As filed with the Securities and Exchange Commission on
May ___, 1997
Securities Act Registration No. 333-20709
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM SB-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
(Name of Small Business Issuer In Its Charter)
Delaware 7375 13-3391820
- ------------------------------ --------------------------- -------------------
(State Or Jurisdiction Of (Primary Standard Industrial (I.R.S. Employer
Incorporation Or Organization) Classification Code Number) Identification No.)
22700 Savi Ranch Parkway
Yorba Linda, California 92657
(714) 974-7676
(Address and Telephone Number Of Principal Executive Offices)
Malcolm A. Baca, Executive Vice President
22700 Savi Ranch Parkway
Yorba Linda, California 92657
(714) 974-7676
(Name, Address And Telephone Number Of Agent For Service)
Copies of all communications to:
Henry A. Singer, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Approximate date of proposed sale to the public: As soon as practicable
after the registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| __________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of Each Class of Amount to be Aggregate Offering Amount of
Securities To Be Registered Registered (1) Price (2) Registration Fee
- --------------------------------------------------------------------------------
Common, $.01 par value
per share 498,447 shares $120,556 $100
- --------------------------------------------------------------------------------
(1) Based upon the maximum number of shares of Common Stock of Transition
Analysis Component Technology, Inc. (the "Company") estimated to be
distributed to the stockholders of Zing Technologies, Inc. ("Zing"). No
consideration will be paid by Zing's stockholders for the securities.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as
amended; and constitutes the book value of the securities computed as of
December 31, 1996.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1____; Alternative 2 _X_
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC. CROSS REFERENCE SHEET
Between Form SB-1 and prospectus
REGISTRATION STATEMENT ITEM PROSPECTUS CAPTION
AND HEADING
1. Inside Front and Outside Back (Inside Front and Outside Back Cover)
Cover Pages of Prospectus
2. Significant Parties Management;
Principal
Shareholders; Legal
Matters
3. Relationship with Issuer of Legal Matters;
Experts Named in Registration Experts
Statement
4. Legal Proceedings Business
5. Changes in and Disagreements (Not Applicable)
with Accountants
6. Disclosure of Commission Description of Capital Stock
Position on Indemnification
for Securities Act Liabilities
MODEL B ITEMS
1. Cover Page (Outside Front Cover Page)
2. Distribution Spread (Not Applicable)
3. Summary Information, Prospectus
Risk Factors and Dilution Summary; Risk
Factors; Dilution
4. Plan of Distribution The Distribution
5. Use of Proceeds to Issuer (Not Applicable)
6. Description of Business Prospectus
Summary; Business
7. Description of Property Business
8. Directors, Executive Officers Management
and Significant Employees
9. Remuneration of Directors and Management
Officers
10. Security Ownership of Certain Management; Principal
Security Holders and Management Shareholders
11. Interest of Managerial Officers Management
in Certain Transactions
12. Securities Being Offered Description of Capital Stock
PART F/S
1. Financial Information Required Financial Statements
in Prospectus
2
<PAGE>
[To be moved to side of cover later: Information contained herein is subject to
completion or amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These securities may
not be sold, nor may offers to buy be accepted, prior to the time the
registration statement becomes effective. This prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.]
3
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY ___, 1997
TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC.
498,447 Shares of Common Stock (Par Value $.01 Per Share)
This prospectus is being furnished in connection with the contemplated
distribution (the "Distribution") by Zing Technologies, Inc., a New York
corporation ("Zing") to holders of record of its Common Stock, par value $.01
per share ("Zing Stock") as of the close of business on the record date to be
set by the Board of Directors of Zing (the "Record Date") of all of the
outstanding shares of Common Stock, par value $.01 per share ("Company Stock")
owned by Zing in Transition Analysis Component Technology, Inc., a Delaware
corporation and 90% owned subsidiary of Zing (the "Company" or "TACTech").
TACTech will operate all businesses owned by it prior to the Distribution.
On [date], Zing delivered a stock certificate representing 498,447 shares
of Company Stock to The Bank of New York (the "Transfer Agent"), as Escrow
Agent, to be held until the Distribution is effected (the "Distribution Date").
The Distribution will be made beginning on or about the Distribution Date to
holders of record of Zing Stock as of the Record Date on the basis of one share
of Company Stock for each five shares of Zing Stock held. No fractional shares
will be issued. Fractional shares will be acquired by TACTech for cash. The
Distribution will take place after the Company's certificate of incorporation is
amended to, among other things, increase the number of shares of common stock
authorized to be issued, and after giving effect to a 36.436-for-one stock split
of Company Stock (the "Stock Split") and will commence as soon as practicable
following the Securities and Exchange Commission's declaration of effectiveness
of the registration statement on Form SB-1 of which this prospectus is a part
under the Securities Act of 1933, as amended (the "33 Act Registration
Statement") and a registration statement registering the Company Stock to be
distributed under the Securities Exchange Act of 1934, as amended (the "34 Act
Registration Statement", and together with the 33 Act Registration Statement,
the "Company Registration Statements"). No consideration will be required to be
paid by Zing stockholders for the shares of Company Stock to be received in the
Distribution. Neither Zing nor the Company will receive any proceeds in
connection with the Distribution. All expenses of the Distribution will
initially be paid by Zing. The Company, however, has agreed to reimburse Zing
for that portion of such expenses pertaining directly to the costs of the
preparation and filing of the Company's Registration Statements, up to a maximum
amount of $100,000.
There has been no previous public trading market for Company Stock. While
it is anticipated that Company Stock will be traded in the over-the-counter
market on an electronic bulletin board established for securities that do not
meet the Nasdaq SmallCap Market(sm) listing requirements (the "Pink Sheets")
under the symbol ["TACT"] following the Distribution, there can be no assurance
that any such market will develop.
Zing stockholders who will receive shares of Company Stock in the
Distribution, as well as persons who purchase Company Stock after the
Distribution, should carefully consider the matters set forth under the caption
"Risk Factors" beginning on page 8 of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Zing stockholders with inquiries related to the Distribution should
contact the Company's investment agent, Arthur Regan, at Regan & Associates at
15 Park Row, Suite 800, New York, New York 10038. After the Distribution Date,
stockholders of the Company with inquiries related to the Distribution should
contact the Company or its transfer agent.
The date of this prospectus is , 1997.
<PAGE>
TABLE OF CONTENTS
Page
----
Special Note Regarding Forward-Looking Statements ......................... 3
Prospectus Summary ........................................................ 4
Risk Factors .............................................................. 8
The Distribution .......................................................... 18
Capitalization ............................................................ 22
TACTech Management's Discussion and Analysis
of Financial Condition and Results of Operations ....................... 23
Business of TACTech ....................................................... 26
Directors and Management of TACTech ....................................... 30
Principal Shareholders .................................................... 35
Description of Capital Stock .............................................. 36
Certain Transactions ...................................................... 42
Legal Matters ............................................................. 44
Experts ................................................................... 44
Securities and Exchange Commission Policy on Indemnification
for Securities Act Liabilities ......................................... 44
Reports of the Company .................................................... 44
Additional Information .................................................... 45
Financial Statements ..................................................... F-1
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
2
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions "Risk
Factors", "Business of TACTech", "TACTech Management's Discussion and Analysis
of Financial Condition and Results of Operations", and elsewhere in this
prospectus constitute "forward-looking statements." Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performances, or achievements of the Company
(including, without limitation, the expansion of the Company's
industrial/commercial library (the "Commercial Library") so that the Company can
both better service its existing military and aerospace customers and expand its
customer base from its military and aerospace customers to industrial/commercial
customers; penetrate international markets in Europe and the Far East; provide
access to the Company's services through a graphical user interface via the
Internet and the World Wide Web; and enter into strategic alliances and/or
co-license arrangements to further augment the Commercial Library for
commercial/industrial applications) to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the downsizing of the U.S. defense budget, the consolidation of military and
aerospace manufacturers and the corresponding shrinkage in the production of
semiconductor electronic components for military and aerospace applications; the
resulting weakening of military and aerospace manufacturers who are customers of
the Company, which weakening could have a heightened adverse effect on the
Company if the Company is unable successfully to penetrate the
commercial/industrial market; the further consolidation of the military and
aerospace market which consolidation could result in a shrinking number of
customers and potential customers for the Company's services; the Company's
success in building the Commercial Library; the Company's ability to
sufficiently update its technology; the Company's building and training of a
marketing department to better penetrate untapped markets, and compete with
existing companies or new entries into the Company's business; the modernization
of the Company's services so that the services are accessible by customers
through a graphic user interface on the Internet; the Company's ability to
maintain and attract key personnel; the Company's ability to update its data
bases as soon as information is available from its vendors and then to make such
updated information available to the Company's customers on a near real-time,
on-line basis; and other factors referenced in this prospectus. The success of
the Company is dependent on the Company's ability sufficiently to address these
factors and other factors. See "Risk Factors."
Until , 1997, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere
in this prospectus and is qualified by the more detailed information set forth
elsewhere in this prospectus which should be read in its entirety. Unless the
context otherwise indicates, all references to the operations of the Company in
this prospectus shall include the operations of the Company by Zing prior to the
Distribution and assumes that the actions set forth under "The Distribution"
have taken place. Capitalized terms used in this Summary but not defined in this
Summary have the respective meanings ascribed to them elsewhere in this
prospectus.
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
TACTech is a 90% owned subsidiary of Zing, incorporated by Zing on
February 24, 1987. The mailing address of the Company's principal executive
offices is currently 22700 Savi Ranch Parkway, Yorba Linda, California, 92657,
and the phone number is (714) 974-7676.
TACTech is a semiconductor information service company which licenses
proprietary computer software tools combined with electronic semiconductor
availability libraries and data bases that are utilized by various segments of
the Department of Defense, the defense/aerospace industry, and industrial users
of high reliability semiconductors and manufacturers and distributors of high
reliability and military grade semiconductors. A high reliability semiconductor
is a semiconductor which functions reliably over a broad temperature range and
has been screened by its manufacturer for potential malfunction in the early
stages of its use; and a military grade semiconductor is a semiconductor which
has been screened for compliance with U.S. Department of Defense military
specifications. When accessed by customers, the libraries and data bases provide
subscribers with valuable tools for determining semiconductors availability
showing the manufacturers actively producing the subject semiconductor and the
projected production life cycle (obsolescence) of such semiconductors. The
system identifies functionally interchangeable devices, when available, from
various manufacturers. At present, the Company's libraries and data bases are
utilized by its customers primarily in connection with the designing,
engineering, manufacturing and maintaining of electronic systems for high
reliability applications.
The Company's continuing goal is to provide subscribers with
"real-time", on-line access to the Company's data bases. By so accessing the
Company's library and data bases, customers can investigate the source support,
product identification, projected obsolescence and interchangeability of
numerous electronic components. The Company's library and data bases cross
reference each electronic component by projected production life cycle and by
functionally equivalent components. Thus, a TACTech customer can ascertain the
projected obsolescence of a given electronic component and, given the shrinking
supply of semiconductor component products having military and/or aerospace
applications, locate or design suitable replacement components for components as
they become obsolete.
The Company's relationship with its information providers and the
Company's technology allow the Company frequently to update its libraries and
data bases. On a daily basis, the Company updates its component library to
reflect component status changes on an individual component-by-component basis.
Such updated libraries and data bases are then made available to TACTech
customers on a real-time, on-line basis (i.e., the Company's library is updated
daily when information is obtained from or provided by component manufacturers,
and then such new information is immediately made available to the Company's
customers), thus ensuring a nearly free flow of information from semiconductor
and electronic component manufacturers to TACTech customers.
Management of the Company believes that the Company is the only
commercial provider of data services offering access to regularly updated
libraries and data bases which enable customers, on a real-time, on-line basis,
to determine projected production life cycles and identify functionally
interchangeable microcircuits and discrete semiconductor devices.
The Company's libraries and data bases also provide customers with
information about components and configuration level production life cycle
analyses within the context of the assemblies and subassemblies within which the
components reside based on semiconductor content in particular designs. The
Company's built-in software made available to TACTech customers
4
<PAGE>
allows customers to analyze component usage at the assembly or subassembly level
in a specific design to determine the long term production support and projected
component availability support of the subject assembly, subassembly or system.
Through the Company's services, customers are able to automatically monitor
their bill of materials based on the semiconductor content of a specific design.
Thus, when a discontinued notification is processed with respect to a given
semiconductor electronic component included in the customer's design, TACTech
notifies the customer with an automated alert signal linking the notification
process to the customer's bill of material. Thus, the Company's customers are
notified when components upon which they rely become discontinued. The customers
then have ability to utilize the tools provided by TACTech to seek out
interchangeable components to the extent that the obsolete component has been
discontinued by the original manufacturer. Thus, customers are better poised to
modify assemblies, subassemblies and systems.
Historically, the Company has focused its business on the military and
aerospace markets. However, with the consolidation of aerospace and military
manufacturers and increased application of industries formerly aligned with the
military/aerospace industries to commercial markets; the Company's goal is to
build the Commercial Library in order to better service its military and
aerospace customers and to enter the commercial and industrial markets.
There is not currently a trading market for the Company Stock.
Immediately following the Distribution. TACTech anticipates that the Company
Stock will be listed in the "Pink Sheets" under the symbol "TACT". See "Risk
Factors - Lack of Current Market for TACTech Stock."
Management of TACTech does not presently intend to pay cash dividends
on the Company Stock following the Distribution. The dividend policy will be
reviewed from time to time by TACTech's Board of Directors based on TACTech's
earnings, financial position and such other business considerations as its Board
of Directors considers pertinent.
The Distribution
The Board of Directors of Zing will declare a distribution to holders
of Zing Stock, as of the close of business on the Record Date, on the basis of
one share of Company Stock (after giving effect to the Stock Split) for each
five shares of Zing Stock held on the Record Date. The shares to be distributed
will constitute 90% of the issued and outstanding shares of Company Stock
immediately following the Distribution with the remaining ten percent (10%)
being owned by the Company's executive vice president, Malcolm A. Baca.
Following the Distribution, the Company will operate on a stand alone basis and
the Company Stock will be publicly quoted in the "Pink Sheets". See "The
Distribution" and "Description of Capital Stock." The Distribution is expected
to be tax-free to Zing stockholders for Federal income tax purposes. See "Risk
Factors - Certain Tax Considerations."
At the Distribution Date, there will be 553,830 shares of Company Stock
of which 498,447 shares of Company Stock will be distributed in the Distribution
to Zing stockholders, based on 2,492,233 shares of Zing Stock expected to be
outstanding on the Record Date. See "Description of Capital Stock." Such
distributed shares will constitute 90% of the issued and outstanding shares of
Company Stock immediately following the Distribution. The Distribution will be
one share of Company Stock for each five shares of Zing Stock held on the Record
Date. No fractional shares will be issued. Fractional shares will be acquired by
TACTech for cash. See "The Distribution -- Manner of Effecting the
Distribution."
As of the Distribution Date, the Company and Zing will enter into
several agreements and take certain other actions to define their ongoing
relationships.
Immediately prior to the Distribution, Zing will convert all of the
loans due it from TACTech (which intercompany loans approximated $500,000 at
December 31, 1996) into additional paid-in capital of TACTech without the
issuance of additional Company Stock; Zing has informed the Company that it will
guaranty repayment of principal indebtedness incurred by the Company within the
first two years of the Distribution Date under a credit facility provided by one
or more financial institutions up to an aggregate of $1,500,000, plus interest
accrued thereon, provided such indebtedness is used for working capital
purposes. Such guaranty will be reduced to a maximum $750,000 of principal
indebtedness on the second anniversary of the Distribution Date. See "Certain
Transactions -- Zing Guaranteed Credit Facility."
5
<PAGE>
The Company and Zing have agreed to indemnify each other after the
Distribution with respect to certain losses, damages, claims and liabilities
(including certain taxes) arising primarily from the operation of their
respective businesses. See "Certain Transactions -- Indemnification Agreement."
The Company will engage certain employees of Zing on a part-time basis
pursuant to which they will act as advisors to the Company and will provide to
the Company supervisory financial and strategic analysis services and various
reporting, accounting and administrative services, and assist the Company in
developing its business plans and strategies for the deployment of its assets.
Management of the Company anticipates that the aggregate cost of such services
will not exceed $100,000 per year. In connection with providing the management
services, such Zing employees will advise in the development of the Company's
business plan, advise the Company with respect to and negotiate material
agreements on the Company's behalf, coordinate communications with the Company's
stockholders, interface with the Company's counsel, advise the Company with
respect to and negotiate prospective acquisitions and financings, prepare and
file the Company's tax returns and reports required by applicable securities
laws and rules of applicable stock exchanges, review and supervise the Company's
accounting department and systems from time to time and suggest revisions and
changes thereto, and perform such further services as they may agree to. The
persons currently providing the services are Martin S. Fawer, Don Guarnieri and
Michelle Mastropolo. Such services were previously provided by Zing to the
Company and were included in general corporate charges. As of December 31, 1996,
such charges aggregated $50,000. By allowing its employees to provide such
services directly to the Company after the Distribution, rather than through
Zing as is done currently, Zing will realize a corresponding reduction in
payroll expense. See "Certain Transactions -- Management Services."
Pursuant to an existing tax reimbursement arrangement applicable to the
Company and Zing, which will be of no further force and effect after the
Distribution, the Company is indebted to Zing in the amount of approximately
$130,000 as of December 31, 1996 in respect of operation of the Company during
its fiscal years ended June 30, 1995 and June 30, 1996, and the first six months
of the current fiscal year. Such amounts are estimated based on the operations
of the Company on a stand-alone basis, and may be adjusted upwards or downwards
as a result of any tax liabilities assessed or removed in the event of a tax
audit. See "Risk Factors -- Possible Lack of Liquidity." Additionally, pursuant
to such tax allocation arrangement and the indemnification agreement, the
Company, under certain circumstances, may be required to make further payments
to Zing, or be entitled to reimbursements from Zing, in respect of taxes for
periods prior to the Distribution Date arising from the operation of its
business prior to the Distribution Date. See "Certain Transactions."
Federal Income Tax Consequences
At the Distribution Date, Zing expects to receive an opinion from Ernst
& Young, LLP to the effect that on the basis of certain facts and
representations (including the facts contained in this prospectus), it is more
likely than not that the Distribution will qualify as a non-taxable distribution
under Section 355 of the Internal Revenue Code of 1986, as presently amended
(the "Code"). For a more detailed discussion of the potential federal income tax
consequences of the Distribution to the Zing stockholders, see "Risk Factors --
Certain Tax Considerations" and "The Distribution -- Certain Federal Income Tax
Consequences of the Distribution."
Record Date
It is expected that the Record Date will be ___________ __, 1997.
Distribution Agent, Escrow Agent, Transfer Agent and Registrar
The Transfer Agent has agreed to hold the stock certificate evidencing
498,447 shares of Company Stock, as escrow agent, pursuant to a certain escrow
agreement dated as of ___________ __, 1997. The Company Stock is to be
distributed to Zing stockholders by the escrow agent upon receipt of a legal
opinion from TACTech's counsel that the Company Registration
6
<PAGE>
Statements have been declared effective by the Securities and Exchange
Commission. See "The Distribution-Manner of Effecting Distribution."
Distribution Date
It is expected that the Distribution Date will be as soon as
practicable following the Securities and Exchange Commission's declaration of
effectiveness of the Registration Statement of which this Prospectus is a part.
As soon as practicable thereafter, the Transfer Agent will commence mailing the
certificates representing shares of Company Stock. Holders of Zing Stock will
not be required to make any payment or take any action, including tendering
stock certificates, in order to receive Company Stock. See "The Distribution --
Manner of Effecting the Distribution."
Risk Factors
The Zing stockholders who will receive shares of Company Stock in the
Distribution and persons who purchase Company Stock after the Distribution Date
should consider certain factors discussed under the heading "Risk Factors"
beginning on page 8.
The foregoing is a brief summary of certain terms of the Distribution
affecting Zing and the Company and their stockholders. A more complete
description of the Distribution may be found in this prospectus under "The
Distribution".
7
<PAGE>
RISK FACTORS
Holders of Company Stock should be aware that the Distribution and the
purchase and ownership of Company Stock involves certain risks, including those
described below, which could adversely affect the value of their holdings of
Company Stock. Neither Zing nor the Company makes, nor has either of them
authorized any other person to make, any representation about the future market
value of Company Stock.
Stand Alone Company
As a subsidiary of Zing, TACTech has been able to resort to internal
financial resources, including loans from Zing, to finance operating, research
and development requirements. Although the management of TACTech expects that,
following the Distribution, TACTech will have sufficient cash generated from
operations, together with sufficient availability under one or more financial
institution credit facilities, which the Company will seek to secure on the
strength of Zing's agreement to guaranty payments thereunder, to finance the
Company's operating, research and development requirements, the Distribution
will result in Zing's cash reserves no longer being available to TACTech other
than pursuant to such a guaranteed credit facility. There can be no assurance
that the Company will be able to secure such a facility on acceptable terms, or
at all. Historically, Zing has provided working capital and long-term loans to
TACTech. However, after the Distribution, Zing will have no obligation other
than pursuant to such guaranty to extend loans to TACTech or guaranty any of its
indebtedness. If funds were needed by TACTech in excess of its internal
financial resources and such guaranteed credit facility, there can be no
assurance that TACTech would be able to obtain financing or that such financing
would be on terms as favorable as it would have been had TACTech continued as a
subsidiary of Zing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Following the Distribution, charges for securities laws compliance,
such as Securities and Exchange Commission filing fees, legal and accounting
fees and similar types of expenses, will be borne by TACTech, or, if initially
paid by Zing, will be reimbursed by the Company, which amounts are likely to be
greater than the prior allocations of corporate overhead when TACTech was a
subsidiary of Zing, and will have a corresponding depressing effect on earnings
going forward. Additionally, following the Distribution, TACTech will pay
compensation to certain Zing employees designated to perform management
services, in the aggregate amount of approximately $100,000 per annum for such
management services to be provided which services were previously provided to
TACTech by Zing and included in general corporate charges. By providing such
services directly to the Company, rather than through Zing, Zing will realize a
corresponding reduction in payroll expenses. See "Certain Transactions -
Management Services."
Absence of Trading Market for Company Stock;
Requirements for Listing Securities on the NASDAQ
SmallCap Market(sm); Application of Penny Stock Rules;
Possible Volatility of Share Prices
There is currently no established public trading market nor has there
been any established public trading market for Company Stock. The Company
anticipates that the Company Stock shall initially trade in the "Pink Sheets".
There can be no assurance as to the prices at which Company Stock will trade
after the Distribution Date. Until Company Stock is fully distributed and an
orderly trading market develops (if one does), the prices at which such stock
trades may fluctuate significantly. The trading price of the Company Stock could
be subject to wide fluctuations in response to variations in operating results,
announcements of technological innovations or new products by the Company, its
suppliers or competitors, and other events or factors. In addition, in recent
years the stock market has experienced large price and volume fluctuations,
which often have been unrelated to the operating performance of specific
companies or market sectors. These broad market fluctuations may adversely
affect the market price of the Company Stock.
Although the Company desires to achieve the listing of the Company
Stock on the Nasdaq SmallCap Market(sm), the Company does not meet the standard
to qualify for initial listing on the Nasdaq SmallCap Market(sm) and there can
be no assurance that the Company will meet such requirements in the future.
Thus, the Company Stock in all likelihood will be traded on an electronic
bulletin board established for securities that do not meet the Nasdaq SmallCap
Market(sm) listing requirements,
8
<PAGE>
and what is commonly referred to as the "Pink Sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, the Company Stock.
In addition, there is a significant risk that the Company's Stock will
be subject to the so called "penny stock" rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally defined as
an investor with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with a spouse.) For transactions covered by the
penny stock rules, a broker-dealer must make a special suitability determination
for the purchaser and must have received the purchaser's written consent to the
transaction prior to sale. Consequently, both the ability of a broker-dealer to
sell the Company Stock and the ability of holders of Company Stock to sell their
securities in the secondary market may be adversely affected.
The Securities and Exchange Commission has adopted regulations that
define a "penny stock" to be an equity security that has a market price (as
defined in the regulations) of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule relating to the penny stock market.
The broker-dealer must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is to sell the securities as a
marker-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result of the additional
suitability requirements and disclosure requirements, if the Company Stock is
determined to be "penny stock," an investor may find it more difficult to
dispose of the Company Stock.
The NASD requires prospective listing applicants for the Nasdaq
SmallCap Market(SM) to meet certain initial listing standards and continuing
listing standards. Additionally, the NASD has proposed amendments (the "Proposed
Amendments") to the current listing criteria, which if adopted, would increase
the threshold amounts required for initial listing eligibility. Generally, the
initial listing standards as currently set forth under the NASD regulations,
require, among other things, satisfaction of the following minimum requirements
with respect to the issuer and the security to be listed. (Additionally, the
Proposed Amendments are also discussed, to the extent applicable).
(i) The issuer must have total assets of not less than $4,000,000
and capital and capital surplus (exclusive of certain
securities) of not less than $2,000,000. Under the Proposed
Amendments, the applicant must have either net tangible assets
of $4 million, net income of $750,000 in two of the last three
years, or market capitalization of at least $50 million;
(ii) The common stock of the issuer must be held by at least 300
shareholders and have a minimum bid price of $3.00 per share.
Under the Proposed Amendments, the 300 shareholder requirement
would remain the same, although the minimum bid price would be
increased to $4.00 per share;
(iii) At least 100,000 shares of the common stock of the issuer must
be held by the public, and must have a market value of at
least $1,000,000. Under the Proposed Amendments, the number of
publicly held shares would be increased to one million shares,
and the required market value of such shares would be
increased to at least $5,000,000; and
(iv) The common stock of the issuer must have at least two
registered and active market makers, one of which may be a
market maker entering a stabilizing bid. The Proposed
Amendments would require that the common stock of the issuer
have at least three market makers.
Additionally, the Proposed Amendments would require the issuer to
comply with certain corporate governance standards which are currently
applicable only to securities listed on the Nasdaq National Market, as well as
maintain a market capitalization of at least $50 million if the issuer has an
operating history of less than one year.
9
<PAGE>
At December 31, 1996, the Company's financial condition did not satisfy
the quantitative criteria for initial listing on the SmallCap Market as set
forth by the NASD concerning total assets, capital and surplus, net tangible
assets or net income.
Decline in Defense and/or Aerospace Spending
As a result of the decreased U.S. defense budget and spending over the
past few years, the manufacture of semiconductor and other electronic components
for military and aerospace applications has been shrinking, and the military and
aerospace systems manufacturers are experiencing a period of consolidation. In
certain circumstances, this diminishing manufacturing supply in the military and
aerospace industry may be beneficial to the Company because the Company's
services are used to analyze incidents of component obsolescence. However,
generally, such consolidation makes the Company's military and aerospace
customers less stable and could reduce the number of customers and potential
customers for the Company's services. Unless the Company is able successfully to
penetrate the commercial and industrial market, the decline in defense and
aerospace spending coupled with consolidation in the defense and aerospace
market and diminishing manufacturer supply for military semiconductors could
materially and adversely affect the Company.
Approximately 95% of the business of TACTech derives from military
projects, principally through sales to military, defense and aerospace
contractors. In the event that military, defense and/or aerospace spending were
to continue to decline significantly or the diminishing manufacturer supply of
semiconductors for military and aerospace applications were to continue, sales
by TACTech could suffer a corresponding or greater decline. In such event,
TACTech would have to seek replacement markets in other segments of the
electronics industry. There can be no assurance that such markets would be
available or that TACTech would be successful in penetrating them.
The number of military contractors that participate in defense type
work is rapidly decreasing chiefly as a result of mergers and consolidation; and
thus, the number of potential military/defense clients available that could make
use of the Company's services is likewise decreasing. Additionally, military and
aerospace contractors are seeking to incorporate a larger percentage of
commercial/industrial components in the systems they produce. The development of
the Commercial Library to better service the Company's existing customers and to
protect the Company from its current dependence on the military market will
require significant investment of effort and resources by the Company, and is
subject to many uncertainties.
Dependence on Key Personnel
The businesses of TACTech are substantially dependent upon the active
participation and technical expertise of its executive officers. TACTech is
dependent upon Malcolm A. Baca, its Executive Vice President and Chief Operating
Officer. Zing currently maintains a key-man life insurance policy on Mr. Baca in
the amount of $1,700,000. Zing is entitled to receive 90% of the death benefit
under such policy. In connection with the Distribution, it is contemplated that
such life insurance policy will be transferred to the Company so that the
Company shall be the 90% beneficiary of the policy on Mr. Baca's life. There can
be no assurance, however, that the Company can obtain executives of comparable
expertise and commitment in the event of death, or that the business of the
Company would not suffer material adverse effects as the result of the death
(notwithstanding coverage by key-man insurance), disability or voluntary
departure of any such executive officer. The Company has no, and it is
contemplated that after the Distribution it will not have, insurance on the life
of Mr. Robert E. Schrader (the Company's part-time President, Chief Executive
Officer and Chairman of the Board of Directors). However, the business of the
Company is substantially dependant upon Mr. Schrader both as a result of the
services he performs directly for the Company and indirectly through Zing. After
the Distribution, the Company's Board of Directors shall regularly re-evaluate
the need for and amount of such key-man life insurance.
Additionally, TACTech's methodology utilized in the growth and
maintenance of its semiconductor libraries and data bases may depend under
certain employees and/or groups of employees.
Under certain circumstances, the loss of the services of Mr. Baca or
Mr. Schrader, or the departure of such employees or groups could materially and
adversely affect the Company.
10
<PAGE>
Competition
TACTech's license agreements are cancelable on thirty (30) days'
notice. TACTech competes with many data service companies which possess greater
financial and human resources than does TACTech.
TACTech's management believes that TACTech offers the only commercially
available, continuously updated real-time, on-line information service dedicated
to tracking semiconductor obsolescence and diminishing source management in the
electronic component industry. However, there can be no assurance that other
companies, including existing customers of TACTech, will not avail themselves of
sources of data to develop their own software and data base services either in
competition with TACTech or to enable them to have their own sources for such
services. TACTech's software services and data bases are protected by trade
secret provisions of license agreements and by copyright laws, but because such
provisions and laws are frequently difficult or costly to enforce, there can be
no assurance that such protection will prove effective.
With the advent of the Internet and the World Wide Web, electronic
manufacturers may publish information about their components to the general
public as a service to their customers. Although the Company's management does
not believe such manufacturers will behave in this manner, such behavior could
materially and adversely affect the Company.
The market for the Company's data services is characterized by
technological changes, changing customer requirements, and evolving industry
standards. The introduction of competitive products incorporating new
technologies and the emergence of new industry standards could render the
Company's existing products obsolete or unmarketable. The Company competes with
other companies which offer a wide array of information services. Such
competitors may be better able to afford to develop sales and marketing
infrastructure which the Company believes is vital to survive in the shrinking
military marketplace and to gain entry to the growing commercial industrial
marketplace. Many of such competitors already have dedicated direct sales forces
in the global markets, where the Company plans to develop and increase its
marketing presence.
An integral part of the Company's strategy is to expand its direct
sales force and to establish marketing and selling relationships both
domestically and internationally. The ability of the Company to achieve revenue
growth in the future depends on its success in adding direct sales employees and
representatives, and establishing marketing and selling relationships with other
organizations. There can be no assurance that the Company will be able to
attract sufficient direct sales personnel, or other marketing or selling
partners to market the Company's services and products effectively. There can be
no assurance that the cost of the Company's investment in direct and indirect
sales channels will exceed the revenue generated by such investment, or that the
Company's sales and marketing organization will successfully compete against the
sales and marketing organizations of the Company's competitors.
No Assurance that TACTech Can Continue
to Obtain Information to Update its
Database or Grow the Commercial Library;
Value Added Business
Approximately one-third of TACTech's information for its data bases
comes from U.S. Governmental agencies and two-thirds from numerous companies in
the private sector. There can be no assurance that existing arrangements with
suppliers of data from the private sector will continue in effect or, if they
are canceled, that TACTech will be able to enter into arrangements with other
suppliers on terms as beneficial to TACTech as those presently in effect.
Although information from U.S. Governmental agencies is generally available
though Freedom of Information Act requests, there can be no assurance that
TACTech will continue to obtain sufficient data from U.S. Governmental agencies
to conduct its business.
Currently, the Company has good support from the military semiconductor
manufacturers and is able continually to update its military and aerospace
semiconductor library to reflect current changes on a near real-time, on-line
basis. However, as the Company attempts to expand its services and penetrate new
markets, there can be no assurance that the Company will be able to achieve the
same degree of cooperation from industrial/commercial semiconductor
manufacturers. In addition, as the military and aerospace semiconductor market
shrinks and the number of manufacturers servicing such market shrinks, there
11
<PAGE>
can be no assurance that the Company will be able to continue to update and
complement its military semiconductor library in an appropriate fashion to
continue to adequately service its military and aerospace customers. Duplicating
the Company's information services for expansion into the commercial and
industrial market, as well as augmenting the Company's existing libraries and
data bases with information on commercial/industrial components to better
service existing military and aerospace customers, would greatly increase
maintenance costs to the Company. The cost of maintaining the Commercial
Library, once it is built, is likely to be significantly greater than the cost
of maintaining the Company's existing military library.
Management estimates that the Company has obtained information on
approximately 75% of the microcircuits and 30% of the diodes and transistors
which management believes that the Company would have to obtain in order to
better service its existing military and aerospace customers. Of the
approximately 250,000 commercial/industrial semiconductors available in the
commercial/industrial market, the Company's management estimates that its data
bases contain information on approximately 16% of all of the microcircuits
available in the commercial/industrial market and approximately 12% of the
diodes and transistors available in the commercial/industrial market. Thus, a
substantial amount of new information on commercial/industrial semiconductor
products must be obtained by the Company in order for the Company to achieve its
goals of better servicing its existing military and aerospace customers and
sufficiently penetrating the commercial/industrial market.
The Company's management believes that achieving the goal of developing
a Commercial Library in order sufficiently to penetrate the
commercial/industrial market could require at least 18 months. There can be no
assurance that such goal can be reached in a timely manner.
Moreover, as TACTech attempts to gain entry into global markets (Europe
and the Far East), there can be no assurance that the global commercial
semiconductor manufacturers will support the Commercial Library and cooperate
with the Company in a manner similar to U.S. semiconductor manufacturers.
Advancements in the Internet and World Wide Web sites may reduce the value of
information services that the Company offers because manufacturers may choose to
post information regarding their own products on the Internet, rather than
through the Company. Although the Company believes that the Company's services
are more desirable to customers than the review by customers of obsolescence and
specifications of their semiconductor products on a manufacturer-by-manufacturer
basis, if manufacturers make information available on the Internet rather than
through the Company, this may decrease the value of the Company's libraries and
data bases and could result in a material and adverse effect on the Company.
Since the Company's services allow users to access information which
may, in the future, be made available in the public domain, the Company places a
great emphasis on the value-added services it provides to customers such as
providing software tools to allow customers better to navigate the Company's
data bases and libraries. There can be no assurance that such value-added
services would be perceived by customers to be valuable.
Electronic equipment manufacturers in the military and aerospace market
are currently driving to incorporate a greater percentage of commercial
components in the systems they produce. In order to continue to provide a
valuable service to the Company's military and aerospace customers, the Company
must continuously augment the existing military and aerospace data library with
commercial/industrial component information.
Military and aerospace contractors increasingly are turning to
commercial/industrial manufacturers of semiconductors for components to be
utilized in such contractors' products. This migration from military and
aerospace semiconductors to commercial/industrial semiconductors may lead to a
further decrease in the demand for information concerning military and aerospace
semiconductors. Thus, there can be no assurance that unless the Company
effectively grows the Commercial Library (for use both by military and aerospace
customers and commercial/industrial customers) that this migration away from
military and aerospace semiconductors will not materially and adversely affect
the Company.
There can be no assurance that the Company will be able to effectively
grow the Commercial Library. The development of a Commercial Library and the
augmentation of the Company's existing military library with commercial type
information may be difficult to implement, be costly to the Company, and, if not
achieved, have a material adverse effect on the Company's future competitiveness
and profitability.
12
<PAGE>
Utilization of Commercial/Industrial Information by the Company
The Company believes that in order sufficiently to penetrate the
commercial/industrial market, the Company must build the Commercial Library.
Although, in the past, the Company has successfully integrated information
regarding military and aerospace semiconductors with its proprietary computer
software tools, there can be no assurance that the Company will successfully be
able to integrate information regarding commercial/industrial semiconductors
with its computer software tools. The failure to so integrate information
regarding commercial/industrial semiconductors could materially and adversely
affect the Company.
Technological Change and New Product Development
Rapid technological changes in the semiconductor industry are rendering
many industrial semiconductor components obsolete. The Company believes that
opportunities for the Company's services in the military and aerospace market
are limited. Thus, the Company believes that the Company must penetrate the
larger industrial/commercial market in order to reach its financial objectives.
Currently, TACTech provides services to customers' personal computers
via telephone line transmission and over the Internet. In the event of changes
in the structure of the computer hardware systems used by subscribers to operate
TACTech's data base software, TACTech would incur capital costs for new
equipment and development costs in connection with the reconfiguring of its
software programs, which costs could be substantial and could have an adverse
effect on TACTech's profitability. In addition, TACTech regularly incurs capital
costs in connection with its new product development in advance of their being
ready for market, and there can be no assurances that such new products will
prove profitable.
There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change or evolving industry standards, or that the Company will
not experience difficulties that could delay or prevent the successful
introduction, development or marketing of these products. Further, there can be
no assurance that the Company's new product and product enhancements will
adequately address the requirements of the marketplace and thereby achieve
market acceptance. If the Company is unable to develop and introduce new
products or enhancements of existing products in a timely manner, or if the
Company experiences delays in the introduction of new products or enhancements,
the Company may be materially and adversely affected.
Software and hardware technologies rapidly change. The Company must
continue to upgrade its hardware and software in order to adequately serve its
customers. Moreover, as the demand for the Company's services increases, the
Company must continue to update its hardware and software in order to meet such
increased demand. There can be no assurance that the Company will be able
adequately to meet such technological advances. This failure may materially and
adversely affect the Company.
The Company's management believes that in order to better service its
customers, it will have to offer more value-added services. There can be no
assurance that the Company will be able to develop and offer such additional
value-added services like providing software tools to enable customers better to
navigate the Company's libraries and databases. Failure to so develop additional
value-added services may materially and adversely affect the Company.
Pricing Structure
Currently, the Company charges a flat subscription fee for its
services. As telecommunications technology improves, the Company may desire to
change its pricing structure so that charges are linked to the amount of time
that the Company's services are accessed by its customers. The Company can not
predict whether it can successfully implement such a new pricing structure. The
inability to implement a new pricing structure may materially and adversely
affect the Company.
13
<PAGE>
Short Term, Terminable License Agreements; Dependence on Significant Customers.
The Company's license agreements with its customers are generally for
terms of 12 months and may be canceled by either party upon 30 days notice.
Thus, there can be no assurance that the Company will be able to maintain
existing subscription levels and customers. In the event that customers cancel
their license agreements, that Company may be materially and adversely affected
since the Company relies on the subscriber revenue generated by such license
agreements.
A significant portion of the Company's revenues has historically been
derived from large sales to a limited number of customers, including Arrow
Electronics Inc. and Lockheed Martin Marietta (where, with respect to Lockheed
Martin Marietta, such revenue is generated from several Lockheed Martin Marietta
locations). The loss of either of such customers (or of locations of Lockheed
Martin Marietta) may materially and adversely affect the Company.
Risks Associated with Emerging Internet Market
A portion of the Company's strategy is to leverage the Internet and the
World Wide Web to provide access to its services and databases, as well as to
additional value-added content. The Company may devote substantial resources to
developing products designed for use with the Internet and the World Wide Web,
and there can be no assurance that the revenues generated, if any, from the use
of the World Wide Web or the Internet will be greater than the cost of
developing and modifying products for such use. Further, the Company's solutions
may be rendered obsolete by, or less valuable in comparison to, competitive
solutions made possible by future developments of the Internet in general or the
World Wide Web portion thereof specifically. If this were to occur, the Company
would be materially adversely affected.
There can be no assurance that the Company's technology will enable the
Company to meet increased demand for the Company's services through the Internet
generally and the World Wide Web specifically. A failure to meet the demands of
changing technology could materially and adversely affect the Company.
Risk of Product Defects; Security Failure
Software and reference data products as complex as those offered by the
Company frequently contain undetected errors or failures when first introduced
or when new versions are released. The Company has in the past discovered
software bugs and data errors in certain of its products and enhancements, both
before and after initial implementation. There can be no assurance that, despite
testing by the Company and current and potential customers, errors will not
occur in products, data or releases after commencement of commercial
applications, resulting in loss of or delay in market acceptance, which could
have a material adverse effect on the Company.
The Company's management believes that the Company engages in adequate
security measures to protect the Company's hardware, software, data bases and
libraries. See "Business of TACTech-Security Measures." However, the failure of
security measures could materially and adversely affect the Company.
Additionally, to the extent that such security measures entail the use of
encryption technology not approved for export by the United States government,
the competitiveness of the Company in international markets could be adversely
affected.
No Long Term Facility Lease
TACTech is currently subletting approximately 7,000 square fee in Yorba
Linda, California from Arrow Electronics on a month-to-month basis at a cost of
$3,500. Arrow Electronics' lease expires in November, 1997. TACTech believes
that its current rental rate is below market and there can be no assurance that
TACTech can continue to lease suitable office space for its operations on a long
term basis at such a favorable rental rate. TACTech's failure to locate and
lease adequate facilities at a favorable rent and for an appropriate duration
could materially and adversely affect TACTech.
14
<PAGE>
Certain Antitakeover Effects
The Company's Amended and Restated Certificate of Incorporation (the
"Company Certificate") which will be effective prior to the Distribution Date
includes certain provisions that are intended to prevent or delay the
acquisition of the Company by means of a tender offer, proxy contest or
otherwise. Specifically, although at present the Company has only three
directors serving on its board and staggered board provisions in the Company
Certificate are not yet effective, the Company Certificate provides that while
there are greater than three directors and fewer than seven directors, the Board
of Directors shall be classified into two classes with the directors in each
class to serve staggered two year terms, and where there are more than six
directors, the Board of Directors shall be classified into three classes with
the directors in each class serving staggered three year terms. The Company
Certificate fixes the size of the Board at not less than three nor more than ten
directors with the exact number being set by resolution of the Board of
Directors. In addition, the Company Certificate authorizes the Board of
Directors of the Company to issue preferred stock without further stockholder
approval, which could have dividend, redemption, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of
the holders of Company Stock. Finally, the Company is subject to Section 203 of
the Delaware General Corporation Law (the "DGCL") which limits transactions
between a publicly held company and "interested stockholders" (generally those
stockholders who, together with their affiliates and associates, own 15% or more
of a company's outstanding capital stock). The anti-takeover provisions of the
Company's Certificate and By-laws are more restrictive than the DGCL. Any one
of, or a combination of, the above anti-takeover provisions could discourage a
third party from attempting to acquire control of the Company. See "Description
of Capital Stock."
Control by Major Shareholder; Concentration of Stock Ownership
Upon completion of the Distribution, Robert E. Schrader and Malcolm A.
Baca will own 230,542 and 55,383 shares, respectively, of the Company Stock, or
approximately 41.6% and 10.0%, respectively, of the Company's voting securities.
Accordingly, Mr. Schrader may be deemed to be a controlling person of the
Company. The Company's management and directors as a group shall own
approximately 296,096 shares, or 53.5%, of the issued and outstanding shares of
the Company Stock following the Distribution. Consequently, Zing's management
and the directors will be able to exert significant influence over the election
of the Company's directors and the outcome of other corporate matters requiring
stockholder approval, including changes in control of the Company. Mr. Schrader
is employed by the Company for a three-year period as its Chief Executive
Officer, Chairman of the Board and President. Since he is also the principal
shareholder, President, Chief Executive Officer and Chairman of the Board of
Zing, Mr. Schrader will be engaged only part-time to the business of the
Company. Under his employment agreement with the Company, if Mr. Schrader's
employment were to terminate following a change in control of the Company, Mr.
Schrader would be entitled to receive his remaining salary plus $250,000. See
"Relationship With Zing; Potential Conflicts of Interest."
Shares Eligible for Future Sale
After completion of the Distribution, the 230,542 shares and 55,383
shares of Company stock owned by Robert E. Schrader and Malcolm A. Baca,
respectively, will be deemed to be "restricted securities" within the meaning of
Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act"). The restricted shares held by Mr. Baca will be eligible for
sale by Mr. Baca under Rule 144, as amended, since he has beneficially owned
such shares for more than one year, subject, however, to volume limitation and
the other restrictions of Rule 144. The shares held by Mr. Schrader will not be
eligible for sale under Rule 144 until one year following the Distribution, and
will then be subject to volume limitation and other restrictions of Rule 144. In
addition, Mr. Baca's shares are subject to further restrictions on the future
sale of such shares under a lock-up agreement contained in his employment
agreement. See "Directors and Management of TACTech - Employment Contracts,
Termination of Employment and Change-In-Control Arrangements." The Company is
unable to estimate the number of shares that may be sold in the future by Mr.
Baca or the effect, if any, that sales of restricted shares by Mr. Baca will
have on the market price of the Company Stock prevailing from time to time.
Sales of substantial amounts of Company Stock by Mr. Baca under Rule 144 or
otherwise, or even the potential of such sales, may have an adverse effect on
the market price of Company Stock. See "Description of Capital Stock - The
Company Stock."
15
<PAGE>
Potential Dilution
Although there are currently no outstanding options to purchase Company
stock, pursuant to the Transition Analysis Component Technology, Inc. 1997 Stock
Option Plan (the "Option Plan"), it is contemplated that after the Distribution
Date stock options will be issued. Thus, the ownership of Company stock may be
subject to significant dilution. See "Directors and Management of TACTech - 1997
Option Plan."
The Company may file a registration statement under the Securities Act
to register an aggregate of 60,000 shares of Company Stock reserved for issuance
upon the exercise of stock options issuable under the Option Plan. No stock
options have yet been granted under the Option Plan. However, upon the grant and
subsequent exercise of such stock options, the shares subject to such
registration statement will be available for sale in the public market, subject
to Rule 144 limitations applicable to affiliates of the Company. Future sales of
shares of Company Stock issued pursuant to the Option Plan could adversely
affect the prevailing market price of the Company Stock. See "Description of
Capital Stock - The Company Stock" and "Directors and Management of TACTech -
1997 Option Plan."
In the future, in connection with achieving TACTech's goal to enter
into strategic alliances and/or to make acquisitions to augment its business,
TACTech may issue shares of TACTech Stock or options to purchase TACTech Stock
to third parties. Any such issuance would result in further dilution of
outstanding shares of TACTech Stock.
Important Considerations Related to Forward-Looking Statements
With the exception of historical information, the matters discussed in
this document may include forward-looking statements that involve risks and
uncertainties. The Company wishes to caution readers that a number of important
factors, including those identified in this section as well as factors discussed
elsewhere in this filing, could affect the Company's actual results and cause
actual results to differ materially from those in the forward-looking
statements. See "Special Note Regarding Forward-Looking Statements."
Dividends
Management of TACTech does not presently intend to pay cash dividends
on the Company Stock following the Distribution or in the foreseeable future.
The dividend policy will be reviewed from time to time by TACTech's Board of
Directors based on TACTech's earnings, financial position and such other
business considerations as its Board of Directors considers pertinent.
Certain Tax Considerations
Zing expects to receive an opinion from Ernst & Young LLP to the effect
that it is more likely than not that the Distribution will qualify as a tax-free
distribution pursuant to Section 355 of the Code. However, such opinion will be
based upon certain representations made by the management of Zing and upon
certain assumptions of fact, which have not been independently verified, and is
not binding on the IRS or the courts. No ruling has been or will be sought from
the IRS regarding the tax consequences of the Distribution. Accordingly, it is
possible that, notwithstanding such opinion, the Distribution might not qualify
for tax-free treatment under Section 355 of the Code, in which case: (i) Zing
would be required to recognize taxable gain on the Distribution equal to the
excess of the fair market value of the Company Stock distributed over Zing's
then tax basis in such stock; and (ii) the Company Stock received by each Zing
stockholder would be treated as a dividend taxable as ordinary income to such
stockholder, in an amount equal to the fair market value of the Company Stock
received by such stockholder. See "The Distribution--Certain Federal Income Tax
Consequences of the Distribution."
Possible Lack of Liquidity
As of December 31, 1996, the Company was indebted to Zing in the
aggregate amount of approximately $130,000 pursuant to an existing tax
reimbursement arrangement with Zing. The Company has reimbursed or will
reimburse Zing for up to $100,000 of expenses incurred by Zing in connection
with the costs of preparing and filing the Company Registration
16
<PAGE>
Statements. TACTech's management is currently contemplating an expansion program
for the Company which would include, among other things, expanding its direct
sales force, establishing marketing and selling relationships both domestically
and internationally, developing its Commercial Library, and developing and
offering additional value-added services to its customers. See "Risk
Factors--Competition", "--No Assurance that TACTech Can Continue to Obtain
Information to Update its Database or Grow the Commercial Library; Value Added
Business", "--Technological Change". While the Company has adequate liquidity
and financial resources to fund its current operations, it may be unable to
generate sufficient cash and cash equivalents to engage in all aspects of the
expansion program unless the Company is able to obtain a credit facility from
one or more financial institutions. While the Company believes it will be able
to obtain such credit facility based on the strength of Zing's agreement to
guaranty a portion thereof, there can be no assurance that it will be able to do
so. If the Company is unable to obtain a credit facility, it is likely that it
will be required to significantly reduce the scope and or timing of its
expansion activities as currently contemplated by TACTech's management. Zing has
advised the Company that it will agree to guaranty repayment of up to $1,500,000
of principal indebtedness under one or more credit facilities with a financial
institution, which guaranty will be reduced to $750,000 principal indebtedness
on the second anniversary of the Distribution Date. See "Certain Transactions
- --Zing Guaranteed Credit Facility."
Relationship with Zing; Potential Conflicts of Interest
The Company does not have an operating history as an independent public
company. The operations of the Company historically have relied on Zing for
certain necessary administrative services. As of the Distribution Date, Zing and
the Company will enter into several agreements and take certain other actions
for purposes of governing certain of the ongoing relationships between the two
companies following the Distribution, including indemnification obligations,
management services to be provided to the Company by certain current employees
of Zing and Zing's willingness to guaranty repayment under a credit facility.
Pursuant to the Indemnification Agreement to be entered into between Zing and
the Company in connection with the Distribution (the "Indemnification
Agreement"), the Company will agree to indemnify Zing against all expenses and
liabilities resulting from (i) the operation of the Company from and after the
Distribution, (ii) Zing's operations of TACTech's business prior to the
Distribution other than those based upon the tax consequences of the
Distribution and (iii) any claim, suit or other type of proceeding based upon,
arising out of or in connection with any information concerning the Company in
this prospectus or any information furnished by the Company concerning the
Company for inclusion in this prospectus; and Zing will indemnify the Company
for any claims incurred or suffered, directly or indirectly, by them resulting
from or attributable to, among other things (i) the operation of Zing from after
the Distribution and (ii) any claim, suit or other type of proceeding based
upon, arising out of or in connection with the operation of Zing's business
(other than the Company's business) prior to the Distribution and (iii) any
claim, suit or other type of proceeding based upon, arising out of or in
connection with any information concerning Zing in this prospectus or any
information furnished by Zing concerning Zing for inclusion in this prospectus.
Although the Company is not aware of any pending or threatened material
liability for which the Company anticipates becoming obligated to make payments
in connection with its obligations to indemnify Zing, there can be no assurance
that such indemnification obligations could not arise or that such
indemnification obligations would not be material to the Company). See "Certain
Transactions - Indemnification Agreement."
The Company will engage certain current employees of Zing on a
part-time basis to render to the Company the following management services for a
cost not expected to exceed $100,000 per year: to advise in the development of
the Company's business plan, to advise the Company with respect to and to
negotiate material agreements on the Company's behalf, to coordinate
communications with the Company's stockholders, to advise the Company with
respect to and to negotiate prospective acquisitions and financings, to prepare
and file the Company's tax returns and reports required by applicable securities
laws and rules of applicable stock exchanges, to review and supervise the
Company's accounting department and systems from time to time and suggest
revisions and changes thereto, to perform supervisory financial and strategic
analysis services, and to perform such further services as agreed by the Company
and Zing. See "Certain Transactions -- Management Services." A potential
conflict of interest could arise if such Zing employees were unable to render
such management services to the Company as a result, inter alia, of conflicting
instructions from the Board of Directors of Zing in connection with any
transactions between the Company and Zing (as, for example, Zing's willingness
to guaranty TACTech's indebtedness pursuant to a credit facility), or of Zing's
willingness to make such persons available to the Company when needed.
Additionally, Zing has informed the Company that it will provide to the
Company credit enhancement in the form of a guaranty of repayment by the Company
of principal indebtedness incurred by the Company to one or more financial
17
<PAGE>
institutions in the aggregate amount of $1,500,000, plus interest thereon,
provided such indebtedness was used for ordinary working capital purposes.
Zing's guaranty will be reduced to a maximum principal amount of $750,000 on the
second anniversary of the Distribution Date. However, there can be no assurance
that those members of the Company's Board of Directors who also serve on Zing's
Board of Directors will exercise their discretion in their Zing capacity for the
benefit of the Company with respect to the terms of a guaranteed credit facility
if they conclude that such is not in Zing's best interests. See "Certain
Transactions Zing Guaranteed Credit Facility."
These agreements and arrangements were negotiated while the Company was
owned by Zing and consequently are not the result of arm's-length negotiations
between independent parties. Nonetheless, the Company believes that the
agreements are fair to the Company and contain terms which are no less favorable
to the Company than could be obtained as a result of arm's-length negotiations,
although there can be no assurance thereof. See "Certain Transactions."
Under his employment agreement with the Company, Mr. Schrader will be
entitled to receive substantial compensation should his employment terminate
following a change in control of the Company. Since Mr. Schrader is effectively
in control of the Company, he may have the ability to cause such a change in
control.
THE DISTRIBUTION
Background of the Distribution
The Distribution is being undertaken by Zing because Zing's management
believes that, after giving effect to the Distribution, TACTech will be able to
more readily obtain equity financing and use its capital stock to make
acquisitions; investors will be better able to evaluate the financial
performance of TACTech, thus enhancing the likelihood that it will achieve
appropriate market recognition and will increase over time the value of an
investment in the respective companies; and TACTech's Management will be
provided with an incentive (through existing stock ownership and future grants
of stock options) to increase the market value of TACTech while simultaneously
imposing direct accountability to public investors for TACTech's management
policies and financial results.
Manner of Effecting the Distribution
Pursuant to the Distribution, Zing will distribute to its stockholders
of record as of the Record Date one share of Company Stock, after giving effect
to the Stock Split, for each five (5) shares of Zing Stock then held. On the
Distribution Date, Zing will deliver to the Transfer Agent, Zing's Distribution
Agent in connection with the Distribution, certificates evidencing all of the
issued and outstanding shares of Company Stock owned by Zing, which will
represent 90% of the issued and outstanding shares of Company Stock. All shares
of Company Stock distributed will be fully paid, nonassessable and free of
preemptive rights.
As a result of the Distribution, 90% of the issued and outstanding
shares of Company Stock will be distributed to persons who hold Zing Stock on
the Record Date, with the remaining 10% being owned by the Company's Executive
Vice President, Malcolm Baca. The Record Date is expected to be on or about [ ],
and the Distribution Date will be as soon as practicable following the
Securities and Exchange Commission's declaration of effectiveness of the Company
Registration Statements. It is presently anticipated that certificates
representing Company Stock will be mailed to eligible Zing stockholders promptly
following the Distribution Date. The Distribution will not affect the number of,
or the rights attaching to, outstanding shares of Zing Stock.
No holder of Zing Stock will be required to pay any cash or other
consideration for the shares of Company Stock received in the Distribution nor
will any action be required to be taken by any such holder, including tendering
stock certificates, in order to receive shares of Company Stock. Zing will
account for the Distribution as a dividend and will reduce its stockholders'
equity by the net book value of the Company Stock distributed.
18
<PAGE>
No certificates or scrip representing fractional shares of Company
Stock will be issued as part of the Distribution. The Transfer Agent will
aggregate fractional shares into whole shares and sell them back to the Company
shortly after the Distribution Date on behalf of holders who otherwise would be
entitled to receive fractional share interests. Such persons will instead
receive a cash payment in the amount of their pro rata share of the total sales
proceeds from the sale of the fractional share interests. Fractional share
interests will be purchased by the Company at the average of the high and low
bids quoted for the Company Stock on the day after the Distribution.
Most expenses of the Distribution will initially be paid by Zing. The
Company, however, has reimbursed or has agreed to reimburse Zing for that
portion of such expenses pertaining directly to the costs of preparing and
filing the Company Registration Statements, up to a maximum amount of $100,000.
IN ORDER TO BE ENTITLED TO RECEIVE THE DISTRIBUTION OF COMPANY STOCK, A
ZING STOCKHOLDER RECEIVING THIS PROSPECTUS MUST HAVE BEEN A HOLDER OF RECORD OF
ZING STOCK ON THE RECORD DATE.
Listing and Trading of Company Stock
The Company anticipates the Company Stock will be quoted in the "Pink
Sheets" under the symbol ["TACT"] following the Distribution. See "Risk Factors
- - Absence of Trading Market for Company Stock; Requirements for Listing on
Nasdaq SmallCap Market(sm); Application of Penny Stock Rules." The transfer
agent and registrar for the Company Stock is The Bank of New York.
No current public trading market for the Company Stock exists, although
a "when-issued" market could develop several days prior to the Distribution
Date. The extent of the market for the Company Stock and the prices at which the
Company Stock may trade prior to or after the Distribution cannot be predicted.
See "Risk Factors -- Absence of Trading Market for Company Stock; Requirements
for Listing on Nasdaq SmallCap Market(sm); Application of Penny Stock Rules."
The Company Stock distributed to the stockholders of Zing as of the
Record Date will be freely transferable, except for Company Stock received by
persons who may be deemed to be "affiliates" of the Company under the Securities
Act. Persons who may be deemed to be affiliates of the Company after the
Distribution generally include individuals or entities that control, are
controlled by or are under common control with the Company and may include
certain officers and directors of the Company as well as principal stockholders
of the Company. Persons who are affiliates of the Company will be permitted to
sell their Company Stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exemptions provided by Section 4(1) of the
Securities Act or Rule 144 thereunder. It is not expected that Rule 144 will be
available for the sale of Company Stock by affiliates of the Company until at
least 90 days after the effectiveness of the Company's registration statement
registering Company Stock under the Exchange Act. See "Description of Capital
Stock -- The Company Stock."
Certain Federal Income Tax Consequences of the Distribution
General. The following is a summary description of certain Federal
income tax consequences of the Distribution to Zing and to the holders of shares
of Zing Stock. The summary set forth below is for general information only, does
not purport to cover all potential Federal income tax consequences, and may not
apply to particular categories of holders of shares of Zing Stock subject to
special treatment under the Code, including without limitation, foreign holders
and holders whose Zing securities were acquired pursuant to the exercise of any
employee stock option or otherwise as compensation. The discussion is based upon
the Code, applicable Treasury Regulations thereunder, judicial decisions and
current administrative rulings and practices, all as in effect on the date of
this prospectus, and does not address any state, local, or foreign income or
other tax consequences of the Distribution. No rulings from the Internal Revenue
Service have been requested concerning such tax consequences.
19
<PAGE>
ACCORDINGLY EACH HOLDER OF SHARES OF ZING STOCK IS ADVISED TO CONSULT
SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
Tax Consequences of the Distribution. Zing expects to receive an
opinion from Ernst & Young LLP to the effect that it is more likely than not
that the Distribution, for Federal income tax purposes, should be treated as a
tax-free spinoff pursuant to Section 355 of the Code. The tax opinion will be
based upon the Code and authorities interpreting the Code as of the date of the
issuance of such opinion. The tax opinion will not be updated for any changes to
the Code or authorities interpreting the Code that may occur after the date of
the issuance of such opinion and assumes that the Distribution will be
consummated as described herein. It should be noted that no ruling has been
sought or will be sought from the IRS regarding the Distribution. Neither this
summary nor the tax opinion is binding on the IRS or the courts, and
consequently, there can be no assurance that the IRS or a court will agree with
the conclusions expressed herein or in the tax opinion. The delivery of the tax
opinion is conditioned upon the receipt of certain representations to be made by
the managements of Zing and the Company, and certain other data, documentation,
and materials as deemed necessary (including the information contained in this
prospectus), none of which has been independently verified by Ernst & Young LLP,
and certain limitations set forth therein.
It is expected that the tax opinion will state that, more likely than
not, the Distribution should qualify as a tax-free distribution under Section
355 of the Code and, consequently, the following Federal income tax consequences
should result:
1. A Zing stockholder should not recognize any taxable income, gain
or loss as a result of the receipt of Company Stock in the Distribution.
2. Following the Distribution, a Zing stockholder should apportion
the tax basis of such stockholder's shares of Zing Stock between such Zing Stock
and the Company Stock received in the Distribution in proportion to the relative
fair market values of such Zing Stock and Company Stock on the Distribution
Date.
3. A Zing stockholder's holding period for the Company Stock
received in the Distribution should include the period during which such
stockholder held the Zing Stock with respect to which the Company Stock was
received, provided that such Zing Stock is held as a capital asset by such
stockholder as of the time of the Distribution.
4. No income, gain or loss should be recognized by Zing as a result
of the Distribution.
Ernst & Young LLP's opinion with respect to the Distribution will be
based upon certain representations of fact made by the management of Zing and
assumptions of fact, which have not been independently verified, and is not
binding upon the IRS or the Courts. If any representation or assumption relied
upon by Ernst & Young LLP in rendering its opinion should prove to be
inaccurate, or if the IRS were to challenge successfully the Federal income tax
treatment of the Distribution as set forth in such opinion, then, in general,
although not entirely free from doubt, for Federal income tax purposes it is
likely that the Distribution will be treated as a taxable transaction both to
Zing and the Zing stockholders. In such event, Zing would recognize gain equal
to the difference between the fair market value of the Company Stock and Zing's
tax basis in such Company Stock. The Distribution would also be considered, for
Federal income tax purposes, to be a taxable distribution to the Zing
stockholders with respect to their Zing Stock. Such distribution would be
characterized for Federal income tax purposes as a dividend (to the extent of
Zing's current and accumulated earnings and profits, which can be expected to be
equal or exceed the total amount of the Distribution) equal in amount to the
fair market value of the Company Stock received. For purposes of calculating
gain to Zing and the dividend amount to the Zing stockholders, the fair market
value of the Company Stock is generally considered to be the mean between the
high and the low trading prices of the Company Stock on its first day of trading
following the Distribution. The tax basis of the shares of Company Stock
received by a Zing stockholder in the Distribution would be equal to such fair
market value of such shares and the holding period for such shares of Company
Stock would begin the day after the Distribution Date.
Current Treasury Regulations require that each Zing stockholder who
receives Company Stock pursuant to the Distribution attach to such stockholder's
Federal income tax return for the year in which the Distribution occurs a
detailed
20
<PAGE>
statement setting forth such information as may be appropriate in order to
demonstrate the applicability of Section 355 of the Code to the Distribution.
Zing will convey the appropriate information to each Zing stockholder of record
as of the Record Date.
Proposed Legislation. On April 16, 1997, legislation was introduced
that would change certain provisions of existing Section 355 of the Code. The
proposed legislation generally would provide that if, pursuant to a "plan" or
"arrangement" or "series of related transactions" in existence on the date of
the distribution of a controlled subsidiary, either the controlled subsidiary or
the distributing corporation is acquired after the distribution, taxable gain
would be recognized by the other (non-acquired) corporation as of the date of
the distribution. Acquisitions occurring during the period commencing two years
before, and ending two years after, a distribution would be presumed to have
occurred pursuant to such a "plan" or "arrangement" or "series of related
transactions". If enacted, this proposal would be effective for distributions
occurring after April 16, 1997, with certain limited exceptions. Accordingly, in
the event the proposed legislation is adopted in its present form, in the case
of an acquisition of Zing pursuant to such a "plan" or "arrangement" or "series
of related transaction" in existence on the date of the Distribution, the
Company would be required to recognize taxable gain in an amount equal to the
amount of the net gain that Zing would hypothetically have realized had it sold
all of its assets for their fair market value on the date of the Distribution.
Such gain would be taxed to the Company as long term capital gain, but no
adjustments would be made to the tax bases of the stock or assets of either Zing
or the Company by reason of such gain recognition.
The management of Zing has represented to Ernst & Young LLP that they
know of no existing "plan" or "arrangement" or "series of related transactions"
pursuant to which a person will acquire stock representing 50% or more of the
stock of Zing or the Company after the Distribution. However, if,
notwithstanding such representation, a person should acquire 50% or more of
Zing's stock or the Company's stock in the two-year period following the
Distribution, such a "plan" or "arrangement" or "series or related transactions"
will be presumed to have existed, and significant tax liability to Zing or to
the Company would result unless such presumption could be successfully rebutted,
as to which there can be no assurance.
Certain Consequences of the Distribution
After the Distribution, Zing stockholders of record as of the Record
Date and the Distribution Date will own two securities (shares of Zing Stock and
shares of Company Stock) and will be able to increase or decrease their
respective holdings in either Zing or the Company without affecting their
holdings in the other company. The Company will be an independent, publicly held
company.
Reason for Furnishing this Prospectus
This prospectus is being prepared in order to provide information for
holders of shares of common stock of Zing, each of whom will receive shares of
Company Stock in the Distribution as well as future investors in the Company. It
is not to be construed as an inducement or encouragement to buy or sell any
securities of Zing, the Company or any other entity. The information contained
herein is provided as of the date of this prospectus unless otherwise indicated.
Neither Zing nor the Company will update the information contained in this
prospectus to effect any changes that may occur subsequent to the date hereof,
except in the normal course of their respective public disclosure practices.
21
<PAGE>
CAPITALIZATION
Transition Analysis Component Technology, Inc.
Capitalization
December 31, 1996
The following table sets forth the capitalization of Transition
Analysis Component Technology, Inc. as of December 31, 1996, and as adjusted to
give effect to the issuance of 553,830 shares of common stock, the
capitalization of amount due to parent, and the capitalization of costs
associated with the proposed transaction.
<TABLE>
<CAPTION>
December 31, 1996
As Reported As Adjusted
----------- -----------
<S> <C> <C>
Due to parent $ 495,347 $ --(a)
Shareholders equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding, as adjusted --
Common stock, $.01 par value, 50,000 shares
authorized, 15,200 shares issued and outstanding;
5,000,000 shares authorized, 553,830 shares issued and
outstanding, as adjusted 152 5,538(b)
Additional paid-in capital 848 390,809(a),(b),(c)
Deficit (147,708) (147,708)
--------- ---------
Total shareholders' equity (deficiency) (146,708) 248,639
--------- ---------
Total capitalization $ 348,639 $ 248,639
========= =========
Shareholders' equity (deficiency) per common share
$ (9.65) $ .45
========= =========
Number of shares used in computation 15,200 553,830
========= =========
</TABLE>
(a) Capitalization into additional paid-in capital of amount due to parent.
(b) Effect of an approximately 36.436-to-one stock split.
(c) Reduction of additional paid-in capital of approximately $100,000 of costs
associated with the proposed transaction.
22
<PAGE>
TACTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Analysis of Financial Condition and Results of Operations covers the six
months ended December 31, 1996 and December 31, 1995 and the fiscal years ended
June 30, 1996 and June 30, 1995.
The following table expresses certain items from the Company's income
statements as percentage of net sales for the periods indicated.
Fiscal Year Ended Six Months Ended
June 30, December 31,
1996 1995 1996 1995
----- ----- ----- -----
Net Sales 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative
expenses
88.1 92.8 78.5 83.0
Depreciation 2.1 2.7 1.4 2.2
----- ----- ----- -----
Income before taxes 9.8 4.5 20.1 14.8
Provision for income taxes 3.1 1.3 6.0 4.4
----- ----- ----- -----
Net Income 6.7 3.2 14.1 10.4
===== ===== ===== =====
Results of Operations - Six Months Ended December 31, 1996
Compared To Six Months Ended December 31, 1995
TACTech generates revenues primarily through license agreements for
its data base services. These agreements are generally for terms of 12 months,
but may be canceled by either party upon 30 days' notice. The number of
subscriber licenses generating revenues was greater by approximately 27% at
December 31, 1996 as compared to December 31, 1995. The following data indicates
the licensing activity for each period:
Six Months Ended
December 31, 1996 December 31, 1995
--------------------------------------
Subscribers at beginning of period 73 60
Subscribers who did not renew (5) (5)
Subscribers added during period
including renewal subscribers 17 12
-- --
Subscribers at end of period 85 67
== ==
TACTech earned net income of $146,148 or $0.26 per share (after
giving effect to the Stock Split), for the six months ended December 31, 1996
compared to $80,397 or $0.15 per share (after giving effect to the Stock Split),
for the six months ended December 31, 1995.
Revenues for the six months ended December 31, 1996 were $1,037,171
as compared to $773,072 for the six months ended December 31, 1995. This
represented an increase of 34% for the six months ended December 31, 1996 over
the prior comparable period. The increase in revenue is primarily attributed to
a combination of a larger subscriber base, and a general increase in the use of
fee-based services.
23
<PAGE>
Selling, marketing, software development and maintenance expense and
depreciation increased to $828,323 for the six months ended December 31, 1996
from $658,275 for the prior comparable period. The increase is attributable
primarily to an increase in administrative overhead charged by Zing and the
following increase in personnel:
Number of Employees as of
December 31, 1996 December 31, 1995
--------------------------------------
Sales, marketing, training and
customer service 4 4
Software development, data base
maintenance and computer maintenance 11 9
Data processing 2 1
General and administrative 6 4
-- --
23 18
== ==
Results of Operations - Fiscal Year 1996 Compared to Fiscal Year 1995
TACTech's subscriber licenses generating revenues increased by
approximately 31% during the fiscal year ended June 30, 1996 as compared to the
fiscal year ended June 30, 1995.
The following data reflects TACTech's subscription history for the
fiscal periods indicated:
Fiscal Year 1996 Fiscal Year 1995
---------------- ----------------
Subscribers at beginning of period 60 47
Subscribers who did not renew (14) (7)
Subscribers added during period including
renewal subscribers 27 20
-- --
Subscribers at end of period 73 60
== ==
In Fiscal 1996 subscriber gains were approximately 50% more than the
losses and in Fiscal 1995 the ratio was approximately 33%. Approximately 81% of
the subscriber licenses expiring were renewed as compared to 77% in Fiscal 1995.
TACTech earned net income of $107,186, or $0.19 per share (after
giving effect to the Stock Split), for the Fiscal Year ended June 30, 1996,
compared to $38,325, or $0.07 per share (after giving effect to the Stock
Split), for the Fiscal Year ended June 30, 1995.
Revenues for the Fiscal Year ended June 30, 1996 were $1,601,255 as
compared to $1,224,656 for the Fiscal Year ended June 30, 1995. This represents
an increase of 31% over the prior comparable period.
Selling, marketing, software development and maintenance expenses and
depreciation increased to $1,444,000 for the Fiscal Year ended June 30, 1996 as
compared to $1,170,000 for the Fiscal Year ended June 30, 1995. The increase is
primarily attributable to a $200,000 increase in personnel costs as a result of
the Company's expanded operations. The following schedule demonstrates the
growth in personnel additions by functional area:
24
<PAGE>
Number of Employees as of the Fiscal Year Ended
-----------------------------------------------
June 30, 1996 June 30, 1995
------------- -------------
Sales, marketing, training and
customer service 5 3
Software development, data base
maintenance and computer
maintenance 9 7
Data processing 3 2
General and administrative 5 4
-- --
22 16
== ==
Trends
TACTech's intention is to position itself to capitalize on the need for
more efficient design service as the Department of Defense budget contracts.
Although a declining U.S. military budget may result in a reduction in the total
number or dollar value of military projects, TACTech believes that Department of
Defense imperatives aimed at design efficiency for those projects will make
TACTech's services more valuable as a means of reducing the incidence of
technological obsolescence and assisting designers in identifying the best
available military industrial practices. The Company does not anticipate
material changes in its operating methods or future financial condition as a
direct result of becoming a standalone company, except that the Company will in
the future accrue interest expense for capital borrowed from Zing or from third
parties. Additionally, the Company will capitalize the approximately $500,000 in
long-term liabilities due to Zing.
Administrative expenses for the six months ended December 31, 1996 have
increased in anticipation of the Distribution, largely as a consequence of the
allocation to the Company of the expense arising from management services
rendered by certain Zing employees to the Company, and the expense arising from
the employment agreement with the Company's president. Such expenses are not
expected to materially increase following the Distribution.
Liquidity and Capital Resources
In fiscal 1996 and 1995, the Company used most of its cash generated
from operations for the acquisition of computers and computer related equipment,
and for the reduction of its obligations to Zing and generally for business
growth and development.
As of July 1, 1996, the Company was party to customer subscription
agreements that, assuming no cancellations, in the opinion of management, will
generate approximately $2,000,000 in revenue for the fiscal year ending June 30,
1997. Together with borrowings under the Zing Guaranteed Credit Facility,
internal cash flow generated by the operations of the Company should be
sufficient for the Company to meet its short-term working capital requirements
and capital expenditure requirements provided there are no unduly large number
of cancellations in customer subscription agreements. TACTech's management is
currently contemplating an expansion program for the Company which would
include, among other things, expanding its direct sales force, establishing
marketing and selling relationships both domestically and internationally,
developing its Commercial Library, and developing and offering additional
value-added services to its customers. See "Risk Factors--Competition", "--No
Assurance that TACTech Can Continue to Obtain Information to Update its Database
or Grow the Commercial Library; Value Added Business", "--Technological Change".
While the Company has adequate liquidity and financial resources to fund its
current operations, it may be unable to generate sufficient cash and cash
equivalents to engage in all aspects of the expansion program unless the Company
is able to obtain a credit facility from one or more financial institutions.
While the Company believes it will be able to obtain such credit facility based
on the strength of Zing's agreement to guaranty a portion thereof, there can be
no assurance that it will be able to do so. If the Company is unable to obtain a
credit facility, it is likely that it will be required to significantly reduce
the scope and or timing of its expansion activities as currently contemplated by
TACTech's management. In addition, although there are no present understandings,
commitments or agreements with respect to any acquisition or of other
businesses, products or technologies or any strategic alliances, the Company may
from time to time evaluate potential acquisitions of businesses, products and
technologies or strategic alliances
25
<PAGE>
and may in the future require additional equity or debt financings to consummate
such potential acquisitions or strategic alliances.
Impact of Inflation
In 1996 and 1995, inflation did not have a significant impact on the
operations of the Company. Since the Company's licensing contracts with its
customers are for relatively short periods, inflation may have an adverse effect
on the Company's revenues and pricing structure.
BUSINESS OF TACTECH
General
TACTech is a semiconductor information service company, incorporated in
Delaware in 1987, which licenses proprietary computer software tools combined
with electronic semiconductor availability libraries and data bases that are
utilized by various segments of the Department of Defense, defense contractors,
industrial users of high reliability semiconductors, and manufacturers and
distributors of high reliability and military grade semiconductors. When
accessed by customers, the libraries and data bases provide subscribers with
valuable tools for determining semiconductor availability showing the
manufacturers actively producing subject semiconductors and the projected
production life cycle (obsolescence) for such semiconductors. The system
identifies functionally interchangeable devices, when available, from various
manufacturers. At present, the Company's libraries and data bases are utilized
by its customers primarily in connection with the designing, engineering,
manufacturing and maintaining of electronic systems for high reliability
applications. As of December 31, 1996 TACTech services were subscribed to by
eighty-two (82) customers located throughout the United States and Canada; and
three (3) customers outside the continental United States. Approximately 95% of
the Company's revenue derives from military projects, primarily through
government contractors and subcontractors. Government agencies themselves
account for less than 10% of the Company's revenues in the aggregate.
The TACTech data bases libraries contain the nomenclature and general
description for over 190,000 individual military semiconductor devices, and is
believed by management to include virtually all standard microcircuits and
discrete devices with military specifications. The data base is constantly
updated at TACTech's headquarters and delivered on a real-time, on-line basis.
TACTech software provides a description and general specification of each
microcircuit and discrete device in the TACTech library, thereby allowing the
user to identify functionally interchangeable devices from various manufacturers
and to upgrade and rank devices according to packaging, quality levels,
projected production life cycle and availability based on changes in technology
and sources of supply. All semiconductors listed in TACTech's library are ranked
by reference to such factors. The Company's management believes that the
Company's existing data bases and libraries are accurate and comprehensive.
TACTech has developed proprietary analysis procedures and software to
provide a production life cycle projection assessment rating for each device
type (microcircuit, diode and transistor) contained in its library. TACTech's
production life cycle projections are determined by tracking specific
device-type attribute values such as speed, density, packaging, manufacturing
process, design-in acceptance and available sources of supply.
TACTech's proprietary software allows its customers to receive
information from TACTech's library in useable formats through a personal
computer with modem access or through the Internet. The system allows for device
type information searches to be conducted on a form-fit and function equivalent
basis and/or alternate technology basis. Updates to TACTech's information
library are available to TACTech's customers on a real-time, on-line basis.
Information searches can be conducted by the customer on a base number search,
through parametric product description and by generic part number
identification.
TACTech continually updates its library with information that includes
product introductions, product discontinuances and changes in the quality level
or packaging of available products. The TACTech system permits subscribers to
conduct
26
<PAGE>
individual device type searches or to conduct an analysis on an entire bill of
materials for semiconductor devices. TACTech provides an automatic electronic
discontinuance notification service through its built-in software, which
automatically notifies the subscriber of changes in semiconductor availability
with reference to specific subscriber's bill(s) of materials.
TACTech also maintains a "where used" library which contains the
semiconductor content in over 2,000 unclassified military electronic system
variations. A user can access this "where used" library to determine which
specific device types are incorporated within specific systems or to determine
how many electronic military systems use a given semiconductor. "Where used"
information is particularly valuable to semiconductor manufacturers, or
electronic components parts distributors, in determining marketing strategy or
analyzing device type usage trends within unclassified military applications.
In recent years the U.S. Government has effected defense budget
reductions while at the same time establishing procurement policies aimed at
cost control and efficiency. The Department of Defense is encouraging its
contractors to constantly analyze trends of potentially diminishing
manufacturing sources and technological obsolescence as important considerations
when designing or maintaining new electronic systems. The TACTech systems allows
contractors and designers to screen out obsolete semiconductors and provide for
the more predictable manufacture and better maintenance of equipment, thus
helping ensure a longer operational life of equipment.
The Department of Defense has been emphasizing that military electronic
system designs are to be developed utilizing the best commercial/industrial
practices in order to control or reduce cost while at the same time expanding
design options without degrading system reliability. In accordance with the
mandate for the application of best commercial /industrial practice, defense
contractors and subcontractors have become increasingly interested in exploring
the use of reliable industrial or commercial components and process technologies
as favorable alternatives to previous standard "MilSpec only" designs. TACTech
believes that the trend which emphasizes alternative design concepts will
continue and that issues of component obsolescence and management of diminishing
sources relating to standard military designated components will to be an
increasing problem facing the military electronics industry, thus creating a
growing market for the services offered by TACTech.
In addition to projecting the production life cycle of military and
aerospace semiconductors and providing information on technological updates and
source changes for military and aerospace devices, TACTech provides an
information service that allows the user to convert most military specification
semiconductors to their closest industrial equivalent. The conversion is based
on electrical functionality as well as packaging availability. TACTech believes
that this data service will prove to be of significant value to its customers.
Another facet of TACTech's collective information service is the value
that the service has to design engineers during the component selection process
to screen out obsolete technologies. This facet is important to design engineers
when they take into account after market/spares support in the design process.
Although in certain circumstances the contraction of the military and
aerospace semiconductor manufacturing market may be harmful to the Company, the
related shift in procurement philosophy in the military and aerospace markets
creates favorable market conditions for the Company in the short term. The
diminishing manufacture supply, coupled with advancement and evolution of
semiconductor products, leads to increased component obsolescence in the
military and aerospace markets. New product developments and the desire for
efficiency in the areas of functionality, speed, density, power reduction and
packaging have led to the advent of low power technologies in semiconductor
design. New generations of such low power semiconductor devices require their
own compatible power supplies. Thus, complete circuit design dedicated to the
use of such lower power semiconductor devices is required, thus rendering older,
higher power circuitry obsolete.
The Company's management believes that the advent of low power
semiconductor technology, together with the continued evolution of
semiconductors, will increase the obsolescence of semiconductor devices.
Military and aerospace contractors dependent upon existing semiconductors will
require the services of the Company as such existing semiconductors become
obsolete on an accelerated basis. Such contractors should be forced to adapt and
implement strategies which will allow them timely to track changing
semiconductor technology.
27
<PAGE>
The Company's objectives are: (i) the augmentation of the existing
military and aerospace library to include applicable commercial industrial
information; (ii) the building of the Commercial Library to a level sufficient
to penetrate the commercial/industrial market while maintaining the Company's
military and aerospace business; (iii) increasing the Company's sales force and
marketing efforts to better position the Company to penetrate new markets; (iv)
further penetrating the domestic and international markets by allowing access to
the Company's data bases and libraries, as well as to additional value-added
content, over the Internet and World Wide Web; and (v) entering into strategic
alliances and/or co-licensing agreements to build a Commercial Library with
commercial/industrial application as well as application to the Company's
existing military and aerospace business.
The foregoing statements regarding the Company's strategy and
intentions are forward-looking statements, and actual results may vary
substantially depending upon a variety of factors, including, without
limitation, changes in and development of the Company's market, products and
technologies and those factors discussed under "Risk Factors" above.
The Company generates revenues primarily through license agreements for
its data base services pursuant to which it receives subscription fees. These
agreements are generally for terms of 12 months, but may be canceled by either
party upon 30 days' notice. The Company anticipates that the dependence on such
subscriber revenues will continue for the foreseeable future. Accordingly, any
decline in the demand for or market acceptance of the Company's services would
have a material adverse effect on the Company. Sales to the Company's five
largest customers in fiscal 1995 and 1996 accounted for approximately 26 percent
and 21 percent, respectively, of the Company's revenues. The Company expects
that this trend will continue for the foreseeable future. There can be no
assurance that the Company will sustain growth in revenues in the future.
Competition
TACTech competes with many data service companies which possess greater
financial and human resources than does TACTech. Many information service
provides offer a greater variety of services than does TACTech. TACTech
believes, however, that it offers its customers a unique set of information
services that have been specially developed to assist the military/aerospace
market in solving problems relating to the management of diminishing sources of
supply and technological obsolescence, as they pertain to high reliability
semiconductor devices.
TACTech believes it is the only on-line data service company which has
focused all its resources on providing such highly specialized services, thus
giving it an advantage in competing favorably with other information service
organizations who provide data services designed for more general application.
Marketing, Sales and Licensing
TACTech maintains marketing, customer service and customer training
representatives in its Yorba Linda, California headquarters and a marketing
representative located in Orlando, Florida and New Orleans, Louisiana. TACTech
markets its data services through highly specialized and highly trained
marketing personnel who contact prospective customers directly. TACTech also
promotes its services and identifies prospective customers through participation
in conferences and conventions dedicated predominantly or exclusively to the
issue of shrinking availability of military products due to a diminishing number
of manufacturing sources for military specified products, or due to
technological obsolescence. Video sales aids and literature describing TACTech's
data services are also utilized in its marketing program.
TACTech licenses its proprietary software and data services under
written license agreements with subscribers. Although TACTech provides customer
support to its subscribers to facilitate efficient use of its data services,
TACTech does not warrant the data provided to its subscribers.
Many of the Company's customers access the Company services by a
modem-to-modem connection using the customers' personal computers. A portion of
the Company's strategy is to emphasize delivery of its services through the
Internet and the World Wide Web rather than modem-to-modem distribution.
28
<PAGE>
Subscribers for the Company's services can access the TACTech home page
at "www.tactech.com"; and the Company is seeking ways to realize greater
efficiencies for delivering its services through the Internet and the World Wide
Web by augmenting and simplifying the use of its existing graphical user
interface accessible on the Internet and World Wide Web.
A significant portion of the Company's revenues historically has been
derived from large sales to a limited number of customers including Arrow
Electronics and Lockheed Martin Marietta (at several locations). Pursuant to its
agreement with Arrow Electronics, Arrow Electronics is the sole electronic
component distributor that is permitted to use the Company's services. Although
the loss of either or both of such customers may materially and adversely affect
the Company, in the case of Arrow Electronics, the Company's management believes
that if the Company were to lose Arrow Electronics as a customer, the Company
would be able to replace the business lost from Arrow Electronics with business
from other electronic component distributors. In the fiscal year ended June 30,
1996, Arrow accounted for 12.6% of the Company's revenues, and Lockheed 5.4%. In
the six months ended December 31, 1996, Arrow constituted 9.7% and Lockheed
7.3%, respectively, of the Company's revenues.
Customer Support and Warranty
TACTech's license agreements with its customers include in the base
subscription price free on-site training for two representatives of the
customer. The training program runs for two days and covers three areas:
operational and conceptual understanding of the software program's capability
and application training for integrating TACTech's service into the subscriber's
system. Once on line, a subscriber may call TACTech for technical assistance, at
the subscriber's cost, or use e-mail to obtain assistance. TACTech's license
agreements expressly disclaim any warranty, express or implied, for the accuracy
of its data bases.
Security Measures
TACTech has adopted a number of security measures and techniques. To
protect against a natural disaster, the Company engages in daily system data
backups and weekly full system data backups, independent library tapes are
maintained and off-site data storage is utilized which contains a full system
data backup of library information and private customer files. To protect
against unauthorized usage, the Company maintains a dual access code security
system. The Company controls system access and allows its clients to apply a
second level of security codes that protect their private files. All data is
maintained in an encrypted state, only the password protected security codes
controlled by the Company and the Company's customer can open the files and
permit system usage. All entries to utilize the Company's services are recorded
on a hard copy trail and are reviewed daily for proper authorization clearance.
Safeguards are programmed into the entry codes that shut down the system after
five attempts are made to enter the system with faulty access codes. The Company
believes that these safeguards are sufficient to prevent the unauthorized use of
its data base services by subscribers and to frustrate penetration of its system
and theft of its data bases and programs by outsiders. TACTech meets the
Pentagon's Orange Book standards for security in its industry. TACTech is in
compliance with a G-2 level which is the highest security level for a networking
service.
Sources of Data Bases
Information for TACTech's data bases and libraries is acquired from the
private and governmental sectors, including semiconductor manufacturers, defense
contractors and the unclassified records of the U.S. Government and its
agencies. Approximately two-thirds of TACTech's information for its data bases
comes from numerous companies in the private sector which generally make such
information available to persons having a recognized need for such information.
The remaining information is obtained from governmental sources which can be
accessed pursuant to the Freedom of Information Act.
Trademarks, Copyrights and Licenses
29
<PAGE>
TACTech maintains copyright protection for its computer software and
related data base service, and claims proprietary trade secret protection
through customer licensing agreements. "TACTECH" is a registered trademark of
the Company. The Company does not hold any patents to any of the technology
incorporated in its software or data services.
Research and Development
TACTech's research and development efforts principally focus on
augmenting TACTech's existing customer interface design (the GUI on the Internet
and World Wide Web), new information products, system security, and the
programming and maintaining of TACTech's hardware and software. In the fiscal
year ended June 30, 1996, the Company spent $106,000 in research and
development, compared to $57,000 in the prior year. For the six months ended
December 31, 1996, research and development expenses equaled $39,000, compared
to $41,000 in the 1995 period.
Employees
As of December 31, 1996, TACTech employed eleven (11) persons in
software development, data base maintenance and computer maintenance personnel;
four (4) persons in sales, marketing and customer support; two (2) in data
processing and six (6) persons in administrative roles (including Robert E.
Schrader, but only to the extent provided for in his employment agreement). No
TACTech employees are covered by a collective bargaining agreement.
Properties
TACTech is currently renting facilities of approximately 7,000 square
feet in Yorba Linda, California from Arrow Electronics on a month-to-month basis
at a cost of $3,500 per month. Substantially all of TACTech's Yorba Linda
facility is currently in productive use. See "Risk Factors -- No Long Term
Facility Lease."
Legal Proceedings
The Company is not a party to any material pending legal
proceedings nor, to the Company's knowledge, is any material legal proceeding
threatened.
DIRECTORS AND MANAGEMENT OF TACTECH
The names and ages of all Directors of TACTech, their positions with
TACTech or Zing, their term of office and their business background are set
forth below.
Director of Position with
Name and Address Age TACTech Since TACTech or Zing
- ---------------- --- ------------- ---------------
ROBERT E. SCHRADER 53 1987 President and
Chief Executive
Officer
MARTIN S. FAWER 63 1987 Chief Financial
Officer
DEBORAH J. SCHRADER 50 1987 Secretary
ROBERT E. SCHRADER, has been President, Chief Executive Officer and Chairman of
the Board of Directors of TACTech since its incorporation in 1987. He is the
founder of Zing, and has been its President, Chief Executive Officer and
Chairman
30
<PAGE>
of the Board of Directors since its incorporation in 1969. He is the husband of
Deborah J. Schrader. He expects to devote approximately 25% of his business time
on the affairs and operations of the Company.
MARTIN S. FAWER, has been the Chief Financial Officer and Treasurer of TACTech
since March 1995; and from June 1, 1987 to March, 1995 he was Vice President and
Assistant Treasurer. He is also the Chief Financial Officer, Treasurer and a
director of Zing. For more than five years Mr. Fawer has been a principal of The
Fawer Group, P.C., and its predecessors, certified public accountants. He
expects to devote approximately 10% of his business time on the affairs and
operations of the Company.
DEBORAH J. SCHRADER, has been Secretary of TACTech since its incorporation in
1987. She has also been the Secretary and a director of Zing since its
organization in 1969. She is the wife of Robert E. Schrader.
Martin S. Fawer, Robert E. Schrader and Deborah J. Schrader are
directors of Zing. As of the date of this prospectus, except for the foregoing
no director of TACTech is a director of any other company with a class of
securities registered pursuant to Section 12 of the Exchange Act, or any company
registered as an Investment Company under the Investment Company Act of 1940.
Other than Robert E. Schrader and Deborah J. Schrader, who are married to each
other, there is no family relationship among any members of the Board of
Directors or the officers of TACTech.
The Company Certificate provides that while there are greater than
three directors and fewer then seven directors, the Board of Directors shall be
classified into two classes with the directors in each class to serve staggered
two year terms, and where there are seven or more directors, the Board of
Directors shall be classified into three classes with the directors in each
class serving staggered three year terms. The Company Certificate fixes the size
of the Board at not less than three nor more than ten directors with the exact
number being set by resolution of the Board of Directors. The Company currently
has three members serving on the Board of Directors. The Company Certificate
further authorizes the Board to create and fill new directorships by a majority
vote
Security Ownership of Management
As of the date of this Prospectus, 90% of the Company's Stock is owned
by Zing; 10% is owned by Malcolm Baca. The following table sets forth, as of
April 25, 1997, (after giving effect to this Distribution and the Stock Split
which will occur on or prior to the Distribution Date) information concerning
beneficial ownership of voting securities of Company Stock by all current
directors individually, by the Chief Executive Officer and the other one
executive officer of TACTech whose total annual salary and bonus exceeded
$100,000 in Fiscal Year 1996, and by all directors and officers as a group:
Amount
Beneficially Percent of
Owned Class
------------ ----------
Robert E. Schrader(1) 230,542 41.6%
Malcolm Baca 55,383 10.0%
Deborah J. Schrader(2) -- --%
Martin S. Fawer 10,171 1.8%
All Officers and Directors
as a Group (four persons)(3) 296,096 53.5%
- ----------
(1) Reflects control of 230,542 shares of Company Stock through Mr. Schrader's
ownership of 1,152,711 shares of Zing Stock.
(2) No shares owned directly. All shares owned indirectly through Robert E.
Schrader, her husband.
(3) Includes the shares described in footnote (1).
31
<PAGE>
Executive Officers
Position with Company and Business
Name Age Experience During the Past Five Years
---- --- -------------------------------------
Robert E. Schrader* 53
Deborah J. Schrader* 50
Martin S. Fawer* 63
Malcolm Baca 55 Vice President and Treasurer from
1987 to March 1995; Executive Vice
President and Chief Operating Officer
since March 1995.
- ----------
*See "Directors" above.
Compensation of Directors and Executive Officers
Executive Compensation
----------------------
The following table shows, for the three most recently ended fiscal
years, the cash compensation paid or accrued for those years to the Chief
Executive Officer of TACTech and to the one executive officer of TACTech (other
than the Chief Executive Officer) whose aggregate annual salary and bonus paid
in compensation for services rendered in all the capacities in which he served
exceeded $100,000 for TACTech's last fiscal year (the "Named Executives").
Summary Compensation Table
Name and All Other
Principal Position Fiscal Year Salary Bonus Compensation(1)
- ------------------ ----------- --------- ----- ------------
Robert E. Schrader(2) 1996 $ -- $ -- $ --
Chief Executive Officer and 1995 -- -- --
President 1994 -- -- --
Malcolm Baca 1996 $ 178,269 $ -- $ 1,877
Executive Vice President and 1995 168,818 -- 1,764
Chief Operating Officer 1994 161,479 -- 1,044
(1) Other compensation represents annual life insurance premiums paid on behalf
of the officer listed.
(2) Although no compensation was directly paid by the Company to Mr. Schrader
during the fiscal years ending June 30, 1994, 1995 and 1996, (1) effective
July 1, 1996 Robert E. Schrader became entitled to receive an annual salary
of $80,000 pursuant to an employment agreement discussed below under
"Directors and Management of TACTech -- Employment Contracts, Termination
of Employment and Change-In-Control Arrangements" and (2) prior to the
Distribution, Mr. Schrader was compensated by Zing which was receiving
management fees from the Company for services rendered by Mr. Schrader to
the Company. Management fees in the amount of $75,000 were paid by the
Company to Zing in fiscal 1996; and as of December 31, 1996, TACTech has
paid Zing approximately $50,000 in management fees.
32
<PAGE>
Grant of Options
----------------
As of the date of this prospectus, although 60,000 shares of Company
Stock have been reserved for issuance pursuant to the Option Plan, there were no
outstanding options to purchase or securities convertible into Company Stock or
stock appreciation rights related to Company Stock.
Compensation of Directors
-------------------------
TACTech does not pay directors for their services as directors. TACTech
may, in the future, pay directors who are not officers or employees for their
services as directors plus a fee for committee meetings attended.
Employment Contracts, Termination of Employment
and Change-in-Control Arrangements
Mr. Robert E. Schrader has an employment agreement with TACTech, the
term of which expires on the third anniversary of the Distribution Date. Mr.
Schrader's agreement entitles him to a salary of $80,000 per annum. Mr. Schrader
has no contractual entitlement to any bonus. Pursuant to the employment
agreement, Mr. Schrader has agreed to serve as TACTech's Chief Executive
Officer, President and Chairman of the Board of Directors on a part-time basis.
In the event that a Change in Control (as defined in the employment agreement)
of TACTech occurs, Mr. Schrader may terminate his employment. In such event, Mr.
Schrader is required to extend the duration of the non-competition agreements
set forth in the employment agreement to the third anniversary of such Change of
Control. In consideration for the extension of his agreement not to compete with
TACTech after such Change of Control which results in the termination of the
term of his employment agreement, Mr. Schrader will be entitled to receive a
lump sum payment equal to the amount of the remaining base salary he would be
entitled to under his employment agreement had it not been so terminated, plus
$250,000. Pursuant to such employment agreement, Mr. Schrader is required only
to provide part time services to the Company, but not less than 10 business
hours per week.
Mr. Malcolm A. Baca has an employment agreement with TACTech under
which he will devote full-time efforts on behalf of the Company. The term of Mr.
Baca's employment expires April 30, 1999. Mr. Baca's agreement entitles him to a
base salary of $120,0000 per annum, plus five percent (5%) of TACTech's
collected revenues, except that on revenues attributable to another commissioned
member of TACTech's management, Mr. Baca's commission is two and one half
percent (2 1/2%). In all events, Mr. Baca's compensation cannot exceed $350,000
subject to increase based upon the National Consumer Price Index. All
commissions to Mr. Baca are subject to his required contribution of one-half of
one percent (1/2%) of TACTech's collected revenues to a bonus pool fund for the
benefit of non-commissioned members of management, which contribution is matched
by TACTech. In the event Mr. Baca is terminated without good cause, TACTech is
obligated to continue to pay compensation to Mr. Baca through April 30, 1999.
Mr. Baca's agreement also prohibits Mr. Baca from selling any of his shares of
Common Stock during the one year period after the Distribution Date. After the
expiration of such one year period, Mr. Baca is not permitted to sell in excess
of 25% of his shares of Company Stock until the expiration of two years after
the Distribution Date.
The Company has engaged Mr. Martin S. Fawer on a part-time basis to
perform supervisory financial and strategic analysis services. See "Certain
Transactions -- Management Services."
Interest in Certain Transactions of Directors, Officers
and Principal Holders of Voting Securities
As of April 25, 1997, Mr. Schrader owned 1,152,711 shares of Zing Stock
constituting approximately 46.3% of the issued and outstanding shares of Zing
Stock; and Mr. Martin Fawer owns 50,857 shares of Zing Stock, constituting
approximately 2% of the issued and outstanding shares of Zing Stock. Mr.
Schrader, Deborah J. Schrader (Mr. Schrader's wife) and Mr. Fawer are directors
of the Company and thus have an indirect interest in the various agreements and
arrangements between Zing and the Company including the Zing Guaranteed Credit
Facility, Indemnification Agreement and the management services to be provided
to the Company by certain employees of Zing. See "Certain Transactions."
33
<PAGE>
Zing has informed the Company that it will agree to guaranty repayment
by the Company of principal indebtedness incurred within two years of the
Distribution Date under a credit facility to be provided by one or more
financial institutions up to an aggregate principal amount of $1,500,000, plus
interest accrued thereon, provided that such indebtedness is to be used for
working capital. Such guaranty will be reduced to a minimum of $750,000 of
principal indebtedness on the second anniversary of the Distribution Date.
Pursuant to the Indemnification Agreement, the Company and Zing have entered
into certain agreements with respect to the indemnification of certain
liabilities arising from the operation of their respective businesses. TACTech
will engage certain Zing employees who will provide management services to the
Company. Management of the Company anticipates that the aggregate cost of such
services will not exceed $100,000 per year. The Zing Guaranteed Credit Facility,
Indemnification Agreement and the management services to be provided to the
Company by certain employees of Zing are more fully described below under
"Certain Transactions."
On December 17, 1996, Zing advanced $100,000 to Mr. Baca for personal
uses unrelated to the Company or any Company Stock in exchange for Mr. Baca's
secured promissory note. The promissory note, which bears interest at 8.25% per
annum and which matures on June 29, 1997, is secured by a first priority
security interest in all of Mr. Baca's shares of Company Stock.
1997 Option Plan
The Company's Board of Directors has adopted and the Company's
stockholders have approved the Transition Analysis Component Technology, Inc.
1997 Stock Option Plan (the "Option Plan"). The Board believes that the Option
Plan is desirable to attract and retain executives, other key employees and
consultants of outstanding ability. Under the Option Plan, options to purchase
an aggregate of not more than 60,000 shares of Company Stock are available for
grants from time to time to key employees of and consultants to the Company. No
options have been granted under the Option Plan, and there are no current plans
for the granting of options to specific employees or consultants.
The Option Plan is administered by a committee appointed by the Board
of Directors. The committee may exercise all of the powers of the Board of
Directors in relation to the Option Plan. The committee is generally empowered
to interpret the Stock Option Plan, to prescribe rules and regulations relating
thereto, to determine the terms of the option agreements, to determine the
employees or consultants to whom options are to be granted, and to determine the
number of shares subject to each option and the exercise price thereof. Options
granted to employees, including directors and officers may be designated as
incentive stock options ("ISOs"). The per share exercise price of ISOs may not
be less than 100% of the fair market value on the date the option is granted (or
110% of the fair market value on the date of grant of an ISO if the optionee
owns more than 10% of the outstanding Company Stock). The per share exercise
price for non-qualified stock options may not be less than 75% of fair market
value on the date the option is granted.
An option agreement may provide for the surrender of the right to
purchase shares under the option in return for a payment in cash or shares of
Company Stock or a combination of cash and shares of Company Stock equal in
value to the excess of the fair market value of the shares with respect to which
the right to purchase is surrendered over the option price therefor. Moreover,
an option agreement may provide for the payment of the option price, in whole or
in part, by the delivery of a number of shares of Company Stock (plus cash if
necessary) having a fair market value equal to such option price.
Each option and all rights granted thereunder shall not be transferable
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the optionee's lifetime only by the
optionee or the optionee's guardian or legal representative.
In the event of certain basic structural or capital changes in the
Company, the Committee, acting in its sole discretion, may make such adjustments
to options then outstanding as the Committee deems appropriate to reflect such
change, or provide that the number of shares of Company Stock covered by an
option theretofore granted shall be adjusted so that such option shall
thereafter cover the number and of shares of stock or other securities or
property to which the optionee would have been entitled pursuant to the terms of
the agreement relating to such change if, immediately prior to such change, the
optionee had been the holder of record of the number of shares of Company Stock
then covered by such option.
34
<PAGE>
Options designated as ISOs are intended to have the attendant tax
benefits provided under Sections 421 and 422 of the Code. Accordingly, the
Option Plan provides that the aggregate fair market value (determined at the
time an ISO is granted) of the Company Stock subject to ISOs exercisable for the
first time by an employee during any calendar year (under all plans of the
Company) may not exceed $100,000.
The Board may modify, suspend or terminate the Option Plan; provided,
however, that certain material modifications affecting the Option Plan must be
approved by the stockholders and any change in the Option Plan that may
adversely affect an optionee's rights under an option previously granted under
the Option Plan requires the consent of the optionee.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 25, 1997 , (after giving
effect to the Distribution and to the Stock Split which will occur on or prior
to the Distribution Date) information concerning beneficial ownership of voting
securities of TACTech by such persons who are known by management to own
beneficially more than 5% of any class of such securities:
Amount
Title Name and Address Beneficially Percent of
of Class of Beneficial Owner Owned Class
-------- ------------------- ------------ ----------
Common Robert E. Schrader 230,542 41.6%
72 Haight Crossroad
Chappaqua, NY 10514
Common Malcolm Baca 55,383 10.0%
24611 Catalonia
Mission Viejo, California
Common Jesse Greenfield* 34,044 6.1%
3765 Wild Plum Ct.
Boulder, CO 80434
- ----------
* Information with respect to the beneficial interest of the holder is based
on the most recent Schedule 13D or Schedule 13G delivered to Zing by such
holder in respect of such holder's ownership in Zing Stock, and not on the
basis of any independent information with respect to such holdings which
the Company or Zing may possess.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Under the Company Certificate in effect on the date of this prospectus,
TACTech's authorized capital stock consists of 10,000,000 authorized shares of
capital stock of which 5,000,000 shares are designated as Common Stock, $0.01
par value, and 5,000,000 shares are designated as Preferred Stock, $0.01 par
value. Prior to or on the Distribution Date, there will be a recapitalization of
TACTech based upon a 36.436-for-one stock split (the "Stock Split"). Prior to
the Stock Split and the adoption of the Company Certificate, 15,200 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
authorized. At the Distribution Date, after giving effect to the Stock Split,
there will be issued and outstanding 553,830 shares of Company Stock and no
shares of Preferred Stock will be issued and outstanding. The terms of the
Company Stock will continue unchanged after the Distribution.
The Company Stock
The holders of Company Stock after the Distribution will be entitled to
one vote for each share on all matters to be voted upon by TACTech shareholders,
including the election of directors, and, except as otherwise required by law,
the holders of such shares will possess exclusively all voting power. The
holders of the Company Stock will not have any cumulative voting rights, nor any
conversion, redemption or preemptive rights. The holders of the Company Stock
will also be entitled to such dividends as may be declared from time to time by
the TACTech Board of Directors from funds legally available therefor and upon
the dissolution, liquidation or winding up of TACTech, whether voluntary or
involuntary, will be entitled to receive pro rata all assets of TACTech legally
available for distribution to such holders.
The Company has never declared or paid a cash dividend on the Company
Stock. Management currently intends to retain earnings to finance the growth and
development of the Company's business and does not anticipate paying cash
dividends in the foreseeable future. Any payment of cash dividends in the future
will depend upon the Company's earnings, capital requirements, financial
condition and other factors deemed relevant by the Board of Directors.
After the Distribution, the Company will be an independent,
publicly-held company. The number and identity of stockholders of the Company
immediately after the Distribution cannot currently be determined with certainty
because it will be based on the number and identity of stockholders of Zing on
the Distribution Date. However, based on the number of record stockholders and
outstanding shares of Zing Stock as of the close of business on [Date] and the
distribution ratio of one share of Company Stock for every five shares of Zing
Stock, the Company expects to have approximately [ ] holders of record of
Company Stock and approximately 553,830 shares of Company Stock issued and
outstanding immediately after the Distribution. In addition, as provided for in
the Option Plan, it is anticipated that the total number of shares of Company
Stock with respect to which options may be granted and restricted stock may be
awarded under the Option Plan will not exceed 60,000 shares, subject to
adjustment (together with the exercise price of options and the purchase price,
if any, of restricted stock) to reflect any change in the Company's outstanding
shares of Company Stock by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations or other similar events affecting the
number or kind of outstanding shares. It is believed that directors and
executive officers of the Company will own, in the aggregate, approximately
53.5% of the outstanding shares of Company Stock immediately after the
Distribution. See "Directors and Management of TACTech - Security Ownership of
Management."
Upon completion of the Distribution, the Company will have issued and
outstanding an aggregate of 553,830 shares of Company Stock. Of the total
outstanding shares of Company Stock, the 498,447 shares of Company Stock
distributed in the Distribution to holders of the 2,492,233 shares of Zing Stock
outstanding on the Distribution Date will be freely tradeable without
restriction or further registration under the Securities Act, unless acquired by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (which sales will be subject to certain volume limitations and
other restrictions described below). The Company Stock distributed to Zing
stockholders will be freely transferable, except for shares received by any
persons who may be deemed to be "affiliates" of the Company under the Securities
Act. Persons who may be deemed affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with the Company and may include certain officers and
directors of the Company as well as principal
36
<PAGE>
stockholders of the Company. Persons who are affiliates of the Company will be
permitted to sell their shares of Company Stock only pursuant to an effective
registration statement under the Securities Act or any exemption from the
registration requirements of the Securities Act, such as the exemption provided
by Section 4(1) of the Securities Act or Rule 144 thereunder. The Section 4(1)
exemption allows the sale of unregistered shares by a person who is not an
issuer, an underwriter or a dealer. Rule 144 provides persons who are not
issuers with objective standards for selling restricted securities and
securities held by affiliates without registration. The rule requires that (1)
current public information be available concerning the issuer, (2) restricted
stock generally be held two years or more; (3) volume limitations are placed on
sales during any three-month period; and (4) affiliates comply with certain
manner of sale restrictions. The amount of Company Stock which could be sold by
a person (or persons whose shares are aggregated) under Rule 144 during a three
month period cannot exceed the greater of (1) one percent of the shares of
Company Stock outstanding as shown by the most recent report or statement
published by the Company, or (2) the average weekly trading volume for the
shares for a four-week period prior to the date that notice of the sale is filed
with the Securities and Exchange Commission.
In addition, an aggregate of 55,383 shares held by Mr. Baca are subject
to further restriction on the future sale of such shares pursuant to a lock-up
arrangement set forth in his employment agreement.
After Distribution, the Company may file a registration statement under
the Securities Act to register shares of Company Stock issuable upon exercise of
stock options reserved for issuance under the Option Plan, thus permitting the
resale of such shares in the public market, subject to certain volume
limitations applicable to affiliates, without restriction under the Securities
Act. See "Directors and Management of TACTech - 1997 Option Plan."
The Company is unable to estimate the number of shares that may be sold
in the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Company Stock
prevailing from time to time. Sales of a substantial amount of Company Stock by
existing stockholders under Rule 144 or otherwise, or even the potential of such
sales, may have an adverse effect on the market price of the Company Stock. See
"Risk Factors - Shares Eligible for Future Sale."
Authorized but unissued and unreserved shares of Company Stock and
Preferred Stock may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital or to facilitate corporate
acquisitions. The existence of unissued and unreserved Company Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management or to issue Preferred Stock with terms that could
render more difficult or discourage an attempt to obtain control of the Company
by means of a merger, tender offer, proxy contest or otherwise, thereby
protecting the continuity of the Company's management. The Company does not
currently have any plans to issue additional shares of Company Stock or to issue
Preferred Stock other than shares of Company Stock that may be issued in
connection with the Option Plan. See "Comparison of Rights of Company
Stockholders and Zing Stockholders -- Preferred Stock."
The transfer agent and registrar for the Company Stock is The Bank of
New York, Corporate Trust Department, 101 Barclay Street, 12th Floor, New York,
NY 10286.
Comparison of Rights of Company Stockholders and Zing Stockholders
Following the Distribution, holders of Zing Stock will become holders
of Company Stock and the rights of such holders in respect of the Company Stock
will be governed by the Company Certificate, the Company By-laws and the DGCL.
Certain differences arise from this change in governing law as well as from
distinctions between the Company Certificate and Zing's Amended and Restated
Certificate of Incorporation (the "Zing Certificate"). The material differences
and some of the important similarities of the rights of holders of Company Stock
and the holders of Zing Stock are described below. This summary is qualified in
its entirety by reference to the full text of such documents. See "Additional
Information" in order to obtain copies of such documents.
Antitakeover Provisions of the Company Certificate and Company By-laws.
Zing and Mr. Malcolm Baca, as sole current stockholders of the Company prior to
the Distribution, have approved the Company Certificate and Company By-laws.
Such Company Certificate and Company By-laws (i) provide for a classified Board
of Directors from which directors may only
37
<PAGE>
be removed by stockholders for cause by (a) not less than 66 2/3% of the total
voting power of all outstanding shares of stock entitled to vote generally in
the election of directors or (b) action by the Board of Directors; (ii)
generally provide that only a majority of the Board of Directors of the Company
shall have the authority to fill vacancies on the Board of Directors; (iii)
restrict the right to amend certain provisions of the Company Certificate and
Company By-laws; (iv) restrict the right of stockholders to call special
meetings; and (v) authorize the Company's Board of Directors to issue Preferred
Stock without further stockholder approval. These provisions are designed to
encourage any person who desires to take control of and/or acquire the Company
to enter into negotiations with the Board of Directors of the Company, thereby
making more difficult the acquisition of the Company by means of a tender offer,
a proxy contest or other non-negotiated means. In addition to encouraging any
person intending to attempt a takeover of the Company to negotiate with the
Board of Directors of the Company, these provisions also curtail such person's
use of a dominant equity interest to control any negotiations with the Board of
Directors of the Company. Under such circumstances, the Board of Directors of
the Company may be better able to make and implement reasoned business decisions
and protect the interests of all of the Company's stockholders. Any one of, or a
combination of, the above anti-takeover provisions could discourage a third
party from attempting to acquire control of the Company. A copy of the Company
Certificate and Company By-laws are each filed as an exhibit to the registration
statement of which this prospectus is a part.
The provisions of the Company's Certificate, By-laws and the DGCL which
may have an anti-takeover effect, are as follows:
Delaware Takeover Statute. The Company is subject to the provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL") regulating
corporate takeovers. Section 203 prevents certain Delaware corporations from
engaging, under certain circumstances, in a "business combination", which
includes a merger or sale of more than 10% of the corporation's assets with any
"interested stockholder" (generally defined as a stockholder who, together with
its affiliates and associates, owns 15% or more of the corporation's outstanding
voting shares) for three years following the date that such stockholder became
an "interested stockholder" unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an " interested
stockholder", (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares), or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3 % of the voting stock
which is not owned by the "interested stockholder" or (iv) under certain other
circumstances. A Delaware corporation may "opt out" of the provisions of Section
203 with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or by-laws resulting from
a shareholders' amendment approved by at least a majority of the outstanding
voting shares, which amendment generally will not become effective until 12
months after the date of such amendment. The Company has not "opted out" of the
provisions of Section 203.
New York Takeover Statute. The provisions of the New York Business
Corporation Law ("BCL") Section 912 are similar to the foregoing, except that
(i) an "interested shareholder" under New York Law is the direct or indirect
beneficial owner of at least 20% (not 15%) of the corporation's voting stock,
and (ii) the corporation may not engage in a business combination (the
definition of which is similar to that under the Delaware statute) with an
"interested shareholder" for a period of five (rather than three) years, unless
one of the following conditions is satisfied: (a) the business combination had
been approved by the board of directors consisting of the directors in office
prior to the date on which such shareholder became an interested shareholder,
(b) the business combination is approved by a majority of shareholders other
than the interested shareholder no earlier than five years after the date such
shareholder became an interested shareholder, or (c) the price paid to all
shareholders meets certain conditions relating to the type and minimum amount of
consideration to be paid to shareholders other than the interested shareholder.
A New York corporation may "opt out" of the provisions of Section 912 with an
express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or by-laws resulting from a
shareholders' amendment approved by at least a majority of the outstanding
voting shares (other than interested stockholders), which amendment generally
will not become effective until 18 months after the date of such amendment. The
Zing By-laws do not opt-out of Section 912.
38
<PAGE>
Stockholder Approval of Certain Business Combinations. Generally, under
the DGCL, the approval by the affirmative vote of the holders of a majority of
the outstanding stock of a corporation entitled to vote on the matter is
required to consummate a merger or consolidation or sale, lease or exchange of
all or substantially all of the corporation's assets.
In addition to the requirements imposed by the DGCL discussed above,
the Company Certificate requires, under certain circumstances, the approval by
the affirmative vote of the holders of 66-2/3% of the outstanding voting power
of the corporation in connection with a business combination with any other
corporation, if such corporation is the beneficial owner of 10% of the
outstanding voting power of the Corporation (defined as a "Related
Corporation"). Such approval is not required if the business combination is (i)
approved by a majority of the directors who were members of the Company's Board
of Directors at the initial filing of the Company Certificate or were acting
members of the Board prior to the acquisition of 10% beneficial ownership of the
outstanding voting power of the corporation by such Related Corporation and its
affiliates or (ii) is an internal corporate transaction involving subsidiaries
of the Company.
In addition to the requirements of the BCL discussed above, the Zing
Certificate requires, under certain circumstances, that prior to a business
combination with any other corporation, if such corporation is the beneficial
owner of more than 10% of any class of equity security of Zing (defined as a
"Tender Offeror"), a meeting of the shareholders of Zing be held to act thereon
and the approval by the affirmative vote of the holders of 66-2/3% of the
outstanding Stock of Zing. Such approval is not required if the business
combination (i) is approved by a majority of the directors who were acting
members of the Board prior to the acquisition by the Tender Offeror of 10%
beneficial ownership of any class of equity security of Zing or (ii) is an
internal corporate transaction involving subsidiaries of Zing.
Number and Election of Directors. The DGCL permits the certificate of
incorporation or the by-laws of a corporation to contain provisions governing
the number and terms of directors. However, if the certificate of incorporation
contains provisions fixing the number of directors, such number may not be
changed without amending the certificate of incorporation. Both the Company
Certificate and the Zing Certificate provide that the number of directors shall
be fixed from time to time pursuant to a resolution adopted by a majority of the
entire Board of Directors.
The Company Certificate and the Company By-laws provide that the number
of directors shall be fixed at not less than three nor more than ten, from time
to time, pursuant to resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). In addition, the Company By-laws provide that at such times
or any times that all shares of stock of the corporation are owned beneficially
and of record by less than three stockholders, the Board of Directors by vote of
a majority of the Board of Directors or a majority of the stockholders may fix
the number of directors at less than three but not less than the number of
stockholders.
The Zing Certificate and the Zing By-laws provide that the number of
directors shall be fixed at not less than six nor more than ten, from time to
time, pursuant to resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). In addition, the Zing By-laws provide that at such times or
any times that all shares of stock of the corporation are owned beneficially and
of record by less than three stockholders, the Board of Directors by vote of a
majority of the Board of Directors or a majority of the stockholders may fix the
number of directors at less than three but not less than the number of
stockholders.
The DGCL permits the certificate of incorporation of a corporation or
its by-laws to provide that directors be divided into one, two or three classes.
The term of office of one class of directors shall expire each year with the
terms of office of no two classes expiring the same year. The Company
Certificate and the Company By-laws provide that if there are more than three
(3) but less than seven (7) directors, the Board of Directors be divided into
two classes, with the first term of office to expire at the next annual meeting
and the second term of office to expire at the second succeeding annual meeting.
Additionally, to the extent there are more than six (6) directors, the Board of
Directors shall be divided into three classes at the annual meeting following
such increase in the number of directors, with the term of the first class to
expire at the first succeeding annual meeting, the term of the second class to
expire at the second succeeding annual meeting and the term of the third class
to expire at the third succeeding annual meeting. Additionally, the Company
By-laws provide that at each annual
39
<PAGE>
meeting following a meeting at which the Board is initially classified and
elected in three classes, directors elected to succeed those directors whose
terms expire shall be elected for a term expiring at the third succeeding annual
meeting of shareholders after their election.
The Zing Certificate and the Zing By-laws provide that if there are
more than six (6) but less than nine (9) directors, the Board of Directors be
divided into two classes, with the first term of office to expire at the next
annual meeting and the second term of office to expire at the second succeeding
annual meeting. Additionally, to the extent there are more than nine (9)
directors, the Board of Directors shall be divided into three classes at the
annual meeting following such increase in the number of directors, with the term
of the first class to expire at the first succeeding annual meeting, the term of
the second class to expire at the second succeeding annual meeting and the term
of the third class to expire at the third succeeding annual meeting.
Additionally, the Zing By-laws provide that at each annual meeting following a
meeting at which the Board is initially classified and elected in three classes,
directors elected to succeed those directors whose terms expire shall be elected
for a term expiring at the third succeeding annual meeting of shareholders after
their election.
Amendments to Charter. Under the DGCL, unless otherwise provided in the
certificate of incorporation, a proposed amendment to the certificate of
incorporation requires an affirmative vote of a majority of the outstanding
stock entitled to vote thereon. If any such amendment would adversely affect the
rights of any holders of shares of a class or series of stock, the vote of the
holders of a majority of all outstanding shares of the class or series, voting
as a class, is also necessary to authorize such amendment.
The Company Certificate provides that no amendment to the Company
Certificate shall amend, alter, change or repeal the provisions relating to the
(i) classification of the Board of Directors; (ii) number and removal of
directors; (iii) term of office of directors; (iv) filling of vacancies on the
Board of Directors, unless the amendment, alteration, change or repeal shall
have received the affirmative vote of the holders of at least (a) 66 2/3 % of
the total voting power of all of the outstanding shares of voting stock entitled
to vote thereon, voting as a single class and (b) a majority of shares held by
other than the "interested stockholders" (generally defined as a person who
beneficially owns an aggregate of 15% or more of the voting power of all shares
entitled to vote for the election of directors.)
The Zing Certificate provides that no amendment to the certificate of
incorporation shall amend, alter, change or repeal the provisions relating to
the (i) classification of the Board of Directors; (ii) number and removal of
directors; (iii) term of office of directors; (iv) filling of vacancies on the
Board of Directors, unless the amendment, alteration, change or repeal shall
have received the affirmative vote of the holders of at least (a) 66 2/3 % of
the total voting power of all of the outstanding shares of voting stock entitled
to vote thereon, voting as a single class, and (b) a majority of shares held by
other than the "interested stockholders" (generally defined as a person who
beneficially owns an aggregate of 20% or more of the voting power of all shares
entitled to vote for the election of directors.)
Amendments to By-laws. Under the DGCL, the power to adopt, alter and
repeal the by-laws is vested in the stockholders, except to the extent that the
certificate of incorporation vests it in the board of directors. The Company
By-laws provide that the by-laws of the corporation, or any one of them, may be
supplemented, amended or repealed by the affirmative vote of a majority of the
Board of Directors and as permitted by law, or by the vote of 66 2/3% of the
holders of outstanding stock entitled to vote thereon at any meeting at which a
quorum is present; provided, however, that the affirmative vote of the holders
of at least 66 2/3% of the voting power of the then outstanding shares of the
voting stock of the corporation, voting together as a single class, is required
to amend, alter or repeal the sections of the by-laws which have the same effect
as those provisions of the Company Certificate, governing (i) classification of
the Board of Directors of the corporation; (ii) number of directors; (iii) term
of office of directors; (iv) removal of directors and (v) filling of vacancies
on the Board of Directors. The Zing By-laws contain identical provisions
governing amendments to the By-laws.
Special Stockholder Meetings. The DGCL provides that a special meeting
of stockholders may be called by the board of directors or by such person or
persons as may be authorized by the certificate of incorporation or by the
by-laws. The Company By-laws provide that special meetings may be called by the
President or the Board of Directors; and shall be called by the President or the
Secretary at the request in writing of a majority of the Board of Directors or
of the holders of 66-2/3%
40
<PAGE>
of the entire capital stock of the Company issued and outstanding and entitled
to vote. The Zing By-laws contain identical provisions for calling special
stockholder meetings.
The Company Certificate provides that except as otherwise required by
law, special meetings of stockholders of the Company may be called only by the
Chairman of the Board, the Vice Chairman of the Board, if any, the President or
the Board of Directors; and shall be called by the President or the Secretary at
the request in writing of a majority of the Board of Directors or of the holders
of 66 2/3% of the entire capital stock of the Company issued and outstanding and
entitled to vote. The Zing Certificate does not contain a provision for calling
special meetings of stockholders.
Stockholder Consent in Lieu of Meeting. Under the DGCL, unless
otherwise provided in the certificate of incorporation, any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a written consent or
consents setting forth the action taken is signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote upon such action were present and voted. The Company By-laws provide that
any action which may be taken at a meeting of stockholders may be taken without
a meeting if there is a written consent of stockholders who would have been
entitled vote to cast the minimum number of votes that would be necessary to
authorize the action at a meeting at which all of the stockholders were present
and voting.
The Zing By-laws provide that any action which may be taken at a
meeting of stockholders may be taken without a meeting if there is unanimous
written consent of the stockholders who would have been entitled vote upon the
action if such meeting were held.
Quorum of Stockholders. Under the DGCL, a quorum consists of a majority
of the shares entitled to vote, present in person or represented by proxy,
unless otherwise provided in the certificate of incorporation or the by-laws,
but in no event can the quorum be less than one-third of the outstanding shares
entitled to vote.
Both the Company By-laws and the Zing By-laws, provide that the quorum
required in connection with all elections and questions put to stockholders
shall be one-third of the outstanding shares entitled to vote.
Preferred Stock. The Company Certificate provides that the Board of
Directors of the Company, without further approval or action from the
stockholders, is authorized, subject to the limitations imposed by law, to issue
shares of Preferred Stock in one or more series, and to fix as to any such
series, the dividend rate, redemption prices, preferences on liquidation or
dissolution, sinking fund terms, if any, conversion rights, voting rights, and
any other preference or special rights or qualifications. The issuance of the
Preferred Stock could have the effect of delaying , deferring or preventing a
change in control of the Company without further action by the stockholders. The
Company has no present plans to issue any shares of Preferred Stock. The Zing
Certificate does not contain a provision for the issuance of Preferred Stock.
See "Description of Capital Stock - The Company Stock."
In addition to the Antitakeover provisions discussed above, the Company
Certificate, the Company By-laws and the DGCL provide for the following:
Redemption of Capital Stock. Under the DGCL, subject to certain
limitations, a corporation's stock may be made subject to redemption by the
corporation at its option, at the option of the holders of such stock or upon
the happening of a specified event. The DGCL prohibits the purchase or
redemption of stock when the capital of a corporation is or would become
impaired; but shares entitled to dividend or liquidation preference may be
purchased or redeemed out of capital if such shares are retired and capital is
reduced in accordance with legal requirements. Neither the Company Certificate
(but without reference to the Preferred Stock) nor the Zing Certificate contains
provisions governing the redemption of capital stock.
Limitation on Directors' Liability; Indemnification of Officers and
Directors. Section 102 of the DGCL allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors of the corporation and its shareholders for monetary
damages for breach of fiduciary duty as a director. Section 102 of the DGCL does
not, however, permit a corporation to limit or eliminate the personal liability
of a director for (1) any breach of
41
<PAGE>
the director's duty of loyalty to the corporation or its stockholders, (2) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) intentional or negligent payment of unlawful
dividends or unlawful stock purchases or redemptions or (4) any transaction from
which the director derived an improper personal benefit. The Company Certificate
provides for limitations on directors' and officers' liability to the fullest
extent permitted by the DGCL.
Section 145 of the DGCL provides that a corporation may indemnify any
of its officers and directors party to any action, suit or proceeding by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another organization by, among other
things, a majority vote of directors (even though less than a quorum) who were
not parties to such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. The Company By-laws
provide for indemnification of officers and directors of the Company to the
maximum extent and in the manner permitted by the DGCL. The BCL provides for
indemnification of officers and directors of a corporation and the Zing By-laws
contain provisions for indemnification of officers and directors to the fullest
extent permitted under the BCL.
Similarly, Section 402 of the BCL allows a corporation to include in
its certificate of incorporation a provision that limits or eliminates their
personal liability of directors to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
corporation cannot eliminate or limit the liability of a director for any acts
or omissions prior to adoption of the Zing Certificate or if a judgment or other
final adjudication adverse to him establishes that (i) his acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law; (ii) he personally gained in fact a financial profit or other advantage to
which he was not legally entitled; or (iii) he voted for or concurred in the
declaration of a dividend or other distribution or repurchase or stock contrary
to the BCL, the distribution of assets to stockholders after dissolution without
paying or adequately providing for all known liabilities or the making of any
loan to a director contrary to the BCL. The Zing Certificate contains provisions
for indemnification of officers and directors to the fullest extent permitted
under the BCL.
Dissenter's Rights. The DGCL provides that stockholders of a Delaware
business corporation are entitled to appraisal rights only in connection with
statutory mergers or consolidations in which their corporation is one of the
corporations which is merging or consolidating ("constituent corporation"). The
DGCL further provides that no appraisal rights will be available, unless
otherwise set forth in the certificate of incorporation (the Company Certificate
does not so provide), to the holders of shares of a constituent corporation
which has a class or series of stock either (i) listed on a national securities
exchange or (ii) held of record by more than 2,000 stockholders unless such
stockholders are required by the terms of the merger to receive any
consideration other than shares of stock of the surviving corporation, shares of
stock of another corporation which are so listed or held by such number of
record holders, cash in lieu of fractional shares of such stock or any
combination thereof. Appraisal rights also are unavailable under Delaware law to
stockholders of a constituent corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger.
The BCL grants dissenters' rights to stockholders (i.e., the right to
cash payment of the fair value of one's shares determined by judicial appraisal)
generally (i) in the case of a merger or consolidation, (ii) a sale of all or
substantially all of the corporation's assets, (iii) and (in the case of a
shareholder whose shares are adversely affected thereby) certain amendments to
the certificate of incorporation. The Zing Certificate provides for appraisal
rights to the full extent under the BCL.
CERTAIN TRANSACTIONS
On or prior to the Distribution Date, the Company and Zing will enter
into certain agreements, described below, which will govern their ongoing
relationships. These agreements were structured and negotiated while the Company
was owned by Zing and consequently are not the result of arms-length
negotiations between independent parties. Nonetheless, the Company and Zing
believe that the terms are fair to the parties and contain terms which are
generally comparable to those which would result from arms-length negotiations.
In each case, the terms of these agreements have been reviewed by individuals
who will be included at a senior management level within the Company.
42
<PAGE>
The agreements summarized below are filed as exhibits to the
registration statement of which this prospectus is a part. The following
descriptions do not purport to be complete and are qualified in their entirety
by reference to the agreements as filed.
Zing Guaranteed Credit Facility
Zing has informed the Company that, as an enhancement to enable the
Company to obtain credit facilities from one or more financial institutions,
Zing would guaranty repayment of the principal amount of up to $1,500,000
incurred within two years of the Distribution Date. After the second anniversary
of the Distribution Date, Zing will reduce its guaranty obligation to guaranty
up to a maximum principal amount of $750,000. Zing will agree to assist the
Company to negotiate and secure such a facility, but will not guaranty the
availability of such a facility. Such guaranty will be valid only to the extent
the proceeds of the facility are used for ordinary working capital purposes.
Indemnification Agreement
Simultaneously with the consummation of the Distribution, Zing and the
Company will enter into an Indemnification Agreement (the "Indemnification
Agreement"). The Indemnification Agreement will obligate the Company to
indemnify and save harmless Zing and its directors, officers, employees, agents
and/or affiliates from any and all costs, expenses, losses, damages and
liabilities incurred or suffered, directly or indirectly, by the indemnities
resulting from or attributable to (i) the operation of the Company from and
after the Distribution; (ii) any claim, suit or other type of proceeding based
upon or arising out of or in connection with the operation of the Company prior
to the Distribution, other than the tax consequences of the Distribution; and
(iii) any claim, suit or other type of proceeding based upon, arising out of or
in connection with any information concerning the Company in this prospectus or
any information furnished by the Company concerning the Company for inclusion in
this prospectus.
Zing will indemnify and save harmless the Company and its directors,
officers, employees, agents and/or affiliates from any claims incurred or
suffered, directly or indirectly, by them resulting from or attributable to,
among other things, (i) the operation of Zing from and after the Distribution;
(ii) any claim, suit or other type of proceeding based upon, arising out of or
in connection with the operation of Zing's business (other than the Company's
business) prior to the Distribution; and (iii) any claim, suit or other type of
proceeding based upon, arising out of or in connection with any information
concerning Zing in this prospectus or any information furnished by Zing
concerning Zing for inclusion in this prospectus.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Management Services
The Company will engage three Zing employees on part-time basis, to
provide supervisory financial and strategic analysis services and various
reporting, accounting and administrative services to the Company. The Zing
employees are expected to devote no more than 10% of their respective business
time to the affairs of the Company in connection with rendering of advice in the
development of the Company's business plan, advising the Company with respect to
and negotiating agreements on the Company's behalf, coordinating communications
with the Company's stockholders, interfacing with the Company's counsel,
preparing and filing the Company's tax returns and reports required by
applicable securities laws and rules of applicable stock exchanges, reviewing
and supervising the Company's accounting department and systems from time to
time and suggesting revisions and changes thereto, performing supervisory
financial and strategic analysis services, and performing such further services
as such employees may agree. Management expects that aggregate costs to be paid
by the Company to Zing for the services to be rendered by such persons will not
exceed $100,000 per year. Such services were previously provided by Zing to the
Company and were included in general corporate charges. As of December 31, 1996,
such charges aggregated $50,000. As a result of the direct engagement of the
Zing employees by the Company, Zing will have a concomitant reduction in payroll
expense. The acquired services are currently being provided by Martin S. Fawer,
Don Guarnieri and Michelle
43
<PAGE>
Mastropolo. The Company expects that it will require management services for
approximately a three year period, although there is no guarantee that the
particular individuals currently engaged will be performing such services at
that time.
Tax Reimbursement
Zing and the Company are parties to a tax reimbursement arrangement
under which income tax liabilities of Zing incurred since the commencement of
its fiscal year beginning July 1, 1994 have been allocated to the Company
estimated to reflect the operations of the Company on a standalone basis. As of
December 31, 1996, approximately $130,000 of such tax liabilities have been
allocated to the Company.
LEGAL MATTERS
Morrison Cohen Singer & Weinstein, LLP has acted and continues to act
as counsel to the Company and Zing with regard to certain matters, and has been
retained to represent the Company and Zing in connection with this prospectus
and the Distribution. The validity, authorization and issuance of the shares of
Company Stock the subject of the Distribution will be passed upon for the
Company by Morrison Cohen Singer & Weinstein, LLP. Morrison Cohen Singer &
Weinstein, LLP's address is 750 Lexington Avenue, New York, New York 10022.
Henry A. Singer is a director of Zing and a senior partner of Morrison Cohen
Singer & Weinstein, LLP. Mr. Singer, as nominee for the firm, owns 3,000 shares
of Zing Stock and, after the Distribution, will own 600 shares of Company Stock.
EXPERTS
The financial statements of Transition Analysis Component Technology,
Inc., at June 30, 1996 and 1995, and for the years then ended, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
SECURITIES AND EXCHANGE COMMISSION POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the Company Certificate, contractual agreements, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
REPORTS OF THE COMPANY
As a result of the Distribution, the Company will be required to comply
with the reporting requirements of the Exchange Act and, in accordance
therewith, to file annual quarterly and other periodical reports with the
Securities and Exchange Commission. Additionally, the Company will be subject to
the proxy and solicitation requirements of the Exchange Act. The Company intends
to furnish its stockholders with annual reports containing audited financial
statements and a report thereon of its independent auditors. The Securities and
Exchange Commission maintains a Web site at "http:\\ www.sec. gov" that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission.
44
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a registration statement on Form SB-1 with the
Securities and Exchange Commission under the Securities Act with respect to the
Company Stock the subject of the Distribution. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all of the information set forth in the registration statement. For
further information with respect to the Company and the Company Stock reference
is made to the registration statement on Form SB-1, which may be obtained from
the Public Reference Section of the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20459. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete and, in such instance, reference is made
to the copy of such contract or document filed as an exhibit to the registration
statement on Form SB-1, each such statement being qualified in all respects by
such reference.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page No.
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors .......................................... F-2
Balance Sheets at June 30, 1996 and June 30, 1995 ....................... F-3
Statements of Income For Years Ended June 30, 1996 and
June 30, 1995 ....................................................... F-4
Statements of Stockholders' Equity (Deficiency)
For Years Ended June 30, 1996 and June 30, 1995 ..................... F-5
Statements of Cash Flows For Years Ended June 30, 1996 and June 30, 1995 F-6
Notes to Financial Statements ........................................... F-7
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheets at December 31, 1996 and December 31, 1995 ............... F-13
Statements of Income for Six months Ended December 31, 1996
and December 31, 1995 .............................................. F-14
Statements of Cash Flows for Six months Ended
December 31, 1996 and December 31, 1995 ............................ F-15
Notes to Unaudited Financial Statements ................................. F-16
F-1
<PAGE>
Report of Independent Auditors
To the Directors of
Transition Analysis Component Technology, Inc.
We have audited the accompanying balance sheets of Transition Analysis Component
Technology, Inc. ("TACTech") as of June 30, 1996 and 1995, and the related
statements of income, stockholders' equity (deficiency) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TACTech as of June 30, 1996 and
1995, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
September 17, 1996
White Plains, NY
/s/ Ernst & Young LLP
F-2
<PAGE>
Transition Analysis Component Technology, Inc.
Balance Sheets
June 30
1996 1995
--------- ---------
Assets
Current assets:
Cash $ 133,855 $ 66,593
Accounts receivable, less allowance
of $5,000 in 1996 and 1995 322,324 225,272
Prepaid expenses and
other current assets -- 14,674
--------- ---------
Total current assets 456,179 306,539
Equipment 347,257 297,684
Less: accumulated depreciation 270,375 236,242
--------- ---------
76,882 61,442
--------- ---------
Total assets $ 533,061 $ 367,981
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation expense $ 39,021 $ 26,505
Accrued income taxes due parent company 66,415 16,400
Accrued legal and audit expenses 36,000 18,500
Accrued expenses - other 16,252 8,657
Deferred income 58,985 40,317
--------- ---------
Total current liabilities 216,673 110,379
Due to parent 609,242 657,642
Stockholders' equity (deficiency):
Common stock (par value $.01 per share;
authorized 50,000 shares; issued and
outstanding 15,200 shares) 152 152
Additional paid-in capital 848 848
Accumulated Deficit (293,854) (401,040)
--------- ---------
Total stockholders' equity (deficiency) (292,854) (400,040)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 533,061 $ 367,981
========= =========
See accompanying notes.
F-3
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Income
Year ended June 30
1996 1995
---------- ----------
Revenues $1,601,255 $1,224,656
---------- ----------
Selling, general and administrative expenses 1,409,921 1,136,835
Depreciation of equipment 34,133 33,096
---------- ----------
Income before income taxes 157,201 54,725
Provision for income taxes 50,015 16,400
---------- ----------
Net income $ 107,186 $ 38,325
========== ==========
Pro Forma net income per common share $ .19 $ .07
========== ==========
Number of shares used in pro forma computation 553,830 553,830
========== ==========
See accompanying notes.
F-4
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Stockholders' Equity (Deficiency)
Total
Additional Stockholders'
Common Paid-In Accumulated Equity
Stock Capital Deficit (Deficiency)
---------------------------------------------------
Balance at July 1, 1994 $152 $848 $(439,365) $(438,365)
Net income -- -- 38,325 38,325
---- ---- --------- ---------
Balance at June 30, 1995 152 848 (401,040) (400,040)
Net income -- -- 107,186 107,186
---- ---- --------- ---------
Balance at June 30, 1996 $152 $848 $(293,854) $(292,854)
==== ==== ========= =========
See accompanying notes.
F-5
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Cash Flows
Year ended June 30
1996 1995
--------- --------
Operating activities
Net income $ 107,186 $ 38,325
--------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 34,133 33,096
Changes in operating assets and liabilities:
Accounts receivable (97,052) (51,778)
Prepaid expenses and other current assets 14,674 (4,783)
Accrued compensation expense 12,516 3,865
Accrued taxes due parent company 50,015 16,400
Accrued legal and audit expenses 17,500 --
Accrued expenses - other 7,595 204
Deferred income 18,668 24,497
--------- --------
Net cash provided by operating activities 165,235 59,826
Investing activities
Purchases of equipment (49,573) (10,051)
--------- --------
Net cash used in investing activities (49,573) (10,051)
--------- --------
Financing activities
Decrease in due to parent (48,400) (19,044)
--------- --------
Net cash used in financing activities (48,400) (19,044)
--------- --------
Net increase in cash 67,262 30,731
Cash at beginning of year 66,593 35,862
--------- --------
Cash at end of year $ 133,855 $ 66,593
========= ========
See accompanying notes.
F-6
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements
June 30, 1996
1. Organization and Summary of Significant Accounting Policies
Organization
Transition Analysis Component Technology, Inc. ("TACTech") is a 90% owned
subsidiary of Zing Technologies, Inc. (Zing) and is located in Yorba Linda,
California. The remaining 10% is owned by one officer.
General Business Description
TACTech licenses proprietary computer software databases to military
manufacturers and defense contractors primarily in the United States. The
databases provide the users with information in regards to microcircuits and
semiconductor devices used in the manufacture of systems for military and
aerospace applications.
Revenue Recognition and Concentration of Credit Risk
The Company recognizes revenue on a monthly basis with substantially all
contracts cancelable on 30 days notice.
Equipment
Equipment is stated at cost and is depreciated using the straight-line method
over five years.
Research and Development
TACTech's research and development efforts principally focus on augmenting
existing customer interface designs, new information products, systems security
and the programming and maintenance of hardware and software. Research and
Development expenses amounted to $106,000 in 1996 and $57,000 in 1995.
Pro Forma Net Income Per Common Share
Pro Forma net income per common share is based on the weighted average number of
shares of Common Stock outstanding adjusted to give effect to the proposed
36.436-for-one stock split in connection with the proposed transaction described
in Note 6.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Fair Value of Financial Information
The carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses reasonably approximate fair value due to the short maturity of these
items.
Recent Accounting Pronouncement
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of." The Company will adopt Statement No. 121 in fiscal
1997, and the impact, if any, is not expected to be material.
Agreements
In April 1993, TACTech entered into a three-year exclusive licensing agreement
with a distributor at an annual rate of $108,000 for use of TACTech's database.
This agreement was amended in May 1993 with an expiration date of June 1998. The
annual rate was amended to $200,000 effective July 1995. TACTech agreed that
during the term of this agreement it would not grant or authorize any other
party access to its data bases or services if such party were in the business of
distributing electronic components parts. The agreement may be renewed for
successive one-year periods by mutual written consent of the parties.
2. Income Taxes
The Company files its federal income taxes on a consolidated basis with its
parent, Zing. Income taxes are computed on a separate company basis pursuant to
the liability method. Current taxes payable, reported as accrued income taxes
due parent company, as of June 30, 1996 and 1995, amounted to $66,415 and
$16,400, respectively.
The Company records taxes under the liability method of accounting for income
taxes. Under this method, any deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The difference between the effective tax rate and the Federal tax rate of 34% is
due to the effect of the graduated Federal tax rate schedule and state taxes.
F-8
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
3. Employee Benefit Plans
The parent company has a deferred compensation program for all employees, which
is qualified under Section 401-K of the Internal Revenue Code. Under the
program, contributions to be made by the Company are at the discretion of the
Board of Directors of the Company. The Company contributed $2,800 in 1996 and
$1,500 in 1995. The Company does not maintain post retirement benefit plans.
4. Leases
TACTech is currently renting facilities in Yorba Linda, California on a
month-to-month basis. Lease expense for the years ended June 30, 1996 and 1995
was $44,000 and $39,000, respectively.
5. Related Parties
The Company is allocated a portion of Zing's corporate administrative expenses
which amounted to $75,000 in 1996 and 1995 and are included in selling, general
and administrative expenses.
The Executive Vice President and General Manager has an employment agreement
expiring on May 1, 1999, entitling him to a salary plus five percent of the
Company's collected revenues, except that on revenues attributable to another
commissioned member of management, the commission is two and one-half percent.
6. Subsequent Events (Unaudited)
Commencing July 1, 1996, the sum of $80,000 per year will be paid to the
President of Zing for services to be provided as the Chief Executive Officer of
TACTech on a part-time basis.
The Company intends to file a registration statement on Form SB-1 for the
purpose of distributing the Common Stock of the Company which is owned by Zing
to the shareholders of Zing. In connection with the proposed transaction, the
Common Stock authorized and outstanding will be split on approximately a
36.436-for-one basis (553,830 shares will be issued and outstanding).
Also, in connection with the proposed transaction, all intercompany advances as
of the effective date of the transaction will be converted to equity and,
accordingly, will be included with additional paid-in capital.
F-9
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
6. Subsequent Event (Unaudited) (continued)
On or before the consummation of the distribution transaction described in such
registration statement, Zing and the Company will enter into several agreements
and take certain other actions for purposes of governing certain of the ongoing
relationships between the two companies following the Distribution, including
indemnification obligations, engaging certain current employees of Zing on a
part-time basis and Zing's willingness to guaranty repayment under one or more
credit facilities to be entered into by the Company with financial institutions.
1) Pursuant to the Indemnification Agreement (which creates liabilities of the
Company to Zing in addition to those arising under the parties' existing tax
reimbursement agreement) to be entered into between Zing and the Company in
connection with the Distribution (the "Indemnification Agreement"), the Company
will agree to indemnify Zing and its officers, directors, employees, agents and
affiliates against all expenses and liabilities resulting from (i) the operation
of the Company from and after the Distribution, (ii) Zing's operations of
TACTech's business prior to the Distribution other than those based upon the tax
consequences of the Distribution, and (iii) any claim, suit or other type of
proceeding based upon, arising out of or in connection with any information
concerning the Company in the prospectus or any information furnished by the
Company concerning the Company for inclusion in the prospectus; and Zing will
indemnify and save harmless the Company and its directors, officers, employees,
agents and/or affiliates for any claims incurred or suffered, directly or
indirectly, by them resulting from or attributable to, among other things (i)
the operation of Zing after the Distribution, (ii) any claim, suit or other type
of proceeding based upon, arising out of or in connection with the operation of
Zing's business (other than the Company's business) prior to the Distribution,
and (iii) any claim, suit or other type of proceeding based upon, arising out of
or in connection with any information concerning Zing in the prospectus or any
information furnished by Zing concerning Zing for inclusion in the prospectus.
Although the Company is not aware of any pending or threatened material
liability for which the Company anticipates becoming obligated to make payments
in connection with its obligations to indemnify Zing, there can be no assurance
that such indemnification obligations could not arise or that such
indemnification obligations would not be material to the Company. 2) The Company
will also engage certain current employees of Zing on a part-time basis to
render to the Company certain management and advisory services at a cost not
expected to exceed $100,000 per year including: advising in the development of
the Company's business plan, advising the Company with respect to and
negotiating material agreements on the Company's behalf, coordinating
communications with the Company's stockholders, advising the Company with
respect to and negotiating prospective acquisitions and financings, preparing
and filing the Company's tax returns and reports required by applicable
securities laws and rules of applicable stock exchanges, reviewing and
supervising the Company's accounting department and systems from time to time
and suggesting revisions and changes thereto, performing supervisory financial
and strategic analysis services, and performing such further services as such
employees may agree. Such services were provided to the Company by Zing since
July 1, 1996 at an annual charge of $100,000. 3) Additionally, Zing has informed
the Company that it will agree to provide credit enhancement in the form of a
guaranty of repayment by the Company of principal indebtedness incurred in the
first
F-10
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
6. Subsequent Event (Unaudited) (continued)
two years following the Distribution Date by the Company to one or more
financial institutions in the aggregate amount of $1,500,000, plus interest
accrued thereon (as may be determined by the terms and conditions of the
facility) provided such indebtedness is used for working capital purposes.
Zing's guaranty will be reduced to a maximum principal amount of $750,000 on the
second anniversary following the Distribution Date.
The Company's Board of Directors has adopted and the Company's stockholders have
approved the Transition Analysis Component Technology, Inc. 1997 Stock Option
Plan. Under the Option Plan, options to purchase up to 60,000 shares of Company
Stock are available for grant from time to time to key employees of and
consultants to the Company. No options have been granted under the Option Plan.
In December 1996, Zing advanced $100,000 to the Company's Executive Vice
President and General Manager in exchange for his secured promissory note. The
promissory note, which matures on June 29, 1997, is secured by a first priority
security interest in all of his shares of Company Stock.
In connection with the proposed Distribution, the Company will amend its
certificate of incorporation to increase its authorized capital to 10,000,000
shares of capital stock of which 5,000,000 shares will be designated as common
stock, $.01 par value, and 5,000,000 shares as preferred stock, $.01 par value.
F-11
<PAGE>
Unaudited Condensed Financial Statements
Transition Analysis Component Technology, Inc.
December 31, 1996
F-12
<PAGE>
Transition Analysis Component Technology, Inc.
Balance Sheets
December 31
1996 1995
--------- ---------
(Unaudited)
Assets
Current assets:
Cash $ 209,765 $ 95,579
Accounts receivable, less allowance of $5,000
in 1996 and 1995 397,733 295,695
Prepaid expenses and other current assets 87,000 6,223
--------- ---------
Total current assets 694,498 397,497
Equipment 399,024 328,318
Less: accumulated depreciation 284,686 252,965
--------- ---------
114,338 75,353
--------- ---------
Total Assets $ 808,836 $ 472,850
========= =========
Liabilities and stockholders' equity (deficiency)
Current liabilities:
Accrued compensation expense $ 59,331 $ 26,505
Accrued income taxes due parent company 129,115 50,800
Accrued legal and audit expenses 136,500 24,000
Accrued expenses - other 7,308 8,676
Deferred income 127,941 76,771
--------- ---------
Total current liabilities 460,195 186,752
Due to parent 495,347 605,741
Stockholders' equity (deficiency):
Common stock (par value $.01 per share;
authorized 50,000 shares; issued and
outstanding 15,200 shares) 152 152
Additional paid-in capital 848 848
Accumulated deficit (147,706) (320,643)
--------- ---------
Total stockholders' equity (deficiency) (146,706) (319,643)
--------- ---------
Total liabilities and stockholders' equity $ 808,836 $ 472,850
========= =========
See accompanying notes.
F-13
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Income
Six months
ended December 31
1996 1995
---------- ----------
(Unaudited)
Revenues $1,037,171 $ 773,072
Selling, general and administrative expenses 814,013 641,552
Depreciation of equipment 14,310 16,723
---------- ----------
Income before income taxes 208,848 114,797
Provision for income taxes 62,700 34,400
---------- ----------
Net income $ 146,148 $ 80,397
========== ==========
Proforma net income per common share $ .26 $ .15
========== ==========
Number of shares used in pro forma computation 553,830 553,830
========== ==========
See accompanying notes.
F-14
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Cash Flows
Six months
ended December 31
1996 1995
---------- ----------
(Unaudited)
Operating activities $ 146,148 $ 80,397
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 14,310 16,723
Changes in operating assets and liabilities:
Accounts receivable (75,409) (70,423)
Prepaid expenses and other current assets (87,000) 8,451
Accrued compensation expense 20,310 --
Accrued taxes due parent company 62,700 34,400
Accrued legal and audit expenses 100,500 5,500
Accrued expenses - other (8,943) 19
Deferred income 68,956 36,454
---------- ----------
Net cash provided by operating activities 241,572 111,521
Investing activities
Purchases of equipment (51,767) (30,634)
---------- ----------
Net cash used in investing activities (51,767) (30,634)
---------- ----------
Financing activities
Net decrease in due to parent (113,895) (51,901)
---------- ----------
Net cash used in financing activities (113,895) (51,901)
---------- ----------
Net increase in cash 75,910 28,986
Cash at beginning of period 133,855 66,593
---------- ----------
Cash at end of period $ 209,765 $ 95,579
========== ==========
See accompanying notes.
F-15
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Unaudited Condensed Financial Statements
December 31, 1996
(Unaudited)
1. Organization and Basis of Presentation
Organization
Transition Analysis Component Technology, Inc. ("TACTech") is a 90% owned
subsidiary of Zing Technologies, Inc. ("Zing") and is located in Yorba Linda,
California. The remaining 10% is owned by one officer.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1997.
Proforma Net Income Per Common Share
Proforma net income per common share is based upon the weighted average number
of shares of common stock outstanding adjusted to give effect to the proposed
36.436-for-one stock split in connection with the proposed transaction described
in Note 3.
2. Related Party Transactions
The Company is allocated a portion of Zing's corporate administrative expenses
amounting to $50,000 and $37,500 for the six month periods ended December 31,
1996 and 1995, respectively, which are included in selling, general and
administrative expenses.
In addition, beginning July 1, 1996, the Company began paying to Zing a fee for
certain management services provided by Zing at the annualized rate of $100,000
per year. See Note 3. Further, $80,000 per year will be paid to the President of
Zing for services to be provided as the Chief Executive Officer of TACTech on a
part-time basis.
3. Subsequent Events
The Company intends to file a registration statement in Form SB-1 for the
purpose of distributing the Common Stock of the Company which is owned by Zing
to the shareholders of Zing. In connection with the proposed transaction, the
common shares authorized and outstanding will be split on an approximately
36.436-for-one basis (553,830 shares will be issued and outstanding).
Also, in connection with the proposed transaction, all intercompany advances as
of the effective date of the transaction will be converted to equity and,
accordingly, will be included with additional paid-in capital.
F-16
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Unaudited Condensed Financial Statements
December 31, 1996
(Unaudited)
As of the Distribution Date, Zing and the Company will enter into several
agreements and take certain other actions for purposes of governing certain of
the ongoing relationships between the two companies following the Distribution,
including indemnification obligations, engaging certain current employees of
Zing on a part-time basis and Zing's willingness to guaranty repayment under one
or more credit facilities to be entered into by the Company with financial
institutions. 1) Pursuant to the Indemnification Agreement (which creates
liabilities of the Company to Zing in addition to those arising under the
parties' existing tax reimbursement agreement) to be entered into between Zing
and the Company in connection with the Distribution (the "Indemnification
Agreement"), the Company will agree to indemnify Zing and its officers,
directors, employees, agents and affiliates against all expenses and liabilities
resulting from (i) the operation of the Company from and after the Distribution,
(ii) Zing's operations of TACTech's business prior to the Distribution other
than those based upon the tax consequences of the Distribution, and (iii) any
claim, suit or other type of proceeding based upon, arising out of or in
connection with any information concerning the Company in the prospectus or any
information furnished by the Company concerning the Company for inclusion in the
prospectus; and Zing will indemnify and save harmless the Company and its
directors, officers, employees, agents and/or affiliates for any claims incurred
or suffered, directly or indirectly, by them resulting from or attributable to,
among other things (i) the operation of Zing after the Distribution, (ii) any
claim, suit or other type of proceeding based upon, arising out of or in
connection with the operation of Zing's business (other than the Company's
business) prior to the Distribution, or (iii) any claim, suit or other type of
proceeding based upon, arising out of or in connection with any information
concerning Zing in the prospectus or any information furnished by Zing
concerning Zing for inclusion in the prospectus. Although the Company is not
aware of any pending or threatened material liability for which the Company
anticipates becoming obligated to make payments in connection with its
obligations to indemnify Zing, there can be no assurance that such
indemnification obligations could not arise or that such indemnification
obligations would not be material to the Company. 2) The Company will also
engage certain current employees of Zing on a part-time basis to render to the
Company certain management and advisory services at a cost not expected to
exceed $100,000 per year including: advising in the development of the Company's
business plan, advising the Company with respect to and negotiating material
agreements on the Company's behalf, coordinating communications with the
Company's stockholders, advising the Company with respect to and negotiating
prospective acquisitions and financings, preparing and filing the Company's tax
returns and reports required by applicable securities laws and rules of
applicable stock exchanges, reviewing and supervising the Company's accounting
department and systems from time to time and suggesting revisions and changes
thereto, performing supervisory financial and strategic analysis services, and
performing such further services as such employees may agree. 3) Additionally,
Zing has informed the Company that it will agree to provide credit enhancement
in the form of a guaranty of repayment by the Company of principal indebtedness
incurred in the first two years following the Distribution Date by the Company
to one or more financial institutions in the aggregate amount of $1,500,000,
plus interest accrued thereon (as may be determined by the terms and conditions
of the facility) provided such indebtedness is used for working capital
purposes. Zing's guaranty will be reduced to a maximum principal amount of
$750,000 on the second anniversary following the Distribution Date.
The Company's Board of Directors has adopted and the Company's stockholders have
approved the Transition Analysis Component Technology, Inc. 1997 Stock Option
Plan. Under the Option Plan, options to purchase up to 60,000 shares of Company
Stock are available for grant from time to time to key employees of and
consultants to the Company. No options have been granted under the Option Plan.
F-17
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Unaudited Condensed Financial Statements
December 31, 1996
(Unaudited)
In December 1996, Zing advanced $100,000 to the Company's Executive Vice
President and General Manager in exchange for his secured promissory note. The
promissory note, which matures on June 29, 1997, is secured by a first priority
security interest in all of his shares of Company Stock, $49,000 of this loan
was paid back in March 1997.
In connection with the proposed Distribution, the Company will amend its
certificate of incorporation to increase its authorized capital to 10,000,000
shares of capital stock of which 5,000,000 shares will be designated as common
stock, $.01 par value, and 5,000,000 shares as preferred stock, $.01 par value.
F-18
<PAGE>
[OUTSIDE BACK COVER]
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
Page
----
Special Note Regarding Forward-Looking Statements ....................... 3
Prospectus Summary ...................................................... 4
Risk Factors ............................................................ 8
The Distribution ........................................................ 17
Capitalization .......................................................... 20
TACTech Management's Discussion and Analysis
of Financial Condition and Results of Operations ..................... 21
Business of TACTech ..................................................... 24
Directors and Management of TACTech
Principal Shareholders .................................................. 29
Description of Capital Stock ............................................ 34
Certain Transactions .................................................... 41
Legal Matters ........................................................... 42
Experts ................................................................. 43
Securities and Exchange Commission Policy on Indemnification
for Securities Act Liabilities ....................................... 43
Reports of the Company .................................................. 43
Additional Information .................................................. 43
Financial Statements .................................................... F-1
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS.
497,650 Shares
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Common Stock
---------------------
PROSPECTUS
---------------------
______________ __, 1997
64
<PAGE>
PART II
(Items not required in prospectus)
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See "Description of Capital Stock" in the prospectus.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses incurred by the
Company in connection with the Distribution. Except for the SEC registration
fees all expenses are estimates:
SEC Registration........................................................ $100.00
Blue Sky Fees and Expenses*............................................. $
Fees of Distribution Agent/Escrow Agent*................................ $
Fees of Information Agent*.............................................. $
Printing and Edgar Filing Preparation Expenses*......................... $
Legal Fees and Expenses*................................................ $
Accounting Fees and Expenses*........................................... $
Listing Fee*............................................................ $
Miscellaneous Expenses*................................................. $
Total Expenses*......................................................... $
- ----------
*To be filed by amendment
ITEM 3. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(A) The registrant will file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 19(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(B) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
65
<PAGE>
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(C) For determining any liability under the Securities Act, the
registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4)
under the Securities Act as part of this registration statement as of the time
the Securities and Exchange Commission declared it effective.
(D) For determining any liability under the Securities Act, the
registrant will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
The registrant has not issued or sold any securities and Zing has not
sold any securities of the Company within one year prior to filing this
registration statement which were not registered under the Securities Act. Zing
has issued an aggregate of 17,534 shares of its common stock in the past year to
six persons who exercised common stock purchase warrants.
ITEM 5. INDEX TO EXHIBITS
The following exhibits are filed with this registration statement, and
this list constitutes the exhibit index.
Exhibit No. Description
3.1 Form of Certificate of Incorporation (amended/restated - Delaware)
3.2 Form of By-laws (amended/restated)
4 Common Stock Certificate*
5 Form of Opinion of Morrison Cohen Singer & Weinstein, LLP
regarding legality of Company Stock being registered*
10.1 Malcolm Baca Employment Contract
10.2 Robert E. Schrader Employment Contract
10.4 Indemnification Agreement
10.6 Option Plan*
10.7 Escrow and Distribution Agreement*
23.1 Consent of Independent Auditors
23.2 Consent of Morrison Cohen Singer & Weinstein, LLP (contained in
its opinion filed as Exhibit 5 hereto)*
27 Financial data schedule
- ----------
* To be filed by amendment.
66
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the city of
Valhalla, State of New York, on April 30, 1997.
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By: s/ Robert E. Schrader
---------------------------------------
Name: Robert E. Schrader
Title: President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature
Date April 30, 1997 By: s/ Robert E. Schrader
---------------------------------------
Name: Robert E. Schrader
Title: Chief Executive Officer, President
and Director
By s/ Martin S. Fawer
---------------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer, Treasurer
and Director
By: s/ Deborah J. Schrader
---------------------------------------
Name: Deborah J. Schrader
Title: Director
67
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
FIRST: The name of this corporation is:
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
SECOND: The name and address of the registered agent of the corporation in
the State of Delaware is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: (a) The total number of shares which the Corporation shall have
authority to issue is 10 Million (10,000,000) of which Five Million (5,000,000)
shares of the par value of One Cent ($.01) per share each amounting in the
aggregate to Five Million (5,000,000) shares shall be Common Stock (hereinafter
called "Common Stock") and of which Five Million (5,000,000) shares of the par
value of One Cent ($.01) per share each amounting in the aggregate to Five
Million (5,000,000) shares shall be Preferred Stock (hereinafter called
"Preferred Stock").
(b) The Common Stock shall have the following voting powers, designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions:
(1) The holders of the Common Stock shall be entitled to receive such
dividends as may be declared thereon from time to time by the Board of
Directors, in its discretion, from any assets legally available for the
payment of dividends.
(2) In the event of the dissolution of the Corporation, whether
voluntary or involuntary, the holders of Common Stock shall be entitled to
share ratably in the distribution of the assets of the Corporation.
<PAGE>
(3) Except as herein otherwise expressly provided and as otherwise
required by law, all shares of Common Stock shall have equal voting rights
and shall have one vote, in person or by proxy, for each share thereof
held.
(c) The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article FOURTH, to provide for the issuance of
the shares of Preferred Stock in series, and by filing a certificate pursuant to
the applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each such series
shall include, but not be limited to, the determination or fixing of the
following:
(1) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by like action of
the Board of Directors;
(2) The dividend rate of such series, the conditions and time upon
which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes of stock
or series thereof, or any other series of the same class, and whether such
dividends shall be cumulative or non-cumulative;
(3) The conditions upon which the shares of such series shall be
subject to redemption by the Corporation and the times, prices and other
terms and provisions upon which the shares of the series may be redeemed
including the date or date upon or after which they may be redeemed, and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(4) Whether or not the shares of the series shall be subject to the
operation of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if such retirement or sinking fund be
established, the annual amount thereof and the terms and provisions
relative to the operation thereof;
(5) Whether or not the shares of the series shall be convertible into
or exchangeable for shares of any other class or classes, with or without
par value, or of any other series of the same class, and, if provision is
made for conversion
2
<PAGE>
or exchange, the times, prices, rates, adjustments, and other terms and
conditions of such conversion or exchange as the Board of Directors shall
determine;
(6) Whether or not the shares of the series shall have voting rights,
in addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(7) The rights of the shares of the series in the event of voluntary
or involuntary liquidation, dissolution or the winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series;
(8) Any other powers, preferences and relative participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the shares of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
The holders of shares of the Preferred Stock of each series shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends (if any) at the
rates fixed by the Board of Directors for such series, and no more, before any
cash dividends shall be declared and paid, or set apart for payment, on the
Common Stock with respect to the same dividend period.
The holders of shares of the Preferred Stock of each series shall be
entitled upon liquidation or dissolution or upon the distribution of the assets
of the Corporation to such preferences as provided in the resolution or
resolutions creating such series of Preferred Stock, and no more, before any
distribution of the assets of the Corporation shall be made to the holders of
shares of the Common Stock. Whenever the holders of shares of the Preferred
Stock shall have been paid the full amounts to which they shall be entitled, the
holders of shares of the Common Stock shall be entitled to share ratably in all
remaining assets of the Corporation.
(d) No holder of stock of any class of the Corporation shall be entitled as
of right to subscribe for or purchase any shares of stock of any class whether
now or hereafter authorized, or any bonds, debentures, or other evidences of
indebtedness whether or not convertible into or exchangeable for stock, but
shares of stock of any class, or bonds, debentures, or other evidences of
indebtedness may be issued, sold or otherwise disposed of by the Board of
Directors on such terms and for such consideration, so far as may be permitted
by law, and to such person or persons as the Board of Directors in its absolute
discretion may deem advisable.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
3
<PAGE>
SEVENTH: New By-laws may be adopted or the By-laws may be amended or
repealed by a vote of holders of two-thirds (66-2/3%) of the outstanding stock
of the Corporation entitled to vote thereon. By-laws may also be adopted,
amended or repealed by resolutions adopted by the affirmative vote of a majority
of the directors and as provided or permitted by law; provided, however, that
(a) the Board of Directors may not repeal or amend a Bylaw adopted by the
shareholders; and (b) any By-law amendment adopted, amended or repealed by the
Board of Directors increasing or reducing the authorized number of directors
shall require a resolution adopted by the affirmative vote of not less than
two-thirds (66-2/3%) of the directors.
EIGHTH: (a) The number of directors of the Corporation shall be the number
fixed from time to time in the manner provided by the By-laws of the
Corporation, pursuant to a resolution adopted by a majority of the total number
of authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time such resolution in presented to the Board
for adoption), but in no event shall such number be fewer than three (3) nor
more than ten (10).
(b) If at any time the Corporation shall have more than three (3) but less
than seven (7) directors, then at the first annual meeting of stockholders
thereafter, the Board of Directors shall be divided into two classes with each
class to be as nearly equal in number as possible, with the term of office of
the first class to expire at the annual meeting of stockholders held on the
first anniversary of the annual meeting at which the Board is first classified
and the term of office of the second class to expire at the annual meeting of
stockholders held on the second anniversary of the annual meeting at which the
Board is first classified. At each annual meeting of stockholders following such
initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the second succeeding annual meeting after their election. Notwithstanding the
preceding provisions of this paragraph (b) of this Article EIGHTH, if the number
of directors shall be more than six (6), at the next succeeding annual meeting
of stockholders after such increase, the directors shall be divided into three
classes, as nearly equal in number as possible. At such annual meeting, one
class shall be elected for a term expiring at the next annual meeting of
stockholders, the second class shall be elected for a term expiring at the
second succeeding annual meeting of stockholders, and the third class shall be
elected for a term expiring at the third succeeding annual meeting of
stockholders. At each annual meeting following that at which the Board is
initially classified and elected in three classes, directors elected to succeed
those directors whose terms expire shall be elected for a term expiring at the
third succeeding annual meeting of stockholders after their election, and until
their successors shall be elected and qualified. No increase in the number of
directors shall shorten the term of any incumbent director.
(c) Except as otherwise fixed pursuant to the provisions of Article EIGHTH
hereof, newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause may be filled (i) by the
affirmative vote of a majority of the remaining directors then in office even
though less than a quorum of the Board of Directors, or by a sole remaining
director, or (ii) by the affirmative vote of the holders of at least two thirds
(66-2/3%) of the total voting power of all outstanding shares of stock entitled
to vote generally in the election of directors. Any director
4
<PAGE>
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the directorship for which the vacancy occurred
and until such director's successor shall have been elected and qualified. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent directors.
(d) Except as otherwise fixed pursuant to the provisions of Article EIGHTH
hereof, any director, or the entire Board of Directors, may be removed from
office at any time only for cause and only (i) by the affirmative vote of the
holders of not less than two-thirds (66-2/3%) of the total voting power of all
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class, or (ii) by action of the Board of
Directors.
(e) Except as otherwise required by law, special meetings of stockholders
of the Corporation may be called only by the Chairman of the Board, the Vice
Chairman of the Board, if any, the President or a majority of the Board of
Directors, or by the unanimous vote of a committee of the Board of Directors
which has been duly designated by the Board of Directors and whose power and
authority, as provided, in a duly adopted resolution of the Board of Directors
or in the Bylaws of the Corporation, include the power to call such meeting.
NINTH: (a) Subject to the provisions of any series of Preferred Stock which
may at the time be outstanding and convertible into shares of Common Stock of
this Corporation, the affirmative vote of at least 66 2/3% of the outstanding
shares of Common Stock held by stockholders other than the "Related Corporation"
(as hereinafter defined), shall be required for the approval or authorization of
any "business combination" (as hereinafter defined) of this Corporation with any
Related Corporation; provided, however, that such voting requirement shall not
be applicable if:
(1) The business combination was approved by the Board of Directors of
the Corporation either (a) prior to the acquisition by such Related
Corporation of the beneficial ownership of 10% or requisition the
outstanding shares of the Common Stock of the Corporation, or (b) after
such acquisition, but only so long as such Related Corporation has sought
and obtained the unanimous approval by the Board of Directors for such
acquisition prior to such acquisition being consummated; or
(2) The business combination is solely between this Corporation and
existing Related Corporations as of the date of filing of this amended and
restated Certificate of Incorporation;
(3) The business combination is solely between this Corporation and
another corporation, 50% or more of the voting stock of which is owned by a
Related Corporation; provided that each stockholder of this Corporation
receives the same type of consideration in such transaction in proportion
to his stockholdings; or
5
<PAGE>
(4) All of the following conditions are satisfied:
A. The cash or fair market value of the property, securities or
other consideration to be received per share by holders of Common
Stock of this Corporation in the business combination is not less than
the higher of (i) the highest per share price (including brokerage
commissions, soliciting dealers' fees, dealer-management compensation,
and other expenses, including, but not limited to, costs of newspaper
advertisements, printing expenses and attorneys' fees) paid by such
Related Corporation in acquiring any of its holdings of this
Corporation's Common Stock or (ii) an amount which bears the same or a
greater percentage relationship to the market price of this
Corporation's Common Stock immediately prior to the commencement of
acquisition of this Corporation's Common Stock by such Related
Corporation, but in no event in excess of two times the highest per
share price determined in (i) above; and
B. After becoming a Related Corporation and prior to the
consummation of such business combination, (i) such Related
Corporation shall not have acquired any newly issued shares of capital
stock, directly or indirectly, from this Corporation (except upon
conversion of convertible securities acquired by it prior to becoming
a Related Corporation or upon compliance with the provision of this
Article or as a result of a pro rata stock dividend or stock split)
and (ii) such Related Corporation shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder) of
any loans, advances, guarantees, pledges or other financial assistance
or tax credits provided by this Corporation, or made any major changes
in this Corporation's business or equity capital structure; and
C. A proxy statement complying with the requirements of the
Securities Exchange Act of 1934, whether or not this Corporation is
then subject to such requirements, shall be mailed to the public
stockholders of this Corporation for the purpose of soliciting
stockholder approval of such business combination and shall contain at
the front thereof, in a prominent place (i) any recommendations as to
the
6
<PAGE>
advisability (or inadvisability) of the business combination which the
continuing directors, or any outside directors, may choose to state,
and (ii) the opinion of a reputable national investment banking firm
as to the fairness (or not) of the terms of such business combination,
from the point of view of the remaining public stockholders of this
Corporation (such investment banking firm to be engaged solely on
behalf of the remaining public stockholders, to be paid a reasonable
fee for their services by this Corporation upon receipt of such
opinion, to be one of the so-called major bracket investment banking
firms which has not previously been associated with such Related
Corporation and, if there are at the time any such directors, to be
selected by a majority of the continuing directors and outside
directors).
(b) For purposes of this Article:
(1) The term "business combination" shall mean (a) any merger or
consolidation of this Corporation with or into a Related Corporation, (b)
any sale, lease, exchange, transfer or other disposition, including without
limitation, a mortgage or any other security device, of all or any
substantial part of the assets of this Corporation (including without
limitation any voting securities of a subsidiary) or of a subsidiary, to a
Related Corporation, (c) any merger or consolidation of a Related
Corporation with or into this Corporation or a subsidiary of this
Corporation, (d) any sale, lease, exchange, transfer or other disposition
of all or any substantial part of the assets of a Related Corporation to
this Corporation or a subsidiary of this Corporation, (e) the issuance of
any securities of this Corporation or a subsidiary of this Corporation to a
Related Corporation, (f) the acquisition by this Corporation or a
subsidiary of this Corporation of any securities or a Related Corporation,
(g) any reclassification of Common Stock of this Corporation, or any
recapitalization involving Common Stock of this Corporation, consummated
within five years after a Related Corporation becomes a Related
Corporation, and (h) any agreement, contract or other arrangement providing
for any of the transactions described in this definition of business
combination.
(2) The term "Related Corporation" shall mean and include any
individual, corporation, partnership or other person or entity which,
together with their "affiliates" and "associates" (defined below),
"beneficially" owns (as this term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934), in the aggregate 10% or more of the
outstanding shares of the
7
<PAGE>
Common Stock of this Corporation, and any "affiliate" or "associate" (as
those terms are defined in Rule 12b-2 under the Securities Exchange Act of
1934) of any such individual, Corporation, partnership or other person or
entity;
(3) The term "substantial part" shall mean more than 10% of the total
assets of the Corporation in question, as of the end of its most recent
fiscal year ending prior to the time the determination is being made;
(4) Without limitation, any share of Common Stock of this Corporation
which any Related Corporation has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, shall be deemed beneficially owned by such Related Corporation;
(5) For the purposes of subparagraph (a) (3) of this Article, the term
"other consideration to be received" shall include, without limitation,
Common Stock of this Corporation retained by its existing public
stockholders in the event of a business combination with such Related
Corporation in which this Corporation is the surviving Corporation; and
(6) With respect to any proposed business combination, the term
"continuing director" shall mean a director who was a member of the Board
of Directors of this Corporation immediately prior to the time that any
Related Corporation involved in the proposed business combination acquired
10% or more of the outstanding share of Common Stock of the Corporation,
and the term "outside director" shall mean a director who is not (a) an
officer or employee of this Corporation or any relative of an officer or
employee, (b) a Related Corporation or an officer, director, employee,
associate or affiliate or a Related Corporation, or a relative of any of
the foregoing, or (c) a person having a direct or indirect material
business relationship with this Corporation.
TENTH: The corporation shall indemnify any and all of its directors or
officers or former directors, or officers or any person who may have served at
its request as a director or officer of another corporation in which it owns
shares of capital stock or of which it is a creditor, against expenses actually
and necessarily incurred by them in connection with the defense of any action,
suit or proceeding, civil or criminal, in which they, or any of them, are made
parties, or a party, by reason of being or having been directors or officers or
a director or officer of the Corporation, or of such other corporation, except
in relation to matters as to which any such director
8
<PAGE>
or officer or former director or officer or person shall be adjudged in such
action, suit or proceeding, civil or criminal, to be liable for any breach of
the director's duty of loyalty to the Corporation or its stockholders, for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, under section 174 of the General Corporation Law of
Delaware or for any transaction from which such officer or director derived an
improper benefit. Such indemnification shall not be deemed exclusive of any
other rights to which those hereby indemnified may be entitled, under any
By-law, agreement, vote of stockholders or otherwise.
ELEVENTH: No holder of any share or shares of any class of stock of the
Corporation shall have any preemptive right to subscribe for any shares of stock
of any class of the Corporation now or hereafter authorized or for any
securities, warrants or options convertible into or carrying any rights to
purchase any shares of stock of any class of the Corporation now or hereafter
authorized; provided, however, that no provision of this Certificate of
Incorporation shall be deemed to deny to the Board of Directors the right, in
its discretion, to grant to its employees and to the holders of shares of any
class of stock at the time outstanding the right to purchase or subscribe for
shares of stock of any class or any other securities of the Corporation now or
hereafter authorized, at such prices and upon such other terms and conditions as
the Board of Directors, in its discretion, may fix.
TWELFTH: Special meetings of stockholders for any purpose or purposes may
be called at any time by the Chairman of the Board, the Vice Chairman of the
Board, if any, the President or the Board of Directors; and shall be called by
the President or the Secretary at the request in writing of a majority of the
Board of Directors or of the holders of 66 2/3% of the entire capital stock of
the Corporation issued and outstanding and entitled to vote.
THIRTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in Articles FIFTH, SIXTH, SEVENTH, EIGHTH,
NINTH, TENTH, TWELFTH and this Article THIRTEENTH may not be repealed or amended
in any respect unless such repeal or amendment is approved by the affirmative
vote of (a) the holders of not less than two thirds (66 2/3%) of the total
voting power of all outstanding shares of voting stock entitled to vote
generally in the election of directors, voting as single class and (b) a
majority of such shares other than shares held by Interested Shareholders.
9
AMENDED AND RESTATED
BY-LAWS
OF
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
1. OFFICES.
1.1. Principal Office. The principal office of the Corporation shall be in
Yorba Linda, California.
1.2. Other Offices. The Corporation may have such other offices and places
of business, within or without the State of California, as shall be determined
by the directors.
2. MEETINGS OF Stockholders.
2.1. Annual Meeting. The annual meeting of Stockholders for the election of
directors and the transaction of such other business as may properly come before
the meeting shall be held each year in February on such date as is determined by
the Board of Directors (the "Board').
2.2. Special Meetings. Special meetings of the Stockholders for any purpose
or purposes may be called at any time by the Chairman of the Board, the Vice
Chairman of the Board, if any, the President or by resolution of the Board; and
shall be called by the President or the Secretary at the request in writing,
stating the purpose of the meeting, of a majority of the Board of Directors or
of the holders of 66 2/3% of the entire capital stock of the Corporation issued
and outstanding and entitled to vote. Only business related to the purposes set
forth in the notice of the meeting may be transacted at a special meeting.
<PAGE>
2.3. Place of Meetings. Meetings of the stockholders may be held in or
outside the State of Delaware.
2.4. Notice of Meetings; Waiver of Notice. Written notice of each meeting
of Stockholders shall be given to each stockholder entitled to vote at the
meeting; except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required by
law. Each notice of meeting shall be given, personally or by mail, not less than
10 nor more than 60 days before the meeting and shall state the time and place
of the meeting, and unless it is the annual meeting, shall state at whose
direction the meeting is called and the purposes for which it is called. If
mailed, notice shall be considered given when mailed to a stockholder at his
address on the Corporation's records. The attendance of any stockholder at a
meeting, without protesting before the end of the meeting the lack of notice of
the meeting, shall constitute a waiver of notice by him.
2.5. Quorum. The presence in person or by proxy of the holders of one third
of the shares entitled to vote shall constitute a quorum for the transaction of
any business. In the absence of a quorum a majority in voting interest of those
present in person or by proxy and entitled to vote, or, in the absence of all
the Stockholders, any officer entitled to preside at or to act as Secretary of
the meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present any action may be taken which might have
been taken at the meeting as originally called.
2.6. Voting; Proxies. Each stockholder of record shall be entitled to one
vote for every share registered in his name and may attend meetings and vote
either in person or by proxy. Corporate action to be taken by stockholder vote,
other than the election of directors, shall be
2
<PAGE>
authorized by a majority of the votes cast at a meeting of Stockholders, except
as otherwise provided by law or the Certificate of Incorporation. Directors
shall be elected in the manner provided in Section 3.1 of these By-Laws. Voting
need not be by ballot unless requested by a stockholder at the meeting or
ordered by the Chairman of the meeting. Every proxy must be signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after three years
from its date unless it provides otherwise.
2.7. Action by Written Consent of Stockholders. Whenever by any provision
of statute or of the Certificate of Incorporation or of these By-Laws, the vote
of Stockholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action, the meeting and vote of Stockholders may
be dispensed with if all the Stockholders who would have been entitled to vote
upon the action if such meeting were held shall consent in writing to such
corporate action being taken.
3. BOARD OF DIRECTORS
3.1. Number, Qualification, Election and Term of Directors. The business of
the Corporation shall be managed by the Board, which shall consist of at least
three and not more than ten (10) directors, each of whom shall each be at least
21 years old; provided, however, at such time or times as all of the shares of
the Corporation are owned beneficially and of record by less than three
Stockholders, the Board of Directors by vote of a majority of the entire Board
or the Stockholders may fix the number of directors constituting the entire
Board at less than three but not less than the number of Stockholders. The exact
number of directors shall be determined by resolution of a majority of the
entire Board or by the Stockholders, but no decrease may shorten the term of any
incumbent director. Directors need not be Stockholders. If the number of
directors shall be more
3
<PAGE>
than three but less than seven, then at the first annual meeting of stockholders
thereafter, the directors shall be divided into two classes, as nearly equal in
number as possible (but with not fewer than three directors in each class), with
the term of the first class to expire at the firs anniversary of the annual
meeting of Stockholders, and the term of the second class to expire at the
second anniversary of the annual meeting of Stockholders, and with the members
of each class to hold office until their successors have been elected and
qualified. Directors shall be elected by a plurality of the votes cast. At each
annual meeting of Stockholders following such initial classification and
election, if at such time the number of directors is less than six, directors
elected to succeed those directors whose terms expire shall be elected for a
term and shall hold office until the second succeeding annual meeting of
Stockholders and until their successors are elected and qualified. If the number
of directors shall be increased to seven or more, at the next succeeding annual
meeting of Stockholders after such increase, the directors shall be divided into
three classes, as nearly equal in size as possible. At such annual meeting of
Stockholders, one class shall be elected for a term of office expiring at the
next annual meeting of Stockholders, the second class shall be elected for a
term of office expiring at the second succeeding annual meeting of Stockholders,
and the third class shall be elected for a term of office expiring at the third
succeeding annual meeting of Stockholders. At each annual meeting following that
at which the board is initially classified and elected in three classes,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office expiring at the third succeeding annual meeting of
Stockholders after their election, and until their successors shall be elected
and qualified.
3.2. Quorum and Manner of Acting. A majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting, except as
provided in Section 3.8 of these
4
<PAGE>
By-Laws. Action of the Board shall be authorized by the vote of a majority of
the directors present at the time of the vote if there is a quorum, unless
otherwise provided by law or these By-Laws. In the absence of a quorum, a
majority of the directors present may adjourn any meeting from time to time
until a quorum is present.
3.3. Place of Meetings. Meetings of the Board may be held in or outside the
State of Delaware.
3.4. Annual and Regular Meetings. Annual meetings of the Board, for the
election of officers and consideration of other matters, shall be held either
(a) without notice immediately after the annual meeting of Stockholders and at
the same place, or (b) as soon as practicable after the annual meeting of
Stockholders, on notice as provided in Section 3.6 of these By-Laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
3.5. Special Meetings. special meetings of the Board may be called by the
Chairman of the Board, the President or by any two of the directors, provided,
if there should be only one director, then upon the call of such director.
3.6. Notice of Meeting; Waiver of Notice. Notice of the time and place of
each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of Stockholders and at the same place,
shall be given to each director by depositing it in a post office or post box in
a sealed postpaid wrapper, addressed to him at his residence or usual place of
business, at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice need not be given to any director who submits
5
<PAGE>
a signed waiver of notice before or after the meeting, or who attends the
meeting without protesting the lack of notice to him, either before the meeting
or when it begins. Notice of any adjourned meeting need not be given, other than
by announcement at the meeting at which the adjournment is taken.
3.7. Resignation and Removal of Directors. Any director may resign at any
time. Any one or more of the directors may be removed only for cause (a) by
affirmative vote of the Stockholders holding (i) at least 66-2/3% of the
outstanding stock of the Corporation entitled to vote for the election of
directors and (ii) a majority of such shares other than shares held by a person
whose beneficial interest, directly or indirectly, first equals an aggregate of
15% or more of such shares after the date this Section 3.7 was adopted such
person is hereinafter referred to as an "Interested Shareholder") present in
person or by proxy, at any special meeting of the Stockholders, or (b) by action
of the Board at any regular or special meeting of the Board. A vacancy or
vacancies arising from such removal may be filled at the special meeting of
Stockholders only by the vote required by subdivision (a) hereof, or at a
regular or special meeting of the Board
3.8. Vacancies. Except as otherwise provided in the Certificate of
Incorporation or in Section 3.7 of these By-Laws, any vacancy in the Board, from
whatever cause arising, may be filled until the next annual meeting of
Stockholders by a majority vote of the remaining directors, though less than a
quorum, or such vacancies may be filled by the stockholders required in Section
3.7 hereof.
3.9. Compensation. Directors shall receive such compensation as the Board
determines, together with reimbursement of their reasonable expenses in
connection with the
6
<PAGE>
performance of their duties. A director may also be paid for serving the
Corporation, its affiliates or subsidiaries in other capacities.
3.10. Executive Committee. Whenever the total number of directors shall
exceed three, the Board, by resolution adopted by a majority of the entire
Board, may designate an Executive Committee of two or more directors which shall
have all the authority of the Board, except as otherwise provided in the
resolution or by-law, and which shall serve at the pleasure of the Board. All
action of the Executive Committee shall be reported to the Board at the next
meeting. The Executive committee shall adopt rules of procedure and shall meet
as provided by those rules or by resolutions of the Board.
3.11. Other Committees. The Board, by resolution adopted by a majority of
the entire Board, may designate other committees of directors to serve at the
Board's pleasure, with such powers and duties as the Board determined.
3.12. Participation at Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these by-laws, members of the Board, or any
Committee designated by the Board, may participate in a meeting of the Board, or
any Committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
4. OFFICERS.
4.1. Executive Officers. The executive officers of the Corporation shall be
the President, Secretary and a Treasurer. In addition, the Board may elect a
Chairman of the Board, one or more Vice Presidents, and such other officers with
such powers and duties as it may deem necessary. any two or more offices may be
held by the same person, except for the offices of
7
<PAGE>
President and Secretary. Provided, however, when all of the issued and
outstanding stock of the Corporation is owned by one person, such person may
hold all or any combination of offices. The board may require any officer, agent
or employee to give security for the faithful performance of his duties.
4.2. Election; Term of Office. Except as otherwise provided in the
Certificate of Incorporation, the executive officers of the Corporation shall be
elected annually by the Board and each such officer shall hold office until the
next annual meeting of the Board and until the election of his successor.
4.3. Subordinate Officers. Except as otherwise provided in the Certificate
of Incorporation, the Board may appoint subordinate officers (including
Assistant Secretaries and Assistant Treasurers), agents or employees, each of
whom shall hold office for such period and have such powers and duties as the
Board determines. The board may delegate to any executive officer or to any
committee the power to appoint and define the powers and duties of any
subordinate officers, agents or employees.
4.4. Resignation and Removal of Officers. Any officer may resign at any
time. any officer elected or appointed by the Board or appointed by an executive
officer or by a committee may be removed by a majority (unless the Certificate
of Incorporation requires a larger vote) of the Board, either with or without
cause, at a special meeting called for the purpose.
4.5. Vacancies. A vacancy in any office may be filled for the unexpired
term in the manner prescribed in Sections 4.2 and 4.3 of these By-laws for
election or appointment to the office.
8
<PAGE>
4.6. Chairman of the Board. The Chairman of the Board shall preside at all
meetings of the Board and of the Stockholders and shall have such powers and
duties as the Board assigns to him.
4.7. The President. Subject to the control of the board, the President
shall have general supervision over the business of the Corporation and shall
have such other powers and duties as presidents of corporations usually have in
the general management and control of the business and affairs of the
Corporation, or as the Board assigns to him.
4.8. The Vice President. The Vice President, or if there be more than one,
the senior Vice President, as determined by the board, in the absence or
disability of the President, shall exercise the powers and perform the duties of
the President, and each Vice President shall exercise such other powers and
perform such other duties as shall be prescribed by the Board or the President.
4.9. The Treasurer. The Treasurer shall be in charge of the Corporation's
books and accounts. Subject to the control of the Board, he shall have such
other powers and duties as the Board or the President assigns to him.
4.10. The Secretary. The Secretary shall be the Secretary of, and keep the
minutes of, all meetings of the Board and of the Stockholders, shall be
responsible for giving notice of all meetings of Stockholders and of the Board,
shall keep the seal and, when authorized by the Board, shall apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
other powers and duties as the board or the President assigns to him. In the
absence of the Secretary from any meeting, the minutes shall be kept by the
person appointed for that purpose by the presiding officer.
9
<PAGE>
4.11. Salaries. The salaries of all officers shall be fixed by the Board,
and the fact that any officer is a director shall not preclude him from
receiving a salary as an officer, or from voting upon the resolution providing
the same.
5. SHARES.
5.1. Certificates. The shares of the Corporation shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the Chairman of the Board or the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and shall be sealed with the Corporation's seal or a facsimile thereof. the
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation itself or its employees.
5.2. Transfers. Shares shall be transferable only on the Corporation's
books upon surrender of the certificate for the shares, properly endorsed. the
board may require satisfactory surety before issuing a new certificate to
replace a certificate claimed to have been lost or destroyed.
5.3. Determination of Stockholders of Record. The Board may fix, in
advance, a date as the record date for the determination of Stockholders
entitled to notice of or to vote at any meeting of the Stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 50 nor less than 10 days
before the date of the meeting, nor more than 50 days before any other action.
6. INDEMNIFICATION OF OFFICERS AND DIRECTORS
6.1 General. The Corporation shall, to the fullest extent permitted by the
DGCL as the same exists or, subject to Section 6.4 of this Article Six, may
hereafter be amended,
10
<PAGE>
indemnify any director or officer of the Corporation or subsidiary thereof who
is or was made or threatened to be made a party to or is involved in any
threatened, pending or completed action, suite or proceeding, whether or civil,
criminal, administrative or investigative, including any action by or in the
right of any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which any director or officer of the Corporation or subsidiary is serving, has
served or has agreed to serve in any capacity at the request of the Corporation
by a majority of the Board of directors who were not parties, by reason of the
fact that he, his testator or intestate, is or was or had agreed to become a
director or officer of the Corporation or subsidiary, or is or was serving or
has agreed to serve such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid or to be paid in settlement, excise taxes or penalties, and
costs, charges and expenses, including attorneys' fees, incurred in connection
with such action or proceeding or any appeal therein; provided, that such
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation; provided, further, that,
except as provided in Section 6.6 of this Article Six or as otherwise provided
by agreement, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by Board.
This Article shall apply only to those officers who have been appointed pursuant
to resolution of the Board of the Corporation or subsidiary, or whose
appointment was ratified thereby.
6.2 Non-Exclusivity of Rights. The Corporation may indemnify any person to
whom the Corporation is permitted to provide indemnification of the advancement
of expenses by
11
<PAGE>
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the DGCL or other rights created by (i) a resolution of Stockholders, (ii) a
resolution of directors or (iii) an agreement providing for such
indemnification, it being expressly intended that these by-Laws authorize the
creation of other rights in any such manner. The right to be indemnified and to
the reimbursement or advancement of expenses incurred in defending a proceeding
in advance of its final deposition conferred in this Section shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Charter, By-laws, agreement, vote of
Stockholders or disinterested directors or otherwise.
6.3 Expenses. The Corporation shall, from time to time, reimburse or
advance to any person referred to in Section 6.1 of this Article Six the funds
necessary for payment of expenses, including attorneys' fees, incurred in
connection with any action or proceeding referred to in Section 6.1, upon
receipt of a written undertaking by or on behalf of such person to repay such
amount(s) if a judgment or other final adjudication adverse to the director or
officer establishes that (i) his acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he personally gained in fact a
financial profit or other advantage to which he was not legally entitled.
6.4 Interpretation of Rights to Indemnification. Any person entitled to be
indemnified or to the reimbursement or advancement of expenses as a matter of
right pursuant to this Section may elect to have the right to indemnification
(or advancement of expenses) interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or event giving rise to the
action or proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time indemnification is sought.
12
<PAGE>
6.5 Other Rights. The right to be indemnified or to the reimbursement or
advancement of expenses pursuant to this Article Six (i) is a contract right
pursuant to which the person entitled thereto may bring suit as if the
provisions hereof were set forth in a separate written contract between the
Corporation and the director or officer (ii) is intended to be retroactive and
shall be available with respect to event(s) occurring prior to the adoption
hereof and (iii) shall continue to exist after the rescission or restrictive
modification hereof with respect to events occurring prior thereto.
6.6 Right of Claimant to Bring Suit. If a request to be indemnified is made
under this Article Six, the Board shall make a determination pursuant to Section
145 (d) of the DGCL within 60 days after such request as to whether the person
so requesting indemnification is entitled to indemnification under this Article
Six and the Delaware General Corporation Law. If a request to be indemnified or
for the reimbursement or advancement of expenses under this Article Six is not
paid in full by the Corporation within 60 days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
under undertaking, if any is required, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it permissible
under the DGCL or hereunder for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board,
13
<PAGE>
independent legal counsel or its Stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the DGCL or hereunder, nor an actual determination by the
Corporation (including its Board, independent legal counsel or its Stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
6.7. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
6.8. Separability. If this Article Six or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee or
agent of the Corporation as to the costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
fullest extent permitted by any applicable portion of this Article Six that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
7. MISCELLANEOUS.
14
<PAGE>
7.1. Seal. The board shall adopt a corporate seal, which shall be in the
form of a circle and shall bear the Corporation's name and the year and state in
which it was incorporated.
7.2. Fiscal Year. The fiscal year end of the Corporation shall be June
30th.
7.3. Voting of Shares in Other Corporations. Shares in other corporations
which are held by the Corporation may be represented and voted by the President
or a Vice President of this Corporation or by proxy or proxies appointed by one
of them. The Board may, however, appoint some other person to vote the shares.
7.4. Checks, Notes, Etc.. Checks, notes, drafts, bills of exchange and
orders for the payment of money shall be signed or endorsed in such manner as
shall be determined by the Board. The funds of the Corporation shall be
deposited in such bank or trust company, and checks drawn against such funds
shall be signed in such manner as may be determined from time to time by the
Board.
7.5. Dividends. The Board may declare dividends from time to time upon the
capital stock of the Corporation from any funds legally available therefor at
any regular or special meeting.
7.6. Amendments. These by-Laws may be adopted, altered, amended, or
repealed by the Stockholders or by a majority of the entire Board, but any
By-Law adopted by the Board may be amended or repealed by the Stockholders. If a
By-Law regulating elections or directors is adopted, altered, amended or
repealed by the Board, the notice of the next meeting of Stockholders shall set
forth the By-law so adopted, altered, amended or repealed, together with oncise
statement of the changes made. Notwithstanding the foregoing or any other
provision in these By-Laws to the contrary, Sections 3.1 ("Number,
qualification, Election and Term of
15
<PAGE>
Directors"), 3.2 ('Quorum and Manner of Acting"), 3.7 ("Resignation and Removal
of Directors") or 3.8 ("Vacancies") of Article 3 ("Directors") or this Section
7.6 may be amended, supplemented or repealed only by the affirmative vote of (i)
at least 66-2/3% of the outstanding stock of the Corporation entitled to vote
for election of directors and (ii) a majority of such shares other than shares
held by Interested Stockholders.
16
MCS&W, LLP Draft
April 14, 1997
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 28, 1987, by and between TRANSITION
ANALYSIS COMPONENT TECHNOLOGY, INC. (the "Employer"), a Delaware corporation,
with offices c/o Zeus Components, Inc. ("Zeus"), 100 Midland Avenue, Port
Chester, New York and MALCOLM BACA, residing at 24611 Catalonia, Mission Viejo,
California 92691 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employee has served and continues to serve as the Corporate
National Strategic Accounts Manager of Zeus;
WHEREAS, the Employer is a wholly-owned subsidiary of Zeus which has been
created to develop a data base of certain components for military equipment;
WHEREAS, the Employer desires that the Employee enter into this Employment
Agreement and the Employee is willing to enter into this Employment Agreement
for his services as Vice President of Sales and Marketing of the Employer, all
on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties hereto agree as follows:
1. Definitions. Except as otherwise defined in this Agreement, as used
herein, the following terms shall have the meanings hereinafter set forth:
<PAGE>
(a) "Business Day" shall mean a day on which banks are open for
business in both Los Angeles, California and New York, New York.
(b) "Invoice Price" shall mean the invoiced price of any good or
service of the Employer at its facility, excluding any taxes, freight,
shipping, handling, insurance, export fees, duties or other such charges,
discounts, rebates, adjustments, allowances, credits, voided transactions,
refunds, commissions paid to third parties, costs of collection, or similar
charges.
(c) "Invoice" shall mean the bill or other document which reflects the
good or service of the Employer and the invoice price therefor.
(d) "Year" shall mean the period commencing on the date hereof and
ending on April 30, 1988, and each twelve (12) month period thereafter
during the term of this Employment Agreement, or if this Employment
Agreement shall terminate prior to the completion of a twelve month period,
the term "Year" shall also mean such shorter period from the preceding
April 30 through the date on which this Employment Agreement shall end.
2. Employment. The Employer hereby employs the Employee as Vice President
of Sales and Marketing of the Employer. During the term of his employment, but
subject to the provision of Paragraph 5(b) hereof, the Employee shall devote all
of his business time, attention, energies and effort to the business of the
Employer and shall use his best efforts to promote the business of the Employer,
and the Employee hereby accepts such employment and agrees to serve the Employer
in such capacity, subject to and upon the terms and conditions set forth herein.
3. Employee's Duties. The Employee shall develop and market to customers
and supervise all subordinate employees to develop and market a data base of
certain components for military, aerospace and high reliability commercial
equipment. The Employee shall abide by all rules, regulations and policies
established by the Board of Directors. The Employee shall carry out all duties
and activities assigned to him by the Board of Directors of the Employer or by
its President.
2
<PAGE>
4. Term of Employment. The Employee shall be employed hereunder for a term
commencing as of the date hereof and terminating April 30, 1992; provided,
however, that the Employee hereby is granted a single right to elect to
automatically extend the term of this Employment Agreement for one additional
period of five (5) years on the same terms and conditions contained herein, from
the period May 1, 1992 through April 30, 1997. Such election shall be exercised
by the Employee giving the Employer written notice of the Employee's decision to
so extend this Employment Agreement on a date which shall be no later than
January 31, 1992. The Employee shall only have the right to elect to extend his
term of employment if, at the time of such election and at the commencement of
the second five year term of employment hereunder, the Employee shall then be an
employee of the Employer, this Employment Agreement shall be in full force and
effect, and the Employee shall not be in default hereunder. Notwithstanding the
foregoing, this Employment Agreement and the Employee's employment hereunder
shall be subject to earlier termination pursuant to the provisions of this
Employment Agreement (said period during which the Employee is employed pursuant
to this Employment Agreement is herein referred to as the "Employment Period").
5. Employee's Compensation.
(a) The Employee shall receive as his entire compensation for all services
rendered to the Employer with respect to each Year of the Employment Period,
subject to applicable withholding for federal income tax, FICA, state and local
income taxes and other appropriate charges, the total of (i) $120,000 (the
weekly portion of such amount, being $2,307.69, shall be paid to the Employee
weekly in arrears) and (ii) an amount equal to five percent (5%) of all revenues
representing payment (or partial payment) of each Invoice Price (such revenues
being hereinafter called the "Invoice Payments") received by the Employer during
each Year or, with respect to the last Year of Employment Period, received
during or after such Year with respect to such Year, except that if any Year of
the term of this Employment Agreement shall be for less than a twelve month
period, the Employee's right to receive weekly payments of $2,307.69 referred to
in Paragraph 5(a)(i)
3
<PAGE>
hereof shall continue only so long as required by Paragraph 9 hereof. In
addition to the foregoing, the Employee's compensation shall be subject to the
following additional terms:
(I) A. The Employer and the Employee shall calculate monthly the amount
of Invoice Payments received during the month preceding the month
in which the calculation is made (the amount of each such
calculation being herein called the "Monthly Estimate"), and
during each month of the Employment Period, shall pay the
Employee an amount equal to five percent (5%) of such Monthly
Estimate.
B. The Employee shall continue to have a right to receive an amount
equal to five percent (5%) of all Invoice Payments, whenever
received by the Employer, which are based on invoices dated and
billed within the Employment Period and forwarded within such
period to customers of the Employer with respect to completed
goods and services; provided, however, for purposes of
calculating the maximum compensation to which the Employee shall
be entitled in any Year, such Invoice Payments, if received
subsequent to the last Year of the Employment Period, shall be
deemed to have been received in such last Year.
(II) A. Notwithstanding the provisions of division I of this Paragraph
5(a), the maximum compensation which the Employee may receive
under this Paragraph 5(a) with respect to any twelve month Year
shall not exceed $350,000 on an annual basis, subject only to
adjustment as otherwise set forth at Paragraph 5(a) IIC hereof.
B. In calculating the maximum compensation to which the Employee
shall be entitled in any Year less than a twelve month period,
such
4
<PAGE>
compensation shall not exceed an amount equal to the product of
$350,000 and a fraction, the numerator of which shall be the
number of days in such Year which shall be included within the
Employment Period and the denominator of which shall be 365.
C. The $350,000 annual maximum set forth in this Paragraph 5(a)II
shall be adjusted within thirty (30) days after the end of each
Year to reflect, with respect to the next succeeding Year, the
increase in the United States National Consumer Price Index, "ALL
URBAN CONSUMER'S (C.P.I. - U.) (1967-100), as compiled by the
United States Bureau of Labor Statistics for each such Year just
completed; provided, however, that in no event shall the increase
to such annual maximum exceed $10,000 for any such Year.
(ii) With respect to each annual auditing period, the certified public
accountants auditing the books and records of the Employer shall
make a final determination of the Invoice Payments received by
the Employer for such period, and the Employer and the Employee
shall make any necessary adjustment in the Employee's
compensation for such period in the event an overpayment or an
underpayment has been made to the Employee. The decisions of such
certified public accountants shall be conclusive and binding.
(b) The parties hereto acknowledge that to the date hereof the Employee has
been employed by Zeus and, although not an employee of Zeus as of the date
hereof, may hereafter be called upon to contribute additional services to Zeus.
The Employee agrees that Zeus may contract with the Employer for up to 25
percent of the Employee's time and services in or with respect to any Year
within the Employment Period. The Employee agrees to perform such services on
behalf of Zeus as shall be the subject of a separate agreement between Zeus and
Employer. Notwithstanding
5
<PAGE>
any services so rendered to Zeus, the Employer shall be solely responsible for
the payment of all compensation due to the Employee pursuant to this Employment
Agreement. The Employee shall not be entitled to any separate or additional
compensation by virtue of any services so rendered to Zeus.
(c) In addition to the compensation provided for in this Paragraph 5, the
Employee shall be entitled to be reimbursed for reasonable business expenses
necessarily incurred by him in the performance of his duties hereunder, upon
presentation of vouchers indicating the amount and business purpose of each
expenditure, with such back-up documentation as the Employer shall reasonably
require to comply with the requirements of the Internal Revenue Service
regarding substantiation of travel, entertainment and other business
expenditures. Unless such expenses have been included in a budget or budgets
previously approved by the Board of Directors of the Employer, the same shall be
subject to review and approval by the Board of Directors, which approval shall
not be unreasonably withheld or delayed.
(d) The Employee shall be eligible to participate in all pension, group
health, life insurance, hospital and medical plans and in all other employee
"fringe" benefits of the Employer which are generally provided to employees of
the Employer or to employees of Zeus (or any subsidiaries of Zeus) with
responsibilities and positions equivalent to those of the Employee. During the
term of this Employment Agreement, the Employer shall obtain and maintain for
the benefit of the Employee, insurance in the amount of $200,000 on the life of
the Employee. The Employee (or any person selected by the Employee), shall be
the owner of such policy. The foregoing provisions shall be binding on the
Employer only so long as the Employee remains insurable without any material
increase in premiums because of health related reasons of the Employee. In
addition to the foregoing, the Employer intends to develop a stock option plan
in which the Employee will be permitted to participate.
(e) Until June 30, 1990, the Employee shall be entitled to three weeks'
annual vacation with pay. From and after July 1, 1990, the Employee shall be
entitled to four weeks annual vacation with pay. Each such vacation shall be
prorated for any portion of a Year within the
6
<PAGE>
Employment Period. Such vacation shall be taken at such time or times so as not
to interfere with the Employee's duties to the Employer. The Employee shall not
be entitled to accumulate vacation from one Year to the next Year without Board
approval.
(f) The parties hereto recognize that from time to time Zeus (and any
individual, partnership, corporation, trust or other entity that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with Zeus ("control" meaning, for the purposes of this
provision, 50% or more voting control or equity) hereinafter referred to as a
"Zeus Related Person") may make loans to the Employer instead of making capital
contributions to the Employer. In such event, the Employer and the Employee
agree that any repayment of the principal of such loans (but not including a
repayment in which the funds therefor are being provided by a third party
institutional lender), to Zeus (and any and all Zeus Related Persons) will be
matched by the payment of a separate amount to the Employee, such that the ratio
of the principal amount paid to Zeus (and any and all Zeus Related Persons) and
the separate amount paid to the Employee will be in the same ratio as the stock
ownership of Zeus (and any and all Zeus Related Persons) will be matched by the
payment of a separate amount to the Employee, such that the ratio of the
principal amount paid to Zeus (and any and all Zeus Related Persons) and the
separate amount paid to the Employee will be in the same ratio as the stock
ownership of Zeus (and any and all Zeus Related Persons) in the Employer will be
to the stock ownership of the Employee in the Employer. Notwithstanding the
foregoing, any payments made to the Employee pursuant to this Paragraph 5(f)
shall not be subject to the maximum compensation limitations set forth in this
Employment Agreement, nor shall such payments be credited against other amounts
payable to the Employee pursuant to Paragraph 5(a) hereof. The foregoing
provision shall be inapplicable from and after the date at which any or all of
the shares of stock of the employer shall be registered under Section 12 or
15(d) of the Securities Exchange Act of 1934, as amended.
6. Non-Competition. The Employer and the Employee recognize and agree that
the Employee's services are special and unique, and that for these reasons a
covenant on the Employee's part not to compete anywhere in the continental
United States during the Employment Period and
7
<PAGE>
for a reasonable period after any termination of this Employment Agreement is
essential to protect the business of the Employer. The restrictions to be
imposed on the Employee pursuant to this Paragraph 6 shall not be applicable if,
and only if, the Employee's employment hereunder shall have been terminated by
the Employer "without good cause", as more particularly set forth at Paragraph
8(d) hereof. Accordingly, the Employer and the Employee agree that during the
Employment Period and (i) for a period of six months commencing immediately
after the Employment Period, in the event the Employment Period shall terminate
pursuant to Paragraph 8(a) (iii) hereof, and (ii) for a period of two years
commencing immediately after the Employment Period, in the event the Employment
Period shall terminate for any other reason (except a termination "without good
cause" as hereinabove described), the Employee will not, directly or indirectly,
including as an officer, director, employee, consultant, partner of any entity,
or as a stockholder owning more than 10% of a corporation whose shares are
publicly traded, engage in any business or solicit or accept any accounts in the
field of military electronic component service data management or in any other
field in which the Employer (Transition Analysis Component Technology, Inc.) is
actively engaged within the twelve (12) month immediately preceding the date of
termination of the Employment period.
It is recognized by the parties hereto that actual damages for breach of a
covenant of this nature are difficult if not impossible to prove with precision;
therefore, except as limited herein it is agreed that this agreement not to
compete shall be enforceable by prohibitory injunction.
7. Records. All reports, records, contracts, memoranda, correspondence,
surveys or other writings, information or data prepared, learned or discovered
by the Employee or furnished to him during the Employment Period, or during any
prior period in which he shall have been employed at Zeus, shall become and
remain the sole and exclusive property of the Employer or Zeus, as the case may
be, for all purposes and uses whatsoever. Throughout the Employment Period and
thereafter, the Employee shall not divulge, furnish or make accessible to any
third party, and shall maintain the confidentiality of, all confidential
information or proprietary property prepared, learned or discovered by him or
furnished to him during the Employment Period or during any prior period in
which he shall
8
<PAGE>
have been employed at Zeus, including, without limitation, any and all trade
secrets, customer lists, contracts, costs, sales or other financial or business
data or information.
8. Termination of Employment.
(a) The Employment Period shall terminate upon the earliest of the dates
specified below:
(i) the close of business on the date as of which the Employment
Period hereunder shall have terminated as provided in Paragraph 4
hereof;
(ii) the close of business on the date sixty (60) days after the last
day of the month in which the death of the Employee shall have
occurred;
(iii) the close of business on the date as of which the Employer shall
have given the Employee written notice of the termination of his
employment hereunder as a result of a "disability" for the required
period having occurred (as defined in Paragraph 8(b) hereof);
(iv) the close of business on the date as of which the Employee shall
terminate his employment hereunder in violation of the terms of this
Employment Agreement; or
(v) the close of business on the date as of which the Employer shall
have given the Employee written notice of the termination of his
employment for "good cause" or "without good cause" (as defined in
subparagraphs (c) and (d) of this Paragraph 8).
(b) For purposes of this Employment Agreement, the term "disability" shall
mean that by reason of a physical or mental illness which has continued for more
than six (6) consecutive months or for shorter periods which have aggregated
more than six (6) months in any consecutive
9
<PAGE>
twelve (12) month period, the Employee has been substantially unable to render
services of the character contemplated by this Employment Agreement (reasonable
vacation excepted).
(c) For purposes of this Employment Agreement, the term "good cause" shall
mean that any one of the following conditions exists or any one of the following
events has occurred: (i) continued refusal by the Employee to perform such
duties as may reasonably be delegated or assigned to him, consistent with his
position, by the Employer; (ii) substantial and continued inattention to or
continued neglect by the employee of his duties hereunder; or (iii) willful
misconduct or gross negligence, theft, fraud, embezzlement or conviction of a
felony by the Employee.
(d) Termination "without good cause" shall mean any termination of
employment under Paragraph 8(a)(v) hereof which is not a termination for good
cause, or which is not a termination as a result of the occurrence of any of the
events described at Paragraph 8(a)(i), (ii), (iii) or (iv) hereof.
9. Effect of Termination.
(a) In the event that the Employment Period is terminated for any reason
provided in Paragraph 8 hereof other than a termination without good cause, the
Employer shall only be liable for that portion of the annual gross compensation
provided for in Paragraph 5 hereof to which the Employee shall be entitled
during or with respect to the Employment Period, plus an amount equal to the
product of (i) $2,307.69 and (ii) the number of twelve month periods (or any
part of any such period) which have elapsed between July 5, 1978 and the date of
such termination.
(b) In the event that the Employment Period is terminated without good
cause, as provided in Paragraph 8(a)(v) hereof, the Employee's compensation will
continue until April 30, 1992, if such termination shall have occurred prior to
such date or April 30, 1997, if such termination shall have occurred subsequent
to April 30, 1992 and prior to April 30, 1997, provided the Employee shall have
exercised his option to renew his employment hereunder. Notwithstanding anything
herein to the contrary, any compensation otherwise payable hereunder shall cease
on the close of business
10
<PAGE>
on the date sixty (60) days after the last day of the month in which the death
of the Employee has occurred.
(c) The Employer shall pay any funds to which the Employee is entitled and
which is set forth in this Paragraph 9 to the Employee, his estate or legal
representative, as the case may be.
(d) In the event that during the Employment Period the Employee shall be
entitled to and shall actually receive disability benefits (other than those
paid for exclusively by the Employee), the benefits so received shall reduce the
compensation to be paid to the Employee pursuant to Paragraph 5 hereof to the
extent of the benefits so received.
(e) The Employee hereby consents to the Employer obtaining insurance on the
life of the Employee, the proceeds of which shall be the property of the
Employer or its designee. The Employee shall cooperate with the Employer with
respect to any examination or documentation required of the Employee with
respect to the obtaining of such insurance.
10. Arbitration.
10.1 Disputes Determined by Arbitration. Any and all disputes and
controversies arising out of or in connection with this Employment Agreement or
with respect to the construction and interpretation hereof, or concerning the
rights of any one or more parties hereto or the respective obligations of each
party hereto to each other party hereto, shall be determined by arbitration in
the County of Westchester, in accordance with and pursuant to the then existing
rules of the American Arbitration Association. The decision of a single
arbitrator chosen by said Association shall be binding upon the parties hereto
with the same force and effect as a decision or judgment of any court of
competent jurisdiction. Any party hereto shall be entitled to have a judgment
based upon the decision of said arbitrator entered by a court of competent
jurisdiction.
11
<PAGE>
10.2 Notice. Any party seeking arbitration shall serve ten (10) days'
notice by certified mail, return receipt requested, upon the other party hereto,
setting forth the difference or differences that he or it desires to arbitrate.
Any party hereto shall be entitled to compel arbitration hereunder.
10.3 Expenses. The expenses of such arbitration shall be borne equally
between or among the parties seeking the arbitration.
11. Effective Date. This Employment Agreement shall become effective as of
the date hereof and, from and after that time, shall extend to and shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto, their respective successors and assigns, executors, administrators or
other legal representatives and their respective legatees and distributees.
12. Notices. Any notice required or permitted by this Employment Agreement
shall be given by registered or certified mail, return receipt requested,
addressed to the Employer at its then principal office or to the Employee at his
residence address, or to any party hereto at such other address or addresses as
it or he may from time to time specify for the purpose in a notice similarly
given to the other party.
13. Applicable Law. This Employment Agreement is made and delivered in the
State of New York and shall be construed and enforced in accordance with the
laws of the State of New York.
14. Entire Understanding. This instrument contains the entire agreement of
the parties relating to the subject matter hereof, and there are no agreements,
representations or warranties relating to the subject matter not herein set
forth. This Employment Agreement supersedes any prior written or oral agreement
or understandings relating to the subject matter hereof. No modification of this
Employment Agreement shall be valid unless in writing and signed by the parties
hereto. A waiver of the breach of any term or condition of this Employment
Agreement shall not be deemed to constitute a waiver of any subsequent breach of
the same or any other term or condition.
15. Unenforceability. If any provision of this Employment Agreement shall
to any extent be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
16. Miscellaneous. The Employee warrants and represents that there is no
other agreement in force which prohibits him from entering into this Employment
Agreement or otherwise
12
<PAGE>
performing services for the Employer, or which will be violated in any way by
his entering into this Employment Agreement.
17. Employee's Auditing of Employer's Books and Records
(a) The Employer agrees to make and keep full and accurate books and
records describing all activities under this Agreement in sufficient detail to
enable all compensation payable to the Employee hereunder to be determined. In
addition, the Employer agrees to cause certified financial statements to be
prepared annually by the independent auditors of the Employer, and when
available to distribute a copy thereof to the Employee. During the Employment
Period, the Employer agrees to make available to the Employee any internal
financial statements prepared for or by the Employer.
(b) On thirty (30) days prior notice to the Employer, but not more
frequently than one time in any twelve month period, the Employee and his
certified public accountants and other auditors shall, with respect to any Year,
have limited access to such of the books and records of the Employer as shall be
reasonably necessary to determine the Employer's Invoice, Invoice Prices and
Invoice Payments for such Year, and the Employee shall have the right to make
copies therefrom at the Employee's expense. The Employee, his certified public
accountants and other auditors, but not more frequently than one time in any
twelve month period, shall have such access at all reasonable times and from
time to time during normal business hours during the term of this Agreement and
for a period of two (2) years after its expiration or termination, as the case
may be.
(c) The Employee agrees to hold confidential all information learned in the
course of any examination of the Employer's books and records hereunder, except
when it is necessary for the Employee to reveal such information in order to
enforce his rights under this Agreement, and except when compelled by law.
18. Conversion To Dollars. If any Invoice Payment is made in a currency
other than dollars, such Invoice Payment shall be converted into dollars
promptly after such Invoice Payment is received by the Employer. Payments due
and owing to the Employee pursuant to the Agreement shall be paid in dollars to
the Employee.
13
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Employment Agreement as of the day and year first above written.
TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC.
ATTEST:
By:
------------------------
Employer
- -----------------------------
Secretary
--------------------------
Malcolm Baca, Employee
WITNESS:
- -----------------------------
14
- --=====================_862277992==_--
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 DATED as of APRIL __, 1997 to EMPLOYMENT AGREEMENT
dated May 28, 1987 (the "Agreement"), by and between TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC. (the "Employer"), a Delaware corporation, with
offices located at 22700 Savi Ranch Parkway, Yorba Linda, California and MALCOLM
BACA, residing at 24611 Catalonia, Mission Viejo, California 92691 (the
"Employee").
W I T N E S S E T H :
WHEREAS, Employer, a 90%-owned subsidiary of Zing Technologies, Inc.
("Zing"), maintains a data base of certain components for military equipment;
WHEREAS, Employee owns a total of 1,520 shares of Employer's Common Stock,
$.01 par value (the "Employee Shares") which total shall increase to 55,383
following a planned stocksplit of 36.436 shares for each share currently issued
and outstanding ("Stock Split");
WHEREAS, Employer has filed a registration statement on Form SB-1 under the
Securities and Exchange Act of 1933 on January 30, 1997 (the "Registration
Statement") pursuant to which Zing, after the Stock Split, will distribute all
of its holdings of Employer common stock, par value $.01, to the stockholders of
Zing, and Employer will as of the date of such Distribution (the "Distribution
Date") become a stand alone, publicly held corporation;
WHEREAS, Employer desires that Employee agree to enter into a lock-up
agreement with Employer preventing Employee from selling all or any portion of
the Employee Shares for a period of one year following the Distribution Date
and, after the expiration of such one year period, from selling an amount of
shares in excess of 25% of the Employee Shares for a period of two years
following the Distribution Date; and
<PAGE>
WHEREAS, Employer and Employee desire that the term of the Agreement be
extended until April 30, 1999;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties hereto agree as follows:
1. The following provision shall be added in its entirety to the
Employment Agreement:
"19. Lock - up. Employee agrees that he shall not sell all or any portion
of the Employee Shares for a period of one year following the Distribution
Date as defined in that certain Registration Statement on Form SB-1 bearing
Registration No. 333- 20709 and, after the expiration of such one year
period, Employee shall not sell an amount in excess of 25% of the Employee
Shares for a period of two years following the Distribution Date."
2. Notwithstanding the provisions of Sections 2 (Employment) and 4
(Term of Employment) of the Agreement, the parties hereby agree to extend
the term of Employee's employment until April 30, 1999.
3. Except as amended hereby, the Agreement shall remain in full force
and effect in accordance with its terms.
2
<PAGE>
4. This amendment, together with the Agreement, contains the entire
agreement among the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements with respect thereto, whether
written or oral, among the parties or any of them with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
agreement as of the day and year first above written.
TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC.
ATTEST:
By:
- ----------------------------- -----------------------
Secretary Employer
------------------------
Malcolm Baca, Employee
WITNESS:
- -----------------------------
3
MCS&W, LLP Draft - 4/14/97
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT entered into as of July 1, 1996, by and between
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC. (the "Company"), a Delaware
corporation with offices at 22700 Savi Ranch Parkway, Yorba Linda, California,
92657 and ROBERT E. SCHRADER, an individual residing at 72 Haight Crossroad,
Chappaqua, New York (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive has considerable experience in the Company's
business; and
WHEREAS, the Company desires to employ and secure the services of the
Executive upon the terms and conditions specified herein, and the Executive
desires to be employed by the Company upon such terms and conditions.
NOW, THEREFORE, in consideration of such employment, the timely
performance of the obligations hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Employment; Acceptance and Term.
1.1 The Company hereby employs the Executive as President, Chief
Executive Officer and Chairman of the Board of the Company. The Executive hereby
accepts such employment and agrees to discharge the responsibilities of said
office faithfully and to the best of his ability, and to perform such other
duties and services of an executive, administrative and managerial nature in
connection with the business and activities of the Company.
<PAGE>
1.2 The Company and Executive hereby confirm that Executive has been
employed by the Company and has discharged the duties set forth in Section 2
below since July 1, 1996. The Executive's employment shall be for a period of
three (3) years commencing on July 1, 1996 and ending July 1, 1999 (the "Term"),
unless sooner terminated pursuant to Section 8 hereof.
2. Duties.
2.1 Except as provided in Section 5 hereof, during the Term, the Executive
shall devote such professional time, effort and energies to the performance of
his duties hereunder, and business and affairs of the Company as is reasonably
necessary to promote the interests of the Company, and its subsidiaries (it
being understood that (a) Executive also serves as President, Chief Executive
Officer and Chairman of the Board of Directors of Zing Technologies, Inc., a New
York corporation; (b) Executive's services to the Company shall be on a
part-time basis; and (c) in no event shall Executive devote less than 20
business hours to the affairs of the Company per week) and Executive will
refrain from engaging, on his own behalf or on the behalf of a third party, in
any line of activities or business which the Company is now or at such time is
engaged. The Executive agrees to use his best efforts, skill and abilities to
promote the interests of the Company and its businesses. The Company shall not
be required to provide Executive with office space, facilities, services or
support personnel.
2.2 Executive shall have responsibility for managing and supervising the
Company's Executive Vice President who, at the direction of the Board of
Directors, is charged with the day to day business and affairs of the Company;
provided that the Company and Executive (a) acknowledge the existence of that
certain Management Services Agreement between the Company and Zing Technologies,
Inc. and (b) agree that Executive shall be permitted partially to discharge his
duties hereunder by utilizing such Management Services Agreement on the
Company's behalf.
3. Compensation, Benefits and Expenses.
3.1 During the Term, the Company shall pay to the Executive an aggregate
base salary of Eighty Thousand Dollars ($80,000) per annum (the "Base Salary"),
payable in advance in quarterly
2
<PAGE>
installments, on the first day of each quarter and subject to all wage
deductions for payroll taxes and other required withholdings.
3.2 The Executive shall be entitled to bonuses as are determined by the
Company's Board of Directors.
3.3 The Executive shall be promptly reimbursed by the Company for all
actual, ordinary and reasonable expenses incurred by the Executive in the course
of his performance of services hereunder.
4. Disability.
In the event that during the Term, the Executive shall become "disabled,"
the Company shall pay the Executive his full Base Salary during the period
commencing on the date of such disability and ending on the expiration of the
Term (the "Disability Payment Period"). Following the Disability Payment Period,
the Company shall have no further obligations to the Executive under this
Agreement. For purposes of this Agreement, the Executive will be deemed
"disabled" upon the earlier to occur of his absence from his duties hereunder on
a full-time basis for ninety (90) consecutive days or for shorter periods
aggregating one hundred eighty (180) days during any consecutive eighteen (18)
month period as a result of his incapacity due to accident or physical or mental
illness.
5. Other Activities.
Except as provided in Section 6 hereof, nothing contained in this Agreement
shall be construed to prevent the Executive from engaging in any activities
outside the scope of his duties hereunder, including, without limitation, (i)
acting as a member of the board of directors or executive of any other
corporation and receiving compensation therefor, (ii) making investments of any
character in any non-competing business or (iii) engaging in any other business
activities apart from the Company which do not conflict with or compete with the
business of the Company in any manner, whether as an officer, employee, partner,
proprietor, consultant, agent or otherwise, provided that
3
<PAGE>
such activities do not interfere with the performance of the Executive's duties
hereunder in any material respect.
6. Covenant Not to Compete; Confidentiality.
6.1 The Executive acknowledges and recognizes that the services to be
performed by him hereunder are special, unique and extraordinary and that as a
result of his employment hereunder, the Executive will acquire confidential
information and trade secrets concerning the operations of the Company.
Accordingly, the Executive agrees that until the later to occur of July 1, 1999
and the third anniversary of a change of control resulting in the termination of
Executive's employment pursuant to Section 8.3 below (the "Restriction Period"),
the Executive will not, directly or indirectly, as an officer, director,
stockholder, partner, associate, employee, consultant, owner, agent, creditor,
co-venturer or otherwise (A) become or be interested in or associated with any
other corporation, firm or business engaged in any business in competition with
that of the Company or (B) solicit, direct, take-away, contact or approach (I)
any employee of the Company in order to cause such employee to terminate his or
her employment with the Company, or (II) any client of the Company in order to
cause such client to take its business to an unrelated entity. The Executive's
ownership, directly or indirectly, of securities of any entity of not more than
two percent (2%) of any class of the issued and outstanding securities of such
entity shall not in any event be deemed to be a violation of the provisions of
this Section 6.1.
6.2 Other than in the course of the Company's business or as required by
law, the Executive shall not divulge to any person or entity, during the Term
and thereafter, any confidential or proprietary information (i) concerning the
Company, (ii) concerning the conduct and details of the business of the Company,
or (iii) which the Executive may have acquired in the course of, or as an
incident to, his employment by the Company. For purposes of this Section 6.2,
confidential information shall not include any information which is now known by
the general public, or which becomes known by the general public other than as a
result of any violation of the terms of this Section 6.2 by the Executive.
4
<PAGE>
7. Enforcement of Covenants.
The Company shall be entitled, in addition to any other right and remedy it
may have, at law or in equity, to an injunction, without the posting of any bond
or other security, enjoining or restraining the Executive from any violation or
threatened violation of any of the provisions of Section 6, and the Executive
hereby consents to the issuance of such injunction; provided, however, that the
foregoing shall not prevent the Executive from contesting the issuance of any
such injunction on the ground that no violation or threatened violation of any
of the provisions of Section 6 had occurred. If any of the restrictions
contained in Section 6.1 shall be deemed to be unenforceable by reason of the
extent, duration or geographical scope thereof or otherwise, then the court
making such determination shall reduce such extent, duration, geographical
scope, or other provisions thereof pursuant to the provisions of Section 16
hereof, and in its reduced form the restrictions contained in Section 6.1 shall
then be enforceable in the manner contemplated hereby.
8. Termination.
8.1 In the event of the Executive's death during the Term, the Employment
of the Executive hereunder shall terminate in which event the Executive or his
legal representatives shall be entitled to receive any amounts or benefits
accrued hereunder to which the Executive shall have been entitled on the date of
his death (including without limitation the Executive's entitlements under
Section 4 of this Agreement) but that shall not have been paid.
8.2 The Company may terminate the employment of Executive hereunder for
"Cause." The term "Cause" shall be limited to:
(a) any action by Executive involving willful malfeasance or a willful
breach of Executive's fiduciary duties in connection with his employment by
the Company;
(b) the conviction of Executive of a felony;
(c) the conviction of Executive of a fraud; or
(d) the breach by Executive of Section 6.1 or Section 6.2 after
written notice to the Executive from the Company.
5
<PAGE>
8.3 (a) In the event that the Company undergoes a Change in Control (as
hereinafter defined), Executive shall have the option, at his sole election, to
declare the Term of this agreement terminated.
(b) In the event that the Executive so elects to terminate the Term of
this Agreement, (i) notwithstanding anything to the contrary set forth in
this Agreement, the Executive shall receive a lump sum payment on the
effective date of such Change in Control in an amount equal to the
aggregate amount of payments of base salary that the Executive would have
been entitled to receive had not the Term been so terminated and the Term
expired on July 1, 1999 and (ii) in consideration for the extension of the
Restriction Period under Section 6.1 to the third anniversary of such
Change in Control, in addition to the lump sum payment of Base Salary in
the immediately preceding clause (i), the Executive shall be entitled to
receive a $250,000 lump sum non-compete fee which fee shall be paid on the
effective date of the Change in Control.
(c) For purposes of this Agreement, the Term "Change in Control" means
(i) the acquisition or beneficial ownership (within the meaning
of the Securities Exchange Act of 1934, as amended and the regulations
promulgated thereunder (the "Exchange Act") by any person or group (as
such terms are defined in the Exchange Act), in a single transaction
or a series of transactions, of more than 40% in combined voting power
and/or economic interest of the outstanding capital stock and/or
securities of the Company, in each case other than the acquisition by
or ownership of Robert E. Schrader or entities or groups controlled by
Robert E. Schrader,
(ii) in connection with the merger or consolidation of the
Company (A) where the Company is not the surviving or resulting entity
in such transaction, immediately following such transaction the
acquiring or owning person or group owns sufficient capital stock with
combined voting power or other interests to control, directly or
indirectly, the Board of Directors of the surviving or resulting
entity or (B) where the surviving or resulting entity of such
transaction is not a corporation, immediately following such
transaction such acquiring
6
<PAGE>
or owning person or group has the right, directly or directly, to
elect the general partner or other person controlling the operations
or business of the surviving or resulting entity,
(iii) the direct or indirect sale, disposition or transfer
(through sale, merger, consolidation or otherwise to such person or
group) of all or substantially all of the assets, businesses or
earning power of the Company or the Company and its subsidiaries
(taken as whole) in a single transaction or a series of transactions,
and/or
(iv) the stockholders of the Company approving a plan of complete
liquidation of the Company.
9. Indemnification.
The Company hereby indemnifies the Executive and his legal representatives
against, to the fullest extent permitted by the laws of the State of Delaware
from time to time, for any loss, liability, claim, damages, fine, penalty,
expense (including attorneys' fees and disbursements), judgment or settlement
amount ("Losses") paid, incurred or suffered by the Executive arising out of,
related to or connected with any actions taken or not taken by the Executive in
his capacity as an officer of the Company, or any of its subsidiaries. The
Executive shall be entitled to the protection of any insurance policies the
Company or any subsidiary of the Company may elect to maintain generally for the
benefit of its directors and officers against any and all Losses incurred or
sustained by him or his legal representatives arising out of, related to,
connected with or by reason of his being or having been an officer and/or
director of the Company or any of its subsidiaries.
10. Assignability.
This Agreement is personal in its nature and neither of the parties hereto
shall, without the express written consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; provided that in connection
with any Change in Control, this agreement shall inure to the benefit of and be
binding upon any successor or assign of the Company who may acquire in excess of
fifty percent (50%) of the Company's voting securities, or which may acquire all
or substantially all of the Company's businesses, assets or properties, or with
or into which the Company may be
7
<PAGE>
consolidated or merged or with which the Company engages in a transaction which
results in a Change in Control.
11. Amendments.
This Agreement may be amended, modified or supplemented, and the provisions
hereof may be waived, only by written instrument executed by the parties hereto
or, in the case of a waiver, by the party waiving his or its rights.
12. Entire Agreement.
This Agreement embodies the entire agreement between the parties hereto
with respect to the subject matter hereof.
13. Notices.
All notices or communications hereunder shall be in writing, addressed as
follows:
To the Company:
Transition Analysis Component Technology, Inc.
22700 Savi Ranch Parkway
Yorba Linda, California 92657
Attention: Malcolm A. Baca
Telephone: 714-974-7676
Facsimile: 714-921-2715
To Executive:
Robert E. Schrader
72 Haight Crossroad
Chappaqua, New York 10514
Telephone: 914-238-8368
Facsimile: 914-238-8853
or, in each case, at such other address as designated in writing to the other
party hereto.
All such communication shall have been deemed to be given when (a) so
delivered by hand or sent by fax (confirmation of telecopy received), (b) one
business day after being sent by
8
<PAGE>
overnight delivery, or (c) upon the earlier of receipt or three business days
after being deposited in the United States mail with postage prepaid and
properly addressed.
14. Governing Law.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Delaware, without regard to principles
of conflict of laws.
15. Headings.
The headings of sections and paragraphs of this Agreement are included for
purposes of convenience only and shall not constitute a part of this Agreement
for any purpose or affect the construction or interpretation of any provision of
this Agreement.
16. Severability.
In case any one or more of the provisions or parts of a provision contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality or
unenforceability shall not effect any other provision or part of a provision of
this Agreement or the validity or enforceability of such provision or portion
thereof in any other jurisdiction, but this Agreement shall be reformed and
construed in any such jurisdiction as if such invalid or illegal or
unenforceable provision or part of a provision shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By:
-----------------------------------
Name: Malcolm A. Baca
Title: Executive Vice President
-----------------------------------
ROBERT E. SCHRADER
10
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made and entered into as of
the ____ day of ___________, 1997 between Zing Technologies, Inc., a New York
corporation ("Zing") with offices at 115 Stevens Avenue, Valhalla, New York and
Transition Analysis Component Technology, Inc., a Delaware corporation
("TACTech") with offices at 22700 Savi Ranch Parkway, Yorba Linda, California.
WHEREAS, TACTech is a 90%-owned subsidiary of Zing and maintains a data
base of certain components for military equipment;
WHEREAS, TACTech has filed a registration statement on Form SB-1 under the
Securities and Exchange Act of 1933 on January 30, 1997 (the "33 Act
Registration Statement") and will commence, as soon as practicable following the
Securities and Exchange Commission's declaration of effectiveness, the
distribution (the "Distribution") of 90% of its shares of common stock, par
value $.01, to the stockholders of Zing as of the Record Date with the remaining
10% to be held by Malcolm Baca, TACTech's Executive Vice President, and will as
of the date of such Distribution (the "Distribution Date") operate on a stand
alone basis;
WHEREAS, in connection with the Distribution, TACTech has also filed a
registration statement pursuant to the Securities Exchange Act of 1934 (the "34
Act Registration Statement", and together with the 33 Act Registration
Statement, the "Registration Statements"); and
WHEREAS, TACTech has agreed to indemnify Zing for claims, costs, damages or
liabilities incurred by Zing both before and after the Distribution Date, and
Zing has agreed to indemnify TACTech for claims, costs, damages or liabilities
incurred by TACTech both before and after the Distribution Date;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Indemnification.
(a) TACTech will indemnify and save harmless Zing and its directors,
officers, employees, agents and/or affiliates (each, a "TACTech Indemnified
Party") from any and all costs, expenses, losses, damages and liabilities
("Claim(s)") incurred or suffered, directly or indirectly, (including, without
limitation, reasonable legal fees and expenses) resulting from or attributable
to (i) the operation of TACTech from and after the Distribution or (ii) any
claim, suit or other type of proceeding based upon, arising out of or in
<PAGE>
connection with any information concerning TACTech in the Registration
Statements that was furnished by TACTech for inclusion in the Registration
Statements or any part thereof.
(b) Zing, will indemnify and save harmless TACTech and its directors,
officers, employees, agents and/or affiliates (each, a "Zing Indemnified Party"
and, together with each TACTech Indemnified Party, without distinction, an
"Indemnified Party") from any and all Claims incurred or suffered, directly or
indirectly, (including, without limitation, reasonable legal fees and expenses)
resulting from or attributable to the operation of Zing (i) prior to the
Distribution (excluding the operation of TACTech); (ii) after the Distribution
(excluding the operation of TACTech); and (iii) any claim, suit or other type of
proceeding based upon, arising out of or in connection with any information
concerning Zing in the Registration Statements that was furnished by Zing for
inclusion in the Registration Statements or any part thereof.
2. Defense of Claim.
(a) In the event an Indemnified Party receives notice of any claim asserted
or any action or administrative or other proceeding commenced in respect of a
Claim for which indemnity may be properly sought under this Agreement against
TACTech or Zing, as the case may be (the "Indemnifying Party"), the Indemnified
Party shall give notice in writing to the Indemnifying Party within thirty (30)
days of its receipt of such notice. Within thirty (30) days after the earlier of
(a) receipt by the Indemnifying Party of such notice from the Indemnified Party,
or (b) receipt of actual notice by the Indemnifying Party from sources other
than the Indemnified Party, the Indemnifying Party may give the Indemnified
Party written notice of its election to conduct the defense of such claim,
action or proceeding at its own expense. If the Indemnifying Party has given the
Indemnified Party such notice of election to conduct the defense, the
Indemnifying Party may conduct the defense at its expense, but the Indemnified
Party shall nevertheless have the right to participate in the defense, provided
such participation is solely at the expense of the Indemnified Party, without a
right of further reimbursement. If the Indemnifying Party has not so notified
the Indemnified Party in writing within the time period provided above of its
election to conduct the defense of such Claim, the Indemnified Party may, but
need not, conduct, at the Indemnifying Party's expense, the defense of such
claim, action or proceeding. The Indemnified Party may at any time notify the
Indemnifying Party of its intention to settle, compromise or satisfy any such
claim, action or proceeding (the defense of which the Indemnifying Party has not
previously elected to conduct) and, with the prior written consent of the
Indemnified Party (which consent will not be unreasonably withheld), may make
such settlement, compromise or satisfaction, at the Indemnifying Party's
expense, provided, however, that the Indemnifying Party may make such
settlement, compromise or satisfaction without the prior written consent of the
Indemnified Party if such settlement, compromise or satisfaction constitutes a
release of the Indemnified Party in respect of such Claim.
(b) Any settlement, compromise or satisfaction, or any final judgment or
decree entered in, or any Claim defended in accordance with the provisions of
this Paragraph 2 shall be final and binding on the parties hereto.
2
<PAGE>
(c) The Indemnified Party and the Indemnifying Party shall use all
reasonable efforts to cooperate fully with respect to the defense of any Claim
in accordance with the provisions of this Paragraph 2.
3. Notice. All notices and other communications required or permitted to be
given under this Indemnification Agreement shall be dated and in writing and
shall be deemed to have been duly given when (a) personally delivered, (b) upon
delivery of a telephonic facsimile transmission with a confirmed telephonic
transmission answered back, (c) three days after being deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
or (d) one day after having been dispatched by a nationally recognized overnight
courier service, addressed to the party or parties to this Agreement to whom it
is directed:
If to Zing:
Zing Technologies, Inc.
115 Stevens Avenue,
Valhalla, New York 10595
with a copy to:
Morrison Cohen Singer & Weinstein LLP
750 Lexington Avenue
New York, New York 10022
Attn: Henry A. Singer, Esq.
If to TACTech:
Transition Analysis Component Technology, Inc.
22700 Savi Ranch Parkway
Yorba Linda, California
with a copy to:
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attn: Henry A. Singer, Esq.
or to such other address or addresses as may be designated by a party hereto by
notice delivered to the other parties.
4. Cooperation. In connection with any Claim that is the subject of
indemnification, each party shall afford to the Indemnifying Party and its
accountants, counsel and other designated representatives reasonable access
during normal business hours to all records, books, contracts,
3
<PAGE>
instruments, computer data and other information insofar as such access is
reasonably required by the Indemnifying Party in connection with the defense of
any Claim pursuant to Paragraph 2 hereof In addition, each party shall use
reasonable efforts to make available to the Indemnifying Party, upon written
request, its officers, directors, employees and agents as witnesses to the
extent that any such person may reasonably be required in connection with the
defense or prosecution of any Claim.
5. Waiver. The waiver by any party hereto of the breach of any provision of
this Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges or shall
be deemed a waiver of such party's rights hereunder to exercise the same at any
subsequent time or times.
6. Amendment. This Agreement may be amended, modified or supplemented only
by written instrument executed by the party against whom enforcement is sought.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
8. Severability. The invalidity, illegality or unenforceability of one or
more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainder of this Agreement in
such jurisdiction or the validity, legality and enforceability of this
Agreement, including any such provision, in any other jurisdiction, it being
intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and the Indemnified Parties and each
of their respective successors and assigns.
11. Acknowledgment of Securities Laws Policy Against Indemnification
Agreements. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the TACTech or Zing pursuant to the
foregoing provisions, or otherwise, the parties acknowledge the opinion of the
Securities and Exchange Commission that such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by either of TACTech or Zing, as the case
may be, of expenses incurred or paid by a director, officer or controlling
person of TACTech or Zing, as the case may be, in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, TACTech or Zing will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit
4
<PAGE>
to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.
ZING TECHNOLOGIES, INC.
By:
-----------------------
Name:
Title:
TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC.
By:
-----------------------
Name:
Title:
6
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 17, 1996, in the Registration Statement (Form
SB-1 No. 333-20709 and related Prospectus of Transition Analysis Component
Technology, Inc. for the registration of 498,447 shares of its common stock.
Ernst & Young LLP
White Plains, New York
April 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 209,765
<SECURITIES> 0
<RECEIVABLES> 397,733
<ALLOWANCES> (5,000)
<INVENTORY> 0
<CURRENT-ASSETS> 694,498
<PP&E> 399,024
<DEPRECIATION> (284,686)
<TOTAL-ASSETS> 808,836
<CURRENT-LIABILITIES> 460,195
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> (147,706)
<TOTAL-LIABILITY-AND-EQUITY> 808,836
<SALES> 1,037,171
<TOTAL-REVENUES> 1,037,171
<CGS> 0
<TOTAL-COSTS> 814,013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 208,848
<INCOME-TAX> (62,700)
<INCOME-CONTINUING> 146,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,148
<EPS-PRIMARY> 9.47
<EPS-DILUTED> 9.47
</TABLE>
