Exhibit 10.12


EMPLOYMENT
AGREEMENT


AGREEMENT made this 15th day of October, 2003, by and
between Speakeasy Gaming of Las Vegas, Inc., a Nevada corporation and
Speakeasy Gaming of Reno, Inc., a Nevada corporation (collectively, the “Company”)
wholly owned by MTR Gaming Group, Inc., a Delaware corporation having its
principal office at State Route 2 South, Chester, West Virginia 26034, and
Roger Szepelak, 5840 N. Bonita Vista, Las Vegas, NV 89149 (“Executive”).


WHEREAS, the Executive has been employed as Vice
President and Chief Operating Officer of the Company since November of
2000 pursuant to an employment agreement dated October 25, 2000 and that
has been in effect and remains in effect as of the date hereof (the “Existing
Agreement”); and


WHEREAS, the Existing Agreement will expire by its own
terms on October 31, 2003; and


WHEREAS, the Company owns and operates a hotel and
casino property in Nevada, holds a purchase money mortgage on a second hotel
and casino property in Nevada, and continues to explore additional expansion
opportunities in Nevada; and


WHEREAS, the Company and the Executive wish to
continue their relationship beyond the expiration of the Existing Agreement,
and the parties believe it is in their mutual best interest to enter into an
agreement reflecting the terms and conditions of the Executive’s employment
relationship to the Company:


Now, Therefore, the
parties, in reliance upon the mutual promises and covenants herein contained,
do hereby agree as follows:


1.   Term.   The
Company hereby agrees to employ Executive, and Executive agrees to serve the
Company, in the capacity of Vice President and Chief Operating Officer for a
three year period commencing on November 1, 2003, (the “Employment Date”)
and ending on October 31, 2006 (such period, subject to earlier
termination as provided herein, being referred to as the “Period of Employment”).
Prior to the Employment Date, the duties and obligations of the parties shall
continue to be governed by the Existing Agreement. Executive acknowledges that
as of the date hereof, the Company has performed all of its obligations under
the Existing Agreement.


2.   Duties and Services.   During the Period of Employment,
Executive agrees to serve the Company as Vice President and Chief Operating
Officer and to perform such other reasonable and appropriate duties as may be
requested of him by the board of directors of the Company (the “Board of
Directors”), in accordance with the terms herein set forth. In performance of
his duties, Executive shall be subject to the direction of the Board of
Directors. Executive shall devote such of his time, energy and skill during
regular business hours to the business and affairs of the Company and its
affiliates and parent corporation and to the promotion of their interests as is
required. The Company acknowledges that Executive is based in Las Vegas and
that Executive will not be expected to relocate (reasonable business travel
excepted). Executive will be responsible for the day-to-day operation of the
Company’s hotel and casino operations in the State of Nevada, including
administration of the Company’s relationship with its mortgagor in connection
with the hotel/casino property the Company previously owned and operated in
Reno, Nevada.


3.   Compensation.


(a)    Retention Bonus.   With the first payroll check
following the Employment Date, Executive will receive a retention bonus in the
amount of $25,000, less applicable taxes and withholding.


(b)   Base Salary.   The base salary of the Executive for his
services pursuant to the terms of this Agreement shall be $182,000 per year,
payable in equal bi-monthly installments, or on such other terms as may
mutually be agreed upon by the Company and Executive. Executive’s base salary
shall be 



  
 








subject to an automatic
cost-of-living increase of five percent (5%) on each anniversary of this
Agreement, and shall be subject to periodic increase by the Board of Directors
in its discretion.


(b)   Cash Performance Bonus.   Cash bonuses shall be at the
discretion of the Board of Directors based upon Executive’s performance.


(c)    Acquisition Bonus.   In
the event  during the Period of
Employment Executive brings the Company an acquisition candidate and the
Company (or a newly formed subsidiary of the Company or MTR), in its
discretion, consummates the acquisition (a “Qualifying Acquisition”), then the
Executive shall be entitled, subject to any necessary approval of the Nevada
Gaming Control Board or Nevada Gaming Commission, to a cash Acquisition Bonus
calculated in accordance with the following formula:


	
  Purchase Price

  	
   

  	
   

  	
   

  	
  Acquisition Bonus

  	
   

  
	
  < $10 million

  	
   

  	
   

  	
  $

  	
  25,000

  	
   

  	
   

  
	
  < > $10
  million and $25 million

  	
   

  	
   

  	
  $

  	
  50,000

  	
   

  	
   

  
	
  < > $25
  million and $50 million

  	
   

  	
   

  	
  $

  	
  75,000

  	
   

  	
   

  
	
  > $50 million

  	
   

  	
   

  	
  $

  	
  100,000

  	
   

  	
   

  



 


For
purposes of this Agreement, a casino management agreement or space lease shall
constitute a Qualifying Acquisition less than $10 million. Any Acquisition
Bonus shall be due with the payroll next following the closing of the
acquisition.


(d)   Stock Options.   On the date of mutual execution of this
Agreement, MTR will grant Executive options to purchase 25,000 shares of common
stock of MTR. Additionally, during 2004 and 2005 when MTR grants stock options
to its employees generally, MTR will grant Executive options to purchase 25,000
shares of common stock of MTR (for a total of 75,000 options). In the event MTR
elects not to grant stock options to its employees generally, then the grants
in 2004 and 2005 to Executive shall be on November 1of each such year. With
respect to each such grant, the exercise price will be equal to the fair market
value on the date of grant as determined by the Nasdaq closing price, or, if
Nasdaq is not open for trading on such date, then the closing price on the next
trading day). All options granted hereunder shall be for a term of ten (10) years
and shall vest fully on the date of grant. The options will also be subject to
the terms and conditions of separate option contracts between Executive and MTR
as well as the terms and conditions of any stock option plan pursuant to which
the options have been granted.


(e)    Benefit Plans and Fringe Benefits.   Executive shall
receive such employment fringe benefits and shall be entitled to participate in
other employee benefit plans, including without limitation any pension plan,
profit-sharing plan, savings plan, life insurance and disability insurance
plans and the like made available by the Company now or in the future to its
executives as the Board of Directors may periodically award in its discretion
based on the Executive’s performance, subject to and on a basis consistent with
the terms, conditions and overall administration of such Benefit Plans.


(f)    Automobile Allowance.   During the Period of Employment,
Executive shall be entitled to $500 per month toward the lease or purchase,
insurance and maintenance of an automobile.


(g)    Expenses.   All travel and other expenses incident to
the rendering of services by Executive hereunder shall be paid by the Company. If
any such expenses are paid in the first instance by Executive, the Company
shall reimburse him therefor on presentation of the appropriate documentation
required by the Internal Revenue Code of 1986, as amended (the “Code”), or
Treasury Regulations promulgated thereunder, or otherwise required under the
Company’s policy with respect to such expenses.



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(h)   Working Facilities.   The
Company shall provide Executive with an office, secretarial, administrative and
other assistance, and such other facilities and services as shall be suitable
to his position and appropriate for the performance of his duties.


4.   Early Termination.


(a)    [INTENTIONALLY LEFT BLANK].


(b)   Notwithstanding the provisions of Section 2 hereof, Executive
may be discharged by the Company for Cause (as defined in Section 4(d) hereof),
in which event the Period of Employment hereunder shall cease and terminate and
the Company shall have no further obligations or duties under this Agreement,
except for obligations accrued under Section 3 at the date of termination.
In addition, the Period of Employment shall cease and terminate upon the
earliest to occur of the following events: 
(i) the death of Executive or (ii) at the election of the
Board of Directors (subject to the Americans With Disabilities Act), the
inability of Executive by reason of physical or mental disability to continue
the proper performance of his duties hereunder for a period of 180 consecutive
days. Upon termination of the Period of Employment pursuant to the preceding
sentence, the Company shall continue to pay to Executive or his estate, as the
case may be, the entire compensation otherwise payable to him under Section 3(a) hereof
for the shorter of one year or the otherwise remaining term of the Agreement.


(c)    In the event Executive is discharged by the Company other than
for the reasons set forth in Paragraph 4(b) above, Executive shall have no
further obligations or duties under this Agreement; provided, however, that
Executive shall continue to be bound by the provisions of Section 5 hereof
if the Company performs its obligations under this Section 4(c). In the
event of termination of the Period of Employment pursuant to the preceding
sentence, unless such termination is in connection with a change in control of
the Company or MTR or a sale of all or substantially all of the assets of the
Company (individually or collectively, a “Change in Control”), the Company
shall continue to pay Executive the entire compensation otherwise payable to
him under the provisions of Section 3(a) hereof for the otherwise
remaining Period of Employment without any duty on the part of Executive to
mitigate such payments; provided, however, that if Executive should die prior
to the end of such period, the provisions of Section 4(b) hereof
shall be applicable as though Executive’s employment hereunder had not been so
terminated. In the event such termination is in connection with a Change in
Control, then the Company shall pay Executive an amount equal to his
then-current annual base salary in consideration for a release from any further
obligations of the Company or MTR hereunder.


(d)   For purposes of this Section 4, the term “Cause” shall mean (i) conviction
of a felony, (ii) embezzlement or misappropriation of funds or property of
the Company or any of its Affiliates, (iii) Executive’s consistent refusal
to substantially perform, or willful misconduct in the substantial performance
of, his duties and obligations hereunder; (iv) Executive’s engaging in
activity that the Board of Directors determines in its reasonable judgment
would result in the suspension or revocation of any video lottery, parimutuel,
or other gaming license or permit held by the Company or any of its
subsidiaries; or (iv) a determination by the Nevada Gaming Control Board
or Nevada Gaming Commission that Executive is not suitable to hold the position
of Chief Operating Officer or otherwise to participate in a gaming enterprise
in the State of Nevada.


5.   Confidentiality and
Non-Competition:


(a)    The Company and Executive acknowledge that
the services to be performed by Executive under this Agreement are unique and
extraordinary and, as a result of
such employment, Executive will be in possession of confidential information
and trade secrets (collectively, “Confidential Material”) relating to 



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the business practices of the Company and its affiliates.
Executive agrees that he will not, directly or indirectly, (i) disclose to
any other person or entity either during or after his employment by the Company
or (ii) use, except during his employment by the Company in the business
and for the benefit of the Company or any of its affiliates, any Confidential
Material acquired by Executive during his employment by the Company, without
the prior written consent of the Company or otherwise than as required by law
or any rule or regulation of any federal or state authority. Upon
termination of his employment with the Company for any reason, Executive agrees
to return to the Company all tangible manifestations of Confidential Materials
and all copies thereof. All programs, ideas, strategies approaches, practices
or inventions created, developed, obtained or conceived of by Executive during
the term hereof by reason of his engagement by the Company, shall be owned by
and belong exclusively to the Company, provided that they are related in any
manner to its business or that of any of its Affiliates. Executive shall (i) promptly
disclose all such programs, ideas, strategies, approaches, practices,
inventions or business opportunities to the Company, and (ii) execute and
deliver to the Company, without additional compensation, such instruments as
the Company may require from time to time to evidence its ownership of any such
items.


(b)   Executive agrees that during the term hereof he will not become a
stockholder, director, officer, employee or agent of or consultant to any
corporation, or member of or consultant to any partnership or other entity, or
engage in any business as a sole proprietor or act as a consultant to any such
entity, or otherwise engage, directly or indirectly, in any enterprise, in each
case which competes with any business or activity engaged in, or known by
Executive to be contemplated to be engaged in, by the Company or any of its
Affiliates within twenty-five (25) miles of any location in which the Company
or any Affiliate does business or in which Executive has knowledge that the
Company or any of its Affiliates contemplates doing business; provided, however,
that competition shall not include the ownership (solely as an investor and
without any other participation in or contact with the management of the
business) of less than five percent (5%) of the outstanding shares of stock of
any corporation engaged in any such business, which shares are regularly traded
on a national securities exchange or in an over-the-counter market.


(c)    Executive agrees that the remedy at law for any breach by him of
this Section 5 will be inadequate and that the Company shall be entitled
to injunctive relief.


6.      General.   This Agreement
is further governed by the following provisions:


(a)    Notices.   Any
notice or other communication required or permitted to be given hereunder shall
be made in writing and shall be
delivered in person, by facsimile transmission or mailed by prepaid registered
or certified mail, return receipt requested, addressed to the parties at the
address stated above or to such other address as either party shall have
furnished in writing in accordance with this Section. Such notices or
communications shall be effective upon delivery if delivered in person or by
facsimile and either upon actual receipt or three (3) days after mailing,
whichever is earlier, if delivered by mail.


(b)   Parties In Interest.   This
Agreement shall be binding upon and inure to the benefit of Executive, and it
shall be binding upon and inure to the benefit of the Company and any corporation succeeding to all or substantially
all of the business and assets of the Company by merger, consolidation,
purchase of assets or otherwise.


(c)    Arbitration.   Any disputes
arising under the terms of this Agreement shall be settled by binding
arbitration between the parties in
Las Vegas, Nevada in a proceeding held under the rules of the American
Arbitration Association. In such proceeding, each party shall choose one
arbitrator and the two so chosen shall choose a third arbitrator. The vote of
two of the arbitrators shall be sufficient to determine an award.



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(d)   Entire Agreement.   This
Agreement, as of the Employment Date, supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Executive by the Company and contains
all of the covenants and agreements between the parties with respect to such
employment in any manner whatsoever, it being understood that prior to the
Employment Date, the relationship of the parties shall continue to be governed
by the Existing Agreement.


Any modification of this
Agreement will be effective only if it is in writing signed by the parties.


(e)    Governing Law.   This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada without giving
effect to the choice of law or conflicts of law rules and laws of such
jurisdiction.


(f)    Severability.   In the event
that any term or condition contained in this Agreement shall for any reason be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other term or condition of this Agreement, but this
Agreement shall be construed as if such invalid or illegal or unenforceable
term or condition had never been contained herein.


(g)    Executive warrants and represents to the Company that neither his
entering nor performing of this Agreement will violate the terms of any
contractor covenant to which Executive is a party or by which he is bound.



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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.


	
   

  	
   

  	
  MTR Gaming Group,
  Inc.

  
	
  /s/ Roger Szepelak

  	
   

  	
  /s/ Edson R. Arneault

  	
   

  
	
  Roger Szepelak

  	
   

  	
  Edson R. Arneault, President, Chairman &

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
  (with respect to
  Paragraph 3(d) only)

  
	
   

  	
   

  	
  /s/ Donald J. Duffy

  	
   

  
	
   

  	
   

  	
  Donald J. Duffy,

  
	
   

  	
   

  	
  Chairman of the Compensation

  
	
   

  	
   

  	
  Committee

  
	
   

  	
   

  	
  (with respect to
  Paragraph 3(d) only)

  
	
   

  	
   

  	
  Speakeasy Gaming  of Las Vegas,
  Inc.

  
	
   

  	
   

  	
  /s/ Edson R. Arneault

  	
   

  
	
   

  	
   

  	
  Edson R. Arneault, President, Chairman &

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
  Speakeasy
  Gaming of Reno, Inc.

  
	
   

  	
   

  	
  /s/ Edson R. Arneault

  	
   

  
	
   

  	
   

  	
  Edson R. Arneault, President,
  Chairman &

  
	
   

  	
   

  	
  Chief Executive Officer

  



 



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