<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, 1997
------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
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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 of (I.R.S. Employer Identification Number)
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
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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:
9,909,346 as of AUGUST 6, 1997
- -------------------------------- -------------------------------------
(Amount Outstanding) (Date)
<PAGE>
MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
Page
---------
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30,
1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
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 13
Item 6. Exhibits and Reports on Form 8-K 14
1
<PAGE>
MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 3,679,028 $ 1,798,207
Trade accounts receivable, net 22,656,827 25,269,290
Installment sales receivable, current portion 934,730 816,861
Other receivables 527,217 424,316
Inventories:
Raw materials 11,289,972 12,135,004
Work in process 4,109,811 5,752,481
Finished goods 4,134,600 5,124,484
Prepaid expenses 4,274,013 2,621,985
Deferred tax asset - current 639,466 639,466
----------- -----------
Total current assets 52,245,664 54,582,094
Installment sales receivable, net of current portion 271,572 562,288
Property and equipment, net 16,005,854 15,847,881
Intangible assets 14,599,746 15,328,738
Other assets 4,406,933 3,759,380
Deferred tax asset - noncurrent 372,204 372,204
----------- -----------
Total assets $87,901,973 $90,452,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt and notes payable $19,473,383 $18,697,744
Trade accounts payable 6,178,155 7,355,022
Customer deposits 4,035,321 6,565,657
Accrued and other current liabilities 3,385,298 3,668,919
----------- -----------
Total current liabilities 33,072,157 36,287,342
----------- -----------
Long-term debt, net of current portion 3,568,039 4,020,996
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, none
issued
Common stock, $.10 par value, 20,000,000 shares authorized,
9,909,346 and 9,898,824 shares issued 990,935 989,882
Additional paid-in capital 48,487,240 48,436,536
Foreign currency translation adjustment (225,635) (170,576)
Retained earnings 2,262,955 939,368
----------- -----------
Total 51,515,495 50,195,210
Less treasury stock, 24,863 and 4,863 shares, at cost (253,718) (50,963)
----------- -----------
Total stockholders' equity 51,261,777 50,144,247
----------- -----------
Total liabilities and stockholders' equity $87,901,973 $90,452,585
=========== ===========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
2
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $25,806,912 $23,047,937 $49,962,866 $44,020,200
Cost of sales 16,115,532 15,142,683 31,440,602 29,473,830
----------- ----------- ----------- -----------
Gross profit 9,691,380 7,905,254 18,522,264 14,546,370
Selling, general and administrative
expenses 7,544,244 7,368,549 15,101,583 14,221,078
----------- ----------- ----------- -----------
Operating income 2,147,136 536,705 3,420,681 325,292
Interest expense (548,153) (435,721) (1,066,479) (936,682)
Other income and (expense) (239,183) 43,382 (229,615) 269,649
----------- ----------- ----------- -----------
Income (loss) before income tax
(provision) benefit 1,359,800 144,366 2,124,587 (341,741)
Income tax (provision) benefit (508,000) (50,391) (801,000) 119,609
----------- ----------- ----------- -----------
Net income (loss) $ 851,800 $ 93,975 $ 1,323,587 $ (222,132)
=========== =========== =========== ===========
Weighted average common shares 9,884,483 9,814,849 9,891,639 9,808,840
=========== =========== =========== ===========
Earnings (loss) per common share $ 0.09 $ 0.01 $ 0.13 $ (0.02)
=========== =========== =========== ===========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
3
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,323,587 $ (222,132)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,232,027 1,219,388
Amortization 1,004,067 1,001,325
Change in exchange rate variance (55,059) (32,449)
Provision for bad debts 22,861 13,215
Changes in assets and liabilities:
Accounts receivable 2,486,701 3,947,336
Installment sales receivable 172,847 (1,064,814)
Inventories 3,477,586 (1,814,460)
Prepaid expenses and other assets (2,574,656) (866,297)
Trade accounts payable (1,176,867) (1,261,389)
Customer deposits (2,530,336) 2,574,520
Accrued and other liabilities (283,621) (826,740)
----------- -----------
Net cash provided by operating activities 3,099,137 2,667,503
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,406,000) (1,322,483)
Proceeds from sale of property and equipment 16,000
----------- -----------
Net cash used in investing activities (1,390,000) (1,322,483)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt and notes payable 975,000 304,549
Principal payments on notes payable and long-term debt (652,318) (574,082)
Proceeds from sale of common stock 49,002 123,524
Purchase of treasury stock (200,000)
----------- -----------
Net cash provided by (used in) financing activities 171,684 (146,009)
----------- -----------
Increase in cash and cash equivalents 1,880,821 1,199,011
Cash and cash equivalents, beginning of period 1,798,207 5,453,136
----------- -----------
Cash and cash equivalents, end of period $ 3,679,028 $ 6,652,147
=========== ===========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MIKOHN GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - GENERAL
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, 1996.
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 June 30, 1997, the
results of its operations for the three and six months ended June 30, 1997 and
1996 and cash flows for the six months ended June 30, 1997 and 1996. The
results of operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the entire year.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
In February, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128 - Earnings Per Share. SFAS 128 is
effective for financial statements issued for periods after December 15, 1997
and replaces currently reported earnings per share with "basic" or undiluted,
earnings per share and "diluted" earnings per share. Basic earnings per share
is computed by dividing net income by the weighted average number of shares
outstanding during the period; while diluted earnings per share reflect all
potentially dilutive securities, such as stock options. Early application of
SFAS 128 is not permitted, and the Company will adopt the provisions of SFAS 128
for financial statements issued for periods ending after December 15, 1997,
including the required restating of all previously reported earnings per share.
The following table reflects the Company's pro-forma earnings per share for
the three and six months periods ended June 30, 1997 and 1996 as determined in
accordance with SFAS 128:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings per Share:
As reported $0.09 $0.01 $0.13 $(0.02)
Basic $0.09 $0.01 $0.13 $(0.02)
Diluted $0.09 $0.01 $0.13 $(0.02)
</TABLE>
5
<PAGE>
Also during February, 1997, the FASB issued SFAS No. 129 - Disclosure of
Information About Capital Structure. This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement which are effective
for periods ending after December 15, 1997.
On June 30, 1997, the FASB issued SFAS No. 130 - Reporting Comprehensive
Income. This statement which also requires companies to classify items of other
comprehensive income by their nature in a financial statement and to display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. This statement also is effective for financial statements
issued for fiscal years beginning after December 15, 1997. Management intends
to comply with the disclosure requirements of this statement, which are
effective for the year ending December 31, 1998.
Finally, on June 30, 1997, the FASB issued SFAS No. 131 - Disclosure About
Segments of an Enterprise and Related Information. This statement establishes
additional standards for segment reporting in the financial statements and is
effective for financial statements issued for fiscal years beginning after
December 15, 1997. Management has not yet determined the impact this statement
will have on the Company's financial statements but intends to comply with the
disclosure requirements of this statement, which are effective for the year
ending December 31, 1998.
NOTE 3 COMPUTER SOFTWARE DEVELOPMENT COSTS
In 1997, the Company capitalized software development costs starting when
technological feasibility is established and ending when the product is ready
for release. Software development costs are amortized by the straight-line
method over the remaining estimated economic life of the product. Amortization
of the software development costs begins when the product is ready for general
release. To date, the Company has capitalized $256,000 of software development
costs, none of which have yet been amortized. Prior to 1997, the Company did
not incur significant computer software development costs which meet the
criteria for capitalization in accordance with the provisions of SFAS-86
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed.
NOTE 4 - CONTINGENCIES
On June 20, 1997, the Colorado Limited Gaming Control Commission granted the
Company's application to renew its Colorado Gaming License on the condition that
the Company terminate all business relations with Progressive Games, Inc. (PGI)
within 180 days. PGI and the Company are parties to a license agreement
(License Agreement) by which the Company is granted the right to distribute
certain live table games including Caribbean Stud in a defined territory. These
table games are leased by the Company to customers for a monthly rental fee
which is split 60% to PGI and 40% to the Company. In the month of June 1997,
these tables generated revenues to the Company of approximately $170,000 net of
PGI's share. The Company is presently in negotiations with PGI to terminate the
License Agreement on mutually
6
<PAGE>
acceptable terms. At a minimum, under the terms of the License Agreement, the
Company would continue to receive its share of revenues for at least four more
years.
NOTE 5 RECLASSIFICATIONS
Certain amounts in the June 30, 1996 condensed consolidated financial
statements have been reclassified to be consistent with the presentation used
for June 30, 1997.
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, 1997 AND 1996
- ---------------------------------------
SALES
Sales for the six months ended June 30, 1997 were $50.0 million compared to
$44.0 million in the prior year period, an increase of $6.0 million or 13.5%.
Sales in the 1997 period include approximately $21.4 million by the domestic
interior sign division, $6.9 million by the outdoor lighting and sign group,
$6.8 million by the games division (which includes revenues from table game
leasing, keno equipment sales, slot machine sales, and slot route operations),
$2.9 million by the surveillance division, and $7.4 million by the Australian
and European subsidiaries. Sales by the electronics division in the six months
ended June 30, 1997 were $8.8 million, including $4.2 million in intracompany
sales which have been eliminated in the consolidated statement of operations.
Sales for the comparable 1996 period include approximately $18.7 million by the
domestic interior sign division, $8.4 million by the outdoor lighting and sign
group, $3.1 million by the games division, $3.8 million by the surveillance
division, $5.2 million by the Australian and
8
<PAGE>
European subsidiaries, and $9.5 million by the electronics division, including
$4.7 million in intracompany sales that have been eliminated in the consolidated
statement of operations.
The domestic interior sign division had an increase in sales of $2.7 million
or 14.4% primarily due to a greater number of casino refurbishments as older
casinos upgrade their facilities to compete with newer properties. The outdoor
lighting and sign group had a decrease in sales of $1.5 million or 17.9% due to
fewer number of major sign projects. Sales by the games division increased $3.7
million or 119.4% due primarily to the sales of Mini-Bertha(TM) slot machines.
Sales by the international subsidiaries increased $2.2 million or 42.3% due to
continued strong sales in the Australian market of our interior signs including
a $2.2 million sale to Crown Casino in Melbourne, Australia. Sales by the
international subsidiaries accounted for 14.8% of total sales for the six months
compared to 11.8% for the same period in 1996. Sales by the surveillance
division decreased $.9 million or 23.7% due to continued weakness in the casino
market and the Company's decision to not accept low margin sales.
As of June 30, 1997, the Company had backlogs of orders believed to be firm of
$17.3 million. As of March 31, 1997 and June 30, 1996, the Company's backlogs
were $18.5 million and $21.2 million, respectively. Management expects that the
backlog at June 30, 1997 will be filled within 120 days of that date.
GROSS PROFIT
Gross profit for the six months ended June 30, 1997 increased $4.0 million to
$18.5 million from $14.5 million in the 1996 period. The gross margin was 37.1%
in the 1997 period compared to 33.0% in the six months ended June 30, 1996.
Gross margin in the interior sign division increased to 29.1% for the six months
compared to 28.9% for the same period last year. Gross margin in the outdoor
lighting and sign group was 23.6% for the first six months of 1997 compared to
22.4% for the same period of 1996. Gross margin in the electronics division was
35.2% for the first six months of 1997 compared to 36.8% for the like period in
1996. The games division gross margin in the first six months was 59.2% in 1997
and 65.6% in 1996. The decrease in 1997 gross margin for games was due to an
increase in slot machine sales that carry a lower margin than the table game
leases and slot route revenues. The surveillance division gross margin was
13.8% in the six months of 1997 compared to 5.3% for the first half of 1996.
Surveillance division margins have suffered due to an increasingly competitive
market and an increasing portion of the sales being made on a low margin,
equipment only basis. During the six months ended June 30, 1997 the Company
decided to refuse low margin, equipment only orders for surveillance equipment.
The international subsidiaries gross margin was 28.4% for the first six months
of 1997 compared to 19.2% in the first half of 1996. The increase was due to
higher margins in our Australian subsidiary, which were due to greater
efficiencies with higher sales volumes. Overall gross margins have improved due
to a change in the sales mix in which higher margin sales by divisions such as
games are growing rapidly while lower margin sales by divisions such as
surveillance are decreasing.
9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended June 30,
1997 were $15.1 million or 30.2% of sales compared to $14.2 million or 32.3% of
sales for the comparable six months of 1996. Research and development expenses
were $1.8 million for the six months ended June 30, 1997 compared to $1.6
million for the comparable period in 1996. Due to the achievement of
technological feasibility during 1997 related to certain software development
projects, the Company capitalized eligible software development costs. During
the six months ended June 30, 1997, $256,000 of these software development costs
were capitalized. Selling expenses of $6.5 million in the six months ended June
30, 1997 increased 4.8% over the $6.2 million in the comparable period in 1996.
Administrative expenses for the first half of 1997 were $4.6 million, an
increase of 9.5% over the $4.2 million experienced in the first half of 1996.
Depreciation and amortization for the quarter ended June 30, 1997 were $2.2
million, the same as in the comparable 1996 period.
OTHER INCOME AND EXPENSE
The Company experienced other expense of $230,000 for the six months ended
June 30, 1997 compared to $270,000 in other income for the same period in 1996.
Currency translation losses on the Australian dollar and the Dutch guilder
totaled $408,000 for the six months ended June 30, 1997 compared to currency
translation gains of $114,000 for the same period in 1996. The unfavorable
variance was due to the increase in strength of the U.S. dollar compared to
these currencies.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- -----------------------------------------
SALES
Sales for the quarter ended June 30, 1997 were $25.8 million compared to $23.0
million in the prior year period, an increase of $2.8 million or 12.0%. Sales
in the 1997 period include approximately $12.1 million by the domestic interior
sign division, $2.9 million by the outdoor lighting and sign group, $3.6 million
by the games division (which includes revenues from table game leasing, keno
equipment sales, slot machine sales, and slot route operations), $1.2 million
by the surveillance division, and $3.3 million by the Australian and European
subsidiaries. Sales by the electronics division in the second quarter of 1997
were $4.5 million, including $1.8 million in intracompany sales which have been
eliminated in the consolidated statement of operations. Sales for the 1996
second quarter include approximately $11.5 million by the domestic interior sign
division, $2.7 million by the outdoor lighting and sign group, $1.5 million by
the games division, $2.2 million by the surveillance division, $2.9 million by
the Australian and European subsidiaries, and $5.5 million by the electronics
division, including $3.3 million in intracompany sales that have been eliminated
in the consolidated statement of operations.
Sales by the games division increased $2.1 million or 140.0% due primarily to
the sales of Mini-Bertha(TM) slot machines. Sales by the international
subsidiaries increased $0.4 million or 13.8% due to continued strong sales in
the Australian market of our interior signs. Sales by the
10
<PAGE>
international subsidiaries increased $0.4 million or 13.8% due to continued
strong sales in the Australian market of our interior signs. Sales by the
international subsidiaries accounted for 12.8% of total sales for the second
quarter compared to 12.6% for the same quarter last year. Sales by the
surveillance division decreased $1.0 million or 45.5% due to continued weakness
in the casino market and the Company's decision to not accept low margin sales.
GROSS PROFIT
Gross profit for the quarter ended June 30, 1997 increased $1.8 million to
$9.7 million from $7.9 million in the 1996 period. The gross margin was 37.6%
in the 1997 period compared to 34.4% in the quarter ended June 30, 1996. Gross
margin in the interior sign division decreased to 28.9% for the quarter compared
to 31.3% for the same quarter last year. Gross margin in the outdoor lighting
and sign group was 37.9% for the second quarter of 1997 compared to 18.5% for
the second quarter of 1996. Gross margin in the electronics division was 37.8%
for the second quarter of 1997 compared to 38.2% for the like quarter in 1996.
The games division gross margin in the second quarter was 66.7% in 1997 and
73.3% in 1996. The decrease in 1997 gross margin was due to an increase in slot
machine sales that carry a lower margin than the table games leases and slot
route revenues. The surveillance division gross margin was 16.7% in the second
quarter of 1997 compared to (4.5)% for the second quarter of 1996. Surveillance
division margins suffered due to an increasingly competitive market and an
increasing portion of the sales being made on a low margin, equipment only
basis. The international subsidiaries gross margin was 24.2% for the second
quarter of 1997 compared to 24.1% in the second quarter of 1996. The increase
was due to higher margins in our Australian subsidiary.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended June 30,
1997 were $7.5 million or 29.2% of sales compared to $7.4 million or 32.0% of
sales for the comparable quarter of 1996. Research and development expenses
were $0.8 million for the quarter ended June 30, 1997 compared to $0.7 million
for the comparable quarter in 1996. Due to the achievement of technological
feasibility during 1997 related to certain software development projects, the
Company capitalized eligible software development costs. During the second
quarter of 1997, $256,000 of these software development costs were capitalized.
Selling expenses of $3.2 million in the second quarter compared to $3.2 million
in the comparable quarter in 1996. Administrative expenses for the second
quarter of 1997 were $2.4 million, an increase of 4.3% from $2.3 million in the
second quarter of 1996. Depreciation and amortization for the quarter ended June
30, 1997 was $1.1 million compared to $1.2 million in the comparable 1996
quarter.
11
<PAGE>
OTHER INCOME AND EXPENSE
The Company experienced other expense of $239,000 in the quarter ended June
30, 1997 compared to $43,000 in other income for the same period in 1996.
Currency translation losses on the Australian dollar and the Dutch guilder
totaled $300,000 for the second quarter of 1997 compared to currency translation
gains of $67,000 for the same period in 1996. The unfavorable variance was due
to the increase in strength of the U.S. dollar compared to these currencies.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the six months ended June 30, 1997, the Company had net income of $1.3
million. Net cash provided by operating activities was $3.1 million, reflecting
among other items a $2.7 million decrease in receivables and a $3.5 million
decrease in inventories which were offset by a $2.6 million increase in prepaid
expenses and other assets, a $2.5 million decrease in customer deposits, and a
$1.2 million decrease in accounts payable. Cash balances at June 30, 1997 were
$3.7 million compared to $1.8 million at December 31, 1996. The Company expects
that for the balance of 1997, adequate cash requirements will be provided by an
increase in operating earnings.
The Company has a $20.0 million line of credit with Bank of America Nevada
under a Business Loan Agreement dated January 10, 1996. The maturity of this
loan has been extended to August 29, 1997, and the Company currently is in
discussions with Bank of America Nevada regarding further extension of the loan
maturity date until May 31, 1998. The Company is in compliance with all of the
covenants under this Business Loan Agreement and believes that it will obtain an
extension or otherwise restructure the debt; however, there is no guarantee that
the loan will be extended or that the Company will be successful in securing new
financing prior to the date of maturity. The Company also is considering other
refinancing alternatives. See note 8 of the Notes to Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 1996.
12
<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 11, 1997 heretofore filed with the Commission and
incorporated by this reference.
(a) The annual meeting of stockholders was on held May 13, 1997. On the record
date, March 17, 1997, there were 9,904,083 shares of common stock
outstanding and entitled to vote.
(b) Each of the seven directors of the Company was reelected. The number of
votes cast "FOR" and "ABSTAIN" with respect to each director (no votes were
cast "AGAINST" any director) were as follows: Thompson - 8,814,278 FOR,
623,950 ABSTAIN; Garcia - 8,817,378 FOR, 620,850 ABSTAIN; Peterson -
8,818,228 FOR, 620,000 ABSTAIN; Oliver - 8,820,478 FOR, 617,750 ABSTAIN;
Campbell - 8,820,378 FOR, 617,850 ABSTAIN; Irvine - 8,817,478 FOR, 620,750
ABSTAIN; and Todoroff - 8,818,678 FOR, 619,550 ABSTAIN.
(c) Certain amendments to the Employee Stock Option Plan were approved.
6,401,542 shares were voted in favor of the amendments, 866,596 shares were
voted against and 16,513 shares abstained.
(d) The continued retention of Deloitte & Touche LLP as independent auditors
was approved. 9,383,903 shares voted in favor thereof, 48,875 shares voted
against and 5,450 shares abstained.
13
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
10.27 Employment Agreement dated April 25, 1997, between the Company
and Behnam Bavarian
27 Financial Data Schedule
B. Reports on Form 8-K:
None
14
<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 W. Stevens, Executive Vice President
Treasurer (Principal Financial Officer)
Dated: August 11, 1997
15
<PAGE>
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), is made and entered into as
of ____________, 1997 ("Effective Date") by and between MIKOHN GAMING
CORPORATION, a Nevada corporation ("MIKOHN"), and BEHNAM BAVARIAN ("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 ("Initial 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
Initial Term, this Agreement shall continue in effect from month to month after
the expiration of the Term and shall be terminable by either party upon thirty
(30) days' written notice. (The Initial Term and the period during which this
Agreement may remain in effect thereafter are collectively referred to herein as
the "Term".)
2. DUTIES OF EMPLOYEE. Employee's position with MIKOHN will be Vice
------------------
President of Engineering. 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 senior management of MIKOHN. 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 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. The foregoing notwithstanding, MIKOHN consents to Employee's
involvement in the entities described in Addendum 1 in the capacities indicated;
provided, however, Employee shall terminate his involvement in any such entity
upon request by MIKOHN if, in the reasonable judgement of MIKOHN, any continued
involvement (i) would materially interfere with, impede or impair the efficient
and effective performance of Employee's duties under this Agreement or (ii)
could subject MIKOHN to significant disciplinary action or cause MIKOHN to 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.
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 $130,000 per annum.
b. 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.
(2) The purchase price per share shall be the closing price
of MIKOHN common stock on the Effective Date, to wit $_______.
1
<PAGE>
(3) The Option shall be designated as an Incentive Option.
(4) On each of the next five (5) anniversary dates of the
Effective Date, 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 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.
c. 1997 BUSINESS PLAN STOCK OPTIONS. MIKOHN grant's to
--------------------------------
Employee additional Options to purchase shares of MIKOHN Common Stock under the
Plan which will vest on an accelerated basis if MIKOHN achieves its 1997
Business Plan objectives. 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
40,000.
(2) The purchase price per share shall be as specified in
Section 5(b)(2) above.
(3) The Option shall be designated as an Incentive Option.
(4) The options will vest over six years at the rate of 15%
per year for the first four years commencing February 11, 1998 and 20% per year
for years five and six. If MIKOHN achieves earnings per share of $.50 for 1997,
the options shall vest over five years at the rate of 20% per year commencing
February 11, 1997. If MIKOHN achieves earnings per share of $.75 for 1997, one-
half of the options shall vest on January 1, 1999 and the balance of the options
shall vest over five years at the rate of 20% per year commencing February 11,
1997.
(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.
d. BONUS STOCK OPTIONS. During the Term of this Agreement,
-------------------
Employee shall be granted options to purchase shares of MIKOHN's common stock
under the Plan. The options shall be represented by a Stock Option Agreement
and shall contain the following provisions among others:
(1) The option shall be a "Incentive option" as that term
is defined in the Plan.
(2) The option shall cover a total of 50,000 shares of
MIKOHN common stock.
(3) The exercise price of all of the shares shall be as
specified in Section 5(b)(2) above.
(4) The option shall contain the following conditions
relating to its exercise and to the purchase of shares from time to time
thereunder:
(a) The number of shares as to which the option shall
become exercisable from time to time ("Exercisable Shares") is dependent upon
the prices at which MIKOHN's common stock is regularly traded in the future on
the NASDAQ Stock Market (or other market on which MIKOHN's common stock is
regularly traded at the time of any proposed exercise of the option). Following
is a schedule of minimum prices at which MIKOHN common stock must have traded
("Triggering Price or Prices") for at least 20 consecutive trading days and the
number of shares that shall become Exercisable Shares as each Triggering Price
is reached:
<TABLE>
<CAPTION>
Triggering Price Number Of Exercisable shares
---------------- ----------------------------
<S> <C>
7.50 10,000
10.00 10,000
12.50 10,000
15.00 10,000
17.50 10,000
</TABLE>
2
<PAGE>
(b) Once any of the shares become Exercisable Shares,
they remain Exercisable shares irrespective of any subsequent decline in the
price at which MIKOHN common stock is traded.
e. FURTHER STOCK OPTIONS. During the Term of this Agreement,
---------------------
Employee will be considered to receive further stock options. Employee
understands that the decision to grant stock options and the amount thereof is
within the sole and absolute discretion of MIKOHN's Compensation Committee and
the Board of Directors 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.
f. AUTOMOBILE. MIKOHN shall provide Employee an automobile
----------
allowance in the amount of $1,000 per month.
g. ATHLETIC CLUB. MIKOHN shall provide Employee a membership
-------------
in a an athletic club of Employee's choice the initial cost of which shall not
exceed $250. During the term of this Agreement, MIKOHN shall reimburse Employee
for athletic club membership dues in an amount of not more than $125 per month.
h. RELOCATION EXPENSES. MIKOHN will reimburse Employee for the
-------------------
following relocation expenses:
(1) Moving company charges for packing, moving and
unpacking household items including insurance (Employee to provide three (3)
bids); and
(2) Temporary residence in Las Vegas for up to three months
(cost not to exceed $4,500); and
(3) Legal and escrow fees, closing costs, real estate
commissions and loan points not to exceed $10,000 incurred in sale of home and
purchase of new home in Las Vegas.
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. During the Initial Term of this Agreement, MIKOHN may
terminate this Agreement at any time without stated cause upon the payment to
Employee of a sum equal to $65,000. After the Initial Term, either party may
terminate this Agreement without further liability or obligation to the other,
except as provided in Sections 7 through 13, upon thirty (30) days written
notice.
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.
c. 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
d. MIKOHN may terminate this Agreement if it appears in the
reasonable judgment of MIKOHN that due to Employee's employment by MIKOHN:
(1) 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
(2) MIKOHN or any key employee, officer, director or
shareholder of MIKOHN required to
3
<PAGE>
qualify or be found suitable under any gaming law may not so qualify or be found
suitable.
e. 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.
f. 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.
g. 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.
h. 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, customer
lists, 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. It is
the intention of the parties that the broadest possible protection be given to
MIKOHN's trade secrets and proprietary information and nothing in this Section 7
shall in any way be construed to narrow or limit the protection and remedies
afforded by the Uniform Trade Secrets Act.
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.
----------------------------
a. EMPLOYEES. 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.
b. CUSTOMERS. During the Term of this Agreement and for a
---------
period of one (1) year 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 or induce, or attempt
to induce, any customer of MIKOHN to purchase any products or services which
compete with any products or services offered by MIKOHN at the time of the
termination of the employment relationship.
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.
b. OPTION TO EXTEND TERM OF COVENANT. Upon thirty (30) days'
---------------------------------
written notice to Employee given prior
4
<PAGE>
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 $36,000.00 payable in 12 monthly
installments; or
(2) If Employee terminates this Agreement or is terminated
by MIKOHN for just cause, the sum of $18,000.00 payable in 12 monthly
installments.
c. CONSIDERATION FOR COVENANT AGAINST COMPETITION. Employee
----------------------------------------------
understands and acknowledges that MIKOHN's products and services are marketed
worldwide and that the geographic scope and term of this Covenant Against
Competition are reasonable and appropriate in view of the substantial
compensation provided in Section 5 above. Employee understands that it is
MIKOHN's policy to grant stock options only to Employees who agree to become
subject to a covenant against competition. Employee agrees that the
compensation provided in Section 5 above, which includes the grant of 110,000
stock options, is adequate consideration for this Covenant Against Competition.
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
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
5
<PAGE>
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.
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 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.
6
<PAGE>
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.
18. AGREEMENT SUBJECT TO SATISFACTORY BACKGROUND INVESTIGATION.
----------------------------------------------------------
Employee understands and acknowledges that his employment is subject to the
satisfactory conclusion of a background investigation. Any other provision in
this Agreement to the contrary notwithstanding, MIKOHN may terminate this
Agreement without further obligation or liability to Employee if a background
investigation of Employee reveals information which, in the reasonable judgment
of MIKOHN, (i) would materially interfere with, impede or impair the efficient
and effective performance of Employee's duties under this Agreement or (ii)
could subject MIKOHN to significant disciplinary action or cause MIKOHN to 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.
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:___________________________
BEHNAM BAVARIAN
Title:___________________________
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,659,833
<SECURITIES> 19,195
<RECEIVABLES> 23,096,739
<ALLOWANCES> 439,912
<INVENTORY> 19,534,383
<CURRENT-ASSETS> 52,245,664
<PP&E> 22,034,731
<DEPRECIATION> 7,028,877
<TOTAL-ASSETS> 87,901,973
<CURRENT-LIABILITIES> 33,072,157
<BONDS> 0
0
0
<COMMON> 990,935
<OTHER-SE> 50,270,842
<TOTAL-LIABILITY-AND-EQUITY> 87,901,973
<SALES> 49,962,866
<TOTAL-REVENUES> 49,962,866
<CGS> 31,440,602
<TOTAL-COSTS> 46,542,185
<OTHER-EXPENSES> 229,615
<LOSS-PROVISION> 22,861
<INTEREST-EXPENSE> 1,066,479
<INCOME-PRETAX> 2,124,587
<INCOME-TAX> 801,000
<INCOME-CONTINUING> 1,323,587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,323,587
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
