Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

[Gerald W. Koslow]

 

 

THIS AGREEMENT is made and entered into as of the 1st day of February, 2003, by
and between Shuffle Master, Inc., a Minnesota corporation (the “Company”), and
Gerald Koslow (the “Employee”), a resident of the State of Nevada.

 

RECITALS:

 

A.                                   The Company is in the business of
developing, manufacturing, distributing and otherwise commercializing gaming
equipment, games, and operating systems for gaming equipment and related
products and services throughout the United States and in Canada and other
countries (the “Business”).

 

B.                                     Company and Employee want to create an
at-will employment relationship that protects the Company with appropriate
confidentiality and non-compete covenants, and compensates and rewards the
Employee for performing his obligations for the full term of this contract or
such shorter term, as it may be determined in accordance with the terms and
conditions of this Agreement.

 

C.                                     The Company and Employee desire that
Employee be employed by the Company on the terms and conditions of this
Agreement.

 

AGREEMENT

 

In consideration of the mutual promises contained herein, Employee and the
Company agree as follows:

 

1.                                       Employment.  The Company hereby employs
Employee as its Senior Vice President and Chief Financial Officer reporting to
the Chief Executive Officer of the Company.  Employee shall perform the normal
duties of that position.  Employee’s employment under this Agreement with the
Company is for an initial term of three (3) years (the “Term”), beginning
February 1, 2003 (the “Commencement Date”), through January 31, 2006.

 

2.                                       Salary, Bonus and Benefits.

 

a.               From the Commencement Date through January 31, 2004, Employee
shall be paid an annual base salary of One Hundred Ninety Thousand Dollars
($190,000.00), paid in the same intervals as other Employees of the Company; and
if employed through October 31, 2003, Employee will be eligible to receive an
executive bonus in accordance with the terms and conditions of the executive
bonus program authorized by the Board of Directors of the Company (the “Board”)
for other senior management executives of the Company for fiscal year 2003, in a
range of percentages, but with a target bonus of 50% of Employee’s base salary.

 

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b.              During each of the last two years of this Agreement, Employee
will receive an annual base salary of no less than his annual base salary for
the first year of this Agreement, and will also be eligible to participate in an
executive bonus program and/or in an individual performance bonus program as
authorized by the Board for said two years.

 

c.               Employee shall receive stock option grants to purchase 40,000
shares of the Company’s common stock applicable for the first year of this
Agreement, as determined by the Company’s Board of Directors.  Future stock
option grants will be at the discretion of the Board of Directors.

 

d.              The Company agrees to provide Employee with the same benefits it
provides the other members of its senior management executive team.  Employee
will not, however, be eligible to participate in the Company’s non-executive
bonus program.

 

e.               All stock options granted at any time to Employee shall vest in
accordance with the terms and conditions set forth in the applicable grant by
the Board and, as otherwise may be applicable, with any relevant terms and
conditions of either the 1993 Stock Option Plan, as amended, or the 2002 Stock
Option Plan as amended (the “Plan”), whichever is applicable.

 

f.                 Employee’s salary is set in the expectation that (except for
vacation days and holidays) Employee’s full time will be devoted to Employee’s
duties hereunder.

 

g.              During Employee’s employment with the Company, the Company will
promptly pay or reimburse Employee for reasonable travel, entertainment and
other expenses incurred by Employee in the furtherance of or in connection with
the performance of Employee’s duties.  Such reimbursement will be in accordance
with Company policies in existence from time to time.

 

3.                                       Outside Services or Consulting. 
Employee shall devote Employee’s full professional time and best professional
efforts to the Company.  Employee may render other professional or consulting
services to other persons or businesses from time to time during the Term, only
if Employee meets all of the following requirements:

 

a.               The services do not interfere in any manner with the Employee’s
ability to fulfill all of his duties and obligations to the Company.

 

b.              The services are not rendered to any business which may compete
with the Company in any area of the Business or do not otherwise violate
paragraph 4 hereof.

 

c.               The services do not relate to any products or services, which
form part of the Business.

 

d.              Employee informs and obtains the consent of the Chief Executive
Officer of the Company.

 

4.                                       Non-competition.  In consideration of
the provisions of this Agreement, Employee hereby agrees that he shall not,
during the term of his full-time employment and for a period of twenty-four (24)
months thereafter:

 

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a.               Directly or indirectly own, manage, operate, participate in,
consult with or work for any business, which is engaged in the Business anywhere
in the United States or Canada.

 

b.              Either alone or in conjunction with any other person,
partnership or business, directly or indirectly, solicit, hire, or divert or
attempt to solicit, hire or divert any of the Employees, independent
contractors, or agents of the Company (or its affiliates or successors) to work
for or represent any competitor of the Company (or its affiliates or
successors), or to call upon any of the customers of the Company (or its
affiliates or successors).

 

c.               Directly or indirectly provide any services to any person,
company or entity, which is engaged in the Business anywhere in the United
States or Canada.

 

5.                                       Confidentiality; Inventions.

 

a.               Employee shall fully and promptly disclose to the Company all
inventions, discoveries, software and writings that Employee may make, conceive,
discover, develop or reduce to practice either solely or jointly with others
during Employee’s employment with the Company, whether or not during usual work
hours.  Employee agrees that all such inventions, discoveries, software and
writing shall be and remain the sole and exclusive property of the Company, and
Employee hereby agrees to assign, and hereby assigns all of Employee’s right,
title and interest in and to any such inventions, discoveries, software and
writings to the Company.  Employee agrees to keep complete records of such
inventions, discoveries, software and writings, which records shall be and
remain the sole property of the Company, and to execute and deliver, either
during or after Employee’s employment with the Company, such documents as the
Company 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 the Company may, in
its sole discretion, elect, and to vest title thereto in the Company, its
successors, assigns, or nominees.

 

b.              “Inventions,” as used herein, shall include inventions,
discoveries, improvements, ideas and 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.

 

c.               Employee understands that all copyrightable work that Employee
may create while employed by the Company is a “work made for hire,” and that the
Company is the owner of the copyright therein.  Employee hereby assigns all
right, title and interest to the copyright therein to the Company.

 

d.              Employee has no inventions, improvements, discoveries, software
or writings useful to the Company or its subsidiaries or affiliates in the
normal course of business, which were conceived, made or written prior to the
date of this Agreement.

 

e.               Employee will not publish or otherwise disclose, either during
or after Employee’s employment with the Company, any published or proprietary or
confidential information

 

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or secret relating to the Company, the Business, the Company’s operations or the
Company’s products or services.  Employee will not publish or otherwise disclose
proprietary or confidential information of others to which Employee has had
access or obtained knowledge in the course of Employee’s employment with the
Company.  Upon termination of Employee’s employment with the Company, Employee
will not, without the prior written consent of the Company, retain or take with
Employee any drawing, writing or other record in any form or nature which
relates to any of the foregoing.

 

f.                 Employee understands that Employee’s employment with the
Company creates a relationship of trust and confidence between Employee and the
Company.  Employee understands that Employee may encounter information in the
performance of Employee’s duties that is confidential to the Company or its
customers.  For the Term hereof, and until the information falls into the public
domain, Employee agrees to maintain in confidence all information pertaining to
the Business or the Company to which Employee has access including, but not
limited to, information relating to the Company’s products, inventions, trade
secrets, know 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 the Company does business.  Employee agrees not to use,
communicate or disclose or authorize any other person to use, communicate or
disclose such information orally, in writing, or by publication, either during
Employee’s employment with the Company or thereafter except as expressly
authorized in writing by the Company unless and until such information becomes
generally known in the relevant trade to which it relates without fault on
Employee’s part, or as required by law.

 

6.                                       Termination or Non-Extension by Company
Without Just Cause

 

a.               Employee’s employment by the Company is “at will” therefore,
subject to the terms and conditions hereof, the Company may terminate Employee’s
full-time employment at any time either with or without just cause. In the event
of any termination of Employee’s full-time employment with the Company without
just cause, or in the event that Employee’s full-time employment is not extended
or renewed beyond the Term on terms at least as favorable to Employee as
Employee is receiving during the last year of the Term, then Employee will
remain bound to the covenants not to compete and confidentiality obligations of
paragraphs 4 and 5 of this Agreement, according to their terms, and each one of
the following shall apply:

 

i.                  Employee shall be paid an amount equal to one year of his
then annual base salary paid over a period of  twenty-four (24) months from
Employee’s termination in equal monthly installments and at the same intervals
as other Employees of the Company are then being paid their base salaries;

 

ii.               Employee shall continue to receive, during the twenty-four
(24) months from Employee’s termination, all medical insurance and any other
benefits or insurance coverages which Employee would have received had his
employment not been so terminated, or not extended, provided however, if the
Employee is not eligible for said

 

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medical insurance, the Company shall pay the COBRA premiums for continuation
coverage during the said twenty-four (24) month period;

 

iii.            Employee shall receive additional compensation for his covenant
not to compete equal to the average annual bonus which Employee has received for
the three most recent fiscal years during which Employee was employed, provided
however that if Employee has not been employed for three full fiscal years, then
the Company shall use the actual number of full fiscal years that the Employee
was employed; The amount due under this paragraph 6(a)(iii) shall be paid in the
same intervals as other Employees of the Company are then being paid their base
salaries;

 

iv.           Notwithstanding anything else contained herein to the contrary,
during the 24-month period referred to in this paragraph 6, Employee shall
remain a part-time employee of the Company’s and, subject to Employee’s other
professional duties, shall be available to the Chief Executive Officer of the
Company.

 

b.              For purposes hereof, any of the following acts or events shall,
at Employee’s option, constitute a termination without just cause under this
paragraph 6 (but the following is not the entire list of reasons or events which
may constitute a “termination without just cause”):

 

i.                  any material diminution or reduction of Employee’s title,
position, duties or responsibilities, except as caused by the acts or omissions
of Employee; or

 

ii.               any material breach by Company of this Agreement that is not
cured within thirty (30) days  after written notice by Employee of such breach.

 

c.               In the event that, at the end of the Term, the Company elects
not to extend or renew Employee’s full-time employment beyond the Term on terms
at least favorably to Employee as Employee is receiving during the last fiscal
year of the Term, then such non-renewal shall be treated as a termination
without cause.  In such case, the provisions of paragraphs 6(a)(i) through (iv)
shall apply and Employee shall be bound to the provisions of paragraphs 4 and 5
hereof for the period of time during which Employee is being paid pursuant to
paragraph 6(a).

 

7.                                       Early Termination by Company for Just
Cause.  The Company may terminate Employee for just cause.  In the event the
Company terminates the Employee for just cause, the Employee will remain bound
under the provisions of paragraphs 4 and 5, but will not be entitled to any
compensation or benefits following his termination of employment under this
Agreement.  Termination for “just cause” shall mean:

 

a.               dishonesty as to a matter which is materially injurious to the
Company,

 

b.              the commission of a willful act or omission intended to
materially injure the business of the Company,

 

c.               a violation of any of the material provisions of Sections 4
and/or 5 hereof,  or

 

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d.              a determination in good faith by the Board that the Employee has
failed to make a good faith effort to fully perform his duties as assigned by
either the CEO or the Board, which is not remedied by the Employee within thirty
(30) days following the CEO’s specific written notice stating such alleged
failure from the Board.

 

8.                                       Voluntary Termination by Employee.

 

a.               In the event Employee voluntarily terminates his employment
with the Company, Employee will remain bound under the provisions of paragraphs
4 and 5 hereof, but will not be entitled to receive any compensation and
benefits following his termination of employment except for any payments or
benefits required by law.

 

b.              Voluntary termination means an intentional termination by the
Employee without good reason and without pressure by the Company; and further,
provided that there was not a material breach of this Agreement by the Company,
prior to any such termination which remains uncured.

 

9.                                       Cooperation with Change in Control. 
Employee will reasonably cooperate with the Company in the event of a Change in
Control.

 

10.                                 No Conflicting Agreements.  Employee has the
right to enter into this Agreement, and hereby confirms Employee has no
contractual or other impediments to the performance of Employee’s obligations
including, without limitation, any non-competition or similar agreement in favor
of any other person or entity.

 

11.                                 Company Policies.  During the term of
Employee’s employment, Employee shall engage in no activity or employment which
may conflict with the interest of the Company, and Employee shall comply with
all policies and procedures of the Company including, without limitation, all
policies and procedures pertaining to ethics.

 

12.                                 Independent Covenants.  The covenants and
agreements on the part of the Employee contained in paragraphs 4 and 5 hereof
shall be construed as agreements independent of any other provision in this
Agreement; thus, it is agreed that the relief for any claim or cause of action
of the Employee against the Company, whether predicated on this Agreement or
otherwise, shall be measured in damages and shall not constitute a defense or
bar to enforcement by the Company of those covenants and agreements.

 

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13.                                 Injunctive Relief; Attorneys’ Fees.  In
recognition of the irreparable harm that a violation by Employee of any of the
covenants contained in either paragraphs 4 or 5 hereof would cause the Company,
the Employee agrees that, in addition to any other relief afforded by law, an
injunction (both temporary and permanent) against such violation or violations
may be issued against him or her and every other person and entity concerned
thereby, it being the understanding of the parties that both damages and an
injunction shall be proper modes of relief and are not to be considered
alternative remedies.  Employee consents to the issuance of such injunctive
relief without the posting of a bond or other security.  In the event of any
such alleged violation, THE LOSING PARTY AGREES TO PAY THE COSTS, EXPENSES AND
REASONABLE ATTORNEYS’ FEES INCURRED BY THE PREVAILING PARTY IN PURSUING OR
DEFENDING ANY OF ITS RIGHTS WITH RESPECT TO SUCH ALLEGED VIOLATIONS, IN ADDITION
TO THE ACTUAL DAMAGES SUSTAINED BY THE PREVAILING PARTY AS A RESULT THEREOF.

 

14.                                 Notice.  Any notice sent by registered mail
to the last known address of the party to whom such notice is to be given shall
satisfy the requirements of notice in this Agreement.

 

15.                                 Entire Agreement.  This Agreement is the
entire agreement of the parties hereto concerning the subject matter hereof and
supersedes and replaces in its entirety any oral or written existing agreements
or understandings between the Company and the Employee relating generally to the
same subject matter.  Company and Employee hereby acknowledge that there are no
agreements or understandings of any nature, oral or written, regarding
Employee’s employment, apart from this Agreement, and Employee acknowledges that
no promises or agreements not contained in this Agreement have been made or
offered by the Company.

 

16.                                 Severability.  It is agreed and understood
by the parties hereto that if any provision of this Agreement should be
determined by an arbitrator or court to be unenforceable in whole or in part, it
shall be deemed modified to the minimum extent necessary to make it reasonable
and enforceable under the circumstances, and the court shall be authorized by
the parties to reform this Agreement in the least way necessary in order to make
it reasonable and enforceable.

 

17.                                 Governing Law.  This Agreement shall be
construed and enforced in accordance with the laws of the State of Nevada,
without giving effect to the principles of conflicts of laws thereof.

 

18.                                 Heirs, Successors and Assigns.  The terms,
conditions, obligations, agreements and covenants hereof shall extend to, be
binding upon, and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors, assigns, and/or
acquirers, including any entity which acquires, merges with, or obtain control
of the Company.

 

19.                                 Waiver of Breach.  The waiver by either the
Company or the Employee of any breach of any provision of this Agreement shall
not operate as or be deemed a waiver of any subsequent breach by either the
Company or the Employee.

 

20.                                 Dispute Resolution.  Except for the
Company’s right (either pursuant to paragraph 13 hereof or otherwise) to
injunctive relief to enforce the provisions of paragraphs 4 and 5 hereof, the
exclusive forum for the resolution of any dispute arising under this Agreement
or any question of interpretation regarding the provisions of this Agreement
(other than disputes relative to paragraphs 4 or 5 hereof) shall be resolved by
arbitration, to be held in Clark County, Nevada, in accordance with the rules of
the American Arbitration Association.  Such arbitration shall be before an

 

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arbitrator, who must be a member of the National Academy of Arbitrators; chosen
in accordance with the rules then in effect, of the American Arbitration
Association.  In the event the Employee and Company fails within a reasonable
period of time to agree on an arbitrator, the arbitrator shall be chosen by the
American Arbitration Association.  The decision of the arbitrator shall be
final, conclusive and binding upon the Company and Employee.

 

21.                                 Amendment.  This Agreement may be amended
only by a document in writing signed by both the Employee and an officer of the
Company, and no course of dealing or conduct of the Company shall constitute a
waiver of any of the provisions of this Agreement.

 

22.                                 Fees and Costs.  In any action bought by one
party against the other pursuant to this Agreement or in the event of any
dispute over the meaning of this Agreement, the successful party, in addition to
recovering its awarded damages and other relief, shall be entitled to recover
its attorney’s fees and costs from the unsuccessful party.

 

23.                                 D & O Policy.  During Employee’s employment
with the Company, the Company shall maintain director and officer liability
insurance in reasonable scope and amounts which insurance will cover Employee.

 

24.                                 Non-Disparagement and Cooperation.

 

a.               During any period of time wherein the Company is paying any
base salary to Employee, whether during the Term hereof or during any time after
the termination or expiration of this Agreement, and for a period of three (3)
years thereafter, Employee shall not disparage or otherwise make any negative
comments about the Company, its policies, products, Employees or management. 
The Company may enforce these non-disparagement provisions by resort to
injunctive relief as set forth in paragraph 13, in addition to any other damages
that it may be entitled to under this Agreement or otherwise at law.

 

b.              Employee agrees to fully cooperate with the Company and its
affiliates during the entire scope and duration of any litigation or
administrative proceedings involving any matters with which Employee was
involved during Employee’s employment with the Company.

 

c.               In the event Employee is contacted by parties or their legal
counsel involved in litigation adverse to the Company or its affiliates,
Employee (i) agrees to provide notice of such contact as soon as practicable;
and (ii) acknowledges that any communication with or in the presence of legal
counsel for the Company (including without limitation the Company’s outside
legal counsel, the Company’s inside legal counsel, and legal counsel of each
related or affiliated entity of the Company) shall be privileged to the extent
recognized by law and, further, will not do anything to waive such privilege
unless and until a court of competent jurisdiction decides that the
communication is not privileged.  In the event the existence or scope of the
privileged communication is subject to legal challenge, then the Company must
either waive the privilege or pursue litigation to protect the privilege at the
Company’s sole expense.

 

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

 

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EMPLOYER:

 

EMPLOYEE:

 

 

 

SHUFFLE MASTER, INC.

 

GERALD W. KOSLOW

 

 

 

By:

/s/ Mark L. Yoseloff

 

 

By:

/s/ Gerald W. Koslow

 

 

 

 

 

 

 

Its:

Chairman, Chief Executive
Officer and President.

 

 

Its:

Senior Vice President and Chief Financial
Officer

 

 

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