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Exhibit 10.6  

 
 

PACIFIC NORTHWEST BANCORP
  DEFERRED COMPENSATION PLAN    
  

 
 

Effective as of December 1, 2000    
  

    This Pacific Northwest Bancorp Deferred Compensation Plan (the "Plan") is adopted by Pacific Northwest Bancorp and its subsidiaries (hereinafter referred to
collectively as the "Company") for certain executives of the Company. The purpose of the Plan is to offer Eligible Employees an opportunity to elect to defer the receipt of compensation in order to
provide termination of employment benefits taxable pursuant to Section 451 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan is intended to be a "top-hat" plan (i.e., an unfunded
deferred compensation plan maintained for a select group of management or highly compensated employees) under Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act
of 1974 ("ERISA"). 

    Accordingly,
the following Plan is adopted. 

 
 

ARTICLE 1
  
    DEFINITIONS    
  

    In this Plan, the following words and phrases shall have the following meanings, unless the context requires otherwise: 

    1.1 "Account"
means the balance credited to a Participant's or Beneficiary's Account, including interest earned thereon, and credited thereto. 

    1.2 "Beneficiary"
means any person or persons so designated in accordance with the provisions of ARTICLE 6 hereof. 

    1.3 "Board"
means the Board of Directors of Pacific Northwest Bancorp. 

    1.4 "Code"
means the Internal Revenue Code of 1986, as amended, or as it may be amended from time-to-time. 

    1.5 "Committee"
means the Board or such Committee as is designated by the Board to administer the Plan. 

    1.6 "Company"
means Pacific Northwest Bancorp and its subsidiaries. 

    1.7 "Compensation"
means the total current cash remuneration (including bonus, if any) paid by the Company to an Eligible Employee of the Company. 

    1.8 "Compensation
Deferral" has the meaning set forth in ARTICLE 3. 

    1.9 "Effective
Date" means the effective date of the Plan, which shall be December 1, 2000. 

    1.10 "Eligible
Employee" means an employee selected by the Committee who holds a position of responsibility with the Company and whose performance has a significant
effect on the success of the Company. 

    1.11 "Entry
Date" means the first date of the pay period following the date on which an individual first becomes an Eligible Employee. 

    1.12 "ERISA"
means the Employee Retirement Income Security Act of 1974, as amended or as it may be amended from time to time. 

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    1.13 "Financial Hardship" means (a) severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident involving the
Participant or a dependent (as defined in Code Section 152(a)) of the Participant; (b) loss of the Participant's property due to casualty; or (c) other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of the Participant, each as determined to exist by the Committee. 

    1.14 "Participant"
means an Eligible Employee who elects to participate in the Plan. 

    1.15 "Participant
Enrollment and Election Form" means the form on which a Participant elects to defer Compensation hereunder and on which the Participant makes certain
other designations as required thereon. 

    1.16 "Plan"
means this Pacific Northwest Bancorp Deferred Compensation Plan, as amended from time to time. 

    1.17 "Prime
Rate" means the prime rate reported in The Wall Street Journal. The prime rate reported in  The Wall Street Journal is defined as "the base rate on
corporate loans posted by at least 75% of the nation's 30 largest banks." This definition is
subject to modification by The Wall Street Journal from time to time. 

 
 

ARTICLE 2
  
    ELIGIBILITY AND PARTICIPATION    
  

    2.1  Requirements.  Every Eligible Employee shall be eligible to become a Participant in the Plan on the
first Entry Date occurring on or after the date on which they become an Eligible Employee. Participation in the Plan is voluntary. In order to participate, an Eligible Employee must complete the
Participant Enrollment and Election Form and must agree to make Compensation Deferrals. 

    2.2  Change of Employment Category.  During any period in which a Participant remains in the employ of
the Company but ceases to be an Eligible Employee, such participant shall not be eligible to make Compensation Deferrals hereunder. 

 
 

ARTICLE 3
  
    DEFERRED COMPENSATION AND ADDITIONS TO DEFERRED AMOUNTS    
  

    3.1  Participant Compensation Deferrals.  In accordance with rules established by the Committee, a
Participant may elect to defer Compensation which is due to be earned and which would otherwise be paid to the Participant. A Participant shall be permitted to defer annually up to a maximum of
fifteen percent (15%) of his Compensation. Amounts so deferred will be considered a Participant's "Compensation Deferral." 

    Compensation
Deferrals shall be made through regular payroll deductions or through an election by the Participant to defer the payment of a bonus not yet payable to the Participant at
the time of the election. The Participant may change his Compensation Deferral amount by providing written notice delivered to the Committee, with such change to commence with the first payroll period
occurring after thirty (30) days from the date of the notice. Once made, a Compensation Deferral election shall continue in force indefinitely, until changed by the Participant on a subsequent
Participant Enrollment and Election Form. Compensation Deferrals shall be deducted by the Company from the compensation other payable to a Participant and shall be credited to the Account of the
deferring Participant. 

    3.2  Additions.  Each Participant's Account shall accrue interest quarterly based on the Prime Rate minus
two percent (2%) on the last business day of each quarter. 

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ARTICLE 4
  
    DISTRIBUTION OF ACCOUNT    
  

    4.1  Method of Distribution.  Distribution of a Participant's Account shall commence within thirty (30)
days after the date of Participant's termination of employment with the Company for any reason. The form of distribution may be in lump sum, or in equal monthly installments made over a period of
years selected by the Participant. The Participant shall have the right to elect and amend his election, from time to time, prior to termination of employment. If no election has been made prior to
termination of employment, the payment shall be in lump sum. If the payment hereunder is to be made in installments, the total to be so paid shall continue to accrue interest quarterly as provided in
ARTICLE 3 hereof. If a Participant elects to receive installment payments, the Company shall have the discretion to convert the payments to a lump sum payment if at termination of employment the value
of the Participant's Account is less than Ten Thousand and No/100 Dollars ($10,000.00), or, regardless of the value at the date of termination of employment, reduce the period over which payment is
made, so that the monthly payment is no less than Five Hundred and No/100 Dollars ($500.00). 

    4.2  Death Benefits.  If a Participant dies before terminating his employment with the Company or after
terminating his employment but before he has received all payments to which he is entitled under the Plan, the entire then-value of the Participant's Account shall be paid to the person or persons
designated in accordance with Section 6.1 hereof, in a lump sum payable within thirty (30) days of the date the Company is notified or otherwise becomes aware of the death of the Participant. 

 
 

ARTICLE 5
  
    HARDSHIP DISTRIBUTIONS    
  

    In the event of the Financial Hardship of a Participant, the Participant may apply to the Committee for the distribution of all or any part of his Account. The
Committee shall consider the circumstances of each such case and the best interests of the Participant and the Participant's family, and shall have the right, in its sole discretion, if applicable, to
allow such distribution, or, if applicable, to direct a distribution of part of the amount requested, or to refuse to allow any distribution. Upon a finding of Financial Hardship, the Company shall
make the appropriate distribution to the Participant from the Participant's Account. In no event shall the aggregate amount of the distribution exceed either the full value of the Participant's
Account or the amount determined by the Committee to be necessary to alleviate the Participant's Financial Hardship (which Financial Hardship may be considered to include any taxes due because of the
distribution occurring because of this ARTICLE 5), and which is not
reasonably available from other resources of the Participant. For purposes of this ARTICLE 5, the value of the Participant's Account shall be determined as of the date of the distribution. 

 
 

ARTICLE 6
  
    DESIGNATION OF BENEFICIARY    
  

    6.1  Designation of Beneficiaries.  Each Participant from time to time may designate any person or
persons to receive such benefits as may be payable under the Plan upon or after the Participant's death, and such designation may be changed from time to time by the Participant by filing a new
designation. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed in writing with the
Company during the Participant's lifetime. 

    In
the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Participant, the
Company shall pay any such benefit payment to the Participant's spouse, if then living, but otherwise to the Participant's then- 

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living descendants, if any, per stirpes, but, if none, to the Participant's estate. In determining the existence or identity of anyone entitled to a
benefit payment, the Company may rely conclusively upon information supplied by the Participant's personal representative, executor or administrator. If a question arises as to the existence or
identity of anyone entitled to receive a benefit payment as aforesaid, or if a dispute arises with respect to any such payment, then, notwithstanding the foregoing, the Company, in its sole
discretion, may distribute such payment to the Participant's estate without liability for any tax or other consequences which might flow therefrom, or may take such other action as the Committee deems
to be appropriate. 

    6.2  Information to be Furnished By Participants and Beneficiaries; Inability to Locate Participants or
Beneficiaries.  Any communication, statement, or notice addressed to a Participant or to a Beneficiary at his last post office address as shown on the Company's
records shall be binding on the Participant or Beneficiary for all purposes of the Plan. The Company shall not be obliged to search for any Participant or Beneficiary beyond the sending of a
registered letter to such last known address. If the Company notifies any Participant or Beneficiary that they are entitled to an amount under the Plan, and the Participant or Beneficiary fails to
claim such amount or make his location known to the Company within three (3) years thereafter, then, except as otherwise required by law, if the location of
one or more of the next of kin of the Participant or Beneficiary is known to the Company, the Company may direct distribution of such amount to any one or more or all of such next of kin, and in such
proportions as the Company determines. If the location of none of the foregoing persons can be determined, the Company shall have the right to direct that the amount payable shall be deemed to be a
forfeiture, except that the dollar amount of the forfeiture, unadjusted for gains and losses in the interim, shall be paid by the Company if a claim for the benefit subsequently is made by the
Participant or the Beneficiary to whom it was payable. If a benefit payable to an unlocated Participant or Beneficiary is subjected to escheat pursuant to applicable state law, the Company shall not
be liable to any person for any payment made in accordance with such law. 

 
 

ARTICLE 7
  
    BENEFITS PAYABLE ONLY FROM GENERAL ASSETS OF THE COMPANY;
  UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANT    
  

    No Participant shall have any preferred claim on, nor any beneficial ownership interest in, any assets invested under the Plan. All rights created under the
Plan shall be mere unsecured contractual, but enforceable, rights of the Participants and their beneficiaries against the Company. The Participants and their beneficiaries shall have no greater rights
than the rights of unsecured general creditors. The payments to the Participant or Participant's beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be a part of
the Company; no person, shall have nor acquire any interest in any Company assets by virtue of the provisions of this Plan. The Company's obligation hereunder shall be an unfunded and unsecured
promise to pay money in the future. To the extent that any person acquires a right to receive payments from the Company under the provisions hereof, such right shall be no greater than the right of
any unsecured general creditor of the Company; no such person shall have nor acquire a legal or equitable right, interest or claim in or to any property or assets of the Company. 

 
 

ARTICLE 8
  
    NON-ALIENATION OF BENEFITS    
  

    No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities
or torts of the person entitled to such benefit. If a Participant or any beneficiary hereunder should become bankrupt, or attempt to anticipate, alienate, sell, assign, 

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pledge, encumber or charge any right or benefit hereunder, then such right or benefit shall, in the discretion of the Company, cease, and in such event, the Company may hold or apply the same or any
part thereof for the benefit of Participant or the beneficiary, his or her spouse, children or other dependents, or any of them, in such manner and in such proportion as the Board may deem proper. 

 
 

ARTICLE 9
  
    AMENDMENT, SUSPENSION OR TERMINATION OF PLAN    
  

    The Committee may alter, amend, suspend or terminate the Plan; provided that no such action shall deprive Participant or Beneficiary of the value of
Participant's Account prior to the date of such action. The foregoing notwithstanding, the Plan may be amended by the Company at any time, retroactively, if required, in the opinion of the Company, in
order to ensure that the Plan is characterized as a Deferred Compensation Plan maintained for a select group of management or highly compensated employees as described under ERISA, and to conform the
Plan to the provisions and requirements of any applicable law (including ERISA and the Code). No such amendment shall be considered prejudicial to any interest of a Participant or a Beneficiary
hereunder. 

 
 

ARTICLE 10
  
    ADMINISTRATION    
  

    10.1  Administration.  This Plan shall be administered by the Committee, which shall have full and
exclusive power to interpret this Plan, to grant waivers of the restrictions set forth in this Plan and to adopt such rules, regulations, and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in this Plan in any manner and to the extent the Committee deems necessary or desirable to carry it into effect. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. No member of the Committee or
officer of the Company to whom it has delegated authority in accordance with the provisions of Section 10.2 of this Plan shall be liable for anything done or omitted to be done by him, by any other
member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his own willful misconduct or as expressly provided required by
law. 

    10.2  Delegation of Authority.  The Committee may delegate to a senior officer(s) of the Company its
duties under this Plan pursuant to such conditions or limitations as the Committee may establish, except that the Committee may not delegate to any person the authority to select Eligible Employees or
to resolve claims made in accordance with Section 10.5 of this Plan. 

    10.3  Administration Expenses.  The Company shall pay all administrative costs and expenses incurred with
regard to the operation of the Plan. The Committee, and any person delegated under the provisions hereof to carry out any responsibilities under the Plan, shall serve without compensation but shall be
entitled to reimbursement from the Company for any reasonable expenses actually and properly incurred in the performance of its/his duties. 

    10.4  Committee Indemnified.  The Company shall indemnify and defend the Committee, and any person
delegated under the provisions hereof to carry out any fiduciary or other responsibilities under the Plan, and hold them harmless from the effects, consequences, expenses, attorneys' fees and damages
of its/his acts or conduct in its/his capacity as a fiduciary, to the fullest extent that is permissible under the law. Such indemnification shall be in addition to any other rights each may have as a
matter of law, or by reason of any insurance or other indemnification. 

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    10.5  Claims Procedure.  Any person claiming a benefit under the Plan (a "Claimant") shall present the
claim in writing to the Committee, and the Committee shall respond in writing. If the claim is denied, the written notice of denial shall state, in a manner calculated to be understood by the
Claimant: 

    (a) The
specific reason or reasons for the denial, with specific references to the Plan provisions on which the denial is based; 

    (b) A
description of any additional material or information necessary for the Claimant to perfect his claim and an explanation of why such material or information is
necessary; and 

    (c) An
explanation of the Plan's review procedure. 

    The
written notice denying or granting the Claimant's claim shall be provided to the Claimant within ninety (90) days after the Company's receipt of the claim, unless special
circumstances require an
extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished by the Company to the Claimant within the initial ninety (90) day
period and in no event shall such an extension exceed a period of ninety (90) days from the end of the initial ninety (90) day period. Any extension notice shall indicate the special circumstances
requiring the extension and the date on which the Committee expects to render a decision on the claim. Any claim not granted or denied within the period noted above shall be deemed to have been
denied, and the Claimant shall be permitted to proceed to the review stage described hereinafter. 

    Any
Claimant (or such Claimant's authorized representative), whose claim is denied or deemed to have been denied, may, within sixty (60) days after the Claimant's receipt of notice of
the denial, or after the date of the deemed denial, request a review of the denial by giving notice in writing to the Committee. Upon such a request for review, the claim shall be reviewed by the
Committee (or its designated representative), which may, but shall not be required to, grant the Claimant a hearing. In connection with the review, the Claimant may have representation, may examine
pertinent documents, and may submit issues and comments in writing. 

    The
decision on review normally shall be made within sixty (60) days of the Committee's receipt of the request for review. If an extension of time is required due to special
circumstances, the Claimant shall be notified in writing by the Committee prior to the commencement of the extension, and the time limit of the decision on review shall be extended to one hundred
twenty (120) days. The decision on review shall be in writing and shall state, in a manner calculated to be understood by the Claimant, the specific reasons for the decision and shall include specific
references to the relevant Plan provisions on which the decision is based. The written decision on review shall be given to the Claimant within the sixty (60) day (or, if applicable, the one hundred
twenty (120) day) period discussed above. If the decision on review is not furnished to Claimant within such time, the claim shall be deemed to have been denied upon review. All decisions on review
shall be final and binding with respect to all concerned parties. 

 
 

ARTICLE 11
  
    NO CONTRACT OF EMPLOYMENT    
  

    Nothing contained herein shall be construed to be a contract of employment for any term of years, nor as conferring upon Participant the right to continue to
be employed by the Company in Participant's present capacity or in any capacity. Nothing herein contained shall be construed as giving any employee of the Company the right to be retained as an
employee or as impairing the right of the Company to terminate his service. 

6

 
 
 

ARTICLE 12
  
    MISCELLANEOUS    
  

    12.1  Binding Obligation of the Company and Any Successor in Interest.  This Plan shall be binding upon
the parties hereto, their successors, beneficiaries, heirs and personal representatives. 

    12.2  Severability.  If any provision of the Plan is held to be illegal or void, such illegality or
invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been
inserted herein. 

    12.3  Effect of Other Benefit Plans.  Nothing contained in this Plan shall affect the right of
Participant to participate in, or be covered by, any qualified or non-qualified pension, profit sharing, group bonus or other supplemental compensation or fringe benefit plan constituting a part of
the Company's existing or future compensation structure. 

    12.4  Headings.  Headings of Articles and Sections herein are inserted only for convenience of reference
and are not to be considered in the construction of the Plan. 

    12.5  Litigation.  Except as may be otherwise required by law, in any action or judicial proceeding
affecting the Plan, no Participant or beneficiary shall be entitled to any notice or service of process, and any final judgment entered in such action shall be binding on all persons interested in, or
claiming under, the Plan. 

    12.6  Gender and Number.  Where the context and circumstances require, the gender of all words used in
this Agreement shall include the masculine, feminine and neuter, and the singular of all words shall include the plural and the plural shall include the singular. 

    12.7  Applicable Law  The laws of the State of Washington shall govern, control, and determine all
questions of law arising with respect to the Plan and the interpretation and validity of its respective provisions, except where those laws are preempted by the laws of the United States. Venue for
any action arising under the Plan shall be in King County, Washington. 

    This
Plan was adopted by the Board of Directors on October 17, 2000. 

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PACIFIC NORTHWEST BANCORP DEFERRED COMPENSATION PLAN

Effective as of December 1, 2000

ARTICLE 1 DEFINITIONS

ARTICLE 2 ELIGIBILITY AND PARTICIPATION

ARTICLE 3 DEFERRED COMPENSATION AND ADDITIONS TO DEFERRED AMOUNTS

ARTICLE 4 DISTRIBUTION OF ACCOUNT

ARTICLE 5 HARDSHIP DISTRIBUTIONS

ARTICLE 6 DESIGNATION OF BENEFICIARY

ARTICLE 7 BENEFITS PAYABLE ONLY FROM GENERAL ASSETS OF THE COMPANY; UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANT

ARTICLE 8 NON-ALIENATION OF BENEFITS

ARTICLE 9 AMENDMENT, SUSPENSION OR TERMINATION OF PLAN

ARTICLE 10 ADMINISTRATION

ARTICLE 11 NO CONTRACT OF EMPLOYMENT

ARTICLE 12 MISCELLANEOUS<PAGE>   1
                                                                   Exhibit 10.23

                               SEVERANCE AGREEMENT

     This Severance Agreement (the "Agreement") is entered into as of the 21st
day of April 1999, by and between Catherine J. Dawson, an individual with a
residence address of 1 North Pease Road, Woodbridge, CT 06525 (the "Executive"),
and TransAct Technologies Incorporated, a Delaware corporation with a mailing
address of 7 Laser Lane, Wallingford, Connecticut 06492 (the "Company"). As used
in this Agreement, the "Company" shall also include all subsidiaries of the
Company, as the context requires.

                                  INTRODUCTION

     1. The Company is in the business of designing, developing, manufacturing
and marketing printers for point of sale, gaming and wagering, financial service
and kiosk applications (the "Business").

     2. The Company desires that the Executive continue to serve in his position
with the Company and that the Company be able to rely upon his advice when
requested as to the best interests of the Company, and its shareholders.

     3. The Board of Directors of the Company believe Executive can best serve
the Company without the distractions of personal uncertainties and risks that
might be created in the event a change in control of the Company is proposed or
his employment by the Company is terminated.

                                    AGREEMENT

     In consideration of the premises and mutual promises hereinbelow set forth,
the parties hereby agree as follows:

     1. Definitions. The following terms shall have the meanings indicated for
the purposes of this Agreement:

          (a) "Cause" shall mean: (i) the death or disability of the Executive
(For purposes of this Agreement, "disability" shall mean the Executive's
incapacity due to physical or mental illness which has caused the Executive to
be absent from the full-time performance of his duties with the Company for a
period of six (6) consecutive months.) (ii) any action or inaction by the
Executive that constitutes larceny, fraud, gross negligence, a willful or
negligent misrepresentation to the directors or officers of the Company, their
successors or assigns, a crime involving moral turpitude; or (iii) the refusal
of the Executive to follow the reasonable and lawful written instructions of the
President or the Board of Directors of the Company with respect to the services
to be
<PAGE>   2
rendered and the manner of rendering such services by Executive, provided such
refusal is material and repetitive and is not justified or excused either by the
terms of this Agreement or by actions taken by the Company in violation of this
Agreement, and with respect to the first two refusals Executive has been given
reasonable written notice and explanation thereof and reasonable opportunity to
cure and no cure has been effected within a reasonable time after such notice.

          (b) "Change in Control" will be deemed to have occurred if: (1) the
Company effectuates a Takeover Transaction; or (2) any election of directors of
the Company (whether by the directors then in office or by the stockholders at a
meeting or by written consent) where a majority of the directors in office
following such election are individuals who were not nominated by a vote of
two-thirds of the members of the Board of Directors immediately preceding such
election; or (3) the Company effectuates a complete liquidation of the Company
or a sale or disposition of all or substantially all of its assets. A "Change in
Control" shall not be deemed to include, however, a merger or sale of stock,
assets or business of the Company if the Executive immediately after such event
owns, or in connection with such event immediately acquires (other than in the
Executive's capacity as an equity holder of the Company or as a beneficiary of
its employee stock ownership plan or profit sharing plan), any stock of the
buyer or any affiliate thereof.

          (c) A "Takeover Transaction" shall mean (i) a merger or consolidation
of the Company with, or an acquisition of the Company or all or substantially
all of its assets by, any other corporation, other than a merger, consolidation
or acquisition in which the individuals who were members of the Board of
Directors of the Company immediately prior to such transaction continue to
constitute a majority of the Board of Directors of the surviving corporation
(or, in the case of an acquisition involving a holding company, constitute a
majority of the Board of Directors of the holding company) for a period of not
less than twelve (12) months following the closing of such transaction, or (ii)
when any person or entity or group of persons or entities (other than any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company) either related or acting in concert becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of securities of the Company representing more than fifty percent (50%) of the
total number of votes that may be cast for the election of directors of the
Company.

          (d) "Terminating Event" shall mean: (i) termination by the Company of
the employment of the Executive for any reason other than retirement or for
Cause occurring within twelve (12) months of a Change of Control; or (ii)
resignation of the Executive from the employ of the Company, while the Executive
is not receiving payments or benefits from the Company by reason of the
Executive's disability, subsequent to any of the following events occurring
within twelve (12) months of a Change of Control: (A) a significant reduction in
the nature or scope of the Executive's responsibilities, authorities, powers,
functions or duties from the responsibilities, authorities, powers, functions or
duties exercised by the Executive immediately prior to

                                       2
<PAGE>   3
the Change in Control; (B) a decrease in the salary payable by the Company to
the Executive from the salary payable to the Executive immediately prior to the
Change in Control except for across-the-board salary reductions similarly
affecting all management personnel of the Company; or (C) the relocation of the
Company's facility at which the Executive is currently employed by more than 50
miles from its current location (unless such new location is closer than such
facility to the Executive's then residence) provided, however, that a
Terminating Event shall not be deemed to have occurred solely as a result of the
Executive being an employee of any direct or indirect successor to the business
or assets of the Company, rather than continuing as an employee of the Company,
following a Change in Control; or (D) elimination or reduction of the
Executive's participation in the Company's Executive Incentive Compensation
Plan.

     2. Severance.

          (a) Without Cause. If the Company terminates the employment of the
Executive without Cause, other than as a result of a Terminating Event, then
commencing on the date of such termination and for a period of six (6) months
thereafter, the Company shall provide Executive with a severance package which
shall consist of the following: (i) payment on the first business day of each
month of an amount equal to one-twelfth of the Executive's then current annual
base salary; (ii) payment on the first business day of each month of an amount
equal to one-sixth of the Executive's annual target bonus amount under the
TransAct Executive Incentive Compensation Plan, pro rated for the portion of the
fiscal year occurring prior to termination; and (iii) continuation of all
benefits under Section 4.

          (b) With A Terminating Event. If the Company terminates the employment
of the Executive as a result of a Terminating Event, then commencing on the date
of such termination and for a period equal to one (1) year thereafter, the
Company shall provide Executive with a severance package which shall consist of
the following: (i) payment on the first business day of each month an amount
equal to one-twelfth of the Executive's then current annual base salary; (ii)
payment on the first business day of each month of an amount equal to
one-twelfth of the Executive's annual target bonus amount under the Company's
Executive Incentive Compensation Plan; and (iii) continuation of all benefits
under Section 4. In addition, if the Company terminates the employment of the
Executive as a result of a Terminating Event, then the Company shall cause the
immediate vesting of all options granted by the Company to the Executive under
the Company's stock plans. At any time when the Company is obligated to make
monthly payments under Section 2(b), the Company shall, ten (10) days after
receipt of a written request from the Executive, pay the Executive an amount
equal to the balance of the amounts payable under Section 2(b)(i)-(ii), provided
that the obligation of the Company to continue to provide benefits pursuant to
Section 2(b)(iii) or to make monthly payments under 2(b)(i)-(ii) shall cease
upon the payment of such amount.

                                       3
<PAGE>   4
          (c) General Release. As a condition precedent to receiving any
severance payment, the Executive shall execute a general release of any and all
claims which Executive or his heirs, executors, agents or assigns might have
against the Company, its subsidiaries, affiliates, successors, assigns and their
past, present and future employees, officers, directors, agents and attorneys.

          (d) Withholding. All payments made by the Company under this Agreement
shall be net of any tax or other amounts required to be withheld by the Employer
under applicable law.

     3. Non-Competition. During Executive's employment with the Company and the
term of this Agreement and (a) in the case of termination other than as a result
of a Terminating Event, for six (6) months following the termination of
Executive's employment with the Company or (b) in the case of termination as a
result of a Terminating Event, for one (1) year following the termination of
Executive's employment with the Company, Executive will not directly or
indirectly whether as a partner, consultant, agent, employee, co-venturer,
greater than two percent owner or otherwise or through any other person (as
hereafter defined): (a) be engaged in any business or activity which is
competitive with the Business of the Company in any part of the world in which
the Company is at the time of the Executive's termination engaged in selling
their products directly or indirectly; or (b) attempt to recruit any employee of
the Company, assist in their hiring by any other person, or encourage any
employee to terminate his or her employment with the Company; or (c) encourage
any customer of the Company to conduct with any other person any business or
activity which such customer conducts or could conduct with the Company. For
purpose of this Section 3, the term "Company" shall include any person
controlling, under common control with or controlled by, the Company.

     For purposes of this Section 3, the term "Person" shall mean an individual
or corporation, association or partnership in estate or trust or any other
entity or organization.

     The Executive recognizes and agrees that because a violation by him of this
Section 3 will cause irreparable harm to the Company that would be difficult to
quantify and for which money damages would be inadequate, the Company shall have
the right to injunctive relief to prevent or restrain any such violation,
without the necessity of posting a bond.

     Executive expressly agrees that the character, duration and scope of this
covenant not to compete are reasonable in light of the circumstances as they
exist at the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a court of competent jurisdiction at a
later date that the character, duration or geographical scope of this covenant
not to compete is unreasonable in light of the circumstances as they then exist,
then it is the intention of both Executive and the Company that this covenant
not to compete shall be construed

                                       4
<PAGE>   5
by the court in such a manner as to impose only those restrictions on the
conduct of Executive which are reasonable in light of the circumstances as they
then exist and necessary to provide the Company the intended benefit of this
covenant to compete.

     4. Confidentiality Covenants. Executive understands that the Company may
impart to him confidential business information including, without limitation,
designs, financial information, personnel information, strategic plans, product
development information and the like (collectively "Confidential Information").
Executive hereby acknowledges Company's exclusive ownership of such Confidential
Information.

     Executive agrees as follows: (1) only to use the Confidential Information
to provide services to the Company; (2) only to communicate the Confidential
Information to fellow employees, agents and representatives of the Company on a
need-to-know basis; and (3) not to otherwise disclose or use any Confidential
Information. Upon demand by the Company or upon termination of Executive's
employment, Executive will deliver to the Company all manuals, photographs,
recordings, and any other instrument or device by which, through which, or on
which Confidential Information has been recorded and/or preserved, which are in
Executive's possession, custody or control. Executive acknowledges that for
purposes of this Section 4 the term "Company" means any person or entity now or
hereafter during the term of this Agreement which controls, is under common
control with, or is controlled by, the Company.

     The Executive recognizes and agrees that because a violation by him of this
Section 4 will cause irreparable harm to the Company that would be difficult to
quantify and for which money damages would be inadequate, the Company shall have
the right to injunctive relief to prevent or restrain any such violation,
without the necessity of posting a bond.

     5. Governing Law/Jurisdiction. This Agreement shall be governed by and
interpreted and governed in accordance with the laws of the State of
Connecticut. The parties agree that this Agreement was made and entered into in
Connecticut and each party hereby consents to the jurisdiction of a competent
court in Connecticut to hear any dispute arising out of this Agreement.

     6. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and thereof
and supercedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.

     7. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given if delivered by hand, sent by
generally recognized overnight courier service, telex or telecopy, or certified
mail, return receipt requested.

                                       5
<PAGE>   6
           (a)  to the Company at:

                  7 Laser Lane
                  Wallingford, Connecticut 06492
                  Attn:  President

           (b)  to the Executive at:

                  1 North Pease Road
                  Woodbridge, CT  06525

     Any such notice or other communication will be considered to have been
given (i) on the date of delivery in person, (ii) on the third day after mailing
by certified mail, provided that receipt of delivery is confirmed in writing,
(iii) on the first business day following delivery to a commercial overnight
courier or (iv) on the date of facsimile transmission (telecopy) provided that
the giver of the notice obtains telephone confirmation of receipt.

     Either party may, by notice given to the other party in accordance with
this section, designate another address or person for receipt of notices
hereunder.

     8. Severability. If any term or provision of this Agreement, or the
application thereof to any person or under any circumstance, shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such terms to the persons or under circumstances other than those as to which
it is invalid or unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. The invalid or unenforceable provisions
shall, to the extent permitted by law, be deemed amended and given such
interpretation as to achieve the economic intent of this Agreement.

     9. Waiver. The failure of any party to insist in any one instance or more
upon strict performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be construed as a
waiver of such terms, conditions, rights or privileges, but same shall continue
to remain in full force and effect. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.

     10. Successors and Assigns. This Agreement shall be binding upon the
Company and any successors and assigns of the Company.

                                       6
<PAGE>   7
     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

                                   TRANSACT TECHNOLOGIES INCORPORATED

                                   By: /s/ Richard L. Cote
                                       ------------------------------------
                                   Title:  Executive Vice President and CFO

                                   EXECUTIVE:

                                   /s/ Catherine J. Dawson
                                   ----------------------------------------
                                   Catherine J. Dawson

                                       7

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