<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: MARCH 31, 1996
------------------------------------------------
[ ] 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: 0-22752
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MIKOHN GAMING CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0218876
- - ------------------------------------- -------------------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1045 PALMS AIRPORT DRIVE, P.O. BOX 98686, LAS VEGAS, NV 89193-8686
- - --------------------------------------------------------------------------------
(Address or principal executive office and zip code)
(702) 896-3890
--------------
(Registrant's telephone number, including area code)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a 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
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as the latest practicable date:
9,827,164 as of MAY 8, 1996
- - ------------------------------ ------------------------------
(Amount Outstanding) (Date)
<PAGE>
MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 (unaudited) 2
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 (unaudited) 3
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended March 31, 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 (unaudited) 5
Note to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
1
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and short-term investments $ 4,951,555 $ 5,453,136
Trade accounts receivable, net 17,634,795 19,658,708
Other receivables 3,245,282 2,981,236
Installment sales receivable, current portion 1,866,597 1,332,214
Inventories
Raw materials 10,171,239 9,494,688
Finished goods 4,144,897 4,264,890
Work in process 3,857,443 3,464,884
Prepaid expenses 2,230,050 1,870,482
----------- -----------
Total current assets 48,101,858 48,520,238
Installment sales receivable, net of current portion 790,000 241,174
Property and equipment, net 15,756,755 15,539,211
Intangible assets 16,684,991 16,998,401
Other assets 5,098,971 5,024,737
----------- -----------
Total assets $86,432,575 $86,323,761
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt and notes payable $ 907,294 $ 786,172
Trade accounts payable 7,738,645 6,982,409
Customer deposits 3,757,931 2,875,174
Accrued and other current liabilities 2,526,246 3,197,957
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Total current liabilities 14,930,116 13,841,712
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Long-term debt 21,636,540 22,305,160
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Deferred federal income taxes 839,065 825,065
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Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, none
issued
Common stock, $.10 par value, 20,000,000 shares authorized,
9,827,164 shares issued 982,717 982,717
Additional paid-in capital 48,259,166 48,259,166
Foreign currency translation adjustment 21,873 30,736
Retained earnings 11,049 327,156
----------- -----------
Total 49,274,805 49,599,775
Less treasury stock, 24,333 shares, at cost (247,951) (247,951)
----------- -----------
Total stockholders' equity 49,026,854 49,351,824
----------- -----------
Total liabilities and stockholders' equity $86,432,575 $86,323,761
=========== ===========
</TABLE>
See the accompanying note to consolidated financial statements.
2
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Sales $20,972,263 $19,327,842
Cost of sales 14,331,147 13,278,552
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Gross profit 6,641,116 6,049,290
Selling, general and administrative expenses 6,852,529 6,131,475
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Operating income (loss) (211,413) (82,185)
Interest expense (500,961) (78,046)
Other income and expense 226,267 174,833
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Income (loss) before income tax (provision) benefit (486,107) 14,602
Income tax (provision) benefit 170,000 (5,100)
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Net income (loss) $ (316,107) $ 9,502
=========== ===========
Weighted average common shares 9,802,726 9,782,611
=========== ===========
Earnings (loss) per common share $(0.03) $0.00
=========== ===========
</TABLE>
See the accompanying note to consolidated financial statements.
3
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
---------------------- ADDITIONAL CURRENCY
OUTSTANDING PAID-IN RETAINED TREASURY TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
----------- -------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 9,802,831 $982,717 $48,259,166 $ 327,156 $(247,951) $30,736 $49,351,824
Net loss (316,107) (316,107)
Translation adjustment (8,863) (8,863)
----------- -------- ----------- --------- --------- ------- -----------
Balance, March 31, 1996 9,802,831 $982,717 $48,259,166 $ 11,049 $(247,951) $21,873 $49,026,854
=========== ======== =========== ========= ========= ======= ===========
</TABLE>
See the accompanying note to consolidated financial statements.
4
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (316,107) $ 9,502
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 514,760 352,199
Amortization 502,413 412,350
Changes in assets and liabilities:
Accounts receivable 1,759,867 (1,217,449)
Contracts receivable (1,083,209) 795,073
Inventories (949,117) (984,729)
Prepaid expenses and other assets (617,668) (150,542)
Accounts payable 756,236 108,535
Accrued and other current liabilities 211,046 (3,214,344)
----------- -----------
Net cash provided by (used in) operating activities 778,221 (3,889,405)
----------- -----------
Cash flows from investing activities:
Purchase of business operations (3,500,000)
Purchase of property and equipment (732,304) (2,108,563)
----------- -----------
Net cash used in investing activities (732,304) (5,608,563)
----------- -----------
Cash flows from financing activities:
Principal payments on notes payable and long-term debt (547,498) (205,033)
----------- -----------
Net cash used in financing activities (547,498) (205,033)
----------- -----------
Decrease in cash (501,581) (9,703,001)
Cash, beginning of period 5,453,136 11,512,442
----------- -----------
Cash, end of period $ 4,951,555 $ 1,809,441
=========== ===========
</TABLE>
See the accompanying note to consolidated financial statements.
5
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $785,904 $ 18,185
======== ==========
Cash paid for state and federal income taxes $ 6,603 $ 388,516
======== ==========
Supplemental schedule of non-cash investing and financing
activities:
Debt incurred in purchase of business assets and slot
route operations $4,489,462
======== ==========
</TABLE>
See the accompanying note to consolidated financial statements.
6
<PAGE>
MIKOHN GAMING CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These condensed unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal accruals)
necessary to present fairly the financial position of the Company at March 31,
1996, the results of its operations for the three months ended March 31, 1996
and 1995, the changes in stockholders' equity for the three months ended March
31, 1996 and cash flows for the three months ended March 31, 1996 and 1995.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the entire year.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which became effective for the Company on January
1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation costs to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply
APB Opinion No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply
APB Opinion 25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share.
7
<PAGE>
MIKOHN GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTICE
This report contains forward-looking statements in which management
shares its knowledge and judgment about factors that it believes may
materially affect Company performance in the future. Terms expressing future
expectations, enthusiasm about future potential and anticipated growth in
sales, revenues and earnings and like expressions typically identify such
statements.
All forward-looking statements, although made in good faith, are subject
to the uncertainties inherent in predicting the future. They are necessarily
speculative, and unforeseen factors such as unusual production problems,
competitive pressures, failure to gain the acceptance of regulatory
authorities and other adverse government action, customer resistance and
general deterioration in economic conditions may cause results to differ
materially from any that may be projected. Forward looking statements speak
only as of the date they are made, and readers are warned that the Company
undertakes no obligation to update or revise such statements to reflect new
circumstances or unanticipated events as they occur.
Readers are urged to carefully review and consider disclosures made by
the Company in this and other reports that discuss factors germane to the
Company's business. See particularly the Company's reports on Forms 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission.
SALES
Sales for the quarter ended March 31, 1996 were $21.0 million compared to
$19.3 million in the prior year period, an increase of $1.6 million or 8.5%.
Sales in the 1996 period include approximately $7.3 million by the domestic
interior sign division, $1.6 million by the Trans Sierra division, $5.7
million by the outdoor lighting and sign group, $1.6 million by the games
division (which includes revenues from table game leasing, keno equipment
sales, slot machine sales and slot route operations) and $2.2 million by the
Australian and European subsidiaries. Sales by the electronics division in
the 1996 first quarter were $4.0 million, including $1.4 million in
intracompany sales which have been eliminated in the consolidated statement of
operations. Sales for the 1995 first quarter include approximately $8.6
million by the domestic interior sign division, $2.6 million by the Trans
Sierra division, $4.1 million by the outdoor lighting and sign group, $1.1
million by
8
<PAGE>
the games division, $1.1 million by the two foreign subsidiaries and $4.4
million in sales by the electronics division, including approximately $2.5
million in intracompany sales that have been eliminated in the consolidated
statement of operations.
Management believes that the decrease in sales of $1.3 million by the
domestic interior sign division when comparing the 1996 and 1995 first quarter
results was primarily due to a reduction in the number of new casino openings,
which reduction was caused in part by licensing delays in jurisdictions where
casino gambling has recently been legalized. Although management believes that
the Company continues to be the market leader in the sale of interior casino
signage and slot progressive systems in the domestic market, other suppliers
have entered these markets in competition with the Company. Although there is
no assurance that competitors will not be able to expand their market
penetration at the expense of the Company, the Company competes aggressively
and management believes that it will maintain its position as the dominant
supplier of these products in the domestic gaming market.
During the 1996 first quarter the Company introduced and sold
approximately $0.4 million of its new line of interior electronic displays
that offer graphics improved over the Company's historic displays. Sales by
the electronics division in the 1996 first quarter include approximately $0.8
million of CasinoLink(Trademark) products, the Company's player tracking, slot
marketing and slot accounting system.
Sales by the European subsidiary were $0.8 million in the quarter ended
March 31, 1996 compared to $0.2 million in the comparable 1995 period. The
Australian subsidiary had sales of $1.4 million in the 1996 period, an
increase of $0.6 million over the 1995 three month period.
As of March 31, 1996, the Company had backlogs of orders believed to be
firm of $17.0 million. As of March 31, 1995 and December 31, 1995, the
Company's backlogs were $12.7 million and $14.0 million, respectively.
GROSS PROFIT
Gross profit for the quarter ended March 31, 1996 increased $0.6 million
to $6.6 million from $6.0 million in the 1995 period. The gross profit margin
was 31.7% in the 1996 period compared to 31.3% in the quarter ended March 31,
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in the first quarter
increased by $0.7 million, or 11.8%, to $6.8 million from $6.1 million in the
1995 period. Depreciation and
9
<PAGE>
amortization expense accounted for $0.3 million of this increase, primarily
due to amortization of the goodwill and depreciation of the slot route gaming
devices acquired in the Games of Nevada acquisition.
OTHER INCOME AND EXPENSE
Interest expense increased to $0.5 million from $0.1 million in the 1995
first quarter period because of bank borrowing in 1996 and interest expense on
the long-term debt incurred in the acquisition of the assets of Games of
Nevada.
LIQUIDITY AND CAPITAL RESOURCES
For the 1996 first quarter, the Company had a net loss of $0.3 million.
Net cash provided by operating activities was $0.8 million, primarily due to
(a) a decrease in accounts receivable of $1.8 million; (b) an increase in
installment sales receivable of $1.1 million; (c) an increase in inventories
of $0.9 million; (d) an increase in prepaid expenses and other assets of $0.6
million; and (e) an increase in accounts payable and accrued liabilities of
$1.0 million.
Management believes that the Company's working capital of $33.2 million
at March 31, 1996, including $5.0 million in cash and cash equivalents, will
meet its working capital needs for the foreseeable future.
10
<PAGE>
MIKOHN GAMING CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
A. Exhibits:
*10.33 Employment Agreement dated October 23, 1995 between the
Company and Seamus McGill.
27 Financial Data Schedule
B. Reports on Form 8-K:
None
</TABLE>
11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
MIKOHN GAMING CORPORATION, REGISTRANT
BY: /S/ David J. Thompson
---------------------------------
David J. Thompson,
Chairman, Chief Executive Officer
(Principal Financial Officer)
Dated: May 10, 1996
12
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), is made and entered into as
of October 23, 1995 by and between MIKOHN GAMING CORPORATION, a Nevada
corporation ("MIKOHN"), and SEAMUS McGILL ("Employee").
W I T N E S S E T H:
WHEREAS, MIKOHN and Employee deem it to be in their respective best
interests to enter into an agreement providing for MIKOHN's employment of
Employee pursuant to the terms herein stated.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, it is hereby agreed as follows:
1. TERM. MIKOHN hereby employs and Employee hereby accepts
----
employment with MIKOHN for a period of three (3) years beginning on the date
hereof ("Term"). Unless MIKOHN or Employee gives written notice that this
Agreement shall be allowed to expire and the employment relationship thereby
terminated at least thirty (30) days prior to the expiration of the Term, this
Agreement shall continue in effect from month to month terminable by either
party upon two (2) weeks written notice.
2. DUTIES OF EMPLOYEE. Employee's position with MIKOHN will be
------------------
Executive Vice President, Trans Sierra Communications, a Division of Mikohn
Gaming Corporation. Employee shall do and perform all services, acts, or things
reasonably necessary or advisable to accomplish the objectives and complete the
tasks assigned to Employee by MIKOHN's management as directed by MIKOHN's Board
of Directors.
3. DEVOTION OF TIME TO MIKOHN'S BUSINESS. Employee shall be a full-
-------------------------------------
time employee of MIKOHN and shall devote such substantial and sufficient amounts
of his productive time, ability, and attention to the business of MIKOHN during
the Term of this Agreement as may be reasonable and necessary to accomplish the
objectives and complete the tasks assigned to Employee. Prior written consent
of MIKOHN shall be required before Employee shall undertake to perform any
outside services of a business, commercial, or professional nature, whether for
compensation or otherwise. Written consent shall not be required as to
Employee's reasonable participation in educational and professional activities
related to the maintenance of Employee's qualifications and stature in his
profession.
4. UNIQUENESS OF SERVICES. Employee hereby acknowledges that the
----------------------
services to be performed by him under the terms of this Agreement are of a
special and unique value. Accordingly, the obligations of Employee under this
Agreement are non-assignable.
5. COMPENSATION OF EMPLOYEE.
------------------------
a. BASE ANNUAL SALARY. Subject to other specific provisions in
------------------
this Agreement, as compensation for services hereunder, Employee shall receive a
Base Annual Salary at the rate of not less than $150,000.00.
b. BONUS. Employee shall receive a cash bonus of $25,000.00 six
-----
(6) months from the date hereof.
c. AUTOMOBILE. MIKOHN shall provide Employee an automobile
----------
allowance in the amount of $1,000 per month.
d. STOCK OPTIONS. MIKOHN grant's to Employee options to purchase
-------------
shares of MIKOHN Common Stock (the "Option") under MIKOHN's Stock Option Plan
("Plan"). The Option shall be in the form of MIKOHN's standard Stock Option
Agreement and subject to the terms and conditions thereof and of the Plan, and
shall additionally provide as follows:
(1) The number of shares subject to the Option shall be
30,000.
(2) The purchase price per share shall be equal to $4.50.
(3) The Option shall be designated as a (check one): Incentive
Option X or Non-Qualified Option .
--- -----
(4) On each of the next three (3) anniversary dates of the
date of this Agreement, one-third (1/3) of the Option Shares shall become
eligible for purchase by Employee.
(5) The Option shall terminate on (i) the expiration date
specified in the Stock Option Agreement or
1
<PAGE>
(ii) such earlier date as termination may occur according to the terms and
conditions of the Plan and/or the Stock Option Agreement. Upon termination for
any reason, Employee and/or his successors and assigns shall have only such
rights as are specified in the Plan and the Stock Option Agreement, and shall
not be entitled to any compensation in any form for the loss of any other right.
e. BONUS STOCK OPTIONS. Employee shall receive a bonus of up to
-------------------
sixty thousand (60,000) shares of Common Stock of MIKOHN on the following terms:
(1) The options shall be granted under MIKOHN's Stock Option
Plan./1/
(2) The purchase price per share for the Option Shares shall be
equal to $4.50.
(3) Employee shall be granted the number of options indicated
below based upon sales of MIKOHN surveillance and systems products (excluding
progressive systems):
<TABLE>
<CAPTION>
YEAR GROSS SALES NO. OPTIONS
- - ------- ----------------- -----------
<S> <C> <C>
1996 $19 to 20 Million 20,000
$18 to 19 Million 14,000
$17 to 18 Million 9,000
$16 to 17 Million 5,000
$15 to 16 Million 2,000
1997 $24 to 25 Million 20,000
$23 to 24 Million 14,000
$22 to 23 Million 9,000
$21 to 22 Million 5,000
$20 to 21 Million 2,000
1998 $29 to 30 Million 20,000
$28 to 29 Million 14,000
$27 to 28 Million 9,000
$26 to 27 Million 5,000
$25 to 26 Million 2,000
</TABLE>
(4) To qualify for Bonus Stock Options, gross sales must generate
35% gross profit on surveillance products and 50% gross profits on systems
products (excluding progressive systems).
(5) The Option shall terminate on (i) the expiration date
specified in the Stock Option Agreement or (ii) such earlier date as termination
may occur according to the terms and conditions of the Plan and/or the Stock
Option Agreement. Upon termination for any reason, Employee and/or his
successors and assigns shall have only such rights as are specified in the Plan
and the Stock Option Agreement, and shall not be entitled to any compensation in
any form for the loss of any other right.
f. COUNTRY CLUB MEMBERSHIP. MIKOHN shall provide Employee a
-----------------------
membership in a country club of Employee's choice the initial cost of which
shall not exceed $25,000.00. Employee shall be responsible for the payment of
all monthly dues and assessments.
g. EMPLOYEE BENEFITS. Employee shall receive such benefits, fringe
-----------------
benefits and entitlements as is usual and customary for MIKOHN to provide an
employee of like status and position and are consistent with MIKOHN's
established policies on employment, which may be revised from time to time in
the sole discretion of MIKOHN.
h. BUSINESS EXPENSES. MIKOHN will reimburse Employee for reasonable
-----------------
business expenses incurred in performing Employee's duties and promoting the
business of MIKOHN.
- - ------------------
/1/ The parties acknowledge that there are insufficient shares currently
available in MIKOHN's Stock Option Plan to fulfill this grant. MIKOHN will take
such steps as are reasonably required to increase the shares available in the
Stock Option Plan. In the event such steps are unsuccesful, the parties will
adjust the monetary compensation payable to Employee under this Agreement to
equitably compensate him for any reduction in shares necessary as a result of
the unavailability of shares in the Stock Option Plan.
2
<PAGE>
6. TERMINATION.
-----------
a. TERMINATION WITHOUT CAUSE. Any other provision in this Agreement
-------------------------
to the contrary notwithstanding, this Agreement may be terminated by MIKOHN
without cause at any time upon the payment to Employee of the sum of One Hundred
Fifty Thousand and No/100 Dollars ($150,000.00). Upon such termination, MIKOHN
shall have no further liability to Employee hereunder except as provided under
Section 11(b) if MIKOHN elects to exercise the rights granted thereunder.
b. TERMINATION FOR JUST CAUSE. For just cause MIKOHN may terminate
--------------------------
this Agreement immediately at any time without further liability to Employee by
giving written notice of termination to Employee.
(1) JUST CAUSE DEFINED. Termination for any of the reasons set forth
------------------
in this Section 6(b)(1) shall be deemed termination for just cause. For
purposes of this Agreement, just cause includes the following: (a) commission of
a crime involving moral turpitude; (b) engaging in any act of dishonesty or
material insubordination; (c) material breach of this Agreement; (d) habitual
neglect of duties which Employee is required to perform under the terms of this
Agreement; (e) failure of Employee to act in a professional manner; (f) failure
of Employee to timely and successfully complete work assigned; (g) failure of
Employee to observe all employment policies of MIKOHN; or (h) any other reason
which is legally sufficient under the laws of the State of Nevada
(a) MIKOHN may terminate this Agreement if it appears in the
reasonable judgment of MIKOHN that due to Employee's employment by MIKOHN:
i) MIKOHN may be subjected to significant disciplinary action or
lose or become unable to obtain or reinstate any federal, state and/or foreign
registration, license or approval material to MIKOHN's business or the business
of any MIKOHN subsidiary; or
ii) MIKOHN or any key employee, officer, director or shareholder
of MIKOHN required to qualify or be found suitable under any gaming law may not
so qualify or be found suitable.
(b) MIKOHN may terminate this Agreement if Employee solicits or
accepts any payment or gratuity from any existing or potential customer or
supplier of MIKOHN without the prior written consent of the President of MIKOHN.
c. DEATH OR INCAPACITY. This Agreement shall terminate
-------------------
automatically in the event that: (i) Employee fails or is unable to perform
Employee's duties due to injury, illness or other incapacity for thirty (30)
days in any twelve (12) month period (except that Employee may be entitled to
disability payments pursuant to MIKOHN's disability plan, if any); or (ii) Death
of Employee.
d. TERMINATION BY EMPLOYEE. Upon thirty (30) days' written notice
-----------------------
to MIKOHN, Employee may terminate this Agreement.
e. MITIGATION. In the event of a termination of Employee's
----------
employment for any reason, Employee shall be required to seek other employment
in order to mitigate any damages resulting from the breach of this Agreement.
7. COVENANT OF CONFIDENTIALITY. All documents, records, files,
---------------------------
manuals, forms, materials, supplies, computer programs, trade secrets and other
information which comes into Employee's possession from time to time during
Employee's employment by MIKOHN, and/or any of MIKOHN's subsidiaries or
affiliates, shall be deemed to be confidential and proprietary to MIKOHN and
shall remain the sole and exclusive property of MIKOHN. Employee acknowledges
that all such confidential and proprietary information is confidential and
proprietary and not readily available to MIKOHN's business competitors. On the
effective date of the termination of the employment relationship or at such
other date specified by MIKOHN, Employee agrees that he will return to MIKOHN
all such confidential and proprietary items (including, but not limited to,
company badge and keys) in his control or possession, and all copies thereof,
and that he will not remove any such items from the offices of MIKOHN.
8. COVENANT OF NON-DISCLOSURE. Without the prior written approval of
--------------------------
MIKOHN, Employee shall keep confidential and not disclose or otherwise make use
of any of the confidential or proprietary information or trade secrets referred
to in Section 7 nor reveal the same to any third party whomsoever, except as
required by law.
9. COVENANT OF NON-SOLICITATION. During the Term of this Agreement
----------------------------
and for a period of two (2) years following the effective date of termination of
the employment relationship, Employee, either on Employee's own account or for
any person, firm, company or other entity, shall not solicit, interfere with or
induce, or attempt to induce, any employee of MIKOHN, or any of its subsidiaries
or affiliates to leave their employment or to breach their employment agreement,
if any, with MIKOHN.
3
<PAGE>
10. COVENANT OF COOPERATION. Employee agrees to cooperate with MIKOHN
-----------------------
in any litigation or administrative proceedings involving any matters with which
Employee was involved during his employment by MIKOHN. MIKOHN shall reimburse
Employee for reasonable expenses incurred in providing such assistance.
11. COVENANT AGAINST COMPETITION.
----------------------------
a. SCOPE AND TERM. During the Term of this Agreement and for an
--------------
additional period ending six (6) months after the expiration of this Agreement,
Employee shall not directly or indirectly engage in or become a partner,
officer, principal, employee, consultant, investor, creditor or stockholder of
any business, proprietorship, association, firm, corporation or any other
business entity which is engaged or proposes to engage or hereafter engages in
any business which competes with the business of MIKOHN and/or any of MIKOHN's
subsidiaries or affiliates in any geographic area in which MIKOHN conducts
business at the time of the termination or expiration of the employment
relationship.
b. OPTION TO EXTEND TERM OF COVENANT. Upon thirty (30) days'
---------------------------------
written notice to Employee given prior to the expiration of the term of the
Covenant Against Competition specified in Section 11(a) above, MIKOHN shall have
the option to extend said term for a period of up to one (1) year additional
years upon payment of the following consideration to Employee:
(1) If Employee is terminated without cause or this
Agreement expires without renewal, an initial payment of Ten Thousand and No/100
Dollars ($10,000.00) and thereafter a sum each month equal to one-half (1/2) of
Employee's Base Monthly Salary payable on the 15th day of each month so long as
MIKOHN desires the Covenant to remain in effect (but not to exceed one (1)
year); or
(2) If Employee terminates this Agreement or is terminated
by MIKOHN for just cause, an initial payment of Five Thousand and No/100 Dollars
($5,000.00) and thereafter a sum each month equal to one-half (1/2) of
Employee's Base Monthly Salary payable on the 15th day of each month so long as
MIKOHN desires the Covenant to remain in effect (but not to exceed one (1)
year).
c. BASE MONTHLY SALARY DEFINED. For purposes of this
---------------------------
Agreement, "Base Monthly Salary" means one-twelfth (1/12) of Employee's Base
Annual Salary specified in Section 5(a) above. If there is no Base Annual Salary
specified in Section 5(a) or at the time of termination or expiration of this
Agreement Employee was not entitled to receive a Base Annual Salary, "Base
Monthly Salary" means the average monthly compensation paid to Employee by
MIKOHN during the time of his/her employment by MIKOHN.
12. RIGHTS TO INVENTIONS.
--------------------
a. INVENTIONS DEFINED. "Inventions" means discoveries,
------------------
concepts, and ideas, whether patentable or not, relating to any present or
prospective activities of MIKOHN, including without limitation devices,
processes, methods, formulae, techniques, and any improvements to the foregoing.
b. APPLICATION. This Section 12 shall apply to all Inventions
-----------
made or conceived by Employee, whether or not during the hours of his employment
or with the use of MIKOHN facilities, materials, or personnel, either solely or
jointly with others, during the Term of his employment by MIKOHN and for a
period of one (1) year after any termination of such employment.
c. ASSIGNMENT. Employee hereby assigns and agrees to assign to
----------
MIKOHN all of his rights to Inventions and to all proprietary rights therein,
based thereon or related thereto, including without limitation applications for
United States and foreign letters patent and resulting letters patent.
d. REPORTS. Employee shall inform MIKOHN promptly and fully of
-------
each Invention by a written report, setting forth in detail the structures,
procedures, and methodology employed and the results achieved ("Notice of
Invention"). A report shall also be submitted by Employee upon completion of any
study or research project undertaken on MIKOHN's behalf, whether or not in the
Employee's opinion a given study or project has resulted in an Invention.
e. PATENTS. At MIKOHN's request and expense, Employee shall
-------
execute such documents and provide such assistance as may be deemed necessary by
MIKOHN to apply for, defend or enforce any United States and foreign letters
patent based on or related to such Inventions.
13. REMEDIES. Notwithstanding any other provision in this Agreement
--------
to the contrary, Employee acknowledges and agrees that if Employee commits a
material breach of the Covenant of Confidentiality (Section 7), Covenant of Non-
Disclosure (Section 8), Covenant of Non-Solicitation (Section 9), Covenant of
Cooperation (Section 10), Covenant Against Competition (Section 11), or Rights
4
<PAGE>
to Inventions (Section 12), MIKOHN shall have the right to have the obligations
of Employee specifically enforced by any court having jurisdiction on the
grounds that any such breach will cause irreparable injury to MIKOHN and money
damages will not provide an adequate remedy. Such equitable remedies shall be
in addition to any other remedies at law or equity, all of which remedies shall
be cumulative and not exclusive. Employee further acknowledges and agrees that
the obligations contained in Sections 7 through 12, of this Agreement are fair,
do not unreasonably restrict Employee's future employment and business
opportunities, and are commensurate with the compensation arrangements set out
in this Agreement.
14. SURVIVABILITY. Sections 7 through 13, of this Agreement shall
-------------
survive termination of the employment relationship and this Agreement.
15. GENERAL PROVISIONS.
------------------
a. ARBITRATION. Any controversy involving the construction,
-----------
application, enforceability or breach of any of the terms, provisions, or
conditions of this Agreement, including without limitation claims for breach of
contract, violation of public policy, breach of implied covenant, intentional
infliction of emotional distress or any other alleged claims which are not
settled by mutual agreement of the parties, shall be submitted to final and
binding arbitration in accordance with the rules of the American Arbitration
Association. The cost of arbitration shall be borne by the losing party. In
consideration of each party's agreement to submit to arbitration any and all
disputes that arise under this Agreement, each party agrees that the arbitration
provisions of this Agreement shall constitute his/its exclusive remedy and each
party expressly waives the right to pursue redress of any kind in any other
forum. The parties further agree that the arbitrator acting hereunder shall not
be empowered to add to, subtract from, delete or in any other way modify the
terms of this Agreement. Notwithstanding the foregoing, any party shall have
the limited right to seek equitable relief in the form of a temporary
restraining order or preliminary injunction in a court of competent jurisdiction
to protect itself from actual or threatened irreparable injury resulting from an
alleged breach of this Agreement pending a final decision in arbitration.
b. ATTORNEYS' FEES AND COSTS. If any action in law, equity,
-------------------------
arbitration or otherwise is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs, and necessary disbursements in addition to any other relief to which
he/it may be entitled. The term "prevailing party" means the party obtaining
substantially the relief sought, whether by compromise, settlement, award or
judgment.
c. AUTHORIZATION. MIKOHN and Employee each represent and warrant
-------------
to the other that he/she/it has the authority, power and right to deliver,
execute and fully perform the terms of this Agreement.
d. ENTIRE AGREEMENT. Employee understands and acknowledges that
----------------
this document constitutes the entire agreement between Employee and MIKOHN with
regard to Employee's employment by MIKOHN and Employee's post-employment
activities concerning MIKOHN. This Agreement supersedes any and all other
written and oral agreements between the parties with respect to the subject
matter hereof. Any and all prior agreements, promises, negotiations, or
representations, either written or oral, relating to the subject matter of this
Agreement not expressly set forth in this Agreement are of no force and effect.
This Agreement may be altered, amended, or modified only in writing signed by
all of the parties hereto. Any oral representations or modifications concerning
this instrument shall be of no force and effect.
e. SEVERABILITY. If any term, provision, covenant, or condition
------------
of this Agreement is held by a court or other tribunal of competent jurisdiction
to be invalid, void, or unenforceable, the remainder of such provisions and all
of the remaining provisions hereof shall remain in full force and effect to the
fullest extent permitted by law and shall in no way be affected, impaired, or
invalidated as a result of such decision.
f. GOVERNING LAW. Except to the extent that federal law may
-------------
preempt Nevada law, this Agreement and the rights and obligations hereunder
shall be governed, construed and enforced in accordance with the laws of the
State of Nevada.
g. TAXES. All compensation payable hereunder is gross and shall
-----
be subject to such withholding taxes and other taxes as may be provided by law.
Employee shall be responsible for the payment of all taxes attributable to the
compensation provided by this Agreement except for those taxes required by law
to be paid or withheld by MIKOHN.
h. ASSIGNMENT. This Agreement shall be binding upon and inure to
----------
the benefit of the successors and assigns of MIKOHN. Employee may not sell,
transfer, assign, or pledge any of his rights or interests pursuant to this
Agreement.
i. WAIVER. Either party's failure to enforce any provision or
------
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, or prevent that party thereafter from
enforcing such provision or provisions and each and every other provision of
this Agreement.
5
<PAGE>
j. CAPTIONS. Titles and headings to sections in this Agreement
--------
are for the purpose of reference only and shall in no way limit, define, or
otherwise affect any provisions contained therein.
16. ACKNOWLEDGEMENT. Employee acknowledges that he has been given a
---------------
reasonable period of time to study this Agreement before signing it. Employee
certifies that he has fully read, has received an explanation of, and completely
understands the terms, nature, and effect of this Agreement. Employee further
acknowledges that he is executing this Agreement freely, knowingly, and
voluntarily and that Employee's execution of this Agreement is not the result of
any fraud, duress, mistake, or undue influence whatsoever. In executing this
Agreement, Employee does not rely on any inducements, promises, or
representations by MIKOHN other than the terms and conditions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have read, understood, and
voluntarily executed this Agreement as of the day and year first above written.
EMPLOYEE MIKOHN GAMING CORPORATION
_________________________ By:___________________________
SEAMUS McGILL
Title:___________________________
6
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,951,555
<SECURITIES> 0
<RECEIVABLES> 22,746,674
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<INVENTORY> 18,173,579
<CURRENT-ASSETS> 48,101,858
<PP&E> 15,756,755
<DEPRECIATION> 514,760
<TOTAL-ASSETS> 86,432,575
<CURRENT-LIABILITIES> 14,930,116
<BONDS> 0
0
0
<COMMON> 982,717
<OTHER-SE> 48,044,137
<TOTAL-LIABILITY-AND-EQUITY> 86,432,575
<SALES> 20,972,263
<TOTAL-REVENUES> 0
<CGS> 14,331,147
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,078,796
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<INTEREST-EXPENSE> (500,961)
<INCOME-PRETAX> (486,107)
<INCOME-TAX> 170,000
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<NET-INCOME> (316,107)
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