Document:

EXHIBIT 10.1

 

March 9, 2009

 

To the Consenting Parties Identified

on the Signature Pages Hereof:

 

This
letter agreement (this “Agreement”) sets forth the terms on which the
Consenting Parties (as defined below) agree, among other things, to support a
restructuring (the “Restructuring”) by Herbst Gaming, Inc. (the “Company”)
and the Guarantor Debtors (as defined below) in accordance with the term sheet
(the “Term Sheet”) attached hereto as Exhibit A,
as it may be modified in accordance with the terms herein.  Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Term Sheet.

 

For
purposes of this Agreement, (a) “Consenting Parties” means (i) each
of the undersigned lenders (each, a “Consenting Lender” and together,
the “Consenting Lenders”) under the Company’s Second Amended and
Restated Credit Agreement, dated as of January 3, 2007, as amended (the “Senior
Credit Facility”), (ii) Edward J. Herbst, Timothy P. Herbst and Troy
D. Herbst (each, an “Existing Equity Holder” and together, the “Existing
Equity Holders”), being the holders of 100% of the issued and outstanding
equity interests in the Company, and (iii) Terrible Herbst, Inc. (“THI”)
and each undersigned person or entity affiliated with THI that is a party to a
Related Party Agreement and any
other person or entity that is affiliated with THI that enters into a new agreement or agreements related
to the operations of the Company (collectively with THI, the “THI Parties”),
(b) “Guarantor Debtors” means each of the Company’s subsidiaries
that are guarantors of the Company’s obligations under the Senior Credit
Facility and/or the Senior Subordinated Notes, and (c) “Debtors”
means, collectively, the Company and the Guarantor Debtors.

 

In
exchange for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Debtors and each Consenting Party intending
to be legally bound, hereby agree as follows:

 

1.             The Restructuring. 
The Restructuring will principally consist of (a) separation of the
Company’s casino and slot machine route businesses into two holding companies, (b) conversion
of all outstanding obligations under the Senior Credit Facility into debt and
equity of the reorganized companies, (c) termination of all outstanding
obligations under the indentures (the “Indentures”) governing the
Company’s (i) 8 1/8% Senior Subordinated Notes due 2012 and/or (ii) 7%
Senior Subordinated Notes due 2014 (together, the “Senior Subordinated Notes”),
(d) cancellation of 100% of the existing equity in the Company, and (e) amendments
or modifications to, or assumptions and

 

2.             assignments of, certain of the Related
Party Agreements, or new agreements to be entered into, and settlements of
claims with the THI Parties in connection with the Related Party Agreements,
all in exchange for 90% of the new equity in the reorganized slot machine route
business, in each case, as set forth in the Term Sheet.  The parties agree that the Restructuring is
to be implemented pursuant to pre-arranged cases for the Debtors (collectively,
the “Bankruptcy Case”) under chapter 11 of the United States Bankruptcy
Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”).

 

3.             The Bankruptcy Case.

 

(a)           The Debtors shall
file voluntary petitions to commence the Bankruptcy Case under chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Nevada (the “Bankruptcy Court”). 
On the date that the Bankruptcy Case is commenced, the Debtors shall
file a plan of reorganization in form and substance reasonably satisfactory to (i) Consenting
Lenders holding at least two-thirds in amount of the total Claims held by all
Consenting Lenders arising under the Senior Credit Facility (“Required
Consenting Lenders”) and (ii) the THI Parties (the “Plan”) and
a disclosure statement discussing the Plan in form and substance reasonably 

 

 

 

satisfactory to (i) Required Consenting Lenders and (ii) the
THI Parties (the “Disclosure Statement”), both of which will incorporate
the terms set forth in the attached Term Sheet.

 

(b)           This Agreement is
not and shall not be deemed to be a solicitation for consents to the Plan.  The acceptance of the Consenting Parties will
not be solicited until after the commencement of the Bankruptcy Case, and such
solicitation shall occur in accordance with such solicitation procedures as may
be approved or established by the Bankruptcy Court.

 

4.             Incorporation of Term Sheet; Consultation
and Cooperation.  The Term Sheet is expressly incorporated
herein by reference and is made part of this Agreement.  The general terms and conditions of the
Restructuring are set forth in the Term Sheet; provided,  however, that the Term
Sheet is supplemented by the terms and conditions of this Agreement.  In the event the terms and conditions as set
forth in the Term Sheet and this Agreement are inconsistent, the terms and
conditions as set forth in the Term Sheet shall govern.  To the extent that any of (i) the Plan,
the Disclosure Statement, or any definitive documents relating thereto
(collectively, the “Plan Documents”) or (ii) any transaction
contemplated by any of the Plan Documents is required under the terms of this
Agreement to be reasonably satisfactory or reasonably acceptable to any of the
Consenting Parties and such Plan Document or transaction is identified,
described or contemplated by the Term Sheet, such Plan Documents and any
transaction contemplated by the Plan Documents shall be deemed to be reasonably
satisfactory or reasonably acceptable to the extent that such Plan Documents or
any transaction contemplated by the Plan Documents are consistent with the
terms specifically identified in the Term Sheet.  To the extent that (x) any documents or
agreements executed by any of the THI Parties and/or Slot Co and/or (y) any
transaction contemplated thereby include terms not specifically identified in
the Term Sheet, such terms must be reasonably acceptable to the THI Parties and
Slot Co.  In addition, the Debtors, the Consenting Lenders and the THI
Parties agree to consult and cooperate with each other in connection with any
analysis, appearances, presentations, briefs, filings, arguments or proposal
made or submitted by any such party to the Bankruptcy Court, other creditor
constituents or other parties with an interest in the Restructuring.

 

5.             Effectiveness. 
This Agreement shall become effective on the date upon which: (i) counterparts
of this Agreement have been duly executed by each of the Debtors, the Existing
Equity Holders, the THI Parties and Consenting Lenders holding in the aggregate
at least two-thirds, or such lesser amount, but not less than a majority, as
may be acceptable to the Company and the THI Parties (an “Acceptable Lesser
Dollar Amount”), in amount of all outstanding Claims under the Senior
Credit Facility and constituting in the aggregate a majority in number, or such
lesser amount as may be acceptable to the Company and the THI Parties (an “Acceptable
Lesser Amount In Number”), of all lenders thereunder; provided, that if
Consenting Lenders holding less than two-thirds, but at least a majority, in
amount of all outstanding claims under the Senior Credit Facility, or
constitute in the aggregate less than a majority in number of all lenders
thereunder, but the Company and the THI Parties nonetheless determine those
amounts to be an Acceptable Lesser Dollar Amount or an Acceptable Lesser Amount
In Number, as applicable, the Company and the THI Parties must notify the
parties in writing of such determination no later than the later of 5:00 p.m.
Prevailing Pacific Time on the next Business Day, or twenty-four (24) hours,
after the Company and the THI Parties have been provided a final tally setting
forth the aggregate holdings, names and number of Consenting Lenders that have
executed this Agreement (with interim tallies setting forth the information
throughout the voting process engaged in by lenders under the Senior Credit
Facility with respect to this Agreement), or this Agreement shall not be
effective as to or binding upon any Consenting Lender or other party; and (ii) such
executed counterparts have been exchanged among the parties to this
Agreement.  This Agreement shall not be
binding on or enforceable against any party and no party shall have any rights
or obligations under this Agreement until this Agreement has become effective in
accordance with this Section 4.

 

6.             Pursuit/Support of the Restructuring.

 

(a)           Each of the Debtors
agrees and covenants that it shall (i) use
commercially reasonable efforts to successfully consummate the Restructuring in
the manner and in accordance with the timeline contemplated by this Agreement, (ii) use
commercially reasonable efforts to avoid the occurrence of any of the Agreement
Termination Events set forth in Section 12, (iii) take all
commercially 

 

 

 

reasonably necessary actions to achieve
the expeditious confirmation and consummation of the Plan, and (iv) use commercially reasonable efforts
to obtain an order from the Bankruptcy Court granting adequate
protection to the holders of Claims arising
under the Senior Credit Facility on terms set forth in Section 11 (b) below.

 

(b)           Each Consenting
Party (i) agrees to take, or cause to be taken, all actions reasonably
necessary to facilitate, encourage or otherwise support the Restructuring and
the transactions contemplated by the Term Sheet and (ii) agrees not to
take, or cause to be taken, directly or indirectly, any action inconsistent
with the consummation of, or opposing the Restructuring or the transactions
contemplated by the Term Sheet, including without limitation, in the case of
clauses (i) and (ii), the matters set forth in Section 6
hereof, as applicable.  Without limiting
the generality of the foregoing and subject to the terms and conditions of this
Agreement, each Consenting Party agrees to neither take or direct any other
person to take any action to accelerate any obligation of any Debtor owing to
such Consenting Party that is or may become due nor initiate or pursue, or have
initiated or pursued on its behalf, any litigation or proceeding, or any other
rights or remedies of any kind, with respect to any Claim such Consenting Party
may now or hereafter have against any Debtor or any Debtor’s subsidiaries,
affiliates, directors, officers, and/or employees other than to enforce this
Agreement or the Term Sheet.

 

7.             Support of the Plan, Disclosure
Statement and First Day Motions.  Each
Consenting Party agrees that it will take or refrain from taking, as
applicable, the following actions in connection with the Bankruptcy Case:

 

(a)           provided that such
Consenting Party has been properly solicited pursuant to Bankruptcy Code
sections 1125 and 1126, (i) to vote in favor of the Plan in accordance
with the voting procedures established in the Solicitation Materials and (ii) to
the extent such election is available, not to elect on its ballot to preserve
any Claims such Consenting Party may own that may be affected by any releases
provided for under the Plan;

 

(b)           not object to any
Plan Document, except to the extent that such Plan Document is either: (i) materially
inconsistent with the Term Sheet as such Term Sheet may be amended or modified
from time to time in accordance with Section 7(a) hereof, or (ii) not
reasonably satisfactory to Required Consenting Lenders or the THI Parties;

 

(c)           take all reasonable
actions necessary or reasonably requested by the Company to support the Plan
and the transactions contemplated thereby, except to the extent that such Plan
or such transactions are either (i) materially inconsistent with the Term
Sheet, as such Term Sheet may be amended or modified from time to time in
accordance with Section 7(a) hereof, or (ii) not
reasonably satisfactory to Required Consenting Lenders or the THI Parties;

 

(d)           not to take any
actions inconsistent with, or that would delay approval or confirmation of, the
Plan Documents, except to the extent that such Plan Documents are either (i) materially
inconsistent with the Term Sheet, as such Term Sheet may be amended or modified
from time to time in accordance with Section 7(a) hereof, or (ii) not
reasonably satisfactory to Required Consenting Lenders or the THI Parties;

 

(e)           support the release
provisions contained in the Plan;

 

(f)            not to oppose the
Debtors’ request for the entry of customary “first day” orders that are
reasonably satisfactory to Required Consenting Lenders and the THI Parties;

 

(g)           not to directly or
indirectly seek, solicit, encourage or, subject to any applicable fiduciary
duties, participate in any negotiations regarding any other plan, sale,
proposal or offer of dissolution, winding up, liquidation, reorganization, merger
or restructuring of the Company or any Guarantor Debtor (other than as provided
in or contemplated by the Term Sheet or with respect to potential sales of some
or all of the casino assets);

 

 

 

(h)           promptly notify the
other Consenting Parties upon the receipt of any written solicitation or
proposal relating to any other plan, sale, proposal or offer of dissolution,
winding up, liquidation, reorganization, merger or restructuring of the Company
or any Guarantor Debtor (other than as provided in or contemplated by the Term
Sheet), including potential sales of some or all of the casino assets; and

 

(i)            not to withdraw or
revoke any properly solicited vote to accept the Plan unless (x) the Plan
is modified in any respect in a manner materially inconsistent with the Term
Sheet, as such Term Sheet may be amended or modified from time to time in
accordance with Section 7(a) hereof, or that has not been
approved by Required Consenting Lenders and the THI Parties or (y) this
Agreement is terminated in accordance with its terms.

 

8.             Modification of Plan Documents.

 

(a)           The Term Sheet, the
Restructuring and the Plan Documents may from time to time be amended or
modified by the Debtors to modify the treatment of certain constituents junior
to the Consenting Lenders (other than the THI Parties) under the Plan (each, a “Permitted
Plan Amendment”), if such amendment or modification either (i) does
not negatively impact the Consenting Lenders or the THI Parties or (ii) is
in writing and consented to by Required Consenting Lenders and the THI Parties.

 

(b)           The making of any
Permitted Plan Amendment shall not release any Consenting Party from its
obligations under this Agreement.

 

9.             Cooperation During the Bankruptcy Case
and In Implementation of Plan.  Each of the
Debtors agrees and covenants that it shall:

 

(a)           during the
Bankruptcy Case, cooperate and consult with the Consenting Lenders, the THI
Parties and any consultants or advisors engaged by the Consenting Lenders
and/or the THI Parties regarding the Debtors’ ongoing operations, including
without limitation supplementing the management team for the Debtors’ casino
assets and/or exploring potential sales or other restructuring transactions
with respect to some or all of the casino assets; and

 

(b)           in connection with
the implementation of the Plan, (i) cooperate with any consultants or
advisors engaged by the Consenting Lenders or the THI Parties and (ii) continue
to deliver any diligence information reasonably requested by the Consenting
Lenders or the THI Parties, or their respective consultants or advisors.

 

10.           Representations and Warranties.

 

(a)           Each Consenting
Lender represents and warrants, severally and not jointly, that, as of the date
hereof, such Consenting Lender is the legal owner, beneficial owner and/or holder
of investment and voting authority over, the aggregate amount of obligations
outstanding under the Senior Credit Facility as set forth in the records
maintained by the Senior Credit Facility Agent, and legally or beneficially
owns, or has investment and voting authority over, no other obligations
outstanding under the Senior Credit Facility.

 

(b)           Each Consenting Lender represents and warrants, severally and not
jointly, that such Consenting Lender (i) is a sophisticated investor with
respect to the transactions described in this Agreement with sufficient
knowledge and experience in financial and business matters and is capable of
evaluating the merits and risks of owning and investing in securities
(including any securities that may be issued in connection with the
transactions contemplated by this Agreement), is making an informed decision
with respect thereto and has made its own analysis and decision to enter this
Agreement and (ii) is an “accredited investor” within the meaning of Rule 501
of the Securities Act of 1933, as amended.

 

 

 

(c)           Each Consenting
Lender represents and warrants, severally and not jointly, that such Consenting
Lender has not been offered, nor shall such Consenting Lender accept, any
treatment or compensation or the right to participate in any transactions with
any of the Debtors or THI Parties relating to the Plan or the Debtors’
operations that is different than such treatment, compensation or right offered
to all lenders under the terms of this Agreement and the Term Sheet.

 

(d)           Each Existing
Equity Holder represents and warrants, severally and not jointly, that, as of
the date hereof, such Existing Equity Holder is the beneficial owner of and
holds investment and voting authority over the equity interests in the Company
set forth opposite such Existing Equity Holder’s name on the signature pages hereof;
and the Existing Equity Holders further represent and warrant, jointly and
severally, that, as of the date hereof, the equity interests held by the
Existing Equity Holders constitute in the aggregate 100% of the issued and
outstanding capital stock of the Company.

 

(e)           Each THI Party
represents and warrants that (i) such THI Party has no Claims against any
Debtor other than Claims in connection with any of the Related Party Agreements,
and (ii) each Related Party Agreement to which such THI Party is a party
is a legally valid and binding obligation of such party, enforceable against
such party in accordance with its terms.

 

(f)            (x) Each of
the Consenting Parties, severally and not jointly, represents and warrants  to each of the Debtors and (y) each of the Debtors
represents and warrants, only as to itself and not as to each other, to each
Consenting Party, that the following statements, as applicable, are true,
correct and complete as of the date hereof:

 

(i)            Power and Authority.  It has all requisite corporate, partnership,
or limited liability company power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby, and to perform its
obligations hereunder.

 

(ii)           Due Organization.  It is duly organized, validly existing and in
good standing under the laws of its state of organization and it has the
requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder.

 

(iii)          Authorization.  The execution and delivery of this Agreement
and the performance of its obligations hereunder have been duly authorized by
all necessary corporate, partnership or limited liability company action on its
part.

 

(iv)          No Conflicts.  The execution, delivery and performance of
this Agreement does not and shall not:  (i) violate
any provision of law, rule or regulation applicable to it,  except to the extent the failure to comply
therewith could not reasonably be expected to have a material adverse effect on
its ability to perform its obligations hereunder; (ii) violate its
articles or certificate of incorporation, bylaws or other organizational
documents, except as contemplated in the Plan and the Term Sheet; or (iii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation to which it or any of
its subsidiaries is a party, except to the extent such contractual obligation
relates to the filing of a case under the Bankruptcy Code or insolvency of the
Debtors.

 

(v)           Governmental
Consents.  The execution,
delivery and performance by it of this Agreement does not and shall not require
any registration or filing with, consent or approval of, or notice to, or other
action to, with or by, any federal, state or other governmental authority or
regulatory body, except such filings as (i) are identified in the Term
Sheet, (ii) may be necessary and/or required under antitrust laws or the
federal securities laws, (iii) may be necessary and/or required under any
gaming laws or regulations of any state, or (iv) may be necessary and/or
required in connection with the commencement of the Bankruptcy Case, the
approval of the Disclosure Statement and confirmation of the Plan.

 

 

 

(vi)          Binding Obligation.  Subject to the provision of sections 1125 and
1126 of the Bankruptcy Code, this Agreement is a legally valid and binding
obligation of such party, enforceable against such party in accordance with its
terms.

 

(g)           Each THI Party and
each of the Debtors represents and warrants that each of the Related Party
Agreements existing as of the date hereof is listed on the Related Party
Agreements Term Sheet (Exhibit 4 to the Term Sheet).

 

11.           Survival of Agreement. 
Each of the parties acknowledges and agrees that: (i) this
Agreement is being executed in connection with negotiations concerning the
Restructuring of the Debtors and in contemplation of the possible commencement
of the Bankruptcy Case by the Debtors; (ii) the rights granted in this
Agreement are enforceable by each signatory hereto without approval of the
Bankruptcy Court, except as specifically contemplated by this Agreement (iii) the
exercise of such rights will not violate the automatic stay provisions of the
Bankruptcy Code and (iv) each party hereto hereby waives its right to
assert a contrary position in the Bankruptcy Case, if any, with respect to the
foregoing.

 

12.           Pre-Filing Interest Payments; Adequate
Protection Payments; Post-Effective Date Payments; Contract Terms; Bank
Account/Forbearance; Provision of Records.

 

(a)           The Consenting
Parties agree that interest payments to be made to the lenders under the Senior
Credit Facility from the effective date of this Agreement through the Petition
Date shall consist of (i) a payment of interest due under the Senior
Credit Facility on December 1, 2008 ($5,101,752.49), to be paid within two
(2) Business Days after the effective date of this Agreement, (ii) a
payment of $3.0 million as a portion of interest due under the Senior Credit
Facility on January 1, 2009, to be paid within two (2) Business Days
after the effective date of this Agreement, and (iii) a payment in an
amount equal to the Debtors’ Estimated Week Ending Cash Balance (as reflected
on the Herbst Gaming, Inc. Weekly Cash Flow Variance Analysis) in excess
of $100 million as of the close of business on Friday, March 13, 2009, to
be (x) calculated based upon the Herbst Gaming, Inc. Weekly Cash Flow
Variance Analysis (taking full account of all interest payments under (i) and
(ii) above, and any payments to the Debtors’ restructuring professionals
that are expected to be made prior to the Petition Date), and (y) paid on
Wednesday, March 18, 2009.

 

(b)           The Consenting
Parties agree that during the period commencing on the Petition Date and
running through the Effective Date, adequate protection payments shall be made
to the lenders under the Senior Credit Facility in an amount equal to the
Debtors’ Cash and Cash Equivalents (as reflected on the Debtors’ balance sheet)
in excess of $100 million to be measured as of the last day of each fiscal
quarter and to be paid on the 30th day thereafter; provided,
however, that such payments shall be reduced by any unpaid
restructuring costs for services rendered by (i) the Debtors’
professionals, (ii) Milbank (as defined below), (iii) Houlihan,
Lokey, Howard & Zukin, Inc. and (iv) any other professionals
(including without limitation local counsel) that have been engaged by the
steering committee of lenders under the Senior Credit Facility and/or the
Senior Credit Facility Agent, that have accrued or otherwise have been recorded
on the Debtors’ balance sheet as of the last day of any fiscal quarter and are
reasonably anticipated to be paid within 45 days thereafter.  Each of the parties agrees that the parties
will use their commercially reasonable efforts to have the Bankruptcy Court
enter a final order granting the lenders under the Senior Credit Facility the
adequate protection payments described in this Section 11(b) within
45 days after the Petition Date.

 

(c)           The Consenting
Parties agree that the Plan will provide that, during the period commencing on
the Effective Date and running through the Substantial Consummation Date,
adequate protection payments shall be made to the Holders of Senior Credit
Facility Claims (i) in an amount equal to the payments that would be made
under the New Slot Co Bank Loan and the New Slot Co Second Lien Facility as if
those facilities were in effect as of the Effective Date, notwithstanding the
fact that the Substantial Consummation Date may not yet have occurred, provided, however, that (x) such
amount shall not include any cash interest or PIK interest on the New Slot Co
Second Lien 

 

 

 

Facility, nor shall any such interest on the New Slot Co
Second Lien Facility commence accruing, until the date that is six (6) months
after the Effective Date (the “PIK Date”), provided,
further, that if any required gaming
licenses or approvals with respect to any of (a) Reorganized Herbst
Gaming, its proposed officers, directors, equity holders and other persons
required to file personal applications (each to the extent necessary) or (b) the
non-THI Parties equity holders in Slot Co, the Lender Designee, and lenders of
Slot Co (each to the extent necessary), shall not have been granted by any of
the applicable gaming regulatory authorities to all such entities within one
year of the Effective Date, then all interest on the New Slot Co Second Lien
Facility shall cease accruing and shall only recommence (without any catch up
for lost interest) once all such licenses and approvals are granted, and (y) such
payments shall be made on the last day of the applicable interest period (with
the initial interest period for such payments commencing on the Effective Date
or the PIK Date, as applicable, and ending on the last Business Day of the
third full calendar month following the month in which the Effective Date or
the PIK Date, as applicable, occurs, and with each subsequent interest period
commencing on the last day of the preceding interest period and ending on the
last Business Day of the third full calendar month thereafter); and (ii) under
the Herbst Gaming Amended and Restated Senior Credit Facility, in an amount
equal to the Debtors’ Cash and Cash Equivalents (as reflected on the Debtors’
balance sheet) in excess of $100 million, (1) to be measured (x) initially,
as of the last day of the third full calendar month following the month in
which the Effective Date occurs and (y) as of the last day of every third
full calendar month thereafter, and to be paid in each case on the 30th day after the date on which it is measured.

(1) Such
amount shall be modified to reflect the separation of the Debtors’ casino and
slot machine route businesses as of the later of (i) the Effective Date
and (ii) five days after the date the Company receives gaming regulatory
approval regarding the internal reorganization necessary to implement
separation of the Debtors’ casino and slot machine route businesses.  Following the later of such dates, the cash
sweep will apply only as to the casino business.

 

(d)           For the period from
the Petition Date through the Effective Date, the Debtors shall continue to
honor and perform their obligations with respect to the Related Party
Agreements until such agreements are assumed under the Plan.  In addition, the Consenting Parties agree
that the Confirmation Order will provide that, during the period commencing on
the Effective Date and running through the Substantial Consummation Date, the
economic terms of the Related Party Agreements shall be honored and performed
by the parties thereto as if all assumptions, modifications or other treatments
described in the Related Party Agreements Term Sheet were in effect as of the
Effective Date, notwithstanding the fact that the Substantial Consummation Date
may not yet have occurred.

 

(e)           The Debtors shall,
on or before the date that is ten (10) days after the effective date of
this Agreement, cause all of their Cash in Community Bank of Nevada to be
transferred to the Debtors’ account at U.S. Bank, National Association (“U.S.
Bank”); provided, however, that
as a condition to such transfer, the Senior Credit Facility Agent, U.S. Bank
and the Debtors shall enter into a forbearance agreement with respect to such Cash
that is reasonably acceptable to each such party.

 

(f)            During the period
commencing on the effective date of this Agreement and running through the
Petition Date, the Debtors shall provide to the Consenting Lenders weekly check
and wire transfer records (excluding payroll records).

 

13.           Termination.

 

(a)           This Agreement
shall automatically terminate upon the occurrence of any of the following
events, unless such automatic termination is waived in writing by Required
Consenting Lenders, the 

 

 

 

Debtors and/or the THI Parties, as applicable, within 5
Business Days of the occurrence of such event; provided,
however, that the waiver of both the Debtors and the THI Parties,
but not the Required Consenting Lenders, shall be required with respect to any
automatic termination to the extent that such automatic termination occurs
pursuant to any of paragraphs (iii), (xx) (resulting from an announcement by a
Consenting Lender) or (xxiii) below; provided, further,
that the waiver of the Required Consenting Lenders and the THI Parties, but not
the Debtors, shall be required with respect to any automatic termination to the
extent that such automatic termination occurs pursuant to any of paragraphs
(i), (iv), (v), (vi), (xi), (xiii), (xvii), (xix) or (xxi) below; provided, still, further,
that the waiver of the Required Consenting Lenders and the Debtors, but not the
THI Parties shall be required with respect to any automatic termination to the
extent that such automatic termination occurs pursuant to any of paragraphs (ii),
(xx) (resulting from an announcement by a THI Party) or (xxii) below; and provided, still,
further, the waiver of only the
Required Consenting Lenders, but not the Debtors or the THI Parties, shall be
required with respect to any automatic termination to the extent that such
automatic termination occurs pursuant to any of paragraphs (vii) or (viii) below:

 

(i)            Drafts of the Plan
and Disclosure Statement are not delivered by the Debtors to Milbank, Tweed,
Hadley & McCloy LLP (“Milbank”) on behalf of the Consenting
Lenders and to Latham & Watkins LLP (“Latham”) on behalf of the
THI Parties within three (3) Business Days of the effective date of this
Agreement;

 

(ii)           Drafts of the
amended, modified or revised Related Party Contracts are not delivered by the
Debtors or the THI Parties to Milbank within three (3) Business Days of
the effective date of this Agreement;

 

(iii)          Drafts of
agreements relating to each of the new Slot Co Bank Loan, New Slot Co Second
Lien Facility, and Herbst Gaming Amended and Restated Senior Credit Facility
are not delivered by the Consenting Lenders to the Debtors and the THI Parties
within three (3) Business Days of the effective date of this Agreement;

 

(iv)          The Plan is not in
form and substance reasonably satisfactory to Required Consenting Lenders and
the THI Parties or the Disclosure Statement is not in form and substance
reasonably satisfactory to Required Consenting Lenders and the THI Parties by March 20,
2009, provided, however, that the
Consenting Parties agree that this Agreement shall not automatically terminate
upon an assertion by Required Consenting Lenders or the THI Parties that the
Disclosure Statement is not reasonably satisfactory in form and substance based
solely on the fact that the Disclosure Statement does not include a liquidation
analysis as of such date;

 

(v)           The Debtors have
not delivered drafts of all anticipated first day motions to Milbank and Latham
within three (3) Business Days of the effective date of this Agreement;

 

(vi)          The Debtors shall
not have used their reasonable best efforts to reach agreement with Required
Consenting Lenders and the THI Parties on the documentation necessary to
commence the Bankruptcy Case to implement the Restructuring contemplated by and
provided for in the Term Sheet on or before March 23, 2009;

 

(vii)         The Bankruptcy Case to implement the
Restructuring contemplated by and provided for in the Term Sheet shall not have
been commenced on or before March 23, 2009;

 

(viii)        In the event the Debtors decide to
seek DIP financing, the Debtors file a motion seeking approval of DIP financing
with anyone other than some or all of the lenders under the Senior Credit
Facility, unless some or all of the lenders under the Senior Credit Facility
have not agreed to provide DIP financing on commercially reasonable terms;

 

 

 

(ix)           The Disclosure
Statement with respect to the Plan shall not have been approved by the
Bankruptcy Court within  60  days after the Petition Date;

 

(x)            The Plan shall not
have been confirmed by the Bankruptcy Court within 120 days after the Petition
Date;

 

(xi)           The order
confirming the Plan shall not be in form and substance reasonably satisfactory
to Required Consenting Lenders and the THI Parties;

 

(xii)          The Plan shall not
have been substantially consummated within one year of the Effective Date;

 

(xiii)         The Plan is modified in any manner
that is not acceptable to Required Consenting Lenders or the THI Parties or any
other Plan Document is not in form and substance reasonably satisfactory to
Required Consenting Lenders or the THI Parties;

 

(xiv)        The Bankruptcy Case with respect to
any Debtor is dismissed or is converted to a case under Chapter 7 of the
Bankruptcy Code;

 

(xv)         The Bankruptcy Court shall enter an
order appointing (i) a trustee under chapter 7 or chapter 11 of the
Bankruptcy Code, (ii) a responsible officer or (iii) an examiner, in
each case with enlarged powers relating to the operation of the business
(powers beyond those set forth in subclauses (3) and (4) of Section 1106(a))
under Section 1106(b) of the Bankruptcy Code;

 

(xvi)        The orders of the Bankruptcy Court
approving the Disclosure Statement or confirming the Plan or any interim or
final order granting adequate protection to the lenders under the Senior Credit
Facility shall have been stayed, reversed, vacated or otherwise modified, other
than merely ministerial modifications (e.g., with  respect to names, addresses and similar
modifications);

 

(xvii)       Any of the Debtors shall file a
motion or the Bankruptcy Court shall enter an order approving a payment to any
other party (whether in cash or other property or whether as adequate
protection, settlement of a dispute, or otherwise) that would be materially
inconsistent with the treatment of such party under the Term Sheet;

 

(xviii)      Any court shall enter a final,
non-appealable judgment or order declaring this Agreement or any material
portion hereof to be unenforceable;

 

(xix)         The Debtors shall withdraw the Plan
or publicly announce their intention not to support the Plan;

 

(xx)          Any of (i) Consenting
Lenders holding sufficient Claims under the Senior Credit Facility to result in
all other Consenting Lenders holding less than a majority in dollar amount of
all outstanding Claims under the Senior Credit Facility, or (ii) the THI
Parties shall publicly announce their intention not to support the Plan;

 

(xxi)         any material breach of this Agreement
by any Debtor;

 

(xxii)        any material breach of this Agreement
by any of the THI Parties; or

 

(xxiii)       any material breach of this Agreement
by Consenting Lenders holding sufficient Claims under the Senior Credit
Facility to result in all other Consenting Lenders holding less than a majority
in dollar amount of all outstanding Claims under the Senior Credit Facility.

 

 

 

(b)           Upon a termination
of this Agreement in accordance with this Section 12, no party
hereto shall have any continuing liability or obligation to any other party
hereunder and the provisions of this Agreement shall have no further force or
effect, except for the provisions in Sections 13 and 16-25, each
of which shall survive termination of this Agreement; provided that no
such termination shall relieve any party from liability for its breach or
non-performance of its obligations hereunder prior to the date of such
termination.

 

14.           No Third-Party Beneficiaries. 
This Agreement shall be solely for the benefit of the parties hereto and
no other person or entity shall be a third-party beneficiary hereof.

 

15.           Additional Claims and Interests Subject. 
Nothing in this Agreement shall be deemed to limit or restrict the
ability or right of a Consenting Party to purchase or take assignment of any
additional Claims (“Additional Claims”) against or interests in any
Debtor or any affiliate of any Debtor; provided, however, that in
the event a Consenting Party purchases or takes assignment of any such
Additional Claims or other interests after the date hereof, such Additional
Claims or other interests shall immediately upon such acquisition become
subject to the terms of this Agreement.

 

16.           Restrictions on Transfer.

 

(a)           Except as set forth
in Section 15(b), each Consenting Party hereby agrees that, for so
long as this Agreement shall remain in effect, it shall not sell, transfer or
assign all or any of its Claims, as the case may be, or any option thereon or
any right or interest (voting, participation or otherwise) therein (each, a “Transfer”)
without the prior written consent of the Company.

 

(b)           Notwithstanding the
foregoing, any Consenting Lender may Transfer any or all of its respective
Claims, provided that, as a condition precedent, the transferee thereof agrees
in writing to be bound by the terms of this Agreement.

 

(c)           Any Transfer of any
Claim that does not comply with the foregoing shall be deemed void ab initio.

 

17.           Entire Agreement. 
As of the date this Agreement becomes effective, this Agreement,
including the Term Sheet, constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.

 

18.           Amendment or Waiver.

 

(a)           Except as provided
in Section 7 hereof, this Agreement, including the Term Sheet, may
not be modified, altered, amended, waived or supplemented except by an
agreement in writing signed by each of the Debtors and Required Consenting
Lenders, or the THI Parties, as applicable.

 

(b)           Each of the parties
hereto agrees to negotiate in good faith all amendments and modifications to
this Agreement, including the Term Sheet, as reasonably necessary and
appropriate to consummate the Restructuring.

 

(c)           No waiver of any of
the provisions of this Agreement shall be deemed or constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall any waiver
be deemed a continuing waiver.

 

19.           Governing Law. 
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.  Each
party hereby irrevocably submits to the jurisdiction of any New York state
court sitting in the Borough of Manhattan in the City of New York or any
federal court sitting in the Borough of Manhattan in the City of New York in
respect of any suit, action or proceeding arising out of or relating to this
Agreement, and irrevocably accepts for itself and in respect of its property,
generally and unconditionally, jurisdiction of the aforesaid courts.  Each party irrevocably waives, to the fullest
extent it 

 

 

 

may effectively do
so under applicable law, any objection that it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in any such
court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.  Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against any other party in any other
jurisdiction.  Notwithstanding the
foregoing consent to New York jurisdiction, if the Bankruptcy Case is commenced,
each party agrees that the Bankruptcy Court shall have exclusive jurisdiction
of all matters arising out of or in connection with this Agreement.

 

20.           Counterparts. 
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts and by facsimile, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.

 

21.           Severability. 
Any term or provision of this Agreement, which is invalid or
unenforceable in any jurisdiction, shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.  If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only as
broad as is enforceable.

 

22.           Headings.  The headings
of the paragraphs of this Agreement are inserted for convenience only and shall
not affect the interpretation hereof.

 

23.           Prior Negotiations. 
This Agreement supersedes all prior negotiations with respect to the
subject matter hereof but shall not supersede the Definitive Documentation.

 

24.           Notice.  Any notices
or other communications required or permitted under, or otherwise in connection
with, this Agreement shall be in writing and shall be deemed to have been duly
given when delivered in person or upon confirmation of receipt when transmitted
by facsimile transmission or on receipt after dispatch by registered or
certified mail, postage prepaid, or on the next Business Day if transmitted by
national overnight courier, addressed in each case as follows:

 

(a)           If to the Company,
at:

 

Herbst Gaming, Inc.

3440 West Russell Road

Las Vegas, Nevada 89118

Attn:  Office of the CEO

Telephone:  (702) 798-6400

Facsimile:  (702) 798-8079

 

with a copy to:

 

Herbst Gaming, Inc.

3440 West Russell Road

Las Vegas, Nevada 89118

Attn:  Sean Higgins, General
Counsel

Telephone:  (702) 798-6400

Facsimile:  (702) 798-8079

 

(b)           If to a Consenting Party, to the address for such
Consenting Party provided on the signature pages hereof.

 

 

 

 

Please sign in the space
provided below to indicate your agreement and consent to the terms hereof.

 

Very truly yours,

 

	
  HERBST GAMING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  GUARANTOR DEBTORS:

  
	
   

  	
   

  
	
  FLAMINGO PARADISE
  GAMING, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  MARKET GAMING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CARDIVAN COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CORRAL COIN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary
  

  

 

 

	
  CORRAL COUNTRY COIN,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  E-T-T ENTERPRISES,
  L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  E-T-T, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  HGI - ST. JO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  HGI - LAKESIDE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  HGI - MARK TWAIN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  

 

 

	
  THE SANDS REGENT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ZANTE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
  LAST CHANCE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CALIFORNIA PROSPECTORS,
  LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PLANTATION INVESTMENTS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  DAYTON GAMING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Secretary

  

 

 

	
  THE PRIMADONNA COMPANY,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  TROY D. HERBST

  
	
   

  	
  Name:

  	
  Troy
  D. Herbst

  
	
   

  	
  Title:

  	
  Manager

  

 

 

Accepted and agreed to by the

Consenting Parties named below:

 

CONSENTING LENDERS:

 

 

[NAME OF LENDER]

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
   

  
					

 

 

EXISTING EQUITY HOLDERS:

EDWARD J. HERBST

 

 

 

	
  By:

  	
  /s/ EDWARD J. HERBST

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  5195
  Las Vegas Blvd. South

  	
   

  
	
   

  	
  Las
  Vegas, Nevade, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Shares

  	
  100

  	
   

  
	
   

  	
   

  	
   

  
	
  % of Company Equity

  	
  33.3333%

  	
   

  
					

 

 

EXISTING EQUITY HOLDERS:

TIMOTHY P. HERBST

 

 

 

	
  By:

  	
  /s/ TIMOTHY P. HERBST

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  5195
  Las Vegas Blvd. South

  	
   

  	 

	
   

  	
  Las
  Vegas, Nevade, 89119

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  Telephone:

  	
  702-798-6400

  	
   

  	 

	
  Facsimile:

  	
  702-798-8079

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  Number of Shares

  	
  100

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  % of Company Equity

  	
  33.3333%

  	
   

  	 

						

 

 

EXISTING EQUITY HOLDERS:

TROY D. HERBST

 

	
  By:

  	
  /s/ TROY D. HERBST

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Shares

  	
  100

  
	
   

  	
   

  
	
  % of Company Equity

  	
  33.3333%

  
				

 

 

THI:

 

TERRIBLE HERBST, INC.

 

	
  By:

  	
  /s/ JERRY E. HERBST

  	
   

  
	
   

  	
  Name:

  	
  Jerry E. Herbst

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  

 

with a copy to:

 

Latham & Watkins LLP

355 South Grand Avenue

Los Angeles, CA 90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

 

OTHER THI PARTIES:

 

THE HERBST FAMILY LIMITED
PARTNERSHIP:

 

	
  By:

  	
  /s/ JERRY E. HERBST

  	
   

  
	
   

  	
  Name:

  	
  Jerry E. Herbst

  	
   

  
	
   

  	
  Title:

  	
  Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

HERBST GRANDCHILDREN’S
TRUST:

 

	
  By:

  	
  /s/ TIMOTHY P. HERBST

  	
   

  
	
   

  	
  Name:

  	
  Timothy P. Herbst

  	
   

  
	
   

  	
  Title:

  	
  Trustee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

 

BERRY-HINCKLEY
INDUSTRIES:

 

	
  By:

  	
  /s/ JERRY E. HERBST

  	
   

  
	
   

  	
  Name:

  	
  Jerry E. Herbst

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

JERRY E. HERBST:

 

	
  By:

  	
  /s/ JERRY E. HERBST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

 

EDWARD J. HERBST:

 

	
  By:

  	
  /s/ EDWARD J. HERBST

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  
				

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

TIMOTHY P. HERBST:

 

	
  By:

  	
  /s/ TIMOTHY P. HERBST

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  
				

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

 

TROY D. HERBST:

 

	
  By:

  	
  /s/ TROY D. HERBST

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  5195 Las Vegas Blvd.
  South

  	
   

  
	
   

  	
  Las
  Vegas, Nevada, 89119

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  702-798-6400

  	
   

  
	
  Facsimile:

  	
  702-798-8079

  	
   

  
				

 

With a copy to:

 

Latham & Watkins
LLP

355 South Grand Avenue

Los Angeles, CA  90071-1560

Telephone:  (213) 485-1234

Facsimile:  (213) 891-8763

Attn:  Robert A. Klyman, Esq.

 

EXHIBIT A TO AGREEMENT

 

THIS
TERM SHEET DOES NOT CONSTITUTE (NOR SHALL IT BE CONSTRUED AS) AN OFFER WITH
RESPECT TO ANY SECURITIES OR A SOLICITATION OF ACCEPTANCES OR REJECTIONS AS TO
ANY PLAN OF REORGANIZATION, IT BEING UNDERSTOOD THAT SUCH AN OFFER OR  SOLICITATION, IF ANY, WILL ONLY BE MADE IN
COMPLIANCE WITH APPLICABLE PROVISIONS OF SECURITIES AND/OR BANKRUPTCY
LAWS.  THIS TERM SHEET DOES NOT ADDRESS
ALL MATERIAL TERMS THAT WOULD BE REQUIRED IN CONNECTION WITH THE RESTRUCTURING
(AS DEFINED HEREIN) AND IS SUBJECT TO THE COMPLETION AND EXECUTION OF
DEFINITIVE DOCUMENTATION.  THIS TERM
SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY AND IS
SUBJECT TO THE PROVISIONS OF RULE 408 OF THE FEDERAL RULES OF EVIDENCE AND
OTHER SIMILAR APPLICABLE STATE AND FEDERAL RULES.

 

HERBST
GAMING, INC.

RESTRUCTURING
TERM SHEET

 

MARCH 9,
2009

 

This term sheet (the “Term
Sheet”) outlines a proposed restructuring transaction (the “Restructuring”)
for Herbst Gaming, Inc. (“Herbst Gaming”) and certain of its Affiliates
(collectively, the “Company”) to be implemented pursuant to a
pre-arranged joint plan of reorganization (the “Plan”) under chapter 11
of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy
Code”).  Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to such terms in Exhibit 1.  Capitalized terms not otherwise defined
herein or in Exhibit 1 shall have the meanings given to such terms
in the Bankruptcy Code.  The terms “include,”
includes,” or “including” are not limiting. 
This Term Sheet does not include a description of all of the terms,
conditions and other provisions that are to be contained in the definitive
documentation governing the Restructuring, which remain subject to discussion
and negotiation.  Any material change to
any provision of this Term Sheet must be reasonably acceptable to each of the
Company, the THI Parties and the Required Consenting Lenders.

 

	
  Structure of the Transaction

  	
   

  	
  The Restructuring will
  principally consist of (a) separation of the Company’s casino and slot
  machine route businesses into two holding companies, (b) conversion of
  all outstanding obligations under the Senior Credit Facility (as defined
  below) into debt and equity of the reorganized companies, (c) termination
  of all outstanding obligations under the indentures governing the Senior
  Subordinated Notes, (d) cancellation of 100% of the existing equity in
  the Company, and (e) amendments or modifications to, or assumptions and
  assignments of, certain of the Related Party Agreements, or new agreements to
  be entered into, and settlements of claims with Terrible Herbst, Inc. (“THI”)
  and each person or entity affiliated with THI that is a party to any Related
  Party Agreement or that enters into a new agreement or agreements related to
  the operations of the Company and is affiliated with THI (collectively with
  THI, the “THI Parties”), all in exchange for an equity position in
  Slot Co (as defined below), in each case, as set forth in more detail herein.

  
	
   

  	
   

  	
   

  
	
  Pre-Arranged Plan

  	
   

  	
  The Restructuring shall
  be implemented pursuant to the Plan. In connection with the negotiation and
  preparation of the Plan and a disclosure statement discussing the Plan (the “Disclosure
  Statement” and, together with the Plan and any definitive documents
  relating thereto, the “Plan Documents”), the Company, certain
  consenting lenders (“Lenders”) under the Senior Credit Facility and
  the THI Parties shall agree upon each of (i) the Petition Date,
  (ii) the date by which the Disclosure Statement shall be approved by the
  Bankruptcy Court, 

  

 

 

	
   

  	
   

  	
  (iii) the date by
  which the Plan shall be confirmed, (iv) the date by which the confirmed
  Plan shall become effective, and (v) the date by which the confirmed
  plan shall be substantially consummated. The acceptance of the Plan by the
  Lenders and the THI Parties shall not be solicited until after the Petition
  Date.

  
	
   

  	
   

  	
   

  
	
  Separation of Casino and Slot
  Business

  	
   

  	
  The Company’s business
  is comprised of the following two segments: (i) the ownership and
  operation of casinos in Iowa, Missouri and Nevada (the “Casino Business”);
  and (ii) the ownership and operation of gaming machines pursuant to
  agreements with chain stores, restaurants, bars, and convenience stores (the
  “Slot Business”). Under the Restructuring, the Casino Business and the
  Slot Business will be separated from one another and held by two holding
  companies, “Reorganized Herbst Gaming” and “Slot Co”,
  respectively.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Methodology for
  allocation of assets generally between Reorganized Herbst Gaming and Slot Co
  to be determined based on primary use in the Casino Business or the Slot
  Business, or, to the extent applicable, based upon which party is responsible
  for the provision of services related to a particular asset; however, working
  capital (including Cash and taking appropriate account of the Smith contract)
  to be allocated between Reorganized Herbst Gaming and Slot Co in accordance
  with historical practices and consistent with the intent of this Term Sheet.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Overhead allocation to
  be 33.4% at Slot Co and 66.6% at Reorganized Herbst Gaming on the Substantial
  Consummation Date, and to be re-adjusted on an annual basis based upon prior
  year’s consolidated non-fuel revenue. In order to document the overhead
  allocation, the parties shall enter into the Corporate Overhead Allocation
  Agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In anticipation of the
  separation of the Casino Business and the Slot Business, there shall be
  created the position of COO/Gaming. The COO/Gaming shall (i) be
  acceptable to Required Consenting Lenders; (ii) satisfy all applicable
  requirements under applicable gaming laws and regulations and, in conjunction
  with the Company and with the Company’s full cooperation, file any required
  applications in connection therewith on or before the Petition Date; (iii) commence
  employment as of the date of approval of such applications by the applicable
  gaming authorities; (iv) be reasonably acceptable to the Company’s board
  of directors; (v) be employed by Herbst Gaming, Inc. (as a member
  of the Company’s Office of the CEO and reporting to the Company’s board of
  directors) until the Substantial Consummation Date; (vi) be employed by
  Reorganized Herbst Gaming as of the Substantial Consummation Date;
  (vii) not be removed other than for cause and, if removed for cause,
  promptly be replaced by an individual reasonably acceptable to Required
  Consenting Lenders and the Company’s board of directors; and (viii) be
  made available to the Consenting Lenders upon reasonable notice to provide
  status reports on operations. For the avoidance of doubt, in the event that
  the Plan shall not have been confirmed by the Bankruptcy Court within 120
  days after the Petition Date, the position of COO/Gaming shall be terminable
  by the Company.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The current outstanding
  principal balance under the Senior Credit Facility is $847.96 million.
  Pursuant to the Restructuring, (i) $135 million of these obligations
  will be allocated to Slot Co pursuant to a new first priority senior secured
  bank loan (the “New Slot Co Bank

  

 

 

	
   

  	
   

  	
  Loan”) having the terms set forth in Exhibit 2
  attached hereto; (ii) $40 million of these obligations will be
  allocated to Slot Co pursuant to a second lien secured bank facility (the “New
  Slot Co Second Lien Facility”) having the terms set forth in
  Exhibit 3 attached hereto; (iii) $475 million of these obligations
  will be allocated to Reorganized Herbst Gaming pursuant to a new credit
  agreement comprising a first lien term loan in the amount of $350 million and
  a second lien term loan in the amount of $125 million on terms to be negotiated
  (the “Herbst Gaming Amended and Restated Senior Credit Facility”); and
  (iv) the remaining balance of these obligations will be exchanged for
  (x) 100% of the new common equity of Reorganized Herbst Gaming (the “Reorganized
  Herbst Gaming New Common Equity”) and (y) 10% of the new common
  equity of Slot Co (the “Slot Co New Common Equity”), with the
  remaining 90% of the Slot Co New Common Equity being provided to the THI
  Parties in exchange for amendments or modifications to, or assignments of,
  certain of the Related Party Agreements, or new agreements to be entered
  into, and settlement of claims by the THI Parties. The parties shall
  cooperate to structure the new common equity to be issued under the Plan in a
  manner that facilitates and satisfies applicable regulatory requirements.
  Additionally, subject to further consideration with respect to regulatory
  requirements and the terms of the Slot Co governance documents, the parties
  will cooperate to find a structure where the 10% of the new common equity of Slot
  Co is held by Reorganized Herbst Gaming (rather than individual Lenders).

  
	
   

  	
   

  	
   

  
	
  Corporate
  Governance

  	
   

  	
  The initial board of
  directors of Reorganized Herbst Gaming shall be comprised of directors
  selected by the Lenders. The initial board of directors of Slot Co shall be
  comprised of four (4) directors selected as follows: one
  (1) director shall be nominated on behalf of the Lenders holding 10% of
  the Slot Co New Common Equity (the “Lender Designee”), and three
  (3) directors shall be selected by the THI Parties. Each director shall
  satisfy all applicable requirements under applicable gaming laws and
  regulations. Each of Reorganized Herbst Gaming and Slot Co will adopt
  by-laws, certificates of incorporation an LLC agreement or other governance
  documents consistent with applicable securities, bankruptcy and/or state
  laws. Appropriate corporate governance documents shall be set forth in the
  Definitive Documentation (as defined below).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The New Slot Co Bank
  Loan will contain a minimum EBITDA covenant of $20.0 million (the “Minimum
  EBITDA Covenant”) which, if breached, will trigger the following
  requirements, the specific details of which shall be (i) agreed upon by
  the Company, the Lenders and the THI Parties and (ii) set forth in the
  Definitive Documentation:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      The board of directors will be expanded
  to five (5) directors, with the additional director (together with the
  Lender Designee, the “Lender Designees”) to be selected by the Lenders
  holding 10% of the Slot Co New Common Equity.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Entry into any new affiliate or related
  party transactions above a threshold amount to be agreed upon by the THI
  Parties and Required Consenting Lenders will require unanimous approval by
  the Lender Designees or the receipt of a fairness opinion from a
  nationally-recognized investment bank reasonably acceptable to the Lender
  Designee, including but not limited to 

  

 

 

	
   

  	
   

  	
  three (3) nationally-recognized investment
  banks to be agreed upon by the parties.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Slot Co will be prohibited from taking
  any of the following actions unless four (4) of the five
  (5) directors shall approve such action (the “Supermajority
  Requirement”):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Additional incurrences of material
  debt(2);

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Sales or acquisitions of material
  assets;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Approval of operating and capex budgets
  and any material variances therefrom;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Issuance of equity securities;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Changes in senior management; provided,
  that none of Edward J. Herbst, Timothy P. Herbst, Troy D. Herbst or Jerry E.
  Herbst may be removed or replaced other than for cause;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Any mergers and any payment of any
  dividends or other distributions (except for tax distributions) to equity
  holders;

  

(2)           For
the avoidance of doubt, a supermajority vote shall not be required for any
decision by Slot Co to pay PIK interest to the extent permitted by the
applicable documents.

 

	
   

  	
   

  	
  The Minimum EBITDA
  Covenant will apply as of the end of the end of the 4th full quarter
  following the Substantial Consummation Date and shall be tested at the end of
  each fiscal quarter thereafter (each, a “Test Period”). If, after any breach
  of the Minimum EBITDA Covenant, Slot Co shall meet the Minimum EBITDA
  Covenant during any Test Period thereafter, the additional Lender Designee
  may be removed by the THI Parties, the requirement for unanimous approval of
  affiliate transactions will lapse and there shall be no Supermajority
  Requirement unless and until there shall be any subsequent breach of the
  Minimum EBITDA Covenant.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The holders of Slot Co
  New Common Equity will be party to an LLC agreement, the form of which shall
  be included in the Slot Definitive Documentation (as defined below). It is
  anticipated that such agreement will include, among other things,
  (i) restrictions on transfers of Slot Co New Common Equity by Lenders to
  any known competitor or any third party known by the transferor (after
  reasonable inquiry) to have a material interest or material lending stake in
  or material contractual relationship with any known competitor, except in
  each case with the consent of the THI Parties (ii) restrictions on
  transfers of Slot Co New Common Equity that would increase the number of
  holders of Slot Co New Common Equity to a level that would require Slot Co to
  file any reports with the SEC or be a reporting company under the Securities

  

 

 

	
   

  	
   

  	
  Exchange Act of 1934,
  as amended, (iii) provisions granting the THI parties drag rights,
  (iv) provisions granting the Lenders tag rights, (v) provisions
  ensuring that Slot Co will remain a private company and not subject to SEC
  registration and reporting requirements unless consented to by the THI
  Parties, and (vi) provisions with respect to licensing issues.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  From the Effective Date
  until all gaming licenses and approvals are obtained as required to
  effectuate the Plan and the Plan is substantially consummated (the “Substantial
  Consummation Date”), the Debtors and the Lenders will (i) work
  together in good faith to determine the optimal management of operations,
  maintenance of working capital and utilization of Excess Cash Flow of
  Reorganized Herbst Gaming, and (ii) reasonably cooperate with each other
  in connection with the management and operations of Reorganized Herbst
  Gaming, all in accordance with applicable gaming laws and regulations.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Beginning on the
  Substantial Consummation Date, Slot Co shall employ Edward J. Herbst, Timothy
  P. Herbst and Troy D. Herbst, with annual aggregate salaries of $2.077
  million, which shall not be decreased, and shall not be increased until the
  New Slot Co Bank Loan and the New Slot Co Second Lien Facility have been paid
  in full.

  
	
   

  	
   

  	
   

  
	
  Definitive
  Documentation

  	
   

  	
  The Company shall
  prepare definitive documentation concerning the separation of the Casino
  Business (the “Casino Definitive Documentation”) and the Slot Business
  (the “Slot Definitive Documentation” and together with the Casino
  Definitive Documentation, the “Definitive Documentation”). The Slot
  Definitive Documentation and the Casino Definitive Documentation will be
  consistent with this Term Sheet.

  
	
   

  	
   

  	
   

  
	
  Separate Plans for Each Entity

  	
   

  	
  The Plan will
  constitute separate plans of reorganization for each of Herbst Gaming and
  each of its subsidiaries that are guarantors of Herbst Gaming’s obligations
  under the Senior Credit Facility, the 8.125% Senior Subordinated Notes, and
  the 7.000% Senior Subordinated Notes (collectively, the “Guarantor Debtors”),
  and none of their bankruptcy estates shall be substantively consolidated.
  Accordingly, a vote on the Restructuring shall be deemed a vote on each plan
  of reorganization of each of Herbst Gaming and the Guarantor Debtors.

  
	
   

  	
   

  	
   

  
	
  Classification and Treatment of
  Claims and Interests

  	
   

  	
  Unclassified
  Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DIP Facility Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In the event a DIP
  Facility is obtained, Allowed DIP Facility Claims shall not be classified
  under the Plan and to the extent not previously repaid, shall be paid in full
  in Cash on the Effective Date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Administrative Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Each Holder of an
  Administrative Claim will receive payment in full in Cash of the unpaid
  portion of its Allowed Administrative Claim on the Effective Date or as soon
  thereafter as practicable (or, if not then due, in accordance with its
  terms).

  

 

 

	
   

  	
   

  	
  Priority Tax Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On the later of the
  Effective Date or the date on which a Priority Tax Claim becomes an Allowed
  Priority Tax Claim, or, in each such case, as soon as practicable thereafter,
  each Holder of an Allowed Priority Tax Claim due and payable on or prior to
  the Effective Date will receive on account of such Claim, an amount in Cash
  equal to the amount of such Allowed Priority Tax Claim, or shall be provided
  such other treatment as would comply with Bankruptcy Code section
  1129(a)(9)(C).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classified
  Claims and Interests

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 1—Other Priority
  Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 1 shall consist of Other
  Priority Claims against the Debtors.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: The legal, equitable and contractual
  rights of the Holders of Allowed Class 1 Claims will be unaltered by the
  Plan. Unless otherwise agreed to by the Holders of the Allowed Class 1
  Claims and the Debtors, each Holder of an Allowed Class 1 Claim shall
  receive, in full and final satisfaction of such Allowed Class 1 Claim,
  payment of the Allowed Class 1 Claim in full in Cash on the Effective
  Date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voting: Class 1 is an Unimpaired Class,
  and the Holders of Class 1 Claims will be conclusively deemed to have
  accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.
  Therefore, the Holders of Class 1 Claims will not be entitled to vote to
  accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 2—Other Secured
  Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 2 shall consist of Other
  Secured Claims against the Debtors.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: Holders of Allowed Class 2
  Claims will be paid in full in Cash or otherwise left Unimpaired, in full and
  final satisfaction of such Allowed Class 2 Claims.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voting: Class 2 is an Unimpaired Class,
  and the Holders of Class 2 Claims will be conclusively deemed to have
  accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.
  Therefore, the Holders of Class 2 Claims will not be entitled to vote to
  accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 3—Senior Credit
  Facility Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 3 consists of the Holders
  of Senior Credit Facility Claims against the Debtors. This class includes
  both the Secured and the unsecured Claims, if any, of such Holders.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: On the Substantial Consummation Date,
  Holders of Allowed Class 3 Claims will receive, in full and final
  satisfaction of such Allowed Class 3 Claims, their pro rata share of
  (a) the Reorganized Debtors’ obligations under (i) the Herbst
  Gaming Amended and Restated Senior Credit Facility, (ii) the New Slot Co
  Bank Loan and (iii) the New Slot Co Second Lien Facility, (b) 100%
  of the Reorganized Herbst Gaming New Common Equity (c) 10% of the Slot
  Co New Common Equity, and 

  

 

 

	
   

  	
   

  	
  (d) any remaining
  value from the realization of the Debtors’ assets, provided,
  however, that all Allowed
  Class 3 Claims shall be subject to any Senior Credit Facility Gift.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  During the period commencing
  on the Effective Date and running through the Substantial Consummation Date,
  adequate protection payments shall be made to the Holders of Senior Credit
  Facility Claims (i) in an amount equal to the payments that would be
  made under the New Slot Co Bank Loan and the New Slot Co Second Lien Facility
  as if those facilities were in effect as of the Effective Date,
  notwithstanding the fact that the Substantial Consummation Date may not yet
  have occurred, provided, however,
  that (x) such amount shall not include any cash interest or PIK interest
  on the New Slot Co Second Lien Facility, nor shall any such interest on the
  New Slot Co Second Lien Facility commence accruing, until the date that is
  six (6) months after the Effective Date (the “PIK Date”), provided, further,
  that if any required gaming licenses or approvals with respect to any of
  (a) Reorganized Herbst Gaming, its proposed officers, directors, equity
  holders and other persons required to file personal applications (each to the
  extent necessary) or (b) the non-THI Parties equity holders in Slot Co,
  the Lender Designee, and lenders of Slot Co (each to the extent necessary),
  shall not have been granted by any of the applicable gaming regulatory
  authorities to all such entities within one year of the Effective Date, then
  all interest on the New Slot Co Second Lien Facility shall cease accruing and
  shall only recommence (without any catch up for lost interest) once all such
  licenses and approvals are granted, and (y) such payments shall be made
  on the last day of the applicable interest period (with the initial interest
  period for such payments commencing on the Effective Date or the PIK Date, as
  applicable, and ending on the last Business Day of the third full calendar
  month following the month in which the Effective Date or the PIK Date, as
  applicable, occurs, and with each subsequent interest period commencing on
  the last day of the preceding interest period and ending on the last Business
  Day of the third full calendar month thereafter); and (ii) under the
  Herbst Gaming Amended and Restated Senior Credit Facility, in an amount equal
  to the Debtors’ Cash and Cash Equivalents (as reflected on the Debtors’
  balance sheet) in excess of $100 million,(3) to be measured
  (x) initially, as of the last day of the third full calendar month
  following the month in which the Effective Date occurs and (y) as of the
  last day of every third full calendar month thereafter, and to be paid in
  each case on the 30th day after the date on which it is measured.

  

(3)           Such amount shall be modified to
reflect the separation of Debtors’ casino and slot machine route businesses as
of the later of (i) the Effective Date and (ii) five days after the
date the Company receives gaming regulatory approval regarding the internal
reorganization necessary to implement separation of the Debtors’ casino and
slot machine route businesses.  Following
the later of such dates, the cash sweep will apply only as to the casino
business.

 

	
   

  	
   

  	
  Voting: Class 3 is Impaired, and Holders
  of Class 3 Claims will be entitled to vote to accept or reject the Plan.

  

 

 

	
   

  	
   

  	
  Class 4—General Unsecured
  Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 4 will consist of the
  Holders of General Unsecured Claims, other than Class 5, Class 6
  and Class 7 claims.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: On the Substantial Consummation Date,
  Holders of Allowed Class 4 Claims will be paid in full in
  Cash(4) or otherwise left Unimpaired.

  

(4)           Any Cash payment to
Holders of Allowed Class 4 Claims shall be made by the Debtors, first from
unencumbered assets, then, to the extent the Debtors do not have sufficient
unencumbered assets to make such payments, such payments shall, pursuant to the
Senior Credit Facility Gift, be deemed to have been transferred by gift by
Holders of Allowed Class 3 Claims.

 

	
   

  	
   

  	
  Voting: Class 4 is an Unimpaired Class,
  and the Holders of Class 4 Claims will be conclusively deemed to have
  accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.
  Therefore, the Holders of Class 4 Claims will not be entitled to vote to
  accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 5—THI Party Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 5 consists of the Holders
  of THI Party Claims.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: On the Substantial Consummation Date,
  Holders of Class 5 Claims will receive from Holders of Class 3
  Claims, in full and final satisfaction of such Allowed Class 5 Claims,
  and in exchange for amendments or modifications to, or assumptions and
  assignments of, certain of the Related Party Agreements, 90% of the Slot New
  Co Common Equity. Such treatment shall constitute a compromise and
  settlement, pursuant to section 1123(b)(3) of the Bankruptcy Code and
  Bankruptcy Rule 9019, of any and all Claims by any of the THI Parties
  against any Debtor arising under or in connection with the Related Party
  Agreements identified in the Related Party Agreements Term Sheet or
  otherwise, and of any and all claims held by any Debtor against any of the
  THI Parties arising under or in connection with the Related Party Agreements
  or otherwise.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voting: Class 5 is Impaired, and Holders
  of Class 5 THI Party Claims will be entitled to vote to accept or reject
  the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 6—Senior
  Subordinated Note Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 6 consists of the Holders
  of Senior Subordinated Note Claims against the Debtors.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: On the Substantial Consummation Date,
  all outstanding obligations under the indentures governing the Senior
  Subordinated Notes shall be terminated. Holders of Class 6 Claims shall
  not receive or retain any property on account of their Claims under the Plan.

  

 

 

	
   

  	
   

  	
  Voting: Holders of Class 6 Claims will
  be conclusively deemed to have rejected the Plan pursuant to section
  1126(g) of the Bankruptcy Code. Therefore, Holders of Class 6
  Claims will not be entitled to vote to accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 7—Intercompany
  Claims

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 7 consists of all
  Intercompany Claims against the Debtors.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: On the Substantial Consummation Date,
  at the option of the Debtors or the Reorganized Debtors, the Intercompany
  Claims of any Debtor against any other Debtor shall either be reinstated, in
  full or in part, or cancelled and discharged, in full or in part, in which
  case such discharged and satisfied portion shall be eliminated and the
  Holders thereof shall not be entitled to, and shall not receive or retain,
  any property or interest in property on account of such portion; provided, however, that, prior to the Substantial
  Consummation Date, the Debtors shall take all necessary steps to ensure that,
  as of the Substantial Consummation Date, there shall be no Intercompany
  Claims of (i) Reorganized Herbst Gaming against Slot Co or
  (ii) Slot Co against Reorganized Herbst Gaming; provided further that
  the treatment of Intercompany Claims shall be reasonably acceptable to
  Required Consenting Lenders and the THI Parties.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voting: Holders of Class 7 Claims will
  be conclusively deemed to have accepted the Plan pursuant to section
  1126(f) of the Bankruptcy Code. Therefore, Holders of Class 7
  Claims will not be entitled to vote to accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 8—Equity Interests
  in Herbst Gaming

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 8 consists of all Equity
  Interests in Herbst Gaming.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: On the Substantial Consummation Date,
  all Class 8 Equity Interests in Herbst Gaming shall be cancelled.
  Holders of Class 8 Equity Interests shall not receive or retain any
  property on account of their Interests under the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voting: Holders of Class 8 Interests
  will be conclusively deemed to have rejected the Plan pursuant to section
  1126(g) of the Bankruptcy Code. Therefore, Holders of Class 8
  Interests will not be entitled to vote to accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Class 9—Intercompany
  Interests

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Classification: Class 9 consists of all
  Intercompany Interests in the Debtors.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Treatment: Except as otherwise provided in this
  Term Sheet, Class 9 Intercompany Interests shall be retained and the
  legal, equitable, and contractual rights to which the Holders of such
  Intercompany Interest are entitled shall remain unaltered.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Voting: Class 9 is Unimpaired, and the
  Holders of Class 9 Interests will be conclusively deemed to have
  accepted the Plan pursuant to section

  

 

 

	
   

  	
   

  	
  1126(f) of the
  Bankruptcy Code. Therefore, the Holders of Class 9 Claims will not be
  entitled to vote to accept or reject the Plan.

  
	
   

  	
   

  	
   

  
	
  Means for Implementation of the
  Plan

  	
   

  	
  Extensions
  and Modifications of Related Party Agreements; Slot Business

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Related Party
  Agreements shall be assumed, assumed as modified, rejected, and/or otherwise
  treated as described in the Related Party Agreements Term Sheet attached
  hereto as Exhibit 4, and any and all Claims arising in connection
  with any such assumption, modifications, rejections or other treatment shall
  be classified in Class 5. For the avoidance of doubt, unless otherwise
  expressly set forth on the Related Party Agreements Term Sheet, all terms and
  provisions in each of the Related Party Agreements shall continue to be valid
  and enforceable. Any and all Executory Contracts necessary in connection with
  the ownership and operation of the Slot Business will be assumed and assigned
  by Herbst Gaming to Slot Co (the “Slot Business Executory Contracts”).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Confirmation Order
  will provide that, during the period commencing on the Effective Date and
  running through the Substantial Consummation Date, the economic terms of the
  Related Party Agreements shall be honored and performed by the parties
  thereto as if all assumptions, modifications or other treatments described in
  the Related Party Agreements Term Sheet were in effect as of the Effective
  Date, notwithstanding the fact that the Substantial Consummation Date may not
  yet have occurred.

  
	
   

  	
   

  	
   

  
	
  Release Provisions

  	
   

  	
  Compromise
  and Settlement

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The allowance,
  classification and treatment of all Allowed Claims and Equity Interests and
  their respective distributions and treatments under the Plan take into
  account and/or conform to the relative priority and rights of the Claims and
  Equity Interests in each Class in connection with any contractual, legal
  and equitable subordination rights relating thereto whether arising under
  general principles of equitable subordination, section 510(c) of the
  Bankruptcy Code, or otherwise, including without limitation the subordination
  provisions contained in the Indentures governing the Senior Subordinated
  Notes. As of the Effective Date or the Substantial Consummation Date, as the
  case may be, any and all such rights described in the preceding sentence will
  be settled, compromised and released pursuant to the Plan. In addition, the
  allowance, classification and treatment of Allowed Claims takes into account
  any Causes of Action, whether under the Bankruptcy Code or otherwise under
  applicable law, that may exist (i) between the Debtors, on the one hand,
  and the Releasing Parties, on the other, and (ii) as between the
  Releasing Parties (to the extent set forth in the Third Party Release). As of
  the Effective Date or the Substantial Consummation Date, as the case may be,
  any and all such Causes of Action are settled, compromised and released
  pursuant hereto. The Confirmation Order shall approve the releases by all
  Entities of all such contractual, legal and equitable subordination rights or
  Causes of Action against each such Releasing Party that are satisfied,
  compromised and settled in this manner.

  

 

 

	
   

  	
   

  	
  Debtor
  Release

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On the Substantial
  Consummation Date and effective as of the Substantial Consummation Date, for
  the good and valuable consideration provided by each of the Releasing
  Parties, including, but not limited to: (i) the discharge of debt and
  all other good and valuable consideration paid pursuant to the Plan;
  (ii) the obligations of the Releasing Parties to provide the support
  necessary for Consummation of the Plan; and (iii) the services of the
  Debtors’ present and former officers and directors in facilitating the
  expeditious implementation of the Restructuring contemplated by the Plan,
  each of the Debtors and the Reorganized Debtors shall provide a full
  discharge and release to each Releasing Party and each of their respective
  members, officers, directors, agents, financial advisors, attorneys,
  employees, partners, Affiliates and representatives (collectively, the “Debtor
  Releasees” (and each such Debtor Releasee so released shall be deemed
  released and discharged by the Debtors and the Reorganized Debtors)) and
  their respective properties from any and all Causes of Action, whether known
  or unknown, whether for tort, fraud, contract, violations of federal or state
  securities laws, or otherwise, arising from or related in any way to the
  Debtors or Reorganized Debtors, including, without limitation, those that any
  of the Debtors or Reorganized Debtors would have been legally entitled to
  assert in their own right (whether individually or collectively) or that any
  Holder of a Claim or Equity Interest or other Entity would have been legally
  entitled to assert on behalf of any of the Debtors or any of their Estates,
  and further including those in any way related to the Chapter 11 Cases or the
  Plan to the fullest extent of the law; provided,
  however, that the foregoing “Debtor
  Release” shall not operate to waive or release any Releasing Party from
  any Causes of Action (i) expressly set forth in and preserved by the
  Plan, the Plan Supplement or related documents or (ii) arising under the
  Herbst Gaming Amended and Restated Senior Credit Facility or the New Slot Co
  Bank Loan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Third
  Party Release

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On the Substantial
  Consummation Date and effective as of the Substantial Consummation Date, to
  the extent permitted by law, the Releasing Parties shall provide a full
  discharge and release (and each Entity so released shall be deemed released
  by the Releasing Parties) to the Third Party Releasees and their respective
  property from any and all Causes of Action, whether known or unknown, whether
  for tort, fraud, contract, violations of federal or state securities laws, or
  otherwise, arising from or related in any way to the Debtors, including,
  without limitation, those in any way related to the Chapter 11 Cases or the
  Plan to the fullest extent of the law; provided,
  however, that the foregoing “Third
  Party Release” shall not operate to waive or release any of the Third
  Party Releasees from any Causes of Action (i) expressly set forth in and
  preserved by the Plan, the Plan Supplement or related documents or
  (ii) arising under the Herbst Gaming Amended and Restated Senior Credit
  Facility or the New Slot Co Bank Loan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Exculpation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Exculpated Parties
  shall neither have, nor incur any liability to any Entity for any prepetition
  or postpetition act taken or omitted to be taken in connection with, or
  related to formulating, negotiating, preparing,

  

 

 

	
   

  	
   

  	
  disseminating,
  implementing, administering, confirming or effecting the Consummation of the
  Plan, the Disclosure Statement or any contract, instrument, release or other
  agreement or document created or entered into in connection with the Plan or
  any other prepetition or postpetition act taken or omitted to be taken in
  connection with or in contemplation of the restructuring of the Company; provided, however,
  that the foregoing provisions of this release shall have no effect on the
  liability of any Entity that results from any such act or omission that is
  determined in a Final Order to have constituted gross negligence or willful
  misconduct; provided further, that each
  Exculpated Party shall be entitled to rely upon the advice of counsel
  concerning his, her or its duties pursuant to, or in connection with, the
  Plan; provided still further, that the
  foregoing Exculpation shall not apply to any acts or omissions expressly set
  forth in and preserved by the Plan, the Plan Supplement or related documents.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Indemnification

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Under the Plan, all
  indemnification provisions currently in place (whether in the by-laws,
  articles or certificates of incorporation, articles of limited partnership,
  limited liability company agreements, board resolutions (or resolutions of
  similar bodies) or employment contracts) for the current and former
  directors, officers, employees, attorneys, other professionals and agents of
  the Debtors and such current and former directors and officers’ respective
  Affiliates shall be assumed, and shall survive effectiveness of the Plan. All
  indemnification provisions in place on and prior to the Substantial Consummation
  Date for current and former directors and officers of the Debtors and their
  subsidiaries and such current and former directors and officers’ respective
  Affiliates shall (i) survive the Substantial Consummation Date of the
  Plan for Claims related to or in connection with any actions, omissions or
  transactions occurring prior to the Substantial Consummation Date, and
  (ii) remain liabilities of the respective reorganized Debtor.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Director
  and Officer Liability Policy

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Reorganized Herbst
  Gaming will obtain sufficient tail coverage under a directors and officers’
  liability insurance policy for the current and former directors and officers
  for a period of six (6) years. As of the Substantial Consummation Date,
  the Debtors shall assume all of the D&O Liability Insurance Policies
  pursuant to section 365(a) of the Bankruptcy Code. Also as of the
  Substantial Consummation Date, Slot Co will obtain a directors and officers’
  liability insurance policy for its directors and officers in such amount and
  for such duration as the directors and officers of Slot Co may deem to be
  sufficient. Entry of the Confirmation Order will constitute the Bankruptcy
  Court’s approval of the Debtors’ foregoing assumption of each of the D&O
  Liability Insurance Policies. Notwithstanding anything to the contrary
  contained in the Plan, Confirmation of the Plan shall not discharge, impair
  or otherwise modify any indemnity obligations assumed by the foregoing
  assumption of the D&O Liability Insurance Policies, and each such
  indemnity obligation will be deemed and treated as an Executory Contract that
  has been assumed by the Debtors under the Plan as to which no proof of claim
  need be filed.

  

 

EXHIBIT 1

 

Definitions

 

	
  Term

  	
   

  	
  Definition

  
	
  7.000% Senior
  Subordinated Notes

  	
   

  	
  The 7.000% Senior
  Subordinated Notes due November 1, 2014, issued by Herbst Gaming
  pursuant to that certain Indenture, dated as of November 22, 2004, among
  Herbst Gaming, Inc., a Nevada corporation, the Guarantors (as defined
  therein) and HSBC Bank, National Association, as successor trustee.

  
	
  7.000% Senior
  Subordinated Note Claims

  	
   

  	
  All Claims arising
  under, or in any way related to, the 7.000% Senior Subordinated Notes.

  
	
  8.125% Senior
  Subordinated Notes

  	
   

  	
  The 8.125% Senior
  Subordinated Notes due June 1, 2012, issued by Herbst Gaming pursuant to
  that certain Indenture, dated as of June 11, 2004, among Herbst
  Gaming, Inc., a Nevada corporation, the Guarantors (as defined therein)
  and HSBC Bank, National Association, as successor trustee.

  
	
  8.125% Senior
  Subordinated Note Claims

  	
   

  	
  All Claims arising
  under, or in any way related to the 8.125% Senior Subordinated Notes.

  
	
  Administrative Claim

  	
   

  	
  A Claim for costs and
  expenses of administration of the Estates under sections 503(b),
  507(b) or 1114(e)(2) of the Bankruptcy Code, including, without
  limitation, for: (a) the actual and necessary costs and expenses
  incurred after the Petition Date of preserving the respective Estates and
  operating the businesses of the Debtors; (b) Allowed Claims of retained
  professionals in the Chapter 11 Cases; and (c) all fees and charges
  assessed against the Estates under chapter 123 of title 28 of the United
  States Code, 28 U.S.C. §§ 1911-1930.

  
	
  Affiliate

  	
   

  	
  As defined in section
  101(2) of the Bankruptcy Code.

  
	
  Allowed Claim or
  Allowed Interest

  	
   

  	
  A Claim or Interest
  that is allowed (i) pursuant to the Plan; (ii) in any stipulation
  executed prior to the Confirmation Date and approved by the Bankruptcy Court;
  (iii) in any stipulation with the Debtors or Reorganized Debtors
  executed on or after the Confirmation Date and approved by the Bankruptcy
  Court; or (iv) in or pursuant to any contract, instrument, indenture or
  other agreement entered into or assumed in connection herewith; provided, however, that
  proofs of claim need not and should not be filed with respect to any Claim
  with the Bankruptcy Court; and provided, further,
  that, notwithstanding anything herein to the contrary , by treating a Claim
  as an “Allowed Claim” the Debtors do not waive their rights to contest the
  amount and validity of any disputed, contingent or unliquidated Claim in the
  manner and venue in which such Claim would have been determined, resolved or
  adjudicated if the Chapter 11 Cases had not been commenced.

  
	
  Bankruptcy Code

  	
   

  	
  Chapter 11 of the
  Bankruptcy Code, 11 U.S.C. §§ 101-1532

  
	
  Bankruptcy Court

  	
   

  	
  The United States
  Bankruptcy Court for the District of Nevada, having jurisdiction over the
  Chapter 11 Cases and, to the extent of the withdrawal of any reference under
  section 157 of title 28 of the United States Code and/or the General Order of
  the District Court pursuant to section 151 of title 28 of the United States
  Code, the United States District Court for the District of Nevada.

  
	
  Bankruptcy Rules

  	
   

  	
  The Federal
  Rules of Bankruptcy Procedure, as applicable to the Chapter 11 Cases,
  promulgated under 28 U.S.C. § 2075 and the general, local and chambers
  rules of the Bankruptcy Court.

  
	
  Business Day

  	
   

  	
  Any day, other than a
  Saturday, Sunday or “legal holiday” (as defined in Bankruptcy
  Rule 9006(a)).

  
	
  Cash

  	
   

  	
  The legal tender of the
  United States of America or the equivalent thereof, including bank deposits,
  checks and cash equivalents.

  
	
  Causes of Action

  	
   

  	
  All actions, causes of
  action, Claims, liabilities, obligations, rights, suits, debts, damages,
  judgments, remedies, demands, setoffs, defenses, recoupments, crossclaims,
  counterclaims, third-party claims, indemnity claims, contribution claims or
  any other claims disputed or undisputed, suspected or unsuspected, foreseen
  or unforeseen, direct

  

 

	
   

  	
   

  	
  or indirect, choate or
  inchoate, existing or hereafter arising, in law, equity or otherwise, based
  in whole or in part upon any act or omission or other event occurring prior
  to the Petition Date or during the course of the Chapter 11 Cases, including
  through the Substantial Consummation Date.

  
	
  Chapter 11 Cases

  	
   

  	
  (a) When used with
  reference to a particular Debtor, the chapter 11 case for that Debtor under
  chapter 11 of the Bankruptcy Code in the Bankruptcy Court and (b) when
  used with reference to all Debtors, the procedurally consolidated chapter 11
  cases for all of the Debtors.

  
	
  Claim

  	
   

  	
  Any claim against a
  Debtor as defined in section 101(5) of the Bankruptcy Code.

  
	
  Class

  	
   

  	
  A category of Holders
  of Claims or Equity Interests pursuant to section 1122(a) of the
  Bankruptcy Code as set forth in this Term Sheet.

  
	
  Company

  	
   

  	
  Herbst Gaming and its
  Affiliates.

  
	
  Confirmation

  	
   

  	
  The entry of the
  Confirmation Order on the docket of the Chapter 11 Cases, subject to all
  conditions specified having been satisfied or waived.

  
	
  Confirmation Date

  	
   

  	
  The date upon which the
  Bankruptcy Court enters the Confirmation Order on the docket of the Chapter
  11 Cases, within the meaning of Bankruptcy Rules 5003 and 9021.

  
	
  Confirmation Order

  	
   

  	
  The order of the
  Bankruptcy Court confirming the Plan pursuant to, among others, section 1129
  of the Bankruptcy Code.

  
	
  Corporate Overhead
  Allocation Agreement

  	
   

  	
  That certain agreement
  to be entered into on the Substantial Consummation Date by Casino Co and Slot
  Co, under which the terms of overhead allocation between Casino Co and Slot
  Co shall be set forth, which shall provide as follows: (i) expiration
  date on December 31 of the first full calendar year following the
  Substantial Consummation Date; (ii) automatic one-year extensions with 6
  months notice required to terminate contract by either party; and
  (iii) Slot Co charges Reorganized Herbst Gaming for its portion of
  overhead costs.

  
	
  Consenting Lenders

  	
   

  	
  Each of the Lenders
  party to the Agreement, dated
            , 2009, among
  Herbst Gaming, the Guarantor Debtors and the Consenting Parties identified
  therein.

  
	
  Consummation

  	
   

  	
  The occurrence of the
  Substantial Consummation Date.

  
	
  Creditor

  	
   

  	
  Any Holder of a Claim.

  
	
  D&O Liability
  Insurance Policies

  	
   

  	
  All insurance policies
  for directors and officers’ liability maintained by the Debtors as of the
  Petition Date.

  
	
  Debtor(s)

  	
   

  	
  Herbst Gaming and the
  Guarantor Debtors, individually and collectively, as the case may be.

  
	
  Debtor Releasees

  	
   

  	
  Each Releasing Party
  and each of their respective members, officers, directors, agents, financial
  advisors, attorneys, employees, partners, Affiliates and representatives.

  
	
  DIP Facility

  	
   

  	
  Any debtor in
  possession credit facility approved by the Bankruptcy Court, which shall
  contain adequate protection provisions satisfactory to the Senior Credit
  Facility Agent. Lenders shall have the right, but not the obligation, to
  provide the DIP Facility on commercially reasonable terms.

  
	
  DIP Facility Claim

  	
   

  	
  Any Claim on account of
  the DIP Facility.

  
	
  Disclosure Statement

  	
   

  	
  The disclosure
  statement for the Plan, as amended, supplemented or modified from time to
  time, describing the Plan, that is prepared and distributed in accordance
  with, among others, sections 1125, 1126(b) and 1145 of the Bankruptcy
  Code, Bankruptcy Rule 3018 and other applicable law.

  
	
  Effective Date

  	
   

  	
  The day that is the 11th day after the
  Confirmation Order is docketed.

  
	
  Entity

  	
   

  	
  An entity as defined in
  section 101(15) of the Bankruptcy Code.

  
	
  Equity Interest

  	
   

  	
  Any share of common
  stock, preferred stock or other instrument evidencing an ownership interest
  in a Debtor, whether or not transferable, and any option, warrant or right,
  contractual or otherwise, to acquire any such interest in a Debtor that
  existed immediately prior to the Substantial Consummation Date; provided, however, that
  Equity Interest does not include any Intercompany Interest.

  
	
  Estate

  	
   

  	
  As to each Debtor, the
  estate created for the Debtor in its Chapter 11 Case pursuant to section 541
  of the Bankruptcy Code.

  
	
  Excess Cash Flow

  	
   

  	
  With respect to any
  period of time within which it is measured, (a) EBITDA minus

  

 

	
   

  	
   

  	
  (b) the sum,
  without duplication, of (i) capital expenditures during such period
  (excluding the portion thereof financed with the proceeds of new
  indebtedness); (ii) cash interest expense paid or accrued during such
  period; (iii) principal payments during such period paid or payable in
  cash in respect of funded debt and/or capital leases; (iv) income taxes
  deducted in determining combined net income to the extent paid for in cash or
  accrued prior to the date on which the calculation of Excess Cash Flow is
  required to be performed; (v) cash distributions made to the THI Parties
  (or their affiliates) prior to the date on which the calculation Excess Cash
  Flow is required to be performed in respect of income and/or other tax
  liabilities which emanate from Slot Co.; (vi) prepaid rent paid in
  connection with new space lease agreements and/or the extension, modification
  or renewal of existing space lease agreements approved by unanimous board
  consent (provided that for purposes of calculating Excess Cash Flow, prepaid
  rent paid to a THI Party shall be excluded); and, (vii) for avoidance of
  doubt, with respect to any calculation of Excess Cash Flow for the purpose of
  determining a Mandatory Prepayment on the New Slot Co Bank Loan or the New
  Slot Co Second Lien Facility, any interest accrued during the applicable
  period on the New Slot Co Second Lien Facility that is required to be paid in
  cash. Notwithstanding the foregoing, in no event shall Slot Co be required to
  make a Mandatory Prepayment with respect to Excess Cash Flow if (and to the
  extent that) such payment would cause Slot Co’s cash and cash equivalents to
  be less than the Minimum Cash Amount.

   

  The “Minimum Cash
  Amount” means (a) an amount of cash and cash equivalents that the THI
  Parties and Consenting Lenders determine (as contemplated in the Term Sheet)
  will be allocated and assigned to Slot Co as of the PIK Date (with subsequent
  annual adjustments based on a methodology to be agreed by the THI Parties and
  Consenting Lenders, the “Base Amount”) plus (b)  $5 million.

  
	
  Exculpated Parties

  	
   

  	
  (a) The Debtors;
  (b) the Reorganized Debtors; (c) the Releasing Parties; and
  (d) all of the officers, directors, employees, members, attorneys,
  actuaries, financial advisors, accountants, investment bankers, agents,
  professionals, Affiliates, partners and representatives of each of the
  foregoing Entities (whether current or former, in each case in his, her or
  its capacity as such).

  
	
  Executory Contract

  	
   

  	
  A contract to which one
  or more of the Debtors is a party that is subject to assumption or rejection
  under section 365 of the Bankruptcy Code.

  
	
  Final Order

  	
   

  	
  An order or judgment of
  the Bankruptcy Court, or other court of competent jurisdiction, entered on the
  docket of such court, that has not been reversed, rescinded, stayed, modified
  or amended, that is in full force and effect, and with respect to which:
  (a) the time to appeal, seek review or rehearing, or petition for
  certiorari has expired and no timely filed appeal or petition for review,
  rehearing, remand or certiorari is pending; or (b) any appeal taken or
  petition for certiorari filed (i) has been resolved by the highest court
  to which the order or judgment was appealed or from which review, rehearing
  or certiorari was sought or (ii) has not yet been resolved by such
  highest court, but such order has not been stayed pending appeal.
  Notwithstanding any provision to the contrary in this Term Sheet or in the
  Definitive Documentation, the Confirmation Order entered in the Bankruptcy
  Cases shall become a Final Order on the 11th day following
  entry of such Confirmation Order unless any appeal of such Confirmation Order
  is accompanied by a stay pending appeal.

  
	
  General Unsecured Claim

  	
   

  	
  Any unsecured Claim against
  any Debtor that is not an Other Priority Claim, 7.000% Senior Subordinated
  Note Claim, 8.125% Senior Subordinated Note Claim, Related Party Agreement
  Claim, or Intercompany Claim.

  
	
  Herbst Gaming Amended
  and Restated Senior Credit Facility

  	
   

  	
  A new credit agreement
  to be entered into by Reorganized Herbst Gaming as borrower comprising a
  first lien term loan in the amount of $350 million and a second lien term
  loan in the amount of $125 million on terms to be negotiated.

  
	
  Holder

  	
   

  	
  An Entity holding an
  Equity Interest or Claim.

  
	
  Impaired

  	
   

  	
  Claims in an Impaired
  Class.

  

 

	
  Impaired Class

  	
   

  	
  An impaired
  Class within the meaning of section 1124 of the Bankruptcy Code.

  
	
  Intercompany Claims

  	
   

  	
  Any and all Claims of a
  Debtor against and in another Debtor.

  
	
  Intercompany Interest

  	
   

  	
  An Interest in a Debtor
  held by another Debtor or an Interest in a Debtor held by an Affiliate of the
  Debtors. Intercompany Interests shall not include any Interest held by any
  Debtor or any Affiliate of the Debtors in the Slot Business.

  
	
  New Slot Co Bank Loan

  	
   

  	
  A new first priority
  senior secured bank loan in the amount of $135 million and consistent with
  the New Slot Co Bank Loan Term Sheet.

  
	
  New Slot Co Bank Loan
  Term Sheet

  	
   

  	
  That certain New Slot
  Co Bank Loan Term Sheet attached as Exhibit 2 to this Term Sheet.

  
	
  New Slot Co Second Lien
  Facility

  	
   

  	
  That certain
  pay-in-kind note in the amount of $40 million secured by a second lien
  security interest in all of the assets of Slot Co and consistent with the New
  Slot Co Second Lien Facility Term Sheet.

  
	
  New Slot Co Second Lien
  Facility Term Sheet

  	
   

  	
  That certain New Slot
  Co Second Lien Facility Term Sheet attached as Exhibit 3 to this Term
  Sheet.

  
	
  Other Priority Claims

  	
   

  	
  Any and all Claims
  accorded priority in right of payment under section 507(a) of the Bankruptcy
  Code, other than Priority Tax Claims.

  
	
  Other Secured Claims

  	
   

  	
  Any secured Claim,
  other than a DIP Facility Claim or a Senior Credit Facility Claim.

  
	
  Petition Date

  	
   

  	
  The date on which the
  petition(s) to commence the Chapter 11 Cases is/are filed.

  
	
  Plan

  	
   

  	
  The Debtors’ joint plan
  of reorganization under chapter 11 of the Bankruptcy Code, as it may be
  altered, amended, modified or supplemented from time to time in accordance
  with this Term Sheet and the Bankruptcy Code or the Bankruptcy Rules.

  
	
  Plan Supplement

  	
   

  	
  The compilation of
  documents and forms of documents, schedules and exhibits to be filed no later
  than 5 Business Days prior to the hearing at which the Bankruptcy Court
  considers whether to confirm the Plan, as may thereafter be altered, amended,
  modified or supplemented from time to time in accordance with the terms
  hereof and in accordance with the Bankruptcy Code and the Bankruptcy Rules.

  
	
  Priority Tax Claim

  	
   

  	
  Any and all Claims of a
  governmental unit of the kind specified in section 507(a)(8) of the
  Bankruptcy Code.

  
	
  Related Party
  Agreements

  	
   

  	
  Any agreement by and
  between any Debtor and any of the THI Parties.

  
	
  Related Party
  Agreements Term Sheet

  	
   

  	
  That certain Related
  Party Agreements Term Sheet attached as Exhibit 4 to this Term Sheet.

  
	
  Releasing Parties

  	
   

  	
  Collectively, all
  current and former officers and directors of the Debtors, all current and
  former parties to the Senior Credit Facility and any DIP Facility, the THI
  Parties, all holders of Equity Interests, and each of their respective
  officers, directors, employees, members, attorneys, actuaries, financial
  advisors, accountants, investment bankers, agents, professionals, Affiliates,
  partners and representatives.

  
	
  Reorganized Debtors

  	
   

  	
  (a) Reorganized
  Herbst Gaming, (b) Slot Co and (c) the Guarantor Debtors, as such
  entities exist on or after the Substantial Consummation Date, in each case,
  or any successor thereto, by merger, consolidation, or otherwise.

  
	
  Reorganized Herbst
  Gaming

  	
   

  	
  Herbst Gaming, or any
  successor thereto, by merger, consolidation or otherwise, on or after the
  Substantial Consummation Date.

  
	
  Reorganized Herbst
  Gaming New Common Equity

  	
   

  	
  [XX] shares of common stock in Reorganized
  Herbst Gaming, par value [$.01] per share, to be authorized pursuant to the
  Reorganized Herbst Gaming charter, of which up to [XX]
  shares shall be initially issued on the Substantial Consummation Date
  pursuant to the Plan.

  
	
  Required Consenting
  Lenders

  	
   

  	
  Consenting Lenders
  holding at least two-thirds in amount of the total Claims held by all
  Consenting Lenders arising under the Senior Credit Facility.

  
	
  Secured Claim

  	
   

  	
  A Claim that is
  (i) secured by a valid and unavoidable lien on or security interest in
  property of the Debtors, to the extent of the value of such lien or security
  interest, and (ii) unsecured, to the extent of any deficiency in the
  value of such lien or security interest.

  
	
  Senior Credit Facility

  	
   

  	
  That certain Second
  Amended and Restated Senior Credit Agreement dated as of January 3,
  2007, as amended.

  

 

	
  Senior Credit Facility
  Agent

  	
   

  	
  Wilmington Trust Company,
  in its capacity as administrative agent under the Senior Credit Facility.

  
	
  Senior Credit Facility
  Claims

  	
   

  	
  All Claims arising
  under, or in any way related to the Senior Credit Facility.

  
	
  Senior Credit Facility
  Gift

  	
   

  	
  The deemed transfer by
  gift under the Plan from Holders of Allowed Class 3 Claims to Holders of
  Class 4 General Unsecured Claims sufficient value to allow the Holders
  of such Claims to receive the treatment described in this Term Sheet. The
  Senior Credit Facility gift shall be subject to revocation by the Consenting
  Lenders on or before the Petition Date to the extent, but only to the extent,
  that there exist any undisclosed contingent liabilities in excess of $10
  million.

  
	
  Senior Subordinated
  Notes

  	
   

  	
  The 7.000% Senior
  Subordinated Notes and the 8.125% Senior Subordinated Notes.

  
	
  Senior Subordinated
  Note Claims

  	
   

  	
  The 7.000% Senior
  Subordinated Note Claims and the 8.125% Senior Subordinated Note Claims.

  
	
  Slot Business Executory
  Contracts

  	
   

  	
  Those Executory
  Contracts to be assumed and assigned by the Debtors to Slot Co.

  
	
  Slot Co

  	
   

  	
  A new Nevada limited
  liability company to be organized pursuant to the Plan.

  
	
  Slot Co New Common
  Equity

  	
   

  	
  Membership Interests in
  Slot Co to be authorized pursuant to the Slot Co operating agreement.

  
	
  Substantial Consummation
  Date

  	
   

  	
  The day that is the
  third Business Day after the Effective Date on which (a) no stay of the
  Confirmation Order is in effect and (b) all conditions precedent to
  substantial consummation of the Plan have been satisfied or waived by the
  Debtors.

  
	
  THI Parties

  	
   

  	
  Terrible
  Herbst, Inc., a Nevada corporation, and any other person or entity,
  other than a Debtor, affiliated with Terrible Herbst, Inc. that is a
  party to a Related Party Agreement, or that enters into a new agreement or
  agreements related to the operations of the Company and is affiliated with
  Terrible Herbst, Inc.

  
	
  THI Party Claims

  	
   

  	
  All Claims arising
  under, or in any way related to the Related Party Agreements.

  
	
  Third Party Releasees

  	
   

  	
  Collectively, each of
  the Debtors, the Reorganized Debtors, each Releasing Party, and each of their
  respective officers, directors, employees, members, attorneys, actuaries,
  financial advisors, accountants, investment bankers, agents, professionals,
  Affiliates, partners and representatives.

  
	
  Unexpired Lease

  	
   

  	
  A lease of
  non-residential real property to which one or more of the Debtors is a party
  that is subject to assumption or rejection under section 365 of the
  Bankruptcy Code.

  
	
  Unimpaired

  	
   

  	
  Unimpaired within the
  meaning of section 1124 of the Bankruptcy Code.

  

 

EXHIBIT 2

 

New Slot Co Bank
Loan Term Sheet

 

	
  Borrower:

  	
   

  	
  Slot Co

  
	
   

  	
   

  	
   

  
	
  Principal Amount:

  	
   

  	
  $135 million

  
	
   

  	
   

  	
   

  
	
  Maturity:

  	
   

  	
  Fifth anniversary of
  the Substantial Consummation Date.

  
	
   

  	
   

  	
   

  
	
  Interest Rate:

  	
   

  	
  Lower of (i) LIBOR:
  LIBOR plus 750 bps (LIBOR floor of 3.5%) of cash pay interest; or (ii) Base
  Rate: Base Rate plus 550 bps (Base Rate floor of 6.0%) of cash pay
  interest. Interest payments will be made quarterly.

  
	
  Ranking:

  	
   

  	
  Senior secured

  
	
   

  	
   

  	
   

  
	
  Security:

  	
   

  	
  First priority security
  interest in substantially all of the assets of Slot Co.

  
	
   

  	
   

  	
   

  
	
  Mandatory Prepayment:

  	
   

  	
  Slot Co required to
  prepay loan within two (2) Business Days of its fiscal year end audit,
  and, in any event, not later than 90 days after the end of each fiscal year
  of Slot Co in an amount equal to 80% of Excess Cash Flow, if any, for such
  fiscal year. Notwithstanding the foregoing, in no event shall Slot Co be
  required to make a Mandatory Prepayment with respect to Excess Cash Flow if
  (and to the extent that) such payment would cause Slot Co’s cash and cash equivalents
  to be less than the Minimum Cash Amount.

  
	
   

  	
   

  	
   

  
	
  Representations, Warranties, 

  Covenants and Defaults:

  	
   

  	
  The form of loan
  agreement shall be included in the Definitive Documentation and shall contain
  representations, warranties, covenants and events of default that are
  customary for financings of this type; provided, however,
  that there shall be (i) no financial maintenance covenants of any kind
  other than the minimum EBITDA covenant discussed in the “Corporate
  Governance” section of the Restructuring Term Sheet to which this term sheet
  is an exhibit (it being understood that breach of such covenant is not an
  event of default), and (ii) no requirements to file any reports with the
  SEC or be a reporting company under the Securities Exchange Act of 1934, as
  amended.

  
	
   

  	
   

  	
   

  
	
  Transferability:

  	
   

  	
  Transfers of claims
  arising under the New Slot Co Bank Loan by any holder shall be conditioned
  upon concurrent transfers by such holder of claims arising under the New Slot
  Co Second Lien Facility.

  
	
   

  	
   

  	
   

  
	
  Other Terms:

  	
   

  	
  Additional terms to be
  negotiated.

  
	
   

  	
   

  	
   

  

 

EXHIBIT 3

 

New Slot Co Second
Lien Facility Term Sheet

 

	
  Borrower:

  	
   

  	
  Slot Co

  
	
   

  	
   

  	
   

  
	
  Principal Amount:

  	
   

  	
  $40 million

  
	
   

  	
   

  	
   

  
	
  Maturity:

  	
   

  	
  Fifth anniversary of
  the Substantial Consummation Date.

  
	
   

  	
   

  	
   

  
	
  Interest Rate:

  	
   

  	
  Lower of (i) LIBOR:
  LIBOR plus 1,200 bps (LIBOR floor of 3.5%) cash pay or PIK (subject to
  reserves for operations to be negotiated, interest shall be in cash to the
  extent that there is sufficient cash flow before any Excess Cash Flow sweep,
  including with respect to the New Slot Co Bank Loan); or (ii) Base
  Rate: Base Rate plus 1,000 bps (Base Rate floor of 6.0%). Interest may
  either be paid in cash or paid in kind at the election of Slot Co; provided
  that interest will be paid in cash if (and limited to the amount that) before
  any Excess Cash Flow sweep, available cash exceeds the Minimum Cash Amount.
  Interest payments will be made or compounded quarterly.

  
	
   

  	
   

  	
   

  
	
  Ranking:

  	
   

  	
  Senior secured

  
	
   

  	
   

  	
   

  
	
  Security:

  	
   

  	
  Second priority
  security interest in substantially all of the assets of Slot Co.

  
	
   

  	
   

  	
   

  
	
  Mandatory Redemption:

  	
   

  	
  Following repayment in
  full of all obligations under the New Slot Co Bank Loan, Slot Co required to
  prepay loan within two (2) Business Days of its fiscal year end audit,
  and, in any event, not later than 90 days after the end of each fiscal year
  of Slot Co in an amount equal to 80% of Excess Cash Flow, if any, for such
  fiscal year. Notwithstanding the foregoing, in no event shall Slot Co be
  required to make a Mandatory Prepayment with respect to Excess Cash Flow if
  (and to the extent that) such payment would cause Slot Co’s cash and cash
  equivalents to be less than the Minimum Cash Amount.

  
	
   

  	
   

  	
   

  
	
  Representations, Warranties,
  Covenants and Defaults:

  	
   

  	
  The form of loan
  agreement shall be included in the Definitive Documentation and shall contain
  representations, warranties, covenants and events of default that are
  customary for financings of this type; provided, however,
  that there shall be (i) no financial maintenance covenants of any kind
  other than the minimum EBITDA covenant discussed in the “Corporate Governance”
  section of the Restructuring Term Sheet to which this term sheet is an
  exhibit (it being understood that breach of such covenant is not an event of
  default), and (ii) no requirements to file any reports with the SEC or
  be a reporting company under the Securities Exchange Act of 1934, as amended.

  
	
   

  	
   

  	
   

  
	
  Transferability:

  	
   

  	
  Transfers of claims
  under the New Slot Co Second Lien Facility shall be conditioned upon
  concurrent transfers by such holder of claims arising under the New Slot Co
  Bank Loan.

  
	
   

  	
   

  	
   

  
	
  Other Terms:

  	
   

  	
  Additional terms to be
  negotiated.

  
	
   

  	
   

  	
   

  

 

EXHIBIT 4

 

Related Party
Agreements Term Sheet(5)

(5)      Unless otherwise expressly set forth on
this Related Party Agreements Term Sheet, all terms and provisions in each of
the Related Party Agreements shall continue to be valid and enforceable.

 

Terrible’s Town Pahrump 
(The economic terms of each of the following shall be honored and
performed by the parties thereto as if all assumptions, modifications or other
treatments described herein were in effect as of the Effective Date, notwithstanding
the fact that the Substantial Consummation Date may not yet have occurred.)

 

1.                                      T’Town Pahrump Lease
between The Herbst Family Limited Partnership (Lessor) & E-T-T, Inc.
(Lessee) dated July 1, 1996

 

Proposed
Treatment:  Lessee assigns to Herbst
Gaming, Inc. or its subsidiary (which subsidiary shall become a subsidiary
of Reorganized Herbst Gaming) that is the applicable operating entity.  Proposed terms modification as follows:  (i) expiration date of December 31,
2016, resulting in no options to renew; and (ii) monthly rental fee of
$15,000/month through proposed expiration date.

 

2.                                      Terrible’s Town Pahrump
Service Station Lease Agreement between E-T-T, Inc. (Lessor) and Terrible
Herbst, Inc. (Lessee), dated November 16, 1995

 

Proposed
Treatment:  Lessor assigns to Herbst
Gaming, Inc. or its subsidiary (which subsidiary shall become a subsidiary
of Reorganized Herbst Gaming) that is the applicable operating entity.  Proposed terms modification as follows:  (i) expiration date of December 31,
2016, resulting in no options to renew; and (ii) fixed at current amount.

 

Lakeside
Pahrump  (The economic terms of each of
the following shall be honored and performed by the parties thereto as if all
assumptions, modifications or other treatments described herein were in effect as
of the Effective Date, notwithstanding the fact that the Substantial
Consummation Date may not yet have occurred.)

 

Note:  Reorganized Herbst Gaming will own and
operate Lakeside Pahrump, and the property and operations will be in
Reorganized Herbst Gaming upon Substantial Consummation.

 

3.                                      Terrible’s Lakeside
Lease Agreement between E-T-T Enterprises, L.L.C. (Lessor) and E-T-T, Inc.
(Lessee), dated August 1, 1998

 

Proposed
Treatment:  To be terminated.

 

4.                                      Terrible’s Lakeside
Service Station Lease Agreement between E-T-T Enterprises, L.L.C. (Lessor) and
Terrible Herbst, Inc. (Lessee), dated August 1, 1998

 

Proposed
Treatment:  Lessor assigns to Herbst
Gaming, Inc. or its subsidiary (which subsidiary shall become a subsidiary
of Reorganized Herbst Gaming) that is the applicable operating entity.  Proposed terms modification as follows:  (i) expiration date of December 31,
2016; and (ii) fixed at current amount.

 

Headquarters  (The economic terms of each of the following shall be honored and
performed by the parties thereto as if all assumptions, modifications or other
treatments described herein were in effect as of the Effective Date,
notwithstanding the fact that the Substantial Consummation Date may not yet
have occurred.)

 

Note:  The Russell Road Lease is
a sublease of the Headquarters Lease.

 

5.                                      HGI Headquarters
Lease between The Herbst Family Limited Partnership (Lessor) &
E-T-T Enterprises, L.L.C. (Lessee) dated July 1, 1997

 

Proposed
Treatment:  Lessee assigns to Slot
Co.  Proposed terms modification as
follows:  (i) expiration date of December 31,
2016.

 

6.                                      HGI Headquarters
Sub-lease between Slot Co (Sublessor) and Reorganized Herbst Gaming (Sublessee)
(new document)

 

Proposed
Treatment:  Proposed term modification as
follows:  (i) expiration date of one
year following the Substantial Consummation Date, subject to automatic renewal
unless Slot Co notified by Reorganized Herbst Gaming of non-renewal six months
prior to expiration date; (ii) terms to mirror Corporate Overhead
Allocation Agreement; and (iii) Slot Co will be sublessor and Reorganized
Herbst Gaming will be sublessee.

 

7.                                      Russell Road Service
Station/warehouse Lease between E-T-T Enterprises, L.L.C. (Lessor) &
Terrible Herbst, Inc. (Lessee) dated July 1, 1997

 

Proposed
Treatment:  Lessor assigns to Slot Co.

 

Polaris
Rd.  (The economic terms of each of
the following shall be honored and performed by the parties thereto as if all
assumptions, modifications or other treatments described herein were in effect
as of the Effective Date, notwithstanding the fact that the Substantial
Consummation Date may not yet have occurred.)

 

8.                                      Polaris Rd. Warehouse
Office Space & Warehouse Space  Lease between Herbst Grandchildren’s Trust (Lessor) &
Herbst Gaming, Inc. (Lessee) dated Nov. 27, 2002

 

Proposed
Treatment:  Lessee assigns to Slot
Co.  Proposed terms modification as
follows:  (i) expiration date of December 31,
2016.

 

9.                                      Polaris Rd. Warehouse
Office Space & Warehouse Sub-lease between Slot Co (Sublessor) and
Reorganized Herbst Gaming (Sublessee) (new document)

 

Proposed
Treatment:  (i) expiration date of
one year following the Substantial Consummation Date, subject to automatic
renewal unless Slot Co notified of non-renewal by Reorganized Herbst Gaming six
months prior to expiration date; (ii) terms to mirror Corporate Overhead
Allocation Agreement; and (iii) E-T-T will be sublessor and Reorganized
Herbst Gaming will be sublessee.

 

Searchlight

 

10.                               Terrible’s Searchlight
Lease between Terrible Herbst, Inc. (Lessor) &
E-T-T, Inc. (Lessee) dated July 1, 2002

 

Proposed
Treatment:  Lessee assigns to Herbst
Gaming, Inc. or its subsidiary (which subsidiary shall become a subsidiary
of Reorganized Herbst Gaming) that is the applicable operating entity.  The economic terms of this agreement shall be
honored and performed by the parties thereto as if all assumptions,
modifications or other treatments described herein were in effect as of the
Effective Date, notwithstanding the fact that the Substantial Consummation Date
may not yet have occurred.

 

Other Agreements

 

11.                               Gaming Device License
Agreement between E-T-T, Inc. & Terrible Herbst, Inc. dated December 20,
1999

 

Proposed
Treatment:  Proposed terms modification
as follows:  (i) all slot machines
priced at $1,200 through proposed expiration date of December 31, 2014; (ii) elimination
of anti-assignment clause following Event of Default under Slot Co debt; and (iii) no
per location minimum payment.  The
economic terms of this agreement shall be honored and performed by the parties
thereto as if all assumptions, modifications or other treatments described
herein were in effect as of the Effective Date, notwithstanding the fact that
the Substantial Consummation Date may not yet have occurred.

 

12.                               Gaming Device License
Agreement between Slot Co Majority Shareholder & Terrible Herbst, Inc.
(new document)

 

Proposed
Treatment:  (i) term from January 1,
2015 through December 31, 2016; (ii) all slot machines priced at
$1,200 through proposed expiration date of December 31, 2016; (iii) elimination
of anti-assignment clause following Event of Default under Slot Co debt; (iv) to
be assigned to Slot Co upon Substantial Consummation Date in exchange for
equity of Slot Co; and (v) no per location minimum payment.  Upon the Substantial Consummation Date, there
will be an assignment of this agreement to Slot Co (new document).  The economic terms of this agreement shall be
effective as of the Substantial Consummation Date.

 

13.                               Shared Services
Agreement between Herbst Gaming, Inc., Terrible Herbst, Inc. &
Berry-Hinckley Industries dated January 1, 2009

 

Proposed
Treatment:  Remains in place.  This agreement shall be assigned to Slot Co
upon the Substantial Consummation Date. 
The economic terms of this agreement shall be honored and performed by
the parties thereto as if all assumptions, modifications or other treatments
described herein were in effect as of the Effective Date, notwithstanding the
fact that the Substantial Consummation Date may not yet have occurred.

 

14.                               Master ATM Agreement
between E-T-T, Inc. & Terrible Herbst, Inc. dated March 1,
2008

 

Proposed
Treatment:  Proposed terms modification
as follows:  (i) expiration date of December 31,
2016; and (ii) all ATMs except casino ATMs stay with Slot Co.  The economic terms of this agreement shall be
honored and performed by the parties thereto as if all assumptions,
modifications or other treatments described herein were in effect as of the
Effective Date, notwithstanding the fact that the Substantial Consummation Date
may not yet have occurred.

 

15.                               Advertising Purchasing Agreement
between Herbst Gaming, Inc. & Terrible Herbst, Inc. dated March 1,
2008

 

Proposed
Treatment:  Proposed terms modification
as follows:  (i) expiration date of
one year following the Substantial Consummation Date; (ii) continuous
one-year extension options available through December 31, 2016,
exercisable at Reorganized Herbst Gaming’s discretion; (iii) monthly fee
at $30,000/month through proposed expiration date; and (iv) lenders retain
assignability rights.  The economic terms
of this agreement shall be honored and performed by the parties thereto as if
all assumptions, modifications or other treatments described herein were in
effect as of the Effective Date, notwithstanding the fact that the Substantial
Consummation Date may not yet have occurred.

 

16.                               Trademark License
Agreement between Terrible Herbst, Inc. & Herbst Gaming, Inc.
dated August 24, 2001

 

Proposed
Treatment: Proposed terms modification as follows:  (i) expiration date December 31,
2016, terminable by Reorganized Herbst Gaming after December 31, 2013 upon
the payment of an early termination fee of $1 million; (ii) $1.73
million/year through proposed expiration date, to be paid monthly in equal
installments; and (iii) one-time bonus of $1.5 million payable on one-year
anniversary of the Effective Date.  The
economic terms of this agreement shall be honored and performed by the parties
thereto as if all assumptions, modifications or other treatments described
herein were in effect as of the 

 

Effective
Date, notwithstanding the fact that the Substantial Consummation Date may not
yet have occurred.

 

17.                               Trademark License
Agreement between Terrible Herbst, Inc. & Slot Co (new document)

 

Proposed
Treatment:  (i) expiration date of December 31,
2016.  The economic terms of this
agreement shall be effective as of the Substantial Consummation Date.

 

18.                               Non-compete agreements.

 

Each
of Jerry E. Herbst, Timothy P. Herbst, Troy D. Herbst and Edward J. Herbst will
enter into non-competition agreements with Slot Co or Reorganized Herbst
Gaming; such agreements shall expire on the earlier of (i) the repayment
in full of the New Slot Co Bank Loan and the New Slot Co Second Lien Facility
and (ii) December 31, 2016. 
The economic terms of this agreement shall be honored and performed by
the parties thereto as if all assumptions, modifications or other treatments
described herein were in effect as of the Effective Date, notwithstanding the
fact that the Substantial Consummation Date may not yet have occurred.

 

19.                               Deposit Services Agreement between
E-T-T, Inc. & Terrible Herbst, Inc.

 

The
economic terms of this agreement shall be honored and performed by the parties
thereto as if all assumptions, modifications or other treatments described
herein were in effect as of the Effective Date, notwithstanding the fact that
the Substantial Consummation Date may not yet have occurred.Exhibit 10.27

 

LEASE
AGREEMENT

 

Between

 

Met 94,
Ltd.,

 

as
Landlord,

 

and

 

Encore
Orthopedics, Inc.,

 

as
Tenant,

 

Covering
approximately 52,800 gross square feet

of
the Building known (or to be known) as

 

 

Metric #4

 

 

located at

 

 

         METRIC
BLVD.

 

 

Austin,
Texas, 78758

 

 

	
  STANDARD INDUSTRIAL LEASE AGREEMENT

  	
   

  
	
  TRAMMELL CROW COMPANY - (AUS/91)

  	
   

  
	
   

  	
  Approximately 52,800 gross
  square feet

  
	
   

  	
                      Metric,
  Blvd

  
	
   

  	
  Austin, Texas 78758

  
	
   

  	
  (Metric #4)

  

 

LEASE
AGREEMENT

 

THIS LEASE AGREEMENT (this “Lease”) is made
and entered into by and between Met 94, Ltd, hereinafter referred to as “Landlord,”
and Encore Orthopedics, Inc., hereinafter referred to as “Tenant”

 

1.             PREMISES AND TERM.  In consideration of the mutual
obligations of Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant hereby
takes from Landlord, certain leased premises situated within the County of
Travis, State of Texas, as more particularly described on EXHIBIT “A” attached
hereto and incorporated herein by reference (the “Premises”), to have and to
hold, subject to the terms, covenants and conditions in this Lease. The term of
this Lease shall commence on the Lease Commencement Date hereinafter set forth
and shall end on the last day of the month that is one hundred twenty (120)
months after the Lease Commencement Date.

 

A             [Intentionally
Omitted]

 

B             Building or Improvements to be Constructed   Landlord
shall commit to a “substantially complete” shell building on the date which is
one hundred eighty (180) days subsequent to the execution of this Lease
Agreement This period will be subject to extension for force majeure delays The
Lease Commencement Date will be thirty (30) days after the date of Substantial
Completion of (i) the shell building and (ii) the tenant interior
finish-out (the “Tenant Improvements”) Landlord shall use its best efforts and
take all appropriate steps to complete the cul-de-sac described on Exhibit C-9
by no later than February 1, 1997 Rent shall commence on the Lease
Commencement Date (the “Rent Commencement Date”) The term “Substantial
Completion” shall mean the date (1) the
selected contractor has completed
the Tenant Improvements that it is obligated to perform pursuant to the
contract it has with Tenant, notwithstanding “punch list” items which do
not interfere with use of the Premises, (2) Landlord obtains a
Certificate of Occupancy for the Premises, (3) all building fire alarms,
fire sprinklers, smoke detectors, exit lights, life safety equipment and other
building code requirements are installed and operational on the Premises, and (4) HVAC,
utilities, plumbing service and doors and hardware for the Premises are
sufficiently completed so as to enable Tenant to fully move in and install its
furniture, fixtures, machinery and equipment in the Premises and conduct normal
business operations in the Premises Tenant shall have the right to occupy that
portion of the Premises that comprise its cleaning and packaging area of the
Tenant Improvements at any time prior to Substantial Completion of the Tenant
Improvements, provided that such occupancy shall not interfere with Landlord’s
efforts to obtain Substantial Completion of the Tenant Improvements.
Furthermore, Tenant shall have the right to occupy the entire Premises at any
time after the date of Substantial Completion. The Landlord agrees to the above
completion date subject to no delays of more than one (1) day caused
solely by Tenant In the event that Tenant does cause one or more delays of more
than one (1) day, then the time for the Landlord to achieve Substantial
Completion shall be extended by such number of days.  Tenant shall not be deemed to have caused a
delay unless it has been given no later than thirty (30) days prior to any
deadline, a schedule and timetable of when Tenant is responsible for making
decisions that impact on Landlord’s ability to achieve Substantial Completion
In the event that Landlord does not substantially complete the shell building
within two hundred ten (210) days (or such other extended date pursuant to this
paragraph) from execution of this Lease Agreement, Landlord shall give Tenant a
credit against rent due and payable under this Lease at the rate of Three
Hundred Fifty Dollars ($350) per day for each day after the two hundred tenth
(210th) day (or such other later extended date
pursuant to this paragraph) that it takes to reach substantial completion of
the shell building. As soon as the shell building and the Tenant Improvements
have been substantially completed, Landlord shall notify Tenant in writing that
Substantial Completion has occurred

 

2.             BASE RENT, SECURITY DEPOSIT AND ESCROW DEPOSITS.

 

A             Base Rent
Tenant agrees to pay Landlord
rent for the Premises, in
advance, without demand, deduction or set off, at the rate of Six hundred
thirteen one thousandths cents ($0.613) per square foot of rentable area per
month during months 1 through 60 of the term hereof and Seven hundred thirteen
one thousandths cents ($0.713) per square foot of rentable area per month
during months 61 through 120 of the term hereof.  One such monthly installment, plus the other
monthly charges set forth in Paragraph 2C below, shall be due and payable on
the date hereof, and a like monthly installment shall be due and payable on or
before the first day of each calendar month succeeding the Rent Commencement
Date, except that all payments due hereunder for any fractional calendar month
shall be prorated.

 

B             Security Deposit
Pursuant to the provisions of Exhibit C-6, Tenant shall provide a Letter
of Credit or Certificate
of Deposit (the “Credit Enhancement”) At such point as the Credit Enhancement
is amortized down to Twenty-Five

 

	
   

  	
   

  	
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Thousand Dollars ($25,000), this amount, which
at the option of Tenant may be converted into a cash deposit or a certificate
of deposit which is pledged to Landlord, shall be held by Landlord, without
obligation for interest, as security for the performance of Tenant’s
obligations under this Lease (the “Security Deposit”), it being expressly
understood and agreed that the Security Deposit is not an advance rental
deposit or a measure of Landlord’s damages in case of Tenant’s default. Upon
occurrence of an Event of Default, subject to the provisions of Exhibit C-6,
Landlord may convert the Security Deposit to cash and use all or part of the
Security Deposit to pay past due rent or other payments due Landlord under this
Lease or the cost of any other damage, injury, expense or liability caused by
such Event of Default, without prejudice to any other remedy provided herein or
provided by law.  On demand, Tenant shall
pay Landlord the amount that will restore the Security Deposit to its original
amount.  The Security Deposit shall be deemed
the property of Landlord, but any remaining
balance of the Security Deposit shall be returned by Landlord to Tenant when
all of Tenant’s present and future obligations under this Lease have been
fulfilled

 

C             Escrow
Deposits. Without limiting in any way Tenant’s other obligations under this
Lease, subject to the provisions of Section 4-B hereof, Tenant agrees to
pay to Landlord its Proportionate Share (a; defined in this Paragraph 2C below)
of (i) Taxes (hereinafter defined) payable by Landlord pursuant to
Paragraph 3A below, (ii) the cost of utilities payable by Landlord
pursuant to Paragraph 8 below, (iii) Landlord’s cost of maintaining any
insurance or insurance related expense applicable to the Building and
Landlord’s personal property used in connection therewith including, but not
limited to, insurance pursuant to Paragraph 9A below (the “Common Insurance”),
and (iv) Landlord’s cost of maintaining the Premises pursuant to paragraph
5E below and any common area charges payable by Tenant in accordance with
Paragraph 4B below (the “Common Maintenance”) (all of (i), (ii), (iii) and (iv) are
collectively, the “Tenant Costs”) During each month of the term of this Lease,
on the same day that rent is due hereunder, Tenant shall deposit in escrow with
Landlord an amount equal to one-twelfth (1/12) of the estimated amount of
Tenant’s Proportionate Share of the Tenant Costs Tenant authorizes Landlord to
use the funds deposited with Landlord under this Paragraph 2C to pay such
Tenant Costs The initial monthly escrow payments are based upon the estimated
amounts for the year in question and shall be increased or decreased annually
to reflect the projected actual amount of all Tenant Costs.  If the Tenant’s total escrow deposits for any
calendar year are less than Tenant’s actual Proportionate Share of the Tenant
Costs for such calendar year, Tenant shall pay the difference to Landlord
within thirty (30) days after demand. If the total escrow deposits of Tenant
for any calendar year are more than Tenant’s actual Proportionate Share of the
Tenant Costs for such calendar year, Landlord shall retain such excess and
credit it against Tenant’s escrow deposits next maturing after such
determination.  Landlord agrees to make
such determination as early in each calendar year as is practicable and shall
provide Tenant, within fifteen (15) days of written request by Tenant, with a
statement showing (a) actual Tenant Costs for the preceding calendar year,
(b) any amount paid by Tenant toward said Tenant Costs during such
calendar year on an estimated basis, and (c) any revised estimate of
Tenant’s obligation for Tenant Costs for the current calendar year In the event
the Premises constitute a portion of a multiple occupancy building (the
“Building”), Tenant’s “Proportionate Share” with respect to the Building, as
used in this Lease, shall mean a fraction, the numerator of which is the gross
rentable area on the ground floor contained in the Premises and the denominator of which is the gross
rentable area on the ground floor contained in the entire Building. In the
event the Premises or the Building is part of a project or business park owned,
managed or leased by Landlord or an affiliate of Landlord (the “Project”),
Tenant’s “Proportionate Share” of the Project, as used in this Lease, shall
mean a fraction, the numerator of which is the gross rentable area on the
ground floor contained in the Premises and the denominator of which is the
gross rentable area on the ground floor contained in all of the buildings
currently constructed or planned to be constructed (including the Building) within
the Project

 

3.             TAXES

 

A             Real Property
Taxes. Subject to reimbursement under Paragraph 2C herein, Landlord agrees
to pay all taxes, assessments and governmental charges of any kind and nature
(collectively referred to herein as “Taxes”) that accrue against the Premises,
the Building and/or the land of which the Premises or the Building are a part
If at any time during the term of this Lease there shall be levied, assessed or
imposed on Landlord a capital levy or other tax directly on the rents received
therefrom and/or a franchise tax, assessment, levy or charge measured by or
based, in whole or in part, upon such rents from the Premises and/or the land
and improvements of which the Premises are a part, then all such taxes,
assessments, levies or charges, or the part thereof so measured or based shall
be deemed to be included within the term “Taxes” for the purposes hereof.  The Landlord shall have the right to employ a
tax consulting firm to attempt to assure a fair tax burden on the real property
within the applicable taxing jurisdiction Tenant agrees to pay its
Proportionate Share of the cost of such consultant

 

If at any time during the term of this Lease there shall be levied,
assessed or imposed on the Landlord a franchise tax, business tax, income tax,
or other levy relating to this Lease or the Premises, such levy being in lieu
of all or a portion of the local property tax for schools, a reasonable
allocation of such amount shall be deemed to be included within the term
“Taxes” for purposes of determining Tenant’s share of Taxes to be reimbursed to
Landlord

 

B             Personal Property Taxes. Tenant shall be liable for all taxes levied
or assessed against any personal property or fixtures placed in or on the Premises. If
any such taxes are levied or assessed against Landlord or Landlord’s property
and (i) Landlord pays the same or (ii) the assessed value of
Landlord’s property is increased by inclusion of such personal property and
fixtures and Landlord pays the increased taxes, then Tenant shall pay to Landlord,
upon demand, the amount of such taxes

 

	
   

  	
   

  	
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4.             LANDLORD’S REPAIRS AND MAINTENANCE.

 

A             Structural Repairs
Landlord, at its own cost and expense (without any pass through to Tenant),
shall maintain
in a condition consistent with similar buildings in similar locations in
Austin, Texas, the roof, foundation and the structural soundness of the
exterior walls of the Building in good repair, reasonable wear and tear
excluded. The term “walls” as used herein shall not include windows, glass or
plate glass, any doors, special store fronts or office entries, and the term
“foundation” as used herein shall not include loading docks. Tenant shall
immediately give Landlord written notice (“Tenant Repair Notice”) of defect or
need for repairs, after which Landlord shall have reasonable opportunity to
effect such repairs or cure such defect Landlord agrees to commence the repairs
not later than five (5) days after receipt of a Tenant Repair Notice.  In the event of an emergency, Tenant shall
have the right to immediately undertake repairs which are Landlord’s
responsibility and to notify Landlord after the repairs have been undertaken If
Landlord fails to immediately and diligently undertake to repair or maintain
the Premises within five (5) days after receipt of a Tenant Repair Notice,
or if Tenant undertakes emergency repairs as provided herein, Tenant may
perform the repairs or maintenance and, in addition to any other remedies
Tenant may have at law or in equity, Tenant may bill Landlord for the costs of
the repairs and maintenance. In the event that Landlord has not paid such bill
within thirty (30) days of the receipt of the invoice or is not in good faith
negotiating with Tenant with respect to whose responsibility the repairs were,
then Tenant may deduct such costs from the rent next coming due.

 

B.            Tenant’s Share of
Common Area Charges Tenant agrees to pay its Proportionate Share of the
cost of (i) maintenance and/or landscaping (including both maintenance and
replacement of landscaping, but not the initial cost of landscaping the
Building) of any property that is a part of the Building and/or the Project; (ii) operating,
maintaining and repairing any property, facilities or services (including
without limitation utilities and insurance therefore) provided for the use or
benefit of Tenant or the common use or benefit of Tenant and other lessees of
the Building; and (iii) an administrative fee of seven and one-half
percent (71/2%) of all common area maintenance charges.
Notwithstanding the foregoing, there will be no property management fees passed
through to Tenant during the term and the renewal Common Maintenance will be
capped to increase on a cumulative basis to no more than six percent (6%) per
year.

 

C.            Right to Audit
Tenant Costs Tenant shall have the right, at Tenant’s
sole cost, to audit the Landlord’s records of Tenants Costs.  Tenant
may review only those records of Landlord that are specifically related to
Tenant Costs Tenant will keep confidential all agreements involving the rights
provided in this section and the results of any audits conducted hereunder
Notwithstanding the foregoing, Tenant shall be permitted to furnish the
foregoing information to its attorneys, accountants, and auditors to the extent
necessary to perform their respective services for Tenant Tenant may not
conduct an audit more often than once each calendar year Tenant may audit
records with respect to each lease year only one time. No audit shall cover a
period of time in excess of the one calendar year immediately preceding the
audit. Notwithstanding the first sentence of this provision, in the event that
the total amount of annual Tenant’s Costs are misstated by more than ten
percent (10%), the cost of such audit to Tenant will be reimbursed to Tenant by
Landlord within thirty (30) days of the date that Tenant invoices Landlord for
such costs

 

5.             TENANT’S REPAIRS.

 

A.            Maintenance  of Premises and Appurtenances Tenant, at
its own cost and expense, shall (i) maintain all parts of the Premises and promptly make all
necessary repairs and replacements to the Premises (except those for which
Landlord is expressly responsible hereunder), and (ii) keep the parking
areas, driveways and alleys surrounding the Premises in a clean and sanitary
condition.  Tenant’s obligation to maintain,
repair and make replacements to the Premises shall cover, but not be limited
to, pest control (including termites), trash removal and the maintenance,
repair and replacement of all HVAC, electrical, plumbing (but not including
common lines), sprinkler and other mechanical systems.  Landlord shall assign to Tenant all rights
under every manufacturer’s warranty for equipment and mechanical systems that
Landlord obtains during the construction of the Building that relate to the
Premises

 

B             [Intentionally
Omitted]

 

C             Parking.
Tenant and its employees, customers and licensees shall have the right to use
the one hundred ninety-two (192) parking spaces for the initial term adjacent to the Premises
as shown on Exhibit A-1.  In
addition, if Tenant leases up to additional 28,800 square feet in the Building,
it will have the right to use up to eighty (80) more spaces (on a pro rata basis) as shown on Exhibit B Such
parking shall be subject to (i) all rules and regulations promulgated
by Landlord, and (ii) rights of ingress and egress of other lessees.
Landlord shall not be responsible for enforcing Tenant’s parking rights against
any third parties, and Tenant expressly does not have the right to tow or
obstruct improperly parked vehicles Tenant agrees not to park on any public
streets or private roadways adjacent to or in the vicinity of the Premises
except where legal parking is allowed

 

D.            System Maintenance.
Tenant, at its own cost and expense, shall enter into a regularly scheduled
preventive maintenance/service
contract with a maintenance contractor approved by Landlord for servicing all
heating and air conditioning systems and equipment within the Premises The
service contract must include all services suggested by he equipment

 

	
   

  	
   

  	
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manufacturer in its operations/maintenance
manual and must become effective within thirty (30) days of the date Tenant
takes possession of the Premises.

 

E              Option to
Maintain Premises Landlord reserves the right to perform, in whole or in
part, maintenance, repairs and replacements to the exterior of the Premises,
paving, common area, landscape, exterior painting, common sewage line plumbing
and any other items that are otherwise Tenant’s obligations under this
Paragraph 5, in which event, Tenant shall be liable for its Proportionate Share
of the cost and expense of such repair, replacement, maintenance and other such
items

 

6.             ALTERATIONS.
Except as set forth herein, Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord
Tenant, at its own cost and expense, may erect such shelves, bins, machinery
and trade fixtures as it desires, provided that (i) such items do not
alter the basic character of the Premises or the Building, (ii) such items
do not overload or damage same, (iii) such items may be removed without
injury to the Premises, and (iv) the construction, erection or
installation thereof complies with all applicable governmental laws,
ordinances, regulations and with Landlord’s specifications and requirements.
With respect to tenant improvements constructed after Substantial Completion,
Tenant shall be responsible for compliance with The Americans With Disabilities
Act of 1990 Landlord shall be responsible for having the shell building and
Tenant Improvements upon Substantial Completion comply with The Americans With
Disabilities Act of 1990 Without implying any consent of Landlord thereto, all
alterations, additions, improvements and partitions erected by Tenant shall be
and remain the property of Tenant during the term of this Lease. Tenant may
remove, either during or at the termination of the Lease, all bus duct, all
elements relating to the cleaning and packaging room, the exhaust system for
the grinding and polishing room, the air compressors to run the internal
compressed air lines and the outside signage All shelves, bins, machinery and
trade fixtures installed by Tenant shall be removed on or before the earlier to
occur of the day of termination or expiration of this Lease or vacating the
Premises, at which time Tenant shall restore the Premises to their original
condition, wear and tear excepted. All alterations, installations, removals and
restorations shall be performed in a good and workmanlike manner so as not to
damage or alter the primary structure or structural qualities of the Building
or other improvements situated on the Premises or of which the Premises are a
part. Tenant is allowed to make changes to the space upon the Landlord’s
consent Tenant is allowed to make, without consent, up to $50,000 per year of
improvements to the Premises subsequent to the construction of the initial
Tenant Improvements, if such improvements do not affect the structure of the
Building Except for improvements made by the Tenant to the mezzanine level of
the Premises, any such improvements are subject to demolition upon the
termination or expiration of this Lease if Landlord notifies Tenant prior to
the time that the improvements are constructed that demolition will be required
at the termination or expiration of this Lease Improvements to the mezzanine
level of the Premises may be required to be demolished at the termination of
the Lease If required, Landlord must notify Tenant of such requirement at least
three (3) months prior to the termination of the Lease Any demolition
required under this provision is to be performed by Tenant, at Tenant’s costs.

 

7.             SIGNS.  Any signage Tenant desires for the
Premises shall be subject to Landlord’s written approval and shall be submitted to
Landlord prior to the Lease Commencement Date of this Lease Tenant, at Tenant’s
expense, will be allowed to have signage (including company logo) on the
outside of the building. The design shall be in keeping with the architectural
and environmental integrity of the Property and shall be as shown on Exhibit E
attached hereto Tenant shall repair, paint and/or. replace the Building fascia
surface to which its signs are attached upon Tenant’s vacating the Premises or
the removal or alteration of its signage. Tenant shall not, without Landlord’s
prior written consent, (i) make any changes to the exterior of the
Premises, such as painting; (ii) install any exterior lights, decorations,
balloons, flags, pennants or banners; or (iii) erect or install any signs,
windows or door lettering, placards, decorations or advertising media of any
type which can be viewed from the exterior of the Premises All signs, decorations,
advertising media, blinds, draperies and other window treatment or bars or
other security installations visible from outside the Premises shall conform in
all respects to the criteria established by Landlord or shall be otherwise
subject to Landlord’s prior written consent

 

8.             UTILITIES.  Landlord agrees to provide normal water,
electricity, gas and sewer service to the Premises. Tenant shall pay for all
water, gas, heat, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or at the Premises, together with any taxes,
penalties, surcharges or the like pertaining to the Tenant’s use of the
Premises and any maintenance charges for utilities Such services are to be
separately metered to Tenant and Landlord shall install, at its expense, such
water and natural gas submeters as are necessary for this purpose Tenant shall
pay its pro rata share, as reasonably determined by Landlord, of all charges
for jointly metered utilities. Except when caused by the gross negligence or
willful misconduct of Landlord, its employees, agents or representatives,
Landlord shall not be liable for any interruption or failure of utility service
on the Premises, and Tenant shall have no rights or claims as a result of any
such failure

 

9.             INSURANCE.

 

A.            Landlord’s
Insurance. Subject to reimbursement under Paragraph 2C herein, Landlord
shall maintain comprehensive general liability insurance with limits of net less that
S1,000,000 combined single limit and insurance covering the Building in an
amount not less than ninety percent (90%) of the “replacement cost”, excluding
site and foundation costs thereof, insuring against the perils of fire,
lightning, extended coverage, vandalism and malicious mischief.

 

	
   

  	
   

  	
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B             Tenant’s Insurance.
Tenant, at its own expense, shall maintain during the term of this Lease a
policy or policies of workers’ compensation and comprehensive general liability
insurance, including personal injury and property damage, with contractual
liability endorsement, in the amount of Five Hundred Thousand Dollars ($500,000
00) for property damage and One Million Dollars ($1,000,000 00) per occurrence
and One Million Dollars ($1,000,000 00) in the aggregate for personal injuries
or deaths of persons occurring in or about the Premises. Tenant, at its own
expense, shall also maintain during the term of this Lease fire and extended
coverage insurance covering the replacement cost of (i) all alterations, additions,
partitions and improvements installed or placed on the Premises by Tenant or by
Landlord on behalf of Tenant (the “Tenant Alterations”); and (ii) all of
Tenant’s personal property contained within the Premises. Said policies shall (i) name
the Landlord as additional insured; (ii) be issued by an insurance company
which is reasonably acceptable to Landlord; and (iii) provide that said
insurance shall not be canceled unless thirty (30) days prior written notice
has been given to Landlord Said policy or policies or certificates thereof
shall be delivered to Landlord by Tenant on or before the Lease Commencement
Date and upon each renewal of
said insurance. Any insurance proceeds awarded or paid to Tenant for Tenant’s
signs, trade fixtures, equipment, the Tenant Alterations or any property owned
by Tenant shall be paid and
belong to Tenant

 

C             Prohibited Uses.
Tenant will not permit the Premises to be used for any purpose or in any manner
that would (i) void the insurance thereon, (ii) increase the insurance
risk or cost thereof, or (iii) cause the disallowance of any sprinkler
credits; including without limitation, use of the Premises for the receipt,
storage or handling of any product, material or merchandise that is explosive
or highly inflammable It is understood that Tenant in its normal operations
uses titanium and there shall be no additional charge to Tenant for insurance
due to such usage.  If any increase in
the cost of any insurance on the Premises or the Building is caused by Tenant’s
use of the Premises or because Tenant vacates the Premises, then Tenant shall
pay the amount of such increase to Landlord upon demand therefor.

 

10.          FIRE AND CASUALTY DAMAGE.

 

A.            Total or
Substantial Damage and Destruction If the Premises or the Building should
be damaged or destroyed by fire or other peril, Tenant shall immediately give
written notice to Landlord of such damage or destruction. If the Premises or
the Building should be totally destroyed by any peril covered by the insurance
to be provided by Landlord under Paragraph 9A above, or if they should be so
damaged thereby that, in Landlord’s reasonable estimation, rebuilding or
repairs cannot be completed within one hundred eighty (180) days after the date
of such damage (“Total Damage”), then this Lease shall terminate, the rent
shall be abated during the unexpired portion of this Lease, effective upon the
date of the occurrence of such damage, and Tenant  shall not be
required to pay for any unamortized finish-out allowance or commissions
remaining under the Lease. Landlord shall notify Tenant within four (4) weeks
of the damage or destruction of its intentions to rebuild. Failure to notify Tenant within such
time period shall obligate Landlord to undertake the repairs necessary to
restore the Premises to their original conditions. If Landlord chooses to
rebuild or restore the Premises, Landlord shall promptly and diligently
undertake such efforts

 

B.            Partial Damage or
Destruction. If the Premises or the Building should be damaged by any peril
covered by the insurance to be provided by Landlord under Paragraph 9A above
and, in Landlord’s estimation, rebuilding or repairs can be substantially
completed within one hundred eighty (180) days after the date of such damage,
then this Lease shall not terminate and Landlord shall promptly and diligently
substantially restore the Premises to its previous condition, except that
Landlord shall not be required to rebuild, repair or replace any part of the
partitions, fixtures, additions and other improvements that may have been
constructed, erected or installed in or about the Premises which were paid for
directly by Tenant (not including any amounts paid for by Tenant as part of the
Tenant Improvement Allowance)

 

C.            Lienholders’ Rights in
Proceeds. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Premises requires that in the event of Total Damage to the Premises that the
insurance proceeds be applied to such indebtedness, then Landlord shall have
the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made known to Landlord
by any such holder, whereupon all rights and obligations hereunder shall
cease and terminate; provided however, such determination must have been made
within four (4) weeks of the damage or destruction. In such event, Tenant
shall not be required to pay for any unamortized finish-out allowance or
commissions remaining under the Lease

 

D.            Waiver of
Subrogation. Notwithstanding anything in this Lease to the contrary,
Landlord and Tenant hereby waive and release each other of and from any and all
rights of recovery, claims, actions or causes of action against each other, or
their respective agents, officers and employees, for any loss or damage that
may occur to the Premises, improvements to the Building or personal property
(Building contents) within the Building and/or Premises, for any reason
regardless of cause or origin.  Each party
to this Lease agrees immediately after execution of this Lease to give written
notice of the terms of the mutual waivers contained in this subparagraph to
each insurance company that has issued to such party policies of fire and
extended coverage insurance and to have the insurance policies properly
endorsed to provide that the carriers of such policies waive all rights of
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11.          LIABILITY
AND INDEMNIFICATION. Except for any
claims, rights of recovery and causes of action that Landlord has released,
Tenant shall hold Landlord harmless from and defend Landlord against any and
all claims or liability for any injury or damage (i) to any person or
property whatsoever occurring in, on or about the Premises or any part thereof,
the Building and/or other common areas, the use of which Tenant may have in
accordance with this Lease, if (and only if) such injury or damage shall be
caused in whole or in part by the negligence or willful misconduct of Tenant,
its agents, servants, employees or invitees; (ii) arising from the conduct
or management of any work done by the Tenant in or about the Premises; (iii) arising
from transactions of the Tenant; and (iv) all costs, counsel fees,
expenses and liabilities incurred in connection with any such claim or action
or proceeding brought thereon Except for any claims, rights of recovery and
causes of action that Tenant has released, Landlord shall hold Tenant harmless
from and defend Tenant against any and all claims or liability for any injury
or damage (i) to any person or property whatsoever occurring in, on or
about the Premises or any part thereof, the Building and/or other common areas,
the use of which Tenant may have in accordance with this Lease, if (and only
if) such injury or damage shall be caused in whole or in part by the gross
negligence or willful misconduct of Landlord, its agents, servants, employees
of invitees; and (ii) all costs, counsel fees, expenses and liabilities incurred
in connection with any such claim or action or proceeding brought thereon. The
provisions of this Paragraph 11 shall survive the expiration or termination of
this Lease Landlord shall not be
liable in any event for personal injury or loss of Tenant’s property caused by
fire, flood, water leaks, rain, hail, ice, snow, smoke, lightning, wind,
explosion, interruption of utilities or other occurrences, unless such event
was caused by the gross negligence or willful misconduct of Landlord, its
agents, servants, employees or invitees Landlord strongly recommends that
Tenant secure Tenant’s own insurance in excess of the amounts required
elsewhere in this Lease to protect against the above occurrences if Tenant desires
additional coverage for such risks. Tenant shall give prompt notice to Landlord
of any significant accidents involving injury to persons or property.  Furthermore, Landlord shall not be
responsible for lost or stolen personal property, equipment, money or jewelry
from the unless such event was caused by the gross negligence or willful
misconduct of Landlord, its agents, servants, employees or invitees.  Landlord shall not be liable to Tenant or
Tenant’s employees, customers or invitees for any damages or losses to persons
or property caused by any lossees in the Building or the Project, or for any
damages or losses caused by theft, burglary, assault,
vandalism or other crimes unless such event was caused by the gross negligence
or willful misconduct of Landlord, its agents, servants, employees or invitees.
 Landlord strongly recommends that Tenant
provide its own security systems and services and secure Tenant’s own insurance
in excess of the amounts required elsewhere in this Lease to protect against
the above occurrences if Tenant desires additional protection or coverage for such risks.  Tenant
shall give Landlord prompt notice of any criminal or suspicious conduct it
observes within or about the Premises, the Building or the Project and/or any
personal injury or property damage
caused thereby Landlord may, but is not obligated to, enter into agreements
with third parties for the provision, monitoring, maintenance and repair of any
courtesy patrols or similar services or fire protective systems and equipment
and, to the extent same is provided at Landlord’s sole discretion, Landlord
shall not be liable to Tenant for any damages, costs or expenses which occur
for any reason in the event any such system or equipment is not properly
installed, monitored or maintained or any such services are not properly
provided. Landlord shall use reasonable diligence in the maintenance of
lighting in the parking areas servicing the Premises, which shall be at a level
to provide a safe environment for Tenant and its employees, visitors and
guests, it being understood that such level to be determined solely by the
Landlord.

 

12.          USE.   The Premises
shall be used only for the purpose of manufacturing, receiving, storing,
shipping and selling (other than retail) products, materials and merchandise
made and/or distributed by Tenant, general
office use and for such other legally permitted uses compatible with the
Building’s current zoning Except for the outside storage of waste cutting fluid
and other materials in the area outside of the Premises designated for such
purposes, outside storage, including without limitation storage of trucks and
other vehicles, is prohibited without Landlord’s prior written consent  Tenant shall comply with all governmental
laws, ordinances and regulations applicable to the use of the Premises and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances in, upon or connected with
the Premises, all at Tenant’s sole expense.  Other than in the ordinary course of business,
Tenant shall not permit any objectionable or unpleasant odors, smoke, dust,
gas, noise or vibrations to emanate from the Premises, nor take any other
action that would constitute a nuisance or would disturb, unreasonably interfere
with or endanger Landlord or any other lessees of the Building or the Project,
it being understood and permitted that Tenant’s normal business operations
create dust and other fumes relating to polishing and grinding of metals, and
that metal machining will be occurring on an ongoing basis within the Premises.

 

13.          HAZARDOUS
WASTE. The term “Hazardous Substances,” as used in this Lease, shall
mean pollutants, contaminants, toxic or hazardous wastes, radioactive materials
or any other substances, the use and/or the removal of which is required or the
use of which is restricted, prohibited or penalized by any “Environmental Law,”
which term shall mean any federal, state or local statute, ordinance,
regulation or other law of a governmental or quasi-governmental authority
relating to pollution or protection of the environment or the regulation of the
storage or handling of Hazardous Substances. Tenant hereby agrees that: (i) no
activity will be conducted on the Premises that will produce any Hazardous Substances,
except for such activities that are part of the ordinary course of Tenant’s
business activities (the “Permitted Activities”), provided said Permitted
Activities are conducted in accordance with all Environmental Laws and Tenant
shall have notified Landlord of such activities and, in connection therewith,
Tenant shall be responsible for obtaining any required permits or
authorizations and paying any fees and providing any testing required by any
governmental agency; (ii) the Premises will not be used in any manner for
the storage of any Hazardous Substances, except for the temporary storage of
such materials that are used in the ordinary course of Tenant’s business (the
“Permitted Materials”), provided such Permitted Materials are properly stored
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meeting all Environmental Laws, and, in
connection therewith, Tenant shall be responsible for obtaining any required
permits or authorizations and paying any fees and providing any testing
required by any governmental agency; (iii) no portion of the Premises will
be used as a landfill or a dump; (iv) Tenant will not install any
underground tanks of any type; (v) Tenant will not allow any surface or
subsurface conditions to exist or come into existence that constitute, or with
the passage of time may constitute, a public or private nuisance; and (vi) Tenant
will not permit any Hazardous Substances to be brought onto the Premises,
except for the Permitted Materials, and if so brought or found located thereon,
the same shall be immediately removed, with proper disposal, and all required
clean-up procedures shall be diligently undertaken by Tenant at its sole cost
pursuant to all Environmental Laws.  Landlord
and Landlord’s representatives shall have the right but not the obligation to
enter the Premises for the purpose of inspecting the storage, use and disposal
of any Permitted Materials to ensure compliance with all Environmental Laws
Should it be determined by a court of competent jurisdiction, that any
Permitted Materials are being improperly stored, used or disposed of, in
violation of Environmental Laws, then Tenant shall immediately take such
corrective action as requested by Landlord. Should Tenant fail to take such
corrective action within twenty-four (24) hours, Landlord shall have the right
to perform such work and Tenant shall reimburse Landlord, on demand, for any
and all costs associated with said work. If at any time during or after the term
of this Lease, the Premises is found to be contaminated with Hazardous
Substances as a result of Tenant’s operations, Tenant shall diligently
institute proper and thorough clean-up procedures, at Tenant’s sole cost Tenant
agrees to indemnify and hold Landlord harmless from all claims, demands,
actions, liabilities, costs, expenses, damages, penalties and obligations of
any nature arising from or as a result of any contamination by it of the
Premises with Hazardous Substances, or otherwise arising from the use of the
Premises by Tenant.  The foregoing
indemnification and the responsibilities of Tenant shall survive the termination
or expiration of this Lease.  The
Landlord recognizes and accepts the fact that Tenant uses nitric acid and other
corrosive and hazardous materials as part of its cleaning and manufacturing
process Tenant agrees to provide Landlord on or before the Lease Commencement
Date, and thereafter as the list changes, a list of Hazardous Substances that
Tenant uses in its manufacturing and cleaning processes  Tenant agrees to continue to comply with TNRCC
and other government regulations regarding the use of all hazardous materials  To evidence such environmental compliance, at
Landlord’s request Tenant will furnish Landlord a copy of any of the reports
that they have submitted to any government entity.  The Landlord, at its sole cost and expense,
reserves the right to retain an environmental consultant to monitor Tenant’s
handling of hazardous waste to ensure compliance with environmental laws.

 

14.          INSPECTION. Landlord’s
agents and representatives shall have the right to enter the Premises at any
reasonable time, after reasonable notice, during business hours (or at any time
in case of emergency) (i) to inspect the Premises, (ii) to make such
repairs as may be required or permitted pursuant to this Lease, and/or (iii) during
the last six (6) months of the Lease term, for the purpose of showing the
Premises; provided, however, that without Tenant’s prior consent, Landlord
shall not show the Premises to a competitor of Tenant. In addition, during the
last (6) months of the Lease term, Landlord shall have the right to erect
a suitable sign on the Premises stating the Premises are available for lease
Tenant and Landlord shall arrange to meet for a joint inspection of the
Premises prior to vacating.

 

15.          ASSIGNMENT
AND SUBLETTING. Tenant will have the right to sublease all
or any portion of the Lease Premises, or assign all of the Lease Premises, as
the case may be, during the primary lease term, or any renewals thereof,
subject to the consent of Landlord, such consent not to be unreasonably
withheld. Any attempted assignment, subletting, transfer or encumbrance by
Tenant in violation of the terms and covenants of this paragraph shall be void
Any assignee, sublessee or transferee of Tenant’s interest in this Lease (all
such assignees, sublessees and transferees being hereinafter referred to as
“Transferees”), by assuming Tenant’s obligations hereunder, shall assume
liability to Landlord for all amounts paid to persons other than Landlord by
such Transferees to which Landlord is entitled or is otherwise in contravention
of this Paragraph 15 No assignment, subletting or other transfer, whether or
not consented to by Landlord or permitted hereunder, shall relieve Tenant of
its liability under this Lease. If an Event of Default occurs while the
Premises or any part thereof are assigned or sublet, then Landlord, in addition
to any other remedies herein provided or provided by law, may collect directly
from such ‘Transferee all rents payable to the Tenant and apply such rent
against any sums due Landlord hereunder No such collection shall be construed
to constitute a novation or a release of Tenant from the further performance of
Tenant’s obligations hereunder. If Landlord consents to any subletting or
assignment by Tenant as hereinabove provided, any profits received by Tenant as
rent from the sublessee, after factoring in the cost to sublease the space
(tenant improvements, commissions, etc.) will be equally split between Landlord
and Tenant The following shall additionally constitute an assignment of this
Lease by Tenant for the purposes of this Paragraph 15: the mortgage, pledge,
hypothecation or other encumbrance of or grant of a security interest by Tenant
in this Lease, or of any of Tenant’s rights hereunder If the Landlord chooses
to terminate this Lease as opposed to allowing Tenant to sublease or assign its
space, Tenant will not be required to pay for unamortized finish-out allowance
or commissions on that space. In the event that Tenant has sublet more than
one-third of its space in the Premises, any renewal option as to such space
will automatically terminate

 

16.          CONDEMNATION. If more than
fifty percent (50%) of the Premises, including the parking designated for
Tenant under this Lease (unless alternative parking can be provided by Landlord
within one thousand (1000) feet to the Premises), are taken for any public or
quasi-public use under governmental law, ordinance or regulation, or by right
of eminent domain or private purchase in lieu thereof, and the taking prevents
or materially interferes with the use of the remainder of the Premises for the
purpose for which they were leased to Tenant, then this Lease shall terminate
and the rent shall be abated during the unexpired portion of this Lease,
effective on the date of such taking. If less than fifty percent (50%) of the
Premises or the

 

	
   

  	
   

  	
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parking designated for Tenant under this Lease
(unless alternative parking can be provided by Landlord within one thousand
(1000) feet to the Premises), are taken for any public or quasi-public use
under any governmental law, ordinance or regulation, or by right of eminent
domain or private purchase in lieu thereof, or if the taking does not prevent or materially interfere with the use of
the remainder of the Premises for the purpose for which they were leased to
Tenant, then this Lease shall not terminate, but the rent payable hereunder
during the unexpired portion of this Lease shall be reduced to such extent as
may be fair and reasonable under all of the circumstances All compensation
awarded in connection with or as a result of any of the foregoing proceedings
shall be the property of Landlord, provided, to the extent any of the award is
for Tenant Improvements, such amounts shall be deducted from the Amortizable
Tenant Improvement Allowance (as defined herein), and Tenant hereby assigns any
interest in any such award to Landlord; provided, however, Landlord shall have
no interest in any award made to Tenant for loss of business or goodwill or for
the taking of Tenant’s trade fixtures and personal property, if a separate
award for such items is made to Tenant

 

17.          HOLDING OVER.  At the termination of this Lease by its
expiration or otherwise, Tenant shall immediately deliver possession of the Premises to Landlord with all repairs and
maintenance required herein to be performed by Tenant completed If, for any
reason, Tenant retains possession of the Premises after the expiration or
termination of this Lease, unless the parties hereto otherwise agree in
writing, such possession shall be deemed to be a tenancy at will only, and all
of the other terms and provisions of this Lease shall be applicable during such
period, except that Tenant shall pay Landlord from time to time, upon demand,
as rental for the period of such possession, an amount equal to one and
one-half (11/2) times the rent
in effect on the date of such termination of this Lease, computed on a daily
basis for each day of such period.  No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly provided. The
preceding provisions of this Paragraph 17 shall not be construed as consent for
Tenant to retain possession of the Premises in the absence of written consent
thereto by Landlord.

 

18.          QUIET ENJOYMENT. Landlord
represents that it has the authority to enter into this Lease and that, so long
as Tenant pays all amounts
due hereunder and performs all other covenants and agreements herein set forth,
Tenant shall peaceably and quietly have, hold and enjoy the Premises for the
term hereof without hindrance or molestation from Landlord, subject to the terms
and provisions of this Lease.

 

19.          EVENTS OF DEFAULT.  The following
events (herein individually referred to as an “Event of Default”) each shall be
deemed to be a default in or breach of Tenant’s obligations under this Lease:

 

A             Tenant shall fail to
pay any installment of the rent herein reserved when due, or any other payment
or reimbursement to Landlord required herein when due, and such failure shall
continue for a period of five (5) days after Tenant has received from
Landlord verbal notice that such payment has not been received when due, such
notice to not be given by Landlord before a period of five (5) days from
the date such payment was due.

 

B             [Intentionally Omitted]

 

C.            Tenant shall fail to
discharge or bond around any lien placed upon the Premises
in violation of Paragraph 22 hereof within twenty (20) days after any such
lien or encumbrance is filed against the Premises

 

D             Tenant
shall default in the performance of any of its obligations under any other
lease to Tenant from Landlord, or from any person or entity affiliated with or
related to Landlord, and same shall remain uncured after the lapsing of any
applicable cure periods provided for under such other lease

 

E              Tenant shall fail to
comply with any term, provision or covenant of this Lease (other than those
listed above in this paragraph) and shall not cure, or be attempting to cure
and diligently pursuing such cure, such failure within thirty (30) days after
written notice thereof from Landlord

 

20.          REMEDIES. Upon each
occurrence of an Event of Default, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand:

 

(a)           Terminate
this Lease;

 

(b)           Enter upon and take
possession of the Premises without terminating this Lease;

 

(c)           Make such payments
and/or take such action and pay and/or perform whatever Tenant is obligated to
pay or perform
under the terms of this Lease, and Tenant agrees that Landlord shall not be
liable for any damages resulting to Tenant from such action; and/or

 

	
   

  	
   

  	
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(d)           Alter all locks and
other security devices at the Premises, with or without terminating this Lease,
and pursue, at
Landlord’s option, one or more remedies pursuant to this Lease, and Tenant
hereby expressly agrees that Landlord shall not be required to provide to
Tenant the new key to the Premises, regardless of hour, including Tenant’s
regular business hours;

 

and in any such event Tenant shall immediately
vacate the Premises, and if Tenant fails to do so, Landlord, without waiving
any other remedy it may have, may enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
such Premises or any part thereof, without being liable for prosecution or any
claim of damages therefore. In the event of any violation of Section 93
002 of the Texas Property Code by Landlord or by any agent or employee of
Landlord, Tenant hereby expressly waives any and all rights Tenant may have
under Paragraph (g) of such Section 93 002

 

A.            Damages Upon
Termination. If Landlord terminates this Lease at Landlord’s option, Tenant
shall be liable for and shall pay to Landlord the sum of all rental and other
payments owed to Landlord hereunder accrued to the date of such termination,
plus, as liquidated damages, an amount equal to (i) the present value of
the total rental and other payments owed hereunder for the remaining portion of
the Lease term, calculated as if such term expired on the date set forth in
Paragraph 1, less (ii) the present value of the then fair market rental
for the Premises for such period.

 

B.            Damages Upon
Repossession. If Landlord repossesses the Premises without terminating this
Lease, Tenant, at Landlord’s option, shall be liable for and shall pay Landlord
on demand all rental and other payments owed to Landlord hereunder, accrued to
the date of such repossession, plus all amounts required to be paid by Tenant
to Landlord until the date of expiration of the term as stated in Paragraph 1,
diminished by all amounts actually received by Landlord through reletting the
Premises during such remaining term (but only to the extent of the rent herein
reserved). Actions to collect amounts due by Tenant to Landlord under this
paragraph may be brought from time to time, on one or more occasions, without
the necessity of Landlord’s waiting until expiration of the Lease term.

 

C             Costs of Reletting,
Removing, Repairs and Enforcement. Upon an Event of Default, in addition to
any sum provided to be paid under this Paragraph 20, Tenant also shall be
liable for and shall pay to Landlord (i) brokers’ fees and all other costs
and expenses incurred by Landlord in connection with reletting the whole or any
part of the Premises, but, in the event that the reletting is for a period
longer than the original term of this Lease, only for costs and expenses
directly related to the period of time left on the original term of this Lease;
(ii) the costs of removing, storing or disposing of Tenant’s or any other
occupant’s property; (iii) the costs of repairing, altering, remodeling or otherwise putting the Premises into
condition acceptable to a new tenant or tenants; (iv) any and all
reasonable costs and expenses incurred by Landlord in effecting compliance with
Tenant’s obligations under this Lease; and (v) all reasonable expenses
incurred by Landlord in enforcing or defending Landlord’s rights and/or
remedies hereunder, including without limitation all reasonable attorneys’ fees
and all court costs incurred in connection with such enforcement or defense.

 

D.            Late Charge.
In the event Tenant fails to make any payment due hereunder within five (5) days
after such payment is due, including without limitation any rental or escrow
payment, in order to help defray the additional cost to Landlord for processing
such late payments and not as interest, Tenant shall pay to
Landlord on demand a late charge in an amount equal to five percent (5%) of
such payment. The provision for such late charge shall be in addition to all of
Landlord’s other rights and remedies hereunder or at law, and shall not be
construed as liquidated damages or as limiting Landlord’s remedies in any manner.

 

E.             Interest on Past
Due Amounts If Tenant fails to pay any sum which at any time becomes due to
Landlord under any provision of this Lease as and when the same becomes due
hereunder, and such failure continues for ten (10) days after the due date
for such payment, then Tenant shall pay to Landlord interest on such overdue
amounts from the date due until paid at an annual rate which equals the lesser
of (i) twelve percent (12%) or (ii) the highest rate then permitted
by law

 

F              No Implied
Acceptances or Waivers. Exercise by Landlord of any one or more remedies
hereunder granted or otherwise available shall not be deemed to be an
acceptance by Landlord of Tenant’s surrender of the Premises, it being
understood that such surrender can be effected only by the written agreement of
Landlord.  Tenant and Landlord further
agree that forbearance by Landlord to enforce any of its rights under this
Lease or at law or in equity shall not be a waiver of Landlord’s right to
enforce any one or more of its rights, including any right previously forborne,
in connection with any existing or subsequent default. No re-entry or taking
possession of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease, unless a written notice of such intention is
given to Tenant, and, notwithstanding any such reletting or re-entry or taking
possession of the Premises, Landlord may at any time thereafter elect to
terminate this Lease for a previous default, provided that Landlord makes such
election within ninety (90) days of such default. Pursuit of any remedies
hereunder shall not preclude the pursuit of any other remedy herein provided or
any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages occurring to Landlord by reason of the violation of
any of the terms, provisions and covenants contained in this Lease.  Landlord’s acceptance of any rent following an
Event of Default hereunder shall not be construed as Landlord’s waiver of such
Event of Default No waiver by Landlord of any violation or breach of any of the
terms, provisions and covenants of this Lease shall be deemed or construed to
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G.            Reletting of
Premises.  In the event of any
termination of this Lease and/or repossession of the Premises for an Event of
Default, Landlord shall use reasonable efforts to relet the Premises and to
collect rental after reletting, with no obligation to accept any lessee that
Landlord deems undesirable or to expend any funds in connection with such reletting or collection of
rents therefrom.  Tenant shall not be
entitled to credit for or reimbursement of any proceeds of such reletting in
excess of the rental owed hereunder for the period of such reletting.  Landlord may relet the whole or any portion of
the Premises, for any period, to any tenant and for any use or purpose.

 

H             Landlord’s Default.
 If Landlord fails to perform any of its
obligations hereunder within thirty (30) days after written notice
from Tenant specifying such failure, Tenant’s shall have the right to perform
such obligations and shall have the right to bill Landlord for the costs of
such actions. Unless and until Landlord fails to so cure any default after such
notice, Tenant shall not have any remedy or cause of action by reason thereof.  All obligations of Landlord hereunder will be
construed as covenants, not conditions; and all such obligations will be
binding upon Landlord only during the period of its possession of the premises
and not thereafter.  The term “Landlord”
shall mean only the owner, for the time being, of the Premises and, in the
event of the transfer by such owner of its interest in the Premises, such owner
shall thereupon be released and discharged from all covenants and obligations
of the Landlord thereafter accruing, provided that such covenants and
obligations shall be binding during the Lease term upon each new owner for the
duration of such owner’s ownership Notwithstanding any other provision of this
Lease, except as provided herein, Landlord shall not have any personal
liability hereunder. In the event of any breach or default by Landlord in any
term or provision of this Lease, Tenant agrees to look solely to the equity or
interest then owned by Landlord in the Premises or the Building  The exercise by Tenant of any one or more
remedies hereunder granted or otherwise available shall not be deemed to be an
acceptance by Tenant of Landlord’s performance, it being understood that such
acceptance can be effected only by the written agreement of Tenant  Tenant and Landlord further agree that
forbearance by Tenant to enforce any of its rights under this Lease or at law
or in equity shall not be a waiver of Tenant’s right to enforce any one or more
of its rights, including any right previously forborne, in connection with any
existing or subsequent default Pursuit of any remedies hereunder shall not
preclude the pursuit of any other remedy herein provided or any other remedies
provided by law, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any damages occurring to Tenant by reason of the violation
of any of the terms, provisions and covenants contained in this Lease  No waiver by Tenant of any violation or breach
of any of the terms, provisions and covenants of this Lease shall be deemed or
construed to constitute a waiver of any other violation or default.

 

I               Tenant’s
Personal Property  If Landlord
repossesses the Premises pursuant to the authority herein granted, or if Tenant vacates
or abandons all or any part of the Premises, then, in addition to Landlord’s
rights under Paragraph 27 hereof, Landlord shall have the right to (i) keep
in place and use, or (ii) remove and store, all of the furniture, fixtures
and equipment at the Premises, including that which is owned by or leased to
Tenant, at all times prior to any foreclosure thereon by Landlord or
repossession thereof by any lessor thereof or third party having a lien
thereon. In addition to the Landlord’s other rights hereunder, Landlord may
dispose of the stored property if Tenant does not claim the property within ten
(10) days after the date the property is stored. Landlord shall give
Tenant at least ten (10) days prior written notice of such intended
disposition Landlord shall also have the right to relinquish possession of all
or any portion of such furniture, fixtures, equipment and other property to any
person (“Claimant”) who presents to Landlord a copy of any instrument
represented by Claimant to have been executed by Tenant (or any predecessor of
Tenant) granting Claimant the right under various circumstances to take
possession of such furniture, fixtures, equipment or other property, without
the necessity on the part of Landlord to inquire into the authenticity or
legality of said instrument. The rights of Landlord herein stated shall be in
addition to any and all other rights that Landlord has or may hereafter have at
law or in equity, and Tenant stipulates and agrees that the rights granted
Landlord under this paragraph are commercially reasonable.

 

21.          MORTGAGES. Provided that Landlord furnishes Tenant the non-disturbance agreement required
under Exhibit C-8, Tenant accepts this Lease subject and subordinate to any mortgages
and/or deeds of trust now or at any time hereafter constituting a lien or
charge upon the Premises or the improvements situated thereon or the Building,
provided, however, that if the mortgagee, trustee or holder of any such
mortgage or deed of trust elects to have Tenent’s interest in this Lease
superior to any such instrument, then by notice to Tenant from such mortgagee,
trustee or holder, this Lease shall be deemed superior to such lien, whether
this Lease was executed
before or after said mortgage or deed of trust Tenant, at any time hereafter on
demand, shall execute any instruments, releases or other documents that may be
required by any mortgagee, trustee or holder for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage Tenant shall not
terminate this Lease or pursue any other remedy available to Tenant hereunder
for any default on the part of Landlord without first giving written notice by
certified or registered mail, return receipt requested, to any mortgagee,
trustee or holder of any such mortgage or deed of trust, the name and post
office address of which Tenant has received written notice, specifying the
default in reasonable detail and affording such mortgagee, trustee or holder a
reasonable opportunity (but in no event less than thirty (30) days) to make
performance, at its election, for and on behalf of Landlord.

 

22.          MECHANIC’S LIENS. Tenant has no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in any
manner to bind, the interest of Landlord or Tenant in the Premises. Tenant will
save and hold Landlord harmless from any and all loss, cost or expense,
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arising out of asserted claims or liens
against the leasehold estate or against the right, title and interest of the
Landlord in the Premises or under the terms of this Lease

 

23.          MISCELLANEOUS.

 

A             Interpretation
The captions inserted in this Lease are for convenience only and in no way
define, limit or otherwise describe the scope or intent of this Lease, or any provision
hereof, or in any way affect the interpretation of this Lease Any reference in
this Lease to rentable area shall mean the rentable area as determined by the
guidelines of the BOMA for such purposes.

 

B             Binding Effect. Except as otherwise herein expressly
provided, the terms, provisions and covenants and conditions in this Lease
shall apply to, inure to the benefit of and be binding upon the parties hereto
and upon their respective heirs, executors, personal representatives, legal
representatives, successors and assigns Landlord shall have the right to
transfer and assign, in whole or in part, its rights and obligations in the
Premises and in the Building and other property that are the subject of this
Lease.

 

C             Evidence of Authority.
Tenant agrees to furnish to Landlord, promptly upon demand, a corporate
resolution, proof of due
authorization by partners or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.

 

D             Force Majeure Neither Landlord nor Tenant shall be held
responsible for delays in the performance of its obligations hereunder when
caused by material shortages, acts of God, labor disputes or other events
beyond the control of Landlord or Tenant, as the case may be.

 

E              Payments Constitute
Rent. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this Lease, whether or not
expressly denominated as rent, shall constitute rent.

 

F              Estoppel Certificates.
Tenant agrees, from time to time, within ten (10) days after request of
Landlord, to deliver to
Landlord, or Landlord’s designee, an estoppel certificate stating that this
Lease is in full force and effect, the date to which rent has been paid, the
unexpired term of this Lease, any defaults existing under this Lease (or the
absence thereof) and such other factual or legal matters pertaining to this
Lease as may be requested by Landlord. It is understood and agreed that
Tenant’s obligation to furnish such estoppel certificates in a timely fashion
is a material inducement for Landlord’s execution of this Lease Landlord
agrees, from time to time, within ten (10) days after request of Tenant,
to deliver to Tenant, or Tenant’s designee, an estoppel certificate stating
that this Lease is in full force and effect, the date to which rent has been
paid, the unexpired term of this Lease, any defaults existing under this Lease
(or the absence thereof) and such other factual or legal matters pertaining to
this Lease as may be requested by Tenant

 

Tenant agrees, on an annual basis, to deliver to Landlord copies of
Tenant’s annual audited financial statements, including an income statement, a
balance sheet and related footnotes.

 

G             Entire Agreement. This Lease
constitutes the entire understanding and agreement of Landlord and Tenant with respect to the subject matter of this
Lease, and contains all of the covenants and agreements of Landlord and Tenant
with respect thereto. Landlord and Tenant each acknowledge that no
representations, inducements, promises or agreements, oral or written, have
been made by Landlord or Tenant, or anyone acting on behalf of Landlord or
tenant, which are not contained herein, and any prior agreements, promises,
negotiations or representations not expressly set forth in this Lease are of no
force or effect. EXCEPT AS SPECIFICALLY PROVIDED IN THIS LEASE, TENANT HEREBY WAIVES THE BENEFIT OF ALL WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PREMISES, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTY THAT THE PREMISES ARE SUITABLE FOR ANY PARTICULAR
PURPOSE. Landlord’s agents and employees do not and will not have authority to
make exceptions, changes or amendments to this Lease, or factual
representations not expressly contained in this Lease. Under no circumstances
shall Landlord or Tenant be considered an agent of the other This Lease may not
be altered, changed or amended except by an instrument in writing signed by
both parties hereto

 

H             Survival of Obligations. All
obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease
shall survive the expiration or earlier termination of the term hereof,
including without limitation all payment obligations with respect to taxes and
insurance and all obligations concerning the condition and repair of the
Premises. Upon the expiration or earlier termination of the term hereof, and
prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount
reasonably estimated by Landlord as necessary to put the Premises in good
condition and repair, reasonable wear and tear excluded, including without
limitation the cost of repairs to and replacements of all heating and air
conditioning systems and equipment therein Tenant shall also, prior to vacating
the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant’s
obligation hereunder for real estate taxes and insurance premiums for the year
in which the Lease expires or terminates. All such amounts shall be used and
held by Landlord for payment of such obligations of

 

	
   

  	
   

  	
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11

 

Tenant hereunder, with Tenant being liable for
any additional costs therefore upon demand by Landlord, or with any excess to
be returned to Tenant after all such obligations have been determined and
satisfied, as the case may be. Any Security Deposit held by Landlord may, at
Landlord’s option, be credited against any amounts due from Tenant under this
Paragraph 23H

 

I.              Severability of
Terms. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then, in such event, it is the intention of the parties hereto that the
remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added, as a
part of this Lease, a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable

 

J.             Effective Date.
All references in this Lease to “the date hereof” or similar references shall
be deemed to refer to the last date, in point of time, on which all parties
hereto have executed this Lease

 

K.            Brokers’
Commission. Tenant represents and warrants that, except for Commercial
Industrial Properties and Keith Zimmerman (whose broker is Bradley Schlosser),
it has dealt with and will deal with no broker, agent or other person in
connection with this transaction or future related transactions and that no
broker, agent or other person brought about this transaction, and Tenant agrees
to indemnify and hold Landlord harmless from and against any claims by any
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction.

 

Landlord acknowledges and accepts CIP and Keith Zimmerman (whose broker
is Bradley Schlosser) (collectively, the “Brokers”) represent only Tenant
Landlord will pay a commission to the Brokers equal to four percent (4%) of the
Total Rents. Total Rents shall be defined as base net rent reflecting Seven
Dollars ($7.00) per square foot of tenant improvements, which shall be equal to
Six Dollars ($6.00) per square foot per year  The payment for the initial five (5)-year
period will be made in two (2) equal installments; the initial payment
will be made upon lease execution and the second and final payment will be made
upon the Rent Commencement Date In addition, if Tenant does not elect to
exercise its termination option, then Landlord shall pay a commission as noted
above (adjusted for increases in base rent) for years 6 through 10 at the time
of such election. Landlord will also pay four percent (4%) of
the Total Rents on expansions as well as two percent (2%) of the Total Rents
for any extensions beyond the initial ten (10)-year term, subject to a mutually
agreed upon Commission Agreement between Landlord and Brokers

 

L.             Ambiguity
Landlord and Tenant hereby agree and acknowledge that this Lease has been fully
reviewed and negotiated by both Landlord and Tenant, and that Landlord and
Tenant have each had the opportunity to have this Lease reviewed by their
respective legal counsel, and, accordingly, in the event of any ambiguity
herein.  Tenant does hereby waive the rule of
construction that such ambiguity shall be resolved against the party who
prepared this Lease

 

M            [Intentionally Omitted]

 

N             Third Party Rights.
Nothing herein expressed or implied is intended, or shall be construed, to confer upon or give to any person or entity,
other than the parties hereto, any right or remedy under or by reason of this
Lease

 

O             Exhibits and
Attachments. All exhibits, attachments, riders and addenda referred to in
this Lease, and the exhibits listed herein below and attached hereto, are
incorporated into this Lease and made a part hereof for all intents and
purposes as if fully set out herein  All
capitalized terms used in such documents shall, unless otherwise defined
therein, have the same meanings as are set forth herein.

 

P.             Applicable
Law. This Lease has been executed in the State of Texas and shall be
governed in all respects by the laws of the State of Texas  It is the intent of Landlord and Tenant to
conform strictly to all applicable state and federal usury laws  All agreements between Landlord and Tenant,
whether now existing or hereafter arising and whether written or oral, are
hereby expressly limited so that in no contingency or event whatsoever shall
the amount contracted for, charged or received by Landlord for the use,
forbearance or retention of money hereunder or otherwise exceed the maximum
amount which Landlord is legally entitled to contract for, charge or collect
under the applicable state or federal law.  If, from any circumstance whatsoever,
fulfillment of any provision hereof at the time performance of such provision
shall be due shall involve transcending the limit of validity prescribed by
law, then the obligation to be fulfilled shall be automatically reduced to the
limit of such validity, and if from any such circumstance Landlord shall ever
receive as interest or otherwise an amount in excess of the maximum that can be
legally collected, then such amount which would be excessive interest shall be
applied to the reduction of rent hereunder, and if such amount which would be
excessive interest exceeds such rent, then such additional amount shall be
refunded to Tenant.

 

24.          NOTICES. Each provision of this instrument or of any
applicable governmental laws, ordinances, regulations and other requirements
with reference to the sending, mailing or delivering of notice or the making of
any payment by Landlord to

 

	
   

  	
   

  	
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12

 

Tenant or with reference to the sending,
mailing or delivering of any notice or the making of any payment by Tenant to
Landlord shall be deemed to be complied with when and if the following steps
are taken:

 

(i)            All rent and other
payments required to be made by Tenant to Landlord hereunder shall be payable
to Landlord at the address for Landlord set forth below or at such other
address as Landlord may specify from time to time by written notice delivered
in accordance herewith  Tenant’s
obligation to pay rent and any other amounts to Landlord under the terms of
this Lease shall not be deemed satisfied until such rent and other amounts have
been actually received by Landlord

 

(ii)           All payments
required to be made by Landlord to Tenant hereunder shall be payable to Tenant
at the address set forth below, or at such other address within the continental United
States as Tenant may specify from time to time by written notice delivered in
accordance herewith

 

(iii)          Except as expressly
provided herein, any written notice, document or payment required or permitted
to be delivered hereunder shall be deemed to be delivered when received or,
whether actually received or not, when deposited in the United States Mail,
postage prepaid, Certified or Registered Mail, addressed to the parties hereto
at the respective addresses set out below, or at such other address as they
have theretofore specified by written notice delivered in accordance herewith

 

(iv)          All notices to
Tenant, whether written or verbal, are to be delivered, mailed or communicated,
as the case may
be, to:

 

Encore Orthopedics, Inc

         Metric Blvd. (after the Lease Commencement
Date)

8900 Shoal Creek Blvd., Bldg
300 (before the Lease Commencement Date)

Austin, Texas 78758 (after
the Lease Commencement Date)

Austin, Texas 78757 (before
the Lease Commencement Date)

Attn : Craig L. Smith,
President or Harry L Zimmerman, Vice President-General Counsel

 

25.          ADDITIONAL
PROVISIONS.  See EXHIBIT “C” attached hereto and
incorporated herein by reference 

 

26.          [Intentionally Omitted]

 

27.          LANDLORD’S
LIEN. In addition to any statutory lien for rent in Landlord’s favor,
subject to the provisions hereof, Landlord shall have and Tenant hereby grants to Landlord a continuing
security interest in all rentals and other sums of money which may become due
under this Lease from Tenant, all goods, equipment, fixtures, furniture,
inventory, and other personal property of Tenant now or hereafter situated at,
on or within the real property described in EXHIBIT “A” attached hereto and
incorporated herein by reference, and such property shall not be removed
therefrom without the consent of Landlord, except in the ordinary course of
Tenant’s business  In the event any of
the foregoing described property is removed from the Premises in violation of
the covenant in the preceding sentence, the security interest shall continue in
such property and all proceeds and products, regardless of location. Upon an
Event of Default hereunder by Tenant, in addition to all of Landlord’s other
rights and remedies, Landlord shall have all rights and remedies under the
Uniform Commercial Code, including without limitation the right to sell the
property described in this paragraph at public or private sale at any time
after ten (10) days prior notice by Landlord  Tenant hereby agrees to execute such other
instruments deemed by Landlord as necessary or desirable under applicable law
to perfect more fully the security interest hereby created  Landlord and Tenant agree that this Lease and
security agreement and EXHIBIT “A” attached hereto serves as a financing
statement and that a copy, photograph or other reproduction of this portion of
this Lease may be filed of record by Landlord and have the same force and
effect as the original  This security
agreement and financing statement also covers fixtures located at the Premises
subject to this Lease and legally described in EXHIBIT “A” attached hereto, and
all rents or other consideration received by or on behalf of Tenant in
connection with any assignment of Tenant’s interest in this Lease or any
sublease of the Premises or any part thereof, and, therefore, may also be filed
for record in the appropriate real estate records. It is agreed and understood that
the lien the Landlord has as a result of this provision shall be subordinate to
any and all liens granted by Tenant to any lender, equipment lessor, or other
creditor  Landlord agrees to execute as
necessary such commercially reasonable subordination agreements as are
requested by Tenant to evidence the subordination described in this provision.
In the event that Landlord fails to execute such commercially reasonable
subordination agreement within ten (10) business days of receipt of a
commercially reasonable agreement, then Landlord shall thereafter forfeit all
rights it has under this provision

 

	
   

  	
   

  	
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13

 

	
  EXECUTED BY LANDLORD, this
  11th day
  of June, 1996

  	
   

  
	
   

  	
   

  
	
   

  	
  MET 94, LTD., a
  Texas Limited Partnership:

  
	
   

  	
  By: ORI, Inc., a Texas
  Corporation, General Partner

  
	
   

  	
   

  
	
   

  	
  /s/ Sanford L Gottesman

  
	
   

  	
  By: 

  	
  Sanford L Gottesman

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
  Address:

  	
  c/o Trammell Crow Central Texas, Inc.

  
	
   

  	
   

  	
  301 Congress Avenue, Suite 1300,
  Austin, TX 78701

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTED BY TENANT, this        day
  of June, 1996

  	
   

  	
   

  
	
   

  	
  ENCORE
  ORTHOPEDIC, INC :

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Craig L Smith

  
	
   

  	
  By:

  	
  Craig L Smith

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
  Address:

  	
   8900 Shoal Creek Blvd , Bldg 300 

  
	
   

  	
   

  	
  Austin, Texas 78757

  

 

	
  EXHIBIT “A”

  	
  -

  	
  Description of Premises

  
	
  EXHIBIT “B”

  	
  -

  	
  Location of Parking

  
	
  EXHIBIT “C”

  	
  -

  	
  Additional Provisions

  
	
  EXHIBIT “D”

  	
  -

  	
  Form of Letter of
  Credit

  
	
  EXHIBIT “E”

  	
  -

  	
  Sign Plan

  

 

	
   

  	
   

  	
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  Date

  	
  6/6/96

  

 

14

 

FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN

MET 94, LTD., AS LANDLORD, AND

ENCORE ORTHOPEDICS, INC., AS TENANT

 

To be attached to and form a part of Lease
made the 11th day of
June, 1996 (which together with any amendments, modifications and extensions
thereof, is hereinafter called the Lease), between Landlord and Tenant,
covering a total of 52,800 square feet and located at 9800 Metric Boulevard,
Austin, Texas, known as Metric #4.

 

WITNESSETH that the Lease is hereby amended
as follows:

 

Paragraph 2.A shall be amended to adjust the
monthly as referenced in Exhibit C, Paragraphs 3 and 4 of the follows:

 

	
  TERM

  	
   

  	
  MONTHLY RENTAL AMOUNT

  PER SQUARE FOOT

  	
   

  	
  TOTAL MONTHLY RENTAL

  AMOUNT

  	
   

  
	
  Years 1 - 5

  	
   

  	
  $

  	
  0.6709

  	
   

  	
  $

  	
  35,422.26

  	
   

  
	
  Years 6 - 10

  	
   

  	
  $

  	
  0.7709

  	
   

  	
  $

  	
  40,702.26

  	
   

  

 

Except as herein and hereby modified and amended the Agreement of Lease
shall remain in full force and effect and all the terms, provisions, covenants
and conditions thereof are hereby ratified and confirmed.

 

DATED AS OF THE 31st DAY OF March,
1997.

 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WITNESS:

  	
   

  	
  LANDLORD:

  
	
   

  	
   

  	
  MET 94, LTD.,
  a Texas Limited Partnership

  
	
   

  	
   

  	
  By: ORI Inc, a Texas
  Corporation, General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Sanford L. Gottesman

  
	
   

  	
   

  	
  By: Sanford L. Gottesman

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
  WITNESS:

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
  ENCORE
  ORTHOPEDIC, INC.:

  
	
   

  	
   

  	
   

  
	
  

  	
   

  	
  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Printed Name: Craig L.
  Smith 

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  

 

 

SECOND
AMENDMENT TO THE LEASE AGREEMENT BETWEEN

ENCORE MEDICAL, L.P., AS SUCCESSOR IN INTEREST TO ENCORE

ORTHOPEDICS, INC., AS TENANT, AND MET 4/12, LTD., A TEXAS LIMITED

PARTNERSHIP, AS LANDLORD

 

To be
attached to and form a part of the Lease made the 11th day of June, 1996 (which
together with any amendments, modifications and extensions thereof, is
hereinafter called the “Lease”), between Landlord and Tenant, covering a total
of 52,800 square feet and located at 9800 Metric Blvd., Austin, Texas 78758,
known as Metric 4 (“Premises”).

 

Terms capitalized herein that are not defined
herein shall have the meaning ascribed to them in the Lease.

 

1.             The
Lease is hereby extended and renewed for a further term of sixty (60) months to
expire on the
31st day of March, 2012, on condition that Landlord and Tenant comply with all
terms, covenants and conditions contained in the Lease, and the Monthly Base
Rent shall be as listed below:

 

	
   

  	
   

  	
   

  	
   

  	
  Tenant Finish

  	
   

  	
  Total Monthly

  	
   

  
	
   

  	
   

  	
  Monthly Base P.S.F.

  	
   

  	
  Amortization 

  	
   

  	
  Base Rent

  	
   

  
	
  Months

  	
   

  	
  Rate

  	
   

  	
  P.S.F. (“TFA”)

  	
   

  	
  including TFA

  	
   

  
	
  10/3/2005-9/30/2009

  	
   

  	
  $

  	
  0.62

  	
   

  	
  $

  	
  0.0457

  	
   

  	
  $

  	
  35,148.96

  	
   

  
	
  10/1/2009-3/31/2012

  	
   

  	
  $

  	
  0.65

  	
   

  	
  $

  	
  0.0457

  	
   

  	
  $

  	
  36,732.96

  	
   

  

 

These
amounts shall be in addition to Tenant’s proportionate share of common area
maintenance, property taxes, management fees, and insurance as currently
provided in the Lease, and any Additional Tenant Finish Amortization as
described in paragraph 8 below.

 

2.             Notwithstanding any other provision
of the Lease, Tenant will not be responsible for pass through of capital
expenditures except for (a) any capital expenditures requested by Tenant ,
and paid for by Landlord, for which Landlord is not otherwise responsible under
the terms of the Lease; and (b) the annual amortization over the actual
useful life as determined by Landlord in its reasonable discretion, with a
reasonable salvage value, on a straight line basis of the costs of (i) any
non-structural capital improvements made by Landlord and required by any
changes in applicable building codes or laws enacted after the Commencement
Date; and (ii) the cost of any non-structural capital improvements made by
Landlord after the Commencement Date that are reasonably intended to achieve a
current savings in operating expenses, but only to the extent of the savings.
Landlord will continue to be responsible for the repair and cost of
construction defects in the Building, the Building systems, the parking lot,
and the other areas outside the Building, to the extent it is required to do so
under the terms of the Lease.

 

3.             Tenant and Landlord agree that
Tenant currently has a security deposit on file in the amount of $25,000.00 per paragraph 2B of’ the
Lease. Landlord will return said Security Deposit to Tenant upon the signing of
this Second Amendment, but the Security Deposit will be restored with Landlord
on the date that is the first to occur of (i) Encore Medial Corporation
reporting a

 

 

fiscal year end net worth less than One
Hundred Million Dollars ($100,000,000) or (ii) January 1, 2012.

 

4.             Landlord has an option to relocate
the current neighboring tenant in Metric 4, Image Microsystems, Inc.
(“Neighbor”), either to Metric 12 or Metric 10E. Should Tenant need expansion space,
Landlord will work in good faith to relocate the Neighbor. Any space (the
“Expansion Space”) provided in Metric 4 under this provision shall be leased
under the same concessions, allowances and amortization opportunities as are
the Premises, except allowances shall be prorated on a straight line basis
based on length of term remaining, and the lease term for any expansion space
shall be coterminous with the lease term of the Premises, subject to a three
(3)-year minimum term. The rental rate for any Expansion Space shall be equal
to ninety-five percent (95%) of the then current Market Rate (as defined and
determined pursuant to Exhibit C-1 of the Lease).

 

5.             Landlord is the owner of the
Premises, as well as the adjacent 96,000 square foot premises within Metric 4.
It is agreed that Tenant shall have an ongoing right of first refusal to lease
the adjacent space from the Landlord subject to any existing lease(s) in
place. In the event a prospective tenant desires to lease this space from
Landlord, Landlord shall notify Tenant thereof in the manner provided in the
Lease for notice, whereupon Tenant shall have seven (7) business days
after receipt of such notice in which to elect to exercise Tenant’s right of
first refusal. In the event Tenant fails to give Landlord written notice of
Tenant’s election to lease the adjacent space within said seven (7) business
day period, Tenant shall have no further right, title or interest in the
adjacent space and this right of first refusal shall terminate and be of no further
force and effect as it relates to the current prospective tenant, but shall
remain in place for such space as it relates to future prospective tenants. If,
on the other hand, Tenant exercises its right of first refusal in the manner
provided above, the rental rate for this Expansion Space shall be equal to the
rate which had been agreed to be accepted by the prospective tenant for such
space and shall include an allowance package equal to that offered to the
proposed new Tenant.

 

Tenant
may at any time, but not more than once every twelve (12) months, request from
Landlord, by notice, a list of all available and unencumbered space in Metric 4
or Metric 12.

 

6.             Any Expansion Space leased to
Tenant in accordance with paragraph 4 and 5 above (or otherwise) shall be for a
lease term that is coterminous with the expiration date of the Lease subject to
a three (3)-year minimum term, and shall be subject to identical renewal
options. In the event Tenant leases Expansion Space within the last thirty-six
(36) months of the Lease term, Tenant shall have the option to extend the Lease
on the Premises for a period that would be coterminous with that of any
Expansion Space. The rental rate for any extended term for the Premises under
this scenario would be ninety-five percent (95%) of the then current Market
Rate, with a floor of Tenant’s then current rental rate and a cap of one
hundred five percent (105%) of Tenant’s then current rental rate in effect at
the time of the expansion. Additionally, for any proposed expansion space,
Tenant shall have the right to require Landlord to advance to it up to an
additional Five Dollars ($5.00) per rentable square foot for Tenant improvement
allowances, which advance shall be repaid based on a straight-line amortization
over the Lease term at an annual percentage rate of ten percent (10%), subject
to there being no material adverse change in Encore Medical Corporation’s
financial situation as of the time of the request when compared to Encore
Medical

 

2

 

Corporation’s
financial situation as of the date of this Second Amendment. Such election
shall be made prior to commencement of construction.

 

7.             If Tenant is not in default
hereunder, Tenant shall have the right and option to renew the Lease for the
entire portion of the Premises, including any Expansion Space leased within
Metric 4 or 12, or solely for the initial 52,800 square feet of the Premises,
for two (2) additional five (5) year terms by delivering written
notice thereof to Landlord at least one hundred eighty (180) days, but no more
than two hundred ten (210) days, prior to the expiration date of the Lease
term. Upon the delivery of said notice and subject to the conditions set forth
in the preceding sentence, the Lease shall be extended upon the same terms,
covenants and conditions as provided in the Lease, except that the rental
payable during said extended term shall be ninety-five percent (95%) of the
then prevailing Market Rate. Tenant’s option to renew this Lease is subject to
the conditions that: (i) on the date Tenant delivers its notice exercising
its option to renew, Tenant is not in default under this Lease, and (ii) Tenant
shall not have assigned the Lease or sublet any portion of the Premises under a
sublease which is effective at any time during the final twelve (12) months of
the initial Lease term.

 

8.             Landlord shall provide Tenant with
a tenant finish allowance (the “Allowance”) of One Hundred Thirty-Two Thousand
Dollars ($132,000) towards Tenant’s costs related to construction of
improvements (including, without limitation, space planning costs,
architectural and engineering fees, general contractor fees and other similar
fees and expenses) to the Premises (the “Tenant Improvements”). Tenant shall
bear the entire cost of any interior improvements to be installed by either
Landlord or Tenant in the Premises in excess of the Allowance and shall pay for
such excess over the Allowance. Landlord shall provide the Allowance (or any
portion thereof) within fifteen (15) days after Tenant has requested such
amount and has provided Landlord with such receipts , lien waivers, and
documentation that evidence that Tenant has spent such funds on costs related
to construction of the Tenant Improvements.

 

In
addition to the preceding, Landlord shall also provide, at Tenant’s option, a
one-time additional tenant finish allowance (“ATFA”) of One Hundred Thirty-Two
Thousand Dollars ($132,000) to be applied toward interior improvements. In the
event that Tenant exercises its option to draw upon the AIFA to fund additional
improvements, the monthly Base Rate shall be increased to reflect the monthly
amortization of the AIFA, based on an eight percent (8%) per annum interest
rate over the remaining term of the Lease.

 

9.             Tenant will competitively bid the
Tenant Improvements construction with at least three mutually acceptable
qualified tenant finish contractors and Tenant shall select one of the bidders
to construct the Tenant Improvements. Tenant reserves the right to pre-select a
mutually acceptable general contractor based on fee and general condition
negotiations. Tenant will enter into a contract with the successful bidder to
construct the Tenant Improvements.

 

10.           Landlord shall not charge Tenant a
construction management fee in connection with Tenant’s construction of the
Tenant Improvements, however, Landlord will receive a one-time fee in the
amount of Two Thousand Five Hundred Dollars ($2,500) to compensate Landlord for
the cost of reviewing Tenant’s plans and for conducting inspections, which fee
shall be deducted from the Allowance.

 

3

 

11.           Landlord
agrees it will not lease space in Metric 4 or Metric 12 to any person or entity
whose primary business competes directly or indirectly with Tenant’s business
of orthopedic medical device manufacturing and sales. This provision shall
apply during the initial Lease Term and any renewals or extensions of the Lease.

 

12.           Tenant
shall have the right to install a satellite dish and related communications equipment
and/or supplemental HVAC equipment on the roof of the Building and the Premises
Such right, including vertical access to the roof, shall be at no additional
cost to Tenant Specifications for such equipment, including installation and
location, shall meet Landlord’s reasonable approval. All installation and
upkeep costs and removal at the end of the Lease term, if so required by
Landlord, are at Tenant’s expense. Tenant may not perform such installations
without the prior written consent of Landlord, which shall not be unreasonably
conditioned, withheld, or delayed.

 

13.           Tenant
shall maintain the right to place its name and corporate logo on the Building
and shall have the right to construct a monument sign(s) outside the
Building at mutually agreeable locations. Tenant shall give Landlord the right
to approve the design of any signage. Such approval shall not be unreasonably
conditioned, withheld or delayed. Tenant’s signage rights shall be transferable
to an approved assignee or sublessee. Tenant shall be granted identical sign
rights for any other building in the project at such time Tenant occupies 50%
or more of such building Landlord shall not name the Building or project for
any person or entity whose primary business competes with Tenant’s primary
business of medical device manufacturing and sales or grant signage rights to
any person or entity whose primary business competes with Tenant’s primary
business of medical device manufacturing and sales.

 

14.           Landlord
shall continue to provide Tenant with the right to use at no cost the one
hundred ninety-two (192) parking spaces for the extended term (including any
renewal options exercised) of the Lease as shown on Exhibit A-1. At
Tenant’s option during the term of the Lease, Tenant may request Landlord
provide it with the right to use up to thirty-three (33) additional parking
spaces Landlord will use its best efforts to provide up to the requested
parking spaces in an area close to the Premises on property owned by either
Landlord or another entity related to Landlord. If that is not possible, then
Landlord shall arrange for Tenant to lease up to thirty-three (33) additional
parking spaces on either the Metric overflow lot located east of Metric Boulevard
and south of the Premises or the North Pond overflow lot located south of
Rundberg Lane (at Landlord’s election) subject to prior leasing of such spaces.
The cost for such parking shall be the lower of (i) $18 per space per
month, increasing two percent (2%) annually or (ii) the actual cost that
Landlord is paying the owner of such spots. In the event that during the term
of the Lease Landlord becomes aware of another party attempting to lease
parking spaces in these overflow lots, Landlord shall notify Tenant, who will
have a continuing right of first refusal to lease up to thirty-three (33)
additional parking spaces in these overflow lots.

 

15.           Tenant
shall have the right to sublease or assign the Lease without Landlord’s consent
to any affiliated company or entity resulting from
the merger, sale, consolidation or restructuring of Tenant or in connection
with the sale of the assets used in connection with the business operated by
Tenant at the Building. Tenant shall retain one hundred percent (100%) of any profits (after

 

4

 

deducting all
reasonable costs associated with subleasing or an assignment) obtained from
subleasing or an assignment to an affiliate Landlord shall not have recapture rights.

 

16.           The Lease expressly refers to Tenant
as “Encore Orthopedics, Inc.” The Tenant’s name has been changed to “Encore
Medical, L.P.” The Lease and all related documents are hereby amended such that
all references to “Tenant” or “Encore Orthopedics, Inc.” will translate to mean
“Encore Medical, L.P.”

 

Except as herein
and hereby modified and amended the Lease shall remain in full force and
effect and all the terms, provisions, covenants and conditions thereof are
hereby ratified and confirmed.

 

DATED AS OF THE 26th DAY OF OCTOBER, 2005

 

	
   

  	
  LANDLORD:

  
	
   

  	
   

  
	
   

  	
  MET 4/12, LTD., A TEXAS LIMITED PARTNERSHIP

  
	
   

  	
  By:

  	
  GP Met 4/12, Ltd., a Texas Limited
  Partnership

  
	
   

  	
  By:

  	
  ORI, Inc., a Texas Corporation,
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name: 

  	
  [ILLEGIBLE]

  
	
   

  	
  Title:

  	
  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TENANT:

  
	
   

  	
   

  
	
   

  	
  ENCORE MEDICAL, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Encore Medical GP, Inc., its general
  partner

  
	
   

  	
   

  	
  

  
	
   

  	
  By:

  	
  [ILLEGIBLE]

  
	
   

  	
  Title:

  	
  [ILLEGIBLE]

  

 

5

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