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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended: March 31, 1997
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______.
Commission File Number: 0-22752
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MIKOHN GAMING CORPORATION
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(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
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(Address or principal executive office and zip code)
(702) 896-3890
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(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:
9,909,346 as of May 6, 1997
- ------------------------------ -------------
(Amount Outstanding) (Date)
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MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
Page
----
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 4
Note to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,915,685 $ 1,798,207
Accounts receivable, net 24,200,375 25,693,606
Installment sales receivable, current portion 783,733 816,861
Inventories:
Raw materials 11,102,495 12,135,004
Work in process 5,032,910 5,752,481
Finished goods 4,914,938 5,124,484
Prepaid expenses 3,459,050 2,621,985
Deferred tax asset 639,466 639,466
----------- -----------
Total current assets 54,048,652 54,582,094
Installment sales receivable, net of current portion 235,465 562,288
Property and equipment, net 16,352,028 15,847,881
Intangible assets 14,870,694 15,328,738
Other assets 4,513,022 3,759,380
Deferred tax asset 372,204 372,204
----------- -----------
Total assets $90,392,065 $90,452,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt and notes payable $19,481,656 $18,683,138
Trade accounts payable 6,817,542 7,355,022
Customer deposits 6,848,300 6,565,657
Accrued and other current liabilities 2,969,762 3,668,919
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Total current liabilities 36,117,260 36,272,736
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Long-term debt, net of current portion 3,648,247 4,035,602
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Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, none
issued
Common stock, $.10 par value, 20,000,000 shares authorized,
9,909,346 and 9,898,824 shares issued 990,934 989,882
Additional paid-in capital 48,487,239 48,436,536
Foreign currency translation (8,729) (170,576)
Retained earnings 1,410,832 939,368
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Total 50,880,276 50,195,210
Less treasury stock, 24,863 and 4,863 shares, at cost (253,718) (50,963)
----------- -----------
Total stockholders' equity 50,626,558 50,144,247
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Total liabilities and stockholders' equity $90,392,065 $90,452,585
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</TABLE>
See the accompanying note to condensed consolidated financial statements.
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $ 24,155,955 $ 20,972,263
Cost of sales 15,349,518 14,331,147
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Gross profit 8,806,437 6,641,116
Selling, general and administrative expenses 7,532,892 6,852,529
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Operating income (loss) 1,273,545 (211,413)
Other income (expense):
Interest expense (518,326) (500,961)
Other income 9,568 226,267
------------ ------------
Income (loss) before income tax (provision) benefit 764,787 (486,107)
Income tax (provision) benefit (293,323) 170,000
------------ ------------
Net income (loss) $ 471,464 $ (316,107)
============ ============
Weighted average common shares 9,903,310 9,802,726
============ ============
Earnings (loss) per common share $ 0.05 $ (0.03)
============ ============
</TABLE>
See the accompanying note to condensed consolidated financial statements.
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MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 COOL
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 471,464 $ (316,107)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 606,736 514,760
Amortization 502,806 502,413
Change in exchange rate variance 161,847 (8,862)
Provision for bad debts 8,578 13,215
Changes in assets and liabilities:
Accounts receivable 1,484,653 1,746,652
Installment sales receivable 359,951 (1,083,209)
Inventories 1,961,626 (949,117)
Prepaid expenses and other assets (1,635,469) (608,806)
Trade accounts payable (537,480) 756,236
Customer deposits 282,643 882,757
Accrued and other current liabilities (699,157) (671,711)
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Net cash provided by operating activities 2,968,198 778,221
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Cash flows from investing activities -
Purchases of property and equipment (1,110,883) (732,304)
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Cash flows from financing activities:
Proceeds from long-term debt and notes payable 975,000 6,269
Principal payments on notes payable and long-term debt (563,837) (553,767)
Proceeds from issuance of common stock 49,000
Purchase of treasury stock (200,000)
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Net cash provided by (used in) financing activities 260,163 (547,498)
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Increase (decrease) in cash and cash equivalents 2,117,478 (501,581)
Cash and cash equivalents, beginning of period 1,798,207 5,453,136
----------- -----------
Cash and cash equivalents, end of period $ 3,915,685 $ 4,951,555
=========== ===========
</TABLE>
See the accompanying note to condensed consolidated financial statements.
4
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MIKOHN GAMING CORPORATION
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31,
1997, the results of its operations for the three months ended March 31, 1997
and 1996 and cash flows for the three months ended March 31, 1997 and 1996. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire year.
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share". This
statement establishes standards for computing and presenting earnings per share
and is effective for financial statements issued for periods ending after
December 15, 1997. Earlier application of this statement is not permitted and
upon adoption requires restatement (as applicable) of all prior-period earnings
per share data presented. Although management does not expect the change to be
material, management has not yet determined the effect of this statement on its
earnings per share as presented.
Certain amounts in the March 31, 1996 condensed consolidated financial
statements have been reclassified to be consistent with the presentation used
for March 31, 1997.
5
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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 or caution 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 renegotiate extension of maturing debt,
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 be materially poorer than any that may be
projected. Forward-looking statements speak only as of the date they are made,
and readers are warned that the Company undertakes no obligation to update or
revise such statements to reflect new circumstances or unanticipated events as
they occur.
Readers are urged to carefully review and consider disclosures made by the
Company in this and other reports that discuss factors germane to the Company's
business. See particularly the Company's reports on Forms 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission.
SALES
Sales for the quarter ended March 31, 1997 were $24.2 million compared to
$21.0 million in the prior year period, an increase of $3.2 million or 15.2%.
Sales in the 1997 period include approximately $9.4 million by the domestic
interior sign division, $4.0 million by the outdoor lighting and sign group,
$3.2 million by the games division (which includes revenues from table game
leasing, keno equipment sales, slot machine sales and slot route operations),
$1.7 million by the surveillance division (Trans Sierra) and $4.1 million by the
Australian and European subsidiaries. Sales by the electronics division in the
first quarter of 1997 were $4.2 million, including $2.4 million in intracompany
sales which have been eliminated in the condensed consolidated statement of
operations. Sales for the 1996 first quarter include approximately $7.3 million
by the domestic interior sign division, $5.7 million by the outdoor lighting and
sign group, $1.6 million by the games division, $1.6 million by the surveillance
division, $2.2 million by the Australian and European subsidiaries and $4.0
million by the electronics division, including approximately $1.4 million in
intracompany sales that have been eliminated in the condensed consolidated
statement of operations.
The domestic interior sign division had an increase in sales of $2.1
million or 28.8% primarily
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due to a greater number of casino refurbishments as older casinos upgrade their
facilities to compete with newer properties. Sales by the games division
increased $1.6 million or 100.0% due primarily to the sales of the
Mini-Bertha(TM) slot machine. Sales by the international subsidiaries increased
$1.9 million or 86.4% due to a sale in excess of $2.2 million to Crown Casino in
Melbourne, Australia. Sales by the international subsidiaries accounted for
16.9% of total sales for the first quarter compared to 10.5% for the same
quarter last year. Sales by the outdoor lighting and sign group were down $1.7
million or 29.8% due to fewer large sign contracts being completed in the first
quarter of 1997 than in the first quarter of 1996.
As of March 31, 1997, the Company had backlogs of orders believed to be
firm of $18.5 million. As of March 31, 1996 and December 31, 1996, the Company's
backlogs were $17.0 million and $18.5 million, respectively. Management expects
that the backlog at March 31, 1997 will be filled within 120 days.
GROSS PROFIT
Gross profit for the quarter ended March 31, 1997 increased $2.2 million to
$8.8 million from $6.6 million in the 1996 period. The gross profit margin was
36.5% in the 1997 period compared to 31.7% in the quarter ended March 31, 1996.
Gross margin in the interior sign division increased to 30.6% for the quarter
compared to 27.4% for the same quarter last year owing to higher volume
efficiencies, improvements in product cost estimating and scheduling
improvements that have reduced the amount of labor overtime. Gross margin in the
outdoor lighting and sign group was 15.2% for the first quarter of 1997 compared
to 23.4% for the first quarter of 1996. The decrease for 1997 was due to a small
loss on a $1.9 million sale to the Sahara Hotel and Casino in Las Vegas. Gross
margin in the electronics division was 33.7% for the first quarter compared to
34.2% for the comparable quarter in 1996. The games division gross margin in the
first quarter was 55.7% in 1997 and 61.5% in 1996. The decrease in 1997 gross
margin was due to an increase in slot machine sales, which produce a lower
margin than the table game leases and slot route revenues. The surveillance
division gross margin was 6.1% in the first quarter of 1997 compared to 18.0%
for the first quarter of 1996. The 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 30.8% for the first quarter of 1997 compared to 16.2% in the
first quarter of 1996, due largely to higher margins in our Australian
subsidiary. Management believes that total gross margins should continue to show
improvement from the prior year in the second and third quarters, and that
margins in the exterior sign division should return to historical levels.
Margins in the surveillance division are expected to remain depressed because of
market conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended March
31, 1997 were $7.5 million or 31.2% of sales, compared to $6.9 million or 32.7%
of sales for the comparable quarter last year. Research and development
expenses, which are charged to operations when incurred, were $940,000 for the
quarter ended March 31, 1997 compared to $906,000 for the
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comparable quarter in 1996. Selling expenses of $3.3 million in the first
quarter ended March 31, 1997, increased 10% compared to $3.0 million in the
comparable quarter of 1996 due to higher sales volume. Administrative expenses
for the first quarter of 1997 were $2.2 million, an increase of 15.8% from $1.9
million in the first quarter of 1996. Depreciation and amortization for the
quarter ended March 31, 1997 totaled $1.1 million, unchanged from $1.1 million
in the comparable 1996 quarter.
OTHER INCOME AND EXPENSE
Other income decreased from approximately $226,000 for the quarter ended
March 31, 1996 to approximately $9,500 for the quarter ended March 31, 1997.
This decrease was due in large part to a decrease in interest income.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 1997, the Company had net income of
$471,464. Net cash provided by operating activities was $3.0 million, an
improvement that reflects among other items a $1.8 million decrease in
receivables and a $2.0 million decrease in inventories offset in part by a $1.6
million increase in prepaid expenses and other assets. Cash balances at March
31, 1997 were $3.9 million compared to $1.8 million at December 31, 1996. The
Company expects that in 1997 adequate cash requirements will be provided by
continued decreases in accounts receivable and an increase in operating
earnings.
The Company has a line of credit with Bank of America Nevada under a
Business Loan Agreement dated January 10, 1996 which matures on July 30, 1997.
The Company is currently in discussions with Bank of America Nevada to further
extend the loan maturity date until May 31, 1998 and believes that it will
succeed in doing so. The Company is in compliance with all of the covenants
under the this Business Loan Agreement; 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 due date. See Note 8 of the Notes to Consolidated
Financial Statements in the Company's Form 10-K for the year ended December 31,
1996.
8
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MIKOHN GAMING CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits:
*10.26 Employment Agreement dated January 27, 1997
between the Company and Louie Peyton
27 Financial Data Schedule
B. Reports on Form 8-K:
None
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SIGNATURES
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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: May 9, 1997
10
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EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), is made and entered into as of
January 27, 1997 ("Effective Date") by and between MIKOHN GAMING CORPORATION, a
Nevada corporation ("MIKOHN"), and LOUIE D. PEYTON ("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 from month to month after the expiration of the Term and
shall be terminable by either party upon thirty (30) days' written notice.
2. DUTIES OF EMPLOYEE. Employee's position with MIKOHN will be Vice
------------------
President of Operations. 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.
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 $140,000 per annum.
b. CASH BONUS. During the term of this Agreement, Employee may be paid a
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cash bonus or bonuses in addition to his 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. With fully met business plan objectives,
Employee's target bonus will be 30% of Base Annual Salary.
c. SIGNING BONUS. Upon the execution of this Agreement, Employee shall
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be paid a signing bonus payable as follows:
February 1, 1997 5,625.00
April 1, 1997 5,625.00
June 1, 1997 5,625.00
August 1, 1997 5,650.00
d. STOCK OPTIONS. MIKOHN grant's to Employee options to purchase shares
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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.
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(2) The purchase price per share shall be the closing price of MIKOHN
common stock on the Effective Date, to wit $4.5625.
(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.
e. 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.
f. 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 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 $35,000.
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.
(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; (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.
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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 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 $12,000.00 payable in 12 monthly installments; or
(2) If Employee terminates this Agreement or is terminated by MIKOHN
for just cause, the sum of $6,000.00 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 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.
3
<PAGE>
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
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.
4
<PAGE>
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.
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, would
materially interfere with, impede or impair the efficient and effective
performance of Employee's duties under 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/ Louie D. Peyton By: /s/ Charles H. McCrea, Jr.
_________________________ ______________________________
LOUIE D. PEYTON
Title: Executive Vice President,
General Counsel and Secretary
_____________________________
5
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