Found this article here
http://www.alphalink.com.au/~asg/tips/tip3.htm
It's about motocross tranny's but applies to street bike tranny's too. I beleive racers will undercut their transmission's to allow better shifts at the extreme conditions that they run their engines at.(most likely someone else can elaborate)
Technical Tip - Undercut Transmission Gears
Most motocross transmissions have straight cut transmission gears that use engagement "dogs" - which are lugs that protrude from the gear and lock into a female matching gear. These dogs are relied on to enguage the two gears when the selector fork pushes the gears together. This gives the drive from transmission to output.
Worn or rounded dogs can cause gears to repel each other when they should be locked together. RM400s quite often round off dogs on the third gear, causing the bike to jump out of gear just after third gear is engaged.
So if your trans is getting old, and the transmission is not holding gear selections, the dogs may be worn. Specialist automotive machine shops can take the transmission gears and shafts, and undercut the dogs on the gears to improve the engagement. This is done by sharpening the original angles (undercuts) on the dogs, and allows the male gear to "hold on" when the dogs are engaged.
The effectiveness of this refurbishment is dependent on the angles cut into the faces of the male dogs, and the condition of the female mating gear. We have achieved huge improvements in shifting reliability by constant inspection and repair of the dogs.