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Howard Stutz

Herbst Gaming shuffling managers

5 May 2008

NEVADA -- Family-controlled Herbst Gaming shook up its management structure Friday afternoon, replacing Chairman and CEO Ed Herbst with his two brothers.

In a three-paragraph filing with the Securities and Exchange Commission, Tim Herbst, 44, was named chairman of the board while Troy Herbst, 41, was named CEO. Ed Herbst, 46, will remain as a company director, but is on a leave of absence from his officer duties due to personal reasons. The moves took effect Wednesday, according to the filing.

The company, which operates casinos and Nevada's largest slot machine route operation, is privately held by the three brothers but has publicly owned debt.

A spokesman for Herbst Gaming could not be reached for comment.

At the end of March, Herbst Gaming told investors the company might have to seek bankruptcy protection unless it can reorganize a payment structure for its more than $1.146 billion debt. Auditors said the company's troubles meeting its bond payments triggered a potential default under its credit agreement.

Las Vegas-based Herbst said its Southern Nevada operations have been hurt by failing economic conditions, a statewide ban on smoking in taverns and restaurants, and competition from American Indian casinos in Southern California.

Herbst Gaming operates 16 casinos in Southern and Northern Nevada, including the three Primm resorts along Interstate 15 at the California-Nevada border, 35 miles south of Las Vegas, and the off-Strip Terrible's on East Flamingo Road. The company also owns three casinos in Missouri and Iowa and operates approximately 7,200 slot machines through its Nevada route operation.

A Herbst investment source who asked not to be named said Ed Herbst's diminishing role was expected.

"Everyone has doubts about management anyway," he said.

According to the company's March 31 SEC filing, Ed Herbst was paid a salary of $831,991 in 2007; Tim Herbst made $427,140 and Troy Herbst earned $427,810. Each brother took an ownership distribution of $3.4 million in 2007.

Tim Herbst was a company executive vice president and director. Troy Herbst was executive vice president, as well as secretary, treasurer and a board member. The brothers will retain their board of directors positions.

In its March filing, Herbst Gaming said the poor financial results the company experienced during the second half of 2007 have carried over into the first few months of 2008.

Herbst's overall revenues were $849.2 million in 2007, almost 43 percent higher than 2006, because the company spent $543 million to acquire two major casino companies, almost doubling the size of its casino holdings.

However, a 20 percent loss in revenues from its slot-route business, coupled with a doubling of the company's costs, expenses and interest payments, sent Herbst Gaming to a net loss of $127.2 million last year.

In February, Herbst hired Wall Street investment house Goldman Sachs to evaluate strategic alternatives for the company, which could include anything from a debt recapitalization to a sale of some of its businesses.

In March, Herbst named company COO Ferenc Szony as president, placing him in direct oversight of all revenue-generating business activities.