-----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, NRLeVYPRs/7k/+bfABvlSORnBN65NETNif1F2LT1gtI9E4M+X6rdbm21KzDgxheB lUG+esyOeYgcXwKjT72LDA== 0000950135-96-003298.txt : 19960802 0000950135-96-003298.hdr.sgml : 19960802 ACCESSION NUMBER: 0000950135-96-003298 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19960801 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSACT TECHNOLOGIES INC CENTRAL INDEX KEY: 0001017303 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-06895 FILM NUMBER: 96602628 BUSINESS ADDRESS: STREET 1: 7 LASER LANE CITY: WALLINGFORD STATE: CT ZIP: 06492 BUSINESS PHONE: 617345900 MAIL ADDRESS: STREET 1: 7 LASER LANE CITY: WALLINGFORD STATE: CT ZIP: 06492 S-1/A 1 FORM S-1 AMENDMENT NO.1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST , 1996 REGISTRATION NO. 333-06895 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ TRANSACT TECHNOLOGIES INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3577 06-1456680 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
7 LASER LANE, WALLINGFORD, CT 06492 (203) 949-9933 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ BART C. SHULDMAN CHIEF EXECUTIVE OFFICER 7 LASER LANE, WALLINGFORD, CT 06492 (203) 949-9933 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: STEPHEN J. CARLOTTI, ESQ. MICHAEL J. ERICKSON, ESQ. HINCKLEY, ALLEN & SNYDER HELLER, EHRMAN, WHITE & MCAULIFFE ONE FINANCIAL CENTER 6100 COLUMBIA CENTER BOSTON, MASSACHUSETTS 02111-2625 701 FIFTH AVENUE (617) 345-9000 SEATTLE, WASHINGTON 98104-7098 (206) 447-0900
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of the Registration Statement. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 1, 1996 1,150,000 SHARES TRANSACT T E C H N O L O G I E S I N C O R P O R A T E D COMMON STOCK All of the 1,150,000 shares of Common Stock offered hereby are being sold by Transact Technologies Incorporated ("Transact" or the "Company"), which is currently a wholly-owned subsidiary of Tridex Corporation ("Tridex"). Prior to this offering (the "Offering"), there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $9.50 and $11.00 per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Company's Common Stock has been approved for trading on the Nasdaq National Market under the symbol "TACT." Upon completion of the Offering, Tridex will own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock. Tridex has announced its intent, subject to the satisfaction of certain conditions, including receipt of a favorable ruling from the Internal Revenue Service, to divest its ownership interest in the Company by means of a tax-free distribution to its stockholders as early as practicable in 1997. See "The Company -- Background of the Offering and the Distribution" and "Tridex as Principal Stockholder." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================================= PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - ------------------------------------------------------------------------------------------------- Per Share...................... $ $ $ - ------------------------------------------------------------------------------------------------- Total(3)....................... $ $ $ ================================================================================================= (1) Excludes non-accountable expense allowance payable to Cruttenden Roth Incorporated, representative of the Underwriters (the "Representative"), and the value of warrants to purchase up to 115,000 shares of Common Stock at an exercise price of 120% of the public offering price to be issued to the Representative (the "Representative's Warrant"). The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses, estimated at $1,040,000, payable by the Company, including the Representative's non-accountable expense allowance of $240,000. See "Underwriting." (3) The Company has granted the Underwriters a 30-day option to purchase up to 172,500 additional shares of Common Stock on the same terms and conditions set forth above, solely to cover over-allotments, if any. If all such shares are purchased the total Price to Public, Underwriting Discount and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting."
------------------------ The shares of Common Stock are being severally offered by the Underwriters named herein, subject to prior sale, when, as and if delivered to and accepted by them, and subject to certain other conditions. The Underwriters reserve the right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that the certificates representing the shares of Common Stock offered hereby will be available for delivery at the offices of the Representative, in Irvine, California, on or about , 1996. CRUTTENDEN ROTH I N C O R P O R A T E D THE DATE OF THIS PROSPECTUS IS , 1996 3 TRANSACT MADE TO ORDER. BUILT TO LAST. - -------------------------------------------------------------------------------- The representative products shown below are used in POS, gaming and lottery, financial services or kiosk applications, or a combination thereof. [SERIES 50PLUS PHOTO] [SERIES 90 PHOTO] SERIES 50PLUS SERIES 90 [SERIES 4000 PHOTO] [SERIES 6000 PHOTO] SERIES 4000 SERIES 6000
ITHACA, 50Plus and PcOS are registered trademarks of the Company. The Company has applied for registration of TRANSACT, MAGNETEC and Made to Order. Built to Last. This Prospectus may also contain trademarks other than those of the Company. IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS IN THE COMMON STOCK FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). 2 4 - ------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. The business of the Company described in this Prospectus consists of the historical businesses of two Tridex subsidiaries, Ithaca Peripherals Incorporated ("Ithaca") and Magnetec Corporation ("Magnetec"), excluding a printer ribbon business which will be transferred to Tridex by Magnetec no later than December 31, 1996. The financial condition and results of operations of the Company described in this Prospectus consist of the combined historical financial condition and results of operations of Ithaca and Magnetec, excluding the ribbon business but including certain corporate allocations from Tridex. See "Relationship Between the Company and Tridex -- Plan of Reorganization" and "-- Agreement Regarding Ribbon Business." Prior to the Offering, Ithaca has been merged with and into Magnetec. As used herein, references to "fiscal 1994" mean the fiscal year of the Company ended April 2, 1994 and references to "fiscal 1995" mean the fiscal year of the Company ended April 1, 1995. Unless otherwise specified, all information in this Prospectus assumes no exercise of the over-allotment option granted to the Underwriters. See "Underwriting." Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY Transact designs, develops, manufactures and markets transaction based printers and related products under the ITHACA and MAGNETEC brand names. The Company's printers are used to provide transaction records such as receipts, tickets, coupons, register journals and other documents. The Company focuses on four vertical markets: point-of-sale ("POS") (from which the Company derived approximately 57.6% of its net sales in the nine months ended December 31, 1995); gaming and lottery (approximately 27.0% of net sales); financial services (approximately 7.7% of net sales); and kiosks (approximately 7.7% of net sales). The Company sells its products directly to end users, original equipment manufacturers ("OEMs"), value added resellers ("VARs") and selected distributors, primarily in the United States and Canada. Transact manufactures and sells customizable and custom dot matrix and thermal printers for applications requiring up to 60 character columns in each of its four vertical markets. The Company also sells an 80 column laser printer for kiosk applications. The Company's customizable products include several series of printers which offer customers the ability to choose from a variety of features and functions. Options typically include different printing technologies, print speeds, paper handling capacities and numbers of print stations. In addition to its customizable printers, Transact manufactures custom printers for certain OEM customers. In collaboration with these customers, the Company provides engineering and manufacturing expertise for the design and development of specialized printers. Transact markets its products through a network of selected distributors, OEMs, VARs and systems integrators, as well as directly to end users. The Company's use of multiple sales channels allows it to reach customers of all sizes in each of its four vertical markets. Customers of the Company include OEM customers such as GTECH Holdings Corporation ("GTECH"), the leading worldwide supplier of on-line lottery systems, Interbold ("Interbold," a joint venture of Diebold Incorporated and IBM Corporation), a leading worldwide supplier of automated teller machines ("ATMs"), Indiana Cash Drawer ("ICD"), a leading distributor of POS products, and Ultimate Technology Corporation ("Ultimate"), a VAR and distributor of POS products. In May 1996, the Company entered into a strategic marketing agreement with Okidata of America, a division of Oki of America, Inc. ("Okidata"), and, pursuant to that agreement, a separate sales agreement with its affiliate Oki Europe Limited ("Oki Europe"), establishing Oki Europe as the exclusive distributor of the Company's POS and kiosk products in Europe, the Middle East and North Africa. The Company also has a significant supplier relationship with Okidata, which provides critical components for the Company's POS printers. The Company's goal is to become a leading worldwide supplier of transaction based printers and related products in each of its markets. The Company believes that significant opportunities exist to satisfy increasing demand for new and replacement POS equipment, to leverage its existing strategic relationship in the gaming and lottery market in order to take advantage of the proliferation of lottery and keno systems, to develop and supply new products for emerging applications in ATMs and kiosks, and to capture international market share as worldwide usage of transaction based electronics grows. Key elements of the Company's strategy for achieving its objectives are: (i) to focus on its four vertical markets; (ii) to expand its product lines; (iii) to increase its geographic market penetration; (iv) to emphasize its engineering expertise; and (v) to capitalize on the efficiencies of its flexible manufacturing systems. - ------------------------------------------------------------------------------- 3 5 - ------------------------------------------------------------------------------- SEPARATION FROM TRIDEX Upon completion of the Offering, Tridex will beneficially own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the Company's common stock, par value $.01 per share ("Common Stock"). Tridex has advised the Company that it intends to distribute its ownership interest in the Company to the stockholders of Tridex as soon as practicable after the completion of the Offering through a distribution of Common Stock of the Company to all Tridex stockholders as a tax-free dividend (the "Distribution"). The Distribution will be subject to certain conditions, including the receipt of a ruling from the Internal Revenue Service (the "IRS") confirming the tax-free nature of the transaction. See "The Company -- Background of the Offering and the Distribution." In connection with the Distribution, the Company and Tridex have entered into, or prior to completion of the Offering will enter into, certain agreements which govern various interim and ongoing relationships. See "Tridex as Principal Stockholder" and "Relationship Between the Company and Tridex." THE OFFERING Common Stock offered.................................. 1,150,000 shares Common Stock to be outstanding after the Offering..... 6,550,000 shares(1) Use of proceeds....................................... Repayment of indebtedness to Tridex, and for working capital and other general corporate purposes. Nasdaq National Market symbol......................... TACT
SUMMARY FINANCIAL DATA (2) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
SIX MONTHS FISCAL YEARS ENDED NINE MONTHS ENDED ENDED ------------------------------------------ --------------------------- ------------------ MARCH 28, APRIL 3, APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JULY 1, JUNE 29, 1992 1993 1994 1995 1994 1995 1995 1996 --------- -------- -------- -------- ------------ ------------ ------- -------- COMBINED STATEMENT OF INCOME DATA: Net sales................ $19,509 $25,949 $23,798 $33,362 $25,426 $25,497 $16,184 $20,225 Gross profit............. 5,204 8,016 8,213 11,013 8,391 7,968 5,474 6,807 Operating expenses....... 4,502 5,223 6,490 7,308 5,361 6,389 3,882 4,267 Operating income......... 702 2,793 1,723 3,705 3,030 1,579 1,592 2,540 Net income............... 372 1,632 1,093 2,304 1,883 916 953 1,733 PRO AS OF FORMA ----------------------------------------------------------------------------------- -------- MARCH 28, APRIL 3, APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JUNE 29, JUNE 29, 1992 1993 1994 1995 1994 1995 1996 1996(3) --------- -------- -------- -------- ------------ ------------ -------- -------- COMBINED BALANCE SHEET DATA: Working capital......... $ 4,495 $ 6,254 $ 5,920 $ 6,301 $ 5,367 $ 6,281 $ 7,128 $ 8,433 Current ratio........... 2.55 2.74 2.92 2.69 2.41 2.64 2.56 2.85 Plant and equipment, net................... 1,250 1,709 1,696 2,237 2,140 3,041 3,558 3,558 Tridex investment in the Company............... 9,418 11,326 10,839 11,280 10,591 11,645 12,658 -- Stockholders' equity.... -- -- -- -- -- -- -- 13,963 Total assets............ 12,323 14,910 13,916 15,358 14,392 15,969 17,641 18,946
- ------------------------------------------------------------------------------- 4 6 - ------------------------------------------------------------------------------- PRO FORMA COMBINED STATEMENT OF INCOME DATA (4)
NINE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, JUNE 29, 1995 1996 ------------ ------------ Net sales............................................................................ $25,497 $20,225 Gross profit......................................................................... 7,968 6,807 Operating income..................................................................... 1,991 2,505 Net income........................................................................... 1,157 1,712 Earnings per share................................................................... 0.18 0.26 - --------------- (1) Does not include (i) 600,000 shares to be reserved for issuance under the Company's 1996 Stock Plan (the "Stock Plan"), of which 309,300 are subject to options granted as of the date of the Offering (ii) 60,000 shares to be reserved for issuance under the Company's Non-Employee Directors' Stock Plan (the "Directors' Plan"), of which 30,000 are subject to options granted as of the date of the Offering and (iii) 115,000 shares of Common Stock issuable upon exercise of the Representative's Warrant. See "Underwriting." (2) The table sets forth selected financial data of the Company. The data should be read in conjunction with the historical financial statements, notes and other financial information included herein. The combined statement of income data for the fiscal years ended April 2, 1994 and April 1, 1995 and the nine months ended December 31, 1995, and the combined balance sheet data at April 1, 1995 and December 31, 1995 are derived from the audited financial statements of the Company. The combined statement of income data for the fiscal years ended March 28, 1992 and April 3, 1993, the nine months ended December 31, 1994, and the six months ended July 1, 1995 and June 29, 1996 and the combined balance sheet data at March 28, 1992, April 3, 1993, April 2, 1994, December 31, 1994 and June 29, 1996 are derived from unaudited financial statements but, in the opinion of the Company's management, reflect all the adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. In December 1995, the Company's fiscal year end was changed to December 31 from the Saturday closest to March 31. The fiscal year ended April 3, 1993 was a 53 week year. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The historical financial statements of the Company may not necessarily reflect the results of operations or financial position that would have been obtained had the Company been a stand alone entity. See "Management's Discussion and Analysis of the Results of Operations and Financial Condition." (3) The pro forma combined balance sheet data are prepared by adjusting the historical balance sheet to reflect the net proceeds from the Offering and the repayment of $8.5 million of intercompany indebtedness to Tridex. (4) The pro forma combined statement of income data for the six months ended June 29, 1996 and the nine months ended December 31, 1995 are prepared by adjusting the historical results of operations to reflect the Offering and other costs and expenses had the Company been a stand alone entity at the beginning of the most recent period presented. Earnings per share data are presented elsewhere in this Prospectus and on a pro forma basis only. See unaudited "Pro Forma Financial Data."
- -------------------------------------------------------------------------------- 5 7 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating the Company and its business before purchasing any shares of the Common Stock offered hereby. DEPENDENCE ON CERTAIN SUPPLIER Okidata is the sole supplier of a printer component kit consisting of a printhead, control board and carriage (the "Oki Kit"), which is used in virtually all of the Company's ITHACA brand impact printers. Sales of ITHACA brand impact printers amounted to approximately 61% of the Company's net sales in the nine months ended December 31, 1995. The supply agreement, which expires in August 2000, does not require Okidata to provide, or the Company to purchase, any minimum amounts to keep the agreement in force. The time required for delivery of Oki Kits averages 120 days. Historically, the Company has received timely shipments of Oki Kits of a consistently satisfactory quality, but there can be no assurance that future deliveries will be timely or include kits of a consistently satisfactory quality. Any delay or other disruption in the supply of Oki Kits would have a material adverse effect on the Company's results of operations. There can be no assurance that the agreement will be renewed or, if renewed, that the renewal will be on terms comparable to those under the current agreement. ITHACA brand impact printers are designed specifically to use the Oki Kit, and currently there is no alternate source for a component kit with the same technical specifications. The Company estimates that an alternate source could be developed in approximately two years. However, the Company has entered into an exclusive sales agreement with Oki Europe Limited ("Oki Europe"), an affiliate of Okidata, establishing Oki Europe as the exclusive distributor of the Company's POS printers and kiosk products in Europe, the Middle East and North Africa. The Company believes that Oki Europe's incentive to maintain a stable source for POS printers provides a significant balance to the Company's dependence on Okidata for the Oki Kits. See "Business -- Sources and Availability of Materials." RELIANCE ON DISTRIBUTORS AND OTHER SIGNIFICANT CUSTOMERS A material portion of the Company's net sales are to certain distributors, VARs, systems integrators and to certain OEM customers. During fiscal 1994, fiscal 1995 and the nine months ended December 31, 1995, ICD accounted for approximately 14.9%, 13.6% and 8.6% of the Company's net sales, respectively, and Diebold Incorporated ("Diebold"), purchasing on behalf of Interbold, accounted for approximately 8.1%, 8.4% and 4.7% of net sales, respectively. During the nine months ended December 31, 1995, the first period of significant shipments to GTECH, sales to GTECH accounted for approximately 12.4% of Transact's net sales. In addition, sales to Ultimate, a wholly-owned subsidiary of Tridex, represented approximately 10.9%, 7.9% and 9.2% of Transact's sales in fiscal 1994, fiscal 1995 and the nine months ended December 31, 1995, respectively. The Company's results of operations are substantially dependent on sales to GTECH, Ultimate, ICD and Diebold, and the loss of any of these customers, or a significant reduction in sales to them, could have a material adverse effect on the Company's results of operations. There is no obligation on the part of GTECH, Ultimate, ICD or Diebold to place any additional orders with the Company. COMPETITION The market for transaction based printers is extremely competitive, and the Company expects such competition to intensify in the future. The Company competes with a number of companies, many of which have greater financial, technical and marketing resources than the Company. Transact believes its ability to compete successfully depends on a number of factors both within and outside its control, including durability, reliability, quality, design capability, product customization, price, customer support, success in developing new products, manufacturing expertise and capacity, supply of component parts and materials, strategic relationships with suppliers, the timing of new product introductions by the Company and its competitors, general market and economic conditions and, in some cases, the uniqueness of its products. Two of the Company's competitors, Epson America, Inc. ("Epson") and Star Micronics America, Inc. ("Star") together control approximately 50% to 60% of the United States market for POS printers, a market in which the Company's strategy calls for increased market share. Other principal competitors include Axiohm Incorporated ("Axiohm"), Citizen -- CBM America Corporation ("Citizen") and DH Technology Incorporated 6 8 ("DH Technology"). Certain competitors of the Company with lower costs, attributable to higher volume production and off-shore manufacturing locations, offer lower prices than the Company from time to time. In the gaming and lottery, financial services and kiosk markets, no single supplier holds a dominant position. Certain of the Company's products sold for gaming and lottery, kiosk and financial service applications compete based upon the Company's ability to provide highly specialized products, custom engineering and ongoing technical support. See "Business -- Competition." The Company's strategy for competing in its markets is to continue to develop new products and product line extensions, to increase its geographic market penetration and to take advantage of strategic relationships. Although the Company has historically maintained or increased sales with this strategy and believes that its products, operations and relationships provide a competitive foundation, there can be no assurance that the Company will compete successfully in the future. See "Management's Discussion and Analysis of the Results of Operations and Financial Condition -- Overview", " -- Results of Operations -- Engineering and Product Development" for each period discussed therein and "Business -- Business Strategy," " -- Product Development" and " -- Sales, Marketing and Distribution." RELATIONSHIP WITH PARENT COMPANY AND CONFLICTS OF INTEREST Upon completion of the Offering, Tridex will own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the Company's outstanding Common Stock. Tridex has filed an application with the IRS seeking a ruling that the proposed Distribution will constitute a tax-free reorganization for purposes of the Internal Revenue Code of 1986, as amended (the "Code"). Until the Distribution is completed, Tridex will control the Company and will continue to be able to elect the entire Board of Directors of the Company and to determine the outcome of Company actions requiring stockholder approval. The Board of Directors of the Company currently consists of five directors, two of whom are also directors of Tridex. In addition, after the Distribution, Seth M. Lukash, the Chairman and Chief Executive Officer of Tridex and its largest stockholder, will own approximately 9% of the outstanding Common Stock of the Company. This overlap of directors, Tridex's ownership of Common Stock pending the Distribution, Mr. Lukash's ownership interests in both companies and senior management position at Tridex and other contractual relationships described under "Relationship Between the Company and Tridex" give rise to conflicts of interest between Tridex and the Company. Pursuant to a Plan of Reorganization dated June 24, 1996 (the "Plan of Reorganization"), Tridex has agreed not to pursue the manufacture of transaction based printers which would be directly competitive with the Company. As a matter of corporate policy, both Tridex and the Company will seek the approval of their respective independent directors for transactions perceived to involve significant potential conflicts of interest. See "Tridex as Principal Stockholder" and "Relationship Between the Company and Tridex." USE OF PROCEEDS; BENEFIT TO TRIDEX The net proceeds to the Company from the sale of the 1,150,000 shares of Company Stock offered hereby are estimated to be $9.8 million ($11.4 million if the Underwriters' over-allotment option is exercised in full), after deducting the estimated underwriting discount and estimated offering expenses payable by the Company, based on an assumed initial public offering price of $10.25 per share. The Company expects to use $8.5 million of such net proceeds for the payment of amounts due to Tridex for intercompany indebtedness. The balance of the net proceeds to be received by the Company from the Offering is allocated to working capital. Accordingly, management will have broad discretion with respect to the expenditure of such proceeds. See "Use of Proceeds." RISK OF NON-COMPLETION OF THE DISTRIBUTION TRANSACTION If the IRS issues a ruling that the Distribution will constitute a tax-free reorganization under the Code and certain other conditions are satisfied, Tridex will proceed with the Distribution, after which approximately 17.6% (approximately 19.7% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock will be owned by holders of shares sold in the Offering, approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock will be owned by the holders of Tridex common stock as of the record date for the Distribution, and the Company 7 9 will no longer be a subsidiary of Tridex. No assurance can be given as to whether or when the IRS will issue a favorable ruling or that the Distribution will occur. If the IRS does not grant the ruling, Tridex may either request reconsideration, resubmit its request based on changes in facts and circumstances, if any, or abandon the Distribution. If Tridex abandons the Distribution, it may either maintain ownership of the Company as a consolidated subsidiary or sell shares of Common Stock in subsequent public offerings or private sales. Although Tridex expects to effect the Distribution, it is possible that the failure of the Distribution to occur within the time frame contemplated, or at all, would materially adversely affect the trading market for the Company's Common Stock. See "Relationship Between the Company and Tridex." POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK The Distribution, if effected as expected, would involve a tax-free dividend in early 1997 of approximately 5,400,000 shares of Common Stock to the stockholders of Tridex. All of such shares, other than shares held by affiliates of the Company, would be eligible for immediate resale in the public market. The Company is unable to predict whether substantial amounts of Common Stock will be sold in the open market in anticipation of, or following, the Distribution. Any sales of substantial amounts of Common Stock in the public market, or the perception that such sales might occur, whether as a result of the Distribution or otherwise, could materially adversely affect the market price of the Common Stock. See "Shares Eligible for Future Sale" and "Tridex as Principal Stockholder." ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY The Company has never operated as an independent company. After the Offering and prior to the Distribution, the Company will continue to be a subsidiary of Tridex, but will, subject to Tridex's rights as a controlling stockholder, operate as an independent entity, and Tridex will have no obligation to provide assistance to the Company or any of its subsidiaries except as described herein. See "Relationship Between the Company and Tridex." LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION The financial information included herein may not necessarily reflect the results of operations, financial position and cash flows of the Company in the future or what the results of operations, financial position and cash flows would have been had the Company been an independent entity during the periods presented. The historical financial information included herein does not reflect the effects on the Company of the Distribution or the Offering. In addition, the combined financial statements of the Company include expenses allocated to the Company from Tridex. Actual expenses of the Company in the future may vary. See "Management's Discussion and Analysis of the Results of Operations and Financial Condition -- Overview" and Note 1 to the Combined Financial Statements. DEPENDENCE ON KEY PERSONNEL The Company's future success will depend in significant part upon the continued service of certain key management and other personnel and the Company's continuing ability to attract and retain highly qualified managerial, technical and sales and marketing personnel. There can be no assurance that the Company will be able to recruit and retain such personnel. The loss of Bart C. Shuldman, the Company's Chief Executive Officer and President, or the loss of certain groups of key employees, could have a material adverse affect on the Company's results of operations. The Company has entered into employment agreements with Mr. Shuldman and Richard L. Cote, the Company's Executive Vice President and Chief Financial Officer. See "Management -- Executive Officers and Directors." ABILITY TO SUSTAIN AND MANAGE GROWTH As part of its business strategy, the Company intends to pursue an aggressive growth strategy. Assuming this growth occurs, it will require the establishment of distribution relationships in international markets, the successful development and marketing of new products, expanded customer service and support, an increased number of personnel throughout the Company and the continued implementation and improvement of the Company's operational, financial and management information systems. There can be no assurance that the 8 10 Company will be able to successfully implement its growth strategy, or that the Company can successfully manage expanded operations. As the Company expands, it may from time to time experience constraints that will adversely affect its ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect the Company's results of operations and financial condition. Demand for POS equipment, including printers, is dependent on the economic and financial well being of the retail industry which in turn is affected by the overall level of consumer demand and growth in the general economy. Any economic slowdown or contraction of the general economy could have a material adverse effect on retail sales and therefore adversely affect the demand for POS equipment, including printers manufactured by the Company. See "Business -- Business Strategy." RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS The Company's direct sales outside of the United States totalled approximately $3,697,000 (approximately 11% of net revenues) in fiscal 1995 and $1,875,000 (approximately 7% of net revenues) in the nine months ended December 31, 1995. Most of these sales were in Canada. As part of its business strategy, the Company intends to increase international sales as a percentage of its revenues. International sales are subject to inherent risks, including fluctuations in local economies, fluctuating exchange rates, increased difficulty of inventory management, greater difficulty in accounts receivable collection, costs and risks associated with localizing products for foreign countries, unexpected changes in regulatory requirements, tariffs and other trade barriers and burdens of complying with a variety of foreign laws. There can be no assurance that these factors will not have a material adverse impact on the Company's ability to increase or maintain its international sales or on its results of operations. A substantial portion of the value of the components used in the manufacture of the Company's POS products is represented by components purchased from Okidata, which is located in Japan. The Company purchases these components under an agreement, expiring in August 2000, with unit prices in U.S. dollar denominations. However, price negotiations, which occur whenever the contract is renewed, may be affected by a number of factors, including changes in the currency exchange rate between the U.S. dollar and the Japanese yen. See "Business -- Business Strategy -- Increase Geographic Market Penetration" and "Business -- Sales, Marketing and Distribution." INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company regards portions of the hardware designs and operating software incorporated into its products as proprietary and attempts to protect them with a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and similar means. The Company owns one United States patent pertaining to an automatic paper cut-off device, which is a feature offered on certain of the Company's POS printers. It may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or otherwise obtain and use, to the Company's detriment, information that the Company regards as proprietary. Moreover, the laws of some foreign countries do not afford the same protection to the Company's proprietary rights as do United States laws. There can be no assurance that legal protections relied upon by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. See "Business -- Intellectual Property and Proprietary Rights." EVOLVING TECHNOLOGY AND CHANGING MARKET REQUIREMENTS The transaction based printer industry is characterized by evolving technology and changing market requirements. The Company's future success will depend on its ability to continue to develop and manufacture new products and to enhance existing products, reflecting technological evolution and changing market requirements. The Company anticipates ongoing investment in engineering and product development. The Company recently has introduced or currently has under development a number of new products. See "Management's Discussion and Analysis of the Results of Operations and Financial Conditions -- Results of Operations -- Engineering and Product Development" for each period discussed therein, "Business -- Product Development" and "-- Competition." 9 11 NO CASH DIVIDENDS The Company intends to retain any future earnings for its business and does not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy." NO PRIOR TRADING MARKET Prior to the Offering, there has been no public market for the Company's Common Stock. Although the Company's Common Stock has been approved for trading on the Nasdaq National Market, there can be no assurance that an active trading market will develop or be sustained after the Offering. Future sales by the holders of Tridex common stock, who will own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock after the Distribution, could adversely affect the prevailing market price of Common Stock. Shares held by affiliates will be subject to certain volume limitations under Rule 144 promulgated under the Securities Act. See "-- Potential Substantial Sales of Common Stock" and "-- Shares Eligible for Future Sale." IMMEDIATE AND SUBSTANTIAL DILUTION The public offering price for shares of Common Stock in the Offering is substantially higher than the net tangible book value per share of Common Stock. Purchasers of shares of Common Stock in the Offering therefore will incur immediate and substantial dilution in net per share tangible book value of the Common Stock. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE Following the Offering and the completion of the Distribution, the holders of Tridex common stock as of the record date for the Distribution will own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock. Based upon the position taken by the Securities and Exchange Commission (the "SEC") in numerous similar transactions and upon a pending amendment to an applicable regulation under the Exchange Act, the Company believes the Common Stock distributed to stockholders of Tridex in the Distribution will be freely tradeable, subject only to the requirements of Rule 144, promulgated under the Securities Act, applicable to directors, executive officers and certain stockholders of the Company. Rule 144 generally provides that beneficial owners of Common Stock who have held such Common Stock for two years may sell, within a three-month period, a number of shares not exceeding the greater of 1% of the total outstanding shares or the average weekly trading volume of the shares during the four calendar weeks preceding such sale. The two-year holding period requirement under Rule 144 will not apply to shares of Common Stock owned by Transact's directors, executive officers and certain stockholders which could be sold pursuant to the other requirements of Rule 144, in the absence of "lockup" agreements with the Representative. Pursuant to the terms of the Underwriting Agreement, the Representative has required that Transact's officers, directors and certain holders of the Common Stock, as well as option holders who are officers and directors, not sell for 180 days from the date of this Prospectus, without the prior written consent of the Representative. Future sales of restricted Common Stock could adversely affect the market price of the Common Stock. See "Shares Eligible for Future Sale" and "Underwriting." ANTI-TAKEOVER EFFECTS OF CERTAIN STATUTORY AND CHARTER PROVISIONS Upon completion of the Offering, the Company will be subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. In addition, certain provisions of the Company's Certificate of Incorporation and By-laws could have the effect of making it more difficult for a third party to acquire control of the Company. These statutory and charter provisions could have the effect of delaying, deferring or preventing a change in control of the Company and could limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. See "Description of Capital Stock -- 10 12 Anti-Takeover Effects of Certain Statutory and Charter Provisions." In addition, the Company expects that its employment agreements with certain executive officers will include provisions accelerating severance payments and certain other benefits in the event of a change of control. See "Management -- Employment and Severance Agreements." FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS This Prospectus contains certain forward looking statements, including, among others: (i) the size and anticipated growth in the Company's markets; (ii) the ability of the Company to rely on cash generated from operations and the proceeds of the Offering to finance its working capital requirements; (iii) the Company's business strategy, as it relates to expanding product lines and increasing geographic market penetration; and (iv) the Company's ability to compete successfully with its current and future competitors. These forward looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward looking statements. In addition to the other risks described in this "Risk Factors" discussion, important factors to consider in evaluating such forward looking statements include: (i) in certain instances the Company has relied on secondary sources such as trade publications to report certain information regarding market size or growth potential available in studies, surveys or other primary sources not obtained directly by the Company; (ii) unanticipated working capital or other cash requirements; (iii) changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the Company's markets; and (iv) various competitive factors that may prevent the Company from competing successfully. In light of these risks and uncertainties, many of which are described in greater detail elsewhere in this "Risk Factors" discussion, there can be no assurance that the forward looking statements contained in this Prospectus will in fact transpire. 11 13 THE COMPANY The Company was incorporated in Delaware on June 17, 1996 and is currently a wholly-owned subsidiary of Tridex. Upon the completion of the Offering, Tridex will own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock. The Company and Tridex have two common directors. Tridex has filed with the IRS an application for a ruling that the Distribution will constitute a tax-free reorganization for federal income tax purposes. Until such time as the Distribution is effected, the Company will be a subsidiary of Tridex and will be consolidated in the Tridex affiliated group for purposes of Section 1504 of the Code. The Company and Tridex have undertaken as part of the Plan of Reorganization to conduct their affairs during the period after the closing of the Offering on a reasonable arms-length basis pursuant to certain written agreements. After the Distribution, the business of Tridex will consist of (i) two subsidiaries: Ultimate, a distributor and VAR of POS systems and components and a manufacturer of custom keyboards and pole displays; and Cash Bases GB Limited, which designs, manufactures and markets custom cash drawers, for sale primarily in Western Europe, and (ii) a line of business involving the manufacture, marketing and sale of ribbons for use in certain printers manufactured by the Company. See "Relationship Between the Company and Tridex." The principal executive offices of the Company are located at 7 Laser Lane, Wallingford, Connecticut 06492 and its telephone number is (203) 949-9933. BACKGROUND OF THE OFFERING AND THE DISTRIBUTION In November 1995, the Board of Directors of Tridex approved a plan to combine the business operations of two wholly-owned subsidiaries, Magnetec and Ithaca, under unified management with Bart C. Shuldman as the Company's President. In May 1996, the Board of Directors of Tridex approved the merger of Ithaca into Magnetec, as a first step toward effecting the Offering and the Distribution. Tridex, the Company, Magnetec and Ithaca entered into the Plan of Reorganization which, among other things, provides for: (i) the merger of Ithaca into Magnetec; (ii) the transfer by the Company to Tridex of certain assets used in manufacturing a printer ribbon product line; (iii) the issuance by the Company of 5,400,000 shares of Common Stock to Tridex in exchange for all of the outstanding shares of capital stock of Magnetec; (iv) the Offering; (v) the repayment by the Company of approximately $8.5 million of indebtedness to Tridex with a portion of the proceeds of the Offering; (vi) the execution of certain agreements between the Company and Tridex relating to the allocation of tax attributes, the provision of certain services, and the purchase and supply of certain products; (vii) an undertaking by Tridex to apply for a ruling from the IRS that the Distribution would be tax-free to such stockholders for federal income tax purposes; and (viii) an undertaking by Tridex to effect the Distribution upon the satisfaction of certain conditions precedent, including the successful completion of the Offering, the completion of the transaction described under "Relationship Between the Company and Tridex" and the receipt of a favorable ruling from the IRS. If Tridex receives a favorable ruling from the IRS in time to do so, it intends to complete the Distribution as early as practicable in 1997. In the Plan of Reorganization, Tridex agrees, for five years after the completion of the Distribution, not to compete with the Company in the design, manufacture or sale of transaction based printers for the POS, gaming and lottery, financial services and kiosk markets in any geographic market in which the Company is then doing business. The Plan of Reorganization may be amended only by the agreement of the Company and Tridex. 12 14 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,150,000 shares of Common Stock offered hereby are estimated to be $9.8 million ($11.4 million if the Underwriters' over-allotment option is exercised in full), after deducting the estimated underwriting discount and estimated offering expenses payable by the Company, based on an assumed initial public offering price of $10.25 per share. The Company expects to use up to $8.5 million of the net proceeds for the payment of amounts due to Tridex for intercompany indebtedness. As of June 29, 1996, the Tridex investment in the Company was approximately $12.7 million. Such amount includes, on a pro forma basis, $8.5 million of intercompany indebtedness, and the balance represents equity. Pursuant to the Plan of Reorganization described under "The Company -- Background of the Offering and the Distribution," upon completion of the Offering, the Company will repay such indebtedness. The Company may, at its election, pay such indebtedness in full or pay Tridex an amount not less than $7.5 million in cash and issue to Tridex a subordinated promissory note in an amount up to $1.0 million. The Company does not intend to issue the note to Tridex unless the net proceeds of the Offering to the Company, after payment of the expenses of the Offering payable by the Company but before payment of any intercompany indebtedness, would be less than $9.4 million. If issued, such subordinated note would be payable in one year and bear interest at a rate equal to the rate under Tridex's revolving line of credit, currently the prime rate plus 1.00% (9.25% as of the date hereof). The balance of the net proceeds, after repayment of intercompany indebtedness, will be used for working capital and general corporate purposes. The Company has no specific plans for these net proceeds other than to finance anticipated growth. Pending use, the proceeds will be invested in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY The Company expects to retain earnings to finance the expansion and development of its business and has no plans to pay cash dividends on the Common Stock. See "Risk Factors -- No Cash Dividends." 13 15 DILUTION The pro forma net tangible book value of the Company at June 29, 1996 was $.26 per share of Common Stock. The pro forma net tangible book value per share represents the tangible assets of the Company less its total liabilities, including the intercompany indebtedness to be repaid to Tridex, divided by the number of shares outstanding. Without taking into account any changes in net tangible book value after June 29, 1996, other than to give effect to the Offering (assuming an initial public offering price of $10.25 per share), after deduction of the underwriting discount and commissions and other estimated Offering expenses payable by the Company and giving effect to the payment by the Company of $8.5 million of indebtedness to Tridex, the pro forma net tangible book value of the Company after the Offering at June 29, 1996 would have been $1.71 per share of Common Stock, representing an increase in net tangible book value of $1.45 per share to the existing stockholder and dilution of $8.54 per share to new investors. Dilution is determined by subtracting pro forma net tangible book value per share after the Offering from the amount of cash paid by a new investor for a share of Common Stock in the Offering. The following table illustrates this per share dilution. Assumed public offering price per share..................... $10.25 Assumed pro forma net tangible book value per share before the Offering.............................................. $ .26 Increase per share attributable to new investors............ 1.45 Pro forma net tangible book value per share after the Offering.................................................. 1.71 ------ - Dilution per share to new investors......................... $ 8.54 ======
The following table summarizes, as of June 29, 1996, after giving effect to the Offering, the difference between the existing stockholder and the new investors in the Offering (at an assumed initial public offering price of $10.25 per share) with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE -------------------- ----------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE -------- ------- ----------- ------- --------- Existing stockholder................... 5,400,000 82.4% $ 4,158,000 26.1% $ 0.77 New investors.......................... 1,150,000 17.6 11,788,000 73.9 10.25 ---- ----- Total........................ 6,550,000 100.0% $15,946,000 100.0% ===== =====
If the Underwriters' over-allotment option is exercised in full, the number of shares to be purchased by new investors will be increased to 1,322,500 or approximately 19.7% of the total number of shares of Common Stock outstanding after the Offering. The foregoing computations exclude: (i) 600,000 shares to be reserved for issuance under the Stock Plan, of which 309,300 shares are subject to options to be granted as of the date of the Offering at a per share exercise price equal to not less than the Price to Public; (ii) 60,000 shares to be reserved for issuance under the Director's Plan, of which 30,000 are subject to options to be granted as of the date of the Offering; and (iii) 115,000 shares issuable on exercise of the Representative's Warrants. See "Management -- Compensation of Executive Officers -- Stock Plan," "Description of Capital Stock" and "Underwriting." 14 16 CAPITALIZATION The following table sets forth the historical capitalization of the Company at June 29, 1996, and as adjusted to give effect to: (i) the issuance of 5,400,000 shares of Common Stock to Tridex; (ii) the sale of 1,150,000 shares of Common Stock offered hereby at the assumed initial public offering price of $10.25 per share, less applicable underwriting discount and commissions and other estimated offering expenses payable by the Company; and (iii) the repayment to Tridex of $8.5 million in intercompany indebtedness. This data should be read in conjunction with the unaudited pro forma combined balance sheet and the introduction to the unaudited pro forma combined financial statements appearing elsewhere in this Prospectus. The as adjusted capitalization table has been derived from the historical combined financial statements and reflects certain pro forma adjustments as if the Offering had been consummated and the intercompany indebtedness had been repaid as of June 29, 1996. The as adjusted information may not reflect the capitalization of the Company in the future or as it would have been had the Company been a stand alone entity at June 29, 1996. See "Pro Forma Financial Data."
JUNE 29, 1996 ---------------------------------------- PRO FORMA AS HISTORICAL ADJUSTMENTS ADJUSTED ---------- ----------- --------- (IN THOUSANDS) Intercompany indebtedness................................ $ -- $ 8,500 (1) $ -- (8,500)(1) ------- -------- ------- Stockholders' equity: Tridex investment in the Company....................... 12,658 (12,658)(2) -- Stockholders' equity: Common stock, $.01 par value, 20,000,000 shares authorized, 6,550,000 shares issued and outstanding, pro forma............................ -- 13,963(3) 13,963 Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued and outstanding, pro forma....... -- -- -- ------- -------- ------- Total stockholders' equity............................... 12,658 1,305 13,963 ------- -------- ------- Total capitalization..................................... $12,658 $ 1,305 $13,963 ======= ======== ======= - --------------- (1) Reflects the reclassification to intercompany debt of $8,500 from the Tridex investment in the Company and reflects that portion of the estimated net proceeds used to repay this intercompany indebtedness. (2) Reflects the change in Tridex investment in the Company for the issuance of all outstanding shares of the Company's Common Stock to Tridex ($4,158), and the intercompany indebtedness to be repaid to Tridex ($8,500). (3) Reflects the issuance of shares of Common Stock to Tridex ($4,158), and the estimated net proceeds from the Offering ($9,805).
15 17 SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS, EXCEPT FOR RATIO AMOUNTS) The following table sets forth selected financial data of the Company. The data should be read in conjunction with the historical financial statements, notes and other financial information included herein. The statement of income data for the years ended April 2, 1994 and April 1, 1995 and the nine months ended December 31, 1995, and the balance sheet data at April 1, 1995 and December 31, 1995 are derived from the audited financial statements of the Company. The statement of income data for the fiscal years ended March 28, 1992 and April 3, 1993, the nine months ended December 31, 1994, and the six months ended July 1, 1995 and June 29, 1996 and the balance sheet data at March 28, 1992, April 3, 1993, April 2, 1994, December 31, 1994 and June 29, 1996 are derived from unaudited financial statements but, in the opinion of the Company's management, reflect all the adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. In December 1995, the Company's fiscal year end was changed to December 31 from the Saturday closest to March 31. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The fiscal year ended April 3, 1993 was a 53-week year. The historical financial statements of the Company may not necessarily reflect the results of operations or financial position that would have been obtained had the Company been a stand alone entity. See "Management's Discussion and Analysis of the Results of Operations and Financial Condition." Earnings per share data are presented elsewhere in this Prospectus and on a pro forma basis only. See unaudited "Pro Forma Financial Data."
SIX MONTHS ENDED FISCAL YEARS ENDED NINE MONTHS ENDED ----------------------------------------------------- --------------------------- ------------------ MARCH 28, APRIL 3, APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JULY 1, JUNE 29, 1992 1993 1994 1995 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ------------ ------------ ------- -------- COMBINED STATEMENT OF INCOME DATA: Net sales............. $19,509 $25,949 $23,798 $33,362 $ 25,426 $ 25,497 $16,184 $20,225 Cost of sales......... 14,305 17,933 15,585 22,349 17,035 17,529 10,710 13,418 Gross profit.......... 5,204 8,016 8,213 11,013 8,391 7,968 5,474 6,807 Engineering, design and product development costs... 1,218 1,330 1,687 1,708 1,244 1,533 911 1,306 Selling, general and administrative expenses............ 3,284 3,893 4,803 5,600 4,117 4,556 2,971 2,961 Provision for restructuring....... -- -- -- -- -- 300 -- -- Operating income...... 702 2,793 1,723 3,705 3,030 1,579 1,592 2,540 Other income (expense), net...... 14 (27) 176 127 108 (15) 18 281 Income before income taxes............... 716 2,766 1,899 3,832 3,138 1,564 1,610 2,821 Income tax provision........... 344 1,134 806 1,528 1,255 648 657 1,088 Net income............ 372 1,632 1,093 2,304 1,883 916 953 1,733
MARCH 28, APRIL 3, APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JUNE 29, 1992 1993 1994 1995 1994 1995 1996 ----------- ----------- ----------- -------- ------------ ------------ ----------- COMBINED BALANCE SHEET DATA: Working capital................ $ 4,495 $ 6,254 $ 5,920 $ 6,301 $ 5,367 $ 6,281 $ 7,128 Current ratio.................. 2.55 2.74 2.92 2.69 2.41 2.64 2.56 Plant and equipment, net....... 1,250 1,709 1,696 2,237 2,140 3,041 3,558 Tridex investment in the Company.................. 9,418 11,326 10,839 11,280 10,591 11,645 12,658 Total assets................... 12,323 14,910 13,916 15,358 14,392 15,969 17,641
16 18 UNAUDITED PRO FORMA FINANCIAL DATA The historical combined financial statements of the Company reflect periods during which the Company operated as wholly-owned subsidiaries of Tridex. The historical financial statements of the Company may not necessarily reflect the combined results of operations or financial position of the Company or what the results of operations would have been if the Company had been a stand alone entity during such periods. The unaudited pro forma combined statements of income for the six months ended June 29, 1996 and the nine months ended December 31, 1995 and the pro forma combined balance sheet as of June 29, 1996 present the results of the Company's operations and financial position prepared by adjusting the historical statements for pro forma adjustments to reflect the Offering and other costs and expenses and the repayment of intercompany indebtedness to Tridex, as if the Company had been a stand alone entity at the beginning of the earlier period presented for the statement of income and as of the balance sheet date presented. The unaudited pro forma financial statements should be read in conjunction with the financial data presented elsewhere in this Prospectus. The unaudited pro forma financial data are presented for informational purposes only and may not reflect the future results of operations or financial position of the Company or what the results of operations or financial position would have been had the Company been operated as a stand alone entity during such periods. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 29, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- -------------- --------- Net sales................................................ $20,225 $ -- $20,225 Cost of sales............................................ 13,418 -- 13,418 ------- ------ ------- Gross profit............................................. 6,807 -- 6,807 ------- ------ ------- Operating expenses: Engineering, design and product development costs...... 1,306 -- 1,306 Selling, general and administrative expenses........... 2,961 35 (1) 2,996 ------- ------ ------- 4,267 35 4,302 ------- ------ ------- Operating income......................................... 2,540 (35) 2,505 Other income, net........................................ 281 -- 281 ------- ------ ------- Income before income taxes............................... 2,821 (35) 2,786 Income tax provision..................................... 1,088 (14)(2) 1,074 ------- ------ ------- Net income............................................... $ 1,733 $ (21) $ 1,712 ======= ====== ======= Income per share......................................... $ 0.26 ======= Weighted average shares of common stock outstanding...... 6,550 (3) 6,550(3) - --------------- (1) Adjustment reflects (a) the elimination of the allocation of general and administrative expenses from Tridex of $667 reflected in the Company's historical combined financial statements and (b) the inclusion of management's estimate of the cost associated with becoming a stand alone entity of $702, including costs related to (i) corporate administrative services such as tax, treasury, risk management and insurance, legal, accounting, consulting, and other public company related expenses ($386), (ii) incentive compensation to certain employees for attainment of certain operating goals ($150) and (iii) salaries and fringe benefits of corporate officers and other key personnel ($166). (2) To reflect the tax effect of the pro forma adjustments. (3) Pro forma weighted average common shares outstanding has been calculated as if all shares issued to Tridex prior to the Offering, and the shares issued from the Offering, had been outstanding throughout the period presented.
17 19 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- -------------- --------- Net sales................................................ $25,497 $ -- $25,497 Cost of sales............................................ 17,529 -- 17,529 ------- ------ ------- Gross profit............................................. 7,968 -- 7,968 ------- ------ ------- Operating expenses: Engineering, design and product development costs...... 1,533 -- 1,533 Selling, general and administrative expenses........... 4,556 (412)(1) 4,144 Provision for restructuring............................ 300 -- 300 ------- ------ ------- 6,389 (412) 5,977 ------- ------ ------- Operating income......................................... 1,579 412 1,991 Other income (expense), net.............................. (15) -- (15) ------- ------ ------- Income before income taxes............................... 1,564 412 1,976 Income tax provision..................................... 648 171 (2) 819 ------- ------ ------- Net income............................................... $ 916 $ 241 $ 1,157 ======= ====== ======= Income per share......................................... $ 0.18 ======= Weighted average shares of common stock outstanding...... 6,550 (3) 6,550(3) - --------------- (1) Adjustment reflects (a) the elimination of the allocation of general and administrative expenses from Tridex of $1,203 reflected in the Company's historical financial statements and (b) the inclusion of management's estimate of the cost associated with becoming a stand alone entity of $791 including costs related to (i) corporate administrative services such as tax, treasury, risk management and insurance, legal, accounting, consulting, and other public company related expenses ($523) and (ii) salaries and fringe benefits of corporate officers and other key personnel($268). (2) To reflect the tax effect of the pro forma adjustments. (3) Pro forma weighted average common shares outstanding has been calculated as if all shares issued to Tridex prior to the Offering, and the shares issued from the Offering, had been outstanding throughout the period presented.
18 20 UNAUDITED PRO FORMA COMBINED BALANCE SHEET JUNE 29, 1996 (IN THOUSANDS)
PRO FORMA PRO FORMA AS HISTORICAL ADJUSTMENTS ADJUSTED ---------- ----------- --------- ASSETS: Current assets: Cash................................................... $ -- $ 1,305 (1) $ 1,305 Receivables............................................ 4,111 -- 4,111 Inventories............................................ 6,709 -- 6,709 Deferred tax assets.................................... 403 -- 403 Other current assets................................... 466 -- 466 ------- -------- ------- Total current assets................................ 11,689 1,305 12,994 ------- -------- ------- Plant and equipment: Machinery, furniture and equipment..................... 8,263 -- 8,263 Leasehold improvements................................. 254 -- 254 ------- -------- ------- 8,517 -- 8,517 Less accumulated depreciation............................ 4,959 -- 4,959 ------- -------- ------- 3,558 -- 3,558 ------- -------- ------- Excess of cost over fair value of net assets acquired, net.................................................... 2,332 -- 2,332 Other assets............................................. 62 -- 62 ------- -------- ------- $17,641 $ 1,305 $18,946 ======= ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable....................................... $ 2,937 $ -- $ 2,937 Accrued liabilities.................................... 1,624 -- 1,624 Intercompany indebtedness.............................. 8,500 (2) -- (8,500)(2) -- ------- -------- ------- Total current liabilities........................... 4,561 -- 4,561 ------- -------- ------- Deferred revenue......................................... 233 -- 233 Deferred tax liabilities................................. 189 -- 189 ------- -------- ------- 422 -- 422 ------- -------- ------- Stockholders' equity: Tridex investment in the Company....................... 12,658 (12,658)(3) -- Stockholders' equity................................... -- 13,963 (4) 13,963 ------- -------- ------- Total stockholders' equity.......................... 12,658 1,305 13,963 ------- -------- ------- $17,641 $ 1,305 $18,946 ======= ======== ======= - --------------- (1) To record the estimated net proceeds from the Offering, net of repayment of intercompany indebtedness to Tridex of $8,500. (2) Reflects the reclassification to intercompany debt of $8,500 from Tridex investment in the Company and reflects that portion of the net proceeds used to repay this intercompany indebtedness. (3) Reflects the change in Tridex investment in the Company for the issuance of all outstanding shares of the Company's Common Stock to Tridex ($4,158), and the intercompany indebtedness to be repaid to Tridex ($8,500). (4) Reflects the issuance of shares of Common Stock to Tridex ($4,158), and the net proceeds from the Offering ($9,805).
19 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW Transact designs, develops, manufactures and markets transaction based printers and related products, under the ITHACA and MAGNETEC brand names. The Company's printers are used to provide transaction records such as receipts, tickets, coupons, register journals and other documents. The Company focuses on four vertical markets: POS; gaming and lottery; financial services; and kiosks. The Company operates in one industry segment, computer peripheral equipment, and sells its products, primarily in the United States and Canada. For the nine months ended December 31, 1995, sales in the POS market represented approximately 57.6% of net sales of the Company; sales in the gaming and lottery market represented approximately 27.0% of net sales; sales in the financial services market represented approximately 7.7% of net sales; and sales in the kiosk market represented approximately 7.7% of net sales. For the nine months ended December 31, 1995, the Company's direct sales outside of the United States amounted to $1,875,000, or approximately 7.4% of net sales. A component of the Company's strategic plan is to increase international sales. To implement this plan, the Company has entered into a strategic marketing agreement with Okidata and a sales agreement with Oki Europe, establishing Oki Europe as the exclusive distributor of the Company's POS and kiosk products in Europe, the Middle East and North Africa. In this territory, Oki Europe has approximately 40 sales offices and, the Company believes, significant brand name recognition and distribution capability. The Company expects access to Oki Europe's distribution capability to provide quicker, easier and more cost-effective penetration of the geographic markets involved than if the Company had sought to develop its own distribution infrastructure or had attempted to select distributors for the territory on a country-by-country basis. The Company granted certain exclusive rights under this agreement as an inducement to Oki Europe to use best efforts and dedicate sufficient financial resources to maximize its distribution and marketing activities. Subject to the terms of the agreement, Oki Europe will have the exclusive right to sell the Company's POS and kiosk products in the territory until 2001. Depending upon the availability of other international distributors, the Company's ability to obtain acceptable contractual terms from such distributors and other factors, the Company may enter into similar agreements for other international markets or pursue alternate methods. The time and financial resources required to develop distribution capability for additional international markets will depend upon the methods ultimately pursued by the Company in various regions and cannot be determined at this time. Prior to December 1995, Tridex conducted the business of the Company through its wholly-owned subsidiaries, Magnetec and Ithaca. In December 1995, Tridex began operating the businesses of Magnetec and Ithaca under a single management team. In June 1996, the Company was incorporated as a wholly-owned subsidiary of Tridex. Following the incorporation, Tridex, the Company, Magnetec and Ithaca entered into the Plan of Reorganization whereby, subject to certain conditions: (i) Ithaca will merge into Magnetec; (ii) the Company will transfer certain assets used in manufacturing a printer ribbon product line to Tridex no later than December 31, 1996; (iii) the Company will issue 5,400,000 shares of Common Stock to Tridex in exchange for all the outstanding shares of Magnetec; (iv) the Company will effect the Offering and the Distribution; (v) the Company will repay $8,500,000 of intercompany indebtedness to Tridex; and (vi) the Company will agree to certain other matters. See "Relationship Between the Company and Tridex." Because the Company was wholly-owned by Tridex during the periods presented, the Combined Financial Statements may not necessarily reflect the results of operations or financial position of the Company or what the results of operations would have been if the Company had been a stand alone entity during those periods. This discussion should be read in conjunction with these financial statements and notes thereto for such periods and such fiscal years included elsewhere in this Prospectus. Retailers typically reduce purchases of new POS equipment in the fourth quarter, due to the increased volume of consumer transactions in that period, and the Company's sales of printers in the POS market 20 22 historically have increased in the third quarter and decreased in the fourth quarter. However, the Company has not experienced material seasonality in its total net sales, due to offsetting increased sales in other markets. In December 1995, the Company's fiscal year end was changed to December 31 from the Saturday closest to March 31. RESULTS OF OPERATIONS The following table summarizes certain components of net income as a percentage of net sales for the periods indicated.
FISCAL YEAR ENDED NINE MONTHS ENDED SIX MONTHS ENDED ------------------- --------------------------- ------------------ APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JULY 1, JUNE 29, 1994 1995 1994 1995 1995 1996 -------- -------- ------------ ------------ ------- -------- Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales...................... 65.5 67.0 67.0 68.7 66.2 66.3 ----- ----- ----- ----- ----- ----- Gross profit....................... 34.5 33.0 33.0 31.3 33.8 33.7 ----- ----- ----- ----- ----- ----- Operating expenses: Engineering, design and product development costs........ 7.1 5.1 4.9 6.0 5.6 6.5 Selling, general and administrative expenses....... 20.2 16.8 16.2 17.9 18.4 14.6 Provision for restructuring...... -- -- -- 1.2 -- -- ----- ----- ----- ----- ----- ----- 27.3 21.9 21.1 25.1 24.0 21.1 ----- ----- ----- ----- ----- ----- Operating income................... 7.2 11.1 11.9 6.2 9.8 12.6 Other income (expense), net........ 0.8 0.4 0.4 (0.1) 0.1 1.4 ----- ----- ----- ----- ----- ----- Income before income taxes......... 8.0 11.5 12.3 6.1 9.9 14.0 Income tax provision............... 3.4 4.6 4.9 2.5 4.0 5.4 ----- ----- ----- ----- ----- ----- Net income......................... 4.6% 6.9% 7.4% 3.6% 5.9% 8.6% ===== ===== ===== ===== ===== =====
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995 Net Sales. Net sales for the six months ended June 29, 1996 increased $4,041,000, or 25%, to $20,225,000 from $16,184,000 in the comparable period of the prior year. Approximately $3,100,000 of the increase was due to increased shipments of the Company's recently introduced on-line lottery printers. The remainder of the increase reflects increased shipments of printers for other applications in the gaming and lottery market. Gross Profit. Gross profit increased $1,333,000, or 24%, to $6,807,000 from $5,474,000 in the comparable period of the prior year, primarily as a result of the higher volume of shipments of printers. The gross margin of 33.7% was essentially unchanged from the comparable prior period. The Company currently expects that its gross profit will increase, as net sales are expected to continue to increase, while its gross margin will remain relatively stable. Engineering and Product Development. Engineering, design and product development costs increased $395,000, or 43%, from $911,000 to $1,306,000 for the six months ended June 29, 1996, and increased as a percentage of net sales from 5.6% to 6.5%. This increase was due primarily to increases in the level of engineering staff, as well as increased product development and design costs, particularly for new products in the POS market. Selling, General and Administrative. Selling, general and administrative expenses decreased $10,000, or less than one percent, from $2,971,000 to $2,961,000, and decreased as a percentage of net sales from 18.4% to 14.6%. Selling expenses declined slightly, by $50,000, due primarily to sales staff reductions which were 21 23 largely offset by increased commissions resulting from higher unit sales volume. A slight increase of $40,000 in general and administrative expenses was attributable primarily to increased allocations of general and administrative expenses from Tridex, which were largely offset by a decrease in compensation related costs resulting from the restructuring of the Ithaca and Magnetec businesses under unified management in December 1995. Other Income. Other income (expense), net increased $263,000 from $18,000 to $281,000 in the six months ended June 29, 1996, and increased as a percentage of net sales from 0.1% to 1.4%. This increase was the result of the inclusion of a $285,000 gain on the sale of marketable securities available for sale during the six months ended June 29, 1996. The Company acquired such securities in connection with the sale of its solenoid product line in fiscal 1994. Provision for Income Taxes. The provision for income taxes for the six months ended June 29, 1996 reflects an effective tax rate of 38.6%. The provision for this period includes a benefit resulting from certain tax credits. The effective rate in the comparable prior period was 40.8%. NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1994 Net Sales. Net sales for the nine months ended December 31, 1995 increased to $25,497,000 from $25,426,000 in the comparable period of the prior year as the Company's sales in its principal markets were consistent for the relevant periods. Gross Profit. Gross profit decreased $423,000, or 5%, to $7,968,000 from $8,391,000 in the prior year's period. This decrease was primarily due to certain production start-up costs associated with the Company's new on-line lottery printer and the relocation of the Company's Connecticut facility in April 1995. The gross margin declined to 31.3% from 33.0%. In addition to the above, the Company's lower than historical gross margin in this period reflected an unfavorable change in the sales mix. Engineering and Product Development. Engineering, design and product development costs increased $289,000, or 23%, from $1,244,000 to $1,533,000 for the nine months ended December 31, 1995, and increased as a percentage of net sales from 4.9% to 6.0%. The increase reflects the development of new products and the enhancement of existing products, primarily for the POS market. Selling, General and Administrative. Selling, general and administrative expenses increased $439,000, or 11%, from $4,117,000 to $4,556,000 for the nine months ended December 31, 1995, and increased as a percentage of net sales from 16.2% to 17.9%. Selling expenses increased $62,000 due primarily to compensation-related costs for additional sales staff. The increase in general and administrative expenses of $377,000, resulted primarily from increased allocations of general and administrative expenses from Tridex and, to a lesser degree, costs related to the relocation of the Company's Wallingford, Connecticut facility and increased incentive compensation expense. Provision for Restructuring. During the nine months ended December 31, 1995, the Company recorded a provision for restructuring of $300,000 primarily to cover severance costs related to the combination of the Ithaca and Magnetec businesses under unified management. Other Income. Other income (expense), net for the prior period includes a gain of $115,000 from a contingent payment from the fiscal 1995 sale of the Company's solenoid product line. Provision for Income Taxes. The provision for income taxes for the nine months ended December 31, 1995 reflects an effective tax rate of 41.4%. The effective rate in the comparable prior period was 40%. FISCAL 1995 COMPARED TO FISCAL 1994 Net Sales. Net sales for fiscal 1995 increased $9,564,000, or 40%, to $33,362,000 from $23,798,000 in fiscal 1994. The increase was primarily the result of increased unit shipments of printers into the POS and gaming and lottery markets. Gross Profit. Gross profit increased $2,800,000, or 34%, to $11,013,000 from $8,213,000 in the prior year primarily due to increased sales in the gaming and lottery market. The gross margin declined to 33.0% 22 24 from 34.5%. The decrease was due primarily to a larger proportion of sales of printers to distributors at lower average selling prices resulting from volume discount pricing. Engineering and Product Development. Engineering, design and product development costs increased slightly from $1,687,000 to $1,708,000, but declined as a percentage of net sales from 7.1% to 5.1%. Increases in new product development costs related to printers for the POS market were offset by a reduction from the prior year in costs incurred related to a new on-line lottery printer, the development of which was substantially completed in fiscal 1994. Selling, General and Administrative. Selling, general and administrative expenses increased $797,000, or 17%, from $4,803,000 to $5,600,000 in fiscal 1995, but declined as a percentage of net sales from 20.2% to 16.8%. The increase in selling expenses of $490,000 was the result of increased sales commissions and increased employee costs to support greater sales volume, as well as the opening of a European sales office. The increase in general and administrative expenses of $307,000 was primarily the result of additional employees to support business growth and increased compensation related expenses. Other Income. Other income (expense), net for fiscal 1994 consisted primarily of a gain of $175,000 from the sale of the Company's solenoid product line. Other income (expense), net for fiscal 1995 included a gain of $115,000 from a contingent payment related to the same transaction. Provision for Income Taxes. The provision for income taxes for fiscal 1995 reflects an effective tax rate of 39.9%. The effective rate in the prior period was 42.4%. LIQUIDITY AND CAPITAL RESOURCES The Company generated cash flows from operations of $1,431,000, $2,913,000, $1,881,000 and $1,166,000 for fiscal years 1994 and 1995, the nine months ended December 31, 1995, and the six months ended June 29, 1996 respectively. Historically, the Company has participated in the centralized cash management system which Tridex uses to finance its domestic operations. Cash deposits from the Company have been transferred to Tridex on a daily basis and Tridex has funded the Company's disbursement bank accounts as required. Upon the completion of the Offering, the Company will no longer participate in the Tridex cash management system. When necessary, the Company has obtained required funds in excess of cash flow from operations from Tridex. The Company provided sufficient cash to support its operations and to provide net cash to Tridex aggregating $1,580,000, $1,863,000, $551,000 and $720,000 for fiscal years 1994 and 1995, the nine months ended December 31, 1995, and the six months ended June 29, 1996 respectively. The Company is currently negotiating to obtain an independent revolving credit facility from Tridex's lender. The Company expects to use borrowings on this credit facility to fund its short-term working capital requirements, as they arise. The Company's capital expenditures were approximately $598,000, $1,203,000, $1,334,000 and $961,000 for fiscal years 1994 and 1995, the nine months ended December 31, 1995 and the six months ended June 29, 1996, respectively. These expenditures primarily included tooling and factory machinery and equipment. In addition, capital expenditures in fiscal 1995 and the nine months ended December 1995 included new leasehold and equipment purchases related to the relocation of the Company's Wallingford, Connecticut facility. The Company's capital expenditures for fiscal 1996 are expected to be approximately $2,400,000, relating primarily to new product tooling. Management believes that the net proceeds from the Offering, after the payment of $8,500,000 of intercompany indebtedness to Tridex, together with the Company's cash flows from operations and available borrowings under its anticipated credit facility, will provide sufficient resources to meet the Company's working capital needs, finance its projected capital expenditures and meet its liquidity requirements through December 31, 1997. 23 25 BUSINESS TRANSACT designs, develops, manufactures and markets transaction based printers and related products under the ITHACA and MAGNETEC brand names. The Company's printers are used to provide transaction records such as receipts, tickets, coupons, register journals and other documents. The Company focuses on four vertical markets: POS (from which the Company derived approximately 57.6% of its net sales in the nine months ended December 31, 1995); gaming and lottery (approximately 27.0% of net sales); financial services (approximately 7.7% of net sales); and kiosks (approximately 7.7% of net sales). The Company sells its products directly to end users, OEMs, VARs and selected distributors, primarily in the United States and Canada. The Company believes that its success to date has resulted, in part, from (i) the quality of its printers, which it believes exceed industry performance norms for durability and reliability and (ii) its flexible engineering and manufacturing systems, which enable it to design, manufacture and ship, on a short lead time basis, printers with features and functions chosen by its customers. Transact manufactures and sells customizable and custom dot matrix and thermal printers for applications requiring up to 60 character columns in each of its four vertical markets. The Company also sells an 80 column laser printer for kiosk applications. The Company's customizable products include several series of printers which offer customers the ability to choose from a variety of features and functions. Options typically include different printing technologies, print speeds, paper handling capacities and numbers of print stations. In addition to its customizable printers, Transact manufactures custom printers for certain OEM customers. In collaboration with these customers, the Company provides engineering and manufacturing expertise for the design and development of specialized printers. INDUSTRY OVERVIEW The four vertical markets for transaction based printers addressed by the Company are as follows: The POS Market. The POS market, the largest market served by the Company, consists primarily of retailers, including specialty stores, fast-food restaurants, convenience stores, gas stations, supermarkets and other retail outlets where a receipt or other printed transaction record is generated in connection with the sale of a product or service. Until the early 1980s, a small number of vertically integrated cash register manufacturers dominated the market for POS devices. The increased use of personal computers ("PCs") in the POS market and the trend toward open systems, in which hardware and software elements from different manufacturers can be combined to obtain the mix of features desired by the customer, has created opportunity in the POS market for manufacturers of peripheral devices, such as printers. Although PCs can be utilized in a wide range of POS applications with little or no alteration, a printer connected to a PC in a POS application must satisfy specialized requirements for features, functions and reliability. In the context of these requirements, manufacturers of POS printers have experienced increased demand for their products. According to a recent study by Venture Development Corp., the total number of POS printers sold in the United States in 1995 was estimated to be 570,000. The Company has identified the following four types of sales opportunities with respect to the POS market: (i) new POS systems being installed in existing retail operations; (ii) expansion by existing users of POS systems into additional locations; (iii) replacement of obsolete or worn out printers in the installed base of POS printers; and (iv) demand for POS printers in the international market. The Gaming and Lottery Market. The gaming and lottery market is comprised of on-line lottery systems, casinos, keno systems, pari-mutuel betting, video lottery terminals ("VLTs") and other applications. The number of government sponsored lottery systems and licensed casinos has grown in recent years. The Company believes the gaming and lottery industry is established in the United States, with many states increasingly dependent on revenue from their lotteries and taxes on casinos and other forms of gaming. Total United States revenues from casinos, pari-mutuel betting and all forms of lotteries grew from approximately $643 million in 1984 to approximately $31.1 billion in 1994. Statistics obtained from LaFleur's World Lottery Almanac ("La Fleur") indicate that the number of installed on-line lottery terminals in the United States grew from approximately 96,000 in 1992 to approximately 125,000 in 1995, for a compound annual growth rate of approximately 9.3%, and that the number of installed on-line terminals outside the United States grew 24 26 from 135,000 in 1994 to approximately 162,700 in 1995. This growth in the number of installed terminals has occurred while the number of states in the United States with on-line lottery systems has remained stable. The Company believes that the domestic installed base of on-line lottery systems will require new printers as existing terminals are replaced. The Company also believes that the international market will experience significant growth in new installations. The increased use of keno games, either in conjunction with on-line lottery systems or on a stand alone basis, has contributed to growth in the gaming and lottery market. Statistics obtained from La Fleur indicate that from 1989 through 1995, revenue collected by state sponsored keno games grew from approximately $65.7 million in one state to approximately $1.3 billion in eleven states. Although the expansion of keno and other forms of gaming and lottery will depend, in part, on additional states and countries adopting enabling legislation, the Company believes that strong growth will continue and that, through its relationship with GTECH, it is well positioned to meet the increasing demand in this market. The Financial Services Market. The financial services market is comprised of ATMs, bank teller systems and money order printers as well as printers used on the floor of the New York Stock Exchange and in brokerage houses. ATMs represent the largest sector of this market served by Transact. According to Retail Banking Research Ltd. ("Retail Banking"), the installed base of ATMs is approximately 123,000 units in the United States and approximately 483,000 units worldwide. Retail Banking reports that from 1994 to 1995 the number of ATMs installed worldwide increased 13.6% from approximately 425,000 units to approximately 483,000 units, and that regionally the number of installed ATMs increased 10.1% in Europe, from approximately 133,000 units to approximately 147,000 units, and 12.5% in the United States, from approximately 109,000 units to approximately 123,000 units. Many banks are deploying ATMs with an increasing array of products and services, which are available outside typical banking business hours. Mentis Corp. estimates that consumers used ATMs for approximately 15% of their retail banking transactions as of early 1996, that such utilization will increase to approximately 30% in 1997 and that by the year 2000 it will increase to between 40% and 50% of all retail banking transactions. As the banking industry has expanded applications for ATMs, the Company has sold over 60,000 ATM account statement printers. The Company has determined that, assuming utilization continues to rise and the banking industry continues to develop new applications, opportunities to sell existing products and develop new products should continue to expand. The Kiosk Market. The kiosk market is an emerging market comprised of unattended, interactive devices used to supply information or otherwise complete transactions in retail, government, education and other settings. For example, home improvement retailers use kiosks to answer frequently asked questions and, based on consumer responses to computer prompting, generate printed reports with product suggestions and the in-store location of the products. State and local governments also use kiosks to provide routine services. Kiosk technology is an outgrowth of ATMs, but consumer acceptance and business utilization have not met the expectations of kiosk vendors. Studies indicate that by 1998 the total number of installed kiosks will approximate 500,000 and total sales will approximate $2.7 billion. The Company believes that as new applications and the installed base of kiosks increase, the opportunity for increased printer sales will follow. Common Characteristics of the Four Vertical Markets. In each of the vertical markets discussed above, customers have, to varying degrees, a common set of requirements. These requirements include: - Features and Functions -- A variety of features and functions, including, validation, journal and slip printing, paper cutting and paper handling, print speed, foreign language fonts, and firmware options, are required for applications in these markets; - Durability and Reliability -- Printers in these four markets generally must be durable enough to provide a high level of performance while demonstrating high volume throughput, reduced service requirements and low error rates; - Compatibility -- Users must be able to incorporate printers easily into a broad range of hardware/software configurations; and - Service -- Customers require service in the following forms: (i) advice in selecting the appropriate printer for their particular application; (ii) real time order processing and tracking to inform them of the status of their orders; (iii) post-sale technical support to ensure satisfactory installation and use; and (iv) technical service and repair for warranty and non-warranty items. Large volume customers may also require maintenance and repair histories of individual products on a unit basis. 25 27 BUSINESS STRATEGY Transact's goal is to become a leading worldwide supplier of transaction based printers and related products in each of its markets. Key elements of the Company's strategy include: Focus on Four Vertical Markets. Transact has selected the four market sectors it currently serves based on the growth potential in each market, as well as the Company's evaluation of its ability to compete effectively with other suppliers. The Company believes it has significant brand recognition in each of these four markets. In its largest market, POS, Transact intends to leverage its brand recognition into a greater market share through the introduction of new products and broader distribution. In the gaming and lottery market, Transact intends to maintain its position as a primary supplier of on-line lottery impact printers to GTECH, the largest provider of on-line lottery systems in the world, and the primary supplier of impact printers for casino keno systems in Las Vegas and Reno, Nevada and Atlantic City, New Jersey. For the diverse financial services market, the Company intends to continue to offer a broad selection of products in the market for printing receipts, money orders, 60 column account statements and certain other financial transaction records. The Company currently provides bank account statement and money order printers to Interbold, the leading ATM manufacturer in the world. The kiosk market is in its development stage. In anticipation of future growth, Transact has developed a broad range of printers available for kiosk applications, including impact, thermal and laser printers. As this market grows, the Company intends to position itself as a leading supplier of kiosk printers. Expand Product Lines. The Company is committed to capitalizing on its existing market position, technology and engineering expertise by developing new products as well as product line extensions. In January 1996, the Company announced its new ITHACA Series 90 impact printer, which will offer print speeds faster than similarly configured competitors' impact printers. Shipments in quantity are expected to commence later this year. The Company also has under development a new ITHACA thermal printer for the POS market, which it expects to release in the first half of 1997. The Company believes that continued introduction of technologically advanced products will increase its market share. The Company believes its accumulated engineering expertise and design technology enable it to complete new product designs in shortened development cycles. Increase Geographic Market Penetration. Historically, the Company has sold its products primarily in the United States and Canada. The Company believes that significant opportunities exist to sell its products in markets outside North America. In order to penetrate these international markets, the Company has implemented a plan to establish distributor relationships in these growing markets. For example, the Company has entered into a strategic agreement with Okidata, pursuant to which the Company recently has entered into an exclusive sales and marketing agreement with Oki Europe to sell its POS and kiosk products in Europe, the Middle East and North Africa. Emphasize Engineering Expertise. The Company has accumulated engineering expertise in transaction based printer applications and has built an interdisciplinary staff of design and engineering professionals to develop reliable printers with the features and functions required by its targeted markets. The Company believes its expertise in the technology required for printer applications in the transaction based market distinguish it from other printer manufacturers less focused on this market. For example, paper handling in a transaction based printer requires satisfying technical specifications which typically are significantly more demanding than specifications for other types of printers. Transact believes it has the ability to satisfy these specifications and to solve other technical requirements unique to its markets. The Company intends to fully utilize that ability in developing and marketing new products. Capitalize on the Efficiencies of Its Flexible Manufacturing Systems. The Company's flexible manufacturing systems, based on standardized components and processes, enable the Company to produce customizable products without costly or time-consuming interruptions in manufacturing workflow. By utilizing such systems, the Company also achieves manufacturing efficiencies that allow it to ship products on a short lead time basis. 26 28 PRODUCTS AND SERVICES Printers, in both stand alone and open frame configurations, are based on the following four technology platforms: dot matrix impact, thermal, laser or ink jet. Customers choose the technology required for an application based on compatibility, reliability and functionality requirements and operating costs. The Company's revenues result predominantly from sales of impact printers because most transaction based applications require the characteristics best provided by the impact technology platform. However, in accordance with its product line expansion strategy, the Company has begun pursuing market share and growth opportunities by providing printers based on thermal and laser technology. The Company manufactures customizable and custom printers. Custom printers are specialized products designed and manufactured for OEM customers. Customizable printers, based on a standardized chassis, include several series of printers which offer customers the ability to choose from a variety of optional features and functions available in that series. Customizable Products. The Company's ability to produce customizable products is based upon its modular design approach, which facilitates the incorporation of optional features and functions into the standard model. List prices for Transact's customizable printers range from $400 to $3,000. Descriptions of the Company's printers are set forth below.
TARGETED DATE FIRST PRODUCT MARKETS SHIPPED PRODUCT DESCRIPTION ------- ------- ---------- ------------------- Series 50........ POS, Financial 1987 Stand alone dot matrix impact 40 column receipt Services and ticket printer which provides receipt, journal and/or 15 line validation printing. Series 50Plus.... POS, Financial 1995 Series 50 printer enhanced to operate at a Services significantly higher speed. Series 60........ POS, Financial 1992 Stand alone printer for inserted forms, which Services provides any combination of slip, receipt and journal printing. Series 70........ Gaming and Lottery 1992 Open frame dot matrix printer, with cutting mechanism, designed to be integrated into a VLT with an optional paper transport and/or journal tape. Series 90........ POS, Financial 1996 Stand alone, high speed dot matrix printer with Services built-in universal power supply, which provides receipt, journal, slip and/or 17 line validation printing. Series 3000...... Kiosk 1993 Entry level open frame dot matrix impact printer with Transact's paper transport and cutting mechanisms. Series 4000...... POS, Gaming and 1985 Stand alone or open frame, dot matrix impact Lottery, Financial printer available with a full line of features. Services, Kiosk Series 5000...... Gaming and Lot- 1992 Direct thermal printer offering different types tery, Financial of exit systems such as automatic paper cutting, Services, Kiosk adjustable transport and patented self-clearing paper path. Series 6000...... POS, Gaming and 1986 Stand alone or open frame, 60 column dot matrix Lottery, Financial impact printer available with a full line of Services, Kiosk features. Series 8000...... Financial 1996 Laser printer to print on three paper sizes from Services, Kiosk software selectable bins, with a Transact paper transport system. Lowest operating cost currently available for laser printers.
Representative customers for the Company's customizable products include PAR Microsystems Corp. and Panasonic, systems integrators that provide POS systems to nationally recognized fast food outlets, Blockbuster Entertainment, Western Auto Supply and WMS Gaming Incorporated. Custom Products. In addition to its customizable printers, Transact manufactures custom printers for certain OEM customers. The Company provides its engineering and manufacturing expertise to design and 27 29 develop, in collaboration with these customers, specialized printers which meet the customer's specifications. Transact manufactures the following custom printers exclusively for the following OEM customers: GTECH -- Transact manufactures for GTECH, the leading worldwide supplier of on-line lottery systems, a 27 wire printhead, open frame, open paper path, dot matrix printer. The Company began designing this printer in 1993 and manufacturing in 1995, and is the sole supplier of this printer pursuant to a manufacturing agreement, which expires in September 1998. Interbold -- Transact manufactures for Interbold, a leading worldwide supplier of ATMs, a 60 column, 9 wire printhead, dot matrix printer with a document transport mechanism used to print bank account statements for customers at ATMs. Transact manufactures this custom printer for Interbold on an as ordered basis. Other Products. In addition to printer products, the Company manufactures, designs and sells an optical mark-sense reader which uses a light source to read lottery, pari-mutuel betting and other gaming slips marked by consumers. Once the slips are read, a printer produces a lottery ticket or other gaming record. The Company also manufactures and sells document transport mechanisms required to deliver the finished printed output to the consumer in unattended applications, such as ATMs and kiosks. The Company also offers printer ribbons, paper and replacement parts for all its products. Customer Service. The Company provides customers with telephone sales and technical support, a personal account representative for orders, shipping and general information and expedited shipping for orders of its customizable and custom products. Technical and sales support personnel receive training in all the Company's products and services manufactured at their facility. The Company's printers generally carry a one-year limited warranty. Two-year warranties are available for purchase to supplement the original warranty. During the nine months ended December 31, 1995 the Company derived approximately 5.6% of its revenues from the sale of spare parts, approximately 3.0% from out-of-warranty services and extended maintenance agreements and approximately 1.1% from consumable supplies. The Company's costs to provide services and parts required under warranties have historically not been material. PRODUCT DEVELOPMENT In keeping with its strategy of enhancing and expanding its product lines, in 1995 the Company introduced the ITHACA 50Plus, a Series 50 impact printer with enhanced print speed, and commenced shipments in quantity of the GTECH on-line lottery printer, a custom engineered product. In June 1996, Transact commenced shipments of the Series 8000 printer for kiosks, its first laser printer for any application. In January 1996, the Company announced its new ITHACA Series 90 impact printer, which offers print speeds faster than competitors' similarly configured impact printers. Shipments in quantity are expected to commence in the fourth quarter of 1996. The Company also has under development a new ITHACA thermal printer, its first thermal printer for the POS market, which it expects to release in the first half of 1997. In May 1996, Transact entered into a strategic agreement with Okidata, regarding a variety of joint sales, marketing and other opportunities. In conjunction with this agreement, the Company may collaborate with Okidata or its affiliates to design, manufacture and sell new products to meet a variety of market needs. Building on its proven products and technology, Transact intends to continue to develop new products that fulfill its customers' requirements at competitive prices. MANUFACTURING Transact's integration of computer aided design ("CAD") and computerized material requirements planning systems with its flexible manufacturing techniques supports efficient manufacturing and enables the delivery of finished products on a short lead time basis. The Company believes that these systems and techniques allow it not only to respond promptly to customer requirements but also to manage manufacturing operations in more efficient manner. The Company also believes this capability provides a significant advantage over Transact's principal competitors, most of which require substantial order lead time. Transact utilizes CAD systems, designs its products on a modular basis that emphasizes the use of common parts in different models and organizes its manufacturing floors with a combination of assembly lines and manufacturing cells. In the cell manufacturing system, a small group of employees, organized around a 28 30 shared work area, assemble a complete product. Like assembly lines, these shared work areas are equipped with the tools and prepositioned components that may be needed to assemble a number of different products. The use of these cells enables the Company to switch from one product to another and to produce a large number of small orders efficiently using a small number of employees and floor space, compared to traditionally configured assembly lines. Employees at each of the Company's facilities are cross trained to assemble all products manufactured at their facility. The Company believes its utilization of CAD systems, manufacturing information systems, modularized product design, and standardized components and manufacturing processes provide an efficient combination of productivity and flexibility. SALES, MARKETING AND DISTRIBUTION Transact markets its products through a network of selected distributors, OEMs, VARs and systems integrators, as well as directly to end users. The Company's use of multiple sales channels allows it to reach customers of all sizes in each of its four vertical markets. The Company also utilizes a direct sales force comprised of eight employees located in Connecticut, New York, California, Georgia and the United Kingdom. Transact markets its custom products through a consultative sales process, in which its sales managers, engineers and designers collaborate with the technical staff of a customer or prospective customer to develop a printer which fulfills the customer's requirements. By contributing significantly to the product development process, Transact believes it also builds a competitive advantage into the customer relationship. Transact also believes that its customer service activities constitute an integral part of the sales and marketing functions. Personal account representatives provide information regarding orders and shipping status, and technical support personnel receive training regarding other manufacturers' products, so they can assist customers with technical issues encountered when installing the Company's products in combination with products of other manufacturers. The normal sales cycle for custom products ranges from 12 to 24 months. With few exceptions, non-recurring engineering costs and other costs directly attributable to the development of new custom products are reimbursed by the customer. The normal sales cycle for customizable products ranges from one to three months and, as these sales are made from existing product lines, requires no unusual capital commitment from the Company or customers. In conjunction with the strategic agreement between Transact and Okidata, Transact entered into a separate agreement that establishes Oki Europe as the exclusive distributor of Transact's POS and kiosk products in Europe, the Middle East and North Africa. Although no minimum purchases are required under the agreement, based on Oki Europe's existing distribution network and the stage of development of the transaction based printer market in these areas, the Company anticipates this arrangement will contribute materially to its sales without requiring the Company to expand its own international sales and marketing infrastructure. COMPETITION The market for transaction based printers is extremely competitive, and the Company expects such competition to intensify in the future. The Company competes with a number of companies, many of which have greater financial, technical and marketing resources than the Company. The Company believes its ability to compete successfully depends on a number of factors both within and outside its control, including durability, reliability, quality, design capability, product customization, price, customer support, success in developing new products, manufacturing expertise and capacity, supply of component parts and materials, strategic relationships with other suppliers, the timing of new product introductions by the Company and its competitors, general market and economic conditions and, in some cases, the uniqueness of its products. Two of the Company's competitors, Epson and Star together control approximately 50% to 60% of the United States market for POS printers, a market in which the Company's strategy calls for increased market share. Other principal competitors include Axiohm, Citizen and DH Technology. Certain competitors of the Company with lower costs, attributable to higher volume production and off-shore manufacturing locations, offer lower prices than the Company from time to time. See "Risk Factors -- Competition." 29 31 In the gaming and lottery, financial services and kiosk markets, no single supplier holds a dominant position. Certain of the Company's products sold for gaming and lottery, kiosk and financial service applications compete based upon the Company's ability to provide highly specialized products, custom engineering and continuous technical support. The Company's strategy for competing in its markets is to continue to develop new products and product line extensions, to increase its geographic market penetration and to take advantage of strategic relationships. Although the Company has historically maintained or increased sales with this strategy and believes that its products, operations and relationships provide a competitive foundation, there can be no assurance that the Company will compete successfully in the future. See "Management's Discussion and Analysis of the Results of Operations and Financial Condition -- Overview", " -- Results of Operations -- Engineering and Product Development" for each period discussed therein and "Business -- Business Strategy," " -- Product Development" and " -- Sales, Marketing and Distribution." PROPERTIES The Company leases approximately 36,000 square feet of manufacturing and office space in Ithaca, New York and approximately 44,000 square feet of manufacturing and office space in Wallingford, Connecticut, which includes the Company's corporate headquarters. The Company anticipates expanding the warehouse space in its Ithaca, New York facility. The Company believes its properties and equipment are in good operating condition and, with the expanded warehouse space, adequate for present needs. SOURCES AND AVAILABILITY OF MATERIALS The principal materials used in manufacturing are copper wire, magnetic metals, injection molded plastic parts, formed metal parts and electronic components. Although the Company could experience temporary disruption if certain suppliers ceased doing business with the Company, the Company's requirements generally are available from a number of sources. However, the Company is dependent upon Okidata for Oki Kits. The loss of the supply of Oki Kits would have a material adverse effect on the Company. Transact has a contract with Okidata to provide a sufficient quantity of Oki Kits until August 2000. Transact believes its relations with Okidata are good and has received no indication that the supply agreement will not be renewed beyond the expiration of the current contract. Transact cannot be certain, however, that the supply agreement will be renewed, or if renewed, that the terms will be as favorable as those under the current contract. See "Risk Factors -- Dependence on Certain Supplier." INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company owns several patents, one of which it considers material. That patent covers an automated paper cut-off device, which is a feature offered on certain of the Company's POS printers. The Company regards certain manufacturing processes and designs to be proprietary and attempts to protect them through employee and third-party nondisclosure agreements and similar means. It may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or otherwise obtain and use, to the Company's detriment, information that the Company regards as proprietary. Moreover, the laws of some foreign countries do not afford the same protection to the Company's proprietary rights as do United States laws. There can be no assurance that legal protections relied upon by the Company to protect its proprietary position will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. The Company currently holds United States trademarks on the names ITHACA, 50Plus and PcOS, and has applied for registration of TRANSACT, MAGNETEC and Made to Order. Built to Last. Although the Company regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products, the Company does not believe that its overall success is dependent upon legal protections afforded to its intellectual property rights. See "Risk Factors -- Intellectual Property and Proprietary Rights." 30 32 GOVERNMENT REGULATION AND INDUSTRY STANDARDS Certain of the Company's products must comply with regulations promulgated by the Federal Communications Commission in the United States and CE Mark in the European Union. In addition, the Company must satisfy industry standards set by the Underwriters Laboratory in the United States, the Canadian Standards Association and TUV Rheinland or VDE in Germany. The Company believes its products currently satisfy the applicable industry standards. The Company has not yet sought ISO 9000 certification, but may do so in the future. The Company's operations are also subject to certain federal, state and local requirements relating to environmental, waste management, health and safety regulations. The Company believes its business currently is operated in compliance with applicable government regulations. There can be no assurance that future regulations will not require the Company to modify its products or operations to meet revised requirements. Failure to comply with future regulations could result in a material adverse effect on the Company's results of operations. In connection with the Plan of Reorganization, Tridex has agreed to indemnify the Company from any liabilities, including certain environmental liabilities, which could arise in connection with a manufacturing facility owned by Tridex and formerly operated by the Company. One of the Company's key customers, GTECH, must comply with statutes and regulations regarding on-line lotteries in the United States and numerous foreign jurisdictions. Failure by GTECH to comply with such statutes or regulations could result in a loss of orders from GTECH and have a material adverse effect on the Company's results of operations. EMPLOYEES As of July 31, 1996, the Company employed 229 persons, of which 196 were full-time and 33 were temporary employees. Of the full-time employees, 19 were employed in sales and marketing functions, 160 were employed in engineering and manufacturing functions, and the remaining 17 employees performed general and administrative functions. None of the Company's employees are covered by collective bargaining agreements. The Company considers its relationship with its employees to be good. LITIGATION As of the date of this Prospectus, the Company is not a party to any litigation which, if adversely determined, could have a material adverse impact on the business, financial condition or results of operations of the Company. From time to time the Company may be involved in litigation in the ordinary course of business, but the Company does not believe that such matters represent a material risk to the business, financial condition or results of operations of the Company. 31 33 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Information with respect to the executive officers and directors of the Company, all of whom were elected or appointed to such positions in June 1996, is set forth below:
NAME AGE POSITION ---- --- -------- Thomas R. Schwarz(1)(2) 59 Chairman of the Board Bart C. Shuldman 39 Chief Executive Officer, President and Director Richard L. Cote 54 Executive Vice President, Chief Financial Officer, Treasurer, Secretary and Director Lucy H. Staley 45 Senior Vice President -- General Manager (Ithaca, New York facility) John Cygielnik 51 Senior Vice President -- General Manager (Wallingford, Connecticut facility) Michael S. Kumpf 46 Senior Vice President -- Engineering Graham Y. Tanaka(1)(2) 48 Director Charles A. Dill(1)(2) 57 Director - --------------- (1) Member of the Audit Committee (2) Member of the Compensation Committee
THOMAS R. SCHWARZ, Chairman of the Board, was Chairman of Grossman's Inc., a retailer of building materials, from 1990 to 1994. From 1980 to 1990, he was President, Chief Operating Officer and a director of Dunkin' Donuts Incorporated, a food service company. Mr. Schwarz has been a Director of Tridex since 1995. He is also a director of Lebhar-Friedman Publishing Company. BART C. SHULDMAN, Chief Executive Officer, President and Director, joined Magnetec as Vice President of Sales and Marketing in April 1994 and has served as President of Magnetec since August 1994 and President of the combined operations of Ithaca and Magnetec since December 1995. Prior to joining Magnetec, he held several management positions with Mars Electronics International, a division of Mars, Incorporated from 1989 to 1993. Most recently, he was Business Manager for the North American Amusement, Gaming and Lottery operations. From 1979 to 1989, he held manufacturing and sales management positions with General Electric Company. RICHARD L. COTE, Executive Vice President, Chief Financial Officer, Treasurer, Secretary and Director, has served as Senior Vice President and Chief Financial Officer of Tridex since September 1993. Mr. Cote joined Tridex as a Vice President in June 1993. From October 1991 to March 1993, he was a self-employed management consultant. From January 1991 to September 1991, he was Vice President and Corporate Controller of Wang Laboratories, Inc. From November 1989 to December 1990, he was Executive Vice President of Capital Resources Management, Inc. Previously, Mr. Cote held management positions with Emhart Corporation, Xerox Corporation and Price Waterhouse LLP. LUCY H. STALEY, Senior Vice President-General Manager (Ithaca, New York facility), has served as a Vice President of Ithaca since she joined the Company in 1984. From 1984 until 1990, when Tridex acquired Ithaca, Ms. Staley also served as Treasurer of Ithaca. From 1982 until 1984, Ms. Staley served as Vice President and Treasurer of Rome Cable Corporation, and from 1975 until 1982 was employed as a certified public accountant with KPMG Peat Marwick. JOHN CYGIELNIK, Senior Vice President-General Manager (Wallingford, Connecticut facility) joined Magnetec as Controller in 1992, and has served as Vice President of Finance of Magnetec since 1993. From 1976 until 1992, Mr. Cygielnik was employed by Data General Corporation, a computer hardware manufacturer, where he served in various positions, most recently as Controller for Manufacturing and Field Service Operations. 32 34 MICHAEL S. KUMPF, Senior Vice President-Engineering, has served as Vice President of Engineering of Ithaca since he joined the Company in 1991. From 1973 until 1991, Mr. Kumpf was employed by NCR Corporation, where his most recent position was Director of Engineering-Retail Systems Printer Division. GRAHAM Y. TANAKA, Director, has served as a Director of Tridex since 1988. Mr. Tanaka has been President of Tanaka Capital Management, Inc., an investment management firm, since 1986. From 1989 until 1996, Mr. Tanaka was a limited partner of McFarland Dewey & Co., a financial advisor to the Company and Tridex. CHARLES A. DILL, Director, is a General Partner of Gateway Associates, a venture capital firm. Mr. Dill has served as Chairman of Saleskit Software Inc. since 1995. From 1991 until 1995 Mr. Dill served as President, Chief Executive Officer and a Director of Bridge Information Systems, Inc. and from 1988 to 1990 he was President, Chief Operating Officer and a Director of AVX Corporation. Mr. Dill currently serves as a Director of Zoltek Companies, Inc. and Stifel Financial Corp. Prior to 1988, Mr. Dill was Senior Vice President and a member of the Office of the Chief Executive of Emerson Electric Company. THE BOARD OF DIRECTORS AND CERTAIN BOARD COMMITTEES The Certificate of Incorporation of the Company provides for the Board of Directors to be divided into three classes of directors serving staggered three year terms, with the initial terms of Messrs. Schwarz and Shuldman expiring in 1999, the initial terms of Messrs. Cote and Tanaka expiring in 1998 and the initial term of Mr. Dill expiring in 1997. See "Description of Capital Stock -- Anti-Takeover Effects of Certain Statutory and Charter Provisions -- Classified Board of Directors." The Board of Directors has established an Audit Committee to recommend the firm to be appointed as independent accountants to audit the Company's financial statements and to perform services related to the audit, review the scope and results of the audit with the independent accountants, review with management and the independent accountants the Company's year-end operating results, consider the adequacy of the Company's internal accounting and control procedures, review the non-audit services to be performed by the independent accountants and consider the effect of such performance on the accountants' independence. The Audit Committee consists of Messrs. Schwarz, Tanaka and Dill, with Mr. Dill as the Chairman. The Board of Directors has also established a Compensation Committee and a Nominating Committee. The Compensation Committee, which consists of Messrs. Schwarz, Tanaka and Dill, with Mr. Schwarz as the Chairman, will review and recommend the compensation arrangements for all directors and officers, approve such arrangements for other senior level employees and administer and take such other action as may be required in connection with certain compensation plans of the Company. The Nominating Committee, which consists of the full Board of Directors with Mr. Tanaka as the Chairman, will nominate persons for election to the Board of Directors. The Nominating Committee will consider nominees recommended by stockholders in accordance with the procedure described under "Description of Capital Stock -- Anti-Takeover Effects of Certain Statutory and Charter Provisions." COMPENSATION OF DIRECTORS The Company's policy for compensation of non-employee Directors provides that each outside director, in addition to participation in the Directors' Plan described below under "Stock Plans," of the Company will be entitled to receive (i) $750 for each Board of Directors' meeting attended ($250 for each telephonic meeting), (ii) $300 for each Board of Directors' committee meeting attended and (iii) $2,000 for each fiscal quarter served as Director as compensation for services rendered and expenses incurred. Chairmen of committees will receive $600 for each committee meeting. Directors occasionally may be asked to perform additional services for the Company for additional compensation. 33 35 COMPENSATION OF EXECUTIVE OFFICERS The following table summarizes the compensation paid or accrued by the Company to its Chief Executive Officer and each of its three most highly compensated executive officers who earned more than $75,000 ($100,000 if annualized) in salary and bonus in the nine months ended December 31, 1995 for services rendered in all capacities to the Company during that period. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------- ALL OTHER NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) --------------------------- --------- ------- --------------- Bart C. Shuldman........................ $107,768 $16,000 $5,651 Chief Executive Officer and President Richard L. Cote(3)...................... -- -- -- Executive Vice President and Chief Financial Officer Lucy H. Staley.......................... 78,862 7,857 4,858 Senior Vice President -- General Manager (Ithaca, New York facility) John Cygielnik.......................... 68,203 9,000 1,172 Senior Vice President -- General Manager (Wallingford, Connecticut facility) Michael S. Kumpf........................ 83,962 8,539 4,932 Senior Vice President -- Engineering - --------------- (1) Includes a portion of salary deferred under the Tridex 401(k) plan. (2) Includes aggregate value of Company matching contributions under the Tridex 401(k) plan and monthly automobile allowances of $400 for Mr. Shuldman, $350 for Ms. Staley and $350 for Mr. Kumpf in the nine months ended December 31, 1995. (3) Mr. Cote was not an employee of Transact during the nine months ended December 31, 1995.
The Company has entered into employment agreements with Messrs. Shuldman and Cote, providing for initial annual base salaries of $185,000 and $150,000, respectively. See "-- Employment and Severance Agreements." The Company expects the total amount of salary paid in 1996 to Ms. Staley, Mr. Cygielnik and Mr. Kumpf will equal approximately $119,000, $104,000 and $122,000, respectively. Executive Incentive Compensation Plan. Until the completion of the Distribution, employees of the Company will continue to participate in the Tridex incentive compensation plan. Upon completion of the Distribution, the Company intends to establish an Executive Incentive Compensation Plan for the purpose of providing certain incentives to officers and other key employees of the Company. Annual cash awards will be made to eligible employees as determined by the Compensation Committee, subject to the terms and conditions of the Plan. Awards will be equal to a percentage of base salary specified in the plan by reference to the level of achievement of objectives set in connection with the annual business planning process, up to a maximum of 35% of base salary. The 401(k) Plan. Until the completion of the Distribution, employees of the Company will participate in the Tridex 401(k) plan. Upon completion of the Distribution, the Company intends to establish the Transact Technologies Retirement Plan (the "401(k) Plan"), a defined contribution plan which is intended to qualify under Sections 401(a) and 501(a) of the Code. All employees of the Company and certain affiliates will be eligible to participate in the 401(k) Plan. 34 36 Under the 401(k) Plan, a participant may elect to save between 1% and 15% of eligible annual compensation on a pre-tax basis, subject to limitations contained in the Code. The Company will be obligated to make a matching contribution in an amount equal to 37.5% of the first 4% of a participant's compensation contribution to the 401(k) Plan. Eligible compensation is all compensation received by the participant not in excess of $9,500 in 1996. The Company may, at the discretion of the Board, contribute additional amounts to the 401(k) Plan for the benefit of participants. Amounts contributed to the 401(k) Plan by the participant and the Company will be invested as designated by the participant. A participant is always fully vested in his savings contributions, and earns a vested right to all Company contributions made on his behalf after six years of vesting services with the Company, or upon the occurrence of death, disability or retirement at age 65. A participant may not withdraw any portion of his vested account from the 401(k) Plan during employment. Stock Plan. The Stock Plan, which has been approved by Tridex, as the sole stockholder of the Company, and by the Board of Directors, provides for the grant of awards covering a maximum of 600,000 shares of Common Stock to officers and other key employees of the Company. Awards under the Stock Plan may be granted in the form of: (i)incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock Options"); (ii) options not intended to qualify as Incentive Stock Options ("Non-qualified Stock Options"); (iii) shares of Common Stock subject to specified restrictions ("Restricted Shares"); (iv) restricted units which entitle the holder thereof to receive one share of Common Stock (or equivalent cash payments) for each unit in increments during a restricted period ("Restricted Units"); (v) stock appreciation rights ("SARs") accompanying options or granted separately; or (vi) limited stock appreciation rights ("Limited SARs") accompanying options which are exercisable for cash upon a change of control. Except for Incentive Stock Options, there are no limitations on the aggregate number of shares of Common Stock which can be granted pursuant to such awards to any one individual. Shares reserved for issuance, but never issued, such as shares covered by expired or terminated options, generally will be available for subsequent awards. The Stock Plan will be administered by the Compensation Committee, which will have the authority subject to the terms of the Stock Plan to determine persons to whom awards may be granted. Generally, the terms and conditions of awards under the Stock Plan, include: (i) the number of shares of Common Stock covered by each award; (ii) the vesting schedule of options or the restricted period for Restricted Shares or Restricted Unit awards; (iii) the duration of an option, which, in the case of Incentive Stock Options, cannot exceed ten years (or five years if granted to a 10% or greater stockholder); (iv) the exercise price of options, which, in the case of Incentive Stock Options, cannot be less than the market price of Common Stock on the date of grant (or not less than 110% of such market price if granted to a 10% or greater stockholder); and (v) events which accelerate the exercisability of options or termination of restrictions, such as a change of control. All options, SARs and Limited SARs are nontransferable other than by will or the laws of descent and distribution. All restrictions on Restricted Shares or Restricted Units lapse upon the death or total disability of an employee. An option may be exercised by payment of the option price in cash (including money loaned by the Company to the optionee in compliance with applicable law and on such terms and conditions as the Compensation Committee may determine), or subject to the approval of the Compensation Committee, by payment in already owned shares of Common Stock or surrender of outstanding awards under the Stock Option Plan. The Compensation Committee, in its sole discretion, may determine that upon exercise of such option, no shares of Common Stock will be delivered and the employee will be entitled only to cash equal to the "appreciation value" (i.e., the aggregate fair market value of shares subject to the option less the aggregate exercise price of the option). Similarly, upon exercise of a SAR, the holder is entitled to receive cash, shares of Common Stock or a combination thereof in an amount equal to the appreciation value of shares covered by the SAR. The Board of Directors of Tridex has recommended, and the Compensation Committee has granted, incentive stock options for approximately 145,800 shares in the aggregate, under the Stock Plan to Mr. Shuldman, Mr. Cote, Ms. Staley, Mr. Cygielnik and Mr. Kumpf. The grant of these options is effective as 35 37 of the date hereof, the exercise price is the initial public offering price per share paid for shares in the Offering and rights under these options will vest in five equal annual installments commencing on the first anniversary of the Offering. These options are exercisable for 10 years and are subject to all of the terms and provisions of the Stock Plan. The Compensation Committee will grant restricted shares in the aggregate amount of approximately 39,600 shares to Mr. Shuldman, Mr. Cote, Ms. Staley, Mr. Cygielnik and Mr. Kumpf effective immediately after the completion of the Distribution. Directors' Stock Plan. The Directors' Plan, which has been approved by the Board of Directors and Tridex, as the sole stockholder of the Company, provides that each non-employee director (a "participant") who is director at the time of the Offering will be granted an initial non-qualified option to purchase 10,000 shares of Common Stock as of the date of the Offering. Any person who becomes a participant after the date of the Offering will be awarded non-qualified options to purchase 5,000 shares of Common Stock effective as of the date of their election. Beginning in 1997, annual grants of non-qualified options to purchase 2,500 shares will be made, as of the first Board of Directors meeting after the annual meeting of stockholders, to each participant other than a director who is first elected at such annual meeting or within six months prior to such meeting. In each case, the exercise price will be equal to the market price on the date of grant. Options shall have a ten year term and will vest over a five year period, unless automatically accelerated in the event of death, disability or a change in control. Options may be exercised in whole or in part with cash, Common Stock or both. A total of 60,000 shares of Common Stock will be reserved for issuance under the Director Plan. EMPLOYMENT AND SEVERANCE AGREEMENTS The Company and Mr. Shuldman have entered into an employment agreement which provides for an initial term of two years and an initial annual base salary of $185,000, subject to adjustment in the discretion of the Compensation Committee, plus an opportunity to earn cash bonus under the Company's Executive Incentive Compensation Plan. The employment agreement also provides for insurance and other benefits, continuation of salary and benefits in the event of termination, other than termination for cause, or following a change of control of the Company, and contains a non-competition provision. The Company and Mr. Cote have entered into an employment agreement which provides for an initial term of two years and an initial annual base salary of $150,000, subject to adjustment at the discretion of the Compensation Committee, plus an opportunity to earn cash bonus under the Executive Incentive Compensation Plan. The employment agreement also provides for insurance and other benefits, continuation of salary and benefits in the event of termination, other than termination for cause, or following a change of control of the Company, and contains a non-competition provision. The Company also will enter into severance agreements with Ms. Staley, Mr. Cygielnik, Mr. Kumpf and certain other employees. The severance agreements will provide for continuation of salary and certain benefits for a period of six months following a termination of employment other than for cause (as defined in the agreements) and, for the continuation of salary, the acceleration of vesting of all stock options and the continuation of certain benefits for one year following a change of control of the Company (as defined in the agreements). TRIDEX AS PRINCIPAL STOCKHOLDER As of the completion of the Offering, Tridex will own approximately 82.4% (approximately 80.3% if the Underwriters' over-allotment option is exercised in full) of the outstanding Common Stock. As described under "The Company -- Background of the Offering and the Distribution," Tridex intends to distribute its ownership interest in the Company to the stockholders of Tridex as soon as practicable after the completion of the Offering through the Distribution. See "Risk Factors -- Risk of Non-Completion of the Distribution Transaction." 36 38 SECURITY OWNERSHIP IN TRIDEX OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as to the beneficial ownership of the common stock of Tridex and the anticipated ownership of Common Stock of the Company for each person who beneficially owns more than five percent of the common stock of Tridex as of July 30, 1996, each Director and Executive Officer of Tridex or the Company and all Directors and Executive Officers of the Company or Tridex as separate groups. The amounts set forth in this table are based on ownership of common stock of Tridex as of July 30, 1996 and assume (i) the completion of the Offering, without the exercise of the Underwriters' over-allotment option, (ii) the completion of the Distribution, (iii) the acceleration by Tridex of the vesting of all unvested options and warrants exercisable for shares of Tridex common stock prior to the Distribution and (iv) all owners of securities exercisable for or convertible into shares of Tridex common stock will exercise or convert all such securities prior to the record date for the Distribution. The number of shares of Transact Common Stock issued to Tridex was calculated to permit the Distribution to be effected on the basis of no less than one Transact share for each Tridex share outstanding on the Distribution record date. The precise rate of the Distribution will depend upon the actual number of convertible and exercisable securities of Tridex which are converted or exercised prior to the record date for the Distribution. The amounts in this table do not include any options that may be granted pursuant to the Company's Stock Plan. For all Directors and Executive Officers of the Company, the address for each beneficial owner listed below is 7 Laser Lane, Wallingford, Connecticut 06492. For all other beneficial owners other than Jack Silver, the address is 61 Wilton Road, Westport, CT 06880.
TRIDEX COMMON STOCK COMPANY COMMON STOCK ------------------------------------ ------------------------------------ AMOUNT AND NATURE OF PERCENT OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNERSHIP(1) CLASS BENEFICIAL OWNERSHIP(2) CLASS ----------------------- ---------- ----------------------- ---------- TRIDEX EXECUTIVE OFFICERS AND DIRECTORS(3) Seth M. Lukash...................... 525,418(4) 12.7% 587,418 9.0% Dennis J. Lewis..................... 99,614(5) 2.4 121,514 1.9 George T. Crandall.................. 24,201(6) * 32,001 * Alvin Lukash........................ 116,603(7) 2.9 116,603 1.8 Paul J. Dunphy...................... 35,775(8) * 35,775 * Hugh Burnett........................ 7,000(9) * 22,500 * C. Alan Peyser...................... 1,650(10) * 1,650 * All Directors and Executive Officers of Tridex as a group (7 persons).......................... 713,958 17.4 811,158 12.4 TRANSACT EXECUTIVE OFFICERS AND DIRECTORS Bart C. Shuldman.................... 30,100(11) * 72,100 1.1 Richard L. Cote..................... 24,006(12) * 72,006 1.1 Lucy H. Staley...................... 18,775(13) * 27,175 * Michael S. Kumpf.................... 15,600(14) * 24,000 * John Cygielnik...................... 5,720(15) * 9,800 * Graham Y. Tanaka+................... 86,840(16) 2.0 86,840 1.3 Thomas R. Schwarz+.................. 1,650(17) * 1,650 * Charles A. Dill..................... 0 * 0 * All Directors and Executive Officers of Transact as a group (8 persons).......................... 182,691 4.5 293,571 4.5 OTHER BENEFICIAL OWNER Jack Silver......................... 249,707(18) 6.3 249,707 3.8 150 East 58th Street New York, NY 10155 - --------------- * Less than 1%. + Indicates a director of both the Company and Tridex. (1) Except as otherwise indicated, each of the persons named in the table has sole voting power and sole investment power with respect to the shares set forth opposite his or her name.
37 39 (2) Except as otherwise indicated, each of the persons named in the table has sole voting power and sole investment power with respect to the shares set forth opposite his or her name. The number of shares shown below include options subject to accelerated vesting prior to the Distribution. (3) After the completion of the Distribution, the individuals listed in this section of the table will be executive officers or directors of Tridex but not the Company. (4) Includes (i) 11,110 shares issuable upon the conversion of $100,000 principal amount of the Tridex 10.5% Senior Subordinated Convertible Debentures due December 31, 1997 (the "Debentures"), (ii) 1,000 shares issuable upon exercise of the detachable Warrant to Purchase Common Stock of Tridex (the "Private Placement Warrants"), issued in conjunction with the Debentures, (iii) 96,303 shares subject to an option granted to Seth M. Lukash by Alvin Lukash which expires on December 31, 1997, (iv) 18,000 shares subject to options currently exercisable under the Tridex 1989 Long Term Incentive Plan (the "1989 Plan") and (v) 16,500 shares issuable upon exercise of an option agreement dated March 30, 1994 between Mr. Lukash and Tridex, which may be purchased at a price of $7.25 per share prior to March 30, 2000. Does not include (i) 10,000 shares held of record by Ralph I. Fine as a trustee of The Seth M. Lukash Trust of February 5, 1987, an irrevocable trust for the benefit of the nieces and nephews of Seth M. Lukash, under which Mr. Lukash retains no voting or investment power, (ii) 62,000 shares subject to options not presently exercisable under the 1989 Plan or (iii) 8,500 shares subject to an option agreement dated March 30, 1994 between Mr. Lukash and Tridex, which may be purchased at a price of $7.25 per share prior to the fifth anniversary of the date of the option becoming exercisable on March 30, 1997. (5) Includes (i) 60,849 shares issuable upon conversion of $730,198 principal amount of Tridex 8% Subordinated Convertible Term Promissory Notes due 1997 (the "Notes"), (ii) 16,665 shares issuable upon conversion of $150,000 principal amount of Debentures, (iii) 1,500 shares issuable upon exercise of Private Placement Warrants and (iv) 19,600 shares subject to options currently exercisable under the 1989 Plan. Does not include 21,900 shares subject to options not presently exercisable under the 1989 Plan. (6) Includes 22,200 shares subject to options currently exercisable under the 1989 Plan. Does not include 7,800 shares subject to options not currently exercisable under the 1989 Plan. (7) Includes (i) 96,303 shares subject to an option granted to Seth M. Lukash by Alvin Lukash which expires on December 31, 1997, (ii) 15,350 shares held of record by his wife, Mildred Lukash and (iii) 4,950 shares issuable upon exercise of an option agreement dated March 30, 1994 between Mr. Lukash and Tridex, which may be purchased at a price of $7.25 per share prior to March 30, 2000. Does not include 2,550 shares subject to an option agreement dated March 30, 1994 between Mr. Lukash and Tridex, which may be purchased at a price of $7.25 per share prior to the fifth anniversary of the date of the option becoming exercisable on March 30, 1997. (8) Includes (i) 7,500 shares subject to a warrant agreement, dated April 16, 1992, between Mr. Dunphy and Tridex, which may be purchased at a price of $5.25 per share at any time prior to April 16, 1997, (ii) 7,500 shares subject to a warrant agreement, dated February 8, 1993, between Mr. Dunphy and Tridex, which may be purchased at a price of $9.25 per share at any time prior to February 8, 1998, (iii) 4,950 shares issuable upon exercise of an option agreement dated March 30, 1994 between Mr. Dunphy and Tridex, which may be purchased at a price of $7.25 per share prior to March 30, 2000 and (iv) 825 shares subject to an option agreement, dated September 19, 1995 between Mr. Dunphy and Tridex, which may be purchased at a price of $9.00 per share prior to September 19, 2001. Does not include (i) 2,550 shares subject to an option agreement dated March 30, 1994 between Mr. Dunphy and Tridex, which may be purchased at a price of $7.25 per share prior to the fifth anniversary of the date of the option becoming exercisable on March 30, 1997, or (ii) 1,675 shares subject to an option agreement dated September 19, 1995 between Mr. Dunphy and Tridex, which may be purchased at a price of $9.00 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 825 shares on September 19, 1997 and 850 shares on September 19, 1998 or (iii) 2,500 shares subject to a warrant agreement, dated May 30, 1996 between Mr. Dunphy and Tridex, which may be purchased at a price of $11.75 per share prior to the fifth anniversary of the date of the option becoming 38 40 exercisable, such exercisability to be 825 shares on May 30, 1997, 825 shares on May 30, 1998 and 850 shares on May 30, 1999. (9) Includes 7,000 shares subject to options currently exercisable under the 1989 Plan. Does not include 15,500 shares subject to options not presently exercisable under the 1989 Plan. (10) Includes 1,650 shares subject to an option agreement, dated September 19, 1995 between Mr. Peyser and Tridex, which may be purchased at a price of $9.00 per share prior to September 19, 2001. Does not include (i) 3,350 shares subject to an option agreement dated September 19, 1995 between Mr. Peyser and Tridex, which may be purchased at a price of $9.00 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 1,650 shares on September 19, 1997 and 1,700 shares on September 19, 1998 or (ii) 2,500 shares subject to a warrant agreement, dated May 30, 1996 between Mr. Peyser and Tridex, which may be purchased at a price of $11.75 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 825 shares on May 30, 1997, 825 shares on May 30, 1998 and 850 shares on May 30, 1999. (11) Includes 22,000 shares subject to options currently exercisable under the 1989 Plan. Does not include 42,000 shares subject to options not presently exercisable under the 1989 Plan. (12) Includes 22,000 shares subject to options currently exercisable under the 1989 Plan. Does not include 48,000 shares subject to options not currently exercisable under the 1989 Plan. (13) Includes 13,100 shares subject to options currently exercisable under the 1989 Plan. Does not include 8,400 shares subject to options not currently exercisable under the 1989 Plan. (14) Includes 9,600 shares subject to options currently exercisable under the 1989 Plan. Does not include 8,400 shares subject to options not currently exercisable under the 1989 Plan. (15) Includes 5,220 shares subject to options currently exercisable under the 1989 Plan. Does not include 4,080 shares subject to options not currently exercisable under the 1989 Plan. (16) Includes (i) 7,500 shares subject to a warrant agreement, dated February 8, 1993, between Mr. Tanaka and Tridex, which may be purchased at a price of $9.25 per share at any time prior to February 8, 1998, (ii) 16,665 shares issuable upon the conversion of $100,000 principal amount of the Debentures (iii) 1,000 shares issuable upon the exercise of Private Placement Warrants and (iv) 4,950 shares issuable upon exercise of an option agreement dated March 30, 1994 between Mr. Tanaka and Tridex, which may be purchased at a price of $7.25 per share prior to March 30, 2000 and (v) 825 shares subject to an option agreement, dated September 19, 1995 between Mr. Tanaka and Tridex, which may be purchased at a price of $9.00 per share prior to September 19, 2001. Does not include (i) 2,550 shares subject to an option agreement dated March 30, 1994 between Mr. Tanaka and Tridex, which may be purchased at a price of $7.25 per share prior to the fifth anniversary of the date of the option becoming exercisable on March 30, 1997 (ii) 1,675 shares subject to an option agreement dated September 19, 1995 between Mr. Tanaka and Tridex, which may be purchased at a price of $9.00 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 825 shares on September 19, 1997 and 850 shares on September 19, 1998 or (iii) 2,500 shares subject to a warrant agreement, dated May 30, 1996 between Mr. Tanaka and Tridex, which may be purchased at a price of $11.75 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 825 shares on May 30, 1997, 825 shares on May 30, 1998 and 850 shares on May 30, 1999. (17) Includes 1,650 shares subject to an option agreement, dated September 19, 1995 between Mr. Schwarz and Tridex, which may be purchased at a price of $9.00 per share prior to September 19, 2001. Does not include (i) 3,350 shares subject to an option agreement dated September 19, 1995 between Mr. Schwarz and Tridex, which may be purchased at a price of $9.00 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 1,650 shares on September 19, 1997 and 1,700 shares on September 19, 1998 or (ii) 2,500 shares subject to a warrant agreement, dated May 30, 1996 between Mr. Schwarz and Tridex, which may be purchased at a price of 39 41 $11.75 per share prior to the fifth anniversary of the date of the option becoming exercisable, such exercisability to be 825 shares on May 30, 1997, 825 shares on May 30, 1998 and 850 shares on May 30, 1999. (18) Based solely upon the Schedule 13D filed by Mr. Silver with the Securities and Exchange Commission on October 11, 1995, (a) Mr. Silver has sole voting power and sole dispositive power with respect to all 249,707 shares and (b) 147,707 of such shares are held of record by Mr. Silver directly, 82,000 are held of record by the Siar Money Purchase Pension Plan, and 20,000 are held of record by Shirley Silver, Mr. Silver's wife, as custodian for his children. 40 42 RELATIONSHIP BETWEEN THE COMPANY AND TRIDEX PLAN OF REORGANIZATION Tridex, the Company, Magnetec and Ithaca entered into a Plan of Reorganization which, among other things, provides for: (i) the merger of Ithaca into Magnetec; (ii) the transfer by the Company to Tridex of certain assets used in manufacturing a printer ribbon product line no later than December 31, 1996; (iii) the issuance by the Company of 5,400,000 shares of Common Stock to Tridex in exchange for all of the outstanding shares of capital stock of Magnetec; (iv) the Offering; (v) the payment by the Company of approximately $8.5 million of indebtedness to Tridex with a portion of the proceeds of this Offering; (vi) the execution by the Company and Tridex of the agreements described below under "Corporate Services Agreement," "Tax Sharing Agreement," "Printer Supply Agreement" and "Agreement Regarding Ribbon Business"; (vii) an undertaking by Tridex to apply for a ruling from the IRS that the Distribution after this Offering of all shares of capital stock of the Company held by Tridex to the stockholders of Tridex would be tax-free to such stockholders for federal income tax purposes; and (viii) an undertaking by Tridex to effect the Distribution upon the satisfaction of certain conditions precedent, including the successful completion of this Offering, the completion of the transaction described under "Agreement Regarding Ribbon Business" and the receipt of a favorable ruling from the IRS. If Tridex receives a favorable ruling from the IRS in time to do so, it intends to complete the Distribution as early as practicable in 1997. In the Plan of Reorganization, Tridex also agreed, for five years after the completion of the Distribution, not to compete with the Company in the design, manufacture or sale of transaction based printers for the POS, gaming and lottery, financial services and kiosk markets in any geographic market in which the Company is then doing business. The Plan of Reorganization may be amended only by the agreement of the Company and Tridex. CORPORATE SERVICES AGREEMENT As provided in the Plan of Reorganization, the Company and Tridex have entered into a Corporate Services Agreement (the "Services Agreement"), under which Tridex and its subsidiaries (other than the Company) will provide certain services, including certain employee benefit administration, human resource and related services, administrative services, risk management, regulatory compliance, preparation of tax returns, and certain financial and other services to the Company. The Services Agreement provides for a transition by the Company to independent corporate administrative and financial staffing. During the term of the Services Agreement, the Company intends to complete its own corporate staffing to the extent necessary, and does not anticipate extending the Services Agreement. Designated Tridex employees are to be made available for stated percentages of their working time to the Company through different dates, ending on December 31, 1997. During the term of the agreement, the Company will make available the services of Mr. Cote to Tridex for 15% of his working time through March 31, 1997. Under the Services Agreement, the Company will pay Tridex the direct cost to Tridex of providing services to the Company or, when the direct cost cannot be determined, an amount of Tridex's cost allocated in accordance with Tridex's historical method of allocation to its subsidiaries. Tridex will pay the Company 15% of the Company's direct employment costs for Mr. Cote through March 31, 1997. The amounts to be paid by the Company and Tridex to each other are intended as reimbursement for actual costs incurred and do not include any mark-up. The Company expects to pay Tridex approximately $134,000 during 1996 for the services of the designated Tridex employees and reimbursement for accounting, insurance and legal expenses and approximately $52,000 during 1997 for the services of the designated Tridex employees, net of Tridex's payments to the Company. Additional amounts may be paid by the Company to reimburse Tridex for specific services requested by the Company. Upon the mutual agreement of Tridex and the Company, services may continue to be provided after the dates provided in the Services Agreement. 41 43 TAX SHARING AGREEMENT The Tax Sharing Agreement between the Company and Tridex provides the terms under which the Company is to be included in Tridex's consolidated federal income tax return. Under current federal tax law, the Company will be included in the return so long as Tridex owns at least 80% of the total voting power of the Company's stock, which has a value equal to at least 80% of the total value of the stock of the Company. The Tax Sharing Agreement covers the period from the effective date of the Prospectus until the effective date of the Distribution or such time as the Company otherwise ceases to be eligible to be included in the consolidated return of Tridex. During this period, for financial accounting purposes, the Company will compute its income tax expense or benefit as if it filed separate returns using those elements of income and expense as reported in the Company's financial statements. If the Company incurs losses or realizes tax credits, Tridex will pay to the Company the amount of any tax reduction Tridex realizes by utilizing those losses or credits in its consolidated income tax return. In addition, at the time of utilization of any existing tax attributes, the Company will pay to Tridex the tax benefit the Company obtains by utilizing such tax attributes. Any tax deficiencies or refunds resulting from amending prior year tax returns or examinations by the taxing authorities will be the responsibility of or inure to the benefit of the Company to the extent they relate to the Company or its predecessor entities. PRINTER SUPPLY AGREEMENT The Printer Supply Agreement, which has an initial term expiring on December 31, 1999, provides for the Company to sell to Ultimate, which will remain a subsidiary of Tridex, and for Ultimate to purchase from the Company, POS printers at discounts from list prices comparable to discounts historically offered to Ultimate as a subsidiary under common ownership with the Company. In consideration for these favorable price terms, the Printer Supply Agreement requires Ultimate to purchase from the Company at least three quarters of its total POS printer requirements. The Company may, in its discretion, increase its list prices from time to time, and the prices offered to Ultimate will reflect the discount rate applied to such increased list prices. AGREEMENT REGARDING RIBBON BUSINESS Tridex and the Company have entered into an agreement regarding the transfer by the Company to Tridex of substantially all of the assets used in connection with a line of business involving the manufacture, marketing and sale of ribbons for use in certain printers manufactured by the Company (the "Ribbon Business"). Under the agreement, Tridex will become the owner of the Ribbon Business and will employ the manufacturing and supervisory personnel required to conduct such business, and the Company will provide Tridex with space within its Wallingford, Connecticut manufacturing facility and certain support services. The combined financial statements of the Company exclude the assets and liabilities of the Ribbon Business. In connection with the transfer of assets, which will take place no later than December 31, 1996, Tridex will cancel intercompany indebtedness of the Company to Tridex in an amount equal to the book value of the Ribbon Business on the date of the transfer. As a monthly fee for the space and support services provided to Tridex for the Ribbon Business, Tridex will pay the Company an amount equal to the direct and indirect costs incurred by the Company to provide the space and render such services, plus certain related costs. FINANCIAL ADVISORY SERVICES McFarland Dewey & Co., a New York investment banking firm ("McFarland Dewey"), acts as financial advisor to Tridex and the Company, and has provided financial advisory services to Tridex since 1989. These services include advice in connection with the Plan of Reorganization, the Distribution and the Offering. Pursuant to an agreement, the Company will pay McFarland Dewey a fee of $300,000, plus reimbursement of out-of-pocket expenses, for these services and the Company has agreed to indemnify McFarland Dewey against certain liabilities, including liabilities under the federal securities laws. Graham Y. Tanaka, a director of both the Company and Tridex, was a limited partner of McFarland Dewey from 1989 until 1996. 42 44 DESCRIPTION OF CAPITAL STOCK AUTHORIZED CAPITAL STOCK Transact's authorized capital stock consists of 25,000,000 shares, including 20,000,000 shares of Common Stock, of which approximately 5,400,000 are to be issued and outstanding and owned by Tridex prior to the completion of the Offering, and 5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), none of which have been issued. COMMON STOCK The holders of Common Stock are entitled to one vote for each share on all matters voted on by stockholders, including elections of directors, except as otherwise required by law or provided in any resolution adopted by the Board of Directors with respect to any other series or class of Common Stock or series of Preferred Stock, and the holders of such shares will exclusively possess all voting power. Subject to any preferential rights of any Preferred Stock designated by the Transact Board of Directors from time to time, the holders of Common Stock will be entitled to such dividends as may be declared from time to time thereon by the Board from funds available therefor. See "Dividend Policy." Upon a liquidation of the Company, holders of Common Stock will be entitled to receive pro rata all assets of the Company available for distribution to all holders of Common Stock. REPRESENTATIVE'S WARRANT For a description of the Representative's Warrant to be purchased by Cruttenden Roth Incorporated in connection with the Offering see "Underwriting." PREFERRED STOCK The Preferred Stock is issuable in one or more series, with such voting powers, designations, preferences and other special rights, and such qualifications, limitations or restrictions, as may be stated in the Certificate of Incorporation or in the resolutions adopted by the Board providing for the issue of such series and as permitted by the Delaware General Corporation Law. ANTI-TAKEOVER EFFECTS OF CERTAIN STATUTORY AND CHARTER PROVISIONS The Certificate of Incorporation (the "Certificate") of the Company contains several provisions that may make more difficult the acquisition of control of the Company by means of a tender offer, open market purchases, proxy fight or otherwise. The By-Laws also contain provisions that could have an anti-takeover effect. Section 203 of the Delaware Law. In the Certificate, the Company has expressly elected to be governed by Section 203 of the Delaware General Corporation Law (the "Delaware Law"). Section 203 of the Delaware Law prevents an "interested stockholder" (defined in Section 203 generally as a person owning 15% or more of a corporation's outstanding voting stock), from engaging in a "business combination" (as defined in Section 203) with a publicly-held Delaware corporation for three years following the date such person became an interested stockholder unless (i) before such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; (ii) upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote and not by written consent of the holders of two-thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. Classified Board of Directors. The Certificate provides for the Board of Directors of the Company to be divided into three classes of directors serving staggered three-year terms. The Company believes that a 43 45 classified board of directors will help to assure the continuity and stability of the Board of Directors and the Company's business strategies and policies. The classified board provision could have the effect of making the removal of incumbent directors more time-consuming and difficult, and, therefore discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. Advance Notice Provisions for Stockholder Nominations of Directors. The By-Laws establish an advance notice procedure with regard to the nomination, other than by or at the direction of the Board or a committee thereof, of candidates for election as directors (the "Nomination Procedure"). The Nomination Procedure requires that a stockholder give prior written notice, in proper form, of a planned nomination for the Board of Directors to the Secretary of the Company. The requirements as to the form and timing of that notice are specified in the By-Laws. If the election inspectors determine that a person was not nominated in accordance with the Nomination Procedure, such person will not be eligible for election as a director. Although the By-Laws do not give the Board of Directors any power to approve or disapprove stockholder nominations for the election of directors or of any other business desired by stockholders to be conducted at an annual or any other meeting, the By-Laws (i) may have the effect of precluding a nomination for the election of directors or precluding the conduct of business at a particular annual meeting if the proper procedures are not followed or (ii) may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its stockholders. Additional Common Stock. The Board of Directors is authorized to provide for the issuance of additional shares of Common Stock. The Company believes that the availability of the additional Common Stock will provide it with increased flexibility in structuring possible future financings and in meeting other corporate needs which might arise. DIRECTOR LIABILITY As authorized by the Delaware Law, the Certificate provides that no director of the Company will be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii)in respect of certain unlawful dividend payments or stock redemptions or repurchases and (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Certificate provides that if the Delaware Law is amended to authorize the further limitation or elimination of the liability of a director, then the liability of the directors shall be eliminated or limited to the fullest extent permitted by the Delaware Law, as so amended. TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company has been appointed as transfer agent and registrar for the Common Stock. 44 46 SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of the Offering, the Company will have 6,550,000 shares (6,722,500 shares if the Underwriters' over-allotment option is exercised in full) of Common Stock outstanding. After the Distribution, all of the 1,150,000 shares (1,322,500 shares if the Underwriter's over-allotment option is exercised in full) sold in the Offering and all of the shares distributed to stockholders of Tridex, will be freely transferable by persons other than "affiliates" of the Company, without restriction or further registration under the Securities Act. The Company, its directors, officers and Seth M. Lukash, the Chairman and Chief Executive Officer of Tridex, who will own approximately 9% of the outstanding Common Stock after the Distribution, have also agreed not to sell, contract or offer to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of the Representative. Options to purchase a total of up to 309,300 shares of Common Stock have been granted under the Stock Option Plan effective as of the date hereof and an additional 290,700 shares will be available for future stock option grants and other stock awards under the Stock Plan. In addition, options to purchase a total of 30,000 shares of Common Stock are outstanding under the Director Plan and an additional 30,000 shares will be available for future grants of options under such plan. See "Management -- Stock Option Plans." The Company intends to file registration statements under the Securities Act, as soon as practicable after the date hereof, covering the shares of Common Stock reserved for issuance under the Stock Option Plan and the Director's Plan. Shares of Common Stock issued upon the exercise of options granted under the 1996 Stock Plan and the Director's Plan, other than shares held by affiliates, will be immediately eligible for resale in the public market without restriction. No options granted under the Stock Option Plan or the Director's Plan will vest prior to the first anniversary date of this Prospectus. 45 47 UNDERWRITING The Underwriters named below, acting through Cruttenden Roth Incorporated (the "Representative") have agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock set forth opposite their respective names in the table below:
NUMBER UNDERWRITERS OF SHARES ------------ --------- Cruttenden Roth Incorporated.................................... --------- Total........................................................... =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent. The nature of the Underwriters' obligations is that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representative that the Underwriters propose initially to offer the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers (which may include Underwriters) at such public offering price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may reallow, a discount not to exceed $ per share in sales to certain other dealers. After the Offering to the public, the public offering price and concessions and discounts may be changed by the Representative of the Underwriters. The Company granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to an additional 172,500 shares of Common Stock, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the table above bears to the number of shares of Common Stock offered hereby, and the Company will be obligated pursuant to the option to sell such shares to the Underwriters. The Underwriters may exercise the option only for the purposes of covering over-allotments, if any, made in connection with the distribution of the shares of Common Stock to the public. The Company has agreed to pay the Representative at closing a non-accountable expense allowance of $240,000 (less any advances). The Representative's expenses in excess of the non-accountable expense allowance, including its legal expenses, will be borne by the Representative. The Representative has informed the Company that the Underwriters do not intend to confirm sales of shares of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company and Tridex have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The Company, Tridex, certain of the Company's directors and executive officers and Seth M. Lukash, who will own shares of Common Stock upon completion of the Distribution, have agreed not to sell, offer to sell, contract to sell or otherwise dispose of, or file a registration statement under the Securities Act with respect to, any of their shares of Common Stock or any other security convertible into or exchangeable for, or options or warrants to purchase or acquire, shares of Common Stock without the prior written consent of the 46 48 Representative for a period of 180 days after the date of this Prospectus. See "Shares Eligible for Future Sale." The Company has agreed to sell to the Representative, for nominal consideration, a warrant to purchase from the Company up to 115,000 shares of Common Stock at an exercise price per share equal to 120% of the Offering price (the "Representative's Warrant"). The Representative's Warrant is exercisable for a period of five years after the effective date of the Offering and beginning one year from the earlier of (i) the completion of the Distribution or (ii) the date on which Tridex owns less than 80% of the outstanding Common Stock. The Representative's Warrant is not transferrable for a period of one year except to officers of the Representative or to any successor to the Representative. The Representative's Warrant includes a net exercise provision permitting the holder(s) to pay the exercise price by cancellation of a number of shares with a fair market value equal to the exercise price of the Representative's Warrant. In addition, the Company has granted certain registration rights to the holders of the Representative's Warrant. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price was negotiated among the Company, Tridex and the Representative of the Underwriters. Among the factors considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, were the Company's historical performance, estimates of the business potential and earnings prospects of the Company, the capital structure of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuations of companies in related businesses. LEGAL MATTERS Certain legal matters in connection with the validity of the shares of Common Stock offered hereby will be passed upon for the Company by Messrs. Hinckley, Allen & Snyder, One Financial Center, Boston, Massachusetts 02111-2625. Heller, Ehrman, White & McAuliffe, Seattle, Washington, has acted as counsel to the Underwriters in connection with certain legal matters relating to the Offering. EXPERTS The financial statements as of December 31, 1995 and April 1, 1995 and for the nine months ended December 31, 1995 and for each of the two years in the period ended April 1, 1995 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION Prior to the Offering, the Company has not filed any reports pursuant to the Securities Exchange Act of 1934, as amended. The Company intends to furnish its stockholders with annual reports containing audited financial statements and an opinion thereon expressed by its independent public accountants and with quarterly reports containing unaudited summary financial information for each of the first three fiscal quarters of each year. This Prospectus constitutes a part of a Registration Statement on Form S-1 filed by the Company with the SEC under the Securities Act. This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the Offering. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. A copy of the Registration Statement may be inspected and copied at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York 10098 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports and other information concerning the Company can also be inspected at the offices of the Nasdaq National Market, 1735 K Street, NW, Washington, DC 20006. 47 49 TRANSACT TECHNOLOGIES INCORPORATED INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE NUMBER ------ Report of Independent Accountants................................................... F-1 TransAct Technologies Incorporated Combined Financial Statements: Combined balance sheets as of April 1, 1995, December 31, 1995, June 29, 1996 (unaudited), and pro forma combined balance sheet as of June 29, 1996 (unaudited).................................................................... F-2 Combined statements of income for fiscal years ended April 2, 1994 and April 1, 1995, the nine months ended December 31, 1994 (unaudited) and December 31, 1995, and the six months ended July 1, 1995 (unaudited) and June 29, 1996 (unaudited).................................................................... F-3 Combined statements of cash flows for fiscal years ended April 2, 1994 and April 1, 1995, the nine months ended December 31, 1994 (unaudited) and December 31, 1995, and the six months ended July 1, 1995 (unaudited) and June 29, 1996 (unaudited).................................................................... F-4 Notes to combined financial statements............................................ F-5
48 50 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of TransAct Technologies Incorporated In our opinion, the accompanying combined balance sheets and the related combined statements of income and of cash flows present fairly, in all material respects, the financial position of TransAct Technologies Incorporated, described in Note 1, at December 31, 1995 and April 1, 1995, and the results of their operations and their cash flows for the nine months ended December 31, 1995 and for each of the two years in the period ended April 1, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Hartford, Connecticut June 10, 1996 F-1 51 TRANSACT TECHNOLOGIES INCORPORATED COMBINED BALANCE SHEETS (in thousands)
PRO FORMA APRIL 1, DECEMBER 31, JUNE 29, JUNE 29, 1995 1995 1996 1996 ------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) ASSETS: Current assets: Receivables (Note 4)........................... $ 3,778 $ 3,246 $ 4,111 $ 4,111 Inventories (Note 5)........................... 5,697 6,353 6,709 6,709 Deferred tax assets (Note 9)................... 472 374 403 403 Other current assets........................... 80 134 466 466 ------- ------- ------- ------- Total current assets........................ 10,027 10,107 11,689 11,689 ------- ------- ------- ------- Plant and equipment: Machinery, furniture and equipment............. 7,291 7,169 8,263 8,263 Leasehold improvements......................... 81 428 254 254 ------- ------- ------- ------- 7,372 7,597 8,517 8,517 Less accumulated depreciation.................. 5,135 4,556 4,959 4,959 ------- ------- ------- ------- 2,237 3,041 3,558 3,558 ------- ------- ------- ------- Excess of cost over fair value of net assets acquired, net (Note 2)......................... 2,548 2,418 2,332 2,332 Other assets (Note 2)............................ 546 403 62 62 ------- ------- ------- ------- $15,358 $15,969 $17,641 $17,641 ======= ======= ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY: Current liabilities: Intercompany indebtedness (Note 2)............. $ -- $ -- $ -- $ 8,500 Accounts payable............................... 2,676 2,711 2,937 2,937 Accrued liabilities (Note 6)................... 1,050 1,115 1,624 1,624 ------- ------- ------- ------- Total current liabilities................... 3,726 3,826 4,561 13,061 ------- ------- ------- ------- Deferred revenue................................. 175 252 233 233 Deferred tax liabilities (Note 9)................ 177 189 189 189 ------- ------- ------- ------- 352 441 422 422 ------- ------- ------- ------- Commitments and contingencies (Note 8) Stockholder's equity: Unrealized gain on securities available for sale, net of taxes.......................... -- 57 -- -- Tridex investment in the Company (Notes 3 and 7).......................................... 11,280 11,645 12,658 4,158 ------- ------- ------- ------- Total stockholder's equity.................. 11,280 11,702 12,658 4,158 ------- ------- ------- ------- $15,358 $15,969 $17,641 $17,641 ======= ======= ======= =======
The accompanying notes are an integral part of these combined financial statements. F-2 52 TRANSACT TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF INCOME (in thousands)
YEAR ENDED NINE MONTHS ENDED SIX MONTHS ENDED --------------------- ----------------------------- -------------------- APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JULY 1, JUNE 29, 1994 1995 1994 1995 1995 1996 -------- -------- ------------ ------------ ------- -------- (UNAUDITED) (UNAUDITED) Net sales................ $23,798 $33,362 $25,426 $25,497 $16,184 $20,225 Cost of sales............ 15,585 22,349 17,035 17,529 10,710 13,418 ------- ------- ------- ------- ------- ------- Gross profit............. 8,213 11,013 8,391 7,968 5,474 6,807 ------- ------- ------- ------- ------- ------- Operating expenses: Engineering, design and product development costs............... 1,687 1,708 1,244 1,533 911 1,306 Selling, general and administrative expenses............ 4,803 5,600 4,117 4,556 2,971 2,961 Provision for restructuring (Note 12)........... -- -- -- 300 -- -- ------- ------- ------- ------- ------- ------- 6,490 7,308 5,361 6,389 3,882 4,267 ------- ------- ------- ------- ------- ------- Operating income......... 1,723 3,705 3,030 1,579 1,592 2,540 Other income (expense), net (Note 12).......... 176 127 108 (15) 18 281 ------- ------- ------- ------- ------- ------- Income before income taxes.................. 1,899 3,832 3,138 1,564 1,610 2,821 Income tax provision (Note 9)............... 806 1,528 1,255 648 657 1,088 ------- ------- ------- ------- ------- ------- Net income............... $ 1,093 $ 2,304 $ 1,883 $ 916 $ 953 $ 1,733 ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these combined financial statements. F-3 53 TRANSACT TECHNOLOGIES INCORPORATED COMBINED STATEMENTS OF CASH FLOWS (in thousands)
YEAR ENDED NINE MONTHS ENDED SIX MONTHS ENDED ------------------- --------------------------- -------------------- APRIL 2, APRIL 1, DECEMBER 31, DECEMBER 31, JULY 1, JUNE 29, 1994 1995 1994 1995 1995 1996 -------- -------- ------------ ------------ -------- --------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income...................... $ 1,093 $ 2,304 $ 1,883 $ 916 $ 953 $1,733 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............... 842 914 686 729 477 550 Deferred income taxes........ 231 86 -- 82 86 -- Gain on sale of securities available for sale......... -- -- -- -- -- (285) Gain on sale of solenoid product line (Note 12)..... (175) (115) (115) -- -- -- (Gain) loss on disposal of equipment.................. -- 4 8 5 (4) 7 Changes in operating assets and liabilities: Receivables................ (535) 66 (154) 532 (1,112) (865) Inventories................ 830 (1,013) (16) (656) (1,176) (356) Other current assets....... (44) 8 (1) (54) (39) (332) Other assets............... (15) (165) (56) 150 (95) (2) Accounts payable........... (94) 324 409 35 (345) 226 Accrued liabilities and deferred revenue........ (702) 500 315 142 280 490 ------- ------- ------- ------- ------- ------ Net cash provided by (used in) operating activities............ 1,431 2,913 2,959 1,881 (975) 1,166 ------- ------- ------- ------- ------- ------ Cash flows from investing activities: Purchases of plant and equipment.................... (598) (1,203) (956) (1,334) (749) (961) Proceeds from sale of securities available for sale........... -- -- -- -- -- 508 Proceeds from sale of solenoid product line (Note 12)....... 600 115 115 -- -- -- Proceeds from sale of equipment.................... -- 8 13 4 -- 7 Other........................... 147 30 -- -- 30 -- ------- ------- ------- ------- ------- ------ Net cash provided by (used in) investing activities... 149 (1,050) (828) (1,330) (719) (446) ------- ------- ------- ------- ------- ------ Cash flows from financing activities: Net transactions with Tridex.... (1,580) (1,863) (2,131) (551) 1,694 (720) ------- ------- ------- ------- ------- ------ Net change in cash and cash equivalents..................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======= ======= ======= ======= ======= ======
The accompanying notes are an integral part of these combined financial statements. F-4 54 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (dollars in thousands) 1. BASIS OF PRESENTATION: Transact Technologies Incorporated is expected to be incorporated in June 1996, as a wholly-owned subsidiary of Tridex Corporation ("Tridex"). Transact and its wholly-owned subsidiaries are herein referred to as the "Company." Following the incorporation, Tridex and two of Tridex's wholly-owned subsidiaries, Magnetec Corporation ("Magnetec") and Ithaca Peripherals Incorporated ("Ithaca") will enter into a Plan of Reorganization whereby: (i) Ithaca will merge into Magnetec; (ii) the Company will transfer certain assets of Magnetec used in manufacturing a printer ribbon product line to Tridex; (iii) the Company will issue 5,400,000 shares of Common Stock to Tridex in exchange for all the outstanding shares of Magnetec; (iv) the Company will approve a public offering of up to 1,322,500 shares or 19.7% of Common Stock and the subsequent pro rata distribution of the remaining outstanding equity of the Company to the stockholders of Tridex in a tax-free reorganization; (v) the Company will repay approximately $8,500,000 of intercompany indebtedness to Tridex; (vi) the Company will agree to other matters pursuant to such plan; and (vii) the Company will apply for a ruling that a distribution of Company shares to Tridex stockholders will constitute a tax-free reorganization for federal income tax purposes. The financial statements of the Company have been prepared principally on the basis of items (i) and (ii) of the Plan of Reorganization outlined above and include the financial position and combined results of operations and cash flows of the business described. The Company carries its assets and liabilities at historical cost. The financial results in these financial statements are not necessarily indicative of results that would have occurred if the Company had been a separate stand alone entity during the periods presented or of future results of the Company. See Unaudited Pro Forma Financial Data found elsewhere in this Prospectus for a discussion of the effect on the Company had it been a separate stand alone entity. 2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Business: The Company operates in one industry segment, computer peripheral equipment. The Company designs, develops, manufactures and markets transaction based printers and related products under the ITHACA and MAGNETEC brand names. Transact's printers are used to provide printed transaction records such as receipts, tickets, coupons, register journals and other documents for OEM and POS applications. Operating facilities are located in Wallingford, Connecticut and Ithaca, New York. Principles of combination: The accompanying combined financial statements include the accounts of the Company and its wholly-owned subsidiaries, after elimination of all material intercompany accounts and transactions. Change in fiscal year end: In December 1995, the Company's fiscal year end was changed to December 31 from the Saturday closest to March 31. Cash and cash equivalents: The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. See Note 3. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign currency: The financial position and results of operations of the Company's foreign subsidiary are measured using local currency as the functional currency. Assets and liabilities of this subsidiary have been translated at end of period exchange rates, and related revenues and expenses have been translated at weighted average exchange rates. The aggregate effect of translation adjustments so calculated, which would ordinarily F-5 55 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (dollars in thousands) be included as a separate component of stockholders' equity, is de minimis. Transaction gains and losses are included in other income. Inventories: Inventories are stated at the lower of cost (principally first-in, first-out) or market. Plant and equipment and depreciation: Plant and equipment and leasehold improvements are stated at cost. Depreciation is provided for primarily by the straight-line method over the estimated useful lives. The estimated useful life of machinery, furniture and equipment is five to ten years. Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset. Depreciation amounted to $611, $650 and $521 in fiscal years 1994 and 1995, and the nine months ended December 31, 1995, respectively, and $430 in the six months ended June 29, 1996 (unaudited). Excess of cost over fair value of net assets acquired: The excess of cost over fair value of net assets acquired (goodwill) resulted from the acquisition of Ithaca in fiscal 1991. The original amount applicable to this acquisition totaled $3,536 and is being amortized on the straight-line method over 20 years. Accumulated amortization of goodwill was $988 and $1,118 at April 1, 1995 and December 31, 1995, respectively, and $1,204 at June 29, 1996 (unaudited). The Company periodically reviews goodwill to assess recoverability based upon expectations of non-discounted cash flows from operations for Ithaca. The Company believes that no impairment of goodwill exists at December 31, 1995 or April 1, 1995. Other assets: At December 31, 1995, other current assets includes marketable securities available for sale, accounted for at market value of $309, with an unrealized gain of $86, net of related tax effect of $29, recorded as a component of stockholder's equity. The market value of such securities approximated carrying value at April 1, 1995. Revenue recognition: Sales are recognized when the product is shipped. Two customers accounted for approximately 26% of net combined sales for fiscal 1994. One of these customers accounted for approximately 14% of net combined sales in fiscal 1995, while a different customer accounted for approximately 12% of net combined sales in the nine months ended December 31, 1995. Revenue from extended warranty and maintenance agreements is recognized over the term of such agreements as services are performed. Income taxes: The Company is included in the consolidated federal and certain state income tax returns of Tridex. Effective April 4, 1993, Tridex adopted FAS 109 "Accounting for Income Taxes," which mandates the liability method for computing deferred income taxes. The income tax amounts reflected in the accompanying financial statements are an allocation of Tridex's consolidated balances, and are computed as if a separate return had been filed for the Company, using those elements of income and expense as reported in the consolidated statements of operations. See Note 9 for a further discussion. Earnings per share: Historical earnings per share are not presented since the Company's stock was not part of the capital structure of Tridex for the periods presented. Interim financial statements: The interim financial statements included herein are unaudited. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such financial statements have been included. The interim results of operations are not necessarily indicative of the results to be expected for the full year. Unaudited pro forma balance sheet: The unaudited pro forma balance sheet information at June 29, 1996 reflects a reduction in Tridex investment in the Company for amounts paid to Tridex for intercompany indebtedness. The unaudited pro forma balance sheet information does not give effect to the receipt by the Company of any proceeds from the sale of common stock in the Offering or to any other transactions expected to take place at the time of the Offering. Accordingly, the unaudited pro forma balance sheet information is not indicative of the Company's financial position upon completion of the Offering. F-6 56 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (dollars in thousands) 3. RELATED PARTY TRANSACTIONS: The Company participates in the centralized cash management system used by Tridex to finance its domestic operations. Cash deposits from the Company are transferred to Tridex on a daily basis and Tridex funds the Company's disbursement bank accounts as required. Therefore, no cash or cash equivalents are reflected in the Company's financial statements. Included as a component of Tridex investment in the Company are net cash advances from Tridex to the Company and general and administrative expenses allocated from Tridex to the Company. Accordingly, no interest expense on net advances from Tridex has been reflected in the accompanying financial statements. Tridex provided certain general and administrative services to the Company, including tax, treasury, risk management and insurance, legal, marketing, accounting, auditing, human resources and executive management. These expenses have been allocated to the Company based upon actual usage for those expenses directly attributable to the Company, and otherwise allocated based upon other methods which management believes to be reasonable. These allocations were $1,192, $1,159 and $1,203 for fiscal years 1994 and 1995 and the nine months ended December 31, 1995, respectively, and $667 for the six months ended June 29, 1996 (unaudited). These costs may have been different had the Company operated as a separate stand alone entity during the periods presented. On July 31, 1996, the Company entered into a Corporate Services Agreement with Tridex. See Note 14 for a description of this agreement. The Company sells certain POS printers to another wholly-owned subsidiary of Tridex. Revenues from the sale of such printers to this entity amounted to $2,601, $2,639 and $2,340 for fiscal years 1994 and 1995 and the nine months ended December 31, 1995, respectively, and $1,367 for the six months ended June 29, 1996 (unaudited). In consideration for continued favorable price terms, the Company expects to enter into a Printer Supply Agreement which will require the subsidiary to continue to purchase from the Company at least three quarters of its total POS printer requirements through December 31, 1999. The Company's employees participate in the Tridex Corporation Retirement Savings Plan (the "Plan"), a defined contribution plan under Section 401(k) of the Internal Revenue Code. All full-time employees are eligible to participate in the Plan at the beginning of the calendar quarter immediately following their date of hire. The Company matches employees' contributions at a rate of 37.5% of employees' contributions up to the first 4% of the employee's compensation contributed to the Plan. The Company's matching contributions were $28 in fiscal 1994, $60 in fiscal 1995, $51 in the nine months ended December 31, 1995 and $40 in the six months ended June 29, 1996 (unaudited) and are included in general and administrative expense. 4. RECEIVABLES: Receivables are net of the allowance for doubtful accounts. The reconciliation of the allowance for doubtful accounts is as follows:
NINE MONTHS SIX MONTHS YEAR ENDED ENDED ENDED --------------------- ------------ ------------ APRIL 2, APRIL 1, DECEMBER 31, JUNE 29, 1994 1995 1995 1996 -------- -------- ------------ ------------ (UNAUDITED) Balance at beginning of period................ $ 44 $102 $ 76 $40 Provision for doubtful accounts............. 72 48 12 37 Accounts written off, net of recoveries..... (14) (74) (48) 4 ---- ---- ---- --- Balance at end of period...................... $102 $ 76 $ 40 $81 ==== ==== ==== ===
F-7 57 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (dollars in thousands) 5. INVENTORIES: The components of inventories are:
APRIL 1, DECEMBER 31, JUNE 29, 1995 1995 1996 -------- ------------ ----------- (UNAUDITED) Raw materials and component parts......................... $4,744 $5,041 $5,177 Work-in-process........................................... 606 794 585 Finished goods............................................ 347 518 947 ------ ------ ------ $5,697 $6,353 $6,709 ====== ====== ======
6. ACCRUED LIABILITIES: The components of accrued liabilities are:
APRIL 1, DECEMBER 31, JUNE 29, 1995 1995 1996 -------- ------------ ----------- (UNAUDITED) Payroll and fringe benefits............................... $ 664 $ 457 $ 466 Accrued initial public offering costs..................... -- -- 402 Other accrued liabilities................................. 386 658 756 ------ ------ ------ $1,050 $1,115 $1,624 ====== ====== ======
7. TRIDEX INVESTMENT IN THE COMPANY: Tridex investment in the Company includes the original investment in the Company and the net intercompany payable from the Company to Tridex reflecting transactions described in Note 3. The following analyzes Tridex's investment in the Company for the periods presented:
NINE MONTHS SIX MONTHS YEAR ENDED ENDED ENDED --------------------- ------------ ------------- APRIL 2, APRIL 1, DECEMBER 31, JUNE 29, 1994 1995 1995 1996 -------- -------- ------------ ------------- (UNAUDITED) Balance at beginning of the period........... $11,326 $10,839 $11,280 $11,645 Net income................................. 1,093 2,304 916 1,733 Net transactions with Tridex: Allocation of general and administrative expenses from Tridex.................. (1,192) (1,159) (1,203) (667) Sales to affiliates..................... 2,601 2,639 2,340 1,367 Net transfers to Tridex................. (2,989) (3,343) (1,688) (1,420) ------- ------- ------- ------- (1,580) (1,863) (551) (720) ------- ------- ------- ------- Balance at end of the period................. $10,839 $11,280 $11,645 $12,658 ======= ======= ======= =======
8. COMMITMENTS AND CONTINGENCIES: At December 31, 1995, the Company was lessee on operating leases for equipment and real property. The terms of certain leases provide for escalating rent payments in later years of the lease as well as payment of minimum rent and real estate taxes. Rent expense amounted to approximately $533 in fiscal 1994, $616 in fiscal 1995, $532 in the nine months ended December 31, 1995 and $336 in the six months ended June 29, F-8 58 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (dollars in thousands) 1996 (unaudited). Minimum aggregate rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 1995 are as follows: $605 in 1996; $599 in 1997; $584 in 1998; $582 in 1999; $589 in 2000 and $1,820 thereafter. The Company has a long-term purchase agreement for certain printer components. Under the terms of the agreement, the Company receives favorable pricing for volume purchases over the life of the contract. In the event anticipated purchase levels are not achieved, the Company would be subject to retroactive price increases on previous purchases. Management currently anticipates achieving sufficient purchase levels to maintain the favorable prices. In conjunction with the Plan of Reorganization, as described in Note 1, Tridex plans to agree to indemnify the Company from any liabilities, including certain environmental liabilities, which could arise in connection with a manufacturing facility owned by Tridex and formerly operated by the Company. 9. INCOME TAXES: The components of the income tax provision are as follows:
NINE MONTHS YEAR ENDED ENDED --------------------- ------------ APRIL 2, APRIL 1, DECEMBER 31, 1994 1995 1995 -------- -------- ------------ Current: Federal............................. $483 $1,212 $476 State............................... 92 230 90 ---- ------ ---- 575 1,442 566 ---- ------ ---- Deferred: Federal............................. 206 77 73 State............................... 25 9 9 ---- ------ ---- 231 86 82 ---- ------ ---- Total income tax provision............ $806 $1,528 $648 ==== ====== ====
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company's gross deferred tax assets and liabilities were comprised of the following:
APRIL 1, DECEMBER 31, 1995 1995 -------- ------------ Gross deferred tax assets: Currently non-deductible liabilities and reserves.................................. $541 $469 ==== ==== Gross deferred tax liabilities: Depreciation................................. $246 $284 ==== ====
At December 31, 1995, the Company had foreign net operating loss carryforwards of approximately $100 which do not expire. A full valuation allowance has been recorded with respect to the foreign net operating loss carryforwards, as management believes that it is more likely than not that such net operating loss carryforwards will not be realized. F-9 59 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (dollars in thousands) Differences between the U.S. statutory federal income tax rate and the Company's effective income tax rate are analyzed below:
NINE MONTHS YEAR ENDED ENDED --------------------- ------------ APRIL 2, APRIL 1, DECEMBER 31, 1994 1995 1995 -------- -------- ------------ Federal statutory tax rate.................... 34.0% 34.0% 34.0% State income taxes, net of federal income taxes.................................... 4.4 4.2 4.4 Non-deductible purchase accounting adjustments.............................. 3.3 1.6 2.8 Other....................................... 0.7 0.1 0.2 ---- ---- ---- Effective tax rate............................ 42.4% 39.9% 41.4% ==== ==== ====
10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of trade accounts receivable, other current assets, trade accounts payable, and accrued expenses approximate fair value because of the short maturity of those instruments. The carrying value of marketable securities available for sale is equal to fair value, as discussed in Note 2. 11. NEW ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board (the "FASB") issued Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121) in March 1995. FAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The entity must estimate the future cash flows expected to result from the use of the asset and its eventual disposition, and recognize an impairment loss for any difference between the fair value of the asset and the carrying amount of the asset. FAS 121 must be adopted for the year beginning after December 15, 1995. The effect, if any, on the Company's financial position or results of operations from adoption of FAS 121 is not expected to be material. The FASB issued Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation," in October 1995 effective for years beginning after December 15, 1995. Under provisions of this accounting standard, the Company is not required to change its method of accounting for stock-based compensation. Management expects to retain its current method of accounting. 12. SIGNIFICANT TRANSACTIONS: In December 1995, the operations of Magnetec and Ithaca were combined under unified management. In connection with this combination, the Company recorded a provision for restructuring costs of $300, which covers the costs associated with combining operations under unified management and is primarily comprised of severance costs. In fiscal 1994, the Company sold its solenoid product line. Proceeds from the sale were cash and shares of common stock of the purchaser ("marketable securities"). In the same period, the Company recognized a gain of $175 on the sale of the product line. During fiscal 1995, the Company recognized an additional gain of $115 as the result of a contingent payment received from the purchaser. In addition, during the six months ended June 29, 1996, the Company sold the remainder of the marketable securities and recognized a gain of $285. These gains are included in other income in the applicable period. F-10 60 TRANSACT TECHNOLOGIES INCORPORATED NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (dollars in thousands) 13. INTERNATIONAL OPERATIONS: The Company has foreign operations primarily from Ithaca Peripherals Ltd., a wholly-owned subsidiary, which had sales of $355, $332 and $163 in fiscal 1995, in the nine months ended December 31, 1995 and in the six months ended June 29, 1996 (unaudited), respectively. The Company had export sales from its United States operations of approximately $3,342 in fiscal 1995, $1,543 in the nine months ended December 31, 1995, and $1,061 in the six months ended June 29, 1996 (unaudited). Such sales were primarily to Canada and were not material in prior years. 14. SUBSEQUENT EVENTS (UNAUDITED): On June 26, 1996, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission to effect an initial public offering of up to 1,322,500 shares of the Company's stock. Also, on June 24, 1996, the Company entered into a Plan of Reorganization which provides for the following: Incorporation of the Company. TransAct Technologies Incorporated was incorporated on June 17, 1996. The Company has authorized 25,000,000 shares of capital stock, including 20,000,000 shares of $.01 par Common Stock and 5,000,000 shares of $.01 par preferred stock. Concurrently, the Company issued 5,400,000 shares to Tridex in exchange for all the outstanding shares of Magnetec. Merger. On July 29, 1996, Ithaca merged with and into Magnetec. Corporate Services Agreement. On July 31, 1996, the Company entered into a Corporate Services Agreement with Tridex. Under the terms of this agreement, Tridex agrees to provide the Company with certain services, including certain employee benefit administration, human resource and related services, administrative services, risk management, regulatory compliance, preparation of tax returns and certain financial and other services. Such services will be provided and reimbursed at actual cost. Certain services will no longer be provided after March 31, 1997. The agreement expires December 31, 1997. Tax Sharing Agreement. On July 31, 1996, the Company entered into a Tax Sharing Agreement with Tridex. The agreement provides for the treatment of certain tax attributes of the Company including, the method of allocating tax obligations, treatment of tax carryforwards and the computation of income tax provisions for the Company between the date of the Offering and the Distribution. Stock Plans. The Company has adopted a Stock Plan as of July 30, 1996 which provides for the grant of awards to officers and other key employees of the Company. The Company has also adopted a Directors' Stock Plan which provides for non-discretionary awards to non-employee directors. The plans provide for awards in the form of (i) incentive stock options, (ii) non-qualified stock options, (iii) shares of restricted stock, (iv) restricted units, (v) stock appreciation rights or (vi) limited stock appreciation rights. Options granted are at prices equal to 100% of the fair market value of the Common Stock at the date of grant. Options shall have a ten-year term and will vest over a five-year period, unless automatically accelerated. The Company has reserved 600,000 shares of Common Stock for issuance under the Stock Plan and 60,000 shares of Common Stock for issuance under the Directors' Plan. The Company has granted, effective upon the Offering, options to purchase 309,300 shares of Common Stock under the Stock Plan, options to purchase 30,000 shares of Common Stock under the Directors' Plan and, effective immediately after the Distribution, 44,800 restricted shares of Common Stock under the Stock Plan. F-11 61 =============================================================================== NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE THEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO SO DO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary.................... 3 Risk Factors.......................... 6 The Company........................... 12 Use of Proceeds....................... 13 Dividend Policy....................... 13 Dilution.............................. 14 Capitalization........................ 15 Selected Financial Data............... 16 Unaudited Pro Forma Financial Data.... 17 Management's Discussion and Analysis of the Results of Operations and Financial Condition................. 20 Business.............................. 24 Management............................ 32 Tridex as Principal Stockholder....... 36 Relationship Between the Company and Tridex.............................. 41 Description of Capital Stock.......... 43 Shares Eligible for Future Sale....... 45 Underwriting.......................... 46 Legal Matters......................... 47 Experts............................... 47 Available Information................. 47 Index to Combined Financial Statement........................... 48
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. =============================================================================== =============================================================================== 1,150,000 SHARES TRANSACT T E C H N O L O G I E S I N C O R P O R A T E D COMMON STOCK ------------------ PROSPECTUS ------------------ CRUTTENDEN ROTH INCORPORATED , 1996 ================================================================================ 62 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the issuance and distribution of the securities being registered. All the amounts shown are estimated, except the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee. Securities and Exchange Commission Registration Fee.............. $ 5,020 NASD Filing Fee.................................................. 1,955 Nasdaq National Market Listing Fee............................... 34,000 Blue Sky Fees and Expenses (includes fees and expenses of counsel)....................................................... 10,000 Representative's Non-accountable Expense Allowance............... 240,000 Transfer Agent and Registrar Fees................................ 10,000 Financial Advisory Fee........................................... 300,000 Accounting Fees and Expenses..................................... 195,000 Legal Fees and Expenses.......................................... 150,000 Printing, Engraving and Delivery Expenses........................ 80,000 Miscellaneous.................................................... 14,025 ---------- Total.......................................................... $1,040,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The Company issued 100 shares of Common Stock to Tridex on June 25, 1996 in connection with the organization of the Company in reliance on Section 4(2) of the Securities Act. On July 29, 1996, after the merger of Ithaca into Magnetec, the Company issued 5,399,900 shares of Common Stock to Tridex in exchange for all of the outstanding Common Stock of Ithaca. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. a. Exhibits. Each of the exhibits listed below, other than those indicated as being filed herewith, was filed with the initial filing of the Registration Statement on June 26, 1996.
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 1.1 Form of Underwriting Agreement by and among Tridex, the Company and Cruttenden Roth Incorporated. 1.2 Form of Warrant Agreement by and between the Company and Cruttenden Roth Incorporated. 3.1 Certificate of Incorporation of the Company, filed with the Secretary of the State of Delaware on June 17, 1996. 3.2 By-laws of the Company.
II-1 63
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 4.1 Specimen Common Stock Certificate (filed herewith). 4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of Incorporation and By-laws of the Company defining the rights of the holders of Common Stock. 5.1 Opinion of Hinckley, Allen & Snyder, counsel to the Company, dated July 31, 1996, regarding the legality of the Common Stock (filed herewith). 10.2 Plan of Reorganization by and among Tridex, the Company, Magnetec and Ithaca, dated as of June 24, 1996. 10.3 Form of Corporate Services Agreement by and between Tridex and the Company. 10.4 Form of Tax Sharing Agreement by and between Tridex and the Company. 10.5 Printer Supply Agreement, dated July 30, 1996, by and between the Company and Ultimate (filed herewith). 10.6 Agreement and Plan of Merger of Ithaca Peripherals Incorporated with and into Magnetec Corporation, dated July 16, 1996, filed with the Secretaries of the States of Delaware and Connecticut (filed herewith). 10.7 Form of 1996 Stock Plan. 10.8 Form of Non-Employee Directors' Stock Plan. 10.9 Sales and Marketing Agreement by and between the Company and Oki Europe Limited, dated May 9, 1996. (Pursuant to Rule 477 under the Securities Act, the Company has requested confidential treatment of portions of this exhibit deleted from the copy filed herewith.) 10.10 OEM Manufacturing Agreement by and between GTECH and Magnetec, commencing September 7, 1994. (Pursuant to Rule 477 under the Securities Act, the Company has requested confidential treatment of portions of this exhibit deleted from the copy filed herewith.) 10.11 OEM Purchase Agreement by and between OKIDATA and Tridex, dated January 24, 1990. (Pursuant to Rule 477 under the Securities Act, the Company has requested confidential treatment of portions of this exhibit deleted from the copy filed herewith.) 10.12 Strategic Agreement by and between OKIDATA and Tridex, dated May 9, 1996. (Pursuant to Rule 477 under the Securities Act, the Company has requested confidential treatment of portions of this exhibit deleted from the copy filed herewith.) 10.13 Lease Agreement by and between Pyramid Construction Company and Magnetec, dated August 1, 1994. 10.14 Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, 1992. 10.15 First Amendment to Lease Agreement by and between Bomax Properties and Ithaca, dated as of October 18, 1993. 10.16 Amended and Restated Credit Agreement, dated as of December 15, 1995, by and among Tridex, Ithaca, Magnetec, Ultimate, Cash Bases Incorporated, and Fleet Bank, National Association. 10.17 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of March 15, 1996, by and among Tridex, Ithaca, Magnetec, Ultimate, Cash Bases Incorporated, and Fleet Bank, National Association. 10.18 Asset Transfer Agreement, dated July 31, 1996, between Tridex and the Company regarding the Ribbon Business (filed herewith). 10.19 Form of Manufacturing Support Service Agreement between Tridex and the Company regarding the Ribbon Business.
II-2 64
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.20 Employment Agreement, dated July 31, 1996, by and between the Company and Bart C. Shuldman (filed herewith). 10.21 Employment Agreement, dated July 31, 1996, by and between the Company and Richard L. Cote (filed herewith). 10.22 Form of Severance Agreements by and between the Company and each of Lucy H. Staley, John Cygielnik and Michael S. Kumpf (filed herewith). 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Accountant (filed herewith). 23.2 Consent of Hinckley, Allen & Snyder (included in the opinion filed as Exhibit 5.1). 24.1 Powers of Attorney (contained on page II-4). 27.1 Financial Data Schedule (filed herewith).
b. Financial Statement Schedules. All schedules have been omitted because the information is not required or is not applicable, or because the information required is included in the consolidated financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona find offering thereof. II-3 65 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the Town of Wallingford, State of Connecticut, on August , 1996. Transact Technologies Incorporated By: /s/BART C. SHULDMAN ------------------------------- Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Bart C. Shuldman President, Chief Executive August , 1996 - ------------------------------------------ Officer, and Director (Principal Bart C. Shuldman Executive Officer) /s/ Richard L. Cote Executive Vice President, Chief August , 1996 - ------------------------------------------ Financial Officer and Director Richard L. Cote (Principal Financial Officer and) Principal Accounting Officer * Chairman of the Board August , 1996 - ------------------------------------------ Thomas R. Schwarz * Director August , 1996 - ------------------------------------------ Graham Y. Tanaka * Director August , 1996 - ------------------------------------------ Charles A. Dill *By: /s/ Bart C. Shuldman - ------------------------------------------ Bart C. Shuldman Attorney-in-Fact
II-4 EX-4.1 2 SPECIMEN COMMON STOCK CERTIFICATE 1 TRANSACT TECHNOLOGIES INCORPORATED The Corporation shall furnish, without charge, to each shareholder who requests, a full statement of the powers, designations, preferences, limitations and relative rights of the shares of each class of stock or series thereof and the variations in the relative rights and preferences between the shares of each series, and the qualifications, limitations, or restrictions, of such preferences or such rights and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM- as tenants in common UNIF GIFT MIN ACT-_____Custodian _____ TEN ENT as tenants by the entireties (Cust) (Minor) JT TEN as joint tenants with under Uniform Gifts to Minors right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ___________, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER OF ASSIGNEE ============================================================================== ============================================================================== PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE ============================================================================== ============================================================================== ============================================================================== Shares of the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint _________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation, with full power of substitution in the premises. DATED,_____________ X ------------------------------------------------------ X ------------------------------------------------------ NOTICE: THE SIGNATURES TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 2 SIGNATURE GUARANTEED: IMPORTANT: SIGNATURE(S) MUST BE GUARNATEED BY A FIRM WHICH IS A MEMBER OF A MEDALLION GUARANTEE PROGRAM. MCSHERRY:TC035097.85761 #59874 EX-5.1 3 OPINION OF HINCKLEY, ALLEN & SNYDER 1 EXHIBIT 5.1 ----------- July 30, 1996 TransAct Technologies Incorporated 7 Laser Lane Wallingford, CT 06492 Re: Registration Statement on Form S-1 Registration No. 333-06895 -------------------------- You have asked us to render this opinion in connection with the captioned Registration Statement (the "Registration Statement"), originally filed by TransAct Technologies Incorporated, a Delaware corporation (the "Company") on June 26, 1996 with the Securities and Exchange Commission under the Securities Act of 1933, as amended, covering up to 1,322,500 shares (the "Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of the Company. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Registration Statement. In connection with this opinion, we have examined the Company's Certificate of Incorporation, the By-Laws of the Company, the Registration Statement, including the exhibits thereto, corporate proceedings of the Company relating to the issuance of the Shares, and such other documents as we have deemed relevant under the circumstances. In addition, we have examined and relied upon such other certificates, documents and materials and have made such other inquiries of fact or law as we have deemed necessary or appropriate in connection with this opinion. In making the aforesaid examination, we have assumed the genuineness of all signatures and the conformity to original documents of all copies furnished to us as original or photostatic copies. We have also assumed that the corporate records furnished to us by the Company include all corporate proceedings regarding the issuance of the Shares taken by the Company to date. For purposes of this opinion we have made such examination of General Corporation Law of the State of Delaware as we have deemed relevant, and have not made any independent review of the laws of any other state. Accordingly, this opinion is limited to the General Corporation Law of the State of Delaware. Based upon and subject to the foregoing, we are of the opinion that the Shares have been duly authorized and, when issued and delivered by the Company against payment therefor 2 TransAct Technologies Incorporated July 30, 1996 Page 2 pursuant to the terms and conditions of the Underwriting Agreement filed as an exhibit to the Registration Statement, will be duly and validly issued, fully paid and non-assessable shares of Common Stock of the Company. We hereby consent to the use of this opinion as an exhibit to the Registration Statement. This opinion is rendered to you in connection with the offering and, except as consented to in the preceding sentence, may not be relied upon or furnished to any other person in any context. Very truly yours, HINCKLEY, ALLEN & SNYDER EX-10.5 4 PRINTER SUPPLY AGREEMENT 1 EXHIBIT 10.5 ------------ PRINTER SUPPLY AGREEMENT ------------------------ THIS MANUFACTURE AND SUPPLY AGREEMENT (the "Agreement") is made by and between Ithaca Peripherals ("Ithaca"), a division of Magnetec Corporation, a Connecticut corporation and a wholly owned subsidiary of TransAct Technologies Incorporated, a Delaware corporation ("TransAct"), and Ultimate Technology Incorporated, a New York corporation ("Ultimate"). WHEREAS, Ithaca manufactures POS printers and Ultimate wishes to purchase POS printers from Ithaca, and Ithaca wishes to provide the POS printers to Ultimate, all on the terms and conditions set forth in this Agreement; and NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Manufacture and Supply of Product. --------------------------------- During the term of this Agreement, Ithaca will manufacture and sell to Ultimate and Ultimate will purchase from Ithaca, subject to the terms and conditions contained herein, no less than __ of Ultimate's total requirements for POS printers, calculated on a unit basis (the "Required Percentage"). The POS printers will be manufactured and supplied to Ultimate pursuant to written purchase orders submitted by Ultimate to Ithaca from time to time which, promptly upon receipt, will be acknowledged and accepted or rejected by Ithaca pursuant to article 4.2 of this Agreement. 2. List Price Discount; Verification of Minimum Percentage. ------------------------------------------------------- 2.1 In consideration for Ultimate's purchase of the Required Percentage, Ithaca shall sell POS printers to Ultimate at prices equal to the discount from Ithaca's published list prices as set forth on EXHIBIT 2.1 attached hereto. Ithaca will sell to Ultimate options, accessories and supplies at Ithaca's published maximum discounts and will sell spare parts at a 20% discount from Ithaca's list prices for spare parts, subject to adjustment by mutual agreement on a case by case basis. Ithaca retains the right to increase its list prices from time to time in its sole discretion, but agrees that during the term of this Agreement no other distributor of Ithaca products whose volume of POS printer purchases is greater than 1,000 units per year will receive discounts greater than the discounts provided to Ultimate. 2 2.2 Ultimate shall provide to Ithaca, no more than thirty (30) days after the end of a quarter, a quarterly report of all POS printers purchased by Ultimate from all sources in the quarter just ended. In order to confirm that Ultimate is fulfilling its obligations under this Agreement, Ithaca and its representatives shall have the right, upon reasonable notice and during normal business hours, to have access to Ultimate's purchasing and related records and to otherwise conduct a reasonable audit of Ultimate's purchases of POS printers. The cost of any such audit shall be paid by Ithaca unless an audit reveals that Ultimate is not purchasing the Minimum Percentage, in which case Ultimate shall reimburse Ithaca for the full cost of such audit. 3. Effective Date and Term. ----------------------- The term of this Agreement shall commence as of the effective date of the Registration Statement on Form S-1 of TransAct Technologies Incorporated (Registration No. 333-06895) and ending on December 31, 1999. 4. Estimates; Ordering; Shipment. ----------------------------- 4.1 Beginning on September 28, 1996 and thereafter on or before the last day of every accounting month, Ultimate shall provide Ithaca with a written estimate in the form attached hereto as EXHIBIT 4.1. 4.2 Purchase orders for POS printers shall reference this Agreement and be submitted by Ultimate on its regular purchase order forms. Purchase orders will be deemed accepted by Ithaca unless rejected in writing by Ithaca specifying the reasons for rejection within fourteen (14) calender days after receipt of the purchase order. Purchase orders may be rejected by Ithaca if a purchase order (i) does not comply with the terms and conditions of this Agreement, or (ii) proposes new or additional terms that are not acceptable to Ithaca or requires modifications to the POS printers which Ithaca, in its sole discretion, is unwilling to make. The delivery date, quantity, payment terms and other terms and conditions of sale set forth in any such purchase order shall, to the extent not inconsistent with this Agreement, govern. 4.3 Unless otherwise agreed, purchase orders shall specify a delivery date with the normal lead time of forty-five (45) days. If no lead time is specified, the POS Printers will be delivered within forty-five (45) days of Ithaca's receipt of the purchase order. 2 3 4.4 Expedited delivery will be available for an additional charge to be agreed to by Ithaca and Ultimate on a case by case basis. 4.5 Title to the equipment shall pass to Ultimate only upon Ithaca's receipt of payment of the full purchase price. Ithaca warrants title to be clear, free and unencumbered. Ithaca reserves, and Ultimate hereby grants to Ithaca, a purchase money security interest in each unit of the equipment in the amount of its purchase price, and such security interest shall be satisfied by payment in full of the purchase price. Ithaca may file a financing statement with any appropriate state or local authorities in order to perfect Ithaca's security interest. Ultimate hereby appoints Ithaca as its agent and attorney in fact with full power to sign in Ultimate's name any financing statements. No authorization is given to resell any unit of equipment or sublicense any program unless the price, charge or fee shall have been paid to Ithaca, or unless Ultimate has protected Ithaca's security interest by the appropriate filings otherwise. 4.6 In the event Ultimate (a) cancels any order or portion thereof, (b) fails to meet any obligation hereunder, causing cancellation or rescheduling of any order or portion thereof, or (c) requests a rescheduling of scheduled orders and such request is accepted by Ithaca, Ultimate agrees to pay to Ithaca cancellation or rescheduling charges based on a percentage of the current price to Ultimate of the cancelled or rescheduled POS printers. Such changes are as follows: Cancellation or Reschedule Reschedule Cancellation - -------------------------- ---------- ------------ Notice Received Charge Charge --------------- ------ ------ 61-90 days prior to 5% 10% or $200 whichever scheduled delivery month is greater 31-60 days prior to 10% 15% or $200 whichever scheduled delivery month is greater 30 days or less prior to 15% Non-cancelable scheduled delivery month During scheduled delivery Non-reschedulable Non-cancelable month The third request for rescheduling an order constitutes an automatic cancellation of that order. Ultimate may not cancel or reschedule any order or portion thereof after delivery. 3 4 5. Payment. ------- Ithaca may issue invoices no earlier than the shipping date of the POS printers. Payment will be made within thirty (30) calender days of the date of shipment. 6. POS printers Warranty. --------------------- Ithaca shall provide warranties on the POS printers as set forth in its warranty policy, as in effect from time to time. A copy of Ithaca's current warranty policy is attached as SCHEDULE 6 hereto. Ithaca reserves the right to revise its warranty policy from time to time, and shall promptly provide any revisions to Ultimate. 7. CORPORATE AUTHORIZATION. Ithaca and Ultimate each represent to the other that: (a) it has the right to enter into this Agreement; (b) all necessary actions, corporate and otherwise, have been taken to authorize the execution and delivery of this Agreement and the same is a valid and binding obligation of such party; (c) all licenses, consents and approvals necessary to carry out all of the transactions contemplated in this Agreement have been obtained by such party; and (d) such party's performance of this Agreement will not violate the terms of any license, contract, note or other obligation to which such party is a party. 8. Changes, Amendments and Waivers. ------------------------------- This Agreement may not be amended or modified, nor any of its terms waived, except by a written instrument duly executed by the parties hereto. When used herein, the term "Agreement" will include any amendments or modifications made in accordance herewith. A waiver by either party of a breach of any provision of this Agreement by the other party, or any right hereunder, will not operate to waive or excuse any subsequent breach or waive any other right. 9. No Assignment. ------------- This Agreement may not be assigned or transferred by either Party hereunder without prior written consent of the non-assigning party. 4 5 10. Notice. ------ Any notice or other communication required or permitted hereunder will be in writing and will be given (i) by delivery in person, (ii) by certified mail, return receipt requested, (iii) by commercial overnight courier, or (iv) by facsimile transmission (telecopy) (with telephone confirmation of receipt), as follows: (a) If to Ithaca, to: Ithaca Peripherals, a division of Magnetec Corporation 20 Bomax Drive Ithaca, NY 14850 Attention: Lucy H. Staley, Senior Vice President Telecopy number: (607) 257-8922 Telephone number: (607) 257-8901 (b) If to Ultimate, to: Ultimate Technology Corporation 6280 Route 96 East Victor, NY 14564 Attention: Dennis Lewis, President Facsimile number: (716) 924-1434 Telephone number: (716) 924-9500 Any such notice or other communication will be deemed to have been given (i) on the date of delivery in person, (ii) on the fifth day after mailing by certified mail, provided that receipt of delivery is confirmed in writing, (iii) on the first Business Day following delivery to a commercial overnight courier, or (iv) on the day of facsimile transmission (telecopy) provided that telephone confirmation of receipt is obtained. 11. Governing Law. ------------- This Agreement will be governed by the laws of the State of Connecticut without reference to its conflict of laws rules. 12. Arbitration; Venue and Jurisdiction. ----------------------------------- Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof will be settled by arbitration in accordance with the Rules of the American Arbitration Association. The 5 6 number of arbitrators will be one. The place of arbitration will be Hartford, Connecticut, or at such other place as the parties may mutually agree in writing. The award or determination made by the arbitrators will be final and binding upon the parties and judgment thereon may be entered in any court of competent jurisdiction. The parties consent to and accept the jurisdiction of such courts and waive any objection (including any objection to venue or any objection based upon the grounds of forum non convenience) which might be asserted to the entering of the judgment in such courts. 13. Termination. ----------- 13.1 This Agreement and the obligations of the parties hereunder will terminate upon the expiration of the term set forth in SECTION 3 or earlier, at the option of the party which is affected adversely by any of the following and upon the occurrence thereof: (a) If either party fails to observe or perform or breaches any material term or obligation contained herein and fails to cure the non-observance or non-performance or breach within fifteen (15) days after being given notice by the other party of the existence thereof or, as to failures which cannot reasonably be cured within fifteen (15) days, fails within fifteen (15) days to begin the curing thereof and thereafter diligently prosecutes the same to completion within thirty (30) days after being given the notice. Without limiting the generality of the foregoing, Ultimate hereby acknowledges and confirms that its obligation to purchase the Minimum Percentage of its POS printer requirements from Ithaca is a material obligation of this Agreement. (b) The dissolution, insolvency (in the sense of being unable to pay debts as they mature), making of an assignment for the benefit of creditors, the filing of an involuntary petition under the United States Bankruptcy Code or the bankruptcy laws of any other country which is not dismissed within sixty (60) days, or the appointment of a receiver (or similar official) of the assets of, by or against either party. 13.2 Either party's termination of this Agreement pursuant to SECTION 13 hereof will be without prejudice to its legal remedies for non-observance, non-performance or breach of this Agreement. 14. Sole Understanding. ------------------ This Agreement is the entire agreement and understanding of the parties related to the subject matter hereof 6 7 and supersedes all other prior agreements, understandings and communications, whether oral or written. 15. Headings. -------- The headings of the sections and subsections of this Agreement have been added for convenience only and will not be deemed to be a part of this Agreement. 16. Counterparts. ------------ This Agreement may be executed in any number of counterparts, but all counterparts hereof will together constitute but one agreement. In proving this Agreement, it will not be necessary to produce or account for more than one counterpart signed by both of the parties. THIS AGREEMENT has been executed by the duly authorized representative of each of the parties hereto this _____ day of July, 1996. ITHACA PERIPHERALS, a division of MAGNETEC CORPORTION By:_______________________________ Print Name:____________________ Title:_________________________ ULTIMATE TECHNOLOGY CORPORATION By:______________________________ Print Name:___________________ Title:________________________ 7 EX-10.6 5 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 10.6 ------------ AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER is made and entered into as of the ___ day of July, 1996, by and between Magnetec Corporation, a Connecticut corporation (hereinafter called "Magnetec"), and Ithaca Peripherals Incorporated, a Delaware corporation (hereinafter called "Ithaca"), pursuant to Section 33-371 of the Connecticut General Statutes and Section 252 of the General Corporation Law of Delaware. WHEREAS, the authorized capital stock of Ithaca consists of 4,000,000 shares of common stock, par value $.10 per share, of which 100 shares were issued and outstanding as of July 8, 1996 and owned of record by Tridex Corporation, a Connecticut corporation ("Tridex") on such date, and 2,000,000 shares of preferred stock, par value $1.50 per share, of which none were issued and outstanding as of July 8, 1996; WHEREAS, the authorized capital stock of Magnetec consists of 5,000 shares of common stock, no par value per share, of which 1,000 shares were issued and outstanding as of July 8, 1996 and owned of record by Tridex; WHEREAS, the respective Boards of Directors and shareholders of Magnetec and Ithaca have deemed it advisable and to the advantage of the two corporations that Ithaca merge into Magnetec upon the terms and conditions herein provided; WHEREAS, Magnetec and Ithaca intend that the merger contemplated hereby qualify as a tax-free reorganization within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended; and WHEREAS, the Boards of Directors and shareholders of Magnetec and Ithaca approved this Agreement and Plan of Merger on July __, 1996. NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, Magnetec and Ithaca hereby agree to merge in accordance with the following plan: 1. MERGER. Ithaca shall be merged with and into Magnetec and Magnetec shall survive the merger. As required under Section 33-371 of the Connecticut General Statutes and Section 252 of the Delaware General Corporation Law (a) an appropriate Certificate of Merger shall be signed, verified and delivered for filing with the Secretary of the State of Connecticut, and (b) an appropriate 2 Certificate of Merger and Secretary's Certificate shall be signed, verified and delivered for filing with the Secretary of the State of Delaware. 2. EFFECTIVE TIME. The Agreement and Plan of Merger shall become effective for purposes of Delaware and Connecticut law, respectively, at the date and time of the completion of the filing of the Certificate of Merger in such states (hereinafter referred to as the "Effective Time"). 3. DIRECTORS AND OFFICERS AND GOVERNING DOCUMENTS. (a) The directors and officers of Magnetec shall be the same upon the Effective Time as they are for Magnetec immediately prior thereto. (b) The by-laws of Magnetec, as in effect at the Effective Time, are the same as those of the surviving corporation. (c) The Agreement and Plan of Merger effects no change in the Certificate of Incorporation of the surviving corporation, Magnetec, and said Certificate of Incorporation shall continue in full force and effect as the Certificate of Incorporation of the corporation surviving the merger. (d) The Certificate of Incorporation of Magnetec was filed with the Secretary of the State of Connecticut on September 7, 1973. 3. RIGHTS AND LIABILITIES OF MAGNETEC. At and after the Effective Time, Magnetec shall possess all the rights, privileges, immunities and franchises, as well as of a public and private nature of each of the merging corporations; and property, real, personal and mixed, and all debts due Ithaca on whatever account, and all other choses in action, and all and every other interest of, or belonging to or due to each of the corporations so merged, shall be taken and transferred to and vested in Magnetec without further act or deed; and the title to any real estate, or any interest therein, vested in either of such corporations shall not prevent or be in any way impaired by reason of the merger. 4. FURTHER ASSURANCES. From time to time, as and when required by Magnetec, there shall be executed and delivered on behalf of Ithaca such deeds and other instruments, and there shall be taken or caused to be taken by it all such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in Magnetec the 2 3 title to and possession of all property, interest, assets, rights, privileges, immunities, powers, franchises and authority of Ithaca, and otherwise carry out the purposes of this Agreement and Plan of Merger, and the officers and directors of Magnetec are fully authorized in the name and on behalf of Ithaca or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. 5. STOCK OF MAGNETEC AND ITHACA. No shares of Magnetec shall be issued as a result of the merger. The 100 shares of common stock of Ithaca issued and outstanding immediately prior to the Effective Time owned by Magnetec shall automatically be cancelled without any conversion thereof into any other security or right to receive any form of compensation and no payment shall be made with respect thereto. 6. APPOINTMENT OF AGENT. Magnetec hereby consents to service of process in the State of Delaware in any action or special proceeding for the enforcement of any liability or obligation of Ithaca and for the enforcement of the right of holders of Common Stock of Ithaca to receive payment for the shares owned by such holders, and hereby irrevocably appoints the Secretary of State of Delaware as its agent to accept service of process in any action or special proceeding for the enforcement of any such liability or obligation. The address to which a copy of such process shall be mailed by the Secretary of State to Ithaca is: c/o Magnetec Corporation, 7 Laser Lane, Wallingford, CT 06492 Attention: Corporate Secretary. 7. AMENDMENT. At any time prior to the Effective Time this Agreement and Plan of Merger may be amended in any manner as may be determined in the judgment of the respective Boards of Directors of Magnetec and Ithaca, to be necessary, desirable or expedient. 13. ABANDONMENT. At any time before the Effective Time, this Agreement and Plan of Merger may be terminated and the merger may be abandoned by the Board of Directors and shareholders of either Magnetec or Ithaca or both. 14. COUNTERPARTS. In order to facilitate the filing and recording of this Agreement and Plan of Merger, the same may be executed in two or more counterparts, each of which shall be deemed to be an original and the same agreement. 3 4 IN WITNESS WHEREOF, each of the corporate parties hereto, pursuant to authority granted by the Boards of Directors of Magnetec and Ithaca, has caused this Agreement and Plan of Merger to be executed by its President and attested to by its Secretary and its corporate seal to be affixed hereto, as of the date first above written. ATTEST: MAGNETEC CORPORATION ____________________ By: ______________________________ Secretary Bart C. Shuldman, President ATTEST: ITHACA PERIPHERALS INCORPORATED ____________________ By: ______________________________ Secretary Richard L. Cote, Vice President 4 EX-10.9 6 SALES AND MARKETING AGREEMENT 1 [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED, ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 406. Exhibit 10.9 STRICTLY CONFIDENTIAL THE PRINTER GROUP (TPG) AND OKI EUROPE LIMITED (OEL) EXCLUSIVE SALES AGREEMENT PURPOSE: The purpose of this Agreement is to define an Exclusive Sales and Marketing Agreement between The Printer Group (TPG), a subsidiary of TRIDEX Corporation, and Oki Europe Limited (OEL), a subsidiary of OKI ELECTRIC INDUSTRY COMPANY LIMITED of JAPAN. This Agreement is an attachment to the Strategic Agreement between TPG and OKIDATA America, a Division of OKI AMERICA Inc. of MOUNT LAUREL, NEW JERSEY. 1. Terms and Conditions 1.1 Products. As used in this Agreement, "Products" means all the Printer Products for the Point of Transaction (POT) market, as well as spare parts, subassemblies, operating supplies, maintenance kits, and options, if any, manufactured or sold in the Sales Territories managed by OEL. Any other type of product for these markets can be included in this Agreement as an Attachment. 1.2 Markets. As used in this Agreement, "Markets" means products developed for Point of Sale, Point of Transaction, and or Kiosk Markets or their derivatives. 1.3 Services. As use in this Agreement, "Services" means the ancillary services, if any, provided for the Markets in regards to the products as stated in this Agreement. 1.4 Attachments. As used in this Agreement, "attachments" means any document included in or with this Agreement to further define any product, market or services as defined in this Agreement. 1.5 Term and Termination. This document is governed by the Terms and Conditions as stated in the 5 year Strategic Agreement, signed and in force between TPG and OKIDATA America. This Exclusive Sales Agreement can be terminated by either party within [confidential treatment requested] if it is determined by either party that the terms and conditions of this Agreement have not been satisfied by the other. 2. Exclusive Sales and Marketing Agreement 2.1 Sales and Marketing Responsibility. All sales and marketing responsibility for the territories managed by OEL will be the sole responsibility of OEL for those customers based in those markets. These territories are defined in 2 STRICTLY CONFIDENTIAL Attachment 1, Territories. Any addition or deletion of territories within Attachment 1, must be agreed upon by both TPG and OEL, in writing, by a duly authorized representative of each party, and made part of Attachment 1. 2.2 Volume Commitment. Within the terms of this Agreement, both parties undertake to provide best endeavors to achieve or exceed a total of thirty thousand (30,000) printers to be ordered for delivery from TPG during the first fourteen (14) months of this Agreement. For every 12 month time period after through the term of this Agreement, a yearly volume expectation will be submitted by OEL and mutually agreed upon by TPG. The products included in the volume commitment will be defined in Attachment 2. All other products (to be known as OEM products) are outside the volume commitment as stated in Attachment 2. 2.3 Forecast. A three (3) month fixed order and rolling twelve (12) month forecast defining volume and product in Attachment 2 will be submitted by OEL to TPG. This forecast will be submitted on a monthly basis, and to be provided by OEL to TPG by the 23rd day of each month. All other products will be produced by TPG for OEL on an order by order basis. 2.4 Products and Pricing. OEL agrees to purchase the products per the prices as defined in this Agreement per Attachment 3. These prices are in effect for the first fourteen (14) months of this Agreement. Prices are subject to change, upon request and mutual agreement of both parties, due to changes in the market or OKIDATA America kit prices. For every year after, through the term of this Agreement, prices will be subject to change and determined based on market conditions and order forecasts presented by OEL. 2.5 Warranty. With the exception of epidemic failure, Product as defined in Attachment 2 will be sold as is, with no warranty. For this purpose epidemic failure means a repetitive occurence of a particular defect or failure to meet the written specification of such Product, of a particular printer model of more than [confidential treatment requested] of field population at any time (and which in the case of a defect is caused by or results from the design or manufacture of such model by TPG) and which occurs at any time in the period of [confidential treatment requested] from the date of purchase by OEL. For all Products other than those defined in Attachment 2, TPG warrants that such Product will conform to the written specification for such Products, and shall be free from defects in design and manufacture for such period as TPG and OEL shall agree in writing in relation to each such Product. 2.6 Consumables. Consumables for products sourced from TPG with the exemption of paper and printheads may be purchased directly from TPG or manufactured by OEL or ODA. In the event of OEL manufacturing or sourcing consumables other than from TPG, a royalty as specified in Attachment 4 will be paid to TPG by OEL. 3 STRICTLY CONFIDENTIAL 2.7 Termination. In the event the parties are unable to agree on either the volume or pricing after the expiration of the first 14 months, then either party may terminate this agreement, after giving 90 days notice to the other. 3. Sales Support and Training 3.1 European Support. TPG agrees to provide support to OEL in the form of a TPG European Manager based in the United Kingdom. 3.2 Pre and Post Sales Support. Pre and Post sales support as required will be available to OEL under the direction of the TPG European manager. 3.3 Technical Training and Support. Technical Training and Support as required will be available to OEL under the direction of the TPG European manager. 4. Quality 4.1 Procedural Approvals. All products and the associated consumables as defined in Attachment 3 will be subject to the quality approval of both TPG and OEL for sale in the market. 4.2 Agency Approvals. All products supplied to OEL by TPG must confirm to the relevant safety and agency approval where appropriate, to sell the product within the defined market. 5. Schedule of Implementation 5.1 Milestones. TPG and OEL agree to put forth the maximum effort to achieve the specified milestones below.
MILESTONE DATE - ---------------------------------------------------------------------------- [CONFIDENTIAL TREATMENT REQUESTED] o Customer launch October 1
4 5.2 Failures to Achieve Milestones. The failure of either TPG or OEL to achieve the milestones above will allow either party to withdraw from this Agreement. Any rescheduling of the above milestones must be agreed upon by both parties in writing. New milestones must be determined at that time. 5.3 Relationship Prior to Full Implementation. In the period prior to full implementation (October 1) of this Agreement, TPG will continue to actively pursue all sales and marketing opportunities within the markets. At the appropriate agreed time by TPG and OEL, these activities will be transferred to OEL or its subsidiaries on a project by project basis. 5.4 Exceptions to this Agreement. The only exception to this Agreement is the [confidential treatment requested] which will continue to be managed by the TPG European Manager. 5.5 Product sold prior to this Agreement. The responsibility and liability, including Receivables for all product, sold within the territories covered by this Agreement, by any other party than OEL, will remain the responsibility of TPG. After consultation and prior agreement this responsibility may be handed over to OEL or OEL operating companies on a case by case basis. 6.0 Product Liability. TPG shall indemnify OEL from and against any and all liability (whether criminal or civil) claims, judgments, loss, damage, costs, charges or expenses, including without limitation legal fees and costs of litigation or settlement, whether direct or indirect incurred in connection with or arising as a result of any breach by TPG of the Warranty contained in clause 2.5 of this Agreement, or any failure by TPG to provide OEL with reasonable notice of any breach of the said Warranty of which TPG is aware or of any limitations or changes in quality levels of the Products subject to clauses 6.01 to 6.02 as follows: 6.01 OEL shall notify TPG of any claims or proceedings alleging any defect or failure in the Products amounting to a breach of the said Warranty within 60 days after receipt by OEL at its principal office of notice of such claim or service of process relating thereto and OEL shall permit TPG to conduct the defence of any such proceedings provided always TPG consults with and keeps OEL informed as to such proceedings, and acts reasonably in relation thereto and such proceedings shall be at the cost of TPG (TPG having first indemnified and secured OEL to its reasonable satisfaction against any such costs). For the purpose of such proceedings OEL shall provide TPG with such information as is in the possession of OEL which is reasonably relevant to such defence. 6.02 The indemnity in clause 6.01 above is subject to the condition that any sale by OEL to its customers of Products purchased from TPG is on terms whereby OEL warrants that the Products will conform to their specification and be free from 5 STRICTLY CONFIDENTIAL defects in manufacture and design for the period not exceeding twelve (12) months from the date of purchase by OEL's customer (save as otherwise agreed by TPG in writing). 6.1 Manufacturer's/Producer's Liability for Damages. TPG will be responsible for all manufacturer's and producer's liability for damages to third parties arising as a result of or caused by defects in the Product and shall indemnify OEL from and against any and all liability (whether criminal or civil) claims, judgments, loss, damage, costs, charges or expenses including legal costs and costs of litigation or settlement whether direct or indirect resulting from liability imposed in any country by law, contract or otherwise upon OEL in consequence of or in connection with the sale of the Products to OEL's customers or the distribution, use or performance of such Products and whether any claim or proceedings take place in the English courts or in the courts of any other country and without prejudice to the generality of the foregoing such indemnity shall cover claims for liability in respect of death or personal injury, damage to property or loss of use thereof and claims for indirect special or consequential damage or compensation. This indemnity shall apply regardless of whether any liability or claim is a result of or alleged to be the result of any error or omission on the part of TPG relating to the Products (provided always such liability or claim is not the result of any default or negligence on the part of OEL). 6.2 Comprehensive General Liability Insurance. TPG shall at its sole expense at all times whilst this Agreement is in force maintain a comprehensive general liability insurance policy or equivalent policy with an insurance company acceptable to OEL to include insurance cover for the liability of TPG under clauses 6.0 and 6.1 above with liability limits of not less than five million US Dollars ($5,000,000) combined single limit, naming OEL as an additional insured. TPG shall provide OEL at all times with a certificate of such insurance and shall promptly notify OEL of any termination, cancellation or material change in such policy, including without limitation changes in policy limits, covered or conditions. 7.0 Infringement of Third Party Patents. TPG warrants that any product (or part thereof) furnished hereunder shall be free from any rightful claim of any third party for infringements of patent, design, copyright or any other right of third parties. 7.1 TPG indemnification of OEL. TPG shall fully indemnify, protect and OEL hold harmless from and against all claims, damages, expenses, actions or other proceedings growing out of, or resulting from the infringement of any patent, design, copyright or any other rights of third parties in connection with the buying of the PRODUCTS from TPG and selling the PRODUCTS to customers by OEL (collectively referred to as "Claims"); provided that, OEL has given TPG prompt written notice of any such Claims and control and full co-operation with TPG in the 6 STRICTLY CONFIDENTIAL defence and all related settlement negotiation of such Claims; provided further that, no such Claims arise by fault of OEL. 7.2 Limiting of Liability. Notwithstanding the foregoing, TPG shall have no liability to OEL for actual or claimed infringement arising out of: (a) use of PRODUCTS in combination with other equipment or software not reasonably contemplated by TPG: or, (b) use of the PRODUCTS in any process not reasonably contemplated by TPG. 8.0 Governing Law. This Agreement shall be governed by the laws of England in every particular including formation and interpretation and shall be deemed to have been made in England notwithstanding paragraph K of the Strategic Agreement. 8.1 Alternative Dispute Resolution. If any dispute or difference arises out of or in connection with this Agreement the parties shall seek to resolve the dispute or difference amicably by using an alternative dispute resolution ("ADR") procedure acceptable to both parties before pursing any other remedies available to them. If either party fails or refuses to agree or to participate in the ADR procedure or if in any event the dispute or difference is not resolved to the satisfaction of both parties within 90 days after it has arisen the parties will be free to pursue their remedies without further reference to this clause. 8.2 Jurisdiction. Any proceedings arising out of or in connection with this Agreement shall be brought in any competent court of jurisdiction in England. The submission by the parties to such jurisdiction shall not limit the right of OEL to commence any proceedings arising out of this Agreement in any other jurisdiction it may consider appropriate. TPG hereby irrevocably and unconditionally appoints Ithaca Peripherals Limited (a subsidiary of the Tridex Corporation) of Shaw Wood Business Park, Leger Way, Doncaster DN2 5TB to receive for and on its behalf service of process in any proceedings with respect to this Agreement. This subclause shall apply notwithstanding the provisions of paragraph G of the Strategic Agreement. 8.3 Agreement of Tridex Corporation and OkiData. This Agreement is signed by Tridex Corporation and OKIDATA by way of agreement to its terms and by way of variation to the Strategic Agreement. 7 STRICTLY CONFIDENTIAL IN WITNESS WHEREOF, the parties have executed this Execlusive Sales Agreement, by duly authorized representatives as of the date set forth below. The Printer Group Old Europe Limited By: /s/ Bart C. Shuldman By: /s/ Christopher J. Gill -------------------------- -------------------------- (Signature) (Signature) Name: Bart C. Shuldman Name: Christopher J. Gill ------------------------ ------------------------ (Printed or Typewritten) (Printed or Typewritten) Title: President Title: Director ----------------------- ----------------------- Date: May 10, 1996 Date: May 13th 1996 ------------------------ ------------------------ Tridex Corporation OKIDATA By: /s/ Seth M. Lukash By: /s/ David L. Vaughan -------------------------- -------------------------- (Signature) (Signature) Name: Seth M. Lukash Name: David L. Vaughan ------------------------ ------------------------ (Printed or Typewritten) (Printed or Typewritten) Title: Chairman & CEO Title: Mgr., Legal Affairs ----------------------- ----------------------- Date: May 9, 1996 Date: May 10, 1996 ------------------------ ------------------------ EX-10.10 7 OEM MANUFACTURING AGREEMENT 1 [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED, ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 406. EXHIBIT 10.10 GTECH CORPORATION Agreement No. 95530098001 ----------- By and Between GTECH CORPORATION 55 TECHNOLOGY WAY WEST GREENWICH, RI 02817 AND MAGNETEC CORPORATION -------------------- 61 WEST DUDLEY TOWN ROAD ------------------------ BLOOMFIELD, CONNECTICUT 06002 ----------------------------- For The Purchase of Refer to Section 1 ----------------------------- Commencement Date: September 7, 1994 ------------------- Term: Forty-eight (48) months ------------------------- GTECH Representatives: Vendor Representatives: Peter Liakos Bart Shuldman - ----------------------------------- ----------------------------------- Dennis Abbott Mark Goebel - ----------------------------------- ----------------------------------- Don Troppoli - ----------------------------------- ----------------------------------- Everett Zurlinden - ----------------------------------- 2 GTECH CORPORATION OEM PURCHASE AGREEMENT 1. TERMS AND CONDITIONS 1.1 Products 1.2 Services 1.3 OEM Purchases 1.4 No Minimum Committment 2. ORDERING 2.1 Purchase Orders 2.2 Priority Orders 2.3 Provisioning Orders 2.4 2.5 Rescheduling 2.6 Cancellation for Convenience 2.7 Forecast 3. SHIPPING, PACKAGING, DELIVERY 3.1 F.O.B.; Title; Risk of Loss 3.2 Shipment 3.3 Packaging 3.4 International Shipments 3.5 Early Arrival 4. PRICE 4.1 Unit Prices 4.2 4.3 Price Reduction on Spare Parts and Repairs 4.4 Most Favored Customer 5. PAYMENT 6. TAXES AND DUTIES 7. CHANGES 7.1 Product Changes 3 7.2 GTECH Changes 7.3 Enhancements, Successor Products 8. PRODUCT QUALITY AND RELIABILITY REQUIREMENTS 8.1 Vendor Survey 8.2 Final Test and Inspection Data 8.3 Test Equipment and Procedure Correlation 8.4 Source Inspection 8.5 Ship-To-Stock Program 8.6 Failure Analysis and Corrective Action 8.7 GTECH's Rights with Respect to Non conforming Goods 9. INSURANCE 9.1 Vendor Insurance Coverage 9.2 Workers Compensation and Employers Liability 9.3 Automobile Liability 9.4 Public Liability 9.5 Umbrella Policy 9.6 Crime Insurance 9.7 Proof of Insurance 10. INDEMNITY 11. SPARE PARTS 11.1 Recommended Spare Parts 11.2 Non-Standard Parts 11.3 Emergency Stock 11.4 Spares Support 12. REPAIR SUPPORT 12.1 Repair Orders 12.1.1. Non-Warranty Repair Cost 12.2 International Repair and Support 12.3 Failure Analysis 12.4 Repair Capabilities 12.5 Test Equipment 12.6 Qualified Vendor List 12.7 Diagnostics 12.8 Documentation 4 13. TRAINING 13.1 Initial Training 13.2 Component Level Training 13.3 Future Training 14. WARRANTIES 14.1 Vendor Standards 14.2 Authority 14.3 Title; Infringement 14.4 Conformance; Defects 14.5 14.6 Freight Charges on Non-Warranty 15. BAILMENT AGREEMENT 16. TOOLING 17. FORCE MAJEURE 18. CONFIDENTIALITY 19. PUBLIC ANNOUNCEMENTS 20. NOTICES 21. ASSIGNMENT 22. TERMS AND TERMINATION 22.1 Terms 22.2 Termination; GTECH's Rights 22.3 Termination; Vendor's Rights 22.4 Obligations on Termination 23. CONFLICTING PROVISIONS 24. MANUFACTURING RIGHTS 25. MISCELLANEOUS 5 ATTACHMENTS 1. - Product Specifications 2. - Pricing 2A. - Recommended Spare Parts List and Pricing 3. - Lead Time & Rescheduling 4. - Bailment Agreement 5. - Non-Warranty Repair Costs 6. - Manufacturing Rights 6 GTECH OEM PURCHASE AGREEMENT THIS AGREEMENT between GTECH CORPORATION, a Rhode Island corporation, with offices at 55 Technology Way, West Greenwich, RI 02817 ("GTECH") and Magnetec Corporation a Connecticut corporation. with offices at 61 West Dudley Town Road, Bloomfield, Connecticut 06002 ("VENDOR") sets out the terms and conditions under which VENDOR will sell the Products and provide the Services described in this Agreement and Attachments to GTECH. 1. Terms and Conditions 1.1 Products. As used in this agreement. "Products" means the products, as well as the VENDOR's recommended spare parts, subassemblies, operating supplies, maintenance kits, and options, if any, produced in accordance with the specifications attached hereto as Attachment 1 ("Specifications") and any subsequent modifications authorized in accordance with the terms of this Agreement. Products include pre-approved vendor model numbers in conjunction with the specification. 1.2 Services. As used in this Agreement, "Services" means the ancillary services, if any, to be provided by VENDOR in accordance with the terms of this Agreement including without limitation, those services described in Section 11 and 12 of this Agreement. 1.3 OEM Purchases, GTECH represents that the Products purchased under this Agreement are intended primarily for resale, rental or lease directly and indirectly to GTECH's customers under trademarks and trade names selected by GTECH for use in conjunction with GTECH systems or with other value added by GTECH, its subsidiaries or its distributors. Products may also be used by GTECH and its subsidiaries for their internal use. 1.4 No Minimum Commitment. Unless otherwise specified [confidential treatment requested] there is no minimum quantity of purchases under this Agreement. VENDOR will furnish Products and Services on an as-ordered basis. It is expressly understood and agreed that GTECH is not obligated to purchase any or all of the Products and Services requires from VENDOR and that GTECH may manufacture competitive Products and Services itself and/or procure competitive products and services from other vendors. 2. Ordering 2.1 Purchase Orders, All purchases under this Agreement will be made under purchase orders referencing this Agreement issued by GTECH or by any subsidiary or affiliate of GTECH. Purchase Orders will be deemed accepted by VENDOR unless rejected in writing by VENDOR specifying the reasons for rejection within fourteen (14) calendar days after receipt of the Purchase Order. Purchase orders may be rejected by VENDOR only if a Purchase Order does not comply 7 with the terms and conditions of this Agreement or proposes new or additional terms that are not acceptable to VENDOR. 2.2 Priority Orders. GTECH Purchase Orders for spare parts identified as "Priority Orders" shall be shipped within twenty-four (24) hours after receipt by VENDOR's Customer Service Division. In the event that Products ordered within the Normal Lead Time are overdue for delivery to GTECH, VENDOR shall ship replacement Product to GTECH at no cost to GTECH, and any premium air freight charges shall be prepaid by, and borne by VENDOR. 2.3 Provisioning Orders. GTECH Purchase Orders for spare parts identified as "Provisioning Orders" shall be shipped within twenty (20) days after receipt by VENDOR. Provisioning Orders shall not be decremented by placement of any Priority Orders, unless expressly requested by GTECH. 2.4 Lead Time. Unless otherwise agreed, Purchase Orders shall specify a delivery date with the Normal Lead Time specified in Agreement 3. If no lead time is specified, Products or Services will be delivered within [confidential treatement requested] days of VENDOR's receipt of the Purchase Order. If GTECH requests delivery with less than Normal Lead Time to meet a special requirement, including the replacement of Products lost or damaged in shipment, VENDOR will use its best efforts to expedite delivery; including, without limitation, giving GTECH first priority with respect to all Products in stock or on order; provided however, that GTECH shall not pay any additional charges or costs for expediting unless such charges or costs have been accepted in writing by GTECH. 2.5 Rescheduling. GTECH may reschedule delivery of any Product or Service by written notice to VENDOR at anytime before the delivery date specified in the applicable Purchase Order, as specified in Attachment 3. 2.6 Cancellation for Convenience, GTECH may cancel any or all Purchase Orders or part thereof at any time prior to the scheduled delivery date. In such event, with respect to customized GTECH-specific Products which cannot be resold, GTECH and VENDOR will negotiate a reasonable cancellation charge based on VENDOR's cost, as supported by proper documentation, to be paid to VENDOR as liquidated damages as GTECH's sole obligation and VENDOR's sole remedy. In no event shall such cancellation charges exceed the amount specified in Attachment 2, Pricing. 2.7 Forecast. Any forecast is provided as a good faith estimate of GTECH's anticipated requirements for Products for the periods indicated based on current market conditions and does not constitute a commitment to purchase any quantity of Products or Services. 3. Shipping, Packaging, and Delivery 3.1 F.O.B., Title, Risk of Loss. Unless otherwise agreed, deliveries of Products will be made F.O.B. VENDOR's dock, continental U.S. facility. Subject to proper packaging, title and risk of loss shall pass to GTECH upon proper tender of the Products to the carrier. VENDOR will 8 provide proof of delivery upon request and will provide reasonable assistance to GTECH at no charge in any claim GTECH may make against a carrier or insurer for misdelivery, loss or damage to Products after title has passed to GTECH. 3.2 Shipment. VENDOR will ship Product in accordance with GTECH's instructions if a "promise date" is specified in the purchase order. In the absence of any other instructions, Products will be shipped by common carrier commercial land freight for delivery in the continental United States and by ocean freight for deliveries elsewhere, insurance and shipping charges collect. 3.3 Packaging. VENDOR shall affix to the outside of each shipment a list of contents, including serial numbers, to allow for review of contents upon receipt. Products shall be packaged in accordance with any special instructions in Attachment 1. Where no special instructions for packaging is provided, GTECH's general packaging specification, Attachment 6, (or current version supplied to VENDOR) shall be used. 3.4 International Shipments. If GTECH specifies delivery for international shipment by GTECH or GTECH's freight forwarder, VENDOR will be responsible for obtaining any necessary U.S. Department of Commerce export licenses, permits or approvals. GTECH will be responsible for any licenses, permits or approvals of the country of import. 3.5 Early Arrival. GTECH reserves the right to reject Products arriving at GTECH's facilities more than five (5) days before the "promise date" if one is specified in the Purchase Order. 4. Price 4.1 Unit Prices. The prices for Products, Services, (if separately priced) operating supplies, maintenance kits, and spare parts under this Agreement will be as specified in Attachment 2. Unless otherwise stated in Attachment 2, the prices and pricing formulas in Attachment 2 will remain in effect for the Term of the Agreement and any extensions. GTECH international subsidiaries may purchase Products under the same conditions as in Attachment 2, in U.S. dollars. Pricing for Products and Services may be renegotiated from time to time by mutual agreement of the parties. 4.2 [confidential treatment requested] VENDOR represents that the prices [confidential treatment requested] charged to any other customer of VENDOR purchasing the [confidential treatment requested] quantities of Products and/or Services under similar terms and conditions. If at any time or times hereafter VENDOR offers Product and/or Services to any other customer on more favorable terms, conditions or prices, VENDOR shall at the time offer the same terms, conditions and prices to GTECH. If accepted by GTECH, such terms, conditions and/or prices shall apply to all Products and Services purchases by GTECH for the balance of the Term. 4.3 Price Reductions on Spare Parts and Repairs. In the event of a price reduction on the Product covered under this Agreement, VENDOR agrees to reduce the list price of that component, the component as a spare part, and repairs as related to that component. The price 9 reduction will apply to all Purchase Orders for spare parts and repairs which are scheduled for delivery on less than thirty (30) days after the effective date of the price reduction. 4.4 Most Favored Customer. All of the prices, terms, warranties and benefits granted by Vendor herein are comparable to or more favorable to Vendor than the equivalent terms being offered by Vendor to any present customer. If Vendor shall, during the period from the Effective Date to the date of acceptance of the Equipment, enter into arrangements with any other customer providing in the aggregate greater benefits or more favorable terms (other than more favorable prices caused solely by difference in foreign currency exchange rates), this Agreement shall thereupon be deemed amended to provide same to GTECH. 5. Payment VENDOR may issue invoices no earlier than the shipping date of the Products or Services. Payment will be made within [confidential treatment requested] of receipt of original invoices. Payment shall not constitute acceptance on non-conforming Products. For repair of products at international locations, term of payment will be [confidential treatment requested] in U.S. dollars. 6. Taxes and Duties Attachment 2 sets forth all taxes applicable to the Products. GTECH will pay as a separate invoiced item only such sales, use, value-added or similar tax listed therein (all other taxes are excluded, including, without limitation, taxes based upon VENDOR's net income), lawfully imposed on the sale of the Products or provision of Services to GTECH. Taxes, duties or like charges imposed on the Products after title has passed to GTECH will be paid by GTECH unless such charges are the result of a trade sanction imposed on VENDOR's Products, as specified in Section 22.2, below. In lieu of taxes, GTECH may furnish to VENDOR a tax exemption certificate. VENDOR agrees to provide reasonable assistance to GTECH, without charge, in any proceeding for the refund or abatement of any taxes GTECH is required to pay under this Section 6. 7. Changes 7.1 Product Changes. VENDOR shall submit evaluation samples of all Products changes that affect form, fit, function, maintainability, repairability, reliability or appearance at least ninety (90) days before such changes are implemented. VENDOR shall forward (2) copies of all requests to make the changes generally described above to: GTECH CORPORATION, 55 Technology Way, West Greenwich, RI 028l7 Attention: Purchasing Agent. GTECH may, at its option, decline to have such changes incorporated into the Products. Proposed changes will not be incorporated into the Products until accepted in writing by GTECH. In no event will GTECH ever be deemed to have accepted any change in the price or delivery schedule without its prior written consent. 7.2 GTECH Changes. GTECH may request changes in the Products at any time or times during the term of this Agreement. If such changes in the Products will require changes in the prices and/or delivery schedule, VENDOR must respond promptly with a written change proposal 10 setting forth the changes in prices and/or delivery schedule. Such proposal, when signed by an authorized representative of GTECH, will become part of this Agreement. If VENDOR cannot respond within thirty (30) days, VENDOR must provide a written explanation to GTECH as to why they cannot and notify GTECH as to when they can, within thirty (30) day period. If VENDOR does not respond with a written communication within thirty (30) days after receipt of GTECH's request, such changes will be implemented without any alteration in the price and/or delivery schedule. Such changes are and shall remain the property of GTECH, and Vendor may not use such changes or disclose them to others without the prior written consent of GTECH. 7.3 Enhancements, Successor Products. If during the term of this Agreement, VENDOR offers improvements, options, additional functionality or other enhancements to the Products not available at the time this Agreement is signed ("Enhancements") or other products which substantially replace the Products ("Successor Products"), VENDOR will offer such Enhancements and/or Successor Products to GTECH at prices that do not exceed those charged to any other customer of VENDOR purchasing the [confidential treatment required] quantities of such Enhancements or Successor Products. If GTECH elects, in writing, to purchase such Successor Products or Enhancements, the Enhanced Products or Successor Products as the case may be, will be substituted to make up the balance of any committed quantity under this agreement. In any event, GTECH may, at its option, elect to continue to purchase Products as originally specified for the balance of the then current ordering period. 8. Quality and Reliability Requirements GTECH requires that the vendor have in place at their manufacturing facility or facilities, adequate quality and reliability safeguards to ensure that all product shipped to GTECH meets or exceeds all parameters called forth in the product specification, Attachment 1. 8.1 Vendor Survey. The Vendor will allow GTECH to perform a vendor survey at the vendor's facility or facilitates. This survey will include, but is not limited to, an audit of the manufacturing process, reviewing the yields at each inspection and test point in the manufacturing process, and review of the on-going reliability test data. 8.2 Final Test and Inspection Data. The vendor will make final test and inspection data (yield information), and on-going reliability test data available at the request of GTECH throughout the life of the product. 8.3 Test Equipment and Procedure Correlation. The test equipment and procedures used in the vendor's final inspection and test, will correlate with the test equipment and procedures used by GTECH; if correlation is not achieved within 30 days prior to the first production shipment, the vendor agrees to obtain additional test equipment and/or develop procedures which are capable of correlation. Said test equipment and procedures will be mutually agreed upon by both the vendor and GTECH OEM Test Engineering, Procurement Quality and Purchasing. 8.4 Source Inspection. The vendor will allow' GTECH ( or its representatives) to perform source inspection at their facility (or facilities), using mutually agreed upon test equipment 11 and procedures. To do this in a timely fashion, the vendor will notify GTECH (or its representative) that source inspection is available at least one week prior to the requested source inspection date. Source inspection activity will continue, at the discretion of GTECH Procurement Quality Organization, throughout the life of the product, or until such time as the product meets or exceeds all requirements of the GTECH Ship-To-Stock program. 8.5 Ship-to-Stock Program. The vendor will participate in the GTECH Ship-To-Stock program. This program requires that the vendor's product achieve a quality level sufficient for Ship-To-Stock status (minimum of 98% AQL) within 90 days of receipt of the first shipment of production units at GTECH. If, due to the vendor's inability to meet the Ship-To-Stock criteria, source inspection is continued beyond the initial 90 day period, GTECH OEM Purchasing may, at its discretion, recover all costs associated with continued unacceptable quality by taking a credit against the purchase price of the products. 8.6 Failure Analysis and Corrective Actions. The vendor agrees to supply, within 15 calendar days of, written failure analysis and corrective actions for any in warranty devices failing to meet any and all form, fit, function, quality or reliability requirements called out in the product specification. 8.7 GTECH's fights with respect to non conforming goods. The testing procedures available to GTECH are discretionary and not mandatory. In the event GTECH chooses not to perform any or some portion of such testing, or such testing would not reasonably reveal a non conformance in the Products, GTECH reserves its fight under the Uniform Commercial Code to reject any shipment of Products and to purchase similar Products and be immediately reimbursed by the Vendor for the difference between the cost of such products and the Vendors' Products. 9. Insurance 9.1 Vendor Insurance Coverage. Vendors shall purchase and maintain throughout the life of this agreement, such insurance as will protect it and GTECH from claims set forth below which may arise out of or result from the Vendor's operations under this agreement whether such operations be by it or by any subcontractor or by anyone for whose acts any of them may be liable. Vendor shall cause GTECH to be named insured under all coverages except Workers Compensation. Appropriate endorsements will be attached to state that the vendors policy will be primary to any other policies that may be in effect. 9.2 Worker's Compensation and Employers Liability. Workers Compensation Insurance as required by statute, and if applicable contractors liability under the Federal Longshoremen and Harbor Workers Act. Employers liability coverage shall be in an amount of no less than $500,000. 9.3 Automobile Liability.- Policies should provide a minimum combined single limit of $1,000,000 for each occurrence of bodily injury and property damage. 12 9.4 Public Liability. Policies will provide a minimum of $1,000,000 per occurrence for bodily injury and property damage, endorsed at a minimum with the following coverages: * Products and completed operations to the policy limits; * Fire Legal Liability to policy limits; * Blanket Contractual Liability to policy limits; * Independent contractors inclusion to policy limits: * Personal injury or the equivalent as provided by a Broad form Comprehensive general Liability Policy. 9.5 Umbrella Policy. An umbrella policy with limits of no less than $5,000,000 will be in place and will include all the above listed primary policies. 9.6 Crime Insurance. A Crime Insurance (Fidelity Bond) policy in the amount of $500,000 that will pay on behalf of the contractor to GTECH for losses caused by the dishonest acts of the Vendor or his employees, agents, or designees. 9.7 Proof of Insurance. Evidence of said insurance will be in the form of a certificate of insurance and will be provided within 10 days from the date of this agreement. Notification to GTECH will occur within 15 days of any cancellation or material change in coverage. In the event of a failure to furnish such proof or the cancellation or material change of such insurance, without prejudice to any other remedy GTECH may have, GTECH may terminate this agreement, or at its option, charge the cost of required insurance to the vendor. Coverage will be in effect with Insurance carriers licensed to do business in any state that the Vendor will perform its services and will be rated no less than A by the AM Best Company. All Certificates of Insurance are to be forwarded to: GTECH Corporation, 55 Technology Way, West Greenwich, RI 02817, ATTN: Risk Management Department. 10. Indemnity In addition to, and not in limitation of, any other indemnifications, warranties and covenants set forth herin, VENDOR hereby agrees to indemnify and hold GTECH harmless with respect to any and all costs, expenses and liability, including without limitation reasonable attorneys, fees, arising out of any claim or action based on a failure of the Products or Services to meet the specifications set forth herein, or the failure of the VENDOR to meet any of its obligations hereunder. VENDOR shall defend, indemnify and hold GTECH, GTECH's subsidiaries, affiliates, distributors and customers harmless from any and all costs, expenses and liability, including reasonable attorney's fees, arising out of any claim or action based on actual or alleged infringement by the Products of any patent, copyright, trade secret or other proprietary interest. GTECH shall give VENDOR prompt notice of any claim or action and shall provide reasonable assistance in VENDOR, at VENDOR'S expense, in defending any such claim or action. If an injunction is issued which prohibits the use or sale of the Products by reason of any matter covered by this Section 10, then VENDOR shall, at its expense, either: (a) procure for GTECH and its customers the right to continue using the Products; (b) modify the Products so they become non-infringing; (c) substitute 13 equivalent non-infringing products; or, (d) if neither (a) through (c) are reasonably available, GTECH may return the Products to VENDOR and VENDOR will refund the purchase price to GTECH less depreciation based upon the straight line method and a product life of five (5) years. Notwithstanding the foregoing, VENDOR shall have no liability to GTECH for actual or claimed infringement arising out of: (a) compliance with detail designs, plans or specifications furnished by GTECH unless (i) such infringement would arise independent of such designs, plans or specifications; (ii) VENDOR has actual knowledge that compliance with such specification would result in infringement; (b) use of the Products in combination with other equipment or software not reasonably contemplated by VENDOR; or (c) use of the Products in any process not reasonably contemplated by VENDOR. VENDOR acknowledges that the Specification attached to this Agreement is not a "specification" which excuses VENDOR from performing its obligations hereunder. The terms and conditions of this Sections 10 shall survive the expiration or termination of this Agreement for any reason whatsoever. 11. Spare Parts 11.1 Recommended Spare Parts. VENDOR shall provide a Recommended Spare Parts List (RSL) for all Products covered by this Agreement (See attachment 2A). The RSL shall include all parts and assemblies necessary to repair and maintain the Products purchased under this Agreement. A separate RSL shall be supplied for each product model or configuration, identifying all common parts. 11.2 Non-Standard Parts, If the Product contains a part not readily available in the marketplace VENDOR shall make such part available to GTECH in accordance with Section 11.4. 11.3 Emergency Stock. VENDOR shall maintain an adequate supply of spare parts at its facility to support Priority Orders, as described in Section 2.2. 11.4 Spares Support. VENDOR shall make all spare parts including Non-Standard Parts as described in Section 11.2 above, available during the term of this Agreement and for a period of five (5) years thereafter. In the event VENDOR is unable to fill GTECH's Purchase Orders promptly, VENDOR shall make available, at no charge to GTECH, VENDOR's manufacturing drawings and specifications, list of suppliers, and information necessary to purchase and/or manufacture all parts and/or assemblies or subassemblies for the parts which are not available from the VENDOR, and Vendor shall be liable for the difference between GTECH's cost of manufacture and Vendor's sales price. 12. Repair Support 12.1 Repair Orders. In addition to VENDOR's obligations under Section 14, VENDOR agrees to repair all out of warranty failures within [confidential treatment requested] from the receipt of the 14 Product, or else replace such Product within [confidential treatment requested] with new Product which shall conform to the Product Specification, Attachment 1. 12.2 International Repair and Support. VENDOR shall identify international locations, as required, for the repair and support of the Product and subassemblies. In the event that those international facilities are not [confidential treatment requested] of the VENDOR, then VENDOR shall procure for GTECH the right to have repairs on the Product performed at the international locations whether the failure occurs within the warranty periods as specified in 14 or otherwise. 12.3 Failure Analysis. VENDOR shall provide a failure analysis on each Product which is returned for repair under warranty. On serialized Products repair data shall be provided for each serialized unit returned. Vendor shall provide general failure data on out of warranty returns. 12.4 Repair Capabilities. GTECH reserves the fight to repair any out-of-warranty assemblies, subassemblies, or other items comprising the Product purchased under this Agreement. VENDOR will supply GTECH with the necessary documentation to repair the Products including the information listed under Sections 12.4, 12.5, 12.6, 12.7 and 12.8. 12.5 Test Equipment. VENDOR shall make available to GTECH, upon written request by GTECH, any test procedures, special tools, jigs, fixtures, diagnostics, programs, test equipment or supplies, with supporting documentation, necessary to repair the unit, any of the assemblies, subassemblies, piece parts, components, or other items comprising the Product purchased under this Agreement to component level. 12.6 Qualified Vendor List. VENDOR shall supply GTECH a qualified vendor list (QVL) for standard components used in the products purchased under this Agreement. This QVL shall include the manufacturers and vendors along with the corresponding part numbers for standard components used in the Product, any of the assemblies, subassemblies, piece parts, components, or other items comprising the Products purchased under this Agreement. Updates to this list shall be forwarded to GTECH CORPORATION, 55 Technology Way, West Greenwich, RI 02817 Attention: Procurement Agent Responsible for Commodity. 12.7 Diagnostics. VENDOR agrees to sell GTECH at prices to be mutually agreed upon, with supporting documentation, any of its diagnostics, test programs and test routines, necessary to repair to component level, the unit, any of the assemblies, subassemblies, piece parts, components, or other items comprising the Products purchased under this Agreement. 12.8 Documentation. In consideration of the purchase of Products under this Agreement, and at no additional cost, VENDOR hereby grants onto GTECH the right to use, reprint, and distribute VENDOR's Product manuals and documentation ("Documentation"), including but not limited to user's manuals, schematics, maintenance, theory of operation and troubleshooting guides, and any other Documentation that VENDOR shall make available during the Terms of this Agreement. Upon request, VENDOR shall provide a camera ready copy of each Document, and subsequent modifications to GTECH at no additional charge. GTECH agrees to display copyright notices in accordance with VENDOR's reasonable written instructions. 15 13. Training 13.1 Initial Training. VENDOR agrees to provide, at no charge to GTECH, two (2) training classes with up to twelve (12) students per class at GTECH World Headquarters, 55 Technology Way, West Greenwich, RI or at Magnetec's facility at 61 West Dudley Town Road, Bloomfield, CT during the term of this Agreement. Pursuant to the above, GTECH shall: (1) reimburse VENDOR for instructors reasonable transportation and living expenses and, (2) provide equipment (or reimburse VENDOR for equipment transportation) as required to support training classes. VENDOR shall provide the instructor and his instructional materials for the above referenced classes. Training classes may be video taped for future us by GTECH. 13.2 Component Level Training. VENDOR shall provide at no charge to GTECH, such training necessary to enable GTECH to repair to a component level, the unit, any of the assemblies, subassemblies, or other items comprising the Products purchased under this Agreement. A minimum of one (1) of the training classes described in Section 13.1 may consist of Component Level Training, if desired. 13.3 Future Training. GTECH may schedule a maximum of three (3) students per quarter in VENDOR's regularly scheduled classes at GTECH World Headquarters, 55 Technology Way, West Greenwich, RI, or Magnetec's facility at 61 West Dudley Town Road, Bloomfield, CT, during the term of this agreement. GTECH agrees to pay a $65.00 per hour trainer charge. 14. Warranties 14.1 VENDOR represents and warrants that all Products delivered to GTECH under this Agreement will comply with applicable U.L, CSA, TUV and VDE standards and will comply with the applicable FCC rules for the type of Product involved, including type acceptance or certification where required. VENDOR will provide all necessary information and assistance to GTECH with respect to listings, certifications and approvals that are required to be in GTECH's name. 14.2 Authority. VENDOR warrants that: (a) it has the right to enter into this Agreement; (b) all necessary actions, corporate and otherwise, have been taken to authorize the execution and delivery of this Agreement and the same is the valid and binding obligation of VENDOR; (c) all licenses, consents and approvals necessary to carry out all of the transactions contemplated in this Agreement have been obtained by VENDOR; and, (d) VENDOR'S performance of this Agreement will not violate the terms of any license contract, note or other obligation to which VENDOR is a party. 14.3 Title: Infringement. VENDOR warrants that: (a) it has and shall pass to GTECH good title to the Products free and clear of all liens and encumbrances; (b) the Products do not infringe any patent, trademark or copyright or otherwise violate the rights of any third party; (c) no claim or action is, to the best of its knowledge, pending or threatened against VENDOR or, to VENDOR's knowledge, against any licenser or supplier of VENDOR that would adversely affect the right of GTECH or any customer of GTECH to use the Products for their intended use. 16 14.4 Conformance: Defects. Unless otherwise specified in Attachment 1, VENDOR warrants that the Products will: (a) be new: (b) conform to the Specification; (c) conform to the standards and procedures as set forth in the GTECH Quality And Reliability Procedure, Attachment 7; and, (d) be free from defects in materials and workmanship for a period of fifteen (15) months from date of shipment from VENDOR whether GTECH or a customer. Upon written notice from GTECH of a Product or part that fails to meet the foregoing warranty, VENDOR will promptly repair or replace such Products(s) within ten (10) calendar days of receipt by VENDOR of the failed or non-conforming Product or spare part. 14.5 [confidential treatment requested] All Products returned to VENDOR for repair under warranty shall be shipped, FOB GTECH's domestic repair facility, [confidential treatment requested] to VENDOR. VENDOR shall return all Product repaired under warranty, FOB GTECH's designated domestic stocking facility, [confidential treatment requested] 14.6 Freight Charges on Non-Warranty Repairs. Freight charges directly associated with the repair of non-warranty products and/or spare parts shall be borne by GTECH. 15. BAILMENT AGREEMENT Any tools, equipment, software, documentation or other materials supplied by GTECH to VENDOR whether separately listed or not, are made available pursuant to the terms and conditions of the GTECH Bailment Agreement attached hereto as Attachment 4 and are provided solely for use by VENDOR in its performance of this Agreement. 16. Tooling Any Tooling purchased by GTECH for the manufacture of the Product, whether kept at GTECH's or VENDOR's premises, shall remain the property of GTECH for GTECH's exclusive use. The Tooling purchased by GTECH and used by VENDOR in the manufacture of this Product shall be stored and maintained by VENDOR but may be removed from the VENDOR's location at any time by GTECH, without notice, and at no additional cost to GTECH. VENDOR shall take such steps to protect GTECH's title to the Tooling as GTECH may reasonably request. At a minimum, VENDOR shall cause a sign to be affixed to such tooling stating "Property of GTECH Corporation". 17. Force Majeure Either party shall be excused from its performance hereunder to the extent that its performance is prevented by fire, flood, acts of God, strikes or other causes beyond its reasonable control; provided that, the party claiming Force Maejure notifies the other in writing within five (5) days of the commencement of the condition preventing its performance and its intent to rely thereon to extend the time for its performance of this Agreement. 17 18. Confidentiality 18.1 VENDOR acknowledges and agrees that all documents, data, software or information in any form which are provided by GTECH (hereinafter "Confidential Information") is the property of GTECH. VENDOR will receive and maintain all Confidential Information in the strictest confidence and, except as provided herein, shall not use Confidential Information for its own benefit or disclose it or otherwise make it available to third parties without the prior written consent of GTECH. VENDOR agrees to limit the use of Confidential Information to only those of its employees who need Confidential Information for the purpose of this Agreement and to advise all of its employees of GTECH's rights in the Confidential Information. Nothing in this Agreement shall be construed as granting or conferring any rights by license or otherwise in any Confidential Information, trademarks, patents or copyrights of GTECH, except for the limited purposes of VENDOR's performance hereunder. Confidential Information does not include information which is: (a) in the public domain; (b) already known to the party to whom it is disclosed (hereinafter "Recipient") at the time of such disclosure; (c) subsequently received by Recipient in good faith from a third party having prior right to make such subsequent disclosure; (d) independently developed by Recipient without use of the information disclosed pursuant to this Agreement; (e) approved in waiting for unrestricted release or unrestricted disclosure by the party owning or disclosing the information (hereinafter "Discloser"); or (f) produced or disclosed pursuant to applicable laws, regulations or court order, provided the Recipient has given the Discloser written notice of such request such that the Discloser has an opportunity to defend, limit or protect such production or disclosure. At the request of a Discloser, and in any event upon the expiration or other termination of this Agreement, each Recipient shall promptly deliver to Discloser all products, components and equipment provided by Discloser as well as all records or other things in any media containing or embodying Discloser's Confidential Information within its possession or control which were delivered or made available to each Recipient during or in connection with this Agreement, including any copies thereof. 18.2 GTECH acknowledges and agrees that all confidential and proprietary information of VENDOR provided to GTECH, including, without limitation the manufacturing package and the printhead design and manufacture documents, data, software or information in any form (hereinafter "Confidential Information") is the property of VENDOR. GTECH will receive and maintain all Confidential Information in the strictest confidence, and, except as provided herein, shall not use Confidential Information for its own benefit or disclose it or otherwise make it available to third parties without the prior written consent of VENDOR. GTECH agrees to limit the use of Confidential Information to only those of its employees who need Confidential Information for the purpose of this Agreement and to advise all of its employees of VENDOR's rights in the Confidential Information. Nothing in this Agreement shall be construed as granting or conferring any rights by license or otherwise in any Confidential Information, trademarks, patents or copyrights of VENDOR, except for the limited purposes of GTECH's performance hereunder. Confidential Information does not include information which is: (a) in the public domain; (b) already known to the party to whom it is disclosed (hereinafter "Recipient") at the time of disclosure; (c) subsequently received by Recipient in good faith from a third party having prior right to make such subsequent disclosure; (d) independently developed by Recipient without use of 18 the information disclosed pursuant to this Agreement; (e) approved in writing for unrestricted release or unrestricted disclosure by the party owning or disclosing the information (hereinafter "Discloser"); or (f) produced or disclosed pursuant to applicable laws, regulations or court order, provided the Recipient has given the Disclosure written notice of such request such that the Disclosure has an opportunity to defend, limit or protect such production or disclosure. At the request of a Disclosure, and in any event upon the expiration or other termination of this Agreement, each Recipient shall promptly deliver to Disclosure all products, components and equipment provided by Disclosure as well as all records or other things in any media containing or embodying Disclosure's Confidential Information within its possession or control which were delivered or made available to each Recipient during or in connection with this Agreement, including any copies thereof. 19. Public Announcements VENDOR agrees not to make any public announcements regarding this Agreement or to disclose any of the terms and conditions hereof to any third party without prior written consent of GTECH, except as may be required by law or court of competent jurisdiction. 20. Notices All notices required or contemplated by this Agreement shall be deemed effective if written and delivered in person or actually received or if sent by registered mail, return receipt requested, or overnight delivery to GTECH at the address shown above to the attention of GTECH's Representative or to VENDOR at the address shown above to the attention of VENDOR's Representative; or such other persons or addresses as may hereafter be designated by the respective parties. Notices to GTECH under Section 19 hereof shall not be effective unless a copy is delivered personally, actually received or sent by registered mail, or overnight delivery, return receipt requested to the Office of the General Counsel of GTECH at the address shown above. 21. Assignment This Agreement and the disclosure of confidential information hereunder is made in reliance upon VENDOR's reputation, skill and expertise. VENDOR agrees not to assign this Agreement or any right or obligation hereunder without the prior written consent of GTECH in each instance, which will not be unreasonably withheld. This Agreement may be assigned to any purchaser or transferee of substantially all of the VENDOR's business assets, without the consent of, but upon notice to GTECH. GTECH can cancel if an assignment is not acceptable to GTECH. GTECH may assign its rights and/or obligations hereunder, in whole or in part, to any parent or subsidiary corporation, or any affiliate, without the consent of, but upon notice to, VENDOR. 22. Term and Termination 22.1 Terms. This agreement will commence on the 7th day of September, 1994, and will continue for forty-eight (48) months, until the 6th day of September, 1998. The Term is specified 19 above and includes any renewals or extensions unless terminated earlier as provided in this Agreement. Unless either party notifies the other in writing at least ninety (90) days before the end of the Terms of its intent to terminate this Agreement at the end of the Term, this agreement will be extended automatically and will continue in effect without any volume commitment until terminated by either party on ninety (90) days prior notice. Unless otherwise agreed in writing, the prices during any such extension shall be the prices in effect at the end of the term, as set forth in Attachment 2. 22.2 Termination: By GTECH. GTECH may terminate this Agreement at any time if (a) VENDOR fails or neglects to perform any of its obligations hereunder and such condition has not been cured within [confidential treatment requested] of written notice thereof by GTECH (to the extent such default cannot be cured within [confidential treatment requested] it shall not be a default if VENDOR has commenced a cure within [confidential treatment requested] and has actually cured such default within [confidential treatment requested]; (b) VENDOR, or VENDOR's parent or a wholly owned subsidiary of VENDOR, is the subject of trade sanctions by the United States government, or any other government, or quasi-governmental agency which materially affects GTECH's ability to sell, lease, or maintain the Product; (c) VENDOR attempts to assign this Agreement or any obligation hereunder without GTECH's consent; (d) any assignment is made of VENDOR's business for the benefit of creditors, or if a petition in bankruptcy is filed by or against VENDOR and is not dismissed within ninety (90) days, or if a receiver or similar officer is appointed to take charge of all or part of VENDOR's property, or if VENDOR is adjudicated a bankrupt. 22.3 Termination: By VENDOR. VENDOR may terminate this Agreement if; (a) GTECH fails to perform any of its obligations hereunder and such condition has not been cured within thirty (30) days of written notice thereof by VENDOR; provided that, VENDOR may not terminate this Agreement for reason of non-payment by GTECH of any amounts disputed in good faith, or (b) if any assignment is made of GTECH's business for the benefit of creditors; or, (c) if a petition in bankruptcy is filed by or against GTECH and is not dismissed within ninety (90) days, or if a receiver or similar officer is appointed to take charge of all or part of GTECH's property, or if GTECH is adjudicated a bankrupt. 22.4 Obligations of Termination. Upon expiration or termination of this Agreement for any reason, VENDOR shall promptly deliver to GTECH all tools, equipment, software documentation and other materials furnished to VENDOR by GTECH hereunder. VENDOR's obligations under Section 2, 9, 10, 11, 13, 15, 17, 18, 21 and 24 hereof shall survive expiration or Termination of this Agreement or its extensions regardless of the manner of Termination. 23. Conflicting Provisions In the event of a conflict between the terms and conditions of this Agreement and the terms and conditions of any Purchase Order, typewritten terms added by GTECH on a Purchase Order shall control the terms and conditions of this Agreement, and the terms and conditions of this agreement shall control the printed terms and conditions on any purchase order. Typewritten terms added by GTECH on any purchase order shall apply to the Products and/or Services ordered under such individual Purchase Order. The terms and conditions of this agreement and, if applicable, the 20 typewritten terms and conditions added by GTECH on any purchase order shall prevail over any inconsistent terms and conditions contained in any Vendor acknowledgment or invoice. Notwithstanding any assignment, VENDOR shall remain responsible for the full performance of all of the terms and conditions of this Agreement. 24. Manufacturing Rights. Manufacturing Rights will be governed by Attachment 6. 25. Miscellaneous This Agreement and Attachments and Purchase Orders issued and Accepted hereunder set forth the entire understanding of the parties with respect to the Products and merges all prior written and oral communications relating thereto. It can be modified or amended only in a writing signed by a duly authorized representative of each party. Section headings are provided for the convenience of reference only and shall not be construed otherwise. Not failure to exercise, or delay in exercising, on the part of either party, any right, power or privilege hereunder shall operate as a waiver thereof, or will any single or partial exercise of any right, power or privilege hereunder preclude the further exercise of the same right or the exercise of any other right hereunder. This Agreement is made pursuant to and shall be governed by the laws of the State of Rhode Island, without regard to its rules regarding conflict of laws. The parties agree that the courts of the State of Rhode Island, and the Federal Courts located therein, shall have exclusive jurisdiction over all matters arising from this Agreement. 21 IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE DATES MENTIONED BELOW. MAGNETEC CORPORATION GTECH CORPORATION BY /s/ Bart Shuldman BY /s/ John C. Smith -------------------------------- -------------------------------- SIGNATURE SIGNATURE Bart Shuldman John C. Smith - ----------------------------------- ---------------------------------- NAME NAME President Vice-President, Hardware - ----------------------------------- ---------------------------------- TITLE TITLE September 7, 1994 September 7, 1994 - ----------------------------------- ---------------------------------- DATE DATE GTECH CORPORATION BY /s/ Peter A. Liakos ---------------------------------- SIGNATURE Peter A. Liakos ---------------------------------- NAME Director, Corporate Purchasing ---------------------------------- TITLE September 7, 1994 ---------------------------------- DATE 22 Attachment 1 ------------ Product Specifications ---------------------- 1.1) Purchase Specification, Printhead No. 20-0290-00 1.2) Purchase Specification, Impact Printer Mechanism No. 53-0098-00 1.3) Subassembly Specification, GT-501 Impact Printer No. 96-0306-02 23 Attachment 2 ------------ Pricing ------- TERMS AND CONDITIONS -------------------- 1. Unit pricing will be [ ] for the duration of this Agreement. Unit pricing may be reviewed annually on the anniversary date from the date of signing this Agreement. 1.A a.) [Confidential treatment requested] b.) 2. [ ] not included in price. 3. [ ] are not included in price. 4. [ ] are not included in price. 5. Cancellation charges: Orders canceled that do not conform to the schedule in Attachment 3 will be subject to the following charges: * * [Confidential treatment requested] * * 6. Packaging will adhere to GTECH specifications 96-0321-01 and 96-0322-01, and is [ ]. 24 Attachment 2A ------------- RECOMMENDED SPARE LIST AND PRICING ---------------------------------- 2.A.1 Spare Parts Priority 2.A.2 Spare Parts Provision 25 Attachment 3 ------------ LEAD TIME --------- 1. Standard lead time - shipments to begin [ ] after acceptance of order. 2. Standard lead times are based on a maximum of [ ] units per week. 3. Orders for more than [ ] units per week are subject to additional lead times. GTECH shall not pay and additional costs unless agreed to be GTECH. RESCHEDULING ------------ Based on a [ ] lead time and excluding all electronics: * [ ] No reschedule * [ ] Can reschedule up to an additional [ ] * If over [ ] , can reschedule [ ] , but GTECH will be obligated to pay for materials received by Magnetec based on proper documentation. * [ ] reschedule up to * Over [ ], Section 2.6, Cancellation for Convenience, will apply. 26 Attachment 4 ------------ BAILMENT AGREEMENT ------------------ Bailee Name and Address: Date ---------------------------- Magnetec Corporation Term of Use - ---------------------------------- --------------------- 61 W. Dudley Town Road Purpose of Bailment - ---------------------------------- ------------- Bloomfield, CT 06002 - ---------------------------------- --------------------------------- Property Location (if different) - ---------------------------------- - ---------------------------------- The following terms shall govern the bailment of the property listed below ("Property")) by GTECH CORPORATION, ("GTECH") to the BAILEE identified above. 1. TITLE. Title to the Property is and shall remain with GTECH at all times and Bailee shall not sell, lease or assign the Property or do anything inconsistent with GTECH's title. BAILEE shall segregate the Property from all other property not owned by GTECH which is located on BAILEE's premises and shall take such additional steps as GTECH may reasonably request to protect GTECH's title to the Property, including the execution of appropriate filing statements. 2. USE; LOCATION. The Property may be used by BAILEE only for the purpose described above. Unless otherwise agreed in writing, the Property shall remain at the Property Location specified above at all times. GTECH shall have the right to enter the Property Location during normal business hours to inspect the Property. 3. TERM. The Term of Use of the Property will be as specified above unless extended by mutual agreement of the parties. BAILEE shall return the Property to GTECH upon expiration of the term of Use or earlier request of GTECH in the same condition as delivered, reasonable wear and tear excepted. 4. TRANSPORTATION. Unless specifically listed below, BAILEE shall be responsible for all costs of freight to and from the site and for all drayage, set up, installation and deinstallation costs. 27 5. SOFTWARE. If the Property includes software, such software, including any subsequent updates, is provided for use only on the designated CPU. BAILEE may make up to two (2) machine readable copies for backup purposes provided that GTECH's copyright or proprietary notice is reproduced on each copy. All copies remain the property of GTECH. BAILEE agrees to maintain all software and related documentation in strict confidence and will not disclose or otherwise make the software and documentation available to any third party without the prior written consent of GTECH. No rights or license to any patents, trademarks or copyrights of GTECH are granted to BAILEE hereby. 6. LOSS, INSURANCE. BAILEE shall bear all risks of loss. BAILEE hereby agrees to compensate GTECH at the stated value for Property which is lost, damaged or destroyed. BAILEE shall insure the Property for such stated value and upon request, shall give GTECH a certificate of insurance. 7. NO WARRANTY. The Property is provided to BAILEE without warranty of any kind, express, implied or statutory. In no event will GTECH be liable for any loss or damages whatsoever arising out of the use of or inability to use the Property. BAILEE is responsible for the backup and security of any data used with the Property. 8. MAINTENANCE; SUPPLIES. Unless specifically listed below, maintenance services for the Property and expendable supply items used in conjunction with the Property must be separately acquired by BAILEE. 9. GENERAL. Property shall be governed by this Bailment Agreement from the time at which BAILEE takes possession until the return of the Property to GTECH. This Agreement may be amended only in writing and shall be governed by Rhode Island law. 28 PROPERTY DESCRIPTION -------------------- () Property Description attached _________ pages. BAILEE GTECH CORPORATION BY BY ----------------------------- ------------------------------ SIGNATURE SIGNATURE - -------------------------------- --------------------------------- NAME NAME - -------------------------------- --------------------------------- TITLE TITLE - -------------------------------- --------------------------------- DATE DATE 29 Attachment 5 ------------ Non-Warranty Repair Costs ------------------------- All warranty repair costs wi11 be reviewed on the first anniversary date of the signing of this Agreement to determine non-warranty repair costs. Non-warranty repair costs will not exceed [ ]. Parts to be charged separately to GTECH at spare parts pricing for both mechanism only and mechanism with electronics (See attachment 2A). 30 Attachment 6 ------------ Manufacturing Rights -------------------- 1. MANUFACTURING DOCUMENTATION PACKAGE. Within [ ] upon commencement of this Agreement, VENDOR agrees to deliver to GTECH, or at VENDOR's option, to a mutually agreed upon second source manufacturer or to a mutually agreed upon escrow agent, all of the documentation and other information used by VENDOR to manufacture, test, maintain and support the Products (herein, the "Manufacturing Package") including, without limitation, the full and complete schematic diagrams, assembly drawings, structured Bills of Material, printed circuit board artwork, parts and vendor lists, test specifications, assembly aids and software in both machine readable source and object forms. As a part of this package, VENDOR also agrees to provide access to and joint control of vendor toolings, agency approval files (FCC, UL, CSA, VDE, etc.), a complete description of any special tools, fixtures and test equipment that are required but are not readily available in the marketplace. Neither GTECH nor any second source manufacturer or escrow agent will have any right to use the "Manufacturing Package" except as set forth in section 1.3 below or as otherwise authorized by VENDOR. If the Manufacturing Documentation Package is not delivered within the specified time, as stated above, this Agreement is null and void. 2. UPDATES; VERIFICATION; EXPENSES. VENDOR agrees to update the "Manufacturing Package" as necessary from time to time to keep the package current with the latest version of the Products delivered to GTECH under this Agreement. If the "Manufacturing Package" is delivered to any person other than GTECH, GTECH shall have the right to inspect the package from time to time to verify the contents of the "Manufacturing Package" and VENDOR's compliance with this section. All costs and expenses of any kind associated with the preparation and maintenance of the "Manufacturing Package" as well as any fees of any person other than GTECH holding the "Manufacturing Package" will be paid by VENDOR. 3. RIGHT TO MANUFACTURE. If any one or more of the following events occurs, GTECH shall have the right, including the rights under any of the VENDOR's applicable patents and copyrights, to use the "Manufacturing Package" to manufacture or have manufactured the Products: a.) VENDOR ceases doing business as an entity or is finally adjudicated a bankrupt under Chapter 7 of the Bankruptcy Act or any similar or successor provision for the liquidation or dissolution of VENDOR; b.) VENDOR admits in writing its inability to provide Products to GTECH strictly in accordance with the terms of the specifications and timetable of the Agreement between Magnetec and GTECH dated (DATE OF AGREEMENT) referred to in Section 2; c.) VENDOR assigns this Agreement in violation of section 25 of this Agreement to any person or organization that competes with 31 GTECH in any market or whose interests are otherwise inimical to GTECH's; d.) A petition in bankruptcy is filed by or against VENDOR and is not dismissed within ninety (90) days thereafter or if a receiver, trustee in bankruptcy or similar officer is appointed to take charge of all or a substantial part of VENDOR's property. Except as provided in this section or as otherwise authorized by VENDOR, neither GTECH nor any second source manufacturer shall have any right to use the "Manufacturing Package" for any purpose and shall hold such information confidential and shall not disclose such information to any party. 32 GTECH SPARE PARTS PRICING-PROVISION
PART GTECH MAT'L MAT'L LABOR TOTAL ITEM NUMBER DESCRIPTION PRICE COST O/H LABOR O/H COST - ---------------------------------------------------------------------------------------------------------- 1 SEM 2 ASSY, INTERCONNECT BD. GTECH 3 ASSY, PRINTER DRIVER BD. GTECH 4 ASSY, PRINTER LOGIC BD. GTECH 5 PIN, SPRING 6 BEARING, BALL 7 NUT, NYLON (4-40) 8 SHAFT, PIVOT 9 SPOOL, DRIVE CABLE 10 BEARING, PIVOT 11 COVER, ACCESS 12 SLIDE, BASE GTECH 13 SPRING 14 ROLLER, IDLER 15 PIN, PIVOT 16 PAPER, EXIT GUIDE 17 SPRING, KICKER 18 SHAFT, UPPER 19 #8 SEMS 20 SHAFT, LOWER 21 SPRING, COMPRESSION 22 ROLLER, IDLER 23 BEARING 24 CABLE, DRIVE 25 LATCH 26 SIDE, PLATE 27 ECCENTRIC, ADJ. 28 SCREW, #4 29 PIN, ROLL 30 SPRING, COVER 31 #6 SEMS 32 GROUND STRAP 33 CABLE, FLEX 34 #8 SQ. NUT 35 #4 SEMS 36 #8 WASHER 37 #8-32 SEMS 38 #8-32 SEMS 39 SOLENOID 40 SCREW, #6-32 41 MICROSWITCH 42 SPACER, SOLENOID 43 CLIP, SPRING 44 GROUND STRAP BASE 45 BELT, TIMING
33 GTECH SPARE PARTS PRICING-PRIORITY
PART GTECH ITEM NUMBER DESCRIPTION PRICE - ------------------------------------------------------------ 1 ASSY, PRINTHEAD 2 ASSY, CUTTER 3 ASSY, COVER & HANDLE 4 ASSY, P/H-CARRIAGE 5 ASSY, SHAFT & PULLEY 6 ASSY, RIBBON-MOTOR 7 ASSY, CARRIAGE-MOTOR 8 ASSY, PAPER, FEED-MOTOR 9 ASSY, SENSOR-HARNESS 10 ASSY, PAPER/OUT-SENSOR 11 ASSY, WIRE, HARNESS
EX-10.11 8 OEM PURCHASE AGREEMENT 1 Exhibit 10.11 [OKIDATA LETTERHEAD] April 26, 1996 Mr. Bart Shuldman Ithaca Peripherals Incorporated 7 Laser Lane Wallingford, CT 06492 Re: OEM Agreement Dear Bart: The purpose of this letter is to renew our OEM Agreement for another five (5) year term which will begin August 28, 1995 and expire August 28, 2000, with deliveries to be completed by February 28, 2001, and to replace Exhibit A with the new Exhibit A as attached. The terms and conditions of this new Agreement will be as stated in the OEM Agreement which we entered in January 21, 1991 and all subsequent agreed upon amendments made thereto. This Agreement will be subject to the provisions of a Strategic Agreement upon execution of that Agreement between the Parties. If you agree to this renewal contract, please indicate your acceptance by signing both originals in the space provided. Retain one duplicate original for your records and return the other to my attention. Certain we appreciate our long standing business relationship as we look forward to continued success in the future. Sincerely, Ithaca Peripherals Incorporated /s/ Bart C. Shuldman /s/ David L. Vaughn --------------------------------- (Signature) David L. Vaughn Manager, Legal Affairs Bart C. Shuldman --------------------------------- (Name) Enclosure May 9, 1996 --------------------------------- cc: T. Donahue (Date) E. Morris J. Rowley 2 T A B L E O F C O N T E N T S OKIDATA OEM PURCHASE AGREEMENT Page 1. TERM OF AGREEMENT ........................................... 2 2. CUSTOMER ORDERS ............................................. 2 3. PRICES ...................................................... 2 4. DELIVERY SCHEDULES .......................................... 3 5. RESCHEDULING OF DELIVERIES .................................. 3 6. CANCELLATION CHARGES ........................................ 4 7. CUSTOMER FORECASTS .......................................... 5 8. PAYMENT ..................................................... 5 9. PATENT INDEMNITY ............................................ 5 10. TERMINATION ................................................. 5 11. SHIPPING AND RISK OF LOSS ................................... 6 12. LIMITATION OF LIABILITY ..................................... 6 13. TRAINING .................................................... 7 14. VALUE ADDED ................................................. 7 15. EXPORT RESTRICTIONS ......................................... 7 16. CONFIDENTIALITY AND PROPRIETARY RIGHTS ...................... 7 17. GENERAL PROVISIONS .......................................... 8 EXHIBIT A - ...................................................... PRICES EXHIBIT B - ...................................................... WARRANTY EXHIBIT C - ...................................................... SPARE PARTS REVISED 1/24/90 3 OKIDATA DIVISION OF OKI AMERICA, INC. OEM PURCHASE AGREEMENT Ithaca Peripherals, Inc. agrees to purchase and OKIDATA Division of OKI AMERICA, INC., (OKIDATA) agrees to sell the Product(s) together with their associated documentation, in the quantity specified in the annexed Exhibit A (the Specified Quantity), at the prices set forth in that Exhibit A and upon the terms and conditions set forth herein. "Products" as used herein and throughout the Agreement pertain to printers. "Standard product" refers to that Product available "off the shelf" from OKIDATA without modification to meet a particular custom configuration. 4 1. TERM OF AGREEMENT The term of this Agreement shall be two (2) years commencing on the date on which the last of the parties executes this Agreement (the Effective Date). Orders placed during this twenty-four (24) month ordering period must be scheduled for delivery within thirty (30) months of the Effective Date. 2. CUSTOMER ORDERS Purchases by Customer will be by individual written Customer purchase orders made during the term of this Agreement issued to and accepted by OKIDATA. Each purchase order, subject to the conditions set forth in Paragraph 4 below, shall set forth the desired delivery schedule for each Product. 3. PRICES A. Subject to the conditions set forth in subparagraph B below, the unit price for the Specified Quantity and any quantity in excess thereof purchased by Customer shall be as set forth in Exhibit A. B. In the event Customer, during the [confidential treatment requested] term hereof, issues purchase orders for a quantity less than the Specified Quantity, the unit price of each Product shall be adjusted retroactively, in accordance with the pricing set forth in Exhibit A, to the quantity level actually purchased and OKIDATA may invoice for the price differential immediately. To facilitate compliance with this requirement, OKIDATA will review purchase orders issued by Customer for each Product twelve (12) months and eighteen (18) months after the Effective Date and anniversary date thereof for the following purposes: (i) If, at the end of [confidential treatment requested], Customer shall not have issued purchase orders for a [confidential treatment requested] of the Specified Quantity, the Specified Quantity shall be reduced to [confidential treatment requested], the unit price shall be retroactively adjusted to that for the reduced specified Quantity and OKIDATA may invoice immediately for the price differential for Products already delivered. All subsequent deliveries shall also be invoiced at the retroactively adjusted unit price. (ii) If, at the end of [confidential treatment requested] Customer shall not have issued purchase orders for a [confidential treatment requested] of the Specified Quantity, the Specified Quantity shall be reduced to [confidential treatment requested] by OKIDATA to that date (to the nearest lower unit) the unit price shall be retroactively adjusted to that for the reduced Specified Quantity and OKIDATA may invoice immediately for the 2 5 price differential for Products already delivered. All subsequent deliveries shall also be invoiced at the retroactively adjusted unit price. (iii) At the expiration of the term of this Agreement, the unit price of all Products purchased by Customer hereunder shall be adjusted for the quantity of such Products actually purchased and OKIDATA shall, as the case may be, either invoice Customer for any amounts retroactively due or issue a credit to Customer for overpayment. 4. DELIVERY SCHEDULES A. Deliveries for Product pursuant to each purchase order shall be scheduled to commence no earlier than one hundred twenty (120) days after its receipt of such order by OKIDATA. Notwithstanding the one hundred-twenty (120) days OKIDATA shall, at Customer's request, make reasonable efforts to deliver Products in as short a time as practicable and Customer shall accept same when so delivered. 5. RESCHEDULING OF DELIVERIES A. With respect to any Standard Product on any single purchase order, Customer may, by issuing a written amendment to that purchase order, and upon the following conditions, reduce the quantity of the Standard Product to be delivered in accordance with the purchase order delivery schedule: (i) There has been no prior reduction in delivery of that Product on that purchase order. (ii) A new delivery schedule will be set forth in the amendment for Standard Products deleted from the original delivery schedule of the purchase order. (iii) A maximum reduction of seventy-five (75%) percent of the quantity may be made provided the amendment is received by OKIDATA more than sixty (60) days prior to scheduled delivery. (iv) A maximum reduction of fifty (50%) percent of the quantity may be made provided the amendment is received by OKIDATA between thirty-one (31) and sixty (60) days prior to scheduled delivery. (v) Any attempted reduction exceeding the quantities set forth in this Paragraph 5, to the extent of the excess of the quantities specified in sub-paragraphs C and D, and any attempted reduction made within thirty (30) days prior to scheduled delivery may, at the option of 3 6 OKIDATA, be treated as a cancellation, effective on the date purchase order, and Customer shall pay the cancellation charges set forth in Paragraph 6 below. B. Rescheduling of deliveries for Non-Standard Product will be quoted on a case by case basis and will vary from the above modification required and a fully executed addendum will be enjoined to this Agreement accordingly. 6. CANCELLATION CHARGES A. In the event Customer cancels any purchase order or portion thereof, Customer, upon receipt of invoice shall pay OKIDATA cancellation charges computed for Standard Product as follows: CANCELLATION NOTICE RECEIVED BY OKIDATA CANCELLATION CHARGE 31 to 60 days prior to Ten (10%) percent of the originally scheduled Specified Quantity price. delivery date. Excess of 60 days No charge. Cancellation notices received within the thirty (30) day period prior to the originally scheduled delivery or attempted cancellation of a previously rescheduled deliveries will be void and of no force and effect, and Customer will be liable for the full unit price of each Standard Product. B. Cancellation charges for "Non Standard Product" will vary depending on the extent that the "Non Standard Product" differ from the Standard Product as set forth in an addendum to this Agreement. 7. CUSTOMER FORECASTS Once each month Customer will furnish to OKIDATA a written non-binding forecast of its requirements for the Product(s) for the ensuing one-hundred eighty (180) days. 8. PAYMENT A. Payment shall be made within [confidential treatment requested] from the date of invoice, or, in the event special terms are required, those terms as specified by OKIDATA to Customer. Interest shall accrue thereafter at the rate of [confidential treatment requested] on the unpaid balance. 4 7 B. Prices are exclusive of any sales, use, property, and like taxes. Any such tax OKIDATA may be required to collect or pay upon the sale or delivery of the Products shall be promptly reimbursed by Customer. 9. PATENT INDEMNITY A. OKIDATA shall defend or settle any suit or proceeding brought against Customer to the extent that such suit or proceeding is based on a claim that Products manufactured to OKIDATA's design and purchased hereunder constitute an infringement of an existing United States Patent, provided OKIDATA is notified promptly in writing and given complete authority, information and assistance required for defense of same, and OKIDATA shall pay all damages and costs awarded as a result thereof against Customer. OKIDATA, however, shall not be responsible for any cost, expense, or compromise incurred or made by Customer without OKIDATA's prior written consent. B. In the event any Product furnished hereunder is, in OKIDATA's opinion, likely to or does become the subject of a claim of infringement of a patent, OKIDATA may, at its option and expense, procure for Customer the right to continue using the Product, replace same with a non-infringing Product of similar capability, or modify the Product so it becomes non-infringing. If, in OKIDATA's opinion, none of the foregoing alternatives is reasonably available to OKIDATA, OKIDATA may terminate this Agreement forthwith by written notice to Customer and, upon return or disposal of the Product in accordance with the written instructions of OKIDATA, refund the price paid by Customer, less straight line depreciation on the basis of a five (5) year life of the Product. C. OKIDATA shall have no responsibility or liability for any claim of infringement (i) arising out of the use of its Products in combination with non-OKIDATA products, or (ii) if such infringement arises out of Product manufactured to Customer's design, or (iii) if such infringement arises as a result of a customer modification to the product. D. The foregoing states the entire liability of OKIDATA with respect to infringement of any patent by the Products of OKIDATA or any parts thereof and, anything herein to the contrary notwithstanding, OKIDATA's liability to Customer hereunder shall in no event exceed the total price plus taxes and other associated charges paid to OKIDATA by Customer for each infringing Product purchased pursuant to this Agreement. 10. TERMINATION This Agreement may be terminated or canceled as follows: 5 8 A. By either party at any time if the other party violates any provision of this Agreement. The defaulting party shall have a period of thirty (30) days from the date of receipt of written notice from the non-defaulting party describing the default within which to remedy the default. Should Customer be the defaulting party, OKIDATA, during the aforesaid thirty (30) day period, shall be relieved of any obligations imposed on it by this Agreement until the default is cured. The termination shall become effective at the end of the thirty (30) day period if the defaulting party has failed to remedy the default. B. If either party (i) admits in writing its inability to pay its debts generally as they become due, or (ii) makes an assignment for the benefit of its creditors, or (iii) institutes or consents to the filing of a petition in bankruptcy, whether for reorganization or liquidation, under federal or similar applicable state laws, or (iv) is adjudged bankrupt or insolvent by a court having jurisdiction, then in either of such events, the other party may, by written notice, immediately terminate this Agreement. C. Termination by OKIDATA of this Agreement or any other similar agreement with Customer shall be sufficient justification, at OKIDATA's option, and without liability to OKIDATA, for termination of any or all other Agreements between OKIDATA and Customer. D. Customer's obligation to pay for all Products received by it hereunder shall survive termination of this Agreement. Moreover, should termination be effected by OKIDATA for any of the reasons set forth in this Paragraph 10, Customer shall be liable for the undelivered quantity of Products to the same extent as if Customer had canceled deliveries pursuant to Paragraphs 3.B. or 6 above, at OKIDATA's option. 11. SHIPPING AND RISK OF LOSS All prices are F.O.B. OKIDATA's Cherry Hill, N.J. facilities. OKIDATA will package the Products in accordance with accepted standard commercial practices for normal shipment considering the type of Product involved and the normal risks encountered in shipments. Customer shall designate the method of shipment on each individual purchase order issued against this Agreement. OKIDATA shall arrange for shipment by the designated method. All transportation charges are freight collect. 12. LIMITATION OF LIABILITY In no event will OKIDATA be liable for loss of profits or incidental, special, or consequential damages arising out of any breach of obligations under this Agreement, nor will OKIDATA be liable for any damages caused by delay in delivery of the Products being purchased hereunder. 6 9 13. TRAINING OKIDATA will provide one course for six (6) Customer Employees for a period appropriate to the particular Product purchased (usually two (2) days). The course will be given at OKIDATA's Mt. Laurel facility and will be scheduled at a mutually agreeable time. OKIDATA will provide course material and documentation free of charge. Travel and living expenses are to be borne by Customer. Customer on-site training may be given at Customer's expense and in accordance with OKIDATA's policy at the time of execution of this Agreement. 14. VALUE ADDED Customer warrants and represents that the Products purchased hereunder are for use and resale by Customer as part of, or as accessories to, equipment manufactured or assembled by Customer. 15. EXPORT RESTRICTIONS Customer warrants that it shall not at any time make or permit any export or reexport of OKIDATA products directly or indirectly to any country, without full compliance with United States export laws and regulations as issued by the United States Department of Commerce, Office of Export Administration, as amended from time to time, as those laws and regulations apply to OKIDATA products, and all other things delivered to, or derived from things delivered to, Customer under the OEM Purchase Agreement. Customer's failure to comply with the requirements of this paragraph constitutes an event of default giving OKIDATA the right to terminate the OEM Purchase Agreement immediately. 16. CONFIDENTIALITY AND PROPRIETARY RIGHTS Customer (including its agents and employees) warrants that it shall not disclose to any third party, or use or reproduce for any purpose whatsoever, and treat as proprietary to OKIDATA, OKIDATA's trade secrets, technical data, methods, processes or procedures or any other confidential, financial, or business information or data of OKIDATA which Customer has access to or becomes aware of during the course of its performance of the OEM Purchase Agreement, without the prior written consent of OKIDATA. Nothing herein shall limit Customer's use or dissemination of information not derived from OKIDATA, or any information that was, 7 10 or subsequently has been, made public by OKIDATA. This obligation shall survive the cancellation or other termination of the OEM Purchase Agreement. 17. GENERAL PROVISIONS A. All notices required to be given hereunder will be sent by registered or certified mail, return receipt requested, postage prepaid, forwarded to the appropriate party at the address shown below, or at such other addresses as that party may, from time to time, advise in writing, and which have been received in the ordinary course of post. B. Neither party shall have the right to assign its rights or obligations under this Agreement except with the written consent of the other party, provided, however, that a successor in interest by merger, by operation of law, or by assignment, purchase or otherwise of the entire business of either party, shall acquire all interest of such party hereunder. Any prohibited assignment shall be null and void. C. The failure of either party to enforce at any time the terms, conditions, requirements, or any other provisions of this Agreement shall not be construed as a waiver by such party of any succeeding non-performance of the same term, condition, requirement or any other provision of this Agreement. D. The headings of paragraphs contained herein are for convenience and reference only and are not a part of this Agreement, nor shall they in any way affect the interpretation thereof. E. The parties agree that if any portion of this Agreement shall be held illegal and/or unenforceable, the remaining portions of this Agreement shall continue to be binding and enforceable provided that the effectivity of the remaining portion of this Agreement would not defeat the overall business intent of the parties, or give one party any substantial financial benefit to the detriment of the other party. F. This Agreement and its appendices shall be governed by the laws of the party against whom a claim is being made in any dispute, or if such claim is made in litigation, by the laws of the state of the defendant. 8 11 G. This Agreement constitutes the entire Agreement between the parties and supersedes all prior discussion either oral or in writing. H. The terms and conditions of this Agreement will prevail notwithstanding any variance with the terms and conditions of any order or release submitted by Customer, or any release acknowledgment returned by OKIDATA. Except as expressly set forth in this Agreement, this Agreement shall not be deemed, or construed to be, modified, amended, rescinded, or canceled in whole or in part, except by written amendment executed by the parties hereto. I. EXHIBIT B, WARRANTY, AND EXHIBIT C, SPARE PARTS, attached hereto, are hereby incorporated herein by this reference. IN WITNESS WHEREOF, the parties hereto have set their names on the dates hereinafter set forth. ITHACA PERIPHERALS, INC. OKIDATA 767 Warren Road Division of OKI AMERICA, ITHACA, NY 13073 532 Fellowship Road Mt. Laurel, New Jersey 08054 BY: /s/ S. SCOTT KUMPF BY: /s/ D. L. VAUGHN -------------------- ---------------------- S. Scott Kumpf David L. Vaughn - ------------------------ ---------------------------- Typed name Typed name President Mgr. Sales Operations Mgmt. - ------------------------ ---------------------------- Title Title 1/18/91 1/21/91 - ------------------------ ---------------------------- Date Date 9 12 EXHIBIT A
Product Specification Order Quantity ITHACA Price Number Mult. - ------------------------------------------------------------------------------------------------- ITHACA ML172 Parts Kit, 500 IBM Parallel 120 VAC. ITHACA ML172 Parts Kit, 500 IBM Parallel, 220 VAC. ITHACA ML172 Parts Kit, 500 IBM RS-232C Serial, 120 VAC. ITHACA ML172 Parts Kit, 500 [Confidential Treatment Requested] IBM RS-232C Serial, 220 VAC. ITHACA ML184T Parts Kit, 500 IBM Parallel, 120 VAC. ITHACA ML184T Parts Kit, 500 IBM Parallel, 220 VAC. ITHACA M90 Kit 500 * * * Specified Quantity Other pricing is provided for retroactive pricing as necessary.
NOTE: The Product contained in this Exhibit "A" Agreement is NOT covered by an OKIDATA warranty and does not include a ribbon cassette, AC line cord or carriage shaft. EX-10.12 9 STRATEGIC AGREEMENT BETWEEN OKIDATA AND TRIDEX 1 Exhibit 10.12 [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED, ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 406. STRATEGIC AGREEMENT BETWEEN TRIDEX CORPORATION AND OKIDATA 2 TABLE OF CONTENTS The Overriding Character of this Agreement ................................. 1 Duration and Termination ................................................... 2 Sales and Marketing Responsibility ......................................... 2 Manufacturing Responsibility ............................................... 3 Right of First Refusal ..................................................... 3 Proprietary Rights and Non-disclosure ...................................... 3 Disputes ................................................................... 4 Notice ..................................................................... 5 Force Majeure .............................................................. 5 Entire Agreement ........................................................... 5 Controlling Law ............................................................ 5 Assignment ................................................................. 5 Non-Waiver ................................................................. 5 Paragraph Headings ......................................................... 5 Severability ............................................................... 6 Independent Contractors .................................................... 6 3 STRATEGIC AGREEMENT This is a Strategic Agreement dated as of ___________________, between Tridex Corporation, a Connecticut Corporation, with offices at 61 Wilton Road, Westport CT 06880 (hereinafter "TPG") and OKIDATA, a Division of Oki America, Inc., a Delaware Corporation, with offices at 532 Fellowship Road, Mt. Laurel, NJ 08054 (hereinafter "Okidata"). Whereas, Okidata is a company engaged in the development, manufacture, marketing, sales, and service of computer peripherals and related consumables. Whereas, TPG is a Division of Tridex Corporation engaged in the development, manufacture, and sale of Point of Transaction/Sale Systems. Whereas, both companies desire to use their resources, alliances, and knowhow to grow together in the Point of Transaction/Sale marketplace. Now therefore, in consideration of the mutual promises hereinafter set forth, and intending to be legally bound, the parties agree as follows: A. The Overriding Character of this Agreement 1. Unless otherwise agreed by both parties in writing, This Strategic Agreement applies to all present and future Subsidiary Agreements, both domestic and international, between the parties, their subsidiaries and affiliates as it relates to sales and purchases of equipment utilized in the Point of Transaction/Sale Marketplace as further described in section four of this clause. Each Subsidiary Agreement will be appended to this Strategic Agreement as an addendum after its execution by the parties. 2. Unless otherwise agreed by both parties in writing for a specific transaction, no inconsistent or additional term or condition in any Subsidiary Agreement shall be applicable to a transaction within the scope of this Strategic Agreement. Both parties specifically agree that any terms and conditions in any Subsidiary Agreements which are in any way inconsistent with this Strategic Agreement shall be inapplicable and the terms of this Strategic Agreement shall govern unless such terms and conditions clearly indicate to the contrary. 3. The parties agree to use reasonable efforts to place a legend on each Subsidiary Agreement within the scope of this Strategic Agreement substantially as follows: "This Agreement is subject to the provisions of a Strategic Agreement dated ___________________, between the parties." 4 The terms of this Strategic Agreement shall, however, apply to any Subsidiary Agreement under its terms regardless of whether any such legend shall have been placed on same. 4. This Strategic Agreement will apply to forty column or less dot matrix printer products and thermal printer products which are used in equipment designed to support Point of Transaction/Sale processing (hereinafter "Products"). 5. The parties will strive to produce products, sub-components, accessories, and consumables which provide the lowest cost and best value possible for the Point of Transaction/Sale marketplace. B. Duration and Termination 1. The effective date of this Strategic Agreement is _____________. Unless canceled according to the provisions of subparagraphs 2 and 3, below, this Agreement shall be in force and effect for a period of five (5) years from the effective date. 2. In case either party shall breach this Agreement or any attachments hereto, or be in default of the effective performance or any of the terms, conditions, covenant or agreements contained in this Strategic Agreement or any Subsidiary Agreement, the other party may give to such breaching or defaulting party written notice of such breach or default, and if such breaching or defaulting party does not effect an adequate cure thereof within sixty (60) days after the date of said notice, this Strategic and all Subsidiary Agreements may be terminated at the option of the complaining party by dispatch of written notice to that effect. The foregoing is in addition to any rights or remedies the non-defaulting party may have in law or in equity. 3. In the event that one of the parties to this agreement ceases to carry on its business or becomes the subject of any proceedings under state or federal law for the relief of debtors or otherwise become insolvent, bankrupt, or makes an assignment for the benefit of creditors, the other party, at its option, may terminate this Strategic Agreement or any Subsidiary Agreement by written notice to said party. C. Sales and Marketing Responsibility. The parties agree to review various territories throughout the world, with the exception of the United States and Canada, which Territories remain the exclusive territories of TPG, for the development and implementation of Exclusive Sales Agreements for Products, which agreements upon execution by duly authorized representatives of the parties, shall be subsidiary Agreements. All Exclusive Sales Agreements will include at a minimum, the geographic territory boundaries to which they apply, the Products and services to be offered, and a sales volume forecast. 5 D. Manufacturing Responsibility 1. Unless further Agreed by the parties, or allowed under the terms of this Strategic Agreement, Okidata will not manufacture Products as defined in this Agreement for the term of this Strategic Agreement. 2. TPG will purchase all dot matrix printer mechanisms and controls in kit form for Ithaca division produced products (hereinafter "Kits"), from Okidata for the term of this Agreement. E. Right of First Refusal Okidata will first approach TPG for additional Products as defined in this Agreement it may need but are not yet available from TPG, to fulfill customer needs within any Exclusive Sales Territory. TPG will be given a reasonable time (not to exceed sixty days) to review and evaluate such Product needs and decide whether or not it can produce same for Okidata within the specifications, costs, and time frames required. If TPG cannot meet these requirements, then Okidata may source the Product from other sources including Okidata facilities, all other terms and conditions hereof notwithstanding. F. Proprietary Rights and Non-disclosure 1. Each party acknowledges that in the implementation of this Strategic Agreement it may receive information from the other which is considered to be a proprietary trade secret or which is copyrighted, trademarked or patented. Each party agrees to treat as confidential all such information received by it and so designated in writing as confidential, or if so designated verbally, said designation being confirmed in writing within ten (10) days. Said confidential information shall be held and used with the same degree of care to avoid disclosure as the receiving party would employ with respect to its own proprietary trade secret, confidential, or proprietary information. 2. The following information shall be deemed proprietary and confidential or as representing trade secret information and the obligation of this article shall not apply to any such material which: a. is known to the receiving party from third parties at time of receipt; b. is or becomes publicly known through no wrongful act of the receiving party; c. is developed independently by the receiving party; or d. is approved for release by written authorization from whichever party owns the information in question. 6 3. Except as required by law or to conform with the law, neither party will advertise, issue press releases or otherwise disclose the existence of this Agreement or any terms hereof or arrangements hereunder without the other parties prior written consent. 4. The provisions of this paragraph F shall survive termination of this Agreement for any reason. 5. The parties acknowledge that there is no adequate remedy at law for a breach by any party of the provisions of this paragraph F and agree that the non-breaching party shall have the right to seek and obtain injunctive relief with respect to any breach or threatened breach of the provisions of this paragraph F by the other party, provided that the right shall in no way diminish the jurisdiction of the arbitration provisions of paragraph G except in respect to the specific provisions of this paragraph. G. Disputes Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules of the alternative dispute resolutions firm JAMS/Endispute or its successor or if no such successor exists, the Commercial Arbitration Rules of the American Arbitration Association, said arbitration to take place in Philadelphia, Pennsylvania, and judgement upon the award rendered by the arbitrator(s) may be entered into any court having jurisdiction thereof, and shall be non-appealable and fully enforceable. H. Notice Any notice, request, demand, or other communication that is required or permitted under this Agreement shall be deemed properly given if it is deposited in the United States Mail, postage prepaid, properly addressed as follows: 1. If to The Printer Group; 7 Laser Lane Wallingford, CT 06492 Attn.: Bart Shuldman President 2. If to Okidata; OKIDATA, Division of Oki America, Inc. 532 Fellowship Road Mt. Laurel, NJ 08054 Attn.: David L. Vaughn Manager, Legal Affairs 7 I. Force Majeure Neither party shall be liable for any default hereunder due to causes beyond its reasonable control and occasioned without its fault or negligence including, but not limited to, acts of God, public enemy, fire, flood, shipwreck, strikes, freight and shipping embargoes, governmental order, regulations or action, provided that, in order to excuse its default hereunder for any one or more of the reasons enumerated above, upon the occurrence thereof, said party shall notify immediately the other of the existence of any such causes and best efforts will be made to correct the problem. J. Entire Agreement This Strategic Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof, there being no contemporaneous understandings, agreements or representations, promises or inducements whatsoever except any Subsidiary Agreements, and supersedes all prior agreements, promises, representations and warranties, written or verbal, between the parties. K. Controlling Law The validity, interpretation, and performance of this agreement shall be governed under the laws of the state of New Jersey without giving effect to its conflict of laws provisions. L. Assignment Neither party shall have the right to assign or otherwise transfer its rights and obligations under this Strategic Agreement or any Subsidiary Agreement except to a subsidiary of such party or with the prior written consent of the other party. M. Non-Waiver The failure of either party to enforce at any time the terms, conditions, requirements, or any other provisions of this Strategic or any Subsidiary Agreement shall not be construed as a waiver by such party of any right regarding any succeeding non-performance of the same term, condition, requirement or any other provision. N. Paragraph Headings The headings of paragraphs contained herein are for convenience and reference only and are not a part of this Strategic Agreement, nor in any way affect the interpretation thereof. 8 O. Severability The parties agree that if any portion of this Strategic Agreement or any Subsidiary Agreement shall be held illegal and/or unenforceable, the remaining portions of this Strategic Agreement shall continue to be binding and enforceable provided that the remaining portion of this said Agreement would not defeat the overall business intent of the parties, or give one party any substantial financial benefit to the detriment of the other party. P. Independent Contractors The relationship of the parties as established under this Strategic Agreement shall be and at all times remain one of independent contractors, and neither party shall at any time or in any way represent itself as being an agent, partner or other representative of the other party or as having authority to assume or create obligations or otherwise act in any manner on behalf of the other party. IN WITNESS WHEREOF, the parties have executed this Strategic Agreement by duly authorized representatives as of the date first set forth above. Tridex Corporation OKIDATA, Division of Oki America, Inc. By: /s/ Seth M. Lukash By: /s/ David L. Vaughn ---------------------------- ------------------------------- Name: Seth M. Lukash Name: David L. Vaughn -------------------------- ----------------------------- (Printed or Typewritten) (Printed or Typewritten) Title: Chairman CEO Title: Mgr., Legal Affairs -------------------------- ----------------------------- Date: May 9, 1996 Date: May 8, 1996 -------------------------- ----------------------------- EX-10.18 10 ASSET TRANSFER AGREEMENT 1 EXHIBIT 10.18 ------------- ASSET TRANSFER AGREEMENT ------------------------ THIS ASSET TRANSFER AGREEMENT (the "Agreement") is entered into by and between MAGNETEC CORPORATION, a Connecticut corporation ("Magnetec"), and TRIDEX CORPORATION, a Connecticut corporation ("Tridex"). WHEREAS, Magnetec desires to transfer to Tridex and Tridex desires to acquire from Magnetec all of the assets owned and used by Magnetec in Magnetec's ribbon business (the "Ribbon Business"). NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. TRANSFER OF ASSETS. (a) Magnetec hereby agrees to transfer to Tridex, at the Closing (as defined in Section 7.1) all of Magnetec's right, title and interest in and to the assets of Magnetec listed on SCHEDULE 1 attached hereto, which constitute all of the equipment, inventory (whether components, work-in progress or finished goods), unfilled customer purchase orders, accounts receivable, packaging, sales literature and other supplies used by Magnetec exclusively in the conduct of the Ribbon Business (the "Assets"). (b) The Assets are being transferred to Tridex "as is" and "where is" without any warranties of quality or fitness except as hereinafter set forth. 2. ASSUMPTION OF LIABILITIES. Tridex hereby agrees to assume all liabilities and obligations of Magnetec (a) for accrued but unused vacation days as set forth on SCHEDULE 2(a) attached hereto, due to employees engaged in the Ribbon Business who, in connection with the Closing, cease to be employees of Magnetec and become employed by Tridex and (b) under any purchase orders submitted by customers of Magnetec as set forth on SCHEDULE 2(b) attached hereto which remain unperformed or unfilled at the time of the Closing and are assigned to Tridex by Magnetec. 3. CONSIDERATION FOR TRANSFER OF ASSETS. Tridex and Magnetec agree that, at Closing, Magnetec shall accept, in consideration for the transfer of the Assets, cancellation of intercompany indebtedness, owed by Magnetec to Tridex, in an amount equal to the book value of the Assets at the date of the closing. Tridex and Magnetec acknowledge that such book value was approximately $228,000 at June 29, 1995. 2 4. REPRESENTATIONS AND WARRANTIES OF MAGNETEC. Magnetec represents and warrants to Tridex as follows: 4.1 CORPORATE STATUS. Magnetec is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. 4.2 DUE AUTHORIZATION. The entry by Magnetec into this Agreement and the transfer of the Assets to Tridex hereunder have been duly authorized by all requisite corporate action. 4.3 TITLE TO ASSETS. Magnetec has good and marketable title to the Assets free and clear of all liens and encumbrances (except for a lien on the Assets held by Fleet Bank, National Association pursuant to an Amended and Restated Credit Agreement dated as of December 15, 1995 and last amended on March 15, 1996 (the "Credit Agreement")). 4.4 CONDITION OF ASSETS. The inventory included in the Assets is of a quality useable and saleable in the ordinary course of business. All other tangible personal property, including manufacturing equipment, transferred hereunder is in reasonably good operating condition and repair, subject to normal wear. 4.5 SUFFICIENCY OF ASSETS. The Assets transferred by Magnetec to Tridex pursuant to this Agreement constitute all of the assets used by Magnetec exclusively in the conduct of the Ribbon Business and, in combination with the services to be provided by Magnetec to Tridex pursuant to a Manufacturing Services Agreement, in the form attached hereto as EXHIBIT 7.2(b) (the "Manufacturing Services Agreement"), are sufficient to conduct the Ribbon Business as presently conducted by Magnetec. 5. Representations and Warranties of Tridex. ---------------------------------------- 5.1 CORPORATE STATUS. Tridex is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. 5.2 DUE AUTHORIZATION. The entry by Tridex into this Agreement and the transfer of the assets from Magnetec to Tridex hereunder has been duly authorized by all requisite corporate action. 2 3 6. Conditions Precedent to Closing. ------------------------------- 6.1 Conditions Precedent to Tridex's Closing. ---------------------------------------- The obligations of Tridex under this Agreement are subject to the satisfaction, at or before the Closing, of the conditions set out below. (a) ACCURACY OF REPRESENTATIONS. All representations and warranties made by Magnetec in this Agreement will be true as of the Closing as though made at that time. (b) ABSENCE OF LITIGATION. No action, suit, or proceeding before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or its consummation, will have been instituted or threatened as of the Closing. (c) BANK CONSENT. Fleet Bank, National Association shall have consented to the transactions contemplated by this Agreement, including but not limited to the transactions under the Manufacturing Services Agreement. 6.2 Conditions Precedent to Magnetec's Closing. ------------------------------------------ The obligations of Magnetec under this Agreement are subject to the satisfaction, at or before the Closing, of the conditions set out below. (a) ACCURACY OF REPRESENTATIONS. All representations and warranties made by Tridex in this Agreement will be true as of the Closing as though made at that time. (b) ABSENCE OF LITIGATION. No action, suit, or proceeding before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or its consummation, will have been instituted or threatened as of the Closing. (c) BANK CONSENT. Fleet Bank, National Association shall have consented to the transactions contemplated by this Agreement, including but not limited to the transactions under the Manufacturing Services Agreement. 3 4 7. Closing. ------- 7.1 Time and Place. -------------- The transfer of the Assets by Magnetec to Tridex (the "Closing") shall take place on September 27, 1996 at the offices of Magnetec, 7 Laser Lane, Wallingford, Connecticut at 10:00 a.m., or at such other time and place as the parties shall mutually agree, but in no event later than December 31, 1996. 7.2 Magnetec's Obligations at Closing. --------------------------------- At the Closing, Magnetec will deliver to Tridex the following documents: (a) An Assignment and Assumption Agreement, in substantially the form attached hereto as EXHIBIT 7.2(a) (the "Assignment and Assumption Agreement"), duly executed by Magnetec, assigning and transferring to Tridex all of Magnetec's right, title and interest in and to the customer purchase orders which remain unfilled or unperformed as of the date of the Closing. (b) The Manufacturing Services Agreement, in substantially the form attached hereto as EXHIBIT 7.2(b), duly executed by Magnetec, regarding the provision of services to Tridex by Magnetec with respect to the operation of the Ribbon Business. (c) An Instrument of Transfer, in substantially the form attached hereto as EXHIBIT 7.2(c), transferring the Assets from Magnetec to Tridex. 7.3 Tridex's Obligation at Closing. ------------------------------ At the Closing, Tridex will deliver to Magnetec the following: (a) The Assignment and Assumption Agreement, duly executed by Tridex. (b) The Manufacturing Services Agreement, duly executed by Tridex. (c) Proof of cancellation of indebtedness by Tridex. 8. FURTHER ASSURANCES. Magnetec and Tridex will execute and deliver such additional documents and take such additional actions as may be necessary to carry out the transactions contemplated by this Agreement. 4 5 9. TITLES. The title of this Agreement and the titles of sections and subsections, and of exhibits, are for convenience of reference only and will not be considered in the construction or interpretation hereof. 10. SURVIVAL. All representations, warranties and agreements contained in this Agreement will survive for six (6) months from the date of the Closing. 11. ENTIRE AGREEMENT. This Agreement and the schedules hereto constitute the entire agreement and understanding between the parties in respect of the subject matter hereof and supersede any prior or contemporaneous agreement or understanding between the parties, written or oral, which relates to the subject matter hereof. 12. SUCCESSORS AND ASSIGNS. References in this Agreement to the parties hereto will be deemed to include their successors and permitted assigns and this Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns. 13. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 15. AMENDMENTS. This Agreement may be amended or modified only by a written instrument signed by the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on the _______ day of July, 1996. MAGNETEC CORPORATION By:____________________________ Title:_________________________ TRIDEX CORPORATION By:____________________________ Title:_________________________ 5 EX-10.20 11 EMPLOYMENT AGREE.BETWEEN CO. & BART C. SHULDMAN 1 EXHIBIT 10.20 ------------- EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is entered into as of the 31st day of July, 1996, by and between TransAct Technologies Incorporated, a Delaware corporation with a mailing address of 7 Laser Lane, Wallingford, Connecticut 06492 (the "Company"), and Bart C. Shuldman, an individual with a residence address of 502 Harvest Commons, Westport, Connecticut 06880 ("Executive"). INTRODUCTION ------------ 1. The Company is in the business of designing, developing, manufacturing and marketing Point of Sale printers and related products (the "Business"). Executive conceived and developed certain concepts currently used in the Company's operations and possesses other skills and knowledge advantageous to the Company. 2. The Company desires to employ Executive and Executive desires to accept such employment on the terms and conditions set forth herein. AGREEMENT --------- In consideration of the premises and mutual promises hereinbelow set forth, the parties hereby agree as follows: 1. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment Period") shall commence on the date hereof and, subject to termination by the Executive or the Company as hereinafter provided, shall continue for a period of two (2) years beginning on the first day of each month after the date hereof. 2. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company hereby employs Executive to act as President and Chief Executive Officer of the Company during the Employment Period, and Executive hereby accepts such employment. The duties assigned and authority granted to Executive shall be as set forth in the By-laws of the Company and as reasonably determined by its Board of Directors from time to time. Executive agrees to perform his duties for the Company diligently, competently, and in a good faith manner. 3. SALARY AND BONUS. (a) BASE SALARY. The Company agrees to pay Executive $185,000 per year, payable weekly in arrears. Executive's base 2 salary shall not be decreased. In addition, no later than March 31 of each year during the Employment Period, commencing March 31, 1997, the Board of Directors of the Company (or any appropriate committee thereof) shall review and may increase, but not decrease, the Executive's annual base salary in its discretion, based upon the Company's performance and the Executive's particular contributions. (b) BONUS. Executive shall have an opportunity to earn an annual cash bonus commensurate with his position as President and Chief Executive Officer under the Company's Executive Incentive Compensation Plan, subject to the discretion of the Company's Board of Directors (or any appropriate committee thereof.) 4. OTHER BENEFITS. (a) INSURANCE AND OTHER BENEFITS. The Executive shall be entitled to participate in, and shall receive the maximum benefits available under, the Company's insurance programs (including health, disability and life insurance) and any ERISA benefit plans, as the same may be adopted and/or amended from time to time, and shall receive all other fringe benefits that are provided by the Company to other senior executives. The Company shall contribute to the Executive's account the maximum amount permitted under the Company's 401(k) Plan and any other Company pension or retirement plan during the Employment Period. (b) VACATION. Executive shall be entitled to an annual vacation of such duration as may be determined by the Board of Directors, but not less than that generally established for other executives of Company and in no event less than three (3) weeks, without interruption of salary. (c) AUTOMOBILE ALLOWANCE. The Company shall provide the Executive with the automobile allowance provided for the office of President and Chief Executive Officer under the Company's automobile allowance policy. (d) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties or responsibilities under this Agreement, provided that Executive submits to the Company substantiation of such expenses sufficient to satisfy the record keeping guidelines promulgated from time to time by the Internal Revenue Service. (e) SERVICE FEES. The Company shall reimburse the Executive, in an aggregate amount not to exceed $1,500 per year, 2 3 for professional and other fees incurred by Executive in connection with (i) an annual medical examination of Executive and (ii) the annual planning for and preparation of Executive's personal income tax returns. The Company shall also reimburse the Executive, for estate planning services performed during the Employment Period, an aggregate amount not to exceed $1,500 and for the reasonable fees and expenses of counsel for the Executive incurred in connection with the negotiation and execution of this Agreement, an amount not to exceed $5,000. (f) CONSULTING AGREEMENT. If any amounts due or paid to Executive would constitute an Excess Parachute Payment under Section 280G of the Internal Revenue Code of 1986, such excess, including any excise tax thereon, shall be paid to Executive for consulting services rendered by Executive after termination of this Agreement. 5. TERMINATION BY THE COMPANY WITH CAUSE. The Company may terminate this Agreement if any of the following events shall occur: (a) the death or disability of the Executive (For purposes of this Agreement, "disability" shall mean the Executive's incapacity due to physical or mental illness which has caused the Executive to be absent from the full-time performance of his duties with the Company for a period of six (6) consecutive months.); (b) any action or inaction by the Executive that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the directors or officers of the Company, its successors or assigns, a crime involving moral turpitude; or (c) the refusal of the Executive to follow the reasonable and lawful written instructions of the Board of Directors of the Company with respect to the services to be rendered and the manner of rendering such services by Executive, provided such refusal is material and repetitive and is not justified or excused either by the terms of this Agreement or by actions taken by the Company in violation of this Agreement, and with respect to the first two refusals Executive has been given reasonable written notice and explanation thereof and reasonable opportunity to cure and no cure has been effected within a reasonable time after such notice. The Company may terminate this Agreement pursuant to this Section 5 upon written notice to the Executive, except for termination due to the death of the Executive, which shall require no notice. 3 4 6. TERMINATION AND SEVERANCE. 6.1 Notice/Events/Defined Terms. --------------------------- (a) TERMINATION BY THE EXECUTIVE. Executive may terminate this Agreement at any time by providing written notice to the Company. (b) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate this Agreement at any time, without Cause by providing written notice to Executive. As used in this Agreement, the term "without Cause" shall mean termination for any reason not specified in Section 5 hereof, except for retirement upon reaching the mandatory retirement age of sixty-five (65). (c) CHANGE IN CONTROL. A "Change in Control" will be deemed to have occurred if: (1) a Takeover Transaction occurs; or (2) any election of directors of the Company takes place (whether by the directors then in office or by the stockholders at a meeting or by written consent) and a majority of the directors in office following such election are individuals who were not nominated by a vote of two-thirds of the members of the Board of Directors immediately preceding such election; or (3) the Company effectuates a complete liquidation of the Company or a sale or disposition of all or substantially all of its assets. A "Change in Control" shall not be deemed to include, however, a merger or sale of stock, assets or business of the Company if the Executive immediately after such event owns, or in connection with such event immediately acquires (other than in the Executive's capacity as an equity holder of the Employer or as a beneficiary of its employee stock ownership plan or profit sharing plan), any stock of the buyer or any affiliate thereof which, at the time of Executive's initial investment in such stock, had a purchase price or fair market value greater than $25,000. (d) TAKEOVER TRANSACTION. A "Takeover Transaction" shall mean (i) a merger or consolidation of the Company with, or an acquisition of the Company or all or substantially all of its assets by, any other corporation, other than a merger, consolidation or acquisition in which the individuals who were members of the Board of Directors of the Company immediately prior to such transaction continue to constitute a majority of the Board of Directors of the surviving corporation (or, in the case of an acquisition involving a holding company, constitute a majority of the Board of Directors of the holding company) for a period of not less than twelve (12) months following the closing of such transaction, or (ii) when any person or entity or group of persons or entities (other than any trustee or other fiduciary holding securities under an employee benefit plan of the Company) 4 5 either related or acting in concert becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing more than fifty percent (50%) of the total number of votes that may be cast for the election of directors of the Company. (f) TERMINATING EVENT. A "Terminating Event" shall mean: (i) termination by the Company of the employment of the Executive without Cause occurring within twelve (12) months of a Change of Control; or (ii) resignation of the Executive from the employ of the Company, while the Executive is not receiving payments or benefits from the Company by reason of the Executive's disability, subsequent to any of the following events occurring within twelve (12) months of a Change of Control: (A) a significant reduction in the nature or scope of the Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by the Executive immediately prior to the Change in Control; (B) a decrease in the salary payable by the Company to the Executive from the salary payable to the Executive immediately prior to the Change in Control except for across-the-board salary reductions similarly affecting all management personnel of the Company; or (C) the relocation of the Company's executive offices (or, if the Executive is primarily located at the Company's manufacturing facilities, such facilities) by more than 50 miles from their current location in Wallingford, Connecticut (unless such new location is closer than Wallingford, Connecticut to the Executive's then residence) provided, however, that a Terminating Event shall not be deemed to have occurred solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company, following a Change in Control; or (D) elimination or reduction of the Executive's participation in the Company's Executive Incentive Compensation Plan. 6.2 Severance. --------- (a) WITHOUT CAUSE. If the Company terminates this Agreement without Cause, other than as a result of a Terminating Event, then commencing on the date of termination of this Agreement, the Company shall provide Executive with a severance package which shall consist of the following: (i) for a period equal to two (2) years after the date of termination (A) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's then current annual base salary under Section 3(a) hereof and (B) continuation of all benefits under Section 4; and (ii) for a period equal to one (1) year after the date of termination, payment on the first business day 5 6 of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the Company's Executive Incentive Compensation Plan for the year of termination, pro rated for the portion of the fiscal year occurring prior to termination. (b) WITH A TERMINATING EVENT. If the Company terminates this Agreement as a result of a Terminating Event, then commencing on the date of such termination and for a period equal to three (3) years thereafter, the Company shall provide Executive with a severance package which shall consist of the following: (i) payment on the first business day of each month an amount equal to one-twelfth of the Executive's then current annual base salary under Section 3(a) hereof; (ii) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the Company's Executive Incentive Compensation Plan; and (iii) continuation of all benefits under Section 4. In addition, if the Company terminates this Agreement as a result of a Terminating Event, then the Company shall cause the immediate vesting of all options and other rights granted to the Executive under the Company's stock plans. At any time when the Company is obligated to make monthly payments under Section 6.2(b), the Company shall, ten (10) days after receipt of a written request from the Executive, pay the Executive an amount equal to the balance of the amounts payable under Section 6.2(b)(i)-(ii), provided that the obligation of the Company to continue to provide benefits pursuant to Section 6.2(b)(iii) or to make monthly payments under 6.2(b)(i)-(ii) shall cease upon the payment of such amount. (c) GENERAL RELEASE. As a condition precedent to receiving any severance payment, the Executive shall execute a general release of any and all claims which Executive or his heirs, executors, agents or assigns might have against the Company, its subsidiaries, affiliates, successors, assigns and its past, present and future employees, officers, directors, agents and attorneys. (d) WITHHOLDING. Subject to Section 4(f), all payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Employer under applicable law. 7. NON-COMPETITION. During the term of this Agreement and (a) in the case of termination other than as a result of a Terminating Event and provided that the Executive is receiving the severance payments provided for in Section 6.2(a), for two (2) years following the termination of this Agreement or (b) in the case of termination as a result of a Terminating Event and 6 7 provided that the Executive is receiving, or after the Executive has received, the severance payments provided for in Section 6.2(b), for three (3) years following the termination of this Agreement, Executive will not directly or indirectly whether as a partner, consultant, agent, employee, co-venturer, greater than two percent owner or otherwise or through any other person (as hereafter defined): (a) be engaged in any business or activity which is competitive with the business of the Company in any part of the world in which the Company is at the time of the Executive's termination engaged in selling its products directly or indirectly; or (b) attempt to recruit any employee of the Company, assist in their hiring by any other person, or encourage any employee to terminate his or her employment with the Company; or (c) encourage any customer of the Company to conduct with any other person any business or activity which such customer conducts or could conduct with the Company. For purpose of this Section 7, the term "Company" shall include any person controlling, under common control with or controlled by, the Company, provided, however, that with respect to Tridex Corporation and any subsidiary of Tridex Corporation, the provisions of this Section 7 shall cease and be of no force and effect one (1) year after the Company is no longer a subsidiary of Tridex. For purposes of this Section 7, the term "Person" shall mean an individual or corporation, association or partnership in estate or trust or any other entity or organization. The Executive recognizes and agrees that because a violation by him of this Section 7 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. Executive expressly agrees that the character, duration and scope of this covenant not to compete are reasonable in light of the circumstances as they exist at the date upon which this Agreement has been executed. However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of this covenant not to compete is unreasonable in light of the circumstances as they then exist, then it is the intention of both Executive and the Company that this covenant not to compete shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Executive which are reasonable in light of the circumstances as they then exist and necessary to provide the Company the intended benefit of this covenant to compete. 7 8 8. CONFIDENTIALITY COVENANTS. Executive understands that Company may impart to him confidential business information including, without limitation, designs, financial information, personnel information, strategic plans, product development information and the like (collectively "Confidential Information"). Executive hereby acknowledges Company's exclusive ownership of such Confidential Information. Executive agrees as follows: (1) only to use the Confidential Information to provide services to the Company; (2) only to communicate the Confidential Information to fellow employees, agents and representatives of the Company on a need-to-know basis; and (3) not to otherwise disclose or use any Confidential Information. Upon demand by the Company or upon termination of Executive's employment, Executive will deliver to the Company all manuals, photographs, recordings, and any other instrument or device by which, through which, or on which Confidential Information has been recorded and/or preserved, which are in my Executive's possession, custody or control. Executive acknowledges that for purposes of this Section 8 the term "Company" means any person or entity now or hereafter during the term of this Agreement which controls, is under common control with, or is controlled by, the Company. The Executive recognizes and agrees that because a violation by him of this Section 8 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. 9. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and interpreted and governed in accordance with the laws of the State of Connecticut. The parties agree that this Agreement was made and entered into in Connecticut and each party hereby consents to the jurisdiction of a competent court in Connecticut to hear any dispute arising out of this Agreement. 10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and thereof and supercedes any and all previous agreements, written and oral, regarding the subject matter hereof between the parties hereto. This Agreement shall not be changed, altered, modified or amended, except by a written agreement signed by both parties hereto. 11. NOTICES. All notices, requests, demands and other communications required or permitted to be given or made under this Agreement shall be in writing and shall be deemed to have 8 9 been given if delivered by hand, sent by generally recognized overnight courier service, telex or telecopy, or certified mail, return receipt requested. (a) to the the Company at: 7 Laser Lane Wallingford, Connecticut 06492 Attn: Chairman (b) to the Executive at: 502 Harvest Commons Westport, Connecticut 06880 Any such notice or other communication will be considered to have been given (i) on the date of delivery in person, (ii) on the third day after mailing by certified mail, provided that receipt of delivery is confirmed in writing, (iii) on the first business day following delivery to a commercial overnight courier or (iv) on the date of facsimile transmission (telecopy) provided that the giver of the notice obtains telephone confirmation of receipt. Either party may, by notice given to the other party in accordance with this section, designate another address or person for receipt of notices hereunder. 12. SEVERABILITY. If any term or provision of this Agreement, or the application thereof to any person or under any circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such terms to the persons or under circumstances other than those as to which it is invalid or unenforceable, shall be considered severable and shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. The invalid or unenforceable provisions shall, to the extent permitted by law, be deemed amended and given such interpretation as to achieve the economic intent of this Agreement. 13. WAIVER. The failure of any party to insist in any one instance or more upon strict performance of any of the terms and conditions hereof, or to exercise any right or privilege herein conferred, shall not be construed as a waiver of such terms, conditions, rights or privileges, but same shall continue to remain in full force and effect. Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of 9 10 any other violation of, breach of or default under any other provision of this Agreement. 14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and any successors and assigns of the Company. 15. EFFECT OF PROPOSED REORGANIZATION. The parties hereby acknowledge and agree that it is contemplated that the Company, currently a wholly owned subsidiary of Tridex, intends to sell up to 19.7% of its capital stock in an initial public offering and that Tridex intends to distribute to its stockholders, after receipt of a favorable private letter ruling from the Internal Revenue Service, the balance of the outstanding capital stock of the Company owned by Tridex in a tax-free reorganization (the "Distribution"). The Executive and the Company agree that neither the initial public offering nor the Distribution will give rise to any rights to severance payments under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRANSACT TECHNOLOGIES INCORPORATED By:____________________________ Title: EXECUTIVE: _______________________________ Bart C. Shuldman 10 EX-10.21 12 EMPLOYMENT AGREE. BETWEEN CO. & RICHARD L. COTE 1 EXHIBIT 10.21 ------------- EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is entered into as of the 31st day of July, 1996, by and between TransAct Technologies Incorporated, a Delaware corporation with a mailing address of 7 Laser Lane, Wallingford, Connecticut 06492 (the "Company"), and Richard L. Cote, an individual with a residence address of 134 Beechwood Avenue, Trumbull, Connecticut 06611 ("Executive"). INTRODUCTION ------------ 1. The Company is in the business of designing, developing, manufacturing and marketing Point of Sale printers and related products (the "Business"). Executive conceived and developed certain concepts currently used in the Company's operations and possesses other skills and knowledge advantageous to the Company. 2. The Company desires to employ Executive and Executive desires to accept such employment on the terms and conditions set forth herein. AGREEMENT --------- In consideration of the premises and mutual promises hereinbelow set forth, the parties hereby agree as follows: 1. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment Period") shall commence on the date hereof and, subject to termination by the Executive or the Company as hereinafter provided, shall continue for a period of one (1) year beginning on the first day of each month after the date hereof. 2. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company hereby employs Executive to act as Executive Vice President and Chief Financial Officer of the Company during the Employment Period, and Executive hereby accepts such employment. The duties assigned and authority granted to Executive shall be as set forth in the By-laws of the Company and as reasonably determined by its President and Board of Directors from time to time. Executive agrees to perform his duties for the Company diligently, competently, and in a good faith manner. 3. Salary And Bonus. ---------------- (a) BASE SALARY. The Company agrees to pay Executive $150,000 per year, payable weekly in arrears. Executive's base salary shall not be decreased. In addition, no later than March 31 of each year during the Employment Period, commencing March -1- 2 31, 1997, the Board of Directors of the Company (or any appropriate committee thereof) shall review and may increase the Executive's annual base salary in its discretion, based upon the Company's performance and the Executive's particular contributions. (b) BONUS. Executive shall have an opportunity to earn an annual cash bonus under the Company's Executive Incentive Compensation Plan, subject to the discretion of the Company's Board of Directors (or any appropriate committee thereof.) 4. OTHER BENEFITS. (a) INSURANCE AND OTHER BENEFITS. The Executive shall be entitled to participate in, and shall receive the maximum benefits available under, the Company's insurance programs (including health, disability and life insurance) and any ERISA benefit plans, as the same may be adopted and/or amended from time to time, and shall receive all other fringe benefits that are provided by the Company to other senior executives. The Company shall contribute to the Executive's account the maximum amount permitted under the Company's 401(k) Plan and any other Company pension or retirement plan during the Employment Period. (b) VACATION. Executive shall be entitled to an annual vacation of such duration as may be determined by the Board of Directors, but not less than that generally established for other executives of Company and in no event less than three (3) weeks, without interruption of salary. (c) AUTOMOBILE ALLOWANCE. The Company shall provide the Executive with the automobile allowance provided for the office of Executive Vice President and Chief Financial Officer under the Company's automobile allowance policy. (d) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties or responsibilities under this Agreement, provided that Executive submits to the Company substantiation of such expenses sufficient to satisfy the record keeping guidelines promulgated from time to time by the Internal Revenue Service. (e) SERVICE FEES. The Company shall reimburse the Executive, in an aggregate amount not to exceed $1,500 per year, for professional and other fees incurred by Executive in connection with (i) an annual medical examination of Executive and (ii) the annual planning for and preparation of Executive's personal income tax returns. -2- 3 (f) EXCESS PARACHUTE PAYMENT. If any amounts due or paid to Executive would constitute an Excess Parachute Payment under Section 280G of the Internal Revenue Code of 1986, any excise tax thereon shall be paid by Executive. 5. TERMINATION BY THE COMPANY WITH CAUSE. The Company may terminate this Agreement if any of the following events shall occur: (a) the death or disability of the Executive (For purposes of this Agreement, "disability" shall mean the Executive's incapacity due to physical or mental illness which has caused the Executive to be absent from the full-time performance of his duties with the Company for a period of six (6) consecutive months.); (b) any action or inaction by the Executive that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the directors or officers of the Company, its successors or assigns, a crime involving moral turpitude; or (c) the refusal of the Executive to follow the reasonable and lawful written instructions of the Board of Directors of the Company with respect to the services to be rendered and the manner of rendering such services by Executive, provided such refusal is material and repetitive and is not justified or excused either by the terms of this Agreement or by actions taken by the Company in violation of this Agreement, and with respect to the first two refusals Executive has been given reasonable written notice and explanation thereof and reasonable opportunity to cure and no cure has been effected within a reasonable time after such notice. The Company may terminate this Agreement pursuant to this Section 5 upon written notice to the Executive, except for termination due to the death of the Executive, which shall require no notice. 6. TERMINATION AND SEVERANCE. 6.1 Notice/Events/Defined Terms. --------------------------- (a) TERMINATION BY THE EXECUTIVE. Executive may terminate this Agreement at any time by providing written notice to the Company. (b) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate this Agreement at any time, without Cause by providing written notice to Executive. As used in this -3- 4 Agreement, the term "without Cause" shall mean termination for any reason not specified in Section 5, except for retirement. (c) CHANGE IN CONTROL. A "Change in Control" will be deemed to have occurred if: (1) the Company effectuates a Takeover Transaction; or (2) any election of directors of the Company (whether by the directors then in office or by the stockholders at a meeting or by written consent) where a majority of the directors in office following such election are individuals who were not nominated by a vote of two-thirds of the members of the Board of Directors immediately preceding such election; or (3) the Company effectuates a complete liquidation of the Company or a sale or disposition of all or substantially all of its assets. A "Change in Control" shall not be deemed to include, however, a merger or sale of stock, assets or business of the Company if the Executive immediately after such event owns, or in connection with such event immediately acquires (other than in the Executive's capacity as an equity holder of the Employer or as a beneficiary of its employee stock ownership plan or profit sharing plan), stock of the buyer or any affiliate thereof which, at the time of Executive's initial investment in such stock, had a purchase price or fair market value greater than $25,000. (d) TAKEOVER TRANSACTION. A "Takeover Transaction" shall mean (i) a merger or consolidation of the Company with, or an acquisition of the Company or all or substantially all of its assets by, any other corporation, other than a merger, consolidation or acquisition in which the individuals who were members of the Board of Directors of the Company immediately prior to such transaction continue to constitute a majority of the Board of Directors of the surviving corporation (or, in the case of an acquisition involving a holding company, constitute a majority of the Board of Directors of the holding company) for a period of not less than twelve (12) months following the closing of such transaction, or (ii) when any person or entity or group of persons or entities (other than any trustee or other fiduciary holding securities under an employee benefit plan of the Company) either related or acting in concert becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing more than fifty percent (50%) of the total number of votes that may be cast for the election of directors of the Company. (f) TERMINATING EVENT. A "Terminating Event" shall mean: (i) termination by the Company of the employment of the Executive without Cause occurring within twelve (12) months of a Change of Control; or (ii) resignation of the Executive from the employ of the Company, while the Executive is not receiving -4- 5 payments or benefits from the Company by reason of the Executive's disability, subsequent to any of the following events occurring within twelve (12) months of a Change of Control: (A) a significant reduction in the nature or scope of the Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by the Executive immediately prior to the Change in Control; (B) a decrease in the salary payable by the Company to the Executive from the salary payable to the Executive immediately prior to the Change in Control except for across-the-board salary reductions similarly affecting all management personnel of the Company; or (C) the relocation of the Company's executive offices (or, if the Executive is primarily located at the Company's manufacturing facilities, such facilities) by more than 50 miles from their current location in Wallingford, Connecticut (unless such new location is closer than Wallingford, Connecticut to the Executive's then residence) provided, however, that a Terminating Event shall not be deemed to have occurred solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company, following a Change in Control; or (D) elimination or reduction of the Executive's participation in the Company's Executive Incentive Compensation Plan. 6.2 Severance. --------- (a) WITHOUT CAUSE. If the Company terminates this Agreement without Cause, other than as a result of a Terminating Event, then commencing on the date of termination of this Agreement and for a period equal to one (1) year thereafter, the Company shall provide Executive with a severance package which shall consist of the following: (i) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's then current annual base salary under Section 3(a) hereof; (ii) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the Company's Executive Incentive Compensation Plan for the year of termination, pro rated for the portion of the fiscal year occurring prior to termination; and (iii) continuation of all benefits under Section 4. (b) WITH A TERMINATING EVENT. If the Company terminates this Agreement as a result of a Terminating Event, then commencing on the date of such termination and for a period equal to two (2) years thereafter, the Company shall provide Executive with a severance package which shall consist of the following: (i) payment on the first business day of each month an amount equal to one-twelfth of the Executive's then current annual base salary under Section 3(a) hereof; (ii) -5- 6 payment on the first business day of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the Company's Executive Incentive Compensation Plan; and (iii) continuation of all benefits under Section 4. In addition, if the Company terminates this Agreement as a result of a Terminating Event, then the Company shall cause the immediate vesting of all options granted to the Executive under the Company's stock plans. At any time when the Company is obligated to make monthly payments under Section 6.2(b), the Company shall, ten (10) days after receipt of a written request from the Executive, pay the Executive an amount equal to the balance of the amounts payable under Section 6.2(b)(i)-(ii), provided that the obligation of the Company to continue to provide benefits pursuant to Section 6.2(b)(iii) or to make monthly payments under 6.2(b)(i)-(ii) shall cease upon the payment of such amount. (c) GENERAL RELEASE. As a condition precedent to receiving any severance payment, the Executive shall execute a general release of any and all claims which Executive or his heirs, executors, agents or assigns might have against the Company, its subsidiaries, affiliates, successors, assigns and its past, present and future employees, officers, directors, agents and attorneys. (d) WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Employer under applicable law. 7. NON-COMPETITION. During the term of this Agreement and (a) in the case of termination other than as a result of a Terminating Event and provided that the Executive is receiving the severance payments provided for in Section 6.2(a), for one year following the termination of this Agreement or (b) in the case of termination as a result of a Terminating Event, and provided that the Executive is receiving, or after the Executive has received, the severance payments provided for in Section 6.2(b), for two (2) years following the termination of this Agreement, Executive will not directly or indirectly whether as a partner, consultant, agent, employee, co-venturer, greater than two percent owner or otherwise or through any other person (as hereafter defined): (a) be engaged in any business or activity which is competitive with the business of the Company in any part of the world in which the Company is at the time of the Executive's termination engaged in selling its products directly or indirectly; or (b) attempt to recruit any employee of the Company, assist in their hiring by any other person, or encourage any employee to terminate his or her employment with the Company; or (c) encourage any customer of the Company to conduct with any other person any business or activity which such customer conducts or could conduct with the Company. For purpose of this -6- 7 Section 7, the term "Company" shall include any person controlling, under common control with or controlled by, the Company, provided, however, that with respect to Tridex Corporation and any subsidiary of Tridex Corporation, the provisions of this Section 7 shall cease and be of no force and effect one (1) year after the Company is no longer a subsidiary of Tridex. For purposes of this Section 7, the term "Person" shall mean an individual or corporation, association or partnership in estate or trust or any other entity or organization. The Executive recognizes and agrees that because a violation by him of this Section 7 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. Executive expressly agrees that the character, duration and scope of this covenant not to compete are reasonable in light of the circumstances as they exist at the date upon which this Agreement has been executed. However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of this covenant not to compete is unreasonable in light of the circumstances as they then exist, then it is the intention of both Executive and the Company that this covenant not to compete shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Executive which are reasonable in light of the circumstances as they then exist and necessary to provide the Company the intended benefit of this covenant to compete. 8. CONFIDENTIALITY COVENANTS. Executive understands that Company may impart to him confidential business information including, without limitation, designs, financial information, personnel information, strategic plans, product development information and the like (collectively "Confidential Information"). Executive hereby acknowledges Company's exclusive ownership of such Confidential Information. Executive agrees as follows: (1) only to use the Confidential Information to provide services to the Company; (2) only to communicate the Confidential Information to fellow employees, agents and representatives of the Company on a need-to-know basis; and (3) not to otherwise disclose or use any Confidential Information. Upon demand by the Company or upon termination of Executive's employment, Executive will deliver to the Company all manuals, photographs, recordings, and any other instrument or -7- 8 device by which, through which, or on which Confidential Information has been recorded and/or preserved, which are in my Executive's possession, custody or control. Executive acknowledges that for purposes of this Section 8 the term "Company" means any person or entity now or hereafter during the term of this Agreement which controls, is under common control with, or is controlled by, the Company. The Executive recognizes and agrees that because a violation by him of this Section 8 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. 9. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and interpreted and governed in accordance with the laws of the State of Connecticut. The parties agree that this Agreement was made and entered into in Connecticut and each party hereby consents to the jurisdiction of a competent court in Connecticut to hear any dispute arising out of this Agreement. 10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and thereof and supersedes any and all previous agreements, written and oral, regarding the subject matter hereof between the parties hereto. This Agreement shall not be changed, altered, modified or amended, except by a written agreement signed by both parties hereto. 11. NOTICES. All notices, requests, demands and other communications required or permitted to be given or made under this Agreement shall be in writing and shall be deemed to have been given if delivered by hand, sent by generally recognized overnight courier service, telex or telecopy, or certified mail, return receipt requested. (a) to the Company at: 7 Laser Lane Wallingford, Connecticut 06492 Attn: President (b) to the Executive at: 134 Beechwood Avenue Trumbull, Connecticut 06611 -8- 9 Any such notice or other communication will be considered to have been given (i) on the date of delivery in person, (ii) on the third day after mailing by certified mail, provided that receipt of delivery is confirmed in writing, (iii) on the first business day following delivery to a commercial overnight courier or (iv) on the date of facsimile transmission (telecopy) provided that the giver of the notice obtains telephone confirmation of receipt. Either party may, by notice given to the other party in accordance with this section, designate another address or person for receipt of notices hereunder. 12. SEVERABILITY. If any term or provision of this Agreement, or the application thereof to any person or under any circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such terms to the persons or under circumstances other than those as to which it is invalid or unenforceable, shall be considered severable and shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. The invalid or unenforceable provisions shall, to the extent permitted by law, be deemed amended and given such interpretation as to achieve the economic intent of this Agreement. 13. WAIVER. The failure of any party to insist in any one instance or more upon strict performance of any of the terms and conditions hereof, or to exercise any right or privilege herein conferred, shall not be construed as a waiver of such terms, conditions, rights or privileges, but same shall continue to remain in full force and effect. Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement. 14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and any successors and assigns of the Company. 15. EFFECT OF PROPOSED REORGANIZATION. The parties hereby acknowledge and agree that it is contemplated that the Company, currently a wholly owned subsidiary of Tridex, intends to sell up to 19.7% of its capital stock in an initial public offering and that Tridex intends to distribute to its stockholders, after receipt of a favorable private letter ruling from the Internal Revenue Service, the balance of the outstanding capital stock of the Company owned by Tridex in a tax-free reorganization (the "Distribution"). The Executive and the Company agree that -9- 10 neither the initial public offering nor the Distribution will give rise to any rights to severance payments under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRANSACT TECHNOLOGIES INCORPORATED By:____________________________ Title: EXECUTIVE: _______________________________ Richard L. Cote EX-10.22 13 SEVERANCE AGREEMENT 1 EXHIBIT 10.22 ------------- FORM OF SEVERANCE AGREEMENT ------------------- This Severance Agreement (the "Agreement") is entered into as of the _____ day of ________, 1996, by and among _____________, an individual with a residence address of _____________ (the "Executive"), Tridex Corporation, a Connecticut corporation with a mailing address of 61 Wilton Road, Westport, Connecticut 06880 ("Tridex") TransAct Technologies Incorporated, a Delaware corporation and a wholly owned subsidiary of Tridex with a mailing address of 7 Laser Lane, Wallingford, Connecticut 06492 ("TransAct"), and Magnetec Corporation, a Connecticut corporation and a wholly owned subsidiary of TransAct, with a mailing address of 7 Laser Lane, Wallingford, Connecticut 06492 (the "Company"). INTRODUCTION ------------ 1. The Company is in the business of designing, developing, manufacturing and marketing printers and related products for point of sale, gaming and wagering, financial service and kiosk applications (the "Business"). Executive conceived and developed certain concepts currently used in the Company's operations and possesses other skills and knowledge advantageous to the Company. 2. The Company desires to employ Executive and Executive desires to accept such employment on the terms and conditions set forth herein. AGREEMENT --------- In consideration of the premises and mutual promises herein below set forth, the parties hereby agree as follows: 1. DEFINITIONS. The following terms shall have the meanings indicated for the purposes of this Agreement: (a) "Cause" shall mean: (i) the death or disability of the Executive (For purposes of this Agreement, "disability" shall mean the Executive's incapacity due to physical or mental -1- 2 illness which has caused the Executive to be absent from the full-time performance of his duties with the Company for a period of six (6) consecutive months.); (ii) any action or inaction by the Executive that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the directors or officers of the Company or TransAct, their successors or assigns, a crime involving moral turpitude; or (iii) the refusal of the Executive to follow the reasonable and lawful written instructions of the President or the Board of Directors of the Company with respect to the services to be rendered and the manner of rendering such services by Executive, provided such refusal is material and repetitive and is not justified or excused either by the terms of this Agreement or by actions taken by the Company in violation of this Agreement, and with respect to the first two refusals Executive has been given reasonable written notice and explanation thereof and reasonable opportunity to cure and no cure has been effected within a reasonable time after such notice. (b) "Change in Control" will be deemed to have occurred if: (1) the Company or TransAct effectuates a Takeover Transaction; or (2) any election of directors of TransAct (whether by the directors then in office or by the stockholders at a meeting or by written consent) where a majority of the directors in office following such election are individuals who were not nominated by a vote of two-thirds of the members of the Board of Directors immediately preceding such election; or (3) the Company or TransAct effectuates a complete liquidation of the Company or TransAct or a sale or disposition of all or substantially all of their respective assets. A "Change in Control" shall not be deemed to include, however, a merger or sale of stock, assets or business of the Company or TransAct if the Executive immediately after such event owns, or in connection with such event immediately acquires (other than in the Executive's capacity as an equity holder of TransAct or as a beneficiary of its employee stock ownership plan or profit sharing plan), any stock of the buyer or any affiliate thereof. (c) A "Takeover Transaction" shall mean (i) a merger or consolidation of TransAct or the Company with, or an acquisition of TransAct or the Company or all or substantially all of their respective assets by, any other corporation, other than a merger, consolidation or acquisition in which the -2- 3 individuals who were members of the Board of Directors of TransAct or the Company immediately prior to such transaction continue to constitute a majority of the Board of Directors of the surviving corporation (or, in the case of an acquisition involving a holding company, constitute a majority of the Board of Directors of the holding company) for a period of not less than twelve (12) months following the closing of such transaction, or (ii) when any person or entity or group of persons or entities (other than any trustee or other fiduciary holding securities under an employee benefit plan of TransAct Company) either related or acting in concert becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of TransAct representing more than fifty percent (50%) of the total number of votes that may be cast for the election of directors of the TransAct. (d) "Terminating Event" shall mean: (i) termination by the Company of the employment of the Executive for any reason other than retirement or for Cause occurring within twelve (12) months of a Change of Control; or (ii) resignation of the Executive from the employ of the Company, while the Executive is not receiving payments or benefits from the Company by reason of the Executive's disability, subsequent to any of the following events occurring within twelve (12) months of a Change of Control: (A) a significant reduction in the nature or scope of the Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by the Executive immediately prior to the Change in Control; (B) a decrease in the salary payable by the Company to the Executive from the salary payable to the Executive immediately prior to the Change in Control except for across-the-board salary reductions similarly affecting all management personnel of the Company; or (C) the relocation of the Company's facilities where the Executive is currently employed by more than 50 miles from their current location either in Wallingford, Connecticut or Ithaca, New York (unless such new location is closer than Wallingford, Connecticut, as the case may be, to the Executive's then residence) provided, however, that a Terminating Event shall not be deemed to have occurred solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the -3- 4 Company, following a Change in Control; or (D) elimination or reduction of the Executive's participation in the Company's Executive Incentive Compensation Plan. 2 Severance. --------- (a) WITHOUT A TERMINATING EVENT. If the Company terminates the employment of the Executive without Cause, other than as a result of a Terminating Event, then commencing on the date of such termination and for a period of six (6) months thereafter, the Company shall provide Executive with a severance package which shall consist of the following: (i) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's then current annual base salary; (ii) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the TransAct Executive Incentive Compensation Plan, prorated for the portion of the fiscal year occurring prior to termination; and (iii) continuation of all benefits under Section 4. (b) WITH A TERMINATING EVENT. If the Company terminates this Agreement as a result of a Terminating Event, then commencing on the date of such termination and for a period equal to one (1) year thereafter, the Company shall provide Executive with a severance package which shall consist of the following: (i) payment on the first business day of each month an amount equal to one-twelfth of the Executive's then current annual base salary; (ii) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the TransAct's Executive Incentive Compensation Plan; (iii) continuation of all benefits under Section 4; and (iv) immediate vesting of all options issued by TransAct to the Executive. At any time when the Company is obligated to make monthly payments under Section 2(b), the Company shall, ten (10) days after receipt of a written request from the Executive, pay the Executive an amount equal to the balance of the amounts payable under Section 2(b)(i)-(ii), provided that the obligation of the Company to continue to provide benefits pursuant to Section 2(b)(iii) or to make monthly payments under 2(b)(i)-(ii) shall cease upon the payment of such amount. -4- 5 (c) GENERAL RELEASE. As a condition precedent to receiving any severance payment, the Executive shall execute a general release of any and all claims which Executive or his heirs, executors, agents or assigns might have against the Company, TransAct, their respective subsidiaries, affiliates, successors, assigns and their past, present and future employees, officers, directors, agents and attorneys. (d) WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Employer under applicable law. 3. NON-COMPETITION. During Executive's employment with the Company and the term of this Agreement and (a) in the case of termination other than as a result of a Terminating Event, for six (6) months following the termination of Executive's employment with the Company or (b) in the case of termination as a result of a Terminating Event, for one (1) year following the termination of Executive's employment with the Company and Executive will not directly or indirectly whether as a partner, consultant, agent, employee, co-venturer, greater than two percent owner or otherwise or through any other person (as hereafter defined): (a) be engaged in any business or activity which is competitive with the Business of the Company TransAct in any part of the world in which the Company is at the time of the Executive's termination engaged in selling their products directly or indirectly; or (b) attempt to recruit any employee of the Company, assist in their hiring by any other person, or encourage any employee to terminate his or her employment with the Company; or (c) encourage any customer of the Company to conduct with any other person any business or activity which such customer conducts or could conduct with the Company. For purpose of this Section 3, the term "Company" shall include any person controlling, under common control with or controlled by, the Company, provided, however, that with respect to Tridex Corporation and any subsidiary of Tridex Corporation, the provisions of this Section 3 shall cease and be of no force and effect with respect to Tridex or any of its subsidiaries one (1) year after the Company is no longer a subsidiary of Tridex. For purposes of this Section 3, the term "Person" shall mean an individual or corporation, association or partnership in estate or trust or any other entity or organization. -5- 6 The Executive recognizes and agrees that because a violation by him of this Section 3 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. Executive expressly agrees that the character, duration and scope of this covenant not to compete are reasonable in light of the circumstances as they exist at the date upon which this Agreement has been executed. However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of this covenant not to compete is unreasonable in light of the circumstances as they then exist, then it is the intention of both Executive and the Company that this covenant not to compete shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Executive which are reasonable in light of the circumstances as they then exist and necessary to provide the Company the intended benefit of this covenant to compete. 4. CONFIDENTIALITY COVENANTS. Executive understands that the Company may impart to him confidential business information including, without limitation, designs, financial information, personnel information, strategic plans, product development information and the like (collectively "Confidential Information"). Executive hereby acknowledges Company's exclusive ownership of such Confidential Information. Executive agrees as follows: (1) only to use the Confidential Information to provide services to the Company; (2) only to communicate the Confidential Information to fellow employees, agents and representatives of the Company on a need-to-know basis; and (3) not to otherwise disclose or use any Confidential Information. Upon demand by the Company or upon termination of Executive's employment, Executive will deliver to the Company all manuals, photographs, recordings, and any other instrument or device by which, through which, or on which Confidential Information has been recorded and/or preserved, which are in my Executive's possession, custody or control. Executive acknowledges that for purposes of this Section 4 the -6- 7 term "Company" means any person or entity now or hereafter during the term of this Agreement which controls, is under common control with, or is controlled by, the Company. The Executive recognizes and agrees that because a violation by him of this Section 4 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. 5. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and interpreted and governed in accordance with the laws of the State of Connecticut. The parties agree that this Agreement was made and entered into in Connecticut and each party hereby consents to the jurisdiction of a competent court in Connecticut to hear any dispute arising out of this Agreement. 6. TERM AND TERMINATION. The term of this Agreement shall begin on the date first written above and continue until the later of (i) the resignation of the Executive or termination of the Executive by the Company with Cause or (ii) the end of the longest period, if any, during which the Company is required to make payments under Section 2(a) or Section 2(b), whichever applies. The Company or the Executive may terminate the Executive's employment with the Company upon written notice. 7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and thereof and supersedes any and all previous agreements, written and oral, regarding the subject matter hereof between the parties hereto. This Agreement shall not be changed, altered, modified or amended, except by a written agreement signed by both parties hereto. This Agreement is not intended, and shall not be construed, to create any obligation on the part of the Company to employ the Executive for any minimum amount of time. 8. NOTICES. All notices, requests, demands and other communications required or permitted to be given or made under this Agreement shall be in writing and shall be deemed to have -7- 8 been given if delivered by hand, sent by generally recognized overnight courier service, telex or telecopy, or certified mail, return receipt requested. (a) to the the Company at: 7 Laser Lane Wallingford, Connecticut 06492 Attn: President (b) to the Executive at: Any such notice or other communication will be considered to have been given (i) on the date of delivery in person, (ii) on the third day after mailing by certified mail, provided that receipt of delivery is confirmed in writing, (iii) on the first business day following delivery to a commercial overnight courier or (iv) on the date of facsimile transmission (telecopy) provided that the giver of the notice obtains telephone confirmation of receipt. Either party may, by notice given to the other party in accordance with this section, designate another address or person for receipt of notices hereunder. 9. SEVERABILITY. If any term or provision of this Agreement, or the application thereof to any person or under any circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such terms to the persons or under circumstances other than those as to which it is invalid or unenforceable, shall be considered severable and shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law. The invalid or unenforceable provisions shall, to the extent permitted by law, be deemed amended and given such interpretation as to achieve the economic intent of this Agreement. 10. WAIVER. The failure of any party to insist in any one instance or more upon strict performance of any of the terms and -8- 9 conditions hereof, or to exercise any right or privilege herein conferred, shall not be construed as a waiver of such terms, conditions, rights or privileges, but same shall continue to remain in full force and effect. Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement. 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and any successors and assigns of the Company. 12. EFFECT OF PROPOSED REORGANIZATION. The parties hereby acknowledge and agree that it is contemplated that TransAct intends to sell up to 19.7% of its capital stock in an initial public offering and that Tridex intends to distribute to its stockholders, after receipt of a favorable private letter ruling from the Internal Revenue Service, the balance of the outstanding capital stock of TransAct owned by Tridex in a tax-free reorganization (the "Distribution"). The Executive, TransAct, Magnetec and Tridex agree that neither the initial public offering nor the Distribution will give rise to any rights to severance payments under this Agreement and that Tridex shall have no liability or obligation of any kind to the Executive under this Agreement after the Distribution. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRANSACT TECHNOLOGIES INCORPORATED By:____________________________ Title: EXECUTIVE: _______________________________ -9- EX-23.1 14 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 (No. 333-06895) of our report dated June 10, 1996, relating to the combined financial statements of TransAct Technologies Incorporated, which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Hartford, Connecticut August 1, 1996 EX-27 15 FINANCIAL DATA SCHEDULE
5 1,000 YEAR 6-MOS DEC-31-1995 DEC-31-1996 APR-02-1995 JAN-01-1996 DEC-31-1995 JUN-29-1996 0 0 0 0 3,286 4,192 40 81 6,353 6,709 10,107 11,689 7,597 8,517 4,556 4,959 15,969 17,641 3,826 4,561 0 0 0 0 0 0 0 0 11,702 12,658 15,969 17,641 25,497 20,225 25,497 20,225 17,529 13,418 23,918 17,685 15 (281) 0 0 0 0 1,564 2,821 648 1,088 916 1,733 0 0 0 0 0 0 916 1,733 0 0 0 0
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