MIKOHN GAMING CORP, 10-Q, 1996-08-12

MIKOHN GAMING CORP
10-Q, 1996-08-12
COMPUTER COMMUNICATIONS EQUIPMENT

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<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: JUNE 30, 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
------------------------------------------------------

MIKOHN GAMING CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

NEVADA 88-0218876
- --------------------------------- ---------------------------------------
(State of other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)

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:

9,859,864 as of August 7, 1996
- ------------------------------ -----------------------------
(Amount Outstanding) (Date)
<PAGE>

MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
Part I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1996 and
December 31, 1995 (unaudited) 2

Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1996 and 1995 (Unaudited) 3

Consolidated Statement of Changes in Stockholders' Equity
Equity for the Six Months Ended June 30, 1996 (Unaudited) 4

Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 12

Item 6. Exhibits and Reports on Form 8-K 13

</TABLE>

1
<PAGE>

MIKOHN GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
------

Current Assets:

Cash and short-term investments $ 6,652,147 $ 5,453,136
Trade accounts receivable, net 18,473,146 19,658,708
Other receivables 206,247 2,981,236
Installment sales receivable, current
portion 2,003,490 1,332,214
Inventories
Raw materials 11,168,379 9,494,688
Finished goods 4,244,921 4,264,890
Work in process 3,625,622 3,464,884
Prepaid expenses 2,625,395 1,870,482
----------- -----------
Total current assets 48,999,347 48,520,238

Installment sales receivable, net of
current portion 634,712 241,174

Property and equipment, net 15,642,306 15,539,211

Intangible assets 16,314,101 16,998,401

Other assets 4,819,096 5,024,737
----------- -----------

Total assets $86,409,562 $86,323,761
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------

Current liabilities:
Current portion of long-term debt and
notes payable $17,974,517 $ 786,172
Trade accounts payable 5,721,020 6,982,409
Customer deposits 5,449,694 2,875,174
Accrued and other current liabilities 2,357,217 3,197,957
----------- -----------
Total current liabilities 31,502,448 13,841,712
----------- -----------

Long-term debt 4,847,282 22,305,160
----------- -----------

Deferred federal income taxes 839,065 825,065
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par value,
5,000,000 shares authorized, none
issued
Common stock, $.10 par value,
20,000,000 shares authorized,
9,855,864 and 9,827,164 shares
shares issued 985,586 982,717
Additional paid-in capital 48,379,821 48,259,166
Foreign currency translation
adjustment (1,713) 30,736
Retained earnings 105,024 327,156
----------- -----------
Total 49,468,718 49,599,775
Less treasury stock, 24,333 shares,
at cost (247,951) (247,951)
----------- -----------
Total stockholders' equity 49,220,767 49,351,824
----------- -----------

Total liabilities and stockholders'
equity $86,409,562 $86,323,761
=========== ===========
</TABLE>

See the accompanying note to consolidated financial statements.

2
<PAGE>

MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $23,047,937 $21,294,628 $44,020,200 $40,622,470

Cost of Sales 15,142,683 13,659,976 29,473,830 26,938,528
----------- ----------- ----------- -----------
Gross Profit 7,905,254 7,634,652 14,546,370 13,683,942

Selling, general and administrative
expenses 7,368,549 7,626,349 14,221,078 13,757,824
----------- ----------- ----------- -----------

Operating income (loss) 536,705 8,303 325,292 (73,882)

Interest expense (435,721) (158,024) (936,682) (236,070)

Other income and expense 43,382 85,879 269,649 260,712
----------- ----------- ----------- -----------
Income (loss) before income tax
(provision) benefit 144,366 (63,842) (341,741) (49,240)

Income tax (provision) benefit (50,391) 22,100 119,609 17,000
----------- ----------- ----------- -----------

Net income (loss) $ 93,975 $ (41,742) $ (222,132) $ (32,240)
=========== =========== =========== ===========

Weighted average common shares 9,814,849 9,799,974 9,808,840 9,791,340
=========== =========== =========== ===========

Earnings (loss) per common share $ 0.01 $ (0.00) $ (0.02) $ (0.00)
=========== =========== =========== ===========
</TABLE>

See the accompanying note to 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 9,827,164 $982,717 $48,259,166 $ 327,156 $(247,951) $ 30,736 $49,351,824

Net loss (222,132) (222,132)

Proceeds from sale of
stock 28,700 2,869 120,655 123,524

Translation adjustment (32,449) (32,449)
--------- -------- ----------- --------- --------- -------- -----------

Balance, June 30, 1996 9,855,864 $985,586 $48,379,821 $ 105,024 $(247,951) $ (1,713) $49,220,767
========= ======== =========== ========= ========= ======== ===========
</TABLE>

See the accompanying note to financial statements.

4
<PAGE>

MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>

1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (222,132) $ (32,240)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 1,219,388 804,939
Amortization 1,001,325 850,394
Change in exchange rate variance (32,449) (69,026)
Changes in assets and liabilities:
Accounts receivable 3,960,551 (2,226,721)
Contracts receivable (1,064,814) (2,111,786)
Inventories (1,814,460) (3,410,240)
Prepaid expenses and other assets (866,297) (277,432)
Accounts payable (1,261,389) 367,872
Customer deposits 2,574,520 (1,601,991)
Accrued and other current
liabilities (826,740) (493,086)
----------- -----------
Net cash provided by (used in)
operating activities 2,667,503 (8,199,317)
----------- -----------
Cash flows from investing activities:
Purchase of business operations (3,500,000)
Purchase of property and equipment (1,322,483) (4,394,173)
Proceeds from sale of common stock 123,524
----------- -----------
Net cash used in investing activities (1,198,959) (7,894,173)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt and
notes payable 304,549 6,535,400
Principal payments on notes payable
and long-term debt (574,082) (397,536)
----------- -----------
Net cash provided by (used in)
financing activities (269,533) 6,137,864
----------- -----------
Increase (decrease) in cash 1,199,011 (9,955,626)

Cash, beginning of period 5,453,136 11,512,442
----------- -----------
Cash, end of period $ 6,652,147 $ 1,556,816
=========== ===========
</TABLE>

See the accompanying note to financial statements.

5
<PAGE>

MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>

1996 1995
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 943,533 $ 407,586
=========== ==========
Cash paid (received) during the period
for state and federal income taxes
income taxes $(2,772,914) $ 484,091
=========== ==========
Distribution of common stock held in
Treasury $ 231,991
=========== ==========
Supplemental schedule of non-cash
investing and financing activities:
Debt incurred in purchase of business
assets and slot route operations $4,489,562
=========== ==========
</TABLE>

See the accompanying note to 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 accrual)
necessary to present fairly the financial position of the Company at June 30,
1996, the results of its operations for the three and six months ended June 30,
1996 and 1995, the changes in stockholders' equity for the six months ended
June 30, 1996 and cash flows for the six months ended June 30, 1996 and 1995.
The results of operations for the three and six months ended June 30, 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.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- ---------------------------------------

SALES
- -----

Sales for the six month period ended June 30, 1996 were $44.0 million
compared to $40.6 million in the same in the same period in the prior year, an
increase of $3.4 million or 8.4%. Sales in the 1996 period include approximately
$18.7 million by the domestic interior sign division, $3.8 million by the Trans
Sierra division, $8.4 million by the outdoor lighting and sign group, $3.1
million by the games division, and $5.2 million by the international
subsidiaries. Sales by the electronics division in the first half of

8
<PAGE>

1996 were $9.5 million, including $4.7 million in intercompany sales which have
been eliminated in the consolidated statement of operations. Sales for the six
month period ended June 30, 1995 include approximately $17.9 million by the
domestic interior sign division, $6.8 million by the Trans Sierra division, $6.4
million by the outdoor lighting and sign group, $2.8 million by the games
division, $2.8 million by the international subsidiaries and $8.7 million by the
electronics division, including approximately $4.8 million in intercompany sales
that have been eliminated in the consolidated statement of operations. Sales
made by the international subsidiaries increased $2.4 million or 85.7% and
accounted for 11.8% of total sales for the 1996 period compared to 6.9% in the
1995 period. Sales of the Trans Sierra division decreased $3.0 million or 44.1%
because of the lack of major orders for surveillance equipment from new casino
projects. The outdoor lighting and sign groups had an increase in revenues of
$2.0 million or 31.3% primarily attributable to the MikohnVision(TM) product
line.

As of June 30, 1996, the Company had a backlog of orders believed to be
firm of $21.2 million. Order backlogs as of March 31, 1996, and June 30, 1995,
were $17.0 million and $14.5 million, respectively.

GROSS PROFIT
- ------------

Gross profit for the six months ended June 30, 1996, increased to $14.5
million from $13.7 million in the comparable 1995 period, an increase of $0.8
million or 5.8%. The gross profit margin was 33.0% in the 1996 period compared
to 33.7% in the 1995 period. The Trans Sierra division had a gross profit margin
of 5.4% for the 1996 six month period compared to 22.9% in the comparable 1995
period.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------

Selling, general and administrative expenses increased by $0.4 million to
$14.2 million in the six month period ended June 30, 1996, compared to $13.8
million in the same period in the prior year. As a percentage of sales, selling,
general and administrative expenses were 32.3% and 34.0% for the 1996 and 1995
periods, respectively. Selling and marketing expenses decreased to $6.3 million
in the six month period ended June 30, 1996 from $6.8 million in the prior year
period.

Research and development expenses, which are expensed when incurred, were
$1.6 million and $1.9 million for the six month period ended June 30, 1996, and
1995, respectively. Management believes that the development of new and
innovative products, as well as enhancement of the Company's existing product
lines for the domestic and international markets, are vital to the future growth
of the Company. CasinoLink(TM), CaddTrack(TM) and MikohnVision(TM) are three of
the new products recently introduced, each of which is expected by management to
be

9
<PAGE>

successful. Safejack(TM), the Company's computerized tracking security, player
tracking and marketing system for blackjack tables, will be field tested in the
third quarter of 1996 and the Company expects to begin installation of tables in
the first quarter of 1997.

Depreciation and amortization totaled $2.1 million for the six month
period ending June 30, 1996 compared to $1.5 million in the 1995 six month
period.

OTHER INCOME AND EXPENSE
- ------------------------

Interest expense increased to $0.9 million in the 1996 six month period
from $0.2 million in the comparable 1995 period due to increased bank borrowings
and interest expense on the long-term debt incurred in the acquisition of the
assets of Games of Nevada.

THREE MONTHS ENDED JUNE 30, 1996 AND 1995
- -----------------------------------------

SALES
- -----

Sales increased by $1.7 million or 8.0% to $23.0 million for the three
months ended June 30, 1996, compared to $21.3 million in the prior year period.
Sales in the 1996 period include approximately $11.5 million by the domestic
interior sign division, $2.2 million by the Trans Sierra division, $2.7 million
by the outdoor lighting and sign group, $1.5 million by the games division and
$2.9 million by the international subsidiaries. Sales by the electronics
division in the 1996 second quarter were $5.5 million, including $3.3 million in
intercompany sales which have been eliminated in the consolidated statement of
operations. Sales for the 1995 second quarter include $9.4 million by the
domestic interior sign division, $4.2 million by the Trans Sierra division, $2.3
million by the outdoor lighting and sign group, $1.7 million by the games
division, $1.7 by the international subsidiaries and $4.3 million by the
electronics division, including $2.3 million in intercompany sales which have
been eliminated.

GROSS PROFIT
- ------------

For the three months ended June 30, 1996, gross profit was $7.9 million, $
0.3 million or 4.0% greater than the $7.6 million reported for the same period
in 1995. The gross profit margin was 34.4% in the current year period as
compared to 35.7% in the prior year period.

SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------

In the three month period ended June 30, 1996, selling, general and

10
<PAGE>

administrative expenses decreased by $0.2 million to $7.4 million, compared to
$7.6 million in the same period in 1995. As a percentage of sales, selling,
general and administrative expenses were 32.2% and 35.7% for the 1996 and 1995
three month periods, respectively. Research and development expenses decreased
to $0.7 million in the 1996 three month period from $1.1 million in the
comparable 1995 period. Selling and marketing expenses decreased $0.4 million to
$3.3 million in three month period compared to $3.7 million in the same period
in 1995. Depreciation and amortization increased to $1.1 million for the 1996
quarter compared to $0.8 million for the quarter ended June 30, 1995.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 1996, the Company had a net loss of $0.2
million. Net cash provided by operating activities was $2.7 million, reflecting
among other items a $4.0 million reduction in accounts receivable and a $2.6
million increase in customer deposits, which were offset by a $1.8 million
increase in inventories, a $1.1 million increase in contracts receivable and a
$1.3 million decrease in accounts payable. The reduction in accounts receivable
was primarily due to income tax refunds of $2.8 million.

The Company's $20.0 million senior secured credit facility with Bank of
America Nevada is due on May 31, 1997, and has been reclassified as the current
portion of long-term debt from long term debt. As of June 30, 1996, the Company
had drawn $17.9 million of the $20.0 million credit facility.

At June 30, 1996, the Company had working capital of $17.5 million compared
to $34.7 million at December 31, 1995. The decrease was due to reclassifying the
Bank of America credit facility as a current liability. At June 30, 1996 the
Company had $6.7 million in cash and cash equivalents.

11
<PAGE>

MIKOHN GAMING CORPORATION

PART II - OTHER INFORMATION

Item 4 - Submission of Matters to a Vote of Security Holders

Certain matters were submitted to the stockholders for their approval or
other action at the annual meeting of stockholders, all as set forth in the
Company's Proxy Statement dated April 12, 1996 heretofore filed with the
Commission and incorporated by this reference.

(a) The annual meeting of stockholders was on held May 14, 1996. On the record
date, March 20, 1996, there were 9,827,164 shares of common stock outstanding
and entitled to vote.

(b) Each of the seven directors of the Company -- Messrs. Thompson, Garcia,
Peterson, Oliver, Campbell, Irvine and Todoroff -- received the vote of
9,324,689 shares and each was reelected to an additional term of one year. In
the case of Mr. Peterson, 250,072 shares abstained from voting, and in the case
of each of the other directors, 229,172 shares abstained from voting. No shares
were voted against any of the directors.

(c) Certain amendments to the Employee Stock Option Plan were approved.
7,513,643 shares were voted in favor of the amendments, 438,759 shares were
voted against and 14,870 shares abstained.

(d) Certain amendments to the Director Stock Option Plan were approved.
7,799,216 shares were voted in favor of the amendments, 151,902 shares were
voted against and 10,041 shares abstained.

(e) The continued retention of Deloitte & Touche as independent auditors was
approved. 9,502,443 shares voted in favor thereof, 41,287 shares voted against
and 10,041 shares abstained.

12
<PAGE>

Item 6 - Exhibits and Reports on Form 8-K

A. Exhibits
<S> <C> <C>
*10.24 Employment Agreement dated May 19, 1996 between
the Company and Carolan Pepin

*10.25 Employment Agreement dated June, 2 1996 between
the Company and Don Stevens

27 Financial Data Schedule

B. Reports on Form 8-K:

None

</TABLE>

<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/ Donald W. Stevens
----------------------------------------
Donald Stevens, Executive Vice President
Treasurer (Principal Financial Officer)

Dated: August 9, 1996

<PAGE>

EXHIBIT 10.24

EMPLOYMENT AGREEMENT
--------------------

THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), is made and entered into as of May
19, 1996 by and between MIKOHN GAMING CORPORATION, a Nevada corporation
("MIKOHN"), and CAROLAN PEPIN ("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 two (2) 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 for additional terms of one (1) year.

2. DUTIES OF EMPLOYEE. Employee's position with MIKOHN will be Director
------------------
of Marketing. Employee's basic responsibilities will be to establish and perform
marketing and communication initiatives to support overall company goals and
enhance MIKOHN's image and profitability and to manage current programs
including participation in industry shows and investor relations efforts to
assure continuing effectiveness. 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. MIKOHN may assign Employee to another position
commensurate with Employee's training and experience so long as the compensation
paid to Employee is equal to or greater than the compensation provided in this
Agreement.

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
her 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 her
profession.

4. UNIQUENESS OF SERVICES. Employee hereby acknowledges that the services
----------------------
to be performed by her 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.
------------------------

b. REVIEW. MIKOHN agrees to review the salary of Employee on or
------
before November 19, 1996 and annually thereafter. MIKOHN, in its sole
discretion, may increase Employee's salary dependent upon various factors which
include without limitation Employee's performance, the compensation paid to
similarly situated employees of businesses similar in type and size to MIKOHN,
the financial condition of MIKOHN, and the economic and market conditions to
which MIKOHN is or may be subject.

c. CASH BONUS. During the term of this Agreement, Employee may be
----------
paid a cash bonus or bonuses in addition to her salary. The decision to award a
cash bonus or bonuses and the amount thereof shall be within the sole and
absolute discretion of MIKOHN and shall be based on various factors which
include without limitation Employee's performance, the compensation paid to
similarly situated employees of businesses similar in type and size to MIKOHN,
the financial condition of MIKOHN, and the economic and market conditions to
which MIKOHN is or may be subject.

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 20,000.

1
<PAGE>

(2) The purchase price per share shall be equal to $5.75.

(3) The Option shall be designated as an Incentive Option.

(4) On each of the next two (2) anniversary dates of the date of
this Agreement, one-half (1/2) 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 (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 her
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. AUTOMOBILE. MIKOHN shall provide Employee an automobile allowance
----------
in the amount of $500.00 per month.

f. RELOCATION EXPENSES. MIKOHN will reimburse Employee for the
-------------------
following relocation expenses:

(1) Three (3) round trip airline tickets (coach) from Chicago to
Las Vegas for Employee and Employee's spouse;

(2) One (1) one-way airline ticket from Chicago to Las Vegas for
Employee, Employee's spouse and two (2) cats;

(3) Moving company charges for packing, moving and unpacking
household items and one (1) automobile, including insurance (Employee to provide
three (3) bids);

(4) Temporary residence in Las Vegas for up to 30 days (not to
exceed $1,000);

(5) Cost of storage for up to thirty (30) days for household
items, if needed;

(6) Legal and closing costs not to exceed $2,000 incurred in sale
of home in Chicago and/or purchase of new home in Las Vegas;

(7) The following relocation-caused one-time expenses: home phone
installation, cable TV service installation, connection charges for gas, water
and electricity.

g. VACATION. Employee shall be entitled to one (1) week paid vacation
--------
after six (6) months, one (1) additional week after one (1) year, and three (3)
weeks after two (2) years.

h. 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.

i. BUSINESS EXPENSES. MIKOHN will reimburse Employee for reasonable
-----------------
business expenses incurred in performing Employee's duties and promoting the
business of MIKOHN.

6. TERMINATION OF EMPLOYMENT.
-------------------------

a. Either party shall have the right to terminate this Agreement upon
thirty (30) days written notice to the other. In the event MIKOHN terminates
this Agreement without just cause, Employee will receive a severance payment
equal to six (6) months Base Annual Salary plus fees charged by an outplacement
firm of Employee's choice not to exceed $5,000.

b. 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.

2
<PAGE>

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) MIKOHN may terminate this Agreement if Employee has made
any misrepresentation of fact or has failed to disclose any fact which might be
material to MIKOHN's decision to enter into this Agreement including, without
limitation, failure to disclose any criminal or civil fraud charges brought
against Employee at any time or failure to disclose a prior business or personal
bankruptcy action involving Employee.

c. 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. 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 she will return to MIKOHN
all such confidential and proprietary items (including, but not limited to,
company badge and keys) in her control or possession, and all copies thereof,
and that she 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.

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 her 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 or termination 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

3
<PAGE>

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) additional year upon
payment of the following consideration to Employee:

(1) If Employee is terminated without cause or this Agreement
expires without renewal, the sum of $20,000 payable in 12 monthly installments;
or

(2) If Employee terminates this Agreement or is terminated by
MIKOHN for just cause, the sum of $5,000 payable in 12 monthly installments.

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 her employment or
with the use of MIKOHN facilities, materials, or personnel, either solely or
jointly with others, during the Term of her 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 her 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
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

4
<PAGE>

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 her 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.

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.

k. BREACH - RIGHT TO CURE. A party shall be deemed in breach of this
----------------------
Agreement only upon the failure to perform any obligation under this Agreement
after receipt of written notice of breach and failure to cure such breach within
ten (10) days thereafter; provided, however, such notice shall not be required
where a breach or threatened breach would cause irreparable harm to the other
party and such other party may immediately seek equitable relief in a court of
competent jurisdiction to enjoin such breach.

16. ACKNOWLEDGEMENT. Employee acknowledges that she has been given a
---------------
reasonable period of time to study this Agreement before signing it. Employee
certifies that she has fully read, has received an explanation of, and
completely understands the terms, nature, and effect of this Agreement. Employee
further acknowledges that she 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.

17. EFFECTIVE ONLY UPON EXECUTION BY AUTHORIZED OFFICER OF MIKOHN. This
-------------------------------------------------------------
Agreement shall have no force or effect and shall be unenforceable in its
entirety until (i) it is approved by the Compensation Committee and Board of
Directors of MIKOHN and (ii) it is executed by a duly authorized officer of
MIKOHN and such executed Agreement is delivered to Employee.

5
<PAGE>

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

/s/ CAROLAN PEPIN /s/ SEAMUS MCGILL
_________________________ By:___________________________
CAROLAN PEPIN
EXECUTIVE VICE PRESIDENT
Title:________________________

<PAGE>

EXHIBIT 10.25

EMPLOYMENT AGREEMENT
--------------------

THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), is made and entered into as of
June 10, 1996, ("Effective Date") by and between MIKOHN GAMING CORPORATION, a
Nevada corporation ("MIKOHN"), and DON STEVENS ("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 or any Renewal Term
(as defined herein), this Agreement shall continue in effect for additional
terms of (1) one year each ("Renewal Term").

2. DUTIES OF EMPLOYEE. Employee's position with MIKOHN will be Chief
------------------
Financial Officer. 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. MIKOHN may assign Employee to another position commensurate with
Employee's training and experience so long as the compensation paid to Employee
is equal to or greater than the compensation provided in this Agreement and
Employee.

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 per annum. On each
anniversary date hereof, Employee's Base Annual Salary shall be increased by not
less than $10,000.

b. CASH BONUS. Throughout the term of this Agreement, MIKOHN shall
----------
pay Employee a cash bonus each year calculated and paid as follows:

(1) BONUS AMOUNT. For the years 1996 and thereafter, the Bonus
------------
Amount shall be equal to one-half percent (.5%) of the net pretax income of
MIKOHN for the fiscal year multiplied by a fraction, the numerator of which is
the number of shares of Common Stock outstanding on the date of this Agreement
and the denominator of which is the weighted average number of shares of Common
Stock and equivalents (on a primary basis) for such fiscal year as reflected in
MIKOHN's audited financial statements; provided, however, the Bonus Amount shall
not exceed $1,000,000.00.

(2) NET PRETAX INCOME DEFINED. Net pretax income for purposes of
-------------------------
calculating the Bonus Amount shall be determined by MIKOHN's independent
auditors.

(3) TERMS OF PAYMENT. The Bonus Amount, once set by MIKOHN's
----------------
Board of Directors, shall be paid at such time and in such installments as the
Treasurer of MIKOHN deems appropriate, in his discretion, in view of the
earnings and working capital needs of MIKOHN, but not less than semi-annually.
All compensation shall be subject to the customary withholding tax, other
employment taxes and withholding amounts as required with respect to
compensation paid by MIKOHN.

1
<PAGE>

c. SIGNING BONUS. Employee shall be paid a cash bonus of $50,000 upon
-------------
the execution of this Agreement. This bonus is given in consideration of
Employee's commitment not to terminate this Agreement prior to the initial
expiration date. If Employee terminates this Agreement or if Employee is
terminated for just cause prior to the expiration of three (3) years from the
Effective Date, Employee will be obligated to return and remit a prorata portion
of the bonus to MIKOHN. (For example, if Employee should terminate this
Agreement after one year, Employee will be required to remit an amount equal to
2/3 of the bonus.)

d. STOCK OPTIONS. MIKOHN grants 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 20,000.

(2) The purchase price per share shall be equal to $5.25.

(3) The Option shall be designated as an Incentive Option.

(4) On each of the next five (5) anniversary dates of the
Effective Date of this Agreement, one-fifth (1/5) 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 (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 of this Agreement 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. CONDITIONAL STOCK OPTIONS. MIKOHN grant's to Employee options to
-------------------------
purchase shares of MIKOHN Common Stock ("Conditional Option") under the Plan.
The Conditional 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 Conditional Option shall
be dependent upon the closing price of MIKOHN common stock for twenty (20)
consecutive trading days as follows:

Closing Price No. of Options
------------- --------------
<S> <C>

$ 7.50 10,000
$10.00 10,000
$12.50 10,000
</TABLE>

(2) The purchase price per share shall be equal to $5.25.

(3) The Conditional Option shall be designated as an Incentive
Option.

(4) Once the closing price triggers the Conditional Option, it
shall vest at the rate of 20% per year.

(5) The Conditional 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 of this Agreement 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. AUTOMOBILE. MIKOHN shall provide Employee an automobile allowance
----------
in the amount of not less than $1,000 per month.

g. RELOCATION EXPENSES. MIKOHN will reimburse Employee for the
-------------------
following relocation expenses:

(1) Two (2) round trip airline tickets (coach) from Grants Pass,
Oregon to Las Vegas, Nevada for Employee and Employee's spouse;

(2) Moving company charges for packing, moving and unpacking
household items and one (1) automobile, including insurance (Employee to provide
three (3) bids);

2
<PAGE>

(3) Temporary residence in Las Vegas (not to exceed $3,000);

h. 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.

i. 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.

j. BUSINESS EXPENSES. MIKOHN will reimburse Employee for reasonable
-----------------
business expenses incurred in performing Employee's duties and promoting the
business of MIKOHN.

6. TERMINATION OF EMPLOYMENT.
-------------------------

a. Either party shall have the right to terminate this Agreement upon
thirty (30) days written notice to the other. In the event MIKOHN terminates
this Agreement without just cause before Employee sells his interest in a
business known as Orange Torpedo Trips, Employee will receive a severance
payment equal to one-half (1/2) year's Base Annual Salary. In the event MIKOHN
terminates this Agreement without just cause after Employee sells his interest
in a business known as Orange Torpedo Trips, Employee will receive a severance
payment equal to one (1) year's Base Annual Salary.

b. 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) 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; or (g) failure of Employee to
observe all employment policies of MIKOHN.

(a) MIKOHN may terminate this Agreement if it appears in the
reasonable judgment of MIKOHN that due to Employee's employment by MIKOHN:

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.

(c) MIKOHN may terminate this Agreement if Employee has made
any misrepresentation of fact or has failed to disclose any fact which might be
material to MIKOHN's decision to enter into this Agreement such as, without
limitation, failure to disclose any criminal or civil fraud charges brought
against Employee at any time or failure to disclose a prior business or personal
bankruptcy action involving Employee.

c. INCAPACITY OR DEATH. 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. MERGER OR CHANGE OF OWNERSHIP. Any other provision in this
-----------------------------
Agreement to the contrary notwithstanding, all Options to acquire common stock
of MIKOHN granted to Employee during the term of this Agreement shall become
100% vested upon (i) any merger or consolidation involving MIKOHN if MIKOHN is
not the surviving corporation; (ii) any transfer of all or substantially all of
the assets of MIKOHN; (iii) any voluntary or involuntary dissolution of MIKOHN;
(iv) any material change in ownership of MIKOHN which results in a change of a
majority of the Board of Directors; or (v) if MIKOHN or any successor or
assignee

3
<PAGE>

of MIKOHN should terminate this Agreement without cause. In addition to the
foregoing, in the event of any merger, consolidation, transfer of assets or
change in ownership, the surviving or resulting corporation or the transferee of
MIKOHN's assets may terminate this Agreement without cause only upon payment to
Employee of a sum equal to Employee's salary which would be payable under the
remaining term of this Agreement pursuant to Section 5(a) assuming that MIKOHN
would allow the Agreement to expire at the earliest possible date by providing
notice pursuant to Section 1.

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.

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 one (1) year after the expiration or termination 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.

(1) If Employee is terminated without cause or this Agreement
expires without renewal, the sum of $60,000.00 payable in 12 monthly
installments; or

(2) If Employee terminates this Agreement or is terminated by
MIKOHN for just cause, the sum of $30,000.00 payable in 12 monthly installments.

12. RIGHTS TO INVENTIONS.
--------------------

a. INVENTIONS DEFINED. "Inventions" means discoveries, concepts, and
------------------
ideas, whether patentable or not, relating to any present or contemplated
activity 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,

4
<PAGE>

during the Term of his employment by MIKOHN and for a period of one (1) year
after any termination of such employment. This Section 12 does not apply to any
invention disclosed in writing to MIKOHN by Employee prior to the execution of
this Agreement.

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.

14. SURVIVABILITY. Sections 7 through 13, of this Agreement shall survive
-------------
termination of the employment relationship and this Agreement.

15. GENERAL PROVISIONS.
------------------

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

/s/ DON STEVENS /s/ DAVID S. THOMPSON
_________________________ By:___________________________
DON STEVENS
CEO
Title:________________________

<PAGE>

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