CEO Employment Agreement

Exhibit 10.27


EMPLOYMENT AGREEMENT


THIS AGREEMENT, made and entered into this 2nd day of February, 1999, by and between HARVEYS CASINO RESORTS, a Nevada corporation, hereinafter referred to as "HARVEYS" and/or "EMPLOYER," and CHARLES W. SCHARER, hereinafter referred to as "EMPLOYEE," as follows:


W I T N E S S E T H:


WHEREAS, EMPLOYEE has previously served as an employee of HARVEYS pursuant to that certain employment agreement, dated December 1, 1995, as amended (the "Prior Agreement"); and


WHEREAS, HARVEYS and Harveys Acquisition Corporation, a Nevada corporation ("ACQ CORP"), have entered into an Agreement and Plan of Merger dated as of February 1, 1998 (the "Merger Agreement"), whereby ACQ CORP will be merged with and into HARVEYS (the "Merger"); and


WHEREAS, in connection with the Merger Agreement, HARVEYS and EMPLOYEE, together with other members of HARVEYS management, have entered into a Memorandum of Understanding, dated February 1, 1998 (the "MOU"), which sets forth, among other things, certain terms regarding EMPLOYEE'S employment with HARVEYS following consummation of the Merger, including the execution of a new employment agreement to replace the Prior Agreement; and


WHEREAS, following consummation of the Merger, HARVEYS desires to continue to secure the benefits of EMPLOYEE'S background, knowledge, experience, ability, expertise and industry to promote and maintain HARVEYS' stability, growth, viability and profitability; and


WHEREAS, subject to consummation of the Merger, HARVEYS desires to continue to engage the services of EMPLOYEE, who is desirous of continued employment by HARVEYS, upon the terms and conditions set forth herein.


NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, together with other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:


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I.
DEFINITIONS


1.01 EMPLOYEE shall at all times mean Charles W. Scharer.


1.02 EMPLOYER shall at all times mean HARVEYS CASINO RESORTS, a Nevada corporation, and its Successors in Interest together with its subsidiaries.


1.03 HARVEYS shall at all times mean HARVEYS CASINO RESORTS, a Nevada corporation, and its Successor in Interest together with its subsidiaries.


1.04 Successor in Interest shall mean any entity which is the successor or assign of HARVEYS, at law or at equity, and shall include without limitation, any entity into which HARVEYS is merged or consolidated, and any entity to which all or substantially all of the assets or businesses of HARVEYS is transferred.


II.
NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE


2.01 Subject to and effective upon the consummation of the Merger, EMPLOYEE shall continue to serve HARVEYS as President and Chief Executive Officer of HARVEYS. EMPLOYEE shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as HARVEYS Board of Directors (the "Board") may from time to time establish for senior executive officers of the EMPLOYER.


2.02 Subject to the supervision and control of the Board, EMPLOYEE shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities of his position and shall render such services on the terms set forth herein. Without limiting the generality of the foregoing, EMPLOYEE shall be responsible for developing, directing and implementing the operation of the business and the Company's policies and plans as determined by the Board of Directors. In addition, EMPLOYEE shall have such other executive and managerial powers and duties with respect to HARVEYS and its subsidiaries that are consistent with the offices of President and Chief Executive Officer and as may reasonably be assigned to him by the Board, including without limitation serving on the Board of Directors of any subsidiary of HARVEYS.


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2.03 EMPLOYEE has reviewed and concurs with his responsibilities and duties as set forth in Section 2.02 above.


2.04 During the Term (as defined below), EMPLOYEE shall devote substantially all of his productive time, ability and attention to the business of EMPLOYER. In addition, EMPLOYEE shall not directly or indirectly render any service of a business, commercial or professional nature, to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Board, PROVIDED, that, subject to the provisions of Article X hereof, EMPLOYEE shall not be precluded from involvement in charitable or civic activities or his personal financial investments provided the same do not materially interfere with his time or attention to the business of EMPLOYER, and PROVIDED, further, that EMPLOYEE shall not serve as a director of any other for-profit business that is not an affiliate of EMPLOYER.


2.05 EMPLOYEE agrees that he shall at all times (i) to the best of his ability and experience conscientiously perform all of the duties and obligations of his position with the EMPLOYER, (ii) use his best efforts to do and perform all services, acts, or things necessary or advisable to assist in the management and conduct of the business and otherwise advance the interests of EMPLOYER and (iii) diligently and in the highest good faith carry out the lawful directives of the Board, PROVIDED, that EMPLOYEE shall not be obligated to perform his duties hereunder outside the Stateline, Nevada area, except for business trips and directors meetings outside said area which arise and result from the normal conduct of the business of HARVEYS.


2.06 EMPLOYEE shall continue to serve as a member of the Board (though not as Chairman) following the closing of the Merger. In addition, during the Term, EMPLOYEE shall be nominated for election to the Board of Directors at each meeting of stockholders at which directors are to be elected, and EMPLOYER shall use its best efforts to provide for EMPLOYEE's election to the Board of Directors at each such meeting. Notwithstanding the foregoing provisions of this Section 2.06, EMPLOYEE agrees to promptly resign his position on the Board and become a non-voting observer on the Board (with rights equivalent to those of an employee director other than voting rights) if, and for so long as (absent such resignation) members of the Board who are also employees of Colony Capital, Inc. or its affiliates (other than


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EMPLOYER or any of its subsidiaries) would not otherwise constitute at least a majority of the members of the Board. During such period as EMPLOYEE shall by reason of such circumstances be a non-voting observer on the Board, EMPLOYER shall diligently use commercially reasonable, good faith efforts (subject to applicable gaming approvals, licensing requirements and other regulatory determinations) to attempt to cause one or more additional employees of Colony Capital, Inc. or its affiliates (other than EMPLOYER or any of its subsidiaries) to be appointed to the Board, such that EMPLOYEE may resume his position as a voting member of the Board consistent with the provisions of the immediately preceding sentence. EMPLOYEE also agrees that effective upon notice being provided of his termination of employment with EMPLOYER, he shall immediately resign from his position as a non-voting observer or member of the Board, as applicable.


III.
TERM AND GENERAL CONDITIONS OF EMPLOYMENT


3.01 Subject to and effective upon consummation of the Merger, EMPLOYER hereby employs the EMPLOYEE, and EMPLOYEE hereby agrees to be employed by HARVEYS for a period of five (5) years commencing on the date of consummation of the Merger (the "Effective Date") and terminating on the fifth anniversary of the Effective Date (as the same may be extended as set forth below, the "Term"), unless extended by mutual written agreement of the parties; PROVIDED, that the period of employment shall automatically be extended for successive one (1) year periods if neither party has provided six (6) months prior written notice to the other of its intention to have this Agreement lapse at the expiration of the Term; and PROVIDED FURTHER, that the Term shall be subject to earlier termination in accordance with Articles IV, V and VI below.


3.02 Notwithstanding anything to the contrary herein, in the event of any termination of EMPLOYEE's employment for any or no reason, EMPLOYEE and EMPLOYER shall


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nevertheless continue to be bound by the terms and conditions set forth in Articles IX through XII, in Section 13.08 and, to the extent provided therein, Section 13.09 below.


3.03 Upon consummation of the Merger, the Prior Agreement shall be cancelled and terminated without further obligation of EMPLOYER.


3.04 If the Merger Agreement shall be terminated prior to consummation of the Merger, EMPLOYEE shall continue his employment with HARVEYS pursuant to the terms of the Prior Agreement, which in such case shall remain in full force and effect.


3.05 EMPLOYEE hereby acknowledges and agrees that his rights as set forth herein to receive severance and other compensation and benefits hereunder shall supersede and replace in its entirety any severance or other benefits that might otherwise be payable pursuant to HARVEYS Change of Control Plan as in effect as of the date hereof or as the same may be amended from time to time or under any other severance plan, policy, agreement or arrangement in effect immediately prior to the Effective Date. EMPLOYEE further acknowledges that as of the Effective Date, EMPLOYEE shall no longer be a participant in or have any rights under the Change of Control Plan (or under any such other severance plan, policy, agreement or arrangement in effect immediately prior to the Effective Date), regardless of the reasons or circumstances of his termination of employment. EMPLOYEE further acknowledges that as of the Effective Date EMPLOYEE shall no longer be a participant in or have any rights under the Company's Long Term Incentive Plan or Supplemental Executive Retirement Plan.


IV.
TERMINATION OF EMPLOYMENT WITHOUT CAUSE


4.01 EMPLOYEE'S employment may be terminated at any time by HARVEYS, with or without "Cause" (as defined in Section 6.01 below), at any time and for any or no reason. Any such termination without Cause shall be effective only upon thirty (30) days' prior written notice to EMPLOYEE (such effective date, for purposes of this Article IV, the "Termination Date").


4.02 If EMPLOYEE'S termination by EMPLOYER shall be without Cause, EMPLOYEE shall be entitled to the following benefits:


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(a) Except as provided below, EMPLOYEE shall be entitled to receive on the Termination Date a lump sum payment in an amount equal to the product of (x) the Applicable Multiplier (as defined below) and (y) the sum of his then Base Salary and then Annual Target Bonus (each as defined below).


(i) "Applicable Multiplier" shall mean the
lesser of (A) 2.0 and (B) a fraction, the denominator of which is 12,
and the numerator of which shall be the number of full plus partial
(calculated by the day) months remaining in the Term following the
Termination Date, which numerator shall be increased by the number of
full plus partial (calculated by the day) months during any Post-Term
Restriction Period (as defined below and further described in Annex E)
if an election to have such Post-Term Restriction Period apply to
EMPLOYEE is made by EMPLOYER pursuant to Section 10.01.


(ii) For purposes of this Section 4.02(a),
EMPLOYEE'S annual target bonus under the Annual Bonus Plan (as defined
in Section 7.02 below) for each fiscal year during the Term shall be
deemed to be 70 percent of EMPLOYEE'S Base Salary as in effect as of
the date the relevant business plan targets for such fiscal year are
established by the Board.


(iii) For purposes of this Agreement, the
"Post- Term Restriction Period" shall mean that period, if any,
following expiration of the Term during which EMPLOYEE would be subject
to the restrictions of Section 10.01 as determined under the first
paragraph of Section 10.01, without regard to any limitation of such
period by reason of Section 10.01(a). The Post-Term Restriction Period
is further described in Annex E hereto.


(iv) Notwithstanding the foregoing, in the
event that EMPLOYEE'S Termination Date shall be less than one year
prior to the expiration of the Term and the Applicable Multiplier
(determined as above by including any applicable Post-Term Restriction
Period) shall be less than 1.0, EMPLOYEE shall not be entitled to
receive the lump sum payment determined


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under the first sentence of this Section 4.02(a), but shall instead be
entitled to receive (A) on the Termination Date a lump sum payment in
an amount equal to the product of (x) the Applicable Multiplier and (y)
his then Base Salary and (B) as applicable, a bonus as determined under
Annex E hereto.


(b) EMPLOYEE shall be entitled to continuation of his Benefits (as defined below) for that number of months immediately following the Termination Date equal to the product of (A) the Applicable Multiplier and (B) 12 (such number of months, the "Severance Period"), PROVIDED, that in the event that during such period, pursuant to applicable law or the terms of the applicable plan, any Benefits may not be provided pursuant to the terms of the specific plan referenced herein, EMPLOYER shall provide substantially equivalent benefits by alternate means.


(c) Subject to the provisions of the Award Agreement (as defined in Section 7.03 below), EMPLOYEE shall vest as of the Termination Date in that portion of the Stock Award and Stock Option grants (each as defined below) that would otherwise have vested had EMPLOYEE remained in HARVEYS employ for the duration of the Severance Period.


Except as set forth in this Section 4.02 and Section 13.08, all other rights of EMPLOYEE (and, except as provided in Sections 4.02 and 3.02 above and Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of the Termination Date.


4.03 If during the term hereof EMPLOYEE'S employment shall terminate by reason of his death or Disability (as defined below), he or his estate, as applicable, shall be entitled to (i) all amounts of Base Salary and Benefits accrued but unpaid through the date of such termination (which shall be the date of death or the 45th day after the date EMPLOYER provides EMPLOYEE notice of termination for Disability) and (ii) any death and/or disability benefits that may be due EMPLOYEE under any benefit plans in effect from time to time. "Disability" shall mean any physical or mental disability that prevents EMPLOYEE from performing one or more of the essential functions of his position for a period of not less than six (6) months in any continuous 12-month period. Except as set forth in this Section 4.03 and Section 13.08, all other rights of EMPLOYEE (and, except as provided in this Section 4.03 and Section 3.02 above and


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Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of the date of such termination of employment.


V.
TERMINATION OF EMPLOYMENT AT EMPLOYEE'S REQUEST


5.01 EMPLOYEE may, at EMPLOYEE'S sole option and right, terminate his employment with EMPLOYER at any time, with or without Good Reason (as defined below). Any such termination shall be effective only upon thirty (30) days' prior written notice to HARVEYS.


(a) In the event of such termination of employment without Good Reason, EMPLOYEE shall be entitled to receive all amounts of Base Salary and Benefits accrued but unpaid through the date of such termination.


(b) In the event of such termination of employment with Good Reason, EMPLOYEE shall be entitled to receive the benefits set forth in Sections 4.02(a)-(c) as if EMPLOYEE'S employment had been terminated by EMPLOYER without Cause, with the "Termination Date" as used in such sections being the effective date of termination pursuant to this Section 5.01.


For purposes of this Section 5.01, EMPLOYEE shall have "Good Reason" to terminate his employment hereunder if (i) EMPLOYER shall, without EMPLOYEE'S written consent, willfully and materially breach its obligations under this Agreement, (ii) EMPLOYEE provides EMPLOYER written notice pursuant hereto stating with specificity the respects in which EMPLOYEE believes EMPLOYER to have willfully and materially breached its obligations under this Agreement and (iii) within thirty (30) days following the date of such notice EMPLOYER shall not have cured such breach. Except as set forth in this Section 5.01 (and, as incorporated hereinabove by reference, Section 4.02) and Section 13.08, all other rights of EMPLOYEE (and, except as provided in Section 3.02 above and Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of the date of such termination of employment.


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VI.
TERMINATION OF EMPLOYMENT FOR CAUSE


6.01 EMPLOYER may at any time, at its election, by written notice to EMPLOYEE stating with specificity the reason for the termination, terminate EMPLOYEE'S employment for "Cause," which shall be defined as EMPLOYEE'S:


(a) Gross negligence or willful malfeasance in the performance of his duties under this Agreement;


(b) Failure to obtain or retain any permits, licenses, or approvals which may be required by any state or local authorities in order to permit the EMPLOYEE to continue his employment as contemplated by this Agreement;


(c) Conviction of any felony or conviction of a crime involving moral turpitude;


(d) Dishonesty with respect to EMPLOYER (including, without limitation, fraud) resulting in a breach of duty to EMPLOYER involving EMPLOYEE'S personal gain or profit;


(e) Engaging in any activity that is in violation of the provisions of Article X of this Agreement, which shall not be cured following ten days' written notice and a demand to cure such violation; or


(f) Use or imparting of any confidential or proprietary information of EMPLOYER or any subsidiary or affiliate in violation of any confidentiality or proprietary agreement to which EMPLOYEE is a party, including without limitation the provisions of Article IX of this Agreement; PROVIDED, that in the event such notice is provided pursuant to Section 6.01(b), EMPLOYEE shall have a period of thirty (30) days following the date of such notice in which to cure such failure, and if EMPLOYEE shall cure such failure within such period, EMPLOYEE's employment hereunder shall be reinstated without prejudice.


6.02 Upon the provision of such notice (or, in the case of such notice pursuant to Section 6.01(b), upon expiration of the applicable cure period without cure), EMPLOYEE'S employment shall immediately cease and terminate for Cause. In the event of such termination


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of employment, EMPLOYEE shall be entitled to receive all amounts of Base Salary and benefits accrued but unpaid through the date of such termination. Except as set forth in this Section 6.02 and Section 13.08, all other rights of EMPLOYEE (and, except as provided in Section 3.02 above and Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of the date of such termination of employment.


VII.
COMPENSATION OF EMPLOYEE


7.01 Base Salary - EMPLOYEE shall receive an annual base salary ("Base Salary") of Five Hundred Twenty Thousand Dollars ($520,000), payable in at least monthly installments, less all applicable Federal, state and local taxes, Social Security and any other government mandated deductions. EMPLOYEE'S Base Salary shall be reviewed by the Board no less frequently than annually relative to specified performance-based criteria to be determined by the Board.


7.02 Annual Bonus - Following the Effective Time, EMPLOYEE shall be eligible to participate in EMPLOYER'S Management Incentive Plan ("MIP") or, at the election of EMPLOYER, in a new or equivalent annual bonus plan established by EMPLOYER having a similar structure to the MIP providing for payment of an annual bonus (the "Annual Bonus Plan"), but in either case with thresholds and triggering events for payment based on the achievement of HARVEYS annual budget and other business plan targets to be determined by the Board following the Effective Date. EMPLOYEE's maximum annual bonus under the Annual Bonus Plan shall not be less than $360,000. Notwithstanding th ...