FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to:
-------------------------------------------------
Commission file number: 0-21121
---------------------------------------------------------
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(203) 269-1198
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [x] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING JULY 26, 2002
- ----- -------------------------
COMMON STOCK,
$.01 PAR VALUE 5,710,048
TRANSACT TECHNOLOGIES INCORPORATED
INDEX
PART I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1 Financial Statements
Consolidated condensed balance sheets as of June
30, 2002 and December 31, 2001 3
Consolidated condensed statements of operations
for the three and six months ended June 30, 2002
and 2001 4
Consolidated condensed statements of cash flow
for the six months ended June 30, 2002 and 2001 5
Notes to consolidated condensed financial
statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 15
PART II. Other Information:
Item 4 Submission of Matters to a Vote of Security
Holders 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
2
ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, December 31,
(In thousands) 2002 2001
-------- --------
(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents $ 201 $ 417
Receivables, net 3,874 4,047
Inventories 9,093 10,633
Deferred tax assets 2,308 2,382
Other current assets 217 212
-------- --------
Total current assets 15,693 17,691
-------- --------
Fixed assets, net 4,476 5,190
Goodwill, net 1,469 1,469
Deferred tax assets 1,120 1,120
Other assets 296 321
-------- --------
7,361 8,100
-------- --------
$ 23,054 $ 25,791
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ 100
Accounts payable 2,482 2,903
Accrued liabilities 3,696 3,320
Customer advance payment (Note 4) 944 --
Accrued restructuring expenses (Note 5) 1,595 3,002
-------- --------
Total current liabilities 8,817 9,325
-------- --------
Revolving bank loan payable 2,509 4,994
Long-term portion of term loan 300 350
Other liabilities 58 61
-------- --------
2,867 5,405
-------- --------
Mandatorily redeemable preferred stock 3,785 3,746
-------- --------
Shareholders' equity:
Common stock 57 57
Additional paid-in capital 6,405 6,303
Retained earnings 1,630 1,649
Unamortized restricted stock compensation (160) (286)
Loan receivable from officer (330) (330)
Accumulated other comprehensive loss (17) (78)
-------- --------
Total shareholders' equity 7,585 7,315
-------- --------
$ 23,054 $ 25,791
======== ========
See notes to consolidated condensed financial statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
(In thousands, except per share data) 2002 2001 2002 2001
-------- -------- -------- --------
Net sales $ 10,921 $ 10,796 $ 21,446 $ 20,569
Cost of sales 7,809 8,383 15,708 16,353
-------- -------- -------- --------
Gross profit 3,112 2,413 5,738 4,216
-------- -------- -------- --------
Operating expenses:
Engineering, design and product
development expenses 504 873 1,050 1,691
Selling and marketing expenses 1,094 1,309 2,125 2,455
General and administrative 1,108 1,626 2,284 3,133
expenses
Business consolidation and
restructuring expenses (Note 5) 5 422 46 1,446
-------- -------- -------- --------
2,711 4,230 5,505 8,725
-------- -------- -------- --------
Operating income (loss) 401 (1,817) 233 (4,509)
-------- -------- -------- --------
Other income (expense):
Interest, net (34) (88) (89) (182)
Other, net (Note 4) 84 (1) 105 40
-------- -------- -------- --------
50 (89) 16 (142)
-------- -------- -------- --------
Income (loss) before income taxes 451 (1,906) 249 (4,651)
Income tax provision (benefit) 162 (686) 89 (1,674)
-------- -------- -------- --------
Net income (loss) 289 (1,220) 160 (2,977)
Dividends and accretion charges
on preferred stock (89) (89) (179) (179)
-------- -------- -------- --------
Net income (loss) available to
common shareholders $ 200 $ (1,309) $ (19) $ (3,156)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted $ 0.04 $ (0.24) $ -- $ (0.57)
======== ======== ======== ========
Shares used in per share calculation:
Basic and diluted 5,626 5,556 5,615 5,547
======== ======== ======== ========
See notes to consolidated condensed financial statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
(In thousands) 2002 2001
------- -------
Cash flows from operating activities:
Net income (loss) $ 160 $(2,977)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,148 1,599
Deferred income taxes 74 (1,865)
Loss on disposal of equipment -- 67
Changes in operating assets and liabilities:
Receivables 173 (1,510)
Inventories 1,540 (497)
Other current assets (5) 210
Other assets (19) (208)
Accounts payable (421) 1,662
Accrued liabilities and other liabilities 373 694
Customer advance payment (Note 4) 944 --
Accrued restructuring expenses (Note 5) (1,407) 1,280
------- -------
Net cash provided by (used in) operating activities 2,560 (1,545)
------- -------
Cash flows from investing activities:
Purchases of fixed assets (269) (597)
------- -------
Net cash used in investing activities (269) (597)
------- -------
Cash flows from financing activities:
Revolving bank loan borrowings (repayments), net (2,485) 742
Term loan borrowings (repayments), net (50) 500
Proceeds from option exercises 107 195
Payment of cash dividends on preferred stock (140) (140)
------- -------
Net cash provided by (used in) financing activities (2,568) 1,297
------- -------
Effect of exchange rate changes on cash 61 (51)
------- -------
Decrease in cash and cash equivalents (216) (896)
Cash and cash equivalents at beginning of period 417 992
------- -------
Cash and cash equivalents at end of period $ 201 $ 96
======= =======
See notes to consolidated condensed financial statements.
5
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of TransAct Technologies Incorporated (the
"Company"), the accompanying unaudited consolidated condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly its financial position as of June
30, 2002, and the results of its operations and cash flows for the three
and six months ended June 30, 2002 and 2001. The December 31, 2001
consolidated condensed balance sheet has been derived from the audited
financial statements at that date. These interim financial statements
should be read in conjunction with the audited financial statements for
the year ended December 31, 2001 included in the Company's Annual Report
on Form 10-K.
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of such subsidiaries have been translated
at end of period exchange rates, and related revenues and expenses have
been translated at weighted average exchange rates. Transaction gains and
losses are included in other income.
The results of operations for the three and six months ended June
30, 2002 are not necessarily indicative of the results to be expected for
the full year.
The Company has adopted the provisions of Statement of Financial
Accounting Standard 142, "Goodwill and Other Intangible Assets" ("FAS
142") on January 1, 2002. Under FAS 142, goodwill will no longer be
amortized and will be tested for impairment at least annually at the
reporting unit level.
Prior to the adoption of FAS 142 on January 1, 2002, the Company had
been amortizing goodwill related to the acquisition of (1) Ithaca
Peripherals, Inc. ("Ithaca") in 1991 and (2) the ribbon business formerly
conducted by Tridex ("Tridex Ribbon Business"). The original amount
applicable to the Ithaca acquisition totaled $3,536,000 and was being
amortized on the straight-line method over 20 years. The original amount
applicable to the Tridex Ribbon Business acquisition totaled $180,000 and
was being amortized on the straight-line method over five years. The
Company recorded amortization of goodwill of approximately $33,000 and
$67,000, net of taxes, during the three and six months ended June 30,
2001, respectively.
FAS 142 requires that goodwill be tested annually for impairment.
The Company has performed an impairment test as of January 1, 2002 and
determined that no transition adjustment related to impairment is
necessary.
2. Earnings per share
Basic earnings per common share for the three and six months ended
June 30, 2002 and 2001 were based on the weighted average number of shares
outstanding during the period. Diluted earnings per share for the same
periods were based on the weighted average number of shares after
consideration of any dilutive effect of stock options and warrants. For
the three and six months ended June 30, 2002 and 2001, the effects of
potential dilutive securities have been excluded, as they would have been
anti-dilutive.
3. Inventories:
The components of inventory are:
June 30, December 31,
(In thousands) 2002 2001
------- -------
Raw materials and component parts $ 8,988 $10,299
Work-in-process 5 25
Finished goods 100 309
------- -------
$ 9,093 $10,633
======= =======
6
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. Significant transactions
In June 2002, the Company received 2,146 shares of common stock from
its health insurance company, Anthem, Inc., upon its demutualization. The
value of these shares was approximately $145,000 at June 30, 2002, and is
included in Other Income. The Company sold these shares in the third
quarter of 2002.
On February 22, 2002, at the request of a major customer, the
Company received a cash payment of approximately $5,824,000 in advance of
printer shipments to be made from March through August 2002. As a result
of this payment, the Company repaid all its outstanding revolving
borrowings under the LaSalle Credit Facility in February 2002. The advance
payment has been classified as a current liability, and is being reduced
by the sales value of shipments as they are made. As of June 30, 2002
approximately $900,000 of the original $5.8 million advance remains
outstanding, and outstanding borrowings have increased to $2,509,000.
5. Business consolidation and restructuring
In February 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part
of this strategic decision, the Company undertook a plan to consolidate
all manufacturing and engineering into its existing Ithaca, NY facility
and close its Wallingford, CT facility (the "Consolidation"). As of
December 31, 2001, substantially all Wallingford product lines were
successfully transferred to Ithaca, NY. The Company currently maintains
one small component production line in Wallingford. The closing of the
Wallingford facility resulted in the termination of employment of
approximately 70 production, administrative and management employees. The
Company has applied the consensus set forth in EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring)" in
recognizing the accrued restructuring expenses. The Company estimates that
the non-recurring costs associated with the Consolidation, including
severance pay, stay bonuses, employee benefits, moving expenses,
non-cancelable lease payments, accelerated depreciation and other costs,
will be approximately $4.2 million, of which approximately $4.1 million
was recognized during 2001.
The following table summarizes the activity recorded in the
restructuring accrual during the three and six months ended June 30, 2002
and 2001.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(In thousands) 2002 2001 2002 2001
------- ------- ------- -------
Accrual balance, beg of period $ 2,358 $ 1,007 $ 3,002 $ 105
------- ------- ------- -------
Business consolidation and restructuring expenses:
Employee severance and termination expenses (1) -- 379 40 574
Facility closure and consolidation expenses (2) 5 43 6 872
------- ------- ------- -------
5 422 46 1,446
------- ------- ------- -------
Cash payments (768) (44) (1,453) (166)
------- ------- ------- -------
Accrual balance, end of period $ 1,595 $ 1,385 $ 1,595 $ 1,385
======= ======= ======= =======
(1) Employee severance and termination related expenses are the estimated
termination salaries, benefits, outplacement, counseling services and
other related costs expected to be paid to involuntarily terminated
employees.
(2) Facility closure and consolidation expenses are the estimated costs to
close the Wallingford, CT facility including lease termination costs and
other related costs, in accordance with the restructuring plan. The
Wallingford facility closure was substantially completed by December 31,
2001.
7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Business consolidation and restructuring (continued)
The following table summarizes the components of all charges related
to the Consolidation.
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
(In thousands) 2002 2001 2002 2001
------ ------ ------ ------
Business consolidation and restructuring expenses $ 5 $ 422 $ 46 $1,446
Accelerated depreciation and asset disposal losses (1) -- 163 -- 261
------ ------ ------ ------
Total business consolidation, restructuring and related charges $ 5 $ 585 $ 46 $1,707
====== ====== ====== ======
(1) Represents accelerated depreciation on certain leasehold improvements and
other fixed assets, due to the closing of the Wallingford facility. These
charges are included in general and administrative expenses.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements included in this report, including without limitation
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, which are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
forward-looking statements involve risks and uncertainties, including, but not
limited to, customer acceptance and market share gains, both domestically and
internationally, in the face of substantial competition from competitors that
have broader lines of products and greater financial resources; introduction of
new products by competitors; successful product development; dependence on
significant customers including GTECH Corporation; dependence on third parties
for sales in Europe and Latin America; economic conditions in the United States,
Europe and Latin America; marketplace acceptance of our new products; risks
associated with foreign operations; our ability to successfully sublease our
facility in Wallingford, CT subsequent to its closing; availability of
third-party components at reasonable prices; and the absence of price wars or
other significant pricing pressures affecting our products in the United States
or abroad. Actual results may differ materially from those discussed in, or
implied by, the forward-looking statements. The forward-looking statements speak
only as of the date of this report and we assume no duty to update them to
reflect new, changing or unanticipated events or circumstances.
PLANT CONSOLIDATION
In February 2001, we announced plans to establish a global engineering and
manufacturing center at our Ithaca, NY facility. As part of this strategic
decision, we undertook a plan to consolidate all manufacturing and engineering
into our existing Ithaca, NY facility and close our Wallingford, CT facility
(the "Consolidation"). Our technology shift to inkjet and thermal printing from
dot matrix impact printing has dramatically reduced the labor content in our
printers, and therefore, lowers the required production capacity. As of December
31, 2001, we successfully transferred substantially all our Wallingford product
lines to Ithaca, NY, with the exception of one small production line that
remains in Connecticut. The closing of the Wallingford facility resulted in the
termination of employment of approximately 70 production, administrative and
management employees. We estimate that the non-recurring costs associated with
the Consolidation, including severance pay, stay bonuses, employee benefits,
moving expenses, non-cancelable lease payments, and other costs, will be
approximately $4.2 million, of which approximately $4.1 million was recognized
during 2001. See the "Liquidity and Capital Resources" section for a discussion
of the expected impact of the Consolidation on our future results of operations
and cash flows.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
NET SALES. Net sales by market for the current and prior year's quarter were as
follows:
Three months ended Three months ended
(In thousands, except %) June 30, 2002 June 30, 2001
--------------------- ---------------------
Point of sale $ 4,612 42.2% $ 4,935 45.7%
Gaming and lottery 5,859 53.7 4,813 44.6
Other 450 4.1 1,048 9.7
------- ----- ------- -----
$10,921 100.0% $10,796 100.0%
======= ===== ======= =====
International $ 1,073 9.8% $ 1,894 17.5%
======= === ======= ====
Net sales for the second quarter of 2002 increased $125,000, or 1%, from the
prior year's second quarter due to significantly higher shipments into the
gaming and lottery market, largely offset by decreased sales into the point of
sale ("POS") and other markets. Overall, international sales decreased by
$821,000, or 43%, largely due to a reduction in POS revenue through distribution
primarily in Europe and Latin America (approximately $400,000) and kiosk printer
shipments for use in a Canadian government application (approximately $400,000).
Point of sale: Sales of our POS printers overall decreased by approximately
$323,000, or 7% from the same period last year. Despite softness in demand for
POS printers, domestic POS printer sales rose to $3,642,000, representing a
$131,000, or 4% increase over the second quarter of 2002. These sales were
bolstered by increasing sales of our POSjet line of inkjet printers.
9
International POS printer shipments declined by approximately $454,000, or 32%,
to $970,000 due to a number of factors. First, shipments of our thermal fiscal
printer in Europe declined by approximately $500,000 to $229,000 in the second
quarter of 2002. Although we continue to pursue sales of our fiscal printer,
such sales are principally project-oriented, and we cannot predict if and when
future sales may occur. Secondly, sales in Latin America through Okidata, a
distribution partner in the region, decreased by approximately $300,000 to
approximately $100,000. Both of these decreases were partially offset by an
increase of (1) approximately $100,000 of printer, spare parts and service
revenue, primarily through distribution in Europe and (2) approximately $200,000
in service and spare parts revenue for the British Post Office Project. Although
we expect continued weakness in our international POS sales for the remainder of
the year, we are actively seeking additional distribution partners in both Latin
America and Europe in order to increase our breadth of coverage and future sales
in these regions.
Due to on-going economic weakness and continued lower capital spending by users
of our POS products, we expect continued worldwide softness in demand for our
POS products for the remainder of 2002. As a result, we expect sales into the
POS market for each of the last two quarters of 2002 to be consistent with those
reported for the second quarter of 2002.
Gaming and lottery: Sales of our gaming and lottery printers increased by
$1,046,000, or 22%, from the second quarter a year ago, primarily on strong
sales of our video lottery terminal ("VLT") and slot machine printers, and to a
lesser extent, higher shipments of our on-line lottery printer.
Shipments to GTECH Corporation ("GTECH") (a worldwide lottery terminal provider
and major customer), which include on-line and in-lane lottery printers and
spare parts revenue, increased $150,000 to approximately $3,550,000 in the
second quarter of 2002. On-line lottery printers and spare parts sales totaled
approximately $3,450,000 in the second quarter of 2002, compared to $3,300,000
in the second quarter of 2001. We have orders from GTECH for on-line lottery
printers, of which approximately $2,500,000 will be delivered during the
remainder of 2002 and $500,000 in 2003. Shipments of in-lane lottery printers
totaled approximately $100,000 in both the second quarter of 2002 and 2001.
Since sales of in-lane lottery printers are project-oriented, we cannot predict
if and when future sales may occur. In July 2002, we entered into a 5-year
agreement with GTECH to provide a newly-designed thermal on-line lottery
printer. We expect to begin shipping our new thermal on-line lottery printer in
early 2003, and to continue to ship our existing impact on-line printer
(although at significantly lower volumes than in 2002).
Sales of our VLT printers increased by $300,000 to approximately $800,000, due
largely to installations in several states. Since VLT printer sales are largely
project-oriented, we cannot predict if and when future sales may occur. However
based on existing orders and sales opportunities, we expect higher sales of VLT
printers in 2002 compared to 2001. Sales for the full year 2001 were
approximately $1,700,000.
In addition, sales of our slot machine printers, spare parts and repairs
increased by approximately $600,000 to $1,500,000. Such printers are primarily
for use in slot machines at casinos in California and Nevada that print receipts
instead of dropping coins ("ticket-in, ticket-out"). We expect sales of our slot
machine printers to continue to increase during the second half of 2002 as more
regulatory approvals are expected to be obtained and more casinos are expected
to convert to ticket-in, ticket-out slot machines.
Other: Sales of our printers into other markets decreased by $598,000 or 57%, to
$450,000 from the prior year's comparable quarter. The second quarter of 2001
included shipments of approximately $400,000 of our thermal kiosk printers for
use in a Canadian government application. No shipments of these printers were
made in the second quarter of 2002. However, we expect to ship printers for this
application during the second half of 2002, although the amount is not known at
this time. In addition, sales of our other kiosk printers and related spare
parts declined by approximately $200,000. Since printer sales into this market
are principally project-oriented, we cannot predict if and when future sales may
occur.
GROSS PROFIT. Gross profit increased $699,000, or 29%, due primarily to an
improved sales mix and cost reductions resulting from the Consolidation. The
gross margin also increased to 28.5% from 22.4%. We expect gross margin for the
full-year 2002 to be between 26% and 27%, which is substantially higher that the
full-year 2001 gross margin of 22.2%.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $369,000, or 42%, and decreased as a percentage of net sales
to 4.6% from 8.1%. This decrease is primarily due to a reduction in engineering
staff at our Wallingford, CT facility due to the Consolidation.
10
SELLING AND MARKETING. Selling and marketing expenses decreased $215,000, or
16%, and decreased as a percentage of net sales to 10.0% from 12.1%. Such
expenses decreased mostly due to lower planned promotional and advertising
expenses and staff reductions resulting from the Consolidation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
$518,000, or 32%, and decreased as a percentage of net sales to 10.2% from
15.1%. The decrease primarily resulted from (1) staff reductions resulting from
the Consolidation and (2) the inclusion in the second quarter of 2001 of
$163,000 of accelerated depreciation on certain assets located at the Company's
Wallingford, CT facility (primarily leasehold improvements and computer
equipment) whose useful lives were shortened as a result of the Consolidation.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the second quarter of 2002, we
incurred $5,000 of expenses related to the Consolidation, compared to
approximately $422,000 in the second quarter a year ago. In the second quarter
of 2002 these expenses included moving expenses; in the second quarter of 2001
these expenses included a portion of employee severance and termination expenses
incurred during the quarter, and facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs). See Note 5 to the Consolidated Condensed Financial Statements.
OPERATING INCOME (LOSS). During the second quarter of 2002 we reported operating
income of $401,000, or 3.7% of net sales, compared to an operating loss of
$1,817,000 in the second quarter of 2001. Our return to operating profitability
was due to (1) significantly lower Consolidation expenses, (2) higher gross
margin and (3) significantly reduced operating expenses as a direct result of
the Consolidation.
INTEREST. Net interest expense decreased to $34,000 from $88,000 in the second
quarter of 2001 due largely to a significant reduction in our outstanding
borrowings under our revolving bank facility resulting from receipt of an
advance payment from a customer, and to a lesser extent, lower interest rates.
The cash proceeds for the repayment resulted from the receipt of an advance
payment of approximately $5.8 million from a major customer in advance of
printer shipments to be made from March through August 2002. See Note 4 to the
Consolidated Condensed Financial Statements. We expect revolving borrowings to
return to approximately $4 million by the end of the third quarter 2002, and to
remain at approximately that level during the fourth quarter of 2002. As a
result, interest expense is expected to increase sequentially in each of the
remaining quarters of 2002. See "Liquidity and Capital Resources" below.
OTHER INCOME. Other income for the second quarter of 2002 includes a one-time
gain of $145,000 resulting from the receipt of 2,146 shares of common stock from
our health insurance company, Anthem, Inc., upon its demutualization. We sold
these shares during the third quarter of 2002. This gain was partially offset by
approximately $60,000 of transaction exchange loss recorded by our UK subsidiary
in the quarter, due to the strengthening of the British pound against the
dollar.
INCOME TAXES. We recorded an income tax provision of $162,000 in the second
quarter of 2002, and an income tax benefit of $686,000 in the second quarter of
2001, at an effective rate of approximately 36.0% in both quarters.
NET INCOME (LOSS). We reported net income during the second quarter of 2002 of
$289,000, or $0.04 per share (basic and diluted) after giving effect to $89,000
of dividends and accretion charges on preferred stock. This compares to a net
loss of $1,220,000, or $0.24 per share (basic and diluted) for the second
quarter of 2001, after giving effect to $89,000 of dividends and accretion
charges on preferred stock. In future quarters, dividends and accretion charges
on preferred stock will be approximately $90,000, assuming no conversion or
redemption of the preferred stock.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES. Net sales by market for the current and prior year's six month period
were as follows:
Six months ended Six months ended
(In thousands, except %) June 30, 2002 June 30, 2001
--------------------- ---------------------
Point of sale $ 8,234 38.4% $10,940 53.2%
Gaming and lottery 12,312 57.4 6,741 32.8
Other 900 4.2 2,888 14.0
------- ----- ------- -----
$21,446 100.0% $20,569 100.0%
======= ===== ======= =====
International $ 2,084 9.7% $ 5,438 26.4%
======= === ======= ====
11
Net sales for the first half of 2002 increased $877,000, or 4%, due to
significantly higher shipments into the Company's gaming and lottery market,
including significantly higher shipments of on-line lottery printers to GTECH,
largely offset by lower sales into the POS and other markets. Overall,
international sales decreased by $3,354,000, or 62%, largely due to a reduction
in (1) revenue related to the British Post Office project (approximately
$600,000), (2) kiosk printer shipments for use in a Canadian government
application (approximately $1,400,000), (3) shipments of our thermal fiscal
printer in Europe (approximately $850,000) and (4) POS revenue through
distribution in Europe and Latin America (approximately $500,000)
Point of sale: Sales of our POS printers decreased approximately $2,706,000, or
25%, in the first half of 2002 compared to the first half of 2001.
International POS printer shipments decreased approximately $1,997,000, or 51%,
to $1,931,000 for several reasons. First, sales to ICL Pathway for the British
Post Office project, which include printer shipments, spare parts and service
revenue, declined by approximately $600,000 to $700,000 for the first half of
2002. We completed shipping printers for the British Post Office project during
the first quarter of 2001, and expect no future sales, other than spare parts
and service of approximately $250,000 per quarter, for the remainder of 2002.
Secondly, shipments of the Company's thermal fiscal printer in Europe declined
by approximately $850,000 to $300,000 in the first half of 2002. Although we
continue to pursue sales of our fiscal printer, such sales are principally
project-oriented, and we cannot predict if and when future sales may occur.
Lastly, the Company experienced a decrease of approximately $500,000 in sales
through distribution, primarily in Europe and Latin America. Although we expect
continued weakness in our international POS sales for the remainder of the year,
we are actively seeking additional distribution partners in both Latin America
and Europe in order to increase our breadth of coverage and future sales in
these regions.
Domestic POS printer sales totaling $6,303,000 were lower by $709,000, or 10%,
as we experienced softness in demand from our domestic distributors,
particularly in the first quarter of 2002. However, sales in the first half of
2002 included increasing sales of our POSjet line of inkjet printers.
Due to on-going economic weakness and continued lower capital spending by users
of our POS products, we expect continued worldwide softness in demand for our
POS products for the remainder of 2002. As a result, we expect sales into the
POS market for each of the last two quarters of 2002 to be consistent with those
reported for the second quarter of 2002.
Gaming and lottery: Sales into the gaming and lottery market increased by
$5,571,000, or 83%, from the first half a year ago, primarily due to
significantly higher shipments of our on-line and in-lane lottery printers to
GTECH, as well as strong sales of our video lottery terminal ("VLT") and slot
machine printers.
Shipments to GTECH, which include on-line and in-lane lottery printers and spare
parts revenue, increased $4,500,000 to approximately $7,900,000 in the first
half of 2002. On-line lottery printers and spare parts sales totaled
approximately $7,250,000 in the first half of 2002, compared to $3,300,000 in
the first half of 2001. We have orders from GTECH for on-line lottery printers,
of which approximately $2,500,000 will be delivered during the remainder of 2002
and $500,000 in 2003. Shipments of in-lane lottery printers totaled
approximately $650,000 in first half of 2002 compared to $100,000 in the first
half of 2001. Since sales of in-lane lottery printers are project-oriented, we
cannot predict if and when future sales may occur. In July 2002, we entered into
a 5-year agreement with GTECH to provide a newly-designed thermal on-line
lottery printer. We expect to begin shipping our new thermal on-line lottery
printer in early 2003, and to continue to ship our existing impact on-line
printer (although at significantly lower volumes than in 2002).
Sales of our VLT printers increased by $1,100,000 to approximately $2,300,000,
due largely to installations in West Virginia and other states. Since VLT
printer sales are largely project-oriented, we cannot predict if and when future
sales may occur. However based on existing orders and sales opportunities, we
expect higher sales of VLT printers in 2002 compared to 2001. Sales for the full
year 2001 were approximately $1,700,000.
In addition, sales of our slot machine printers, spare parts and repairs
remained flat at approximately $2,100,000. Such printers are primarily for use
in slot machines at casinos in California and Nevada that print receipts instead
of dropping coins ("ticket-in, ticket-out"). The Company expects sales of its
slot machine printers to increase during the second half of 2002 as more
regulatory approvals are expected to be obtained and more casinos are expected
to convert to ticket-in, ticket-out slot machines.
12
Other: Sales of our printers into other markets decreased by $1,988,000 or 69%,
to $2,888,000 from the first six months of 2001. The first half of 2001 included
shipments of approximately $1,400,000 of our thermal kiosk printers for use in a
Canadian government application. No shipments of these printers were made in the
first half of 2002. However, we expect to ship printers for this application
during the second half of 2002, although the amount is not known at this time.
In addition, sales of our other kiosk printers and related spare parts declined
by approximately $1,500,000. Since printer sales into this market are
principally project-oriented, we cannot predict if and when future sales may
occur.
GROSS PROFIT. Gross profit increased by $1,522,000, or 36%, to $5,738,000, and
the gross margin also increased to 26.8% from 20.5%. Both gross profit and gross
margin for the first half of 2002 benefited from an improved sales mix and cost
reductions resulting from the Consolidation. We expect gross margin for the
full-year 2002 to be between 26% and 27%, which is substantially higher that the
full-year 2001 gross margin of 22.2%.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $641,000, or 38%, and also decreased as a percentage of net
sales to 4.9% from 8.2%. This decrease is primarily due to a reduction in
engineering staff at our Wallingford, CT facility due to the Consolidation.
SELLING AND MARKETING. Selling and marketing expenses decreased $330,000, or
13%, and decreased as a percentage of net sales to 9.9% from 11.9%. Such
expenses decreased mostly due to lower planned promotional and advertising
expenses and staff reductions resulting from the Consolidation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
$849,000, or 27%, and decreased as a percentage of net sales to 10.7% from
15.2%. The decrease primarily resulted from (1) staff reductions resulting from
the Consolidation and (2) the inclusion in the first half of 2001 of $197,000 of
accelerated depreciation on certain assets located at the Company's Wallingford,
CT facility (primarily leasehold improvements and computer equipment) whose
useful lives were shortened as a result of the Consolidation.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the first half of 2002, we
incurred approximately $46,000 of expenses related to the Consolidation. These
expenses primarily included severance costs and moving expenses. During the
first half of 2001, we incurred approximately $1,446,000 of expenses, which
included a portion of employee severance and termination expenses incurred
during the period, and facility closure and consolidation expenses (including
moving expenses, estimated non-cancelable lease payments and other costs). See
Note 5 to the Consolidated Condensed Financial Statements.
OPERATING INCOME (LOSS). During the first half of 2002 we reported operating
income of $233,000, or 1.1% of net sales, compared to an operating loss of
$4,509,000 in the first half of 2001. Our return to operating profitability was
due to (1) significantly lower Consolidation expenses, (2) higher gross margin
and (3) significantly reduced operating expenses as a direct result of the
Consolidation.
INTEREST. Net interest expense decreased to $89,000 from $182,000 in the first
half of 2001 due largely to a significant reduction in our outstanding
borrowings under our revolving bank facility resulting from receipt of an
advance payment from a customer, and to a lesser extent, lower interest rates.
The cash proceeds for the repayment resulted from the receipt of an advance
payment of approximately $5.8 million from a major customer in advance of
printer shipments to be made from March through August 2002. See Note 4 to the
Consolidated Condensed Financial Statements. We expect revolving borrowings to
return to approximately $4 million by the end of the third quarter 2002, and to
remain at approximately that level during the fourth quarter of 2002. As a
result, interest expense is expected to increase sequentially in each of the
remaining quarters of 2002. See "Liquidity and Capital Resources" below.
OTHER INCOME. Other income for the first half of 2002 includes a one-time gain
of $145,000 resulting from the receipt of 2,146 shares of common stock from our
health insurance company, Anthem, Inc., upon its demutualization. We sold these
shares during the third quarter of 2002. This gain was partially offset by
approximately $40,000 of transaction exchange loss recorded by our UK subsidiary
in the half, due to the strengthening of the British pound against the dollar in
the second quarter of 2002.
INCOME TAXES. We recorded an income tax provision of $89,000 in the first half
of 2002, and an income tax benefit of $1,674,000 in the first half of 2001, at
an effective rate of approximately 36.0% in both periods.
13
NET INCOME (LOSS). We reported net income during the first half of 2002 of
$160,000, or $0.00 per share (basic and diluted) after giving effect to $179,000
of dividends and accretion charges on preferred stock,. This compares to a net
loss of $2,977,000, or $0.57 per share (basic and diluted) after giving effect
to $179,000 of dividends and accretion charges on preferred stock in the first
half of 2001. In future quarters, dividends and accretion charges on preferred
stock will be approximately $90,000, before the effect of any conversion or
redemption of the preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
We generated cash from operations of $2,560,000 in the first half of 2002,
compared to using cash in operations of $1,545,000 in the first half of 2001.
The significant increase in cash generated from operations in the first half of
2002 was largely the result of a return to profitability in the first half of
2002. During the first half of 2002, we earned net income of $160,000 compared
to a net loss of $2,977,000 in the first half of 2001.
During the first half of 2002, depreciation and amortization totaled
$1,148,000. We received a $5,824,000 advance payment from a major customer in
February 2002, of which $944,000 was outstanding at June 30, 2002. (See Note 4
to the Consolidated Condensed Financial Statements.) Receivables were lower by
$173,000 despite higher sales, primarily as a result of the advance payment
noted above. Without the advance payment, receivables would have increased by
approximately $1,100,000. Inventories were reduced in the first half of 2002 by
approximately $1,540,000 due to higher shipments and tighter inventory
management. Offsetting the activities providing cash in the quarter was a net
reduction in the restructuring accrual of $1,407,000, representing primarily
payouts for severance pay and related benefits of $1,453,000 and an additional
accrual of $46,000.
We used $2,568,000 in financing activities, largely due to repayments on
our revolving credit facility resulting from the advance payment from a major
customer.
WORKING CAPITAL
Our working capital decreased to $6,876,000 at June 30, 2002 from
$8,366,000 at December 31, 2001. The current ratio also decreased to 1.78 to 1
at June 30, 2002 from 1.90 to 1 at December 31, 2001. The decrease in both
working capital and the current ratio were largely due to (1) lower inventories
($1,540,000) and (2) the receipt of a $5,824,000 advance payment from a major
customer in February 2002, the balance of which ($944,000) is carried as a
current liability in the condensed consolidated balance sheet, but will be
eliminated by the end of the third quarter.
CREDIT FACILITY AND BORROWINGS
On May 25, 2001, we entered into a three-year, $13.5 million credit
facility (the "LaSalle Credit Facility") with LaSalle Business Credit, Inc.
("LaSalle") expiring on May 25, 2004 to replace a prior credit facility with
Webster Bank. The LaSalle Credit Facility provides a $12 million revolving
credit line, a $0.5 million term loan and a $1 million equipment loan facility.
Borrowings under the LaSalle Credit Facility bear a floating rate of interest
based on LaSalle's prime rate. Under certain circumstances, we may select a
fixed interest rate for a specified period of time of up to 180 days on
borrowings based on the current LIBOR rate.
On October 30, 2001, we amended the LaSalle Credit Facility. Under the
terms of the amendment ("LaSalle Amendment No.1"), LaSalle, in consideration of
certain waivers and other matters, (1) increased the floating rate of interest
on borrowings under the revolving credit line to LaSalle's prime rate plus 1.0%,
or the current LIBOR rate plus 3.5%, and (2) increased the floating rate of
interest on borrowings under the term loan and equipment loan to LaSalle's prime
rate plus 1.5%, or the current LIBOR rate plus 4.0%. Upon execution of LaSalle
Amendment No. 1, we paid a fee of $20,000 to LaSalle.
On December 21, 2001, we amended the LaSalle Credit Facility to reset
certain financial covenants for 2002 and beyond ("LaSalle Amendment No. 2). Upon
execution of LaSalle Amendment No. 2, we paid a fee of $5,000 to LaSalle.
As of June 30, 2002, we had $2,509,000 of outstanding borrowings on the
revolving credit line compared to $4,994,000 outstanding at December 31, 2001.
We expect our outstanding borrowings on the revolving credit line to increase to
approximately $4 million by the end of the third quarter 2002, and to remain at
approximately that level during the fourth quarter 2002. At June 30, 2002 we had
$400,000 outstanding under the term loan, compared to $450,000 at December 31,
2001. Annual principal payments on the term loan are $100,000. There were no
borrowings under the equipment loan.
14
PREFERRED STOCK
In connection with its 7% Series B Cumulative Convertible Redeemable
Preferred Stock (the "Preferred Stock"), we paid $70,000 of cash dividends to
Advance Capital Advisors, L.P. in each of the first two quarters of 2002 and
2001, and expect to pay $70,000 per quarter for the remainder of 2002. The
preferred stock is redeemable at the option of the holders on April 7, 2005 for
an aggregate of $4,000,000 plus any unpaid dividends.
CAPITAL EXPENDITURES
Our capital expenditures were approximately $269,000 and $597,000 in the
first half of 2002 and 2001, respectively. These expenditures for 2002 primarily
included new product tooling and computer equipment. We expect capital
expenditures for the year 2002 to be approximately $800,000, a majority for new
product tooling.
CONSOLIDATION EXPENSES
During 2001, we incurred approximately $4,096,000 of business
consolidation, restructuring and related charges as a result of the
Consolidation. These expenses primarily included employee severance and
termination related expenses, facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs) and accelerated depreciation and asset disposal losses on certain
leasehold improvements and other fixed assets. Although the Consolidation was
substantially completed in 2001, we expect to incur an additional $50,000 to
$100,000 of non-recurring costs associated with the Consolidation during 2002,
of which $46,000 was recorded in the first half of 2002. These costs in 2002
primarily include (1) expenses incurred to physically move the remaining assets
of the Wallingford, CT facility to Ithaca, NY and (2) severance costs for
employees who terminate in 2002. We believe that the Consolidation will
significantly lower our cost structure in 2002, with estimated annual cost
savings of approximately $4.0 million compared to 2001. The first half 2002
operating results reflect a portion of these cost savings.
Of the total of $4,200,000 of expenses, approximately $3,400,000 requires
cash outlays. During 2001, we paid approximately $400,000 of these costs, with
substantially all the remaining costs expected to be paid during 2002. The
Company paid approximately $1,453,000 of these expenses during the six months
ended June 30, 2002.
RESOURCE SUFFICIENCY
We believe that cash flows generated from operations and borrowings
available under the LaSalle Credit Facility, as amended, will provide sufficient
resources to meet our working capital needs, including costs associated with the
Consolidation, finance our capital expenditures and meet our liquidity
requirements through December 31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates
primarily to borrowings under our Credit Facility with LaSalle Business Credit.
These borrowings bear interest at variable rates and the fair value of this
indebtedness is not significantly affected by changes in market interest rates.
An effective increase or decrease of 10% in the current effective interest rates
under the Credit Facility would not have a material effect on our results of
operations or cash flow.
FOREIGN CURRENCY EXCHANGE RISK
A substantial portion of our sales are denominated in U.S. dollars and, as
a result, we have relatively little exposure to foreign currency exchange risk
with respect to sales made. This exposure may change over time as business
practices evolve and could have a material adverse impact on our financial
results in the future. We do not use forward exchange contracts to hedge
exposures denominated in foreign currencies or any other derivative financial
instruments for trading or speculative purposes. The effect of an immediate 10%
change in exchange rates would not have a material impact on our future results
of operations or cash flow.
15
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 17, 2002.
Matters voted upon at the meeting and the number of votes cast for,
against, withheld or abstentions, are as follows:
(1) To consider and act upon a proposal to elect two Directors to
serve until the Annual Meeting of Stockholders in the year
2005 or until their successors have been duly elected and
qualified. Nominees were Thomas R. Schwarz and Bart C.
Shuldman. Votes cast were as follows:
For Withheld
--------- --------
Thomas R. Schwarz 5,232,748 12,005
Bart C. Shuldman 5,232,748 12,005
(2) To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for 2002. Votes cast were as
follows: 5,228,734 common shares for; 9,200 common shares
against; 6,819 common shares abstained; 4,000 preferred shares
(representing 444,444 votes) for.
The following directors continue to serve until the Annual Meeting
of Stockholders in the year 2003 or until their successors have been
duly elected and qualified: Charles A. Dill and Jeffrey T. Leeds.
The following directors continue to serve until the Annual Meeting
of Stockholders in the year 2004 or until their successors have been
duly elected and qualified: Graham Y. Tanaka and Richard L. Cote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits filed herein
Exhibit 10.27 OEM Purchase Agreement by and between GTECH
Corporation and TransAct Technologies
Incorporated commencing July 2, 2002.
(Pursuant to Rule 24-b-2 under the Exchange
Act, the Company has requested confidential
treatment of portions of this exhibit deleted
from the filed copy.)
Exhibit 11.1 Computation of earnings per share
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
None.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
----------------------------------
(Registrant)
August 13, 2002 /s/ Richard L. Cote
-------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Steven A. DeMartino
-----------------------
Steven A. DeMartino
Senior Vice President, Finance and
Information Technology
(Principal Accounting Officer)
17
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
- -------
10.27 OEM Purchase Agreement by and between GTECH Corporation and TransAct
Technologies Incorporated commencing July 2, 2002. (Pursuant to Rule
24-b-2 under the Exchange Act, the Company has requested
confidential treatment of portions of this exhibit deleted from the
filed copy.)
11.1 Computation of earnings per share.
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002
18
[GTECH LOGO] EXHIBIT 10.27
AGREEMENT NO. 530133-7202
BY AND BETWEEN
GTECH CORPORATION
55 TECHNOLOGY WAY
WEST GREENWICH, RHODE ISLAND 02817
AND
TRANSACT TECHNOLOGIES INCORPORATED
7 LASER LANE
WALLINGFORD, CT 06492
For the Purchase of
GTECH Model GLP305/SA
GTECH REPRESENTATIVES: VENDOR REPRESENTATIVES
John Picard Mark Bauer
- ---------------------------------- ------------------------------------
GTECH CORPORATION OEM PURCHASE AGREEMENT
1. TERMS AND CONDITIONS 5
1.1 Products 5
1.2 Services 5
1.3 OEM Purchases 5
1.4 No Minimum Commitment; No Exclusivity 5
1.5 Spare Parts 5
2. ORDERING 6
2.1 Purchase Orders 6
2.2 Lead Time 6
2.3 Priority Orders 6
2.4 Rescheduling 6
2.5 Cancellation for Convenience 6
2.6 Forecast 7
3. SHIPPING, PACKAGING, DELIVERY 7
3.1 F.O.B.; Title; Risk of Loss 7
3.2 Shipment 7
3.3 Packaging 7
3.4 International Shipments 7
3.5 Early Arrival 7
4. PRICE 7
4.1 Unit Prices 7
4.2 Price Reduction 7
4.3 Price Reduction on Spare Parts and Repairs 7
5. PAYMENT 8
6. TAXES AND DUTIES 8
7. CHANGES 8
7.1 Product Changes 8
7.2 GTECH Changes 8
7.3 Enhancements, Successor Products 9
8. COOPERATION IN THE LOTTERY AND GAMING MARKET 9
8.1 Transfer of Equipment 9
8.2 Non-Compete Clause 9
8.3 Vendor Outside Requirements 10
2
9. PRODUCT QUALITY AND RELIABILITY REQUIREMENTS 10
9.1 Quality and Reliability Requirements 10
9.2 Reliability Plan 10
9.3 Reliability Test 10
9.4 Reliability Test Report 10
9.5 Vendor Survey 10
9.6 Test Equipment and Procedure Correlation 10
9.7 Final Test and Inspection Data 11
9.8 Source Inspection 11
9.9 Receiving Inspection 11
9.10 Field Reliability Reporting 11
9.11 Failure Analysis and Corrective Actions 12
9.12 GTECH's Rights with Respect to Non-Conforming Goods 12
9.13 Failures of consequence 12
10. INSURANCE 12
10.1 Vendor Insurance Coverage 12
10.2 General Liability 12
10.3 Proof of Insurance 13
10.4 First Production Performance Bond 13
11. INDEMNITY 13
12. REPAIR SUPPORT 14
12.1 Repair Orders 14
12.2 International Repair and Support 14
12.3 Failure Analysis 14
12.4 Repair Capabilities 14
12.5 Test Equipment 14
12.6 Qualified Vendor List 14
12.7 Diagnostics 15
12.8 Documentation 15
13. TRAINING 15
13.1 Initial Training 15
13.2 Component Level Training 15
13.3 Future Training 15
14. WARRANTIES 15
14.1 Vendor Standards 15
14.2 Authority 16
14.3 Title; Infringement 16
14.4 Conformance; Defects 16
14.5 Freight Costs on Warranty Repairs 16
3
14.6 Freight Charges on Non-Warranty 16
14.7 Warranty Terms 16
15. TOOLING 16
16. FORCE MAEJURE 17
17. CONFIDENTIALITY 17
18. PUBLIC ANNOUNCEMENTS 18
19. NOTICES 18
20. ASSIGNMENT 18
21. TERM AND TERMINATION 18
21.1 Term 18
21.2 Termination by GTECH 18
21.3 Termination by VENDOR 19
21.4 Obligations on Termination 19
22. CONFLICTING PROVISIONS 19
23. MANUFACTURING RIGHTS 19
24. MISCELLANEOUS 20
ATTACHMENTS
1 - Products Specifications 21
2 - Pricing 22
3 - Spare Parts Pricing 23
4 - Warranty Information 24
5 - General Packaging Specification 25
6 - Tooling 26
7 - Manufacturing Rights 27
4
GTECH OEM PURCHASE AGREEMENT
THIS AGREEMENT between GTECH CORPORATION, a Delaware corporation, with
offices at 55 Technology Way, West Greenwich, RI 02817 ("GTECH") and TransAct
Technologies Incorporated a Delaware corporation, with offices at 7 Laser Lane,
Wallingford, CT 06492 ("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 thermal
printer, as well as the VENDOR's recommended spare parts, subassemblies,
operating supplies, maintenance kits, and options, if any, produced in
accordance with the specifications and any subsequent modifications authorized
in accordance with the terms of this Agreement attached hereto as Attachment 1
("Specifications").
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 Sections 12
and 13 of this Agreement.
1.3 OEM Purchases. 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. Products may also be used by GTECH and its
subsidiaries for their internal use.
1.4 No Minimum Commitment; No Exclusivity. Unless otherwise specified
in Attachment 2, 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 from VENDOR and that GTECH may manufacture
competitive Products and Services itself and/or procure competitive products and
services from other vendors.
1.5 Spare Parts. VENDOR shall provide a Recommended Spare Parts List
("RSL") for all Products covered by this Agreement upon receipt of the first
production order. The RSL shall include all parts and assemblies necessary to
repair and maintain the Products purchased under this Agreement. The RSL shall
include a non-binding, best estimate forecast of parts that must be repaired
and/or replaced over the first three years of service. A separate RSL shall be
supplied for each product model or configuration, identifying all common parts.
a. Non-Standard Spare Parts. If the Product contains a part not
readily available in the marketplace "Non-Standard Spare Parts"), VENDOR shall
make such part available to GTECH in accordance with Section 1.5(c).
b. Emergency Stock. VENDOR shall maintain an adequate supply of
spare parts at its facility to support Priority Orders, as described in Section
2.3.
5
c. Spare Part Support. VENDOR shall make all spare parts including
Non-Standard Spare Parts as described in Section 1.5(a) 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 for spare parts 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 that 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.
2. ORDERING
2.1 Purchase Orders. All purchases under this Agreement will be made
under purchase orders ("Purchase Orders") referencing this Agreement issued by
GTECH or by any subsidiary or affiliate of GTECH. Purchase Orders will be placed
directly with VENDOR and 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. VENDOR may reject purchase orders only if a
Purchase Order does not comply with the terms and conditions of this Agreement.
2.2 Lead Time. Unless otherwise agreed, Purchase Orders shall specify a
delivery date with the normal lead-time of sixty (60) calendar days ("Lead
Time"). If GTECH requests delivery to meet a special requirement, including but
not limited to the replacement of Products lost or damaged in shipment, VENDOR
will use all commercially reasonable 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. In the event that Products ordered within the Lead Time are
overdue for delivery to GTECH, VENDOR shall ship replacement Products to GTECH
at no cost to GTECH, and any premium airfreight charges shall be prepaid by, and
borne by VENDOR.
2.3 Priority Orders. GTECH Purchase Orders for any and all spare parts
identified as "Priority Orders" shall be shipped within twenty-four (24) hours
after receipt by VENDOR.
2.4 Rescheduling. Within 30 calendar days of scheduled delivery date,
GTECH may reschedule within the scheduled month. At 31-60 calendar days before
scheduled delivery date, an order may be rescheduled up to 30 calendar days
later than the scheduled delivery date, or the end of the calendar quarter,
whichever is greater. Each order may be rescheduled a maximum of two times, once
with each method listed in this section.
2.5 Cancellation for Convenience. Within 60 calendar days calendar days
of scheduled delivery date, no cancellation is permitted. At 61+ calendar days
before scheduled delivery date, GTECH may cancel any or all Purchase Orders.
6
2.6 Forecast. Any forecast, which may be provided, is a good faith
estimate of GTECH's anticipated requirements for the 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, delivery of
Products will be made F.O.B. VENDOR's dock at 20 Bomax Drive, Ithaca NY 14850.
Subject to proper packaging, title and risk of loss shall pass to GTECH upon
proper tender of the Products to the carrier. VENDOR will 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 Products in accordance with GTECH's
instructions as 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 GTECH's General Packaging
Specifications as specified in Attachment 5.
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) calendar days before the delivery date
specified in the Purchase Order.
4. PRICE
4.1 Unit Prices. All pricing will be specified in Attachment 2. All
pricing shall remain in effect for the Term of this Agreement and any extensions
thereafter.
4.2 Price Reduction. VENDOR represents that the prices specified in
Attachment 2 are the lowest prices charged to any other customer of VENDOR
purchasing the same or lesser quantities of Products and/or Services under
similar terms and conditions. If at any time or times hereafter, VENDOR offers
Products and/or Services to any other customer on more favorable terms,
conditions or prices, VENDOR shall, at that 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 purchased by GTECH for
the balance of the Term and any extensions thereafter.
4.3 Price Reductions On Spare Parts And Repairs. In the event of a
price reduction on the Products covered under this Agreement, VENDOR agrees to
reduce the list price of all spare
7
parts on VENDORs' RSL, and the cost of repairs, by a percentage rate equal to
the reduction in the price of the Products. Any and all discounts that are
stated in Attachment 2 of this Agreement shall remain in effect, and may be
applied to all purchases made hereunder. The price reduction will apply to all
Purchase Orders for spare parts and repairs that are scheduled for delivery no
less than fifteen (15) calendar days after the effective date of the price
reduction.
5. PAYMENT
5.1 *
6. TAXES AND DUTIES
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 21.2, 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) calendar 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 02817 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. GTECH shall make best effort to respond in writing to VENDOR
within fifteen (15) calendar days of GTECH's receipt of change notification. 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 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 does not
* Confidential treatment requested
8
respond with a written change proposal within thirty (30) calendar days after
receipt of GTECH's request, such changes will be implemented without any
alternation 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 ("Enhancements") to the Products not available at the time
this Agreement is signed or other products which substantially replace the
Products ("Successor Products"), VENDOR will offer such Enhancements and/or
Successor Products to GTECH at prices *. If GTECH elects, in writing, to
purchase such Enhancements or Successor Products, the Enhanced Products or
Successor Products will be ordered separately from any orders which may be open
at that time. No substitutions will be made on open purchase orders with
delivery within sixty (60) calendar days lead-time.
In any event, GTECH may, at its option, elect to continue to purchase Products
as originally specified for the Term of this Agreement and any extensions
thereafter.
8. COOPERATION IN LOTTERY AND GAMING MARKET
8.1 Transfer of Equipment. During the Term of this Agreement and any
extensions thereof, GTECH shall have the sole discretion as to whether to submit
proposals or bids for the sale, lease or other transfer of the Products to any
current or potential customer of GTECH or its affiliates, and as to whether such
a proposal or bid shall be submitted by GTECH, by VENDOR or jointly with other
parties. During the Term of this Agreement and any extensions thereof, VENDOR
shall not without GTECH's prior written consent, supply the Products provided
herein to any other person or entity for use in connection with the operation of
public or private on-line or in-lane lotteries in the U.S. or abroad.
8.2 Non-Compete Clause. VENDOR further agrees that during the Term of
this Agreement and any extensions thereof, and for the one (1) year period after
the expiration or earlier termination but not if VENDOR has terminated this
Agreement pursuant to Section 21.3 hereof, VENDOR shall not directly or
indirectly, become engaged in, or financially interested in, any on-line or
in-lane lottery business which is in competition with the on-line or in-lane
lottery business of GTECH, its subsidiaries or affiliates; provided, however,
that (a) nothing contained herein shall prevent VENDOR from supplying products
or services to competitors of GTECH so long as such products or services do not
compete against GTECH's on-line or in-lane lottery business or (b) purposely and
knowingly engage in or participate in any effort or act to induce any of the
customers, or employees of GTECH or its affiliated companies to take any action,
which is in direct conflict with the on-line or in-lane lottery business of
GTECH, its subsidiaries or affiliates or (c) GTECH elects to purchase comparable
thermal printer products for Altura on-line terminal and no longer purchases
Product from VENDOR ; provided further, however, that the limitations of the
last sentence of Section 8.1, and of this Section 8.2 ,shall not apply from and
after the earlier to occur of (i) GTECH or an
* Confidential treatment requested
9
affiliated company enters into an agreement with a third party to purchase a new
comparable thermal printer that competes with VENDOR's Product, (ii) GTECH or an
affiliated company purchases a new comparable thermal printer that competes with
VENDOR's Product from a third party, or (iii) GTECH or an affiliated company
commences manufacturing (itself or under contract with a third party)a new
comparable thermal printer that competes with VENDOR's Product.
8.3 VENDOR Outside Requirements. VENDOR agrees that it shall advise its
distributors outside the U.S. of the covenants and responsibilities set forth in
this Agreement.
9. QUALITY AND RELIABILITY REQUIREMENTS
9.1 Quality and Reliability Requirements. GTECH requires that the
VENDOR have in place at its manufacturing facility, adequate quality and
reliability safeguards to ensure that all Products shipped to GTECH meet or
exceed all parameters specified in the Product Specification, and that the
Product is not subject to any infant mortality.
9.2 Reliability Plan. The VENDOR will submit to GTECH Quality Assurance
("QA") a reliability test plan for the Products, which will include the VENDOR's
reliability requirements based on the Products Specification and test schedule.
GTECH QA will review the reliability plan for the Product, provide comments and
approve the plan when satisfied that all design requirements will be adequately
tested.
9.3 Reliability Test. The VENDOR will conduct a reliability test on the
Products to ensure that the Products meet or exceed all parameters specified in
the Product Specification. GTECH may participate and/or monitor the VENDOR's
reliability test on the Product at the VENDOR's facility.
9.4 Reliability Test Report. The VENDOR will submit to GTECH QA a
formal reliability test report for the Products based on the results of the
Product reliability test. The reliability test report will contain all data
necessary to verify and confirm that the Products meet all the design
requirements identified in the Product Specification and any resultant design
changes and corrective action to resolve any test failures. GTECH QA must
approve the VENDOR's reliability test report before the VENDOR can be approved
to ship Products to GTECH.
9.5 Vendor Survey. The VENDOR will allow GTECH to perform a vendor
survey at the VENDOR'S facility. 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, review of the on-going
reliability test data, Product design changes, corrective action, and field
reliability performance and repair data.
9.6 Test Equipment and Procedure Correlation. The test equipment and
procedures used in the VENDOR's final inspection and test, will correlate with
the test
10
equipment and procedures used by GTECH. If correlation is not achieved within 30
calendar days prior to the first production shipment, the VENDOR agrees to
obtain additional test equipment and/or develop procedures that are capable of
correlation. Said test equipment and procedures will be mutually agreed upon by
both the VENDOR and GTECH Purchasing, QA and Test Engineering.
9.7 Final Test and Inspection Data. The VENDOR will provide GTECH with
inspection and/or test data based on the mutually agreed upon test equipment and
procedures with each lot of Products delivered to GTECH. The VENDOR will make
final test and inspection data (yield information), on-going reliability test
data, field reliability performance data, and repair data available at the
request of GTECH throughout the life of the Products.
9.8 Source Inspection. The VENDOR will allow GTECH (or its
representatives) to perform source inspection at their facility, using mutually
agreed upon test equipment and procedures. It is GTECH's plan to source inspect
the initial lots of Products scheduled for shipment from VENDOR's manufacturing
facility to GTECH production or field sites. 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 QA.
9.9 Receiving Inspection. GTECH plans to conduct receiving inspection
and test on all OEM components. GTECH will 100% inspect and test the first seven
(7) consecutive lots of VENDOR Products for visual, mechanical, electrical and
other types of compliance as specified. After the initial seven (7) lots have
been qualified, GTECH plans to conduct receiving inspection using MIL-STD-105E,
General Inspection Level I, with an AQL of 1.0 for normal sampling inspection.
If Product performance fails to meet this level of compliance at receiving
inspection, GTECH may (a) recover all costs associated with continued
unacceptable quality by taking a credit against the purchase price of the
Products or (b) allow VENDOR the option of providing timely resources on-site at
GTECH to correct the unacceptable quality condition. These costs are typically
related to sorting, testing, packaging, handling, freight and source inspection
expenses in support of receiving and in-process inspection and test.
9.10 Field Reliability Reporting. The VENDOR agrees to supply GTECH QA
with field reliability performance data for the Products purchased by GTECH. The
field reliability data is to be structured in the following manner (or
equivalent) and made available on electronic mail:
VENDOR FAILURE ANALYSIS SPREADSHEET
PRODUCT DATE RETURN RETURN INITIAL DATE REPAIR CORRECTIVE RMA SHIP
SER. NO. RECV'D SOURCE REASON FINDINGS ANALYZED PERFORMED ROOT CAUSE ACTION TAKEN NO. DATE
--------------------------------------------------------------------------------------------------------------------------
11
9.11 Failure Analysis and Corrective Actions. The VENDOR agrees to
supply, within 15 calendar days, written notice of non-conformance, 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 Products Specification.
9.12 GTECH's Rights 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 right 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 VENDOR's
Products.
9.13 Failures of consequence. If GTECH's customers world-wide
experience excessively high failure rates (> or equal to 20% annualized) during
the warranty period in any given jurisdiction that is determined by both parties
to be VENDOR's responsibility, GTECH may recover all costs associated with this
unacceptable Product performance by taking credit against the purchase price of
the Product or VENDOR can, at its discretion assume all costs directly by
providing required support services to repair, upgrade or replace defective
Product in a timely manner to GTECH satisfaction. These additional costs are
typically related to screening, sorting, testing, packaging, handling by a third
party and airfreight to expedite any of these activities.
10. INSURANCE
10.1 Vendor Insurance Coverage. VENDOR 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 additional insured under all coverages except Workers'
Compensation. Appropriate endorsements will be attached to state that the
VENDOR's policy will be primary to any other policies that may be in effect.
10.2 General Liability. Policy will provide a minimum of $2,000,000 per
occurrence for Products and Completed Operations.
12
10.3 Proof of Insurance. Evidence of said insurance will be in the form
of a certificate of insurance and will be provided within ten (10) calendar days
from the date of this Agreement. Notification to GTECH will occur within thirty
(30) calendar 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.
10.4 *
11. INDEMNITY
In addition to, and not in limitation of, any other indemnifications,
warranties and covenants set forth herein, VENDOR hereby agrees to indemnify and
hold GTECH harmless with respect to any and all costs, expenses and liability,
including without limitation reasonable attorney's 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, its 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 or any patent,
copyright, trade secret or other proprietary interest related to such Products.
GTECH shall give VENDOR prompt written notice of any claim or action and shall
provide reasonable assistance, 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, its subsidiaries, affiliates,
distributors and customers the right to continue using the Products; (b) modify
the Products so they become non-infringing; (c) substitute 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 such infringement
would arise independent of such designs, plans or specifications; (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
* Confidential treatment requested
13
contemplated by VENDOR. VENDOR acknowledges that the Specifications in
Attachment 1 is not a "specification" which excuses or releases VENDOR from
performing its indemnity and other obligations hereunder.
12. REPAIR SUPPORT
12.1 Repair Orders. In addition to VENDOR's obligations under Section
14, VENDOR agrees to repair all `in warranty' and `out of warranty' failures
within * from the receipt of the Products, or else replace such Products with
new Products that shall conform to the Specifications.
12.2 International Repair and Support. VENDOR will identify or
establish international repair locations as required by GTECH and within ninety
calendar days of written notice by GTECH of new jurisdictional requirements to
support the repair of Products and subassemblies. In the event that those
international facilities are not wholly owned subsidiaries of the VENDOR, then
VENDOR shall procure for GTECH the right to have repairs on the Products
performed at the international locations whether the failure occurs within the
warranty period as specified in Section 14 or otherwise. If VENDOR fails to
comply with this section 12.2, *.
12.3 Failure Analysis. VENDOR shall provide a failure analysis on
Products that are 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 right to repair any of the
assemblies, subassemblies, or other items comprising the Products purchased
under this Agreement. VENDOR will supply GTECH with the necessary support to
repair the Products, including the information listed under Sections 12.3, 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 necessary to repair the unit,
any of the assemblies, subassemblies, piece parts, components, or other items
comprising the Products purchased under this Agreement to component level. GTECH
agrees to pay reasonable costs to VENDOR for hardware test equipment only. Other
items such as procedures, schematics diagnostics, programs etc. will be made
available at no charge.
12.6 Qualified Vendor List. Upon production release, VENDOR shall
supply GTECH with a qualified vendor list (QVL) for all components used in the
Products purchased under this Agreement. This QVL shall include the component
manufacturers and vendors along with the corresponding part numbers for all
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
* Confidential treatment requested
14
Technology Way, West Greenwich, RI 02817 Attention: Procurement Agent
Responsible for this Commodity.
12.7 Diagnostics. VENDOR shall provide to GTECH 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
unlimited 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 Term of this
Agreement. Upon request, VENDOR shall provide camera-ready copies of the
Documentation to GTECH at no additional charge. GTECH agrees to display
copyright notices in accordance with VENDOR's reasonable written instructions.
13. TRAINING
13.1 Initial Training. VENDOR agrees to provide, at no charge to GTECH,
three (3) training classes with up to twelve (12) students per class at a
GTECH-designated site during the term of this Agreement. Pursuant to the above,
GTECH shall: (1) reimburse VENDOR for instructor's 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 instructional materials for the above referenced classes.
Training classes may be video taped for future use 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
(i.e. resistor, capacitor, integrated circuit) 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 shall consist of Component Level Training.
13.3 Future Training. GTECH may schedule a maximum of three (3)
students per quarter in VENDOR's regularly scheduled class, at VENDOR's
location, during the Term of this Agreement. If no regularly scheduled classes
are conducted, then GTECH may request VENDOR to conduct one (1) class per year
in which GTECH may schedule a maximum of six (6) students.
14. WARRANTIES
14.1 VENDOR Standards. VENDOR represents and warrants that all
Products delivered to GTECH under this Agreement will comply with applicable
U.L, CSA, CE, TUV and VDE standards and will comply with the applicable FCC
rules for the type of Products involved, including type acceptance or
certification where required. VENDOR will obtain and maintain at its own expense
all applicable listings, certifications and approvals in VENDOR's name. VENDOR
15
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 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.
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) be free from defects in materials and workmanship for a
period of twenty-seven (27) months from shipment to GTECH. 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 within five (5) calendar
days of receipt by VENDOR of the failed or non-conforming Products or spare
parts.
14.5 Freight Costs on Repairs. All Products returned to VENDOR for
repair under warranty shall be shipped to VENDOR by standard ground service, *.
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.
14.7 Warranty Terms. VENDOR shall detail all pertinent information upon
production release in Attachment 4.
15. TOOLING
15.1 Any tooling purchased by GTECH for the manufacture of the Products
("Tooling"), whether kept at GTECH's, VENDOR's or VENDOR's 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 the Products 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
* Confidential treatment requested
16
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". VENDOR
will immediately notify GTECH of any change in the location of the tooling.
16. FORCE MAJEURE
For the purposes of this Agreement, a "Force Majeure" shall mean an
event or effect that cannot be reasonably anticipated or controlled, including
but not limited to an action of the elements, or any other cause which, by the
exercise of reasonable diligence, said Party is unable to prevent. Neither GTECH
nor VENDOR shall be liable to the other for any delay in or failure of
performance under this Agreement due to a "Force Majeure" occurrence provided
that the Party claiming Force Majeure notifies the other in writing within five
(5) calendar days of the commencement of the codition preventing its performance
and its intent to rely theron to extend the time for its performance of this
Agreement.
17. CONFIDENTIALITY
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 the 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; or (e) approved in writing for unrestricted release or unrestricted
disclosure by the Party owning or disclosing the information (hereinafter
"Discloser"). In the event either VENDOR is required or legally compelled to
disclose any of the Confidential Information as a result f a legal process or
pursuant to governmental action, the VENDOR shall give prompt written notice to
GTECH so that GTECH may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. 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.
17
18. 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.
19. NOTICES
All notices required or contemplated by this Agreement shall be deemed
effective if written and delivered in person or if sent by registered mail,
return receipt requested, 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. A copy of all Notices sent to
GTECH shall be addressed to the Office of General Counsel at the address shown
above.
20. ASSIGNMENT
This Agreement and the disclosure of Confidential Information hereunder
are 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. Any attempted assignment
shall be void. This covenant not to assign without consent shall include
assignments to parents or subsidiaries of VENDOR or any transfer of a majority
interest in VENDOR. The consent by GTECH to any assignment shall not constitute
a waiver of the need for consents for any further assignments. GTECH may not
unreasonably withhold consent to an assignment, and shall restrict its basis for
withholding consent to the proposed assignee's status as a competitor to GTECH,
an entity of inferior financial status to VENDOR or an entity whose business
practices are such that the likelihood of breach is increased.
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.
21. TERM AND TERMINATION
21.1 Term. This Agreement will commence on the 28th day of June 2002
("Effective Date"), and shall continue for five (5) years ("Term") unless
terminated earlier as provided in this Agreement. Unless either Party notifies
the other in writing at least ninety (90) calendar days before the end of the
Term 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) calendar days
prior written notice. Unless otherwise agreed in writing, the prices for the
Products during any such extension shall be the same prices in effect at the end
of the Term.
21.2 Termination by GTECH. GTECH may terminate this Agreement at any
time if (a)
18
*; (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) calendar 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; or (e) the Products are infringing and the VENDOR is unable to procure
a right for GTECH to continue to use the Products as set forth in Section 11
hereof.
21.3 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) calendar days of written notice thereof by
VENDOR; provided that, VENDOR may not terminate this Agreement for reason of
non-payment by GTECH of any disputed amounts, 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)
calendar 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.
21.4 Obligations of Termination. Upon expiration or termination ofthis
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 Sections 2, 8, 9, 10, 11, 12, 14,
17, 18, 20, 21 and 24 hereof shall survive expiration or earlier termination of
this Agreement or its extensions regardless of the manner of termination.
22. 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 individual purchase order shall apply only to the Products and/or
Service ordered under such individual Purchase Order. The terms and conditions
of this Agreement and, if applicable, the 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 permitted assignment, VENDOR shall remain
responsible for the full performance of all of the terms and conditions of this
Agreement.
23. MANUFACTURING RIGHTS Attachment 7 will govern Manufacturing Rights.
* Confidential treatment requested
19
24. 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.
No 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.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON
THE DATES MENTIONED BELOW.
VENDOR GTECH CORPORATION
By /s/ Bart C. Shuldman By /s/ William Middlebrook
------------------------------------------- --------------------------------------------
Print Bart C. Shuldman Print William Middlebrook
----------------------------------------- -----------------------------------------
Title Chairman, President and CEO Title Vice President Technology Operations
----------------------------------------- -----------------------------------------
Date July 2, 2002 Date July 2, 2002
------------------------------------------ ------------------------------------------
By By
-------------------------------------------- --------------------------------------------
Print Print
----------------------------------------- -----------------------------------------
Title Title
----------------------------------------- -----------------------------------------
Date Date
----------------------------------------- ------------------------------------------
20
Attachment 1
Product Specification
Thermal Printer GLP305/SA
53-0133-00 rev B
21
Attachment 2
Pricing
Unit Price for any quantity is $*
* Confidential treatment requested
22
Attachment 3
Spare Parts Pricing
VENDOR will provide GTECH with a complete spare parts list with prices within
six (6) months of first production shipment. *.
* Confidential treatment requested
23
Attachment 4
Warranty information
ASSY THRM PTR GLP305SA RS232/RS485
VENDOR will provide GTECH with a flat rate price quotation for out of warranty
printer repairs upon request, no earlier than six (6) months after first
production shipments. The price for flat rate repair will not exceed $* per
printer regardless of repair action.
GTECH Part Number GLP305SA
----------------- --------
GTECH Part description
Vendor Part Number GLP305SA
Manufacturer TransAct Technologies
Vendor Address 20 Bomax Drive
Ithaca, NY 14850
Vendor repair location(s) TransAct Technologies
20 Bomax Drive
Ithaca, NY 14850
RMA Contact Person Name - David Heiden
Tel -607-257-8901
Fax - 607-257- 3911
Email dheiden@transact-tech
Manufacturer's Part Number GLP305SA
Warranty 27 months from date of shipment
from Transact
How to read manufacturer date On serial number plate, a letter
code followed two numbers. Letters
A-L correspond to the months of the year
(A = January, B= February etc.) numerals
are for the year (02 = 2002, 03 = 2003
etc.). Warranty status is determined by
serial number.
Out of Warranty repair cost To be quoted by VENDOR as noted
above
Turn-around time for repair Twenty (20) calendar days from
receipt of Product
Procedure for requesting an Call, email or fax RMA request to
RMA and returning the material Ithaca Tech Support. GTECH
for repair or replacement contact should be prepared with
printer serial number and an
explanation of the problem.
* Confidential treatment requested
24
Attachment 5
General Packaging Specifications
The shipping container shall be designed to meet GTECH packaging specification
96-0321-01
25
Attachment 6
Tooling
There is no GTECH owned tooling in this Product.
26
Attachment 7
Manufacturing Rights
1. Manufacturing Documentation Package. * of placement of GTECH's first Purchase
Order for production volume of Products, VENDOR agrees to deliver to GTECH, or
to a mutually agreed upon escrow agent, all of the documentation and other
information used by VENDOR and required 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 Materials, 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 the Manufacturing Package, VENDOR also
agrees to provide unrestricted 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 escrow agent will have any right
to use the "Manufacturing Package" except as set forth in Section 3 below or as
otherwise authorized by VENDOR.
2. Updates; Verification; Expenses. VENDOR agrees to update the "Manufacturing
Package" as necessary 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 or entity other than GTECH, GTECH shall have the
right to inspect the package to verify the contents of the "Manufacturing
Package" and VENDOR's compliance with this Section. VENDOR will pay 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".
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. When triggered by events under
sections e.) or f.) below, 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 for a
period not to exceed one year from the occurrence of the triggering event.
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.) A petition in bankruptcy is filed by or against VENDOR and is not
dismissed within ninety (90) calendar 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;
c.) If GTECH has a commercially reasonable and documented basis for
believing that
* Confidential treatment requested
27
VENDOR has become unable to materially perform the material
provisions of this Agreement and VENDOR fails to provide GTECH
commercially reasonable assurances of future performance * of
GTECH's request for such assurances (which request will specify the
assurances required);
d.) VENDOR assigns this Agreement in violation of Section 20 of this
Agreement; or
e.) VENDOR has materially breached any material provision of this
Agreement and failed to cure such breach * after receiving written
notice of such breach from GTECH.
f.) VENDOR has materially failed to fulfill its delivery obligations,
including but not limited to, repeated late deliveries. GTECH will
notify VENDOR in writing that GTECH intends to exercize this
clause. GTECH shall not have the right to manufacture pursuant to
this clause if VENDOR, during * after receipt of notification, takes
commercially reasonable steps to correct the recurrence of delivery
problems to the reasonable satisfaction of GTECH.
Except as provided in this Section or as otherwise authorized by VENDOR, neither
GTECH nor the escrow agent shall have any right to use the "Manufacturing
Package" for any purpose and this Attachment 7 shall not be construed as a
transfer or assignment of VENDOR's intellectual property rights, except as
specifically necessary for the manufacture and sale of the Products under this
Agreement.
* Confidential treatment requested
28
EXHIBIT 11.1
TRANSACT TECHNOLOGIES INCORPORATED
Computation of Earnings Per Share
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
(In thousands, except per share data) 2002 2001 2002 2001
--------- --------- --------- -------
Net income (loss) $ 289 $ (1,220) $ 160 $(2.977)
Dividends and accretion on preferred stock (89) (89) (89) (179)
--------- --------- --------- -------
Net income (loss) available to common
shareholders $ 200 (1,309) $ (19) $(3,156)
========= ========= ========= =======
Shares:
Basic - Weighted average common shares
outstanding 5,626 5,556 5,615 5,547
Dilutive effect of outstanding options and
warrants as determined by the treasury
stock method -- -- -- --
--------- --------- --------- -------
Dilutive - Weighted average common and
common equivalent shares outstanding 5,626 5,556 5,615 5,547
========= ========= ========= =======
Net income (loss) per common and common equivalent share:
Basic $ 0.04 $ (0.24) $ 0.00 $ (0.57)
========= ========= ========= =======
Diluted $ 0.04 $ (0.24) $ 0.00 $ (0.57)
========= ========= ========= =======
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TransAct Technologies Incorporated
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), we,
Bart C. Shuldman, Chief Executive Officer of the Company, and Richard L. Cote,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-OxlEY Act of 2002, that
to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Bart C. Shuldman /s/ Richard L. Cote
- -------------------------------- ---------------------------
Bart C. Shuldman Richard L. Cote
Chief Executive Officer Chief Financial Officer
August 13, 2002 August 13, 2002