-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbIn+vN5JQLaKecBpEHdmeYEKZ8xLEhXmIF4CX1gitS9c/4bs8173oSmpWH6uhcw pff72aCMUyzKts6UUCTc7g== 0000897101-97-000984.txt : 19970912 0000897101-97-000984.hdr.sgml : 19970912 ACCESSION NUMBER: 0000897101-97-000984 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970908 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHUFFLE MASTER INC CENTRAL INDEX KEY: 0000718789 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 411448495 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20820 FILM NUMBER: 97676754 BUSINESS ADDRESS: STREET 1: 10921 VALLEY VIEW RD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6129431951 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1997 OR [ ] 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: 0-20820 SHUFFLE MASTER, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1448495 (State or Other Jurisdiction (IRS Employer Identification No.) of Incorporation or Organization) 10901 Valley View Road, Eden Prairie MN 55344 (Address of Principal Executive Offices) (State) (Zip Code) Registrant's Telephone Number, Including Area Code: (612) 943-1951 Indicate by 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 ___ As of August 29, 1997, there were 10,368,000 shares of the Company's $.01 par value common stock outstanding. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SHUFFLE MASTER, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) JULY 31, OCTOBER 31, ------- ------- ASSETS 1997 1996 ------- ------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 1,713 $ 3,440 Investments 18,222 23,038 Accounts receivable 6,172 3,567 Inventories 1,749 2,059 Other current assets 760 1,366 ------- ------- Total current assets 28,616 33,470 SYSTEMS AND EQUIPMENT LEASED UNDER OPERATING LEASES, NET, AND HELD FOR LEASE 8,962 7,491 PROPERTY AND EQUIPMENT, NET 3,535 3,039 INTANGIBLE ASSETS, NET, PRIMARILY PURCHASED GAMES 3,895 802 OTHER ASSETS 880 495 ------- ------- $45,888 $45,297 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 841 $ 1,369 Accrued liabilities: Compensation 1,101 698 Expenses 286 198 Customer deposits 1,983 1,335 Tournament playoff liability 2,575 2,072 Current portion of long-term obligation 601 -- Income taxes payable 133 254 ------- ------- Total current liabilities 7,520 5,926 DEFERRED INCOME TAXES 232 232 LONG-TERM OBLIGATION 1,860 -- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 30,000 shares authorized, 10,387 and 11,177 shares issued and outstanding 104 112 Additional paid-in capital 30,352 37,043 Retained earnings 5,820 1,984 ------- ------- Total shareholders' equity 36,276 39,139 ------- ------- $45,888 $45,297 ======= ======= See Notes to Consolidated Financial Statements SHUFFLE MASTER, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (IN THOUSANDS, EXCEPT PER THREE MONTHS ENDED NINE MONTHS ENDED SHARE AMOUNTS) JULY 31, JULY 31, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- REVENUE: Shuffler lease $ 2,729 $ 2,514 $ 8,313 $ 7,009 Shufflers sales 2,422 1,226 6,421 2,866 Let It Ride(R)The Tournament(TM) 1,553 1,818 4,883 5,494 Other 744 326 1,770 716 -------- -------- -------- -------- 7,448 5,884 21,387 16,085 COSTS AND EXPENSES: Cost of leases, sales and Let It Ride(R)The Tournament(TM) 2,699 2,312 7,712 5,628 Selling, general and administrative 2,500 1,760 7,450 4,820 Research and development 397 305 1,115 848 -------- -------- -------- -------- 5,596 4,377 16,277 11,296 -------- -------- -------- -------- INCOME FROM OPERATIONS 1,852 1,507 5,110 4,789 OTHER INCOME (EXPENSE): Loss on notes receivable -- -- -- (3,370) Interest income 249 378 886 1,088 -------- -------- -------- -------- Income before income taxes 2,101 1,885 5,996 2,507 Provision for income taxes 760 450 2,160 625 -------- -------- -------- -------- NET INCOME $ 1,341 $ 1,435 $ 3,836 $ 1,882 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 10,553 11,344 10,876 11,294 ======== ======== ======== ======== NET INCOME PER SHARE $ .13 $ .13 $ .35 $ .17 ======== ======== ======== ======== See Notes to Consolidated Financial Statements SHUFFLE MASTER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED JULY 31, -------------------- (IN THOUSANDS) 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,836 $ 1,882 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,773 1,803 Provision for inventory obsolescence 432 210 Loss on notes receivable -- 3,300 Changes in operating assets and liabilities: Accounts receivable (2,605) (728) Inventories (122) (356) Other current assets 6 (1,159) Tournament playoff liability 503 3,643 Income taxes payable (121) 420 Accounts payable and accrued liabilities (37) 577 Customer deposits 648 503 -------- -------- Net cash provided by operating activities 5,313 10,095 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (60,706) (44,084) Proceeds from the sale and maturity of investments 65,522 36,431 Payments for systems and equipment leased and held for lease (3,429) (2,304) Purchases of property and equipment (1,103) (1,302) Payments for intangible assets, including purchased games (281) (153) Other (354) (195) -------- -------- Net cash used by investing activities (351) (11,607) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of common shares (6,736) -- Proceeds from issuance of common stock 47 894 -------- -------- Net cash (used) provided by financing activities (6,689) 894 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,727) (618) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,440 1,896 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,713 $ 1,278 ======== ======== CASH PAID FOR INCOME TAXES $ 2,291 $ 277 ======== ========
See Notes to Consolidated Financial Statements SHUFFLE MASTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Interim Financial Statements: The financial statements as of July 31, 1997, and for the three and nine month periods ended July 31, 1997 and 1996, are unaudited, but in the opinion of management include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the financial results for the interim periods. The results of operations for the three and nine months ended July 31, 1997, are not necessarily indicative of the results to be expected for the year ended October 31, 1997. These interim statements should be read in conjunction with the Company's October 31, 1996, financial statements and notes thereto included in its Form 10-K. 2. Inventories: JULY 31, OCTOBER 31, DESCRIPTION 1997 1996 ----------------------------- ---------- ---------- Raw materials $1,560,000 $1,600,000 Work-in-progress 487,000 432,000 Finished goods 192,000 187,000 ---------- ---------- 2,239,000 2,219,000 Less: Valuation allowance (480,000) (160,000) ---------- --------- $1,749,000 $2,059,000 ========== ========== 3. Systems and Equipment Leased and Held for Lease: Systems and equipment leased and held for lease include the various models of shufflers, Let It Ride(R) table equipment and video machines. JULY 31, OCTOBER 31, DESCRIPTION 1997 1996 --------------------------------------- ----------- ----------- Systems and equipment leased: Shuffler systems $ 5,477,000 $ 5,190,000 Let It Ride(R)equipment 3,222,000 2,329,000 ----------- ----------- 8,699,000 7,519,000 Less: Accumulated depreciation (3,835,000) (2,456,000) ----------- ----------- 4,864,000 5,063,000 Systems and equipment held for lease: Shuffler systems 1,977,000 1,522,000 Let It Ride(R)equipment 2,121,000 906,000 ----------- ----------- $ 8,962,000 $ 7,491,000 =========== =========== 4. Common Stock: In the current year second quarter, the Board of Directors authorized the repurchase of up to $5,000,000 of the Company's shares in the open market or privately negotiated transactions. The Company repurchased 228,000 shares at a total cost of $1,736,000 during the quarter ended July 31, 1997. The first $5,000,000 Board authorization for share repurchases was completed in April 1997. SHUFFLE MASTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Contingencies: The Company is involved in litigation with Progressive Games, Inc., a Florida corporation. The Company has a declaratory judgment action pending in the United States District Court in Nevada, Mississippi, and Connecticut requesting a determination that certain patents owned by Progressive Games, Inc. are either invalid or not infringed by the Company. Progressive Games, Inc. is suing the Company in United States District Court in Nevada, Mississippi and Connecticut alleging the Company's Let It Ride(R) The Tournament(TM) game and apparatus infringe certain of Progressive Games, Inc.'s patents. Progressive Games, Inc. is asking for injunctive relief and damages. The Company has challenged the validity of some of Progressive Games, Inc.'s patents in the U.S. Patent and Trademark Office. The Company believes that the pertinent claims of Progressive Games, Inc.'s patents are invalid, but in the event they are held to be valid, the Company believes the Let It Ride(R) The Tournament(TM) game and apparatus do not infringe any of Progressive Games, Inc.'s patents. The Company has agreed to defend and indemnify, and is defending and indemnifying all of its Let It Ride(R) The Tournament(TM) casino licensees who were sued by Progressive Games, Inc. due to their use of the Let It Ride(R) The Tournament(TM) game and apparatus. If Progressive Games, Inc. should prevail in its suit, management does not believe it would materially affect the Company's financial condition. The Company had been sued in United States District Court in Nevada by DD Stud, Inc. and Anchor Coin, both Nevada corporations, and had counterclaimed against Stanley E. Fulton, Anchor Gaming, DD Stud, Inc., and Anchor Coin. In August 1997, the Company and DD Stud, Inc., Anchor Coin, Stanley E. Fulton and Anchor Gaming settled their pending claims and related companion claims, and the lawsuit in federal court in Nevada is in the process of being dismissed. The financial terms of the settlement were not material. 6. Reclassifications: Certain reclassifications were made to the July 31, 1996, financial statements to conform to the current period presentation. Specifically, Let It Ride(R) The Tournament(TM) playoff prize fund revenue, and related playoff prize fund expenses included in cost of sales, leases and Let It Ride(R) The Tournament(TM) were each reduced by $3,223,000 and $12,046,000 for the quarter and nine months ended July 31, 1996, respectively. This was the amount collected by the Company during the third quarter and first nine months of fiscal 1996 to fund Let It Ride(R) The Tournament(TM) guaranteed cash prize payments. This reclassification had no effect on net income as previously reported. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth selected financial information derived from the Company's Consolidated Statements of Operations: THREE MONTHS NINE MONTHS ---------------- ---------------- PERIOD ENDED JULY 31, 1997 1996 1997 1996 - ------------------------------------ ------ ------ ------ ------ Revenue 100.0% 100.0% 100.0% 100.0% Cost of products 36.2 39.3 36.1 35.0 ------ ------ ------ ------ Gross margin 63.8 60.7 63.9 65.0 ------ ------ ------ ------ Selling, general and administrative 33.6 29.9 34.8 30.0 Research and development 5.3 5.2 5.2 5.2 ------ ------ ------ ------ Income from operations 24.9 25.6 23.9 29.8 Other income (expense), net 3.3 6.4 4.1 (14.2) ------ ------ ------ ------ Income before income taxes 28.2 32.0 28.0 15.6 Provision for income taxes 10.2 7.6 10.1 3.9 ------ ------ ------ ------ Net income 18.0% 24.4% 17.9% 11.7% ====== ====== ====== ====== REVENUE Revenue for the three months ended July 31, 1997, was $7,448,000, an increase of $1,564,000 or 26.6% over the same period last year. Shuffler lease revenue increased by $215,000, or 8.6% from the third quarter of last year, as the installed lease base at the end of the respective periods increased by 4.9%. Total shuffler sales were $2,422,000 in the current quarter, an increase of $1,196,000, or 97.6% from the prior year third quarter. Shuffler unit sales totaled 332 in the current third quarter, of which 199 units were sales conversions of units under lease or back-up units on the casino property. A total of 172 shufflers were sold in last year's third quarter. Revenue from Let It Ride(R) The Tournament(TM) was $1,553,000 in the current quarter, down from $1,818,000 in the prior year. Last year's third quarter included revenue of $184,000 resulting from receipt of surplus funds collected to fund the guaranteed prize payouts. There has been no receipt of surplus funds during the current fiscal year. Excluding the surplus funds, Let It Ride(R) The Tournament(TM) revenue decreased by $81,000, or 5.0% from the third quarter in fiscal 1996. Revenue from Let It Ride(R) The Tournament(TM) is derived from a percentage of the $1.00 bonus bet option in Nevada and Mississippi, while revenue from Foxwoods Resort Casino and Mohegan Sun is earned monthly on a fixed fee basis. There were approximately 195 tables under license at these jurisdictions as of July 31, 1997. Revenue for the nine months ended July 31, 1997, was $21,387,000, an increase of $5,302,000 or 33.0% over the nine month period ended July 31, 1996. Lease revenue increased to $8,313,000 in the current year compared to $7,009,000 in the prior year period, while shuffler sales increased by $3,555,000 to $6,421,000 in the current nine month period. Let It Ride(R) The Tournament(TM) revenue decreased by 12.5% between the comparable nine month periods due to a combination of a decrease in hands played and decreased participation by the players in the $1.00 bonus bet option in Nevada casinos. In addition, prior year revenue included the receipt of $430,000 of surplus funds collected to fund the guaranteed prize payouts. Other revenue increased by $1,054,000 from the prior year, principally due to revenue generated from the monthly royalty fees on the installed Let It Ride(R) basic tables, revenue recognized on the sale of service and warranty contracts sold to casinos that purchased shufflers, and Let It Ride(R) Bonus Video(TM) revenue. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONT'D.) Late in the current third quarter, the Company began the process of converting Let It Ride(R) The Tournament(TM) tables to Let It Ride(R) Bonus(TM) tables in Nevada. Prior to the conversion, the Company participated in the revenue with casinos based on a percentage of the $1.00 bonus bets placed by players in The Tournament(TM) game. The revenue on the Let It Ride(R) Bonus(TM) table game will be derived from a monthly fixed fee. A similar conversion will take place in all Mississippi casinos in September 1997. Mississippi revenue will also be derived on a fixed fee basis. In connection with these conversions, the Company may sell associated Let It Ride(R) table game equipment to participating casinos. In May 1997, the Company, through its joint venture agreement with International Game Technology, introduced Five Deck Frenzy(TM), a wide area progressive video poker game. The market test in Nevada was completed in June, and the statewide rollout of the game is currently in progress. COSTS AND EXPENSES Gross margin was 63.8% and 63.9% for the current quarter and nine months, compared to 60.7% and 65.0% in the prior year. The gross margin in the third quarter of 1996 was negatively affected by production variances resulting from lower shuffler production. The Company provided $109,000 and $432,000 to inventory valuation reserves in the current quarter and nine months, respectively, for valuation adjustments on early version finished shufflers and component parts, and certain Let It Ride(R) equipment. The valuation provision for the prior year third quarter was $110,000, and $210,000 for nine months. Although the provision amounts were similar between the comparable quarters, the margin effect was greater in fiscal 1996 due to lower revenues. Service related expenses increased in the third quarter and nine months of fiscal 1997 compared to the prior year as the Company increased its field support staff due to jurisdictional expansion. Selling, general and administrative expenses increased by $740,000, to $2,500,000 in the current year third quarter, and by $2,630,000 to $7,450,000 in the nine month period ended July 31, 1997. Overall, expenses increased due to additional staffing and facilities related costs made necessary by revenue and jurisdictional growth. Facilities expenses increased as the Company leased a new building in Las Vegas, Nevada, beginning November 1996. Incentive compensation accruals were recorded in the current year due to achieving certain financial objectives. Legal and professional fees were approximately $272,000 and $990,000 for the current quarter and nine months, respectively, compared to $231,000 and $545,000 in the prior year. The increased professional fees resulted from the ongoing litigation (see Note 5 to the Consolidated Financial Statements), and increased licensing and patent related expenditures. Research and development expenses increased to $397,000 from $305,000 in the prior year third quarter, and $1,115,000 compared to $848,000 for the nine month comparable periods. The additional expenses were incurred for the development of new video games. OTHER INCOME (EXPENSE) Interest income was $249,000 in the current third quarter and $886,000 for the current nine month period, compared to $378,000 and $1,088,000, respectively, in the prior year. The decrease in interest income resulted from decreased cash and investments due to cash used to fund over $6,700,000 of share repurchases during the current nine month period. Prior year other expense included a $3,370,000 loss on notes receivable. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONT'D.) INCOME TAXES The Company recorded income tax expense at an effective annual rate of 36.2% for the quarter and 36.0% year-to-date, compared to 26.3% and 28.1% in the prior year periods. The Company reversed all of its deferred tax asset valuation allowance in fiscal 1996, resulting in reduced tax expense in the prior year. NET INCOME PER SHARE Net income per share was $.13 for the current year third quarter, and $.35 for the current nine month period. Weighted average common and common equivalent shares outstanding decreased to 10,553,000 from 11,344,000 in the third quarter of fiscal 1996, and to 10,876,000 for the current nine month period from 11,294,000 for the nine months ended July 31, 1996, principally due to the repurchase of 798,000 common shares during the current nine month period through the Board authorized share repurchase programs. LIQUIDITY AND CAPITAL RESOURCES As of July 31, 1997, the Company had cash and cash equivalents, and investments totaling $19,935,000, compared to $26,478,000 at October 31, 1996. The current ratio decreased to 3.8 to 1 from 5.6 to 1 at October 31, 1996, while working capital decreased to $21,096,000 at July 31, 1997, from $27,544,000 at October 31, 1996. The primary reason for the decrease in the current ratio and working capital was the use of $6,736,000 to repurchase the Company's common shares. Cash flows from operating activities totaled $5,313,000 in the current nine months compared to cash flows from operating activities of $10,095,000 in the same period last year. Significant items under cash flows from operating activities in the current period include net income of $3,836,000, non-cash charges for depreciation and amortization of $2,773,000, and inventory allowance provisions of $432,000. Cash of $2,605,000 was used to fund an increase in accounts receivable. The increase in accounts receivable resulted from increased shuffler sales in the current third quarter and payment terms offered on other fiscal 1997 sales. Cash provided by investing activities included the redemption of approximately $4,800,000 of investments used to fund the share repurchases. Payments for systems and equipment leased and held for lease included approximately $2,000,000 for the purchase of equipment for Let It Ride(R) the table game, and video slot machines and related equipment for the Let It Ride(R) Bonus Video(TM). Property and equipment purchases, primarily in the first quarter, were $1,103,000 and included approximately $790,000 for leasehold improvements and furnishings for the new facility under lease in Las Vegas, Nevada. Under financing activities, the Company repurchased 798,000 of its common shares at a total cost of $6,736,000 under its share repurchase programs. The Company believes its current cash and investments, and cash provided by operations will be sufficient to finance its current operations, share repurchase program, and new product developments needs. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This report may contain forward looking statements that reflect risks and uncertainties that could cause actual results to differ materially from expectations. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the following: changes in the level of acceptance of the Company's existing products; competitive advances; acceleration and/or deceleration of various product development and roll out schedules; consumer and industry acceptance of the Company's products in new jurisdictions and new products as introduced; higher than expected product development and/or roll out costs; current and/or unanticipated future litigation; general economic conditions; regulatory and jurisdictional issues involving the Company specifically, and for the gaming industry in general; and the relative financial health of the gaming industry both nationally and internationally. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In 1995, the Company filed a declaratory judgment action against D&D Gaming, and D&D Gaming filed suit against the Company for willful patent infringement. Both actions involve the Company's Let It Ride(R) The Tournament(TM) game. D&D Gaming assigned all of its rights, title and interest in the patents that were the subject matter of this proceeding to Progressive Games, Inc. The Company was served with a lawsuit by DD Stud, Inc. and Anchor Coin in September 1996. In August 1997, the lawsuit was settled. See additional discussion regarding these legal proceedings under Note 5 to the Consolidated Financial Statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: * Exhibit 10.1 Employment Contract, by and between Shuffle Master, Inc. and Mark Yoseloff, dated March 7, 1997 (confidential treatment requested) * Exhibit 10.2 Purchase Agreement, by and between Shuffle Master, Inc., and Well Suited L.L.C., and Mark Yoseloff, dated March 7, 1997 (confidential treatment requested) * Exhibit 10.3 Purchase/License Agreement, by and between Shuffle Master, Inc., and Visual Communications Consultants, Inc. dba Advanced Gaming Concepts, and Mark Yoseloff, dated March 7, 1997 (confidential treatment requested) * Exhibit 27 Financial Data Schedules (b) Reports on Form 8-K: None 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 duly authorized. SHUFFLE MASTER, INC. (Registrant) Date: September 8, 1997 /s/ Joseph J. Lahti Joseph J. Lahti Chief Financial Officer /s/ John A. Rahja John A. Rahja Vice President and Controller EX-10.1 2 EMPLOYMENT CONTRACT EXHIBIT 10.1 EMPLOYMENT CONTRACT This agreement is entered into this 7th day of March, 1997, by and between Shuffle Master, Inc., a corporation licensed to do business in the State of Nevada with offices at 1106 Palms Airport Drive, Las Vegas, Nevada 89119, hereinafter Shuffle Master and Mark Yoseloff, an individual presently relocating to the State of Nevada, hereinafter Yoseloff. Whereas Shuffle Master wishes to employ Yoseloff for a period of five years pursuant to certain terms and conditions and whereas Yoseloff wishes to work exclusively for Shuffle Master for a period of five years pursuant to certain terms and conditions, now therefore the parties hereto agree as follows: 1. Shuffle Master hereby employs Yoseloff for a period of five years beginning the first day of August, 1997, and continuing through the 31st day of July, 2002, unless earlier terminated in accordance with the terms and conditions of this Agreement. Yoseloff as part of his employment will perform any and all reasonable lawful duties for Shuffle Master as required by Shuffle Master management which duties are expected to include the creation, development, and implementation of new products, including the overseeing of product engineering and new game development. 2. Yoseloff will perform his duties at Shuffle Master's offices in Las Vegas and such other locations as directed by Shuffle Master. While Yoseloff will be expected to travel from time to time in the performance of his duties for Shuffle Master, he will not be required to relocate his residence outside of the Las Vegas, Nevada metropolitan area. If Yoseloff does relocate his residence outside of the Las Vegas, Nevada metropolitan area it will constitute a breach of this Agreement. 3. Shuffle Master will compensate Yoseloff as follows: A. An annual salary of $100,000 payable bi-weekly B. Normal employee benefits enjoyed by the majority of other Shuffle Master executive employees, excluding any participation under the Employee Stock Option Plan benefit and the Employee Bonus Plan payment. In the event Yoseloff cannot be covered beginning August 1, 1997, under Shuffle Master's health insurance plan, Shuffle Master will reimburse Yoseloff for his COBRA health insurance payments for the period beginning August 1, 1997, until such time as Yoseloff is covered under the Shuffle Master health insurance plan. C. Yoseloff may receive discretionary bonuses as determined from time to time by the Executive Compensation Committee, not to exceed $200,000 in any calendar year. Yoseloff's bonuses and stock options will be granted to him in a manner consistent with bonuses and stock options granted to other Shuffle Master executives. D. Reimbursement of valid, reasonable expenses. E. Reimbursement of actual moving expenses to Las Vegas not to exceed $10,000. 4. This Agreement is assignable by Shuffle Master to its successors and assigns. However, it is personal to and not assignable by Yoseloff. 5. A. Shuffle Master may terminate this Agreement before its expiration in the event of Yoseloff's death or his disability. Yoseloff will be deemed to be disabled for purposes of this paragraph in the event he cannot perform his normal duties for a period of four consecutive months or in the event he is only able to perform his normal duties for a period of six months in any 12 month period. B. Shuffle Master may terminate this Agreement for cause. Cause shall include Yoseloff's material breach of a significant provision of this Agreement, his intentional failure to perform his duties as directed by Shuffle Master, his conviction of a felony, his conviction of a lesser offense if it jeopardizes any of Shuffle Master's gaming licenses, any act or omission, regardless of when such act or omission occurred, by Yoseloff which jeopardizes any of Shuffle Master's gaming licenses, fraud or the intentional violation of any rule or regulation pertaining to Shuffle Master's business. In the event Yoseloff is terminated for cause by Shuffle Master, Shuffle Master shall retain any and all other remedies it has as a result of such actions whether legal or equitable. 6. Yoseloff will enter into the Employee Non-Disclosure and Inventions Agreement set forth as Exhibit A. 7. Shuffle Master and Yoseloff acknowledge that Yoseloff is coming to Shuffle Master at a critical time in Shuffle Master's expansion of new games. As a result, if Yoseloff were to leave Shuffle Master within the first year of his employment contract it would create significant delays in the development of Shuffle Master's new games and, accordingly, it is critical that Yoseloff not be allowed to compete with Shuffle Master under any circumstances in any way for a minimum period of two years from the date of this Agreement and after March 15, 1998, for a period of one year from the date of termination/expiration of his employment. Therefore, for a minimum period of two years from March 15, 1997, and for a period of one year following the termination/expiration of his Employment Agreement, if such termination/ expiration is after March 15, 1998, Yoseloff shall not directly or indirectly individually or as an officer, director, or agent of any corporation or firm compete with the business of Shuffle Master as presently conducted and as conducted in the future. Further, Yoseloff shall not either directly or indirectly, individually or as an officer, director or agent of any corporation or firm engage or be interested in the creation, invention, distribution, marketing or sale of any game that could be used in the gaming industry regardless of whether such game is used in the gaming industry for a period of two years from March 15, 1997, and one year following the termination/expiration of his employment with Shuffle Master, if such termination/expiration is after March 15, 1998. Yoseloff acknowledges that in the event he breaches this Covenant Not to Compete that Shuffle Master will suffer irreparable harm and that it must have the right and hereby does have the right to seek equitable relief to enjoin such breach or further breach. In the event Shuffle Master has to take any action, including but not limited to court action, to enforce its rights under this Covenant Not to Compete, Yoseloff agrees that he will be responsible and pay for all of Shuffle Master's attorneys' fees and costs associated with the enforcement of its rights under this Agreement. 8. Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Nevada, and both parties hereby waive any conflict of laws or rules which may otherwise apply. 9. Severability. If any provision or remedy in this Agreement is invalid under any law, such provision shall be inapplicable, and deemed omitted; however, all remaining provisions shall be given effect in accordance with the manifest intent of this Agreement, and are therefore severable from such invalid provisions. SHUFFLE MASTER, INC. MARK YOSELOFF By: _________________________________ _________________________________ As Individual Its: ________________________________ EXHIBIT A TO EMPLOYMENT CONTRACT EMPLOYEE NON-DISCLOSURE AND INVENTIONS AGREEMENT For valuable consideration including my employment Shuffle Master, Inc., meaning the parent company and all subsidiaries and affiliates (hereinafter called "Shuffle Master"), Shuffle Master and I agree as follow: 1. I agree fully and promptly to disclosure to the Chief Executive Officer all inventions, discoveries, software, and writings that I may make, conceive, discover, develop or reduce to practice, either solely or jointly with others, during my employment, whether or not during usual working hours. I agree that all such inventions, discoveries, software, and writings shall be and remain the sole and exclusive property of Shuffle Master, and I agree to assign, and hereby assign all my right, title and interest in and to any such inventions, discoveries, software, and writings to Shuffle Master. I agree to keep complete records of such inventions, discoveries, software, and writings, which records shall be and remain the sole property of Shuffle Master, and to execute and deliver, either during or after my employment by Shuffle Master, any documents as Shuffle Master shall deem necessary or desirable to obtain such Letters Patent, Utility Models, Inventor's Certificates, Copyrights, Trademarks, or other appropriate legal rights of the United States and foreign countries as Shuffle Master may, at its sole discretion, elect and to vest title thereto in Shuffle Master, its successors, assignees or nominees. 2. The word "inventions" as used herein shall include inventions, discoveries, improvements, ideas, conceptions, developments and designs, whether or not patentable, tested, reduced to practice, subject to copyright or other rights or forms of protection, or relating to data processing communications, computer software systems, programs and procedures. 3. I understand that all copyrightable work that I may create while employed by Shuffle Master is a "work made for hire" and that Shuffle Master is the owner of the copyright therein. I hereby assign all right, title, and interest to the copyright therein to Shuffle Master. 4. I have no inventions, improvements, discoveries, software, or writings useful to Shuffle Master or its subsidiaries or affiliates in the normal course of business, which were conceived, made or written prior to the commencement of my employment with Shuffle Master which I haven't already transferred or licensed to Shuffle Master pursuant to certain asset sales agreements between Shuffle Master and Well Suited LLC and me, and Shuffle Master and Visual Communications Consultants, Inc. dba Advanced Gaming Concepts and me. 5. I will not publish or otherwise disclose, either during or after my employment, any unpublished or proprietary or confidential information or secret relating to Shuffle Master or its business or its operations or to Shuffle Master products or services; nor will I publish or otherwise disclose proprietary or confidential information of others to which I have had access or obtained knowledge in the course of my employment. If I leave the employ of Shuffle Master I will not, without its prior written consent, retain or take with me any drawing, writing, or other record in any form or nature which relates to any of the foregoing. 6. At the termination of my employment and, further, at the termination of my covenant not to compete, I agree to fully and promptly disclose to Shuffle Master all inventions which I may make, conceive, discover, develop or reduce to practice, either solely or jointly with others, during my employment with Shuffle Master and for a period of one year following my employment with Shuffle Master. At the request of Shuffle Master, I agree to assign to Shuffle Master my entire right, title and interest in and to such inventions and agree to execute and deliver all documents as Shuffle Master shall deem necessary and desirable to obtain Letters Patent, Utility Models, Inventor's Certificates, Copyrights or other appropriate legal rights of the United States and foreign countries as Shuffle Master may, in its sole discretion, elect and to vest title thereto in Shuffle Master, its successors, assignees or nominees. 7. I understand that my employment creates a relationship of trust and confidence between myself and Shuffle Master. In the performance of my job duties, I understand that I may encounter information that is confidential to Shuffle Master, or its customers. I agree to maintain in confidence all information pertaining to Shuffle Master's business to which I have access including, but not limited to, information relating to Shuffle Master's products, inventions, trade secrets, how-how, systems, formulas, processes, compositions, customer information and lists, research projects, data processing and computer software techniques, programs and systems, costs, sales volume or strategy, pricing, profitability, plans, marketing strategy, expansion or acquisition or divestiture plans or strategy, and information of similar nature received from others with whom Shuffle Master does business, and I agree not to use, communicate or disclose or authorize any other person to use, communicate or disclosure such information orally, in writing, or by publication, either during my employment or thereafter, except as expressly authorized in writing by Shuffle Master, unless and until such information becomes generally known in the relevant trade to which it relates without fault on my part, or as required by law. 8. I hereby acknowledge that I understand and acknowledge the necessity of keeping sensitive information confidential. I understand violation of this agreement may result in immediate dismissal. 9. During the term of my employment, I shall engage in no activity or employment which may conflict with the interest of Shuffle Master and I shall comply with all Policies and Procedures of Shuffle Master including, without limiting the generality of the foregoing, all Policies and Procedures pertaining to Ethics. 10. I have the right to enter into this Agreement, and I confirm the accuracy of my representations and further confirm that I have no contractual or other impediments to the performance of its obligations. 11. This Agreement shall be binding upon me and my heirs, executors, administrators, and assigns and supersedes, upon coming into force under applicable law, all prior agreements between me and Shuffle Master relating to the subject matter of this Agreement, but shall not relieve me of any obligations incurred under such prior agreements while in force. Shuffle Master shall have the right to assign this agreement to any successor to the business in which I am employed. 12. This Agreement shall be construed in accord with the laws of the State of Nevada, and both parties hereby waive any conflict of laws or rules which amy otherwise apply. Employee's Name (Please print): ________________________________________________ Employee's Signature: ______________________________ Date: _____________________ Signature Witnessed by: ____________________________ Date: _____________________ EX-10.2 3 PURCHASE AGREEMENT EXHIBIT 10.2 PURCHASE AGREEMENT This Agreement made and entered into this 7th day of March 1997, by and between Shuffle Master, Inc., a Minnesota corporation having a principal place of business at 10901 Valley View Road, Eden Prairie, Minnesota 55344 ("Shuffle Master"), and Well Suited L.L.C., a Nevada Limited Liability Company having its principal place of business at 124 Hebron Avenue, Glastonbury, Connecticut 06033 ("Well Suited"), and Mark Yoseloff ("Yoseloff"). Whereas Well Suited and Yoseloff have certain intellectual property rights they desire to sell; And whereas Shuffle Master wishes to purchase all of Well Suited's and Yoseloff's intellectual property rights; Now therefore in express consideration of the above recitals, and of the mutual covenants hereinafter contained, the parties agree as follows: 1. Shuffle Master shall purchase from Well Suited and Yoseloff and Well Suited and Yoseloff shall sell, transfer and assign to Shuffle Master all of Well Suited's right and all of Yoseloff's rights (not previously licensed to Shuffle Master pursuant to an exclusive worldwide license) to any and all intellectual property existing as of the date of this Agreement, including but not limited to the intellectual property described on Exhibit A attached hereto. 2. Transfer of the intellectual property described on Exhibit A attached hereto shall be by absolute assignment. The intellectual property includes all of Well Suited's and Yoseloff's right, title and interest in and to any patent applications, and any Letters Patent, both foreign and domestic that may or shall issue out of said intellectual property including any modifications thereof, and further include all rights under the international conventions, and Well Suited and Yoseloff do hereby authorize and request the Commissioner of Patents and Trademarks to issue any such Letters Patent to Shuffle Master all in accordance herewith. Included in the intellectual property rights transferred and assigned to Shuffle Master by Well Suited and Yoseloff is the right to patent and otherwise fully exploit all of such intellectual property. Further, Well Suited and Yoseloff will execute such additional writings and documents and do such additional acts as Shuffle Master, its successors and assigns may deem necessary or desirable to perfect Shuffle Master's full enjoyment, use and exploitation of the intellectual property transferred hereunder, and render all necessary assistance in making application for and obtaining original, divisional, continuation, reissued or extended Letters Patent of the United States, or of any and all foreign countries on said invention, and in enforcing any rights occurring as a result of such applications or patents, by giving testimony in any proceedings or transactions involving such applications or patents. 3. The intellectual property described on Exhibit A attached hereto also includes all of Well Suited's and Yoseloff's intellectual property rights in any inventions, discoveries, improvements, ideas, conceptions, developments, and designs whether or not patentable, all technical information relating to the intellectual property rights and further includes all of their rights relating to data processing, communications, computer software systems, programs and procedures whether subject to copyright or otherwise and includes all rights to any names and other creative ideas whether or not protected by trade name or trademark. 4. The purchase price for the intellectual property described on the attached Exhibit A is [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] and 108,000 registered, unrestricted common shares of Shuffle Master stock, payable and transferable by Shuffle Master to Well Suited and Yoseloff as follows: the sum of [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] to be paid upon the closing of this transaction and 5,400 registered, unrestricted common shares of Shuffle Master common stock to be transferred upon the closing of this transaction; and the balance of [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] (without interest) and 102,600 registered, unrestricted common shares of Shuffle Master common stock to be paid and delivered in equal successive quarterly installments of [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] (without interest) and 5,400 shares of Shuffle Master common stock in 19 additional quarterly installments. The first quarterly payment and stock transfer shall be due the 7th day of June, 1997. Yoseloff acknowledges that the Shuffle Master stock is not presently registered. Shuffle Master will undertake to register the common stock to be transferred hereunder at its expense within 30 days of the signing of this Agreement. Shuffle Master will not be obligated to transfer the shares to Yoseloff free of restriction until such time as they are registered. Yoseloff acknowledges that once he receives the registered shares he may only trade them in accordance with all state and federal securities laws in effect at the signing of this Agreement and in the future. 5. In consideration of Shuffle Master's purchase of the patent and other intellectual property rights described herein and, further, to aid Shuffle Master in fully exploiting the value of all of such rights, Yoseloff agrees to become an employee of Shuffle Master for a period of five years and has entered into a five year employment agreement for such purpose, a copy of which is attached hereto as Exhibit B. In the event Yoseloff's employment with Shuffle Master is terminated for any reason not involving a breach of the Employment Agreement by Shuffle Master, in addition to any other remedy Shuffle Master may have, the balance of the cash payments to be made to Well Suited and Yoseloff under this Purchase Agreement shall be reduced by [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] for each year or pro rata portion thereof remaining on the five year term set forth in Yoseloff's Employment Agreement. 6. In the event of a merger or takeover of Shuffle Master as currently defined in an amendment to Shuffle Master's Employee Stock Option, while any payments or transfers under this agreement remain outstanding, Well Suited and Yoseloff may request acceleration of such payments or transfers provided, however, in the event they do so all such remaining payments and transfers (cash and stock) will be discounted by a factor of 7% per year. For example, if two years of payments remain to be paid to Well Suited and Yoseloff and Well Suited and Yoseloff elect to accelerate payment of the balance, the payments and transfers to be made in the first of the two remaining years shall be discounted by 7% and the payments and transfers to be made in the second of the two remaining years shall be discounted by 14%. 7. In the event Yoseloff is requested by any gaming jurisdiction to come forward for some form of licensing and/or finding of suitability for any reason whether pursuant to his employment agreement with Shuffle Master, or any other agreement with Shuffle Master, or for any other reason, Yoseloff agrees that he will use his absolute best efforts and provide his full cooperation in obtaining such licensing or meeting any other requirement of such gaming jurisdiction. Further, in the event such gaming jurisdiction does not allow Yoseloff to become licensed or determines he does not meet any other requirement, notwithstanding Yoseloff's full cooperation and absolute best efforts to obtain same, such finding of non-licensure or other requirement shall constitute a breach of this Purchase Agreement as well as Yoseloff's Employment Agreement with Shuffle Master, which will give Shuffle Master at its sole option and discretion among any of its other remedies, the right to terminate this Purchase Agreement and Yoseloff's Employment Agreement without any further obligation to Yoseloff. 8. In executing this Agreement, Well Suited and Yoseloff warrant, covenant and represent to Shuffle Master as follows: A. That each has the full, right, power, authority, and privilege to enter into this Agreement; B. That in entering into this Agreement each is in full compliance with all applicable laws, rules and regulations; C. That Well Suited is the fee and absolute owner and titleholder of all, each and every statutory and common law right in and to the intellectual property described on Exhibit A attached hereto and, further, that such intellectual property does not infringe upon any patent or proprietary rights of any other party; D. That upon execution of this Agreement, neither Well Suited nor Yoseloff shall retain any right or interest in any intellectual property in which either of them had an interest as of the date of the closing of this Agreement; E. That Well Suited and Yoseloff each own and possess the absolute right and privilege to grant Shuffle Master all of the rights and entitlements which have been conveyed hereunder. 9. In entering this Agreement Shuffle Master warrants, covenants and represents as follows: A. That it is a Minnesota corporation in good standing and that it has the right, authority, power and privilege to enter into this Agreement; B. That in entering into this Agreement it is in full compliance with all applicable laws, rules and regulations. 10. A. Except as otherwise provided herein, in the event of any breach of this Agreement, or any term, condition, representation, covenant, or provision thereof by either party, the other party shall notify the party in breach, in writing, of the nature and extent of the breach. The breach shall be cured within thirty (30) days of the receipt of such notice or, if the nature of the breach is such that it cannot reasonably be cured within thirty (30) days, the defaulting party shall commence action necessary to cure the breach within that period of time and diligently pursue all actions necessary to cure the breach without unnecessary delay or interruption until completed. B. In the event of a breach of this Agreement by Shuffle Master which is not cured within the time period provided in Paragraph 10(A), supra, Well Suited and Yoseloff may pursue all remedies available to them in law or equity. C. In the event of a breach of this Agreement by Well Suited or Yoseloff which is not cured within the time period provided in Paragraph 10(A), supra, Shuffle Master may pursue all remedies available to it in law or equity. 11. Delivery of all notices provided for herein shall be sufficient if delivered in person or mailed, certified mail, return receipt requested, as follows: TO WELL SUITED/Yoseloff: 124 Hebron Glastonbury, CT 06033 TO WELL SUITED/Yoseloff: 1900 Grey Eagle Street On and after August 1, 1997 Henderson, NV 89014 TO SHUFFLE MASTER: Shuffle Master, Inc. 10901 Valley View Road Eden Prairie, MN 55344 Attn: General Counsel 12. The failure of any party to enforce any provision of this Agreement, or to terminate this Agreement for the breach of any terms, conditions, limitations, or restrictions herein, shall not operate thereafter as a waiver of that provision or any other provision of this Agreement, or as a waiver of the right to terminate this Agreement as set forth herein. 13. If any provision or remedy in this Agreement is invalid under any law, such provision shall be inapplicable, and deemed omitted; however, all remaining provisions shall be given effect in accordance with the manifest intent of this Agreement, and are therefore severable from such invalid provisions. 14. This Agreement shall be construed in accordance with the laws of the State of Nevada, and both parties hereby waive any conflict of laws or rules which may otherwise apply. 15. If any litigation should arise as a result of this Agreement, the prevailing party in any such action shall be entitled to recover its reasonable attorneys' fees and costs from the losing party. 16. The captions appearing with the commencement of the paragraphs of this Agreement are descriptive and for convenience of reference only, and shall in no way define, limit or describe the scope or intent of the provisions of this Agreement. 17. This Agreement shall inure to the benefit of and be binding upon the parties, their legal representatives, successors, and permitted assigns. 18. Each party agrees to indemnify, reimburse and hold harmless the other party, as well as said other parties' affiliates, agents, employees, officers and directors from and against all actions, claims, losses, damages and expenses (including reasonable attorneys' fees) of whatever kind, which are imposed or incurred based in whole or in part upon its own acts, warranties, covenants, representations, or omissions, or the acts, warranties, covenants, representations, or omissions of its employees, servants, or agents. 19. The parties agree that any information given by one party to another, whether oral or written, at any time prior to the execution of this Agreement, which is indicated as confidential, or could be presumed from the surrounding circumstances to be confidential, shall be kept confidential by that other party and shall not be used or disclosed, directly or indirectly, to third parties for any purpose whatsoever. 20. Shuffle Master, Well Suited and Yoseloff agree that they have each materially and fully participated in he negotiation and drafting of this Agreement and, if is ever should be the subject of interpretation by a court, it shall not be construed or interpreted against either party. WELL SUITED, L.L.C. MARK YOSELOFF By: _________________________________ _________________________________ Name, as Individual Its: ________________________________ SHUFFLE MASTER, INC. _____________________________________ Name _____________________________________ Title EXHIBIT A [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] EXHIBIT B [EXHIBIT B IS OMITTED AS THE AGREEMENT IN THE FORM OF EXHIBIT B IS, ITSELF, FILED AS AN EXHIBIT TO THIS FORM 10Q.] EX-10.3 4 PURCHASE/LICENSE AGREEMENT EXHIBIT 10.3 PURCHASE/LICENSE AGREEMENT This Agreement is made and entered into this 7th day of March 1997, by and between Shuffle Master, Inc., a Minnesota corporation having a principal place of business at 10901 Valley View Road, Eden Prairie, Minnesota 55344 ("Shuffle Master"), and Visual Communications Consultants, Inc. dba Advanced Gaming Concepts, a New Jersey corporation having its principal place of business at 124 Hebron Avenue, Glastonbury, Connecticut 06033 ("AGC"), and Mark Yoseloff ("Yoseloff"). Whereas AGC and Yoseloff have certain intellectual property rights they desire to sell and or license; And whereas Shuffle Master wishes to purchase and or license all of AGC's intellectual property rights and certain of Yoseloff's intellectual property rights, Now therefore in express consideration of the above recitals, and of the mutual covenants hereinafter contained, the parties agree as follows: 1. AGC and Yoseloff will license the intellectual property described on Exhibit A to Shuffle Master. This license granted to Shuffle Master shall be an exclusive worldwide license in perpetuity for the commercial use and any other lawful use of the property set forth on Exhibit A provided it is not used on [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] platforms. This worldwide license granted by AGC and Yoseloff includes the grant to Shuffle Master of the right to sublicense the intellectual property set forth on Exhibit A. At Shuffle Master's option, AGC and Yoseloff will sublicense the intellectual property described on Exhibit A to end users designated by Shuffle Master. AGC and Yoseloff agree to perform any and all acts and sign any and all documents necessary to transfer the intellectual property described in Exhibit A, including all license agreements and other documents deemed necessary by Shuffle Master to effect and record the transfer of the intellectual property described on Exhibit A. 2. Shuffle Master shall purchase from AGC and AGC shall sell, transfer and assign to Shuffle Master all of AGC's rights to any and all intellectual property existing as of the date of this Agreement not already licensed pursuant to Paragraph 1 hereof, including but not limited to the intellectual property described on Exhibit B attached hereto. 3. Transfer of AGC's remaining intellectual property described on Exhibit B attached hereto shall be by absolute assignment. The intellectual property includes all of AGC's right, title and interest in and to any patent applications, and any Letters Patent, both foreign and domestic that may or shall issue out of said intellectual property including any modifications thereof, and further include all rights under the international conventions, and Well Suited and Yoseloff do hereby authorize and request the Commissioner of Patents and Trademarks to issue any such Letters Patent to Shuffle Master all in accordance herewith. Included in the intellectual property rights transferred and assigned to Shuffle Master by AGC is the right to patent and otherwise fully exploit all of such intellectual property. Further, AGC will execute such additional writings and documents and do such additional acts as Shuffle Master, its successors and assigns may deem necessary or desirable to perfect Shuffle Master's full enjoyment, use and exploitation of the intellectual property transferred hereunder, and render all necessary assistance in making application for and obtaining original, divisional, continuation, reissued or extended Letters Patent of the United States, or of any and all foreign countries on said invention, and in enforcing any rights occurring as a result of such applications or patents, by giving testimony in any proceedings or transactions involving such applications or patents. 4. Purchase Price and Payment. (a) the purchase price for the intellectual property described on the attached Exhibits A and B is [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] payable by Shuffle Master to AGC and Yoseloff, as follows: Shuffle Master will offset AGC's and Yoseloff's obligations to pay [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] to Shuffle Master. 5. The intellectual property described on Exhibits A and B attached hereto also includes all of AGC's intellectual property rights in any inventions, discoveries, improvements, ideas, conceptions, developments, and designs whether or not patentable, all technical information relating to the intellectual property rights and further includes all of their rights relating to data processing, communications, computer software systems, programs and procedures whether subject to copyright or otherwise and includes all rights to any names and other creative ideas whether or not protected by trade name or trademark. 6. In consideration of Shuffle Master's purchase of the patent and other intellectual property rights described herein and, further, to aid Shuffle Master in fully exploiting the value of all of such rights, Yoseloff agrees to become an employee of Shuffle Master for a period of five years and has entered into a five year employment agreement for such purpose, a copy of which is attached hereto as Exhibit C. 7. In the event Yoseloff is requested by any gaming jurisdiction to come forward for some form of licensing and/or finding of suitability for any reason whether pursuant to his employment agreement with Shuffle Master, or any other agreement with Shuffle Master, or for any other reason, Yoseloff agrees that he will use his absolute best efforts and provide his full cooperation in obtaining such licensing or meeting any other requirement of such gaming jurisdiction. Further, in the event such gaming jurisdiction does not allow Yoseloff to become licensed or determines he does not meet any other requirement, notwithstanding Yoseloff's full cooperation and absolute best efforts to obtain same, such finding of non-licensure or other requirement shall constitute a breach of this Purchase/License Agreement as well as Yoseloff's Employment Agreement with Shuffle Master, which will give Shuffle Master at its sole option and discretion among any of its other remedies, the right to terminate this Purchase/License Agreement and Yoseloff's Employment Agreement without any further obligation to Yoseloff. 8. In executing this Agreement, AGC and Yoseloff warrant, covenant and represent to Shuffle Master as follows: A. That each has the full, right, power, authority, and privilege to enter into this Agreement; B. That in entering into this Agreement each is in full compliance with all applicable laws, rules and regulations; C. That AGC is the fee and absolute owner and titleholder of all, each and every statutory and common law right in and to the intellectual property described on Exhibit B attached hereto and, further, that such intellectual property does not infringe upon any patent or proprietary rights of any other party; D. That AGC and Yoseloff have the full and absolute right and power to enter into the exclusive license including the right to grant Shuffle Master the right to sublicense for the commercial use of the intellectual property listed on Exhibit A provided that Shuffle Master may not sublicense intellectual property for use on any [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] platforms; E. That upon execution of this Agreement, AGC shall not retain any right or interest in any intellectual property listed on Exhibit B and AGC and Yoseloff shall not grant any additional license or interest in the intellectual property listed on Exhibit A to any third party, except at the request of Shuffle Master; F. That AGC and Yoseloff each own and possess the absolute right and privilege to grant Shuffle Master all of the rights and entitlements which have been conveyed hereunder. 9. In entering this Agreement Shuffle Master warrants, covenants and represents as follows: A. That it is a Minnesota corporation in good standing and that it has the right, authority, power and privilege to enter into this Agreement; B. That in entering into this Agreement it is in full compliance with all applicable laws, rules and regulations. 10. A. Except as otherwise provided herein, in the event of any breach of this Agreement, or any term, condition, representation, covenant, or provision thereof by either party, the other party shall notify the party in breach, in writing, of the nature and extent of the breach. The breach shall be cured within thirty (30) days of the receipt of such notice or, if the nature of the breach is such that it cannot reasonably be cured within thirty (30) days, the defaulting party shall commence action necessary to cure the breach within that period of time and diligently pursue all actions necessary to cure the breach without unnecessary delay or interruption until completed. B. In the event of a breach of this Agreement by Shuffle Master which is not cured within the time period provided in Paragraph 10(A), supra, AGC and Yoseloff may pursue all remedies available to them in law or equity. C. In the event of a breach of this Agreement by AGC or Yoseloff which is not cured within the time period provided in Paragraph 10(A), supra, Shuffle Master may pursue all remedies available to it in law or equity. 11. Delivery of all notices provided for herein shall be sufficient if delivered in person or mailed, certified mail, return receipt requested, as follows: TO AGC/Yoseloff: 124 Hebron Glastonbury, CT 06033 TO AGC/Yoseloff: 1900 Grey Eagle Street On and after August 1, 1997 Henderson, NV 89014 TO SHUFFLE MASTER: Shuffle Master, Inc. 10901 Valley View Road Eden Prairie, MN 55344 Attn: General Counsel 12. The failure of any party to enforce any provision of this Agreement, or to terminate this Agreement for the breach of any terms, conditions, limitations, or restrictions herein, shall not operate thereafter as a waiver of that provision or any other provision of this Agreement, or as a waiver of the right to terminate this Agreement as set forth herein. 13. If any provision or remedy in this Agreement is invalid under any law, such provision shall be inapplicable, and deemed omitted; however, all remaining provisions shall be given effect in accordance with the manifest intent of this Agreement, and are therefore severable from such invalid provisions. 14. This Agreement shall be construed in accordance with the laws of the State of Nevada, and both parties hereby waive any conflict of laws or rules which may otherwise apply. 15. If any litigation should arise as a result of this Agreement, the prevailing party in any such action shall be entitled to recover its reasonable attorneys' fees and costs from the losing party. 16. The captions appearing with the commencement of the paragraphs of this Agreement are descriptive and for convenience of reference only, and shall in no way define, limit or describe the scope or intent of the provisions of this Agreement. 17. This Agreement shall inure to the benefit of and be binding upon the parties, their legal representatives, successors, and permitted assigns. 18. Each party agrees to indemnify, reimburse and hold harmless the other party, as well as said other parties' affiliates, agents, employees, officers and directors from and against all actions, claims, losses, damages and expenses (including reasonable attorneys' fees) of whatever kind, which are imposed or incurred based in whole or in part upon its own acts, warranties, covenants, representations, or omissions, or the acts, warranties, covenants, representations, or omissions of its employees, servants, or agents. 19. The parties agree that any information given by one party to another, whether oral or written, at any time prior to the execution of this Agreement, which is indicated as confidential, or could be presumed from the surrounding circumstances to be confidential, shall be kept confidential by that other party and shall not be used or disclosed, directly or indirectly, to third parties for any purpose whatsoever. 20. Shuffle Master, AGC and Yoseloff agree that they have each materially and fully participated in he negotiation and drafting of this Agreement and, if is ever should be the subject of interpretation by a court, it shall not be construed or interpreted against either party. VISUAL COMMUNICATIONS CONSULTANTS, INC. dba ADVANCED GAMING CONCEPTS, INC. By: ____________________________________ Its: ___________________________________ MARK YOSELOFF ________________________________________ Name, as Individual SHUFFLE MASTER, INC. ________________________________________ Name ________________________________________ Title EXHIBIT A [TEXT DELETED; CONFIDENTIAL TREATMENT REQUEST HAS BEEN MADE] EXHIBIT B All intellectual property of AGC in whatever form. EXHIBIT C EMPLOYMENT CONTRACT [EXHIBIT C IS OMITTED AS THE EMPLOYMENT CONTRACT IN THE FORM OF EXHIBIT C IS, ITSELF, FILED AS AN EXHIBIT TO THIS FORM 10Q.] EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS OCT-31-1997 NOV-01-1996 JUL-31-1997 1,713 18,222 6,297 125 1,749 28,616 4,824 1,289 45,888 7,520 0 104 0 0 36,172 45,888 6,421 21,387 2,132 7,712 1,115 0 0 5,996 2,160 3,836 0 0 0 3,836 .35 .35
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