earn shall be conditioned upon the Eligible Executive
achieving the significant objective(s), as established for him/her by the
Company (the “Significant Milestones”), on or before the target completion
date(s).  The Significant Milestones and
target completion date(s) established with respect to each Group 1
Executive’s Milestones Component (as defined below) are set forth at Exhibit 2(A).(4) 
By achieving these Significant Milestones by the target completion dates, Group
1 Executives will significantly contribute to the success of the Company’s
overall plan for improving its financial condition and operating
performance.  Accordingly, a meaningful
portion of the Incentive Compensation that Group 1 Executives will be eligible
to earn shall be tied to the achievement of the Significant Milestones by the
target completion date(s). The component of the Incentive Plan that is
conditioned upon an Eligible Executive achieving the Significant Milestones is
hereinafter referred to as the “Milestones Component.”

 

HGI EBITDAR Component — In order to
incentivize Group 1 Executives to maximize enterprise value by improving HGI’s
financial performance, a portion (as set forth at Exhibit 1) of the
Incentive Compensation that Group 1 Executives will be eligible to earn shall
be conditioned upon the Company meeting and/or exceeding the 2010 annual
EBITDAR(5) targets referenced at Exhibit 3 (the “HGI EBITDAR
Component”).

 

HGI Operating Profit Margin Component — In order to
incentivize Group 1 Executives to improve the efficiency of HGI’s operations by
controlling the cost structure so as to maintain and/or enhance the operating
profit margin,  a portion (as set forth
at Exhibit 1) of the Incentive Compensation that Group 1 Executives will
be eligible to earn shall be conditioned upon the Company achieving an “Operating
Profit Margin %”(6) for 2010 at or above the target set forth at Exhibit 7
(the “HGI Operating Profit Margin Component”); provided, however,
if HGI’s actual EBITDAR for 2010 meets or exceeds the 2010 EBITDAR budget, the
Group 1 Executives shall be deemed to have automatically earned the HGI
Operating Profit Margin Component.

 

(4) With
respect to Group 1 Executives, the Significant Milestones were established by
HGI’s board of directors.

(5) EBITDAR
is defined as earnings before interest, taxes, depreciation, amortization,
restructuring charges/reorganization items and certain other items (if any, as
deemed appropriate by the Company) which are non-cash and/or non-recurring.

(6) For
purposes of the Incentive Plan, the Operating Profit Margin % shall be
calculated by dividing Operating Profit by Total Revenues (Gross).  Operating Profit shall be calculated as Total
Revenues (Gross) minus Total Operating Expenses which expenses shall equal the
sum of the following expense and contra-revenue items: i) Promotional
Allowances; ii) Cost of Goods Sold; iii) Participation / Progressive; iv) Space
Lease; v) Payroll & Payroll-Related; vi) Promotion &
Advertising; vii) Other Direct Expenses; 
viii) Administrative Expenses; and ix) any other expense(s) /
contra-revenue item(s) referenced at any exhibit attached hereto which
contains the relevant Operating Profit Margin % target.

 

4

 

Group 2
Executives shall be eligible to earn Incentive Compensation up
to a range of 25% to 50%(7) of their respective base salaries as in effect
for 2010.  The Incentive Compensation for
Group 2 Executives shall be divided into three (3) to five (5) performance-based
components (depending on the specific Eligible Executive) which are to be
weighted as set forth at Exhibit 1. 
The performance-based components are as follows:

 

HGI EBITDAR Component — In order to
incentivize Group 2 Executives to work together with the objective of
maximizing enterprise value by improving HGI’s overall financial performance, a
portion (as set forth at Exhibit 1) of the Incentive Compensation that
Group 2 Executives will be eligible to earn shall be conditioned upon the
Company meeting and/or exceeding the 2010 annual EBITDAR targets referenced at Exhibit 3.

 

Regional EBITDAR Component — In order to
incentivize Group 2 Executives to maximize the financial performance of the HGI
geographic regions / business units for which they have management oversight
responsibility, a portion (as set forth at Exhibit 1) of the Incentive
Compensation that Group 2 Executives will be eligible to earn shall be
conditioned upon their respective geographic regions / business units meeting
and/or exceeding the EBITDAR targets referenced at Exhibits 4(A) through 4(E) (“Regional
EBITDAR Component”).

 

Regional Operating Profit Margin Component — In order to
incentivize Group 2 Executives to improve efficiency by managing and
controlling the cost structures so as to maintain and/or enhance the operating
profit margins of the HGI geographic regions / business units for which they
have management oversight responsibility, a portion (as set forth at Exhibit 1)
of the Incentive Compensation that Group 2 Executives will be eligible to earn
shall be conditioned upon their respective geographic regions / business units
achieving Operating Profit Margin %’s for 2010 at or above the targets set
forth at Exhibits 8(A) through 8(E), respectively (the “Regional Operating
Profit Margin Component”); provided, however, if the actual 2010
EBITDAR for any given geographic region / business unit meets or exceeds the
2010 annual EBITDAR budget for the respective geographic region / business
unit, the Group 2 Executive with managerial oversight responsibility for such
geographic region / business unit shall be deemed to have automatically earned
the Regional Operating Profit Margin Component.

 

Property EBITDAR Component — In order to
incentivize those specific Group 2 Executives who also serve in a property
general manager capacity (in addition to their role as a regional general
manager) to maximize the financial performance of

 

(7) Represents
the “target” Incentive Compensation range assuming that actual EBITDAR meets,
but does not exceed, the annual EBITDAR targets (at the 100% level) for
the Company and the relevant geographic regions, business units and larger
gaming properties. Actual Incentive Compensation earned could be materially
above or below this range depending on performance and /or financial results
achieved.

 

5

 

the
HGI gaming properties for which they have direct management oversight
responsibility, a portion (as set forth at Exhibit 1) of the Incentive
Compensation that such Group 2 Executives will be eligible to earn shall be
conditioned upon their respective properties meeting and/or exceeding the
EBITDAR targets referenced at Exhibits 4(F) through 4(H) (“Property
EBITDAR Component”).

 

Property Operating Profit Margin Component — In order to
incentivize those Group 2 Executives who serve in the capacity of a property
general manager (in addition to their role as a regional general manager) to
improve efficiency by managing and controlling the cost structures so as to
maintain and/or enhance the operating profit margins at the HGI gaming
properties for which they have direct management oversight responsibility, a
portion (as set forth at Exhibit 1) of the Incentive Compensation that
such Group 2 Executives will be eligible to earn shall be conditioned upon
their respective gaming properties achieving Operating Profit Margin %’s for
2010 at or above the targets set forth at Exhibits 8(F) through 8(H),
respectively (the “Property Operating Profit Margin Component”); provided,
however, if the actual 2010 EBITDAR for any given HGI property meets or
exceeds the 2010 EBITDAR budget for the respective gaming property, the Group 2
Executive(s) with managerial oversight responsibility for such gaming
property shall be deemed to have automatically earned the Property Operating
Profit Margin Component.

 

Group 3
Executives shall be eligible to earn Incentive Compensation of
up to 50%(8) of their respective base salaries as in effect for 2010.  The Incentive Compensation for Group 3
Executives shall be divided into three (3) performance-based components
which are to be weighted as set forth at Exhibit 1.  The performance-based components are as
follows:

 

HGI EBITDAR Component — In order to
incentivize Group 3 Executives to work together with the objective of
maximizing enterprise value by improving HGI’s overall financial performance, a
portion (as set forth at Exhibit 1) of the Incentive Compensation that
Group 3 Executives will be eligible to earn shall be conditioned upon the
Company meeting and/or exceeding the 2010 annual EBITDAR targets referenced at Exhibit 3.

 

Property EBITDAR Component — In order to
incentivize Group 3 Executives to maximize the financial performance of the HGI
gaming properties for which they have management oversight responsibility, a
portion (as set forth at Exhibit 1) of the Incentive Compensation that
Group 3 Executives will be eligible to earn shall be conditioned upon their
respective properties meeting and/or exceeding the EBITDAR targets referenced
at Exhibits 5(A) through 5(C).

 

(8) Represents
the “target”  Incentive Compensation
level assuming that actual EBITDAR meets, but does not exceed, the
annual EBITDAR targets (at the 100% level) for the Company and certain of its
larger gaming properties.  Actual
Incentive Compensation earned could be materially above or below this level
depending on performance and/or financial results achieved.

 

6

 

Property Operating Profit Margin Component — In order to
incentivize Group 3 Executives to improve efficiency by managing and
controlling the cost structures so as to maintain and/or enhance the operating
profit margins at the HGI properties for which they have management oversight
responsibility, a portion (as set forth at Exhibit 1) of the Incentive
Compensation that Group 3 Executives will be eligible to earn shall be
conditioned upon their respective gaming properties achieving Operating Profit
Margin %’s for 2010 at or above the targets set forth at Exhibits 9(A) through
9(C), respectively; provided, however, if the actual 2010 EBITDAR
for any given HGI property meets or exceeds the 2010 EBITDAR budget for any
such gaming property, the Group 3 Executive(s) with managerial oversight
responsibility for such gaming property shall be deemed to have automatically
earned the Property Operating Profit Margin Component.

 

Group 4
Executives shall be eligible to earn Incentive Compensation up
to a range of 10% to 40%(9) of their respective base salaries as in effect
for 2010.  The Incentive Compensation for
Group 4 Executives shall be divided into one (1) to four (4) performance-based
components (depending on the specific Eligible Executive) which are to be
weighted as set forth at Exhibit 1. 
The performance-based components are as follows:

 

Workload Component — Because HGI’s
financial restructuring and turnaround efforts have substantially increased the
workloads of certain Group 4 Executives, and given that the workloads of such
executives are not anticipated to decrease in the near term, certain Group 4
Executives will receive a portion of their Incentive Compensation in the form
of a temporary incremental upward adjustment equal to specified percentages (as
set forth at Exhibit 1) of their respective base salaries as in effect for
2010.  The Workload Component shall be
distributed to the applicable Group 4 Executives in four equal installments
payable at the end of 2010 calendar quarter.

 

Milestones Component — Because several
of the Group 4 Executives perform mission-critical corporate / Company-wide
functions, a portion (as set forth at Exhibit 1) of the Incentive
Compensation that certain Group 4 Executives will be eligible to earn shall be
conditioned upon such Eligible Executives achieving the Significant Milestones,
as established for him/her by the Company, on or before the target completion
date(s).  The Significant Milestones and
target completion date(s) applicable to such Group 4 Executives are set
forth at Exhibit 2(B). By achieving these Significant Milestones, the
Group 4 Executives will contribute to the success of the Company’s overall plan
for improving its financial condition and operating performance.

 

(9) Represents
the “target” Incentive Compensation range assuming that actual EBITDAR meets,
but does not exceed, the annual EBITDAR target (at the 100% level) for
the Company.  Actual Incentive
Compensation earned could be materially above or below this range depending on
performance and/or financial results achieved.

 

7

 

HGI EBITDAR Component — In order to
incentivize Group 4 Executives to support the Company-wide efforts to maximize
enterprise value through improving HGI’s financial performance, a portion (as
set forth at Exhibit 1) of the Incentive Compensation that Group 4
Executives will be eligible to earn shall be conditioned upon the Company
meeting and/or exceeding the 2010 EBITDAR targets referenced at Exhibit 3.

 

HGI Operating Profit Margin Component — In order to
incentivize Group 4 Executives to support the Company-wide efforts to improve
the efficiency of HGI’s operations by managing and controlling its cost
structure so as to maintain and/or enhance the operating profit margins, a
portion (as set forth at Exhibit 1) of the Incentive Compensation that
certain Group 4 Executives will be eligible to earn shall be conditioned upon
the Company achieving an Operating Profit Margin % for 2010 at or above the
target set forth at Exhibit 7; provided, however, if HGI’s
actual 2010 EBITDAR meets or exceeds the 2010 EBITDA budget, such Group 4
Executives shall be deemed to have automatically earned the HGI Operating
Profit Margin Component.

 

Group 5
Executives shall be eligible to earn Incentive Compensation up
to 25%(10) of their respective base salaries as in effect for 2010.  The Incentive Compensation for Group 5
Executives shall be divided into three (3) performance-based components
(depending on the specific Eligible Executive) which are to be weighted as set
forth at Exhibit 1.  The
performance-based components are as follows:

 

Workload Component — Because HGI’s
financial restructuring and turnaround efforts have substantially increased the
workloads of the Group 5 Executives, and given that their workloads are not
anticipated to decrease in the near term, Group 5 Executives will receive a
portion of their Incentive Compensation in the form of a temporary incremental
upward adjustment equal to specified percentages (as set forth at Exhibit 1)
of their respective base salaries as in effect for 2010.  The Workload Component shall be distributed
to the Group 5 Executives in four equal installments payable at the end of each
2010 calendar quarter.

 

Property / Regional EBITDAR Component — In order to
incentivize Group 5 Executives to help maximize the financial performance of
the HGI gaming properties / regions for which they have financial reporting
oversight responsibility, a portion (as set forth at Exhibit 1) of the
Incentive Compensation that Group 5 Executives will be eligible to earn shall
be conditioned upon their respective properties / regions, as the case may be,
meeting and/or exceeding the EBITDAR targets referenced at Exhibits 6(A) through
6(F).

 

(10) Represents
the “target” Incentive Compensation range assuming that actual EBITDAR meets,
but does not exceed, the annual EBITDAR targets (at the 100% level) for
certain of the Company’s geographic regions and/or larger gaming
properties.  Actual Incentive
Compensation earned could be materially above or below this range depending on
performance and/or financial results achieved.

 

8

 

Property / Regional Operating Profit Margin
Component — In order to incentivize Group 5 Executives to
improve efficiency by managing and controlling the cost structures so as to
maintain and/or enhance the operating profit margins at the properties /
regions for which they have financial reporting oversight responsibility, a
portion (as set forth at Exhibit 1) of the Incentive Compensation that
Group 5 Executives will be eligible to earn shall be conditioned upon their
respective gaming properties / regions achieving Operating Profit Margin %’s
for 2010 at or above the targets set forth at Exhibits 10(A) through
10(F), respectively; provided, however, if the actual 2010
EBITDAR for any given HGI property / region meets or exceeds the 2010 EBITDAR
budget for the respective gaming property / region, the Group 5 Executive(s) with
financial reporting oversight responsibility for such gaming property / region
shall be deemed to have automatically earned the Property Operating Profit
Margin Component or Regional Operating Profit Margin Component, as the case may
be.

 

Timing of Incentive Compensation Payments

 

Unless
otherwise indicated herein or in the exhibits hereto, Incentive Compensation
owing (if any) to each Eligible Executive pursuant to the Incentive Plan shall
be finally determined and paid to each such Eligible Executive on the earlier
of: i) the closing of the Company’s financial books and records for 2010 and
the completion of field work by the Company’s independent public accountants (“Audit
Completion Date”); and ii) March 31, 2011 (“Outside Date”).  The foregoing notwithstanding, the following
timing parameters shall apply: i) Group 1 Executives, Group 4 Executives (to
the extent applicable) and Group 5 Executives shall be paid 25% of the
full-year amount of their respective Workload Components at the end of each
2010 calendar quarter; ii) to the extent applicable, Group 1 Executives and
Group 4 Executives shall, within 45 days of the end of each applicable
financial reporting quarter (but in no event later than the Outside Date in the
event that the target completion date is after December 31, 2010), be paid
an amount in respect of the Milestones Component earned (if any) during such
financial reporting quarter; and iii) Group 2 Executives, Group 3 Executives
and Group 5 Executives shall, within 45 days of the end of each financial
reporting quarter for calendar year 2010, be paid an amount in respect of the
Regional EBITDAR Component or Property EBITDAR Component, as the case may be,
earned (if any) during such quarter up to the Maximum Quarterly Payout % (as
reflected at Exhibits 4(A) through 4(H), Exhibits 5(A) through 5(C) and
Exhibits 6(A) through 6(F), respectively); provided, however, to the extent the amount of the Regional
EBITDAR Component or Property EBITDAR Component, as the case may be, earned (if
any) as measured on an annual basis exceeds the sum of the quarterly payout
amounts received for the year, such Eligible Executives shall be entitled to an
incremental payment equal to such difference on the earlier of: i) the Audit
Completion Date; and ii) the Outside Date. 
Notwithstanding any provision contained herein to the contrary, the HGI
board of directors reserves its right to, at its sole discretion, accelerate
the date of any payment of Incentive Compensation owing under the Incentive
Plan.

 

9

 

Unless
terminated without “Cause” (as defined below), the Eligible Executive must be
employed by the Company as of a given payment date in order to earn and receive
payment of any Incentive Compensation due as of such date under the Incentive
Plan; provided, however, any interim amounts paid (prior to
termination of employment) in respect of the Workload Component, Milestones
Component, Regional EBITDAR Component and/or Property EBITDAR Component shall
not be subject to disgorgement unless the Eligible Executive was terminated for
Cause.  To the extent an Eligible
Executive commenced employment with the Company after January 1, 2010 or
is terminated without Cause prior December 31, 2010, he or she shall
receive a pro rata(11) share of any Incentive
Compensation that the Eligible Executive would otherwise have been eligible to
earn under the Incentive Plan for the 2010 calendar year; provided, however,
such amounts of Incentive Compensation owing (if any) will be determined and
paid in accordance with the timing and other relevant provisions set forth
herein.  The forgoing notwithstanding,
the HGI board of directors expressly reserves the right to withhold and not pay
any Incentive Compensation otherwise owing to an Eligible Executive under the
Incentive Plan in the event such Eligible Executive was subject to any
documented (in writing) disciplinary action by the Company during the period to
which the subject Incentive Compensation relates.

 

For
purposes of the Incentive Plan, “Cause” shall mean: i) the conviction of, or
judgment against, the Eligible Executive by a civil or criminal court of
competent jurisdiction or the filing of a criminal complaint or information,
for a felony or any other offense involving embezzlement or misappropriation of
funds, or any act of moral turpitude, dishonesty or lack of fidelity; ii) the
indictment of the Eligible Executive by a state or federal grand jury of
competent jurisdiction or the filing of a criminal complaint or information for
a felony or any other offense involving embezzlement or misappropriation of
funds, or any act of moral turpitude, dishonesty or lack of fidelity; iii) the
confession by the Eligible Executive of embezzlement or misappropriation of
funds, or any act of moral turpitude, dishonesty, lack of fidelity or that
constitutes a material breach of the Company’s policies and/or procedures; iv)
the payment (or, by the operation solely of the effect of a deductible, the
failure of payment) by a surety or insurer of a claim under a fidelity bond
issued for the benefit of the Company for a loss due to the wrongful act, or
wrongful omission to act, of the Eligible Executive; v) the denial, revocation
or suspension of a license, qualification or certificate of suitability to the
Eligible Executive by any of the Gaming Authorities; and vi) any action or
failure to act by the Eligible Executive that the Company reasonably believes,
as a result of a communication or action by the Gaming Authorities or on the
basis of consultations with its gaming counsel and/or other professional advisors,
will likely cause any of the Gaming Authorities to: (a) fail to license,
qualify and/or approve the Company to own and operate a gaming business; (b) grant
any such licensing, qualification and/or approval only upon terms and
conditions that are unacceptable to the Company; (c) significantly delay
any such licensing, qualification and/or approval process; or (d) revoke
or suspend any existing license.

 

(11)
For purposes of this specific provision of the Incentive Plan, the pro ration
of Incentive Compensation earned (if any) shall be calculated based on the
number of calendar days in 2010 during which the Eligible Executive was
employed by the Company divided by 365.

 

10Exhibit 10.2

 

Amendment One

to the

                     Employment
Agreement

 

The
Employment Agreement (“Agreement”), effective                       ,
by and between Herbst Gaming, Inc., a Nevada corporation (the “Company”) and
                    
(the “Executive”), is hereby amended, effective January 1, 2009, as
follows:

 

1.               A new paragraph as flush
language shall be inserted at the end of Section 7(a), as follows:

 

Payments
made under this Section 7(a) shall commence on the first of the month
after the Executive’s termination of employment, due to either death or
Disability, occurs, and shall be paid in semi-monthly payments.

 

2.               Subparagraph (i) of Section 7(c) shall
be deleted and replaced with the following subparagraph:

 

(i)                                            an amount equal
to twelve (12) months of Salary (the “Salary Termination Payment”).  The Executive will receive the Salary
Termination Payment in equal monthly installments over a one (1) year  period commencing on the next regularly
scheduled payday that follows the Executive’s termination of employment;

 

3.               A new paragraph (g) shall
be inserted after the end of Section 7, as follows:

 

(g)                                                         For purposes of
this Section 7, the phrase “termination of employment,” and correlative
phrases, shall mean “separation from service” as defined in Treasury Regulation
section 1.409A-1(h), other than a termination upon the Executive’s death.

 

4.               A new Section 26 shall
be inserted after the end of Section 25, as follows:

 

26                                    Section 409A
Compliance

 

(a)                      The parties
agree that this Agreement is intended to comply with the requirements of Section 409A
of the Internal Revenue Code of 1986, as amended, and the regulations and
guidance promulgated thereunder (“Section 409A”)
or an exemption from Section 409A. 
The Company shall undertake to administer, interpret, and construe this
Agreement in a manner that does not result in the imposition on the Executive
of any additional tax, penalty, or interest under Section 409A.  Each payment under this Agreement shall be
treated as a separate payment for purposes of Section 409A.

 

(b)                     If the Executive is deemed
on the date of termination to be a “specified employee” within the meaning of
that term under Section 409A(a)(2)(B) of the Code, then with regard
to any payment or the provision of any benefit that is otherwise considered
deferred compensation under Section 409A payable on account of a “separation
from service,” and that is not exempt from Section 409A as involuntary
separation pay or a short-term deferral (or otherwise), such payment or benefit
shall be made or provided at the date which is the earlier of (i) the
expiration of the six (6)-month period measured from the date of such “separation
from service” of the Executive or (ii) the date of the Executive’s death
(the “Delay Period”).  Upon the expiration
of the Delay Period, all payments and benefits delayed pursuant to this
Subsection 26(b) (whether they would have otherwise been payable in a
single sum or in installments in the absence of such delay) shall be paid or
reimbursed to the Executive in 

 

1

 

a lump sum without interest, and any remaining payments and benefits
due under this Agreement shall be paid or provided in accordance with the
normal payment dates specified for them herein.

 

(c)                      With regard to
any provision herein that provides for reimbursement of costs and expenses or
in-kind benefits, except as permitted by Section 409A, all such payments
shall be made on or before the last day of calendar year following the calendar
year in which the expense occurred.

 

All other terms and conditions of the Agreement shall remain in full
force and effect unless otherwise amended herein.

 

 

	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
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