-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOjDRbAma12V7FM9HcpBDQ1DdIzI+D95Sm3CeXgUecq5hbTip7BW8OZxleGlgttb VY3VI1J89dqhzr64QGl2yA== 0001104659-08-034062.txt : 20080516 0001104659-08-034062.hdr.sgml : 20080516 20080516163703 ACCESSION NUMBER: 0001104659-08-034062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080516 DATE AS OF CHANGE: 20080516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBST GAMING INC CENTRAL INDEX KEY: 0001160294 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880446145 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-71094 FILM NUMBER: 08842778 BUSINESS ADDRESS: STREET 1: 3440 WEST RUSSELL ROAD CITY: LAS VEGAS STATE: NV ZIP: 89118 BUSINESS PHONE: 7027404576 MAIL ADDRESS: STREET 1: 3440 WEST RUSSELL ROAD CITY: LAS VEGAS STATE: NV ZIP: 89118 10-Q 1 a08-11263_110q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2008

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

Commission file number: 0-71094

HERBST GAMING, INC.

(Exact name of registrant as specified in its charter)

NEVADA		88-0446145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3440 West Russell Road, Las Vegas, Nevada		89118
(Address of principal executive offices)		(Zip Code)

(702) 889-7695
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. YES o NO o Not Applicable x

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value, 300 outstanding shares

FORM 10-Q

TABLE OF CONTENTS

PART I —	FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS (UNAUDITED)

	CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.	CONTROLS AND PROCEDURES

PART II — OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS

ITEM 1A.	RISK FACTORS

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5.	OTHER INFORMATION

ITEM 6.	EXHIBITS

PART I — FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

HERBST GAMING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 31, 2007			March 31, 2008
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	94,282		$	132,823
Accounts receivable, net	7,012			8,272
Notes and loans receivable	609			449
Prepaid expenses	17,134			14,379
Inventory	4,995			4,821
Total current assets	124,032			160,744
Property and equipment, net	548,709			570,807
Lease acquisition costs, net	21,551			19,765
Due from related parties	1,704			1,380
Other assets, net	27,892			27,084
Intangibles, net	244,059			240,368
Goodwill	112,438			82,826

Total assets	$	1,080,385		$	1,102,974

Liabilities and stockholders’ deficiency
Current liabilities
Current portion of long-term debt	$	7,634		$	1,180,044
Accounts payable	18,429			16,166
Accrued interest	4,562			10,992
Accrued expenses	28,384			29,100

Total current liabilities	59,009			1,236,302
Long-term debt, less current portion	1,138,436			5
Other liabilities	1,669			1,921

Commitments and contingencies (Note 7)

Stockholders’ deficiency
Common stock (no par value; 2,500 shares authorized; 300 shares issued and outstanding)	2,368			2,368
Additional paid-in capital	1,631			1,631
Accumulated deficit	(122,728		)	(139,252		)

Total stockholders’ deficiency	(118,729		)	(135,253		)

Total liabilities and stockholders’ deficiency	$	1,080,385		$	1,102,974

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

HERBST GAMING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2007			2008
	(in thousands)
Revenues
Route operations	$	74,749		$	64,647
Casino operations	79,502			120,996
Other operations	7,423			27,778
Total revenues	161,674			213,421
Promotional allowances	(11,285		)	(15,293		)

Net revenues	150,389			198,128

Costs of revenues
Route operations	64,872			55,281
Casino operations	52,507			88,956
Other operations	5,641			22,587
General and administrative	4,184			5,192
Depreciation and amortization	11,721			14,649
Restructuring costs	—			1,296
Total costs and expenses	138,925			187,961
Income from operations	11,464			10,167

Other income (expense)
Interest income	290			248
Interest expense, (net of capitalized interest of $97 and $0, respectively)	(13,674		)	(26,939		)
Decrease in value of derivative instruments	(1,333		)	—
Total other expense	(14,717		)	(26,691		)
Net loss	$	(3,253	)	$	(16,524	)

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

HERBST GAMING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2007			2008
	(in thousands)
Cash flows from operating activities
Net loss	$	(3,253	)	$	(16,524	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	11,721			14,649
Amortization of debt issuance costs	945			1,011
Debt discount amortization	35			35
Loss (gain) on sale of property and equipment	13			(100		)
Change in value of derivative instruments	1,333			—
Decrease (increase) in operating assets and liabilities
Accounts receivable	873			(1,260		)
Prepaid expenses	(362		)	2,755
Inventory	201			174
Due from related parties	(188		)	326
Other assets	(25		)	(38		)
Increase (decrease) in
Accounts payable	33			(1,978		)
Accrued interest	10,948			6,430
Accrued expenses	1,613			715
Other liabilities	(82		)	243
Net cash provided by operating activities	23,805			6,438
Cash flows from investing activities
Net cash paid for acquisition of Sands	(147,812		)	—
Net cash paid for acquisition of Primadonna	(1,071		)	—
Additions to notes receivable	(363		)	(165		)
Collection on notes receivable	257			323
Proceeds from sale of property and equipment	18			128
Purchases of property and equipment	(7,277		)	(1,938		)
Lease acquisition costs	(398		)	(24		)
Net cash used in investing activities	(156,646		)	(1,676		)
Cash flows from financing activities
Proceeds from long-term debt	375,000			35,859
Payments of long-term debt	(194,226		)	(1,915		)
Deferred loan costs	(9,574		)	(165		)
Stockholders’ distributions	(5,500		)	—
Net cash provided by financing activities	165,700			33,779
Net increase in cash and cash equivalents	32,859			38,541
Cash and cash equivalents
Beginning of period	65,640			94,282
End of period	98,499			132,823
Supplemental cash flow information
Cash paid for interest	1,842			19,462
Supplemental schedule of non-cash investing and financing activities
Purchase of property and equipment included in accounts payable	3,092			403

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

HERBST GAMING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business and Principles of Consolidation—The accompanying condensed consolidated financial statements of Herbst Gaming, Inc. (“Herbst” or the “Company”) include the accounts of Herbst and its subsidiaries: E-T-T, Inc. and subsidiaries (“ETT”), Market Gaming, Inc. (“MGI”), E-T-T Enterprises L.L.C. (“E-T-T Enterprises”), Flamingo Paradise Gaming, LLC (“FPG”), HGI-Lakeside (“HGI-L”), HGI-St. Jo (“HGI-SJ”), HGI-Mark Twain (“HGI-MT”), The Sands Regent and subsidiaries (“The Sands Regent”) and the Primadonna Company, LLC (“Primadonna”). The financial statements of ETT are consolidated and include the following wholly-owned subsidiaries: Cardivan Company, Corral Coin, Inc. and Corral Country Coin, Inc. The financial statements of The Sands Regent are consolidated and include the following direct and indirect wholly-owned subsidiaries: Zante, Inc., Last Chance, Inc., California Prospectors, Ltd. (which is a wholly owned subsidiary of Last Chance, Inc.), Plantation Investments, Inc. and Dayton Gaming, Inc.

All significant intercompany balances and transactions between and among Herbst, ETT, MGI, E-T-T Enterprises, FPG, HGI-L, HGI-SJ, HGI-MT, The Sands Regent and Primadonna have been eliminated in the condensed consolidated financial statements.

ETT and MGI conduct business in the gaming industry and generate revenue principally from gaming machine route operations and casino operations. Gaming machine route operations involve the installation, operation and service of gaming machines owned by the Company that are located in licensed, leased or subleased space in retail stores (supermarkets, convenience stores, etc.), bars and restaurants throughout the State of Nevada. The Company owns and operates Terrible’s Town Casino & Bowl in Henderson, Nevada, Terrible’s Searchlight Casino in Searchlight, Nevada and Terrible’s Town Casino and Terrible’s Lakeside Casino & RV Park, both of which are located in Pahrump, Nevada. The operations of the subsidiaries of the Company are as follows:

· E-T-T Enterprises develops and leases real estate to ETT.

· FPG owns and operates Terrible’s Hotel & Casino (“Terrible’s Casino”) in Las Vegas, Nevada, which began operations in December 2000.

· HGI-L owns and operates Terrible’s Lakeside Casino (“Lakeside Iowa”), as well as a hotel, gas station and convenience store, all located in Osceola, Iowa, which were acquired in February 2005.

· HGI-SJ owns and operates Terrible’s St. Jo Frontier Casino (“St. Jo”) in St. Joseph, Missouri, which was acquired in February 2005.

· HGI-MT owns and operates Terrible’s Mark Twain Casino in La Grange, Missouri, which was acquired in February 2005.

· The Sands Regent and its direct and indirect wholly-owned subsidiaries, which were acquired on January 3, 2007, own and operate Terrible’s Rail City Casino in Sparks, Nevada, the Sands Regency Casino Hotel in Reno, Nevada, the Terrible’s Gold Ranch Casino and RV Resort in Verdi, Nevada and Terrible’s Dayton Casino and Red Hawk Sports Bar, each of which is in Dayton, Nevada (all such properties acquired pursuant to the Sands Regent Acquisition, together the “Sands Casinos”).

· Primadonna, which was acquired on April 10, 2007, owns and operates Whiskey Pete’s Hotel and Casino (“Whiskey Pete’s”), Buffalo Bill’s Hotel and Casino (“Buffalo Bill’s”), Primm Valley Resort and Casino (“Primm Valley,” and together with Whiskey Pete’s and Buffalo Bill’s, together the “Primm Casinos”), a California lottery station located on the Nevada/California border, three gasoline stations and the Primm Travel Center (such properties, together with the Primm Casinos, the “Primm Properties”), all of which are located in Primm, Nevada.

We have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986. Under those provisions, the owners of the Company pay income taxes on its taxable income. Accordingly, a provision for income taxes is not included in our financial statements. During the first quarter of 2007, The Sands Regent converted to a Subchapter S Corporation from a C Corporation.

The gaming industry in the States of Nevada, Iowa and Missouri are subject to extensive state and local government regulation. The Company’s gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada Gaming Control Board, the Iowa Racing and Gaming Commission and the Missouri Gaming Commission, as well as local jurisdictions.

Basis of Presentation—The condensed consolidated financial statements of Herbst Gaming, Inc. as of March 31, 2008, and for the three months ended March 31, 2008 and 2007 are unaudited, but, in the opinion of management, include all adjustments necessary for a fair presentation of the financial results for the interim periods. Our results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2008. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K/A for the year ended December 31, 2007 (the “2007 Form 10-K”).

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant estimates incorporated into the Company’s consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable and the estimated cash flows in assessing the recoverability of long-lived assets. Actual results could differ from those estimates.

Accounts Receivable—Receivables consist primarily of amounts due from customers as a result of normal business operations. The Company periodically performs credit evaluations of its customers. The Company reviews accounts receivable balances in order to determine an allowance for potential credit losses based on our collections experience and the age of the receivables. At December 31, 2007 and March 31, 2008, the allowance for potential credit losses was $802,000 and $763,000, respectively.

Goodwill—The Company has approximately $82,826,000 in goodwill as of March 31, 2008. Approximately $48,873,000 of this total was added in the first quarter of 2007 as a result of the acquisition of The Sands Regent, and an additional $67,198,000 was added in the second quarter of 2007 as a result of the acquisition of The Primadonna Company, each as described in footnote 2 below. As of December 31, 2007, these amounts were estimated based on preliminary values that were subject to adjustment upon the completion of our purchase price allocation. As a result of the completion of the allocation of purchase price for the acquisitions referenced in Note 2, amounts now reflect reductions in goodwill from those reported on our 2007 Form 10-K of $7,594,000 for The Sands Regent and $22,017,000 for The Primadonna Company.

Restructuring Costs—Restructuring costs are comprised of expenses related to the evaluation of financial and strategic alternatives.

Recently Issued Accounting Standards

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which defers the effective date of FASB Statement No. 157 (“SFAS 157”), Fair Value Measurements, to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities, expect for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. We have not yet determined the effect, if any, that the adoption of SFAS 157 will have on our condensed consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133, (“SFAS 161”). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We have not yet determined the effect, if any, the adoption of this statement will have on our financial condition or results of operations.

2. ACQUISITIONS

Primm Acquisition

On April 10, 2007, the Company completed the acquisition of certain gaming assets of MGM MIRAGE (the “Primm Acquisition”) for a net cash purchase price of $394 million. These assets include Buffalo Bill’s Hotel and Casino, Primm Valley Resort and Whiskey Pete’s Hotel and Casino located in Primm, Nevada. The purchase price allocation is described in the following tables. The Company used borrowings under its senior credit facility to fund the purchase price of the Primm Acquisition. The acquisition was recorded under the purchase method of accounting and the results of operations

of the Primm Properties have been included in the Company’s consolidated results following the date of acquisition. All of the goodwill associated with the Primm Acquisition is included in the “Casino Operations—Nevada” reporting segment.

The allocation of the purchase price for the Primm Acquisition is as follows:

Fair Market Value of assets acquired (in thousands) net of cash:

Receivables	$	2,513
Inventory	1,603
Prepaid	4,152
Property, plant and equipment	286,319
Other assets	1,310
Intangible assets
Trade Name	40,600
Customer Loyalty Program	10,950
Goodwill	67,198

Fair Market Value of liabilities assumed (in thousands):

Accounts payable	$	(8,112	)
Accrued expenses	(11,582		)
Other Liabilities	(500		)
Total cash purchase price	$	394,451

The above table reflects an adjustment from estimated amounts reported on the 2007 Form 10-K as the final fair values for Property, plant and equipment were still based on management’s estimate at the time of the 2007 Form 10-K filing. Management, upon completion of the finalization of the purchase price allocation, determined that the fair value of the amounts for Property, plant and equipment had increased from our initial estimate by approximately $24,317,000, and the Customer Loyalty Program decreased by approximately $2,300,000, with a corresponding adjustment to Goodwill.

Sands Regent Acquisition

On January 3, 2007, the Company completed the acquisition of The Sands Regent (the “Sands Regent Acquisition”), paying approximately $149 million in cash for the outstanding securities of The Sands Regent, the repayment of outstanding debt and related fees. The purchase price allocation is described in the following tables. Pursuant to the Sands Regent Acquisition, the Company acquired Rail City Casino in Sparks, Nevada, Sands Regency Casino Hotel in Reno, Nevada, Gold Ranch Casino and RV Resort in Verdi Nevada and Depot Casino and Red Hawk Sports Bar, each in Dayton, Nevada. The Company used borrowings under its senior credit facility to fund the purchase price of the Sands Regent Acquisition. The Sands Regent Acquisition was recorded under the purchase method of accounting and the results of operations of the assets of The Sands Regent have been included in the Company’s consolidated results following the date of acquisition. All of the goodwill associated with the Sands Regent Acquisition is included in the “Casino Operations—Nevada” reporting segment.

The allocation of the purchase price for the Sands Regent Acquisition is as follows:

Fair Market Value of assets acquired (in thousands) net of cash:

Receivables	$	4,726
Inventory	600
Prepaid	2,132
Property, plant and equipment	73,382
Intangible assets
Trade Name	14,550
Customer Loyalty Program	10,500
Goodwill	48,873

Fair Market Value of liabilities assumed (in thousands):

Accounts payable	$	(2,150	)
Accrued expenses	(3,962		)
Total cash purchase price	$	148,651

The above table reflects an adjustment from estimated amounts reported on the 2007 Form 10-K as the final fair values for Property, plant and equipment were still based on management’s estimate at the time of the 2007 Form 10-K filing. Management, upon completion of the finalization of the purchase price allocation, determined that the fair value of the amounts for Property, plant and equipment had increased from our initial estimate by approximately $8,494,000, and the Customer Loyalty Program decreased by approximately $900,000, with a corresponding adjustment to Goodwill.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

	December 31, 2007			March 31, 2008

Building	$	411,730		$	446,683
Gaming equipment	139,212			138,962
Furniture, fixtures, and equipment	81,078			82,054
Leasehold improvements	2,038			2,043
Land	37,528			36,930
Barge	17,160			17,160
Construction-in-progress	10,673			9,239
	699,419			733,071
Less accumulated depreciation	(150,710		)	(162,264		)
	$	548,709		$	570,807

4. GOODWILL

During the first quarter of 2007, we acquired the stock of The Sands Regent and during the second quarter of 2007 we acquired the Primm Properties. In connection with these transactions, we recorded a significant amount of goodwill included in the table below.

The changes in the carrying amount of goodwill for the quarter ended March 31, 2008 are as follows (in thousands):

Balance as of January 1, 2008	$	112,438
Adjustment to Goodwill from finalization of purchase price allocation of Sands Acquisition	(7,594		)
Adjustment to Goodwill from finalization of purchase price allocation of Primm Acquisition	(22,017		)
Total	$	82,826

5. LONG-TERM DEBT

We maintain a $860.0 million senior credit facility (“amended Credit Agreement”). This facility includes a revolving credit facility in the amount of $100.0 million and $751.8 million of term loans that mature on December 2, 2011 if we have not refinanced our 8 1/8% Senior Subordinated Notes due 2012 (the “8 1/8% Notes”), and otherwise on January 3, 2014. Our revolving credit facility was fully drawn at March 31, 2008. Interest accrues on borrowings under our senior credit facility based on a floating rate. This floating rate is based upon a variable interest rate (a base rate or LIBOR, at our option) plus a leverage grid-based spread. Our average floating rate on debt incurred under the senior credit facility was 9.3% at March 31, 2008.

financial statements, as of the end of the first quarter of 2008, we were not in compliance with financial ratio covenants of the amended Credit Agreement. The amounts outstanding under the amended Credit Agreement have been reclassified as current liabilities in the accompanying balance sheet as of March 31, 2008.

On May 13, 2008, we received Payment Blockage Notices from the Administrative Agent under the amended Credit Agreement, pursuant to which the Administrative Agent advised us and the trustees under the indentures pursuant to which the Company’s 8 1/8% Notes and 7% Senior Subordinated Notes due 2014 (the “7% Notes” and, collectively with the 8 1/8% Notes, the “Subordinated Notes”) were issued that, as a result of events of defaults under the amended Credit Agreement, no payments may be made with respect to the Subordinated Notes pursuant to the subordination provisions of the indentures. In accordance with the Payment Blockage Notices, we will not make the interest payments on the 7% Notes due May 15, 2008 and on the 8 1/8% Notes due June 1, 2008. If the scheduled interest payments are not made within 30 days of the scheduled payment dates, events of default will occur under the indentures and the trustee may, or holders of 25% of the outstanding principal amount of notes issued under the relevant indenture may direct the trustee to, accelerate the maturity of the notes issued under that indenture. Under the terms of the subordination, payment may be resumed on the earlier of the date upon which such events of default are cured or waived and 180 days after the date on which the payment blockage notices were received, unless the amended Credit Agreement debt has been accelerated. The amounts outstanding under the Subordinated Notes have been reclassified as current liabilities in the accompanying balance sheet as of March 31, 2008.

On May 15, 2008, we entered into a forbearance and standstill agreement (the “Forbearance Agreement”) with respect to the amended Credit Agreement. A copy of the Forbearance Agreement is filed as Exhibit 10.1 to this Form 10-Q and the terms are summarized below, including certain conditions to effectiveness.

We continue our evaluation of financial and strategic alternatives, which may include a recapitalization, refinancing, restructuring or reorganization of the our obligations or a sale of some or all of our businesses. We and our advisors are actively working toward such a transaction that would address the decline in our operating results and our capital structure, including our outstanding indebtedness. We cannot assure you that we will be successful in undertaking any such alternative in the near term.

If the lenders under the amended Credit Agreement were to accelerate repayment of all amounts outstanding under the amended Credit Agreement upon expiration or termination of the Forbearance Agreement or, assuming nonpayment of the scheduled interest payments on the Subordinated Notes within the 30-day grace periods under the respective indentures, the holders of the 7% Notes or the 8 1/8% Notes were to accelerate the indebtedness outstanding under the relevant indenture, we would be required to refinance or restructure the payments on that debt. We cannot assure you that we would be successful in completing a refinancing or restructuring, if necessary. If we were unable to do so, we may be required to seek protection under Chapter 11 of the U. S. Bankruptcy Code.

The Forbearance Agreement amends the amended Credit Agreement and provides that the lenders and the Administrative Agent will forbear from exercising certain rights and remedies under the amended Credit Agreement and other loan documents as a result of the existing defaults described above and certain other possible defaults (collectively, the “Specified Defaults”) under the amended Credit Agreement through September 30, 2008 or earlier upon the occurrence of one or more events of default other than the Specified Defaults or a breach by the Company of the Forbearance Agreement (the “Forbearance Period”). In addition, the Forbearance Agreement provides, among other things, for the following:

1. the interest rate premium payable in respect of loans available under the Credit Agreement has been increased for Eurodollar loans from LIBOR plus 4.50% to LIBOR plus 6.50% and has been increased for base rate loans from the base rate plus 3.25% to the base rate plus 5.25%;

2. during the Forbearance Period, the default rate shall not apply;

3. during the Forbearance Period, the Company retains the ability to convert Loans into Eurodollar Rate Loans as provided for in the Credit Agreement so long as the Interest Periods for such Eurodollar Rate Loans do not extend beyond September 30, 2008;

4. the Company is prohibited from making payments on account of its Subordinated Debt, other than in accordance with the terms of the subordination provisions and certain payments of certain professional fees and expenses;

5. the Administrative Agent has the ability to approve any engagement letters entered into by the Company with counsel for or advisors to the holders of any Subordinated Debt; and

6. the Company shall pay to the Administrative Agent for the benefit of the Lenders a fee in the amount of approximately $6.4 million.

The effectiveness of the Forbearance Agreement is conditioned upon, among other things, receipt of any required approval from the Iowa Gaming and Racing Commission.

Long-term debt is expected to mature as follows (dollars in thousands):

	March 31, 2008

2009	1,180,044
2010	5
2011	—
2012	—
2013	—
Thereafter	—
Total	$	1,180,049

6. BUSINESS SEGMENTS

The Company operates through two business segments: slot route operations and casino operations. The slot route operations involve the installation, operation and service of slot machines at strategic, high traffic non-casino locations such as grocery stores, drug stores, convenience stores, bars and restaurants. Casino operations are broken into geographic segments: casinos located in Nevada and casinos located in other states. The Nevada locations include: Terrible’s Town Casino in Henderson, Nevada, Terrible’s Casino Searchlight in Searchlight, Nevada, Terrible’s Town Casino and Terrible’s Lakeside Casino, both of which are located in Pahrump, Nevada, Terrible’s Hotel & Casino in Las Vegas, Nevada, Terrible’s Rail City Casino in Sparks, Nevada, Terrible’s Sands Regency Casino Hotel in Reno, Nevada, Terrible’s Gold Ranch Casino and RV Resort in Verdi Nevada, Terrible’s Depot Casino and Red Hawk Sports Bar, both of which are located in Dayton, Nevada and Whiskey Pete’s Hotel and Casino, Buffalo Bill’s Hotel and Casino and Primm Valley Resort and Casino, all of which are located in Primm, Nevada. Casinos located in other states are: Terrible’s Lakeside Casino Resort in Osceola, Iowa, Terrible’s Mark Twain Casino in LaGrange, Missouri and Terrible’s St. Jo Frontier Casino in St. Joseph, Missouri. These segment results are regularly provided to the Office of the Chief Executive Officer of the Company, the members of which are the chief operating decision-makers of the Company.

Net revenues, income from operations, depreciation and amortization and EBITDA (as defined in footnote 2 below) for these segments are as follows (dollars in thousands):

	Three Months Ended March 31,
	2007			2008
Net revenues
Slot route operations	$	74,724		$	64,619
Casino operations:
Nevada	37,814			75,057
Other states	30,428			30,674
Other operations—non gaming	7,423			27,778
Total net revenues	$	150,389		$	198,128
Income from segment operations (excluding general and administrative expense)
Slot route operations	$	4,174		$	4,677
Casino operations:
Nevada	4,454			888
Other states	5,318			5,957
Total income from segment operations	13,946			11,522
Other	(2,482		)	(1,355		)
Total income from operations	$	11,464		$	10,167

Depreciation and amortization
Slot route operations	$	5,678		$	4,661
Casino operations:
Nevada	3,161			7,102
Other states	2,802			2,828
Other expenses	80			58
Total depreciation and amortization	$	11,721		$	14,649

Segment EBITDA (2)
Slot route operations	$	9,852		$	9,338
Casino operations:
Nevada	7,615			7,990
Other states	8,120			8,785
Other and corporate (1)	(2,112		)	(1,049		)
Depreciation and amortization	(11,777		)	(14,649		)
Interest expense, net of capitalized interest	(13,674		)	(26,939		)
Decrease in value of derivative instruments	(1,333		)
Net income (loss)	$	(3,253	)	$	(16,524	)

(1) Represents non-gaming revenues, general and administrative expenses and interest income.

(2) Segment EBITDA is used by management to measure segment profits and losses and consists of income from segment operations plus depreciation and amortization and is calculated before allocation of overhead and change in value of derivative instruments.

7. COMMITMENTS AND CONTINGENCIES

On February 17, 2006, the Clark County Circuit Court entered judgment of a jury verdict delivered on January 14, 2006 against ETT for $4.1 million in compensatory damages and $10.1 million in punitive damages. The jury verdict was delivered in connection with an action brought by the family of an individual that alleged that ETT had negligently retained and negligently supervised a temporary employee who in 2001 stole a truck from ETT and, while drunk, hit and killed the individual. The punitive damage award was subsequently lowered to $4.1 million in a post-trial ruling. The Company believes the award of compensatory and punitive damages against ETT, the liability of ETT and the amount thereof, is not supportable in either law or in fact and plans to vigorously pursue all appropriate post-trial and other remedies, including exercising its right to appeal. Based on a review of the legal opinions and facts available to the Company at this time, the Company has not reserved for this lawsuit. This lawsuit is currently on appeal.

Nevada Use Tax Refund Claims

On March 27, 2008, the Nevada Supreme Court issued a decision in Sparks Nugget, Inc. vs. The State of Nevada Department of Taxation (the “Department”), holding that food purchased for subsequent use in the provision of complimentary and/or employee meals was exempt from both sales and use tax. On April 24, 2008, the Department filed a Petition for Rehearing (the “Petition”) on the decision. Additionally, on the same date the Nevada Legislature filed in Amicus Curiae brief in support of the Department’s position. The Nevada Supreme Court has not responded to the Department’s Petition, nor is there any set deadline for such response. We have been paying use tax on food purchased for subsequent use as complimentary and employee meals at our Nevada casino properties and are in the process of quantifying the amount of our potential refund, which we estimate to be approximately $3.9 million, including interest, from July 1, 2001 through March 31, 2008. Based on our review of the Petition and Amicus Curiae brief, the Department is attempting to establish a position that supports denial of the refund claims filed by us and other operators of Nevada casinos. Due to the uncertainty surrounding the Supreme Court’s decision on the rehearing and other potential arguments that the Department may pursue, we will not record any gain until the tax refund is realized. For periods subsequent to March 2008, we will continue recording an accrual for sales or use tax on complimentary and employee meals at our Nevada casino properties, as the outcome regarding this decision by the Nevada Supreme Court is uncertain at this time.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a diversified gaming company that focuses on two business lines: slot route operations and casino operations. At March 31, 2008, we owned and operated 16 casinos and a slot route operation. Our route operations involve

the exclusive installation and operation of approximately 7,000 slot machines as of March 31, 2008 in strategic, high traffic, non-casino locations, such as grocery stores, drug stores, convenience stores, bars and restaurants. Taking into account the Primm Acquisition and the Sands Regent Acquisition, our casino operations consist of sixteen casinos located in Nevada, Iowa and Missouri, all operated or, with respect to our newly acquired properties, expected to be operated under the “Terrible’s” brand. We are in the process of re-branding the Sands and Primm Casinos under the “Terrible’s” brand.

We generally enter into two types of route contracts. With chain store customers, such as Albertsons, Vons, Safeway, SavOn, Smith’s, Kmart and Terrible Herbst, we pay a fixed monthly fee for each location in which we place slot machines. With our street accounts, such as bars, restaurants and non-chain convenience stores, we share in the revenues on a percentage basis with the location owner. Revenues from street accounts are recorded gross of amounts shared.

Our revenues are primarily derived from gaming revenues, which include revenues from slot machines and table games. Gaming revenues are generally defined as gaming wins less gaming losses. Our largest component of revenues is from our slot machines. Promotional allowances consist primarily of food and beverages furnished gratuitously to customers. The retail value of such services is included in the respective revenue classifications and is then deducted as promotional allowances. We calculate income from operations as net revenues less total operating costs and expenses. Income from operations represents only those amounts that relate to our operations and excludes interest income, interest expense and other non-operating income and expenses. Segment EBITDA consists of income from segment operations plus depreciation and amortization, and is calculated before an allocation of overhead.

We have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986. Under those provisions, the owners of our Company pay income taxes on our taxable income. Accordingly, a provision for income taxes is not included in our financial statements. During the first quarter of 2007, The Sands Regent elected to be treated as a Subchapter S corporation for federal income tax purposes.

On April 10, 2007, the Company completed the Primm Acquisition for a net cash purchase price of $394 million. These properties include Buffalo Bill’s Hotel and Casino, which contains 1,044 slot machines, 34 table games a 1,242-room hotel, as well as 62,000 square feet of convention space which includes the Star of the Desert Arena; Whiskey Pete’s Hotel and Casino, which contains 842 slot machines, 26 table games and a 779-room hotel; and Primm Valley Resort and Casino, which contains 927 slot machines, 34 table games and a 625-room hotel, as well as 21,000 square feet of convention space. Also included in the purchase were a California lottery station located on the Nevada/California border, three gasoline stations and the Primm Travel Center.

On January 3, 2007, we consummated the Sands Regent Acquisition, paying approximately $149 million in cash for the outstanding securities of The Sands Regent, the prepayment of outstanding debt and the payment of related fees. Pursuant to the Sands Regent Acquisition, we acquired Terrible’s Rail City Casino in Sparks, Nevada, which has approximately 16,600 square feet of gaming space housing 920 slot machines and 7 table games; Terrible’s Sands Regency Casino Hotel in downtown Reno, Nevada, which contains 598 slot machines, 20 table games and an 833-room hotel; Terrible’s Gold Ranch Casino and RV Resort in Verdi, Nevada, which contains 251 slot machines, a California lottery station located on the Nevada/California border, a 105-space RV park and an ARCO gas station and convenience store; and Terrible’s Depot Casino and Red Hawk Sports Bar, each located in Dayton, Nevada, which together contain an aggregate of approximately 285 slot machines.

We used proceeds from our amended and restated credit facility to fund both acquisitions.

THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008

Route Operations

	Three months ended March 31, 2007					Three months ended March 31, 2008
	$			% of revenue		$			% of revenue
	(dollars in thousands)
Slot route revenue	$	74,749		100.0	%	$	64,647		100.0	%
Promotional allowances	(25		)	0.0		(28		)	0.0
Direct expenses	(64,872		)	86.8		(55,281		)	85.5
EBITDA	9,852			13.2		9,338			14.5
Depreciation and amortization	(5,678		)	7.6		(4,661		)	7.2
Income from slot route operations	$	4,174		5.6	%	$	4,677		7.3	%

Route operations accounted for 30% of total revenues during the three months ended March 31, 2008, compared to 46% of total revenues during the three months ended March 31, 2007. Total revenues from route operations were $64.6 million for the three months ended March 31, 2008, a decrease of $10.1 million, or 14.0%, from $74.7 million for the three months ended March 31, 2007. At March 31, 2008, we were operating approximately 7,000 slot machines, which is approximately 300 less than the 7,300 we operated at March 31, 2007. The decrease in route revenue in the first quarter of 2008 primarily reflects general economic weakness in Nevada. Although there may have been some continued impact from the smoking ban on first quarter operations, we believe the negative effects of the smoking ban on route revenue were relatively consistent between the first quarters of 2008 and 2007 as the ban was in place during the comparative period of 2007.

Route operating costs were $55.3 million, or 86.0% of route revenues, for the three months ended March 31, 2008. This compares to $64.9 million and 87% of route revenues for the same period in 2007. The decrease in route operating expenses was primarily associated with the decrease of approximately $5.0 million in space lease expenses negotiated in late summer 2007. The remaining decrease in expenses was associated with the lower revenues at our participation locations, which are route accounts where the operating contract provides for a decrease in revenue share costs in proportion to revenue decline.

Primarily as a result of the issues discussed above, route EBITDA for the three months ended March 31, 2008 was $9.3 million, a decrease of $0.6 million, or 6.0%, from $9.9 million for the three months ended March 31, 2007.

Casino Operations

	Three months ended March 31, 2007					Three months ended March 31, 2008
	$			% of revenue		$			% of revenue
	(dollars in thousands)
Casino revenue	$	79,502		100.0	%	$	120,996		100.0	%
Promotional allowances	(11,260		)	14.2		(15,265		)	12.6
Direct expenses	(52,507		)	66.0		(88,956		)	73.5
EBITDA	15,735			19.8		16,775			13.9
Depreciation and amortization	(5,963		)	7.6		(9,930		)	8.2
Income from casino operations	$	9,772		12.2	%	6,845			5.7	%

Casino operations accounted for 57% of total revenues for the three month period ended March 31, 2008 and 49% of total revenues for the three months ended March 31, 2007. Total revenues derived from casino operations were $121.0 million for the three months ended March 31, 2008, an increase of $41.5 million, or 52.0%, from $79.5 million for the three months ended March 31, 2007. The increase is due primarily to the inclusion of the results of the Primm Casinos which were acquired on April 10, 2007.

The results from the casino segment are mixed for the quarter. The addition of the Primm Casinos provided for much of the year over year increase as they were not acquired until April 2007; however, revenue and income from the Primm Casinos were below expectations. The results for the quarter showed some improvement in the results of Terrible’s Rail City Casino and Terrible’s Casino, which was renovated in May 2007. However, the quarter also saw some weakness at the Sands Regent in Reno and Lakeside Iowa. We will address these results more fully in the segment discussions below.

Casino Operations — Nevada

	Three months ended March 31, 2007					Three months ended March 31, 2008
	$			% of revenue		$			% of revenue
	(dollars in thousands)
Casino revenue	$	43,933		100.0	%	$	85,664		100.0	%
Promotional allowances	(6,119		)	13.9		(10,607		)	12.4
Direct expenses	(30,199		)	68.7		(67,067		)	78.3
EBITDA	7,615			17.4		7,990			9.3
Depreciation and amortization	(3,161		)	8.6		(7,102		)	8.3
Income from casino operations	$	4,454		8.8	%	$	888		1.0	%

Revenues derived from Nevada casino operations were $85.7 million for the three months ended March 31, 2008, an increase of $41.8 million, or 95%, from $43.9 million for the three months ended March 31, 2007. The increase is attributable primarily to the inclusion of revenue from the Primm Casinos in the first quarter of 2008. Revenues were flat or decreased at our other casinos in Nevada. The revenue at our other casinos located in Southern Nevada declined approximately 1.0%, or $1.5 million, to $24 million in first quarter of 2008 from $25.4 million during the first quarter of 2007. However, after accounting for a decline of $1.0 million in promotional costs, net revenue for our other Southern Nevada casinos was down $0.5 million for the quarter (less than one-quarter of 1%). The Northern Nevada casinos had a decline in revenues of 1.0%, or $0.2 million, from $18.5 million during the first quarter of 2007 to $18.3 million in the first quarter of 2008. The decreases in the revenues were primarily at the Sands Regent and Gold Ranch properties. In the aggregate net revenues at our Nevada casino locations other than the Primm Casinos were down approximately 1.8%, or $0.7 million, from the first quarter of 2007.

Promotional allowances for Nevada casinos were down from 13.9% for the three months ended March 31, 2007 to 12.4% for the three months ended March 31, 2008. This percentage decrease is the result of the addition of the Primm Casinos, which have a lower promotional cost percentage.

Nevada casino operating costs for the three months ended March 31, 2008 were $67.1 million, up $36.9 million, or 122%, from the first quarter of 2007. Operating costs of the Primm Casinos were $38.6 million. Operating expenses at our other Nevada casinos were down 2.3%, or $0.7 million, from $30.2 million during the first quarter of 2007 to $29.5 million for the first quarter of 2008.

Nevada casino EBITDA was $8.0 million for the three months ended March 31, 2008 compared to $7.6 million for the three months ended March 31, 2007.

Results of operations of the southern Nevada casinos were negatively impacted during the first quarter of the 2008 fiscal year by the general economic downturn in both Southern California and Southern Nevada. The Primm Casinos derive a significant amount of their business from the Inland Empire region of Southern California, which is comprised primarily of the San Bernardino and Riverside counties, the economies of which have been negatively impacted due to a number of factors, including the subprime mortgage crisis and higher gasoline costs.

The Primm Casinos EBITDA of $0.3 million was lower than expected for the first quarter of 2008. The Northern Nevada properties had EBITDA of $2.1 million, down $0.6 million from the first quarter of 2007. The remaining Nevada casinos showed an overall increase with an EBITDA of $5.2 million in the first quarter of 2008 compared to $4.5 million in the first quarter of 2007. These increases were primarily attributable to the Las Vegas property, while the smaller properties were relatively flat.

Casino Operations — Other states

	Three months ended March 31, 2007					Three months ended March 31, 2008
	$			% of revenue		$			% of revenue
	(dollars in thousands)
Casino revenue	$	35,569		100.0	%	$	35,332		100.0	%
Promotional allowances	(5,141		)	14.5		(4,658		)	13.2
Direct expenses	(22,308		)	62.7		(21,889		)	62.0
EBITDA	8,120			22.8		8,785			24.8
Depreciation and amortization	(2,802		)	7.9		(2,828		)	8.0
Income from casino operations	$	5,318		14.9	%	$	5,957		16.8	%

Casino operations in other states accounted for 17% of total revenues for the three months ended March 31, 2008 and 22% of total revenues for the three months ended March 31, 2007. Total revenues derived from casino operations located in states other than Nevada were $35.3 million for the three months ended March 31, 2008, a decrease of $0.3 million, or 1.0%, from $35.6 million for the three months ended March 31, 2007.

Promotional allowances for the three months ended March 31, 2008 were $4.7 million compared to $5.1 million for the three months ended March 31, 2007, a decrease of $0.4 million or 7.8%.

Other state casino operating costs were $21.9 million, or 62% of revenues, for the three months ended March 31, 2008, a decrease of $0.4 million, compared to $22.3 million, or 63% of revenues, for the three months ended March 31, 2007. The decrease in operating costs were primarily attributable to decreases in promotions, taxes and payroll costs.

Other state casino EBITDA was $8.8 million for the three months ended March 31, 2008, an increase of $0.6 million, or 7.3%, from $8.1 million for the three months ended March 31, 2007. This increase in EBITDA was a result of an improvement in the performance of the La Grange, Missouri property. This $0.8 million, or 37%, improvement in EBITDA is due in part to the implementation of a smoking ban in Illinois and the decreased competition from an Iowa riverboat that has permanently docked further away from the La Grange facility. Previously, the riverboat traveled to two separate sites during the year. The Lakeside Iowa facility continues to experience competitive pressure, and EBITDA was down approximately $0.3 million, or 9%, from the first quarter of last year.

Other Operations

Revenue from other operations consists of revenue from sources such as ATM fees, pay phone charges, rental income and other miscellaneous items unrelated to route and casino operations, including sales (i) at our gas station and convenience store located in Osceola, Iowa, (ii) at Terrible’s Gold Ranch, our gas station in Verdi, Nevada, and (iii) at the three gas stations we acquired pursuant to the Primm Acquisition. Revenues from other operations were $27.8 million for the three months ended March 31, 2008 compared to $7.4 million for the three months ended March 31, 2007, an increase of $20.4 million, substantially all of which was associated with the revenue from the gas station and other operations at the Primm facilities.

Costs associated with these revenues were $22.0 million for the three months ended March 31, 2008 and $5.6 million for the three months ended March 31, 2008, an increase of $16.49 million, $17.1 million of which were costs associated with the gas station convenience store operations at the new facilities.

Promotional Allowances

Promotional allowances were $15.3 million, or 7.2% of total revenues, for the three months ended March 31, 2008, an increase of $4.0 million, or 35.0%, from $11.3 million, or 7% of total revenues, for the three months ended March 31, 2007. $5.5 million of promotional spending was associated with the Primm Casinos. The promotional allowances at our other casinos decreased $1.5 million, or 16.8%. The decrease occurred across all other properties except the property in La Grange, Missouri; the La Grange Missouri casino had promotional allowances that increased by $0.1 million or 15%. Decreases in promotional allowances were most significantly the result of revenue declines.

Costs of Revenues

	Three months ended March 31, 2007					Three months ended March 31, 2008
	$			% of revenue		$			% of revenue
	(dollars in thousands)
Other operations	$	(5,641	)	3.5	%	$	(22,587	)	10.6	%
General and administrative	(4,184		)	2.6	%	(5,192		)	2.4	%
Depreciation and amortization	(11,721		)	7.2	%	(14,649		)	6.9	%
Restructuring costs						(1,296		)	0.6	%

General and administrative (“G&A”) expenses were $5.2 million for the three months ended March 31, 2008, which is $1.0 million higher than the $4.2 million for the three months ended March 31, 2007. The increase was due to G&A expenses associated with the Primm Casinos and legal and accounting expenses. G&A expenses as a percentage of revenue were 2.4% for the first quarter of 2008 compared to 2.6% for the first quarter of 2007.

During the quarter, the Company also began incurring costs associated with its restructuring process, as described in “Liquidity and Capital Resources.” These costs were $1.3 million for the quarter ended March 31, 2008 and are primarily associated with legal and advisory fees.

Depreciation and amortization expense was $14.6 million for the three months ended March 31, 2008, an increase of $2.9 million, or 25%, from $11.7 million for the three months ended March 31, 2007. Depreciation and amortization expense reflects $3.7 million of depreciation and amortization expense associated with the properties acquired pursuant to the Primm Acquisition.

The costs represented in “other operations” consist of costs related to the gasoline service station and convenience store operations at Osceola, Iowa, the gas station and lottery at Verdi, Nevada and the gas stations at Primm, Nevada and lottery operations at Stateline, California. Costs of other operations increased $17.1 million in the first quarter of 2008 as a result of the acquisition of the Primm properties.

Income from Operations

As a result of the factors discussed above, most notably the decline in revenue due to the general economic downturn, income from operations was $10.2 million for the three months ended March 31, 2008, a decrease of $1.3 million from $11.5 million for the three months ended March 31, 2007. As a percentage of total revenues, income from operations was 4.8% for the three month period ended March 31, 2008 compared to 7.1% for the prior year period.

Other Expenses

Other expense was $26.7 million for the three months ended March 31, 2008, an increase of $12.0 million from $14.7 million for the three months ended March 31, 2007.

Our interest costs increased from $13.7 million during the three months ended March 31, 2007 to $26.9 million during the three months ended March 31, 2008. The Company’s debt increased from $703.4 million at March 31, 2007 to $1.18 billion at March 31, 2008, which was due to the funding of the Primm Acquisition in April 2007.

Net Loss

Net losses for the three months ended March 31, 2008 were $16.5 million compared to a net loss of $3.3 million for the three months ended March 31, 2007.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

At March 31, 2008, we maintained $132.8 million in cash and cash equivalents. As of March 15, 2008, we had fully drawn our revolving line of credit. We expect to fund our existing operations, debt service and capital needs from operating cash flow and cash on hand. Based upon our anticipated future operations, we believe that cash on hand, together with available cash flow, will be adequate through September 30, 2008 or, if earlier, the termination of the Forbearance Period described below. No assurances can be given, however, that our cash flow will be adequate to meet our anticipated working capital requirements operations, capital expenditures for existing operations and scheduled payments of interest on our indebtedness outstanding under the amended Credit Agreement. There can be no assurance that our estimates of our cash needs in respect of existing operations are accurate or other unforeseeable events will not occur.

As disclosed in the 2007 Form 10-K, the Company is currently in default under its amended Credit Agreement. In addition to the previously disclosed default due to the “going concern” qualification in our auditors’ report on our annual financial statements, as of the end of the first quarter of 2008, we were not in compliance with financial ratio covenants of the

amended Credit Agreement. The amounts outstanding under the amended Credit Agreement have been reclassified as current liabilities in the accompanying balance sheet as of March 31, 2008.

On May 13, 2008, we received Payment Blockage Notices from the Administrative Agent under the amended Credit Agreement, pursuant to which the Administrative Agent advised us and the trustees under the indentures pursuant to which the Company’s Subordinated Notes were issued that, as a result of events of defaults under the amended Credit Agreement, no payments may be made with respect to the Subordinated Notes pursuant to the subordination provisions of the indentures. In accordance with the Payment Blockage Notices, we will not make the interest payments on the 7% Notes due May 15, 2008 and on the 8 1/8% Notes due June 1, 2008. If the scheduled interest payments are not made within 30 days of the scheduled payment dates, events of default will occur under the indentures and the trustee may, or holders of 25% of the outstanding principal amount of notes issued under the relevant indenture may direct the trustee to, accelerate the maturity of the notes issued under that indenture. Under the terms of the subordination, payment may be resumed on the earlier of the date upon which such events of default are cured or waived and 180 days after the date on which the payment blockage notices were received, unless the amended Credit Agreement debt has been accelerated. The amounts outstanding under the Subordinated Notes have been reclassified as current liabilities in the accompanying balance sheet as of March 31, 2008.

On May 15, 2008, we entered into the Forbearance Agreement with respect to the amended Credit Agreement, the terms of which are described below, including certain conditions to effectiveness.

We continue our evaluation of financial and strategic alternatives, which may include a recapitalization, refinancing, restructuring or reorganization of the our obligations or a sale of some or all of our businesses. We and our advisors are actively working toward such a transaction that would address decline in our operating results and our capital structure, including our outstanding indebtedness. We cannot assure you that we will be successful in undertaking any such alternative in the near term.

2. during the Forbearance Period, the default rate shall not apply;

3. during the Forbearance Period, the Company retains the ability to convert Loans into Eurodollar Rate Loans as provided for in the Credit Agreement so long as the Interest Periods for any such Eurodollar Rate Loans do not extend beyond September 30, 2008;

5. the Administrative Agent has the ability to approve any engagement letters entered into by the Company with counsel for or advisors to the holders of any Subordinated Debt; and

6. the Company shall pay to the Administrative Agent for the benefit of the Lenders a fee in the amount of approximately $6.4 million.

The effectiveness of the Forbearance Agreement is conditioned upon, among other things, receipt of any required approval from the Iowa Gaming and Racing Commission.

Operating Activities

During the three months ended March 31, 2008, operating activities provided $6.4 million in cash flows on $16.5 million in net losses.

Investing Activities and Capital Expenditures

For the three months ended March 31, 2008, we used for investing activities net cash of $1.7 million primarily related to the capital expenditures of $1.9 million spent for the refurbishment of our casino properties and purchase of gaming machines for our route operations.

Capital expenditures for the remainder of the year are anticipated to be approximately $33 million.

Financing Activities

Cash flows provided by financing activities were $33.8 million in the first three months of 2008. During the first three months of 2008, the Company repaid debt of $1.9 million while borrowing $35.9 million.

We maintain a $860.0 million senior credit facility (“amended Credit Agreement”). This facility includes a revolving credit facility in the amount of $100.0 million and $751.8 million of term loans that mature on December 2, 2011 if we have not refinanced our 8 1/8% notes, and otherwise on January 3, 2014. Our revolving credit facility was fully drawn at March 31, 2008. Interest accrues on borrowings under our senior credit facility based on a floating rate. This floating rate is based upon a variable interest rate (a base rate or LIBOR, at our option) plus a leverage grid-based spread. Our average floating rate on debt incurred under the senior credit facility was 9.3% at March 31, 2008.

At March 31, 2008, our debt included approximately $159.4 million of our 8 1¤8% notes and $170.0 million of our 7% notes. After giving effect to indebtedness under our senior subordinated notes and borrowings under our amended Credit Agreement, our total debt is approximately $1.18 billion.

The Company is currently in default under its amended Credit Agreement and has received Payment Blockage Notices from the Administrative Agent under the amended Credit Agreement, pursuant to which the Administrative Agent advised us and the trustees under the indentures pursuant to which the Company’s Subordinated Notes were issued that, as a result of events of defaults under the amended Credit Agreement, no payments may be made with respect to the Subordinated Notes pursuant to the subordination provisions of the indentures. For a more detailed discussion of our evaluation of financial and strategic alternatives, refer to our discussion under “Liquidity and Capital Resources—Cash Flows.”

Other significant uses of cash in the three months ended March 31, 2008 include interest. Our cash payments for interest were $19.5 million for the three months ended March 31, 2008. There were no distributions to stockholders in the first quarter of 2008.

Cash interest payments for the remainder of 2008 are expected to be approximately $18 million greater than in the same period in 2007. The Company does not expect to make cash payments for non-tax related stockholder distributions for the remainder of the 2008.

CRITICAL ACCOUNTING POLICIES

A description of our critical accounting policies can be found in our 2007 Form 10-K. There have been no material changes to our critical accounting polices during the three months ended March 31, 2008.

CERTAIN FORWARD-LOOKING STATEMENTS

We make statements in this report that relate to matters that are not historical facts, which we refer to as “forward-looking statements,” regarding, among other things, our business strategy, our prospects and our financial position. These statements may be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “intends,” “may,” “will,” “should” or “anticipates” or the negative or other variation of these or similar words or by discussions of strategy or risks and uncertainties. Forward-looking statements in this report include, among other things, statements concerning:

· projections of future results of operations or financial condition;

· expectations for our route operations and our casino properties;

· expectations of the continued availability of capital resources; and

· expectations regarding our restructuring efforts.

Any forward-looking statement made by us necessarily is based upon a number of estimates and assumptions that, while considered reasonable by us, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, and are subject to change. Actual results of our operations may vary materially from any forward-looking statement made by or on our behalf. Forward-looking statements should not be regarded as a representation by us or any other person that the forward-looking statements will be achieved. Undue reliance should not be placed on any forward-looking statements. Some of the contingencies and uncertainties to which any forward-looking statement contained herein is subject include, but are not limited to, the following:

· Our ability to negotiate a restructuring of our outstanding indebtedness.

· The current general economic downturn, and in particular the economic downturn in southern Nevada and southern California (two of our primary markets), may adversely affect our business.

· The current economic downturn may worsen, which may have an adverse impact on the Company’s operations and therefore the Company’s liquidity.

· Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the instruments governing our outstanding indebtedness.

· We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.

· The success of our route operations is dependent on our ability to renegotiate and renew our contracts.

· Our indebtedness imposes restrictive covenants on us.

· We may not be able to successfully integrate the operations of casinos we acquire into our business.

· We may experience a loss of market share due to intense competition.

· We face extensive regulation from gaming and other government authorities.

· Changes to applicable tax laws could have a material adverse effect on our financial condition.

· We depend upon our key employees and certain members of our management.

· Our business relies heavily on certain markets and an economic downturn in these markets could have a material adverse effect on our results.

· Our operations have been adversely effected by the anti-smoking regulations in Nevada.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not have any cash or cash equivalents as of March 31, 2008 that are subject to market risk based on changes in interest rates. As a result of our senior credit facility, we are exposed to some market risk due to floating or variable interest rates. The interest on revolving borrowings and on the term loan under our senior credit facility is based on a floating rate (a base rate or LIBOR), plus a leverage grid-based variable amount. At March 31, 2008, the principal amount of the related borrowings under our senior credit facility was $860.0 million, all of which was subject to variable interest rates. A hypothetical 1.0% increase in LIBOR (or base rate) would result in an approximately $8.5 million annual increase in interest expense.

The carrying value of our cash, trade, notes and loans receivable and trade payables approximates fair value primarily because of the short maturities of these instruments. The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. Based on the borrowing rates currently available to us for debt with similar terms and average maturities, the estimated fair value of current debt outstanding is approximately $645.9 million as of March 31, 2008.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On February 17, 2006, the Clark County Circuit Court entered judgment of a jury verdict delivered on January 14, 2006 against ETT for $4.1 million in compensatory damages and $10.1 million in punitive damages. The jury verdict was delivered in connection with an action brought by the family of an individual that alleged that ETT had negligently retained and negligently supervised a temporary employee who in 2001 stole a truck from ETT and, while drunk, hit and killed the individual. The punitive damage award was subsequently lowered to $4.1 million in a post-trial ruling. The Company believes the award of compensatory and punitive damages against ETT, the liability of ETT, and the amount thereof, is not supportable in either law or in fact and plans to vigorously pursue all appropriate post-trial and other remedies, including exercising its right to appeal. The Company has appealed this decision. Based on a review of the legal opinions and facts available to the Company at this time, the Company has not reserved for this lawsuit.

The Company is a party to certain claims, legal actions, and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the Company. Management believes that its defenses are substantial in each of these matters and that the Company’s legal position can be successfully defended without material adverse effect on its consolidated financial statements.

ITEM 1A. RISK FACTORS

Risk Factors Associated with the Company’s Existing Business

We are currently in default under our amended Credit Agreement and continue our evaluation of financial and strategic alternatives, which may include a recapitalization, refinancing, restructuring or reorganization of the our obligations or a sale of some or all of our businesses.

Please refer to our discussion under “Liquidity and Capital Resources—Cash Flows” for a discussion of this risk factor.

Our operations have been adversely affected by the adopted of certain anti-smoking regulations in Nevada and by the general economic downturn in southern California and Nevada.

On November 7, 2006, voters in Nevada passed Question 5, which prohibits smoking in indoor places of employment including, but not limited to, bars and taverns that serve food, grocery stores, malls and other retail establishments, and that gives future control over smoking regulation to individual counties or municipalities. Since its adoption, Question 5 has led to significant decreased patron play at our route locations. A number of our larger space leases for our route operations for which we pay a fixed rent provided for an adjustment to the rent after six months of operations under the anti-smoking legislation have occurred. These adjustments resulted in a decrease in our annual rental payments of approximately $20 million when compared to the amounts paid with respect to these contracts during the previous twelve months. However, if we are not able to offset decreased patron play, or patron play continues to decrease, there may be a material adverse effect on our business, financial condition and results of operations.

The results of operations of our route business were also negatively impacted during the last quarter of the 2007 fiscal year and the first quarter of the 2008 fiscal year by the economic downturn in Southern Nevada. Our route operations derive a significant amount of business from the Southern Nevada market, the economy of which has been negatively impacted by the subprime mortgage crisis. Consequently, our route revenues were down 14% in the first quarter of fiscal year 2008 when compared to the first quarter of the 2007 fiscal year.

In addition, the results of the operations of the Primm Casinos were negatively impacted during the first quarter of the 2008 fiscal year by the general economic downturn in southern California. The Primm Casinos derive a significant amount of their business from the Inland Empire region of southern California, which is comprised primarily of the San Bernardino and Riverside counties, the economies of which have been negatively impacted due to a number of factors, including the subprime mortgage crisis and higher gasoline costs.

The results of operations at our northern Nevada and Midwest casinos did not appear to be affected by these economic forces during first quarter of 2008. However, the Sands property in Reno did show some significant weakness during the first quarter which was mostly attributable to poor weather.

Risk Factors Associated with Recent Acquisitions

The failure to achieve the anticipated benefits of either of the Primm Acquisition or the Sands Regent Acquisition could adversely impact our business.

Each of the Primm Acquisition and the Sands Regent Acquisition constitutes a material acquisition on the part of the Company. In each case, we will incur significant capitalized costs and commit significant management time in integrating operations, information, communications and other systems, among other items, which will involve fees and expenses of professionals and consultants involved in completing the acquisition process, integrating technology and other transaction costs associated with the purchase, including financial advisor, attorney, accountant and other fees. However, despite the incurrence of such costs or the commission of such resources, difficulties may arise due to factors such as integrating personnel with disparate corporate cultures, reconciling different information, communications and other systems and managing customer relationships. The failure to achieve the anticipated benefits of either the Primm Acquisition or the Sands Regent Acquisition could harm our business and results of operations.

The business of the Primm Casinos has been adversely impacted by the decline on the economy of southern California, which could lead to an adverse impact on the operations of the Company.

The results of the operations of the Primm Casinos continue to be negatively impacted during the first quarter of 2008 by the weakness in the economy of certain areas of Southern California. As discussed above, the Primm Casinos derive a significant amount of their business from the Inland Empire region of southern California, which is comprised primarily of the San Bernardino and Riverside counties, the economies of which have been negatively impacted due to a number of factors, including the subprime mortgage crisis and higher gasoline costs. To the extent that gasoline costs remain high and the overall economic weakness of the value sector of the business continues or worsens, the results of the Company are expected to continue to be adversely affected.

The business of the Primm Casinos may be adversely impacted by expanded Native American gaming operations in California, which could lead to an adverse impact on the operations of the Company.

The largest sources of tourist customers for the Primm Casinos are from Southern California, including a large number who drive to Las Vegas from the San Bernardino and Barstow metropolitan areas. The expansion of Native American casinos in California, Oregon, and Washington continues to have an impact on casino revenues in Nevada in general, and such impact may be significant on the markets in which the Primm Casinos operate.

California’s state officials are in active negotiations to renegotiate certain compacts with Native American tribes. Some Native American casino compacts have already been changed to allow for additional slot machines. In addition, several initiatives have been proposed which would, if approved, further expand the scope of gaming in California. While the effect of increased gaming in California and other states is difficult to predict, the business of the Primm Casinos would be adversely impacted if such competing casinos attract patrons who would otherwise travel to Primm.

The business of the Primm Casinos may be adversely impacted if their use of water exceed allowances permitted by federal and local governmental agencies or if such governmental agencies impose additional requirements in connection with such use of water, which in each case could lead to an adverse impact on the operations of the Company.

The Primm Casinos are not served by a municipal water system. As a result, the water supply of such casinos is dependent on rights they have been granted to water in various wells located on federal land in the vicinity of the Primm Casinos and permits that allow the delivery of water to the Primm Casinos. These permits and rights are subject to the jurisdiction and ongoing regulatory authority of the U.S. Bureau of Land Management, the States of Nevada and California and local governmental units. While we believe that adequate water for the Primm Casinos is available, the future water needs of the Primm Casinos may exceed the permitted allowance. In such an event, future requests for additional water may not be approved or may be approved with terms or conditions that are more onerous. Any such denial or any such additional terms and conditions may have a material adverse effect on the results of operations of the Primm Casinos, thereby adversely affecting the results of operations and financial condition of the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We are in default under of our amended Credit Agreement and have received Payment Blockage Notices from the Administrative Agent under the amended Credit Agreement, pursuant to which the Administrative Agent advised us and the trustees under the indentures pursuant to which the Company’s Subordinated Notes were issued that, as a result of events of default under the amended Credit Agreement, no payments may be made with respect to the Subordinated Notes pursuant to the subordination provisions of the indentures. For a more detailed discussion of our evaluation of financial and strategic alternatives, refer to our discussion under “Liquidity and Capital Resources—Cash Flows.”

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

On May 14, 2008, we entered into an employment agreement (the “Employment Agreement”) with Troy D. Herbst, who was appointed our Chief Executive Officer on April 30, 2008. Pursuant to the Employment Agreement, Mr. Troy D. Herbst will receive an annual base compensation of $973,800, which may be increased annually by five percent. The Employment Agreement commenced May 14, 2008 and the initial term will end December 31, 2009. The Employment Agreement will automatically renew for successive one-year periods unless sooner terminated, or unless either party notifies the other in writing at least 60 days prior to the date the Employment Agreement is scheduled to expire. The Employment Agreement provides that if Mr. Herbst’s employment is terminated for Cause (as defined in the Employment Agreement), he will receive no severance payments of any kind. If he voluntarily terminates employment, he will receive no severance payment of any kind. In the event we choose to terminate Mr. Herbst’s employment for any reason other than Cause, he will receive a severance payment equal to one year’s salary. The Employment Agreement also contains a covenant to protect confidential information. The description is qualified in its entirety by reference to the Employment Agreement, a copy of which is filed as Exhibit 10.2 to this Form 10-Q.

On May 14, 2008, the Company, through mutual agreement, terminated its employment agreement with Edward J. Herbst, who previously served as Chairman and Chief Executive Officer. As previously disclosed, on April 30, 2008, Mr. Edward J. Herbst was appointed as an Executive Vice President and will remain a Director of the Company. He is on a leave of absence from his officer duties for personal reasons.

ITEM 6.		EXHIBITS

	(a)	Exhibits.

	The following exhibits are filed as part of this Form 10-Q:

	10.1	Amendment No. 4 and Forbearance and Standstill Agreement dated May 15, 2008 by and among each lender executing a counterpart hereof, Wilmington Trust Company, as administrative agent, Herbst Gaming, Inc. (the “Borrower”) and the Subsidiaries of the Borrower executing a counterpart thereof

	10.2	Executive Employment Agreement dated May 14, 2008 between Herbst Gaming, Inc. and Troy D. Herbst.

	31.1	Certification of Troy D. Herbst pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Mary E. Higgins pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	Certifications of Troy D. Herbst and Mary E. Higgins pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 16, 2008	HERBST GAMING, INC.
	(Registrant)


	By:	/s/ Mary E. Higgins
		Mary E. Higgins
	Its:	Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number		Description
10.1*		Amendment No. 4 and Forbearance and Standstill Agreement dated May 15, 2008 by and among each lender executing a counterpart hereof, Wilmington Trust Company, as administrative agent, Herbst Gaming, Inc. (the “Borrower”) and the Subsidiaries of the Borrower executing a counterpart thereof

10.2*		Executive Employment Agreement dated May 14, 2008 between Herbst Gaming, Inc. and Troy D. Herbst

31.1*		Certification of Troy D. Herbst pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Mary E. Higgins pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certifications of Troy D. Herbst and Mary E. Higgins pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

EX-10.1 2 a08-11263_1ex10d1.htm EX-10.1

Exhibit 10.1

EXECUTION COPY

AMENDMENT NO. 4 AND FORBEARANCE

AND STANDSTILL AGREEMENT

THIS AMENDMENT NO. 4 AND FORBEARANCE AND STANDSTILL AGREEMENT (this “Agreement”) is made and entered into as of the 15th day of May, 2008 by and among each lender executing a counterpart hereof, WILMINGTON TRUST COMPANY, as administrative agent (the “Administrative Agent”), HERBST GAMING, INC. (the “Borrower”) and the Subsidiaries of the Borrower executing a counterpart hereof (the “Grantors” and, together with the Borrower, the “Loan Parties”).

Statement of Purpose

WHEREAS, reference is made to the Second Amended and Restated Credit Agreement, dated as of January 3, 2007, among the Borrower, the lenders party thereto (the “Lenders”), certain other parties and the Administrative Agent (as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement, dated as of August 14, 2007, Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as of December 14, 2007, and Omnibus Amendment No. 3 and Appointment and Acceptance, dated as of April 24, 2008, and as further amended, supplemented and otherwise modified from time to time, the “Credit Agreement”; capitalized terms used not defined herein (including in Schedule A hereto) being used herein as therein defined);

WHEREAS, each Grantor has guaranteed the Obligations of the Borrower under the Credit Agreement;

WHEREAS, the Borrower has requested that the Administrative Agent and the Lenders amend the Credit Agreement in certain respects and forbear from exercising certain rights and remedies under the Credit Agreement and the other Loan Documents provisionally through the Forbearance Maturity Date (as defined below) solely in respect of the Financial Statement Default (as defined below) that has occurred as of the date hereof and the other events set forth in Schedule A hereto (collectively with the Financial Statement Default, the “Specified Defaults”); and

WHEREAS, the Administrative Agent and the Lenders are willing to amend the Credit Agreement in certain respects and forbear from exercising certain rights and remedies under the Credit Agreement and the other Loan Documents provisionally only through the Forbearance Maturity Date regarding the Specified Defaults, subject to the express terms and provisions of this Agreement.

Agreement

NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Acknowledgments by Loan Parties. To induce the Administrative Agent and the Lenders to execute this Agreement, each Loan Party hereby acknowledges, stipulates, represents, warrants and agrees as follows:

(a) The Financial Statement Default (as defined in Schedule A hereto) constitutes an Event of Default that has occurred, remains uncured, has not been waived and is continuing as of the date of this Agreement and cannot be cured. Except for the Financial Statement Default, no other Defaults or Events of Default have occurred and are continuing as of the date hereof.

Except as expressly set forth in this Agreement, the agreements of the Administrative Agent and the Lenders hereunder to forbear provisionally in the exercise of their respective rights and remedies under the Credit Agreement and the other Loan Documents in respect of the Specified Defaults during the Forbearance Period (as defined below) does not in any manner whatsoever limit any right of any of the Administrative Agent and the Lenders to insist upon strict compliance by the Loan Parties with this Agreement or any Loan Document during the Forbearance Period.

(b) To the knowledge of the Loan Parties, immediately prior to executing this Agreement nothing has occurred that constitutes or otherwise can be construed or interpreted as a waiver of, or otherwise to limit in any respect, any rights or remedies the Lenders, the Administrative Agent or any of them have or may have arising as the result of any Event of Default (including any Specified Default) that has occurred or that may occur under the Credit Agreement, the other Loan Documents or applicable law. The Administrative Agent’s and the Lender’s actions in entering into this Agreement are without prejudice to the rights of any of the Administrative Agent and the Lenders to pursue any and all remedies under the Loan Documents pursuant to applicable law or in equity available to it in its sole discretion upon the termination (whether upon expiration thereof, upon acceleration or otherwise) of this Agreement.

(c) The Revolving Loans outstanding as of the date hereof are in an amount equal to $98,859,000. The Swing Line Loans outstanding as of the date hereof are in an amount equal to $0. The Term Loans outstanding as of the date hereof are in an amount equal to $751,762,500. The L/C Obligations of the Borrower outstanding as of the date hereof are in an amount equal to $1,141,000. The foregoing amounts do not include interest, fees and expenses and other amounts that are chargeable or otherwise reimbursable under the Loan Documents.

(d) All of the assets pledged, assigned, conveyed, mortgaged, hypothecated or transferred to the Administrative Agent for the benefit of the Lenders pursuant to the Collateral Documents (including without limitation the Collateral (including without limitation all proceeds thereof)) are (and shall continue to be) subject to valid and enforceable liens and security interests of the Administrative Agent (or, in the case of possessory security interests in respect of certificated Pledged Securities (as defined in the Pledge Agreement) or if required by Gaming Laws of Iowa, the predecessor Administrative Agent under the Credit Agreement (the “Predecessor Agent”)) for the benefit of the Lenders and the other Secured Parties (as defined in the Credit Agreement), as collateral security for all of the Obligations, subject to no Liens other than Liens permitted by Section 7.01 of the Credit Agreement. Each of the Loan Parties hereby reaffirms and ratifies its prior conveyance to the Administrative Agent for the benefit of the Lenders and the other Secured Parties (as defined in the Credit Agreement) of a continuing security interest in and lien on the Collateral.

(e) The obligations of the Loan Parties under this Agreement of any nature whatsoever, whether now existing or hereafter arising, are hereby deemed to be “Obligations” for all purposes of the Credit Agreement and the other Loan Documents.

(f) The Obligations of the Loan Parties under this Agreement, the Credit Agreement and the other Loan Documents constitute “Senior Debt” (as such term is defined in the Credit Agreement).

(g) Except as expressly modified by this Agreement or as required by Gaming Laws in Nevada, Missouri and Iowa, all terms and provisions of the Credit Agreement and the other Loan Documents are valid and enforceable and remain in full force and effect according to their respective terms. Each Grantor, as debtor, grantor, pledgor, guarantor, assignor, or in other similar capacity in which such party grants liens or security interests in its properties or otherwise acts as an accommodation party or guarantor, as the case may be, under the Loan Documents, hereto hereby (i) agrees that the Credit Agreement as amended hereby is the Credit Agreement under and for all purposes of the Guaranties and the Collateral Documents and (ii) confirms that

the obligations of the Loan Parties under the Loan Documents as modified hereby are entitled to the benefits of the guarantees set forth in the Guaranties and constitute “Guaranteed Obligations” (as defined in each of the Guaranties).

(h) The Lenders’ entry into, and covenants to perform in accordance with, this Agreement and the Lenders’ consummation of the transactions contemplated hereby constitute “new value” and “reasonably equivalent value”, as those terms are used in Section 547 and 548 of Title 11 of the United States Code (the “Bankruptcy Code”), received by the Loan Parties as of the closing of this Agreement in contemporaneous exchange for the Loan Parties’ entry into, and covenants to perform in accordance with, this Agreement and the documents executed in connection with this Agreement, and the Loan Parties’ consummation of the transactions contemplated hereby and thereby.

(i) The bank accounts listed in the April 15, 2008 schedule previously disclosed by the Borrower to the Administrative Agent (the “Existing Bank Accounts”) are the only bank accounts held or owned by the Loan Parties as of the date hereof and said schedule is accurate and complete. Each Loan Party covenants (i) to not establish any new bank account other than those set forth on said schedule, unless such bank account is established and located in the United States and either pursuant to applicable law or regulations or in the ordinary course of business (such new bank accounts, together with the Existing Bank Accounts, being herein called the “Permitted Bank Accounts”), provided that the Borrower shall give written notice to the Administrative Agent of any account so established within five Business Days of the occurrence thereof, and (ii) to not use amounts held in the Permitted Bank Accounts for any purpose other than (a) ordinary course funding of the operations of the Borrower and the other Loan Parties, including without limitation capital expenditures made in the ordinary course of business, in each case only as permitted by the Loan Documents, (b) payments of interest, fees and expenses under the Credit Agreement and (c) payment of fees and expenses of professionals in connection with any restructuring or reorganization efforts of the Borrower and the other Loan Parties.

2. Provisional Forbearance and Limited Deferral. Subject to the satisfaction of the conditions precedent specified in Section 5 below, but effective as of the date hereof, the Administrative Agent and the Lenders agree, except as set forth in this Agreement, to forbear provisionally in the exercise of their respective rights and remedies under the Credit Agreement and the other Loan Documents in respect of the Specified Defaults until the date (the “Forbearance Maturity Date”; the period from the date the conditions precedent specified in Section 5 below are satisfied until the Forbearance Maturity Date being herein called the “Forbearance Period”) which is the earliest to occur of:

(a) September 30, 2008;

(b) the occurrence of any Event of Default other than the Specified Defaults; and

(c) the date on which any breach of any of the conditions or agreements provided in this Agreement shall occur; it being agreed that the breach of any such condition or agreement shall constitute an immediate Event of Default under the Credit Agreement without the requirement of any demand, presentment, protest or notice of any kind to any Loan Party (all of which each Loan Party waives);

provided that (i) the Revolving Lenders shall have no obligation to make any further Revolving Loans or other extensions of credit to any Loan Party, other than in respect of Letters of Credit pursuant to Section 2.05(c) of the Credit Agreement, (ii) each Loan Party shall comply with all limitations, restrictions, covenants and prohibitions that would otherwise be effective or applicable under the Loan Documents, (iii) nothing herein shall restrict, impair or otherwise affect any of the Administrative Agent’s or the Lenders’ rights and remedies under any agreement containing subordination provisions in favor of any of the Administrative Agent or the Lenders (including without limitation the right to give any payment blockage notices to any of the trustees in respect of the Subordinated Debt (including without limitation

any payment blockage notice based upon any Specified Default)) and (iv) nothing herein shall be construed as a waiver by the Administrative Agent or any Lender of any Specified Default.

Upon expiration of the Forbearance Period, the agreement of the Administrative Agent and the Lenders hereunder to forbear provisionally in the exercise of their respective rights and remedies under the Credit Agreement and the other Loan Documents in respect of the Specified Defaults during the Forbearance Period shall immediately terminate without the requirement of any demand, presentment, protest or notice of any kind to any Loan Party (all of which each Loan Party waives). Each of the Loan Parties agrees that any of the Administrative Agent and the Lenders may at any time thereafter proceed to exercise any and of their respective rights and remedies under the Loan Documents or applicable law, including without limitation their respective rights and remedies with respect to the Specified Defaults.

Any agreement by any of the Administrative Agent and the Lenders to extend the Forbearance Period must be set forth in writing and signed by each of the Administrative Agent and the Requisite Lenders. The Administrative Agent and the Lenders are not obligated to extend the Forbearance Period and may decide to do so (or not to do so) in their sole discretion. Each of the Loan Parties acknowledges that each of the Administrative Agent and the Lenders has not made any assurances concerning the extension of the Forbearance Period.

3. Amendments to Credit Agreement. Subject to the satisfaction of the conditions precedent specified in Section 5 below, but effective (except as otherwise expressly provided in this Section 3) as of the date hereof, the Credit Agreement shall be amended as follows:

(a) References Generally. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Credit Agreement as amended hereby.

(b) Defined Terms Relating to Pricing. Effective as of April 1, 2008, Section 1.01 of the Credit Agreement is hereby amended to add, replace and otherwise revise (as the case may be) definitions in alphabetical order as follows:

“Applicable Rate” means, for each Pricing Period, the rates per annum set forth opposite the Senior Debt to EBITDA Ratio in effect as of the Fiscal Quarter ending approximately two months prior to the first day of that Pricing Period, provided that (a) prior to the first day of the Pricing Period beginning April 1, 2008, Pricing Level III shall apply, (b) notwithstanding clause (a) above, if Borrower fails to deliver a Compliance Certificate in respect of any Fiscal Quarter prior to the first day of the related Pricing Period, then Pricing Level III shall apply as of the first Business Day of such Pricing Period until the date upon which the required Compliance Certificate is delivered:

Pricing Level	Senior Debt to EBITDA Ratio	Base Rate +		Eurodollar Rate + Letters of Credit		Revolving Commitment Fee

I	Less than 4.25:1.00	4.25	%	5.50	%	2.375	%

II	Greater than or equal to 4.25:1.00, but less than 4.50:1.00	4.75	%	6.00	%	2.400	%

III	Greater than or equal to 4.50	5.25	%	6.50	%	2.425	%

“Base Floor Rate” means a rate equal to 5.25% per annum.

“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate”. The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. Notwithstanding the foregoing, the Base Rate shall not at any time be less than the Base Floor Rate. As used in this Agreement, the “Base Rate” shall in all cases mean such rate subject to the Base Floor Rate.

“Eurodollar Floor Rate” means a rate equal to 3.25% per annum.

“Eurodollar Rate” means for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. Notwithstanding the foregoing, the Eurodollar Rate shall not at any time be less than the Eurodollar Floor Rate. As used in this Agreement, the “Eurodollar Rate” shall in all cases mean such rate subject to the Eurodollar Floor Rate.

(c) Definition of “Loan Documents”. The definition of “Loan Documents” in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows:

“Loan Documents” means this Agreement, each Note, each Issuer Document, each Secured Swap Contract, the Lead Arranger Fee Letter, the Administrative Agent Fee Letter, each Guaranty, each Collateral Document, Amendment No. 1 to the Second Amended and Restated Credit Agreement dated as of August 14, 2007, Amendment No. 2 to the Second Amended and Restated Credit Agreement dated as of August 14, 2007, the Omnibus Amendment No. 3 and Appointment and Acceptance dated as of April 24, 2008 among Bank of America, N.A., Wilmington Trust Company, the Borrower, the Lenders parties thereto and the Subsidiaries of the Borrower, Amendment No. 4 and Forbearance and Standstill Agreement dated as of May 15, 2008 among the Borrower, the other Loan Parties, certain Lenders parties thereto and the Administrative Agent, and any other amendment or certificate executed and/or delivered pursuant to or in connection with this Agreement.

4. Further Agreements. Subject to the satisfaction of the conditions precedent specified in Section 5 below, but effective as of the date hereof, notwithstanding anything in the Credit Agreement or any other Loan Document to the contrary and in addition to the terms and provisions thereof and without

affecting in any respect the acknowledgments in Section 1 above and the other acknowledgments and agreements of the Loan Parties under this Agreement:

(a) The parties hereto hereby agree as follows:

(i) All accrued interest and fees under the Credit Agreement shall be payable on the first Business Day of each calendar month (commencing June 2, 2008) and otherwise in accordance with the terms of the Credit Agreement.

(ii) During the Forbearance Period, the Default Rate shall not apply and interest in respect of the Loans shall accrue at the rates set forth in the Credit Agreement without regard to Section 2.10(b) thereof.

(iii) During the Forbearance Period, the Borrower shall be entitled to convert Loans into Eurodollar Rate Loans and continue Loans as Eurodollar Rate Loans in accordance with Section 2.04 of the Credit Agreement, so long as any such Interest Period shall end on or before September 30, 2008.

(b) The Loan Parties hereby agree as follows:

(i) None of the Loan Parties shall make any payment (whether of principal, interest, fees or any other amount, and whether or not scheduled), nor fund, wholly or in part, any defeasance trust, on account of or in connection with the Subordinated Debt, except for the payment of (u) the fees and expenses of Perella Weinberg Partners LP pursuant to the letter dated May 15, 2008 among Perella Weinberg Partners LP, the Borrower and Rudnick Berlack Israels LLP, (v) the fees and expenses of Brown Rudnick Berlack Israels LLP pursuant to the letter dated May 15, 2008 among Brown Rudnick Berlack Israels LLP and the Borrower, (w) the reasonable fees and expenses of gaming counsel, (x) the reasonable fees and expenses of any other professional advisor retained pursuant to subsection (b)(ii) below, (y) the reasonable fees and expenses of any indenture trustee in respect of the Subordinated Debt and (z) any payment made not in violation of the terms of subordination governing such Subordinated Debt (including without limitation any payment blockage notices delivered thereunder).

(ii) The terms of all engagement letters or other agreements (including without limitation any amendments, supplements or other modifications) entered into by the Borrower or any other Loan Party with counsel for or advisors to the holders of any Subordinated Debt (including without limitation any consortium or steering committee in respect thereof) shall be in the form attached hereto or otherwise in form and substance satisfactory to the Administrative Agent.

(iii) Without limiting the rights of the Administrative Agent and the Lenders under Section 6.10 of the Credit Agreement, but subject to Section 10.07 of the Credit Agreement, the Loan Parties shall upon request give the Administrative Agent and the Lenders and their advisors reasonably full and timely access to the Loan Parties’ books, records, senior officers, directors, senior level employees and any advisors hired by the Loan Parties, and shall permit any of the foregoing Persons to review and copy all books and records (including without limitation all books and records maintained in electronic format) of each Loan Party.

(iv) The Borrower shall pay, within 20 days following receipt of an invoice thereof, all accrued fees and expenses of the Administrative Agent and the Lenders incurred in connection with the Credit Agreement and the other Loan Documents in accordance with the terms of the Credit Agreement and the other Loan Documents. Nothing in this Agreement shall be construed or deemed to waive or limit any obligation of the Borrower or any of the other Loan Parties to pay fees and expenses (including

without limitation legal fees) and expenses incurred by the Administrative Agent or any Lender as provided in Section 10.04 of the Credit Agreement.

5. Conditions. The agreements set forth in Sections 2, 3 and 4 above shall become effective, as of the date hereof, upon satisfaction of the following conditions:

(a) The Administrative Agent shall have received counterparts of this Agreement, executed and delivered by the Borrower and each other Loan Party, the Administrative Agent and the Requisite Lenders.

(b) The Borrower shall have executed and delivered an engagement letter with Houlihan Lokey Howard & Zukin as advisor to the Administrative Agent.

(c) The Administrative Agent shall have received for the account of each Lender that, not later than 5:00 p.m. New York City time on Friday, May 16, 2008, shall have executed a counterpart of this Agreement and delivered the same to the Administrative Agent, a fee in an aggregate amount for all such executing Lenders equal to $6,388,218.75(1), such forbearance fee to be shared pro rata among such executing Lenders based on the aggregate Outstanding Amount of the Term Loans and Revolving Commitments of such executing Lenders as of the close of business Thursday, May 15, 2008.

(d) The Borrower shall have paid, or concurrently herewith will pay, (i) all documented fees and expenses of the Administrative Agent and the Lenders incurred pursuant to the Loan Documents set forth on Schedule B hereto and (ii) to Milbank, Tweed, Hadley & McCloy LLP a retainer equal to $150,000.

(e) The representations and warranties contained in this Agreement shall be true and correct and no Default or Event of Default (other than the Financial Statement Default) shall have occurred and be continuing

(f) The Administrative Agent shall have received such other documents, certificates and instruments as it or any Lender reasonably requests through the date of this Agreement.

(g) The Loan Parties shall have received any required approvals of the Iowa Gaming and Racing Commission.

6. Limited Effect of Agreement. Except as expressly provided in this Agreement, the Credit Agreement and each other Loan Document shall continue to be, and shall remain, in full force and effect. This Agreement shall not be deemed or otherwise construed: (i) to be a waiver of, or consent to or a modification or amendment of, any other term or condition of the Credit Agreement or any other Loan Document; (ii) to prejudice any other right or rights that the Administrative Agent or any Lender, or any of them, may now have or may have in the future under or in connection with the Credit Agreement or any other Loan Document, as such documents may be amended, restated or otherwise modified from time to time; or (iii) to be a commitment or any other undertaking or expression of any willingness to engage in any further discussion with any Loan Party or any other Person with respect to any waiver, amendment, modification or any other change to the Credit Agreement or any other Loan Document or any rights or remedies arising in favor of the Administrative Agent and the Lenders, or any of them, under or with respect to any such documents. Neither the requirements of good faith and fair dealing nor any other theory, concept or argument shall require any Lender to impart upon any Loan Party any further or greater benefits, to suffer any prejudice or impairment of any kind whatsoever, or to tolerate any noncompliance with this Agreement and any other Loan Document.

(1) NOTE: The Forbearance Fee is based on 75bps multiplied by $851,762,500 (which is the total amount of the Loans and LC Obligations on the date on which this Forbearance Agreement is launched).

7. Release. Each Loan Party, on behalf of itself, and any Person claiming by, through, or under such Loan Party (collectively, the “Loan Party Group”) acknowledges that it has no claim, counterclaim, setoff, recoupment, action or cause of action of any kind or nature whatsoever (“Claims”) against all or any of the Administrative Agent or any of the Lenders or any of their respective directors, officers, employees, agents, attorneys, financial advisors, legal representatives, affiliates, shareholders, partners, successors and assigns (the Administrative Agent or any of the Lenders and their respective directors, officers, employees, agents, attorneys, financial advisors, legal representatives, affiliates, shareholders, partners, successors and assigns are jointly and severally referred to as the “Lender Group”), that directly or indirectly arise out of or are based upon or in any manner connected with any “Prior Event” (as defined below), and each Loan Party on behalf of itself and all the other members of the Loan Party Group hereby releases each member of the Lender Group from any liability whatsoever should any Claims nonetheless exist. As used herein the term “Prior Event” means any transaction, event, circumstances, action, failure to act or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken, permitted or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted or begun in accordance with, pursuant to or by virtue of any terms of the Credit Agreement, this Agreement, any other Loan Document or any of the transactions contemplated herein or therein or any oral or written agreement relating to any of the foregoing, including without limitation any approval or acceptance given or denied. This Section 7 shall survive the termination of this Agreement and shall remain in full force and effect even if any of the conditions set forth in Section 5 above are not satisfied.

8. Representations and Warranties. By its execution hereof, each of the Loan Parties hereby certifies that each of the representations and warranties set forth in the Credit Agreement (as amended hereby) and the other Loan Documents in respect of such Loan Party is true and correct in all material respects as of the date hereof as if fully set forth herein (other than as a result of the occurrence of the Financial Statement Default and except to the extent such representation or warranty is expressly stated to have been made as of a specified date, in which case such representation or warranty shall be true and correct in all material respects as of such specified date), except for those representations and warranties listed on Schedule C hereto, and that as of the date hereof no Default or Event of Default (other than the Financial Statement Default and the Specified Defaults listed in numbers 3 and 5 of Schedule A hereto) has occurred and is continuing.

9. Reversal of Payments. To the extent any Loan Party makes a payment or payments to the Administrative Agent or any Lender pursuant to this Agreement or any other Loan Document that are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause (in each case, in whole or in part), then, to the extent of such payment or proceeds repaid, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been received by the Administrative Agent or such Lender, as the case may be.

10. Governing Law; Counterparts; Electronic Execution; Misc. This Agreement shall be governed, construed and interpreted in accordance with the laws of the State of New York applicable to contracts made and to be performed in such State and shall be subject to Section 10.16 of the Credit Agreement. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by each Loan Party and the Administrative Agent (with the consent of the Requisite Lenders). This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of this Agreement by electronic transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. Except as provided in this Agreement, the Credit Agreement shall remain unchanged and in full force and effect.

11. Survival of Obligations. All covenants, agreements and other obligations of the Loan Parties under this Agreement which do not terminate on the Forbearance Maturity Date pursuant to their

express terms shall survive the occurrence of the Forbearance Maturity Date and shall thereafter be enforceable against the Loan Parties according to their terms.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

	WILMINGTON TRUST COMPANY,
	as Administrative Agent


	By:	/s/ James A. Hanley
		Name: James A. Hanley
		Title: Assistant Vice President

HERBST GAMING, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

FLAMINGO PARADISE GAMING, LLC


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

MARKET GAMING, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

CARDIVAN COMPANY


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

CORRAL COIN, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

CORRAL COUNTRY COIN, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

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


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Managing Member

E-T-T, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

HGI – ST. JO, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

HGI – LAKESIDE, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

HGI – MARK TWAIN, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

THE SANDS REGENT


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

ZANTE INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

LAST CHANCE, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

CALIFORNIA PROSPECTORS, LTD.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Managing Member

PLANTATION INVESTMENTS, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

DAYTON GAMING, INC.


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Executive Vice President

THE PRIMADONNA COMPANY, LLC


By:	/s/ Timothy P. Herbst
	Name:	Timothy P. Herbst
	Title:	Managing Member

Schedule A

Specified Defaults

1. The failure of the Loan Parties to deliver on March 31, 2008 an audited financial statement that is not subject to any “going concern” or like qualification or exception in accordance with to Section 6.01(a) of the Credit Agreement (the “Financial Statement Default”).

2. Events of Default pursuant to Sections 6.01(b), (d) and (e) of the Credit Agreement so long as any such Event of Default is cured within five Business Days after the occurrence thereof.

3. An Event of Default under Section 6.02(a) of the Credit Agreement solely with respect to the inability to certify as to paragraph 3 of the Compliance Certificate as a result of the Financial Statement Default and the other Specified Defaults set forth herein.

4. An Event of Default under Section 6.04 of the Credit Agreement solely as a result of failure to pay amounts due under the Senior Subordinated Notes.

5. An Event of Default under Sections 7.12, 7.13 and 7.14 of the Credit Agreement solely with respect to the Fiscal Quarters ending March 31, 2008 and June 30, 2008.

6. An Event of Default under Section 8.01(e) of the Credit Agreement solely as a result of failure to (i) file reports with the Securities and Exchange Commission (“SEC”) within the time periods specified in the SEC’s rules and regulations and (ii) pay interest due under the Senior Subordinated Notes, in each case unless such Event of Default results in the acceleration of any of the Senior Subordinated Notes.

7. An Event of Default under Section 8.01(g) of the Credit Agreement solely with respect to the failure to make required payments under the Senior Subordinated Notes to the extent that such failure is deemed to mean that the Borrower has become unable or has failed generally to pay its debts as they become due.

8. An Event of Default under Section 8.01(j) of the Credit Agreement solely resulting from the succession to Wilmington Trust Company as administrative agent from the Predecessor Agent.

EX-10.2 3 a08-11263_1ex10d2.htm EX-10.2

Exhibit 10.2

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into on May 14, 2008 (the “Effective Date”), between Herbst Gaming, Inc., a Nevada corporation (together with their successors or assigns as permitted under this Agreement, collectively, the “Company”), and Troy D. Herbst, an individual (the “Executive”).

The Company desires to continue to employ the Executive and to enter into this Agreement embodying the terms of such employment, and the Executive desires to enter into this Agreement and accept such employment.

In consideration of the mutual covenants and for other good and valuable consideration, the Company and the Executive (individual a “Party” and together the “Parties”) agree as follows:

1. Definitions

(a) “Salary” shall mean the salary provided for in Section 4 subject to such increases as may be made from time to time.

(b) “Board” shall mean the Board of Directors of the Company.

(c) “Business Day” shall mean any day other than a weekend, a federal or Nevada state holiday or a vacation day for the Executive.

(d) “Cause” shall mean:

(i) the conviction of, or judgment against, the Executive by a civil or criminal court of competent jurisdiction for a felony or any other offense involving embezzlement or misappropriation of funds, or any act of moral turpitude, dishonesty or lack of fidelity;

(ii) the indictment of the Executive by a state or federal grand jury of competent jurisdiction or the filing of a criminal complaint or information, for a felony or any other offense involving embezzlement or misappropriation of funds, or any act of moral turpitude, dishonesty or lack of fidelity;

(iii) the confession by the Executive of embezzlement or misappropriation of funds, or any act of moral turpitude, dishonesty or lack of fidelity;

(iv) the payment (or, by the operation solely of the effect of a deductible, the failure of payment) by a surety or insurer of a claim under a fidelity bond issued for the benefit of the Company reimbursing the Company for a loss due to the wrongful act, or wrongful omission to act, of the Executive;

(v) the denial, revocation or suspension of a license, qualification or certificate of suitability to the Executive by any of the Gaming Authorities; and

(vi) any action or failure to act by the Executive that the Company reasonably believes, as a result of a communication or action by the Gaming Authorities or on the basis of consultations with its gaming counsel and/or other professional advisors, will likely cause any of the Gaming Authorities to: (A) fail to license, qualify and/or approve the Company to own and operate a gaming business; (B) grant any such licensing, qualification and/or approval only upon terms and conditions that are unacceptable to the Company; (C) significantly delay any such licensing, qualification and/or approval process; or (D) revoke or suspend any existing license.

(e) “Confidential Information” shall mean information in whatever form, including, without limitation, information that is written, electronically stored, orally transmitted, or memorized, that is, in the Company’s opinion, of commercial value to the Company and that is created, discovered, developed, or otherwise becomes known to the Company, or in which property rights are held, assigned to, or otherwise acquired by or conveyed to the Company, including, without limitation, any idea, knowledge, know-how, process, system, method, technique, research and development, technology, software, technical information, trade secret, trademark, copyrighted material, reports, records, documentation, data, customer or supplier lists, tax or financial information, business or marketing plan, strategy, or forecast. Confidential Information does not include information that is or becomes generally known within the Company’s industry through no act or omission by the Executive; provided, however, that the compilation, manipulation or other exploitation of generally known information may constitute Confidential Information.

(f) “Disability” shall mean the Executive’s inability, for a period of six (6) consecutive months, to render substantially the services provided for in Section 3 by reason of mental or physical disability, whether resulting from illness, accident or otherwise, where the existence of Disability shall be determined in the sole and absolute discretion of the Company.

(g) “Term of Employment” shall mean the initial period specified in Section 2 and if, but only if, automatically renewed as provided in Section 2, shall include the period of such renewal.

2. Term of Employment

(a) The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, in the position and with the duties and responsibilities as set forth in Section 3 for the Term of Employment, subject to the terms and conditions of this Agreement.

(b) The initial Term of Employment shall commence as of the Effective Date and shall, unless sooner terminated as provided in Section 7, terminate at 11:59 p.m. (Pacific Standard Time) on December 31, 2009; provided that the Term of Employment shall automatically renew for successive one (1) year periods unless (i) it has sooner terminated as provided in Section 7 or (ii) either Party has notified the other in writing at least sixty (60) days prior to the otherwise scheduled expiration of the Term of Employment that such Term of Employment shall not so renew.

3. Position, Duties and Authorities

(a) During the Term of Employment, the Executive shall be employed as Chief Executive Officer, Secretary and Treasurer with the duties, responsibilities and authorities customarily associated with such positions for other businesses of the same size and in the same industry, together with any other duties of a senior executive nature as may be reasonably requested by the Board from time to time, which may include duties for one or more subsidiaries or affiliates of the Company. It is contemplated that the Executive will also continue to serve as a member of the Board. In performing the Executive’s duties under this Agreement, the Executive shall perform such duties subject to supervision and in accordance with the policies and directives established by the Board.

(b) The Executive is permitted to engage in charitable, community and business affairs, managing personal investments and serving as a member of boards of directors of industry associations or non-profit or for profit organizations and companies so long as such activities do not materially interfere, in the opinion and reasonable discretion of the Board, with the Executive carrying out his duties and responsibilities under this Agreement. Thereafter, not less often than on January 1 of each renewal year, the Executive shall disclose in writing to the Board any changes to the information with respect to involvement in such entities or organizations.

4. Salary

During the Term of Employment, the Executive shall be paid by the Company a Salary payable in accordance with the Company’s payroll practices in effect from time to time at an annualized rate of Nine Hundred Seventy-Three Thousand, Eight Hundred Forty-Five and 34/100 Dollars ($973,845.34); the Salary is subject to a five percent (5%) increase on January 1 of each year following the Effective Date. The first such increase shall take effect in January 2009.

5. Employee Benefit Programs

During the Term of Employment, the Executive and his dependents shall be entitled to participate in, at the Company’s expense, whatever employee benefit plans the Company endorses to obtain, if the Company in its sole discretion elects to obtain, such as, but not in limitation, medical, surgical, hospitalization, dental and visual insurance coverage. If the Company obtains an employee benefit plan, the Company will pay all expenses for these insurance program(s) or plan(s).

6. Business Expense Reimbursement and Perquisites

(a) During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company, upon submission of adequate documentation, for all reasonable out-of-pocket expenses incurred by the Executive in performing services under this Agreement.

(b) During the Term of Employment, the Executive shall be entitled to all other perquisites and benefits provided to other senior level executives of the Company (as referenced in Exhibit A attached hereto).

7. Termination of Employment

(a) Termination Due to Death or Disability. In the event of the cessation of the Executive’s employment under this Agreement due to death or Disability, the Executive or the Executive’s legal representatives, as the case may be, shall be entitled to:

(i) (A) in the case of death, continued Salary at the rate in effect at the time of death for a period of twenty-four (24) months following the month in which such cessation of employment due to death occurs, or (B) in the case of Disability, Salary at the rate in effect at the determination of Disability through the date of such determination of Disability;

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive or legal representatives may be entitled to under the applicable plans, programs and agreements of the Company.

(b) Termination by the Company for Cause. At any time after learning of an event constituting Cause, the Company may elect to give the Executive written notice of its intention to terminate for Cause, specifying in such notice the event forming the basis for Cause. Subject only to the following sentence, termination shall be effective immediately upon delivery of notice hereunder. If the written notice is of an event constituting Cause under Section 1(d)(i) or 1(d)(v), and if the event is capable of being cured, the Company may allow the Executive to have ten (10) Business Days following actual receipt of the notice of termination in which to cure, so long as the Executive advises the Company in writing within forty-eight (48) hours of receiving the notice of termination of the Executive’s intention to attempt cure. In the event the Executive’s employment is terminated by the Company for Cause, the Executive shall be entitled to:

(i) Salary at the rate in effect at the time of termination through the date of termination of employment;

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive may be entitled under applicable plans, programs and agreements of the Company.

The Executive’s entitlement to the foregoing shall be without prejudice to the right of the Company to claim or sue for any damages or other legal or equitable remedy to which the Company may be entitled as a result of such Cause; provided, however, that offset shall not be available to the Company in any event.

(c) Termination without Cause. In the event the Executive’s employment is terminated by the Company without Cause (which shall not include a termination pursuant to

Section 7(a)) (“Termination Without Cause”), the Executive shall be entitled to those items described in the subparagraphs (i) through (iii) of this Section 7(c) below. Termination Without Cause shall be effective immediately, unless a later date is stated, upon delivery of a written notice of such termination from the Company to the Executive.

(i) an amount equal to twelve (12) months of Salary (the “Salary Termination Payment”). The Executive may elect, at the Executive’s option to receive the Salary Termination Payment either (A) in equal monthly installments over a one (1) year period commencing on the next regularly scheduled payday upon termination of the Executive’s employment, or (B) in a lump-sum payment within ten (10) Business Days following termination of the Executive’s employment;

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive may be entitled under applicable plans, programs and agreements of the Company.

(d) Voluntary Termination. A “Voluntary Termination” shall mean a termination of employment by the Executive on his own initiative. In the event of a Voluntary Termination, the Executive shall be entitled to:

(i) Salary at the rate in effect at the time of termination through the date of termination of employment;

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive may be entitled under applicable plans, programs and agreements of the Company.

A Voluntary Termination shall not, solely due to a Voluntary Termination, be deemed a breach of this Agreement and shall be effective upon the expiration of sixty (60) days after written notice is delivered to the Company, unless another period of time is agreed to in writing by the Parties.

(e) No Mitigation; No Offset. In the event of any termination of the Executive’s employment under this Agreement, the Executive shall be under no obligation to seek other employment, and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain.

(f) Nature of Payments. Any amounts due the Executive under this Agreement in the event of any termination of employment with the Company are (i) in the nature of severance payments, or (ii) liquidated damages that contemplate both direct damages and consequential damages that the Executive may suffer as a result of the termination of employment, or both, and are not in the nature of a penalty.

8. Covenants to Protect Confidential Information

The Executive shall not, during the Term of Employment or anytime thereafter, without prior written consent of the Company, divulge, publish or otherwise disclose to any other person any Confidential Information regarding the Company except in the course of carrying out the Executive’s responsibilities on behalf of the Company (e.g., providing information to the company’s attorneys, accounts, bankers, etc.) or if required to do so pursuant to the order of a court having jurisdiction over the subject matter or a summons, subpoena or order in the nature thereof of any legislative body (including any committee thereof and any litigation or dispute resolution method against the Company related to or arising out of this Agreement) or any governmental or administrative agency.

9. Non-Solicitation

Except with the prior written consent of the Board, the Executive shall not solicit customers, clients or employees of the Company or any of its affiliates for a period of twelve (12) months after the date of the expiration or termination of this Agreement. Without limiting the generality of the foregoing, the Executive will not, for a period of twelve (12) months after the date of the expiration or termination of this Agreement, willfully canvas or solicit any such business in competition with the business of the Company from any customers of the Company with whom the Executive had contact during, or of which the Executive had knowledge solely as a result of, his performance of services for the Company pursuant to this Agreement. The Executive will not, for a period of twelve (12) months after the date of the expiration or termination of this Agreement, directly or indirectly request, induce or advise any customers of the Company with whom the Executive had contact during the terms of this Agreement to withdraw, curtail or cancel their business with the Company. The Executive will not, for a period of twelve (12) months after the date of the expiration or termination of this Agreement, induce or attempt to induce any employee of the Company to terminate his or her employment with the Company.

10. Remedies.

(a) The Executive acknowledges and agrees that immediate and irreparable harm, for which damages would be an inadequate remedy, would occur in the event any of the provisions of Section 8 or 9 were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the Executive agrees that the Company shall be entitled to an injunction or injunctions to prevent breaches of such provisions of this Agreement and to enforce specifically the terms and provisions thereof without the necessity of proving actual damages or securing or posting any bond or providing prior notice, in addition to any other remedy to which it may be entitled at law or equity.

(b) Nothing herein contained is intended to waive or diminish any rights the Company may have at law or in equity at any time to protect and defend its legitimate property interests (including its business relationship with third parties), the foregoing provisions being intended to be in addition to and not in derogation or limitation of any other rights the Company may have at law or equity.

(c) The Executive shall have not rights, remedies or claims for damages, at law, in equity or otherwise with respect to any termination of the Executive’s employment by the Company other than as set forth in Section 7.

11. Indemnification

(a) The Company shall indemnify the Executive to the fullest extent permitted by Nevada law in effect as of the date hereof against all costs, expenses, liabilities and losses (including, without limitation, attorneys’ fees, judgments, fines, penalties, ERISA excise taxes and amounts paid in settlement) reasonably incurred by the Executive in connection with a Proceeding. For the purposes of this Section 11, a “Proceeding” shall mean any action, suit or proceeding by reason of the fact that the Executive is or was an officer, director or employee, trustee or agent of any other entity at the request of the Company. The indemnification allowed by this Section does not include suits initiated by the Executive against the Company.

(b) The Company shall advance to the Executive all reasonable costs and expenses incurred by the Executive in connection with a Proceeding within twenty (20) days after receipt by the Company of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an agreement by the Executive to repay the amount of such advance if it is determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company against such costs and expenses.

(c) The Executive shall not be entitled to indemnification under this Section 11 unless the Executive meets the standard of conduct specified in the Nevada Revised Statutes. Actions that fail to meet the aforementioned standard of conduct shall include, but are not limited to, the failure to act in good faith, failure to act in the best interests of the Company, breach of the duty of loyalty, misappropriation of business opportunities, violation of the provisions of the articles of incorporation or the bylaws of the Company, violation of state or federal securities laws and violation of criminal law. Notwithstanding the foregoing, to the extent permitted by law, neither Nevada Revised Statute, as amended, Section 78.7502 nor any similar provision shall apply to indemnification under this Section, so that if the Executive in fact meets the applicable standard of conduct, the Executive shall be entitled to such indemnification whether or not the Company (whether by the Board, the stockholders, independent legal counsel or other party) determines that indemnification is proper because the Executive has met such applicable standard of conduct. Neither the failure of the Company to have made such a determination prior to the commencement by the Executive of any suit or arbitration proceeding seeking indemnification, nor a determination by the Company that the Executive has not met such applicable standard of conduct, shall create a presumption that the Executive has not met the applicable standard of conduct.

(d) The Company shall not settle any Proceeding or claim in any manner that would impose on the Executive any penalty or limitation without the Executive’s prior written consent. Neither the Company nor the Executive will unreasonably withhold its or the Executive’s consent to any proposed settlement.

12. Assignability; Binding Nature

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Executive or the Company except that (i) such rights or obligations of the Company may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law, and (ii) such obligations of the Company may be transferred by the Executive by will or pursuant to the laws of descent or distribution. The Company shall take all reasonable legal action necessary to effect such assignment and assumption of the Company’s liabilities, obligations and duties under this Agreement in circumstances described in clause (i) of the preceding sentence.

13. Representation

The Company and the Executive respectively represent and warrant to each other that each respectively is fully authorized and empowered to enter into this Agreement and that their entering into this Agreement and the performance of their respective obligations under this Agreement will not violate any agreement between the Company or the Executive respectively and any other person, firm or organization or any law or governmental regulation.

14. Entire Agreement

This Agreement contains the entire agreement between the Parties and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties relating to the subject matter set forth herein. The Parties acknowledge and agree that the employment agreement previously entered into between the Parties has been terminated as of the date prior to the Effective Date.

15. Amendment or Waiver

This Agreement cannot be changed, modified or amended without the consent in writing of both the Executive and the Company. No waiver by either Party at any time of any breach by the other Party of any condition or provisions of this Agreement shall be deemed a waiver of a similar or dissimilar condition or provision at the same or at any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be.

16. Severability

The provisions of this Agreement shall be severable and the invalidity, illegality or unenforceability of any provision of this Agreement shall not affect, impair or render unenforceable this Agreement or any other provision hereof, all of which shall remain in full

force and effect. If any provision of this Agreement is adjudicated by a court of competent jurisdiction as invalid, illegal or otherwise unenforceable, but such provision may be made enforceable by a limitation or reduction of its scope, the Parties agree to abide by such limitation or reduction as may be necessary so that said provision shall be enforceable to the fullest extent permitted by law. The Parties further intend to and hereby confer jurisdiction to enforce the covenants contained in Sections 8 and 9 (the “Restrictive Covenants”) upon the courts of any jurisdiction within the geographical scope of such Restrictive Covenants. If the courts of any one or more of such jurisdictions hold any Restrictive Covenant unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and the Executive that such determination not bar or in any affect the right of the Company to the relief provided for in this Section in the Courts of any other jurisdiction within the geographical scope of such Restrictive Covenant as to breaches of such Restrictive Covenant in such other respective jurisdictions (such Restrictive Covenant as it relates to each jurisdiction being, for this purpose, severable into diverse and independent covenants).

17. Survival

The respective rights and obligations of the Parties shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

18. Governing Law

This Agreement shall be governed by and construed under the law of the State of Nevada, disregarding any principles of conflicts of law that would otherwise provide for the application of the substantive law of another jurisdiction. Each Party hereby irrevocably consents to the jurisdiction and venue of the state courts of Clark County, Nevada and the United States district courts with jurisdiction in Nevada with respect to any matter arising out of or relating to this Agreement other than matters that are subject to the arbitrations provisions of Section 19.

19. Settlement of Disputes

Except for equitable actions seeking to enforce the provisions of Sections 8 and 9 which may be brought by a court in any competent jurisdiction, in the event a dispute, claim or controversy arises between the Parties relating to the validity, interpretation, performance, termination or breach of this Agreement (collectively, a “Dispute”), the Parties agree to hold a meeting regarding the Dispute, attended by individuals with decision-making authority, to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. If, within thirty (30) days after such meeting or after good faith attempts to schedule such a meeting have failed, the Parties have not succeeded in negotiating a resolution of the Dispute, the Dispute shall be resolved through final and binding arbitration to be held in Nevada in accordance with the rules and procedures for employment disputes of the American Arbitration Association. The prevailing party in such proceeding shall be entitled to recover the costs of the arbitration from the other party, including, without limitation, reasonable attorneys’ fees.

20. Notices

Any notice given to either Party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of:

If to the Company or the Board

Herbst Gaming, Inc.

3440 West Russell Road

Las Vegas, Nevada 89118

Attention: General Counsel

If to the Executive:

Troy D. Herbst

Herbst Gaming, Inc.

3440 West Russell Road

Las Vegas, NV 89118

21. Headings

The headings of the Sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

22. Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

23. Taxes

The Salary payable is stated in gross amounts and shall be subject to such withholding taxes and other taxes as may be required by law.

24. Acknowledgment

The Executive acknowledges that he has been given a reasonable period of time to study this Agreement before signing it and has had an opportunity to secure counsel of his own. By the execution of this Agreement, the Executive certifies that he has fully read and completely understands the terms, nature and effect of this Agreement. The Executive further acknowledges that he is executing this Agreement freely, knowingly and voluntarily and that the Executive’s execution of this Agreement is not the result of any fraud, duress, mistake, or undue influence

whatsoever. In executing this Agreement, the Executive does not rely on any inducements, promises, or representations by the Company other than that which is stated in this Agreement.

25. Waiver of Jury Trial

Each Party waives, to the fullest extent permitted by law, any right it may have to a trial by jury in respect of any litigation arising out of or relating to this Agreement and Executive’s employment by the Company. Each party (a) certifies that no representative, agent or attorney of the other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications set forth in this Section.

IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the Effective Date.

	THE “COMPANY”	THE “EXECUTIVE”
	Herbst Gaming, Inc.


By:	/s/ Timothy P. Herbst
		/s/ Troy D. Herbst
Its:	Chairman of the Board	Troy D. Herbst

EX-31.1 4 a08-11263_1ex31d1.htm EX-31.1

EXHIBIT 31.1

HERBST GAMING, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Troy D. Herbst, Chief Executive Officer of Herbst Gaming, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Herbst Gaming, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during this period in which the quarterly report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: May 16, 2008	By:	/s/ Troy D. Herbst
		Troy D. Herbst, Chief Executive Officer

EX-31.2 5 a08-11263_1ex31d2.htm EX-31.2

Exhibit 31.2

HERBST GAMING, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mary E. Higgins, Chief Financial Officer of Herbst Gaming, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Herbst Gaming, Inc.;

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: May 16, 2008	By:	/s/ Mary E. Higgins
		Mary E. Higgins, Chief Financial Officer

EX-32.1 6 a08-11263_1ex32d1.htm EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Herbst Gaming, Inc. (the “Company”) for the quarter ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Troy D. Herbst, as Chief Executive Officer of the Company, and Mary E. Higgins, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Troy D. Herbst
Troy D. Herbst
Chief Executive Officer
May 16, 2008

/s/ Mary E. Higgins
Mary E. Higgins
Chief Financial Officer
May 16, 2008

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 subject to the knowledge standard contained therein, and not for any other purpose.

-----END PRIVACY-ENHANCED MESSAGE-----

PART I — FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5. OTHER INFORMATION

ITEM 6.

EXHIBITS

1. Definitions

(a) “Salary” shall mean the salary provided for in Section 4 subject to such increases as may be made from time to time.

(b) “Board” shall mean the Board of Directors of the Company.

(c) “Business Day” shall mean any day other than a weekend, a federal or Nevada state holiday or a vacation day for the Executive.

(d) “Cause” shall mean:

(i) the conviction of, or judgment against, the Executive by a civil or criminal court of competent jurisdiction for a felony or any other offense involving embezzlement or misappropriation of funds, or any act of moral turpitude, dishonesty or lack of fidelity;

(ii) the indictment of the Executive by a state or federal grand jury of competent jurisdiction or the filing of a criminal complaint or information, for a felony or any other offense involving embezzlement or misappropriation of funds, or any act of moral turpitude, dishonesty or lack of fidelity;

(iii) the confession by the Executive of embezzlement or misappropriation of funds, or any act of moral turpitude, dishonesty or lack of fidelity;

(v) the denial, revocation or suspension of a license, qualification or certificate of suitability to the Executive by any of the Gaming Authorities; and

(g) “Term of Employment” shall mean the initial period specified in Section 2 and if, but only if, automatically renewed as provided in Section 2, shall include the period of such renewal.

2. Term of Employment

(a) The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, in the position and with the duties and responsibilities as set forth in Section 3 for the Term of Employment, subject to the terms and conditions of this Agreement.

3. Position, Duties and Authorities

4. Salary

5. Employee Benefit Programs

6. Business Expense Reimbursement and Perquisites

(a) During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company, upon submission of adequate documentation, for all reasonable out-of-pocket expenses incurred by the Executive in performing services under this Agreement.

(b) During the Term of Employment, the Executive shall be entitled to all other perquisites and benefits provided to other senior level executives of the Company (as referenced in Exhibit A attached hereto).

7. Termination of Employment

(a) Termination Due to Death or Disability. In the event of the cessation of the Executive’s employment under this Agreement due to death or Disability, the Executive or the Executive’s legal representatives, as the case may be, shall be entitled to:

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive or legal representatives may be entitled to under the applicable plans, programs and agreements of the Company.

(i) Salary at the rate in effect at the time of termination through the date of termination of employment;

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive may be entitled under applicable plans, programs and agreements of the Company.

(c) Termination without Cause. In the event the Executive’s employment is terminated by the Company without Cause (which shall not include a termination pursuant to

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive may be entitled under applicable plans, programs and agreements of the Company.

(d) Voluntary Termination. A “Voluntary Termination” shall mean a termination of employment by the Executive on his own initiative. In the event of a Voluntary Termination, the Executive shall be entitled to:

(i) Salary at the rate in effect at the time of termination through the date of termination of employment;

(ii) reimbursement for expenses incurred but not yet reimbursed by the Company; and

(iii) any other compensation and benefits to which the Executive may be entitled under applicable plans, programs and agreements of the Company.

8. Covenants to Protect Confidential Information

9. Non-Solicitation

10. Remedies.

(c) The Executive shall have not rights, remedies or claims for damages, at law, in equity or otherwise with respect to any termination of the Executive’s employment by the Company other than as set forth in Section 7.

11. Indemnification

12. Assignability; Binding Nature

13. Representation

14. Entire Agreement

15. Amendment or Waiver

16. Severability

17. Survival

18. Governing Law

19. Settlement of Disputes

20. Notices

21. Headings