EMPLOYMENT AGREEMENT

     EMPLOYMENT  AGREEMENT  ("Agreement") made as of the  1 day of August, 1997,
                                                          -        ------
between  American  Bingo  & Gaming Corp. (the "Company"), and John Richard Henry
(the  "Employee").

     1.  Employee  Duties.  The Company  hereby  employs the Employee as General
         ----------------
Counsel and Chief Administrative  Officer, with such responsibilities and duties
as may be directed by the Company's President or Board of Directors from time to
time. The Employee shall devote his full working time to the  performance of his
responsibilities  and duties  hereunder and shall not,  directly or  indirectly,
render  services  to any other  person  or  organization  for which he  receives
compensation  without  the  consent  of the  Company's  Board  of  Directors  or
otherwise  engage  in  any  activities  which  materially   interfere  with  the
performance by the Employee of his duties hereunder or detrimentally  affect the
Company or its business.

     2. Term of Employment.  The term of employment  (the "Term") shall commence
        ------------------
on the date of this  Agreement  and continue  until  December  31, 2000,  unless
earlier terminated at any time at the will of either Employee or the Company.

     3. Compensation.
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        Base Salary.  Employee shall receive an aggregate annual base salary  at
        -----------
the rate of $100,000 per annum during the employment term,  effective on October
1, 1997.  Installments  of base salary  shall be paid not less  frequently  than
bi-weekly.  Annual salary increases, if any, will be determined by the Company's
President and the Company's Board.

     4. Bonuses.  Commencing  with the  Company's  1996 fiscal year and for each
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additional year of employment  under this  Agreement,  an annual cash bonus pool
("Bonus  Pool") will be created for the benefit of  management  personnel of the
Company who earn more than  $60,000 per year.  The Bonus Pool shall be comprised
of an amount which shall equal 2% of the net operating  income of the Company as
reported  on the  Company's  certified  financial  statements  for  the  year in
question  provided that the Company  reported net operating income of $2,000,000
or  greater in such year.  The  maximum  Bonus Pool in any year shall not exceed
$400,000.  The Employee  shall be eligible to participate in the Bonus Pool. The
Board by  unanimous  vote  may  allow  any  other  employee  of the  Company  to
participate  in the Bonus Pool. The Bonus Pool will be distributed 30 days after
the Company's  receipt of its certified  financial  statements  for such year in
accordance with the directives of the Board of Directors of the Company.  In the
event the Board can not unanimously agree to the distribution of the Bonus Pool,
the Bonus Pool will be distributed as follows:

The  Company's  Chief  Executive Officer shall receive 50% of the Bonus Pool and
the balance distributed among the remaining members of management, including the
Employee,  on a pro rata basis relative to the dollar amount of their respective
annual  salaries.

<PAGE>

     The  Board  may,  in  its sole discretion, award to the Employee additional
Bonuses  beyond  the  Bonus  Pool.

     5.  Employee  Stock  Options.  The Company  agrees to grant to the Employee
         ------------------------
options to purchase 216,667 shares (which number includes 150,000 shares granted
pursuant to  Employee's  Employment  Agreement  dated  October 25,  1996) of its
common stock as outlined in Attachment 1 hereto.  The options will be subject to
all terms and conditions of the Company's 1994,  1995 and 1996 Stock Plans,  and
shall be "statutory" options under said plans. The Company will take appropriate
legal  steps to propose  amendments  to the 1996 Stock  Option  Plan which would
increase the number of authorized options so as to enable Employee to purchase a
total of 216,667 shares to vest to Employee. The options shall vest according to
the schedule shown on Attachment 1.

     In  addition,  all Options shall vest in favor of the Employee in the event
that  a  significant  change  in ownership of the Company occurs.  A significant
change shall be deemed to occur for purposes of this Agreement only in the event
that  shares owned by the Company's Chairman and members of his family change by
greater  than  20%  of  the total amount of shares of the Company's common stock
outstanding.  Prior to such event, a significant change in ownership will not be
created  in  the event the Company conducts a secondary public offering, engages
in a private placement of its securities or enters into an acquisition agreement
pursuant  to  which  the  Company  is  the survivor and the Company controls the
company  acquired.  Employee  may  sell  the stock represented by his vested and
exercised options in any quarter after vesting subject to Rule 144 restrictions.
The  number  of  shares  and  pricing  thereof  for  the  option shares shall be
proportionally  adjusted  for  any  and all stock splits during the term of this
Agreement.  Any options not exercised five years after vesting will be cancelled
and  will  be  of  no  force  and  effect.

     6. Other Fringe  Benefits.  Employee  shall receive the following  benefits
        ----------------------
during the Term of Employment.

          (a)  Comprehensive   family  health  and  major  medical  coverage  in
accordance  with the  general  policies of the Company as in effect from time to
time;

          (b)  Payment on behalf of the  Employee of  Oklahoma  Bar  Association
filing fees and continuing education fees;

          (c) Use of a company vehicle without assessment;

          (d) Disability insurance; and

          (e) Term life insurance in the amount of $500,000.

     7. Reimbursement of Expenses.  The Company shall reimburse Employee for all
        -------------------------
reasonable,  ordinary and necessary  expenses incurred by him in the performance
of his  duties  hereunder,  provided  that  Employee  accounts  to  the  Company
therefore  in  the  manner  prescribed  by  the  Company  for  reimbursement  of
Employee's expenses.

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<PAGE>

     8. Vacation.  Employee shall be entitled to a three week paid vacation each
        --------
year during the term hereof.

     9. Effect of Termination of Employment.  If Employee's employment hereunder
        -----------------------------------
shall be unilaterally terminated by the Company without Employee's consent, then
the unvested options will vest proportionally based upon the number of months of
Employee's service to the Company under this Agreement. If Employee's employment
is terminated  voluntarily by Employee or with Employee's  consent,  all options
which  have not vested as of the  termination  date will be  cancelled  and this
Agreement shall forthwith terminate, provided, that Employee's obligations under
Section 11 shall continue unaffected.

     10. Death of Employee.  If Employee's  employment hereunder shall terminate
         -----------------
because of his death,  this Agreement  shall  forthwith  terminate,  except that
Employee's  personal  representative  shall  be  entitled  to  receive  all cash
compensation accrued in favor of Employee but unpaid as of the date of death, as
well as all of  Employee's  vested  stock  options.  All  rights  of  Employee's
personal  representative to receive any further compensation  hereunder or under
any other plan,  arrangement or procedure of the Company shall  terminate to the
extent not  theretofore  vested,  except for any rights which arise by virtue of
Employee's death under any such plan, arrangement or procedure.

     11. Non-Disclosure and Non-Compete.
         ------------------------------

     11.1 Non-Disclosure. Employee agrees that all information pertaining to the
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prior,  current  or  contemplated  business  of the  Company,  its  parent,  its
subsidiaries,  affiliates or its successors in interest  (hereafter  referred to
collectively in this Section 11 as the Company),  excluding  publicly  available
information (in substantially the form in which it is publicly available) unless
such information is publicly  available by reason of unauthorized  disclosure by
Employee,  constitutes  valuable and  confidential  assets of the Company.  Such
information includes, without limitation,  information related to trade secrets,
customer and client  lists,  contract  terms,  legal and  accounting  advice and
opinions,  supplier lists,  methods of doing business,  financing techniques and
sources and financial  statements of the Company.  Such Information is sometimes
hereinafter referred to as "Confidential  Information."  Employee shall hold all
such Confidential  Information in trust and confidence for the Company and shall
not use or  disclose  any  such  Confidential  Information  other  than  for the
business  of the  Company  or as  required  by law,  either  during  the Term of
Employment or after his  employment  terminates  for whatever  reason.  Employee
acknowledges  that,  prior to his employment  with the Company,  Employee had no
previous  experience,  as owner,  employee,  or otherwise in the bingo or gaming
business, and that Employee has gained valuable knowledge and experience in such
business through his employment with Employer.

     11.2     Non-Competition.  As  a  material  part  of  the consideration for
              ---------------
Employee's access to Confidential Information, and for the know-how and training
provided to Employee by Company in the business of operation of bingo and gaming
facilities, which Confidential Information, know-how and training Employee would
not  have  otherwise  received,  and  in consideration for renegotiated employee
stock  options  being issued to Employee in connection with this Agreement which
are  given  upon terms more favorable to Employee than options previously issued
or  promised  to  him,  Employee  covenants  and agrees that, during the term of
Employee's  employment  with  the  Company,  and  for  a  period  of  two  years
thereafter,  Employee will not, within the Restricted Territory (defined below),
directly  or  indirectly,  promote, operate, manage, conduct, solicit, sell for,
own,  acquire  any  interest  in,  act as landlord to, or as employee, director,
agent or consultant for, do business with, participate in, be connected with, or
in any manner assist any other person, partnership, limited partnership or other
entity  which  is  engaged  in,  the business of operation of bingo games, video
games, slot machines, or other similar games or machines. The Restricted Area is
the  geographical area within fifty (50) miles of each and every bingo or gaming
facility  owned, leased or operated by Company, except that after termination of
Employee's  employment, the Restricted Area shall be limited to the geographical
area  within fifty (50) miles of each such facility owned, leased or operated by
Company  as  of  the date of termination of Employee's employment. Employee will
observe  and perform the provisions of this Article 11.2 in good faith, and will
use  no  means  or  measures  to  circumvent  the  intent of this Article 11. 2.

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<PAGE>

     11.3     Enforcement.  In  the  event  of  a  breach  by  Employee  of  the
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provisions  of  this Article 11.3, Employer shall have, in addition to any other
remedies  it  may  have at law or under this Agreement, the right to a temporary
restraining  order,  temporary  injunction  and permanent injunction restraining
Employee  from  violating or continuing a violation of the terms of this Article
11.3.  Employee  agrees  that  in the event of such breach the amount of damages
would  be  difficult  or  impossible to determine, and agrees that a bond in the
amount  of  $1,000.00  would  be  appropriate  in  connection  with  a temporary
restraining  order  or  temporary  injunction.

     11.4     Severance,  Reformation.  Should  any  court  of  competent
              -----------------------
jurisdiction hold any portion of this Article 11 to be unenforceable in whole or
in  part,  such  court  shall be authorized and requested to sever the offending
provision  from  this  Article 11, and to reform this Article so as to comply as
closely as possible with the intentions of the parties as stated herein, so that
it  will  be  enforceable  by  injunction.

     11.5     Breach  of  Article  11.  Since a breach of the provisions of this
              -----------------------
Article  11  could  not  be adequately compensated by money damages, the Company
shall be entitled, in addition to any other right and remedy available to it, to
an  injunction  restraining such breach or threatened breach, and in either case
no  bond  or  other  security  shall  be  required  in connection therewith, and
Employee  hereby  consents  to  the issuance of such injunction. Employee agrees
that  the  provisions of this Article 11 are necessary and reasonable to protect
the Company in the conduct of its business. If any restriction contained in this
Article  11 shall be deemed to be invalid, illegal or unenforceable by reason of
the  extent,  duration,  or  geographical  scope thereof, or otherwise, then the
court  making  such  determination  shall  have the right to reduce such extent,
duration,  geographical  scope,  or  other provisions hereof, and in its reduced
form  such  restrictions  shall  then  be enforceable in the manner contemplated
hereby.

     12. Warranties and  Representations of the Employee.  The Employee warrants
         -----------------------------------------------
and  represents  that the  Employee is not subject to any  agreement,  contract,
judgment,  decree,  or limitation the effect of which would  prohibit,  limit or
otherwise restrict the employment of the Employee by the Company pursuant to the
terms of this Agreement.

     13.  Services on Behalf of Subsidiary  Companies.  The Employee's  services
          -------------------------------------------
hereunder  shall be  performed  on behalf of the  Company  and on behalf of each
subsidiary of the Company whether now existing or hereafter formed. For purposes
of this Agreement, the words "Company" and "Employer" shall refer to and include
each of the subsidiaries of the Company.

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<PAGE>

     14.  Notices.  All notices,  requests,  consents and other  communications,
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required or  permitted to be given  hereunder,  shall be in writing and shall be
deemed  to have been  duly  given if  delivered  personally  or sent by  prepaid
telegram,  or mailed  first-class,  postage prepaid, by registered mail (notices
sent by telegram or mailed shall be deemed to have been given on the date sent),
as follows (or to such other  address as either party shall  designate by notice
in writing to the other in accordance herewith):

If  to  the  Employee:

     John  Richard  Henry
     1810  Intervail  Drive
     Austin,  Texas  78746

     If  to  the  Company:

     American  Bingo  &  Gaming  Corp.
     515  Congress  Avenue,  Suite  1200
     Austin,  Texas  78701
     Attn:  Mr.  Greg  Wilson

     With  a  copy  to:

     Rodney  Varner
     Wilson  &  Varner,  L.L.P.
     301  Congress  Avenue,  Suite  2025
     Austin,  Texas  78701

     15.  Governing Law. This  Agreement  shall be governed by and construed and
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enforced in accordance  with the local laws of the State of Texas  applicable to
agreements made and to be performed entirely in such state.

     16. Headings and Captions.  The section  headings  contained herein are for
         ---------------------
reference  purposes  only  and  shall  not in any  way  affect  the  meaning  or
interpretation of this Agreement.

     17. Replace Prior Agreement;  Entire Agreement. This Agreement modifies and
         ------------------------------------------
supersedes  the  Employment  Agreement  between  Employee and the Company  dated
October  25,  1996.   This  Agreement  sets  forth  the  entire   agreement  and
understanding  of  the  parties  relating  to the  subject  matter  hereof,  and
supersedes all prior  agreements,  arrangements and  understandings,  written or
oral,  relating to the subject  matter  hereof.  No  representation,  promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither  party  shall be bound by or liable for any alleged  representation,
promise or inducement not so set forth.

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<PAGE>

     18. Assignment.  This Agreement,  and the Employee's rights and obligations
         ----------
hereunder,  may not be assigned by the  Employee.  The Company may freely assign
its rights,  together with its  obligations,  hereunder  without  consent of the
Employee.  In such  event the  obligations  of the  Company  hereunder  shall be
binding on its  successors  or  assigns,  whether by merger,  consolidation,  or
acquisition of all or substantially all of its business or assets, or otherwise.

     19.  Amendments;  No  Waiver.  This  Agreement  may be  amended,  modified,
          -----------------------
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived,  only by a written instrument executed by both of the parties hereto,
or in the case of a waiver,  by the party  waiving  compliance.  The  failure of
either party at any time or times to require performance of any provision hereof
shall in no manner  affect  the right at a later time to  enforce  the same.  No
waiver by either  party of the breach of any term or covenant  contained in this
Agreement,  whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or  construed  as, a further or  continuing  waiver of any such
breach,  or a waiver of the breach of any other term or  covenant  contained  in
this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first  above  written.

AMERICAN  BINGO  &  GAMING  CORP.

                         By:  /s/  Greg  Wilson
                              -----------------


                         /s/  John  Richard  Henry
                         -------------------------
                         John  Richard  Henry



                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                ATTACHMENT 1
                                                ------------
                                                Richard Henry
                                                -------------
                                           Stock Option Agreement
------------------------------------------------------------------------------------------------------------
               BLOCK 1    BLOCK 2      BLOCK 3         BLOCK 4      BLOCK 5   BLOCK 6    BLOCK 7    BLOCK 8
              ---------  ---------  --------------  --------------  -------  ---------  ---------  ---------
<S>           <C>        <C>        <C>             <C>             <C>      <C>        <C>        <C>
Shares           33,334     33,333          33,333          33,333   16,667     16,667     16,667     33,333
------------  ---------  ---------  --------------  --------------  -------  ---------  ---------  ---------
Vesting Date   12/31/95   12/31/96        12/31/97        12/31/98  6/30/99   12/31/97   12/31/98   12/31/99
------------  ---------  ---------  --------------  --------------  -------  ---------  ---------  ---------
Pricing       $    2.25  $    2.50  Lower of $3.00  Lower of $4.00  Same as  $    5.00  $    5.00  $    5.00
------------                        or 85% of       or 85% of       Block 4
                                    closing bid     closing bid on
                                    on 12/31/96           12/31/97
------------  ---------  ---------  --------------  --------------  -------  ---------  ---------  ---------
</TABLE>


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<PAGE>