As filed with the Securities and Exchange Commission on
January 30, 1997
Securities Act Registration No. 33-_______
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 (Primary Standard (I.R.S. Employer
Of Incorporation Or Industrial Classification Identification No.)
Organization) Code Number)
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 of
Securities Amount To Be Aggregate Offering Registration
To Be Registered Registered (1) Price (2) Fee
Common, $.01 par
value per share 502,317 shares $120,556 $41.57
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(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
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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
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[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.]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 30, 1997
TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC.
502,317 Shares of Common Stock (Par Value $.01 Per Share)
This prospectus is being furnished in connection with the contemplated
distribution in the form of a dividend (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 502,317 shares
of Company Stock to [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 giving effect to a 36.719-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's 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.
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.
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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
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.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the prospectus Summary and under the captions "Risk
Factors", "Business", "TACTech Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this prospectus
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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.
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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
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based on semiconductor content in particular designs. The Company's built-in
software made available to TACTech customers 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 in the form
of a dividend 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 share 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 be an
independent company and the Company Stock will be publicly traded in the "Pink
Sheets". See "The Distribution" and "Description of Capital Stock." The
Distribution may not be tax-free to Zing stockholders for federal income tax
purposes. See "Risk Factors - Certain Tax Considerations".
502,317 shares of Company Stock will be distributed in the
Distribution, based on 2,511,609 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 four shares of Zing Stock held on the Record Date. No
fractional shares will be issued. Fractional shares will be acquired by TACTech
for cash from borrowings under the credit facility with Zing described below.
See "The Distribution -- Manner of Effecting the Distribution" and "Certain
Transactions -- Zing Credit Facility."
As of the Distribution Date, the Company and Zing will enter into
several agreements 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 [$_____] at ______, 1997) into additional
paid-in capital of TACTech without the issuance of additional Company Stock; and
Zing and the Company shall enter into a two year $1,500,000 revolving
credit facility pursuant to which the Company may borrow, from time to time, up
to $750,000 to fund working capital needs and, upon the satisfaction of certain
conditions, borrow, from time to time, an additional $750,000 for other purposes
(the "Zing Credit Facility"). See "Certain Transactions
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- -- Zing Credit Facility." 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." Zing and the Company have entered into a management agreement
pursuant to which Zing, as the Company's advisor, shall assist TACTech's
management by providing various reporting and accounting services, and
formulating the Company's business plans and strategies in the deployment of the
Company's assets. Under the management agreement, among other services, Zing has
been delegated the following duties and has agreed to render the following
services: to advise in the development of the Company's business plan, to advise
the Company with respect to and to negotiate agreements on the Company's behalf,
to coordinate communications with the Company's stockholders, to interface with
the Company's counsel, to advise the Company with respect to and to negotiate
acquisitions and financings, to prepare and file the Company's 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, and to perform such further services
as agreed by the Company and Zing. See "Certain Transactions -- Management
Agreement." Pursuant to an existing tax arrangement applicable to the Company
and Zing, which will be of no further force and effect after the Distribution,
the Company will be obligated to make a payment to Zing on account of the
operation of the Company's business after July 1, 1996 through the Distribution
Date or such obligation shall be converted by Zing into paid-in capital of the
Company, without the issuance of additional shares. 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
No ruling from the Internal Revenue Service ("IRS") or legal opinion of
counsel has been or will be sought with respect to any taxation aspect of the
Distribution or its treatment under the Internal Revenue Code of 1986, as
amended (the "Code"). The Distribution may not qualify as a tax-free spinoff
under Section 355 of the Code in which event (i) Zing will 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 taxable dividend to such stockholder, in an amount equal to the
fair market value of the Company Stock received by such stockholder. 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
[transfer agent] has agreed to hold the stock certificate evidencing
502,317 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 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
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thereafter, Zing will commence mailing its 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".
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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 the Zing Credit
Facility, 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 the Zing Credit Facility.
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 the Zing Credit Facility 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 the Zing 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."
As a result of the Distribution, charges for Securities and Exchange
Commission filing fees, legal and accounting fees and similar types of expenses
will be borne by TACTech, 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. Moreover,
following the Distribution, TACTech will pay a management fee to Zing in the
amount of $100,000 per annum for managerial oversight services to be provided
pursuant to TACTech's management agreement with Zing, which services were
previously provided to TACTech and included in general corporate charges.
TACTech will pay all of the expenses and costs related to the Distribution with
borrowings under the Zing Credit Facility.
Absence of Trading Market for Company Stock;
Requirements for Listing Securities on the NASDAQ
SmallCapital 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 believe that it
meets the standard for initial listing on the Nasdaq SmallCap Market(sm). 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, in 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.
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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 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, if the Company Stock is determined
to be "penny stock," an investor may find it more difficult to dispose of the
Company Stock.
Although the management of the Company intends to apply to have the
Company Stock listed for trading on the Nasdaq SmallCap Market(sm), there can be
no assurance that the Company will meet the initial listing requirements for
such market in the future.
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.
The business of TACTech continues to depend to a substantial extent
upon 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.
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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
pursuant to the management services agreement between the Company and 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.
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
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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 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 believes 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 believes 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.
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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.
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
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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.
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 World Wide Web and the
Internet. 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
and the World Wide Web. A failure to meet the demands of changing technology
could materially and adversely affect the Company.
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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.
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.
Certain Antitakeover Effects
The Company's Restated Certificate of Incorporation (the "Company
Certificate") 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 then nine 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 nine or more
directors, the Board of Directors 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). 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 230,540 and 55,813 shares, respectively, of the Company Stock, or
approximately 41.3% and 10.0%, respectively, of the Company's voting securities.
Accordingly, Mr. Schrader may be deemed to be controlling person of the Company,
although such control may be diminished by virtue of the separation and
independence of Zing and the Company and their respective boards of directors
following the Distribution. The Company's management and directors as a group
shall own approximately 296,324 shares, or 53.1%, of the issued and outstanding
shares of the Company Stock following the Distribution. Consequently, 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.
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Shares Eligible for Future Sale
After completion of the Distribution, Malcolm A. Baca will own, in the
aggregate, approximately 55,813 shares of Company common stock, representing
approximately ten percent (10%) of the Company Stock issued and outstanding. See
"Distribution - Description of the Distribution." The shares of Company Stock
held by Malcolm A. Baca are deemed to be "restricted securities" within the
meaning of Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act"). These restricted shares will be eligible for sale under
Rule 144 by Mr. Baca since he has beneficially owned such shares for two years,
subject, however, to volume limitation and the 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-Shares
Eligible for Future Sale."
Potential Dilution
Although there are currently no outstanding options to purchase Company
stock, pursuant to the Transaction Analysis of 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 - Shares Eligible for Future Sale" and "Directors and Managers 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 involved 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.
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Certain Tax Considerations
As described below, for federal income tax purposes, the Distribution
may not qualify as a tax-free spin-off pursuant to Section 355 of the Code. No
ruling from the IRS or legal opinion from counsel concerning the tax aspects of
the Distribution has been or will be sought. See "The Distribution -- Certain
Federal Income Tax Consequences of the Distribution." If the Distribution were
not to qualify for tax-free treatment under Section 355 of the Code, then: (i)
Zing will 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 taxable dividend to such stockholder, in an
amount equal to the fair market value of the Company Stock received by such
stockholder.
Relationship with Zing
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 for purposes of governing certain
of the ongoing relationships between the two companies following the
Distribution, including indemnification obligations, management arrangements and
the provision of the Zing 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 Zing
or the Company concerning the Company for inclusion in this 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 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. Included within the potential liabilities against which the
Company will indemnify Zing are taxes incurred by Zing in the current fiscal
year in respect of the Company's business. 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. Pursuant to a management agreement, among other things, Zing has
been delegated the following duties and has agreed to render the following
services: to advise in the development of the Company's business plan, to advise
the Company with respect to and to negotiate agreements on the Company's behalf,
to coordinate communications with the Company's stockholders, to advise the
Company with respect to and to negotiate acquisitions and financings, to prepare
and file the Company's 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, and to perform such further services as agreed by the Company and Zing.
See "Certain Transactions -- Management Agreement." Under the Zing Credit
Facility, the Company may borrow up to $750,000 for working capital needs
("Working Capital Loans") and, upon the satisfaction of certain conditions
(including, without limitation, Zing's approval of the use of proceeds), an
additional $750,000 for other corporate purposes ("Other Loans"). The Zing
Credit Facility expires on the second anniversary of the Distribution Date and
has an interest rate on borrowed funds equal to prime plus two percent (2%).
Indebtedness evidencing Working Capital Loans will be subordinated in right of
payment to all other indebtedness of the Company which by its terms provides
that such other indebtedness ranks senior in right of payment to the
indebtedness evidencing Working Capital Loans incurred by the Company under the
Zing Credit Facility. Indebtedness evidencing Other Loans shall rank senior in
right of payment to all other of the Company's indebtedness for borrowed money.
These agreements 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
parties and contain terms which are generally comparable to those which would
result from arm's-length negotiations, although there can be no assurance
thereof. (See "Certain Transactions").
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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, each of Zing and 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 and Zing, thus enhancing the likelihood that each 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. Neither Zing nor TACTech is currently actively
considering being acquired or selling its businesses, properties or assets
outside the ordinary course of its business.
Manner of Effecting the Distribution
Pursuant to the Distribution, Zing will distribute as a dividend to its
stockholders of record as of the Record Date ("Holders") 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 [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. 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 Zing stockholders on or about 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 has
accounted for the Distribution as a dividend and has reduced its stockholders'
equity by the net book value of the Company Stock distributed.
No certificates or scrip representing fractional shares of Company
Stock will be issued as part of the Distribution. [transfer agent] will
aggregate fractional shares into whole shares (currently expected to be
approximately [ ] 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 fixed price set forth in the Escrow Agreement
with [transfer agent]. Such sales are expected to be made prior to the mailing
of shares of Company Stock to Zing stockholders.
The Company shall bear the expenses incurred by the Company and Zing in
connection with the Distribution and the registration of the Company Stock. The
Company anticipates paying such expenses with borrowings under the Zing Credit
Facility. See "Certain Transactions -- Zing Credit Facility."
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.
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Listing and Trading of Company Stock
The Company anticipates the Company Stock will be traded 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 [transfer agent].
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 Holders 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(2) 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 -- Company Stock."
Certain Federal Income Tax Consequences of the Distribution
General. The following is a summary of the material federal income tax
consequences of the Distribution to the holders of shares of Zing Stock. The
federal income tax discussion 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. No rulings from the Internal
Revenue Service or opinions of counsel have been requested concerning such tax
consequences. ACCORDINGLY EACH HOLDER OF SHARES OF ZING STOCK IS URGED TO
CONSULT HIS TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
Uncertain Tax Characterization of the Distribution. In general, the
Distribution could be treated for Federal income tax purposes either: (i) as a
tax-free "spin off" of the Company pursuant to Code Section 355, or,
alternatively, (ii) as a taxable distribution of the Company Stock.
Characterization as one or the other depends upon Zing and its shareholders
satisfying a number of technical requirements, both as to matters of fact
existing before the Distribution, and as to transactions which may occur
subsequent to the Distribution. Some of such requirements are: that Zing be
engaged in the active conduct of a trade or business immediately after the
Distribution, either directly or through the operations of a controlled
subsidiary the stock of which constitutes "substantially all" of Zing's assets;
that the Distribution not be principally a "device" for the distribution of
Zing's earnings and profits; that the Distribution satisfy a corporate business
purpose that cannot readily be achieved through an alternative taxable
transaction; and that the Zing shareholders maintain a continuity of interest in
both Zing and the Company following the Distribution. The Company does not meet
the requirements in order to obtain an advance tax ruling from the Internal
Revenue Service that the Distribution is tax-free. However, this does not mean
that the facts of the Distribution are insufficient to support tax-free
treatment. Because there exists some uncertainty as to whether these
requirements have been met, or after the Distribution will continue to be met,
even though Zing currently intends to treat the Distribution as a non-taxable
one, Zing nevertheless urges its shareholders to consult their own individual
tax advisors as to the appropriate characterization to be
18
<PAGE>
taken on their individual tax returns. No assurance is given that the
Distribution is tax-free and no legal opinion or Internal Revenue Service ruling
has been obtained to such effect.
Consequences of the Distribution if Tax Free "Spin Off" Treatment
Obtains. If the Distribution qualifies as a tax-free spin-off under Code Section
355, the following principal federal income tax results would obtain:
1. A Zing stockholder would 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 would apportion the
tax basis for his 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 would 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 would be recognized by Zing solely on
account of the Distribution.
Consequences of the Distribution if Considered a Taxable Distribution.
In the event that the Distribution does not qualify under Code Section 355 as a
tax-free spin-off, then the Distribution will be treated as a taxable
distribution both as to Zing and as to the Zing stockholders. 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 is expected to be sufficient to cover 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 shareholders, 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 his federal income
tax return for the year in which the Distribution occurs a detailed 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.
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
traded company.
Reason for Furnishing this Prospectus
This prospectus is being prepared in order to provide information for
holders 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
19
<PAGE>
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.
20
<PAGE>
CAPITALIZATION
Transition Analysis Component Technology, Inc.
Capitalization
September 30, 1996
The following table sets forth the capitalization of Transition Analysis
Component Technology, Inc. as of September 30, 1996, and as adjusted to give
effect to the issuance of 558,130 shares of common stock, the capitalization of
amount to parent, and the capitalization of costs associated with the proposed
transaction.
<TABLE>
<CAPTION>
September 30, 1996
------------------------
As Reported As Adjusted
----------- -------------
<S> <C> <C> <C>
Due to parent $ 550,889 $ -- (a)
Shareholders' equity:
Common stock, $.01 par value; 50,000 shares
authorized, 15,200 shares issued and outstanding,
558,130 shares issued and outstanding, as adjusted 152 5,581 (b)
Additional paid-in capital 848 246,308 (a),(b),(c)
Deficit (206,647) (206,647)
--------- ---------
Total shareholders' equity (deficiency) (205,647) 45,242
--------- ---------
Total capitalization $ 345,242 $ 45,242
========= =========
Book value per common share $ 22.71 $ .08
========= =========
Number of shares used in computation 15,200 558,130
========= =========
</TABLE>
(a) Capitalization of amount to parent into additional paid-in capital.
(b) Effect of an approximately 36.719-to-one stock split.
(c) Capitalization of approximately $300,000 of cost associated with the
proposed transaction.
<PAGE>
Transition Analysis Component Technology, Inc.
Capitalization
June 30, 1996
The following table sets forth the capitalization of Transition Analysis
Component Technology, Inc. as of June 30, 1996, and as adjusted to give effect
to the issuance of 558,130 shares of common stock, the capitalization of amount
to parent, and the capitalization of costs associated with the proposed
transaction.
<TABLE>
<CAPTION>
June 30, 1996
------------------------
As Reported As Adjusted
----------- -----------
<S> <C> <C> <C>
Due to parent $ 609,242 $ -- (a)
Shareholders' equity:
Common stock, $.01 par value; 50,000 shares
authorized, 15,200 shares issued and outstanding,
558,130 shares issued and outstanding, as adjusted 152 5,581 (b)
Additional paid-in capital 848 304,661 (a),(b),(c)
Deficit (293,854) (293,854)
--------- ---------
Total shareholders' equity (deficiency) (292,854) 16,388
--------- ---------
Total capitalization $ 316,388 $ 16,388
========= =========
Book value per common share $ 20.82 $ .03
========= =========
Number of shares used in computation 15,200 558,130
========= =========
</TABLE>
(a) Capitalization of due to parent into additional paid-in capital.
(b) Effect of an approximately 36.719-to-one stock split.
(c) Capitalization of approximately $300,000 of cost associated with the
proposed transaction.
<PAGE>
TACTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Analysis of Financial Condition and Results of Operations covers the
three months ended September 30, 1996 and September 30, 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.
Year Ended June 30 Three Months Ended
1996 1995 September 30
1996 1995
Net Sales 100.0% 100.0% 100.0% 100.0%
Selling, general and 88.1 92.8 75.1 78.6
administrative expenses
Depreciation 2.1 2.7 1.3 2.0
Income before taxes 9.8 4.5 23.6 19.4
Provision for income taxes 3.1 1.3 7.1 5.8
Net Income 6.7 3.2 16.5 13.6
Results of Operations - Three Months Ended September 30, 1996
Compared To Three Months Ended September 30, 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 20% during the three
months ended September 30, 1996 as compared to the three months ended September
30, 1995. The following data indicates the licensing activity for each period:
Three Months Ended
September 30, 1996 September 30, 1995
------------------ -------------------
Subscribers at beginning of period 73 60
Subscribers who did not renew (3) (3)
Subscribers added during period
including renewal subscribers 9 4
-- --
Subscribers at end of period 79 61
== ==
TACTech earned net income of $87,207, or $5.74 per share (or $0.16 per
share after giving effect to the Stock Split), for the three months ended
September 30, 1996 compared to $51,102, or $3.36 per share (or $0.09 per share
after giving effect to the Stock Split), for the three months ended September
30, 1995.
21
<PAGE>
Revenues for the three months ended September 30, 1996 were $527,012 as
compared to $376,675 for the three months ended September 30, 1995. This
represented an increase of 40% for the three months ended September 30, 1996
over the prior comparable period.
Selling, marketing, software development and maintenance expense and
depreciation increased to $402,405 for the three months ended September 30, 1996
from $303,573 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 Three Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------------
Sales, marketing, training and
customer service 4 4
Software development, data base
maintenance and computer maintenance 9 8
Data processing 2 1
General and administrative 6 4
-- --
21 17
== ==
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 $7.05 per share (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 $2.52 per share (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 the following factors: personnel additions shown on
the following schedule plus approximately $106,000 incurred for new product
development.
22
<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.
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 $1,700,000 in revenue for the fiscal year ending June 30,
1997. Together with borrowings under the Zing 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. Although operating activities
may provide cash in certain periods, to the extent that the Company experiences
growth in the future, the Company anticipates that its operating and investing
activities may use cash. Consequently, any such growth may require the Company
to obtain additional equity or debt financing. 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 and may in the
future require additional equity or debt financings to consummate such potential
acquisitions or strategic alliances.
Impact of Inflation
In fiscal 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.
23
<PAGE>
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-three (83) customers located throughout the United States and Canada; and
three (3) customers outside the continental United States.
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 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 subscribers 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
24
<PAGE>
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.
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.
25
<PAGE>
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 5 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.
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 Word 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.
26
<PAGE>
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
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.
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Employees
As at January 27, 1997, TACTech employed eleven (11) persons in software
development, data base maintenance and computer maintenance personnel; four (4)
persons in sales, marketing and customer support; and seven (7) 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.
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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 of TACTech since its incorporation in
1987. He is the founder of Zing, its President and Chief Executive Officer since
its incorporation in 1969. He is the husband of Deborah J. Schrader.
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 and Treasurer 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.
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 other
director of TACTech is a director of any 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 nine 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 nine 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
The following table sets forth, as of December 31 , 1996 , (after giving
effect to 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:
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<PAGE>
Amount
Beneficially Percent of
Owned Class
----- -----
Robert E. Schrader(1) 230,540 41.3%
Malcolm Baca 55,813 10.0%
Deborah J. Schrader(2) -- -- %
Martin S. Fawer 9,971 1.8%
All Officers and Directors
as a Group (four persons)(3) 296,324 53.1%
- ----------
(1) Reflects control of 230,540 shares of Company Stock through Mr. Schrader's
ownership 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).
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").
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<PAGE>
Summary Compensation Table
Name and All Other
Principal Position Fiscal Year Salary Bonus Compensation(1)
- ------------------ ----------- ------ ----- ---------------
Robert E. Schrader(2) 1996 -- -- --
Chief Executive Officer 1995 -- -- --
and President 1994 -- -- --
Malcolm Baca 1996 178,269 -- 1,877
Executive Vice President 1995 168,818 -- 1,764
and Treasurer 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. Management fees in the amount of $75,000
were paid by the Company to Zing in fiscal 1996; and to date in fiscal 1997,
TACTech has paid Zing approximately $45,000 in management fees.
Grant of Options
----------------
As of ___________ ___, 1997, 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 Mr. Schrader's employment is set to expire 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 Mr.
Schrader's employment agreement with TACTech) of TACTech occurs, Mr. Schrader
has the option to terminate the term of his employment agreement. In the event
of such termination, Mr. Schrader is required to extend the duration of the
non-competition agreements set forth in the employment agreement to the third
anniversary
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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, provided that he
is required to devote at least 20 business hours per week to the affairs of the
Company.
Mr. Malcolm A. Baca has an employment agreement with TACTech. The term of
Mr. Baca's employment expires May 1, 1999. Mr. Baca's agreement entitles him to
a 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%).
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 addition to other customary terms, pursuant to the
agreement, Mr. Baca's compensation is subject to a $350,000 per annum maximum.
The annual maximum is subject to increase based upon the National Consumer Price
Index. 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.
Interest in Certain Transactions of Directors, Officers
and Principal Holders of Voting Securities
As of __________ __, 1997, Mr. Schrader owns 1,152,711 shares of Zing Stock
constituting approximately 45.9% of the issued and outstanding shares of Zing
Stock; and Mr. Martin Fawer owns ____ shares of Zing Stock, constituting
approximately 2.0% 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 Management Services
Agreement, Indemnification Agreement and Zing Credit Facility.
TACTech and Zing have entered into a three-year Management Services
Agreement set to expire on the third anniversary of the Distribution Date.
TACTech pays Zing $100,000 per annum to provide managerial oversight services
previously performed by Zing with charges for such services included in general
corporate charges. 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.
Under the Zing Credit Facility, Zing has agreed to provide up to $1,500,000 of
credit to TACTech. The Management Services Agreement, Indemnification Agreement
and Zing Credit Facility are more fully described below under "Certain
Transactions."
On December 17, 1996, Zing advanced $100,000 to Mr. Baca in exchange for
Mr. Baca's secured promissory note. The promissory note, 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 Transaction Analysis of 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.
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<PAGE>
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 ("NQSOs") 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 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.
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.
33
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of ____________ ___, 1997 , (after
giving effect to the TACTech 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 230,540 41.3%
72 Haight Crossroad
Chappaqua, NY 10514
Common Malcolm Baca 55,813 10.0%
24611 Catalonia
Mission Viejo, California
Common Jesse Greenfield 34,308 6.2%
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.
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
TACTech's authorized capital stock currently consists of 50,000 authorized
shares of Company Stock, of which 15,200 shares are issued and outstanding.
Prior to the Distribution, there will be a recapitalization of TACTech based
upon a 36.719- for-one stock split (the "Stock Split"). At the Distribution Date
there will be issued and outstanding 558,130 shares of Company Stock. The terms
of such capital stock will continue unchanged after the Distribution; and
TACTech's amended and restated Certificate of Incorporation will provide for
blank check preferred stock (the "Preferred Stock").
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.
34
<PAGE>
After the Distribution, the Company will be an independent, publicly-traded
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 558,130 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
53.1% 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 558,130 shares of Company Stock. Of the total
outstanding shares of Company Stock, the 502,317 shares of Company Stock
distributed in the Distribution 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 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 55,813 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 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
35
<PAGE>
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 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 [transfer agent]
[Address].
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's 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 stockholders of the Company, 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 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
36
<PAGE>
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.
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
37
<PAGE>
(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 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).
38
<PAGE>
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% 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.
39
<PAGE>
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 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.
40
<PAGE>
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.
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.
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 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 Zing or 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
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.
Management Agreement
Pursuant to the management agreement, Zing has been delegated the
following duties and has agreed to render the following services: to advise in
the development of the Company's business plan, to advise the Company with
respect to and to negotiate
41
<PAGE>
agreements on the Company's behalf, to coordinate communications with the
Company's stockholders, to interface with the Company's counsel, to advise the
Company with respect to and to negotiate acquisitions and financings, to prepare
and file the Company's 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, and to perform such further services as agreed by the Company and Zing.
In the event that a Change of Control (as defined in the management
agreement) in Zing occurs, TACTech has the option to terminate the then
remaining term of the management agreement.
Zing Credit Facility
Under the $1,500,000 Zing Credit Facility, Zing will make up to $750,000
available to the Company for working capital purposes ("Working Capital Loans")
and, upon the satisfaction of certain conditions (including, without limitation,
Zing's approval of the use of proceeds thereof) up to an additional $750,000 for
and other corporate needs ("Other Loans"). Of the $750,000 strictly available
for Working Capital Loans, TACTech has the right to request Zing to guarantee
TACTech's indebtedness for borrowed money from third parties. In the event that
Zing so agrees to guarantee such indebtedness, the $750,000 availability of
Working Capital Loans of the Zing Credit Facility shall be reduced by the amount
of the guarantee (or a commensurate repayment in any Working Capital Loans shall
be made under the Zing Credit Facility to the extent that the sum of the
guarantees and outstanding Working Capital Loans exceed $750,000) and Zing shall
be entitled to receive a commitment fee equal to [_______]% of the amount so
guaranteed.
The promissory note evidencing Working Capital Loans shall be subordinated
in right of payment in accordance with the terms of any of TACTech's
indebtedness for borrowed money, the terms of which provide that it ranks senior
right of payment and enforcement of remedies to the Working Capital loans. The
promissory note evidencing any Other Loans shall rank senior in right of payment
to all indebtedness for other borrowed money of TACTech after the date of the
Other Loan advances. The Zing Credit Facility would permit TACTech to pledge its
business, assets, and properties to Zing in order to secure advances in respect
of Other Loans under the Zing Credit Facility.
All indebtedness to Zing under the Zing Credit Facility becomes immediately
due and payable upon certain payment defaults, certain cross defaults resulting
in acceleration of other TACTech indebtedness for borrowed money, and a Change
in Control (as defined in the Zing Credit Facility) of TACTech.
The Zing Credit Facility expires on the second anniversary of the
Distribution Date and has an interest rate on borrowed funds equal to prime plus
two percent (2%). Indebtedness incurred by the Company under the Zing Credit
Facility will be subordinated in right of payment to all other indebtedness of
the Company which by its terms provides that such other indebtedness ranks
senior in right of payment to the indebtedness incurred by the Company under
Zing Credit Facility.
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
warrants exercisable for shares of Zing Stock and, after the Distribution,
assuming exercise of such warrants, will own 600 shares of Company Stock.
42
<PAGE>
EXPERTS
The financial statements of Transition Analysis Component Technology, Inc.
at June 30, 1996 and 1995, and for the two 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.
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 the
subject of the Distribution, reference is made to the registration statement,
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, each such statement being qualified in all
respects by such reference.
43
<PAGE>
Audited Financial Statements
Transition Analysis Component Technology, Inc.
June 30, 1996
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
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
========== ==========
Net income per common share $ 7.05 $ 2.52
========== ==========
Number of shares used in computation 15,200 15,200
========== ==========
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.
Net Income Per Common Share
Net income per common share is based on the weighted average number of shares of
Common Stock outstanding during each period.
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 and 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 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 401K 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 President's commission is two and
one-half percent.
6. Subsequent Event (Unaudited)
As of July 1, 1996, the Company will pay a fee to Zing in the amount of $100,000
per year for two years for management oversight services. 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.
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 an approximately a
36.719-for-one basis (558,130 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)
As of the Distribution Date, Zing and the Company will enter into several
agreements for purposes of governing certain of the ongoing relationships
between the two companies following the Distribution, including indemnification
obligations, management arrangements and the provision of the Zing Credit
Facility. Pursuant to the Indemnification Agreement to be entered into between
Zing and the Company in connection with the Distribution, 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 the prospectus relating to the distribution or any
information furnished by Zing or the Company concerning the Company for
inclusion in the prospectus relating to the distribution: 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 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. Included within the potential liabilities against which the
Company will indemnify Zing are taxes incurred by Zing in the current fiscal
year in respect of the Company's business. 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. Pursuant to the management agreement, among other things, Zing
has been delegated the following duties and has agreed to render the following
services: to advise in the development of the Company's business plan, to advise
the Company with respect to and to negotiate agreements on the Company's behalf,
to coordinate communications with the Company's stockholders, to advise the
Company with respect to and to negotiate acquisitions and financings, to prepare
and file the Company's 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, and to perform such further services as agreed by the Company and Zing.
Under the Zing Credit Facility, the Company may borrow up to $750,000 for
working capital needs ("Working Capital Loans") and, upon the satisfaction of
certain conditions, an additional $750,000 for other corporate purposes ("Other
Loans"). The Zing Credit Facility expires on the second anniversary of the
Distribution Date and has and interest rate on borrowed funds equal to (prime
plus two percent (2%)). Indebtedness evidencing Working Capital Loans will be
subordinated in right of payment to all other indebtedness of the Company which
by its terms provides that such other indebtedness ranks senior in right of
payment to the indebtedness (evidencing Working Capital Loans) incurred by the
Company under the Zing Credit Facility. Indebtedness evidencing Other Loans
shall rank senior in right of payment to all other of the Company's indebtedness
for borrowed money.
F-10
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
6. Subsequent Event (Unaudited) (continued)
The Company's Board of Directors and the Company's stockholders have approved
the Transaction Analysis of 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.
On 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.
F-11
<PAGE>
Unaudited Condensed Financial Statements
Transition Analysis Component Technology, Inc.
September 30, 1996
F-12
<PAGE>
Transition Analysis Component Technology, Inc.
Balance Sheets
(Unaudited)
September 30
1996 1995
--------- ----------
Assets
Current assets: $ 108,108 $ 91,925
Cash
Accounts receivable, less allowance of $5,000 in 1996
and 1995 365,484 270,714
Prepaid expenses and other current assets 7,935 11,354
--------- ---------
Total current assets 481,527 373,993
Equipment 374,786 309,166
Less: accumulated depreciation 277,281 243,854
--------- ---------
97,505 65,312
--------- ---------
Total assets $ 579,032 $ 439,305
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation expense $ 34,021 $ 26,000
Accrued income taxes due parent company 103,815 38,400
Accrued legal and audit expenses 36,000 23,000
Accrued expenses - other 6,032 5,819
Deferred income 53,922 48,783
--------- ---------
Total current liabilities 233,790 142,002
Due to parent 550,889 646,241
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
Deficit (206,647) (349,938)
--------- ---------
Total stockholders' equity (deficiency) (205,647) (348,938)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 579,032 $ 439,305
========= =========
See accompanying notes.
F-13
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Income
(Unaudited)
Three months ended
September 30
1996 1995
--------- ---------
Revenues $527,012 $376,675
Selling, general and administrative expenses 395,500 295,961
Depreciation of equipment 6,905 7,612
-------- --------
Income before income taxes 124,607 73,102
Provision for income taxes 37,400 22,000
-------- --------
Net income $ 87,207 $ 51,102
======== ========
Net income per common share $ 5.74 $ 3.36
======== ========
Number of common shares used in computation 15,200 15,200
======== ========
See accompanying notes.
F-14
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Cash Flows
(Unaudited)
Three months ended
September 30
1996 1995
-------- --------
Operating activities
Net income $ 87,207 $ 51,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,905 7,612
Changes in operating assets and liabilities:
Accounts receivable (43,160) (45,442)
Prepaid expenses and other current assets (7,935) 3,320
Accrued compensation expense (5,000) (505)
Accrued taxes due parent company 37,400 22,000
Accrued legal and audit expenses -- 4,500
Accrued expenses n other (10,220) (2,838)
Deferred income (5,063) 8,466
-------- --------
Net cash provided by operating activities 60,134 48,215
Investing activities
Purchases of equipment (27,529) (11,482)
-------- --------
Net cash used in investing activities (27,529) (11,482)
-------- --------
Financing activities
Decrease in due to parent (58,352) (11,401)
-------- --------
Net cash used in provided by financing activities (58,352) (11,401)
-------- --------
Net (decrease) increase in cash (25,747) 25,332
Cash at beginning of period 133,855 66,593
-------- --------
Cash at end of period $ 108,108 $ 91,925
========= ========
See accompanying notes.
F-15
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Unaudited Condensed Financial Statements
September 30, 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 three month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1997.
2. Related Parties and Subsequent Events
The Company is allocated a portion of Zing's corporate administrative expenses
amounting to $25,000 for each of the three month periods ended September 30,
1996 and 1995, respectively, which are included in selling, general and
administrative expenses.
In addition, beginning July 1, 1996, the Company began paying a fee to Zing in
the amount of $100,000 per year, for two years for management oversight
services. 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 Event (Unaudited)
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
36.719-for-one basis (558,130 shares will be issued and outstanding).
F-16
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Unaudited Condensed Financial Statements
September 30, 1996
(Unaudited)
3. Subsequent Event (Unaudited) (continued)
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.
As of the Distribution Date, Zing and the Company will enter into several
agreements for purposes of governing certain of the ongoing relationships
between the two companies following the Distribution, including indemnification
obligations, management arrangements and the provision of the Zing Credit
Facility. Pursuant to the Indemnification Agreement to be entered into between
Zing and the Company in connection with the Distribution, 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 the prospectus relating to the distribution or any
information furnished by Zing or the Company concerning the Company for
inclusion in the prospectus relating to the distribution: 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 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. Included within the potential liabilities against which the
Company will indemnify Zing are taxes incurred by Zing in the current fiscal
year in respect of the Company's business. 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. Pursuant to the management agreement, among other things, Zing
has been delegated the following duties and has agreed to render the following
services: to advise in the development of the Company's business plan, to advise
the Company with respect to and to negotiate agreements on the Company's behalf,
to coordinate communications with the Company's stockholders, to advise the
Company with respect to and to negotiate acquisitions and financings, to prepare
and file the Company's 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, and to perform such further services as agreed by the Company and Zing.
Under the Zing Credit
F-17
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Unaudited Condensed Financial Statements
September 30, 1996
(Unaudited)
3. Subsequent Event (Unaudited) (continued)
Facility, the Company may borrow up to $750,000 for working capital needs
("Working Capital Loans") and, upon the satisfaction of certain conditions, an
additional $750,000 for other corporate purposes ("Other Loans"). The Zing
Credit Facility expires on the second anniversary of the Distribution Date and
has and interest rate on borrowed funds equal to (prime plus two percent (2%)).
Indebtedness evidencing Working Capital Loans will be subordinated in right of
payment to all other indebtedness of the Company which by its terms provides
that such other indebtedness ranks senior in right of payment to the
indebtedness (evidencing Working Capital Loans) incurred by the Company under
the Zing Credit Facility. Indebtedness evidencing Other Loans shall rank senior
in right of payment to all other of the Company's indebtedness for borrowed
money.
The Company's Board of Directors has adopted and the Company's stockholders have
approved the Transaction Analysis of 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.
On 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.
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.
502,317 Shares
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Common Stock
---------------------
PROSPECTUS
---------------------
______________ __, 1997
<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......................................................... $42.00
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 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.
<PAGE>
(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 within one year
prior to filing this registration statement which were not registered under the
Securities Act.
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 (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 Mal Baca Employment Contract*
10.2 Robert E. Schrader Employment Contract*
10.3 Management Agreement*
10.4 Indemnification Agreement*
10.5 Zing Credit Facility*
10.6 Option Plan*
10.7 Escrow and Distribution Agreement*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Morrison Cohen Singer & Weinstein, LLP (contained in its
opinion filed as Exhibit 5 hereto)*
27.1 Financial data schedule
27.2 Financial data schedule
- ----------
* To be filed by amendment.
<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 January 29, 1997.
TRANSACTION ANALYSIS OF 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 January 29, 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
Auditor's Consent
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. 33-00000) and related Prospectus of Transition Analysis Component
Technology, Inc. for the registration of 502,317 shares of its common stock.
/s/ Ernst & Young LLP
White Plains, New York
January 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 133,855
<SECURITIES> 0
<RECEIVABLES> 327,324
<ALLOWANCES> (5,000)
<INVENTORY> 0
<CURRENT-ASSETS> 456,179
<PP&E> 347,257
<DEPRECIATION> (270,375)
<TOTAL-ASSETS> 533,061
<CURRENT-LIABILITIES> 216,673
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> (293,006)
<TOTAL-LIABILITY-AND-EQUITY> 533,061
<SALES> 1,601,255
<TOTAL-REVENUES> 1,601,255
<CGS> 0
<TOTAL-COSTS> 1,444,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 157,021
<INCOME-TAX> (50,015)
<INCOME-CONTINUING> 107,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,186
<EPS-PRIMARY> 7.05
<EPS-DILUTED> 7.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 108,108
<SECURITIES> 0
<RECEIVABLES> 370,484
<ALLOWANCES> (5,000)
<INVENTORY> 0
<CURRENT-ASSETS> 481,527
<PP&E> 374,786
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<TOTAL-ASSETS> 579,032
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0
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<COMMON> 152
<OTHER-SE> (205,799)
<TOTAL-LIABILITY-AND-EQUITY> 579,032
<SALES> 527,012
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<TOTAL-COSTS> 402,405
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</TABLE>
