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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter period ended December 31, 1997
- OR -
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 333-20709
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
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(Exact Name of small business issuer as specified in its charter)
DELAWARE 13-3391820
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22681/22687 Old Canal Road, Yorba Linda, CA 92687
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(Address of principal executive offices)
(714) 974-7676
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(Registrant's telephone number, including area code)
Former Address: 22700 Savi Ranch Parkway, Yorba Linda, CA 92657
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of during the past 12 months (or for
such shorter periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
The number of shares of common stock, $.01 par value, outstanding as of January
31, 1998 was 598,734.
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1
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INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets --
December 31, 1997 and June 30, 1997 ................................ 3
Condensed consolidated statements of operations --
three months ended December 31, 1997 and 1996 ...................... 4
Condensed consolidated statements of operations --
six months ended December 31, 1997 and 1996 ........................ 5
Condensed consolidated statements of cash flows --
six months ended December 31, 1997 and 1996 ........................ 6
Notes to condensed consolidated financial
statements -- December 31, 1997 .................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 9
PART II. OTHER INFORMATION
Item 5. Other Information .................................................. 13
Item 6. Exhibits and Reports on Form 8-K ................................... 14
Signatures ......................................................... 15
2
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PART 1. FINANCIAL INFORMATION
TRANSITION ANALYSIS COMPONENTS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 June 30
1997 1997
------------------------
(000's omitted
except share data)
------------------------
(unaudited) (Note)
Assets
Current assets
Cash $ 87 $133
Accounts receivable, less allowances
of $10 and $5, respectively 704 419
Prepaid expenses 19 11
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Total current assets 810 563
Furniture and equipment 628 500
Less accumulated depreciation and amortization 362 310
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266 190
Other assets
Rent security deposits 81 --
Software development 70 --
Excess of cost over assets acquired 56 --
------------------------
Total assets $1,283 $753
========================
Liabilities and stockholders' equity
Current liabilities
Accrued expenses $ 373 $321
Loan payable - bank 520 --
Deferred income 110 80
------------------------
Total current liabilities 1,003 401
Stockholders' equity
Common stock, par value $.01 per share;
authorized 5,000,000 shares; issued
598,734 shares as of December 31, 1997
and 553,830 shares as of June 30, 1997 6 5
Additional paid-in capital 553 441
Retained-earnings (deficit) (279) (94)
------------------------
Total stockholders' equity 280 352
------------------------
Total liabilities and stockholders' equity $1,283 $753
========================
Note: The consolidated balance sheet at June 30, 1997 has been derived from the
audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended
December 31,
------------------------
1997 1996
------------------------
(000's omitted,
except per share data)
------------------------
Revenues $ 921 $ 510
Selling, general and administrative expenses 1,112 419
Depreciation of equipment 13 7
Amortization of software development costs 3 --
Interest expense 11 --
------------------------
Income (loss) before income taxes (218) 84
Provision for income taxes -- 25
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Net (loss) income $ (218) $ 59
========================
Net (loss) income per common share $ (0.36) $ 0.11
========================
Number of shares used in computation 598,734 553,830
========================
See notes to condensed consolidated financial statements.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six months ended
December 31,
------------------------
1997 1996
------------------------
(000's omitted,
except share data)
Revenues $ 1,569 $ 1,038
Selling, general and administrative expenses 1,712 815
Depreciation of equipment 24 14
Amortization of software development costs 4 --
Interest expense 14 --
------------------------
Income (loss) before income taxes (185) 209
Provision for income taxes -- 63
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Net (loss) income $ (185) $ 146
========================
Net (loss) income per common share $ (0.32) $ 0.26
========================
Number of shares used in computation 583,603 553,830
========================
See notes to condensed consolidated financial statements.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
December 31,
------------------------
1997 1996
------------------------
(000's omitted)
Operating activities
Net (loss) income $(185) $146
Adjusted to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 28 14
Provision for losses in accounts receivable 5 --
Changes in operating assets and liabilities:
Accounts receivable (202) (58)
Prepaid expenses (8) (88)
Accrued expenses 92 159
Deferred income 30 69
Rent security deposits (80) --
------------------------
Net cash (used in) provided by operating activities (320) 242
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Investing activities
Costs related to RAC acquisition, net of cash received 12 --
Purchase of equipment (78) (52)
Additions to software development (10) --
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Net cash used in investing activities (76) (52)
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Financing activities
Proceeds from lines of credit 520 --
Net decrease in due to former parent (170) (114)
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Net cash provided by (used in) financing activities 350 (114)
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Net (decrease) increase in cash (46) 76
Cash at beginning of period 133 134
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Cash at end of period $ 87 $210
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See notes to condensed consolidated financial statements.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
Note A -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended December 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1998.
Note B -- Organization
Prior to June 30, 1997, Transition Analysis Component Technology, Inc.
("TACTech" or the "Company") was a 90% owned subsidiary of Zing Technologies,
Inc. ("Zing"), the Company's former parent, and the remaining 10% was owned by
one officer of the Company.
The Company filed a registration statement on Form SB-1, which became effective
June 30, 1997, for the purpose of distributing the Common Stock of the Company
which was owned by Zing to the shareholders of Zing (the "Distribution"). In
connection with the Distribution, the Common Stock authorized and outstanding
was split on a 36.436-for-one basis.
Also, in connection with the Distribution, inter-company advances (excluding
income taxes) as of the effective date of the Distribution were converted to
equity and, accordingly, were included within additional paid-in capital.
Acquisition of Research Analysis Corp.
On September 22, 1997, TACTech acquired the assets of Research Analysis Corp.
("RAC") consisting primarily of search and report software pursuant to a merger
of TACTech's newly formed and wholly owned subsidiary with and into RAC. Upon
consummation of the Merger, RAC, as the surviving corporation, became a
wholly-owned subsidiary of the Company. The RAC acquisition was accounted for
pursuant to the purchase method of accounting and is effective as of September
1, 1997.
The following unaudited pro-forma information has been prepared assuming that
this acquisition had taken place at the beginning of the respective periods
after giving effect to pro-forma adjustments for compensation accruals and
income taxes. The number of shares used in the computations of net (loss) income
per common share is 598,734.
Three months ended
December 31, 1996
------------------
Revenue $ 783,722
Net (loss) income $ 108,625
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Net (loss) income per common share $ 0.18
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note B -- Organization (continued)
Six months ended December 31,
1997 1996
-----------------------------
Revenue $1,652,644 $1,520,845
Net (loss) income $ (218,181) $ 208,962
Net (loss) income per common share $ (0.36) $ 0.35
Historically, RAC derived revenues from consulting services and
customer-specific projects (other than those specifically related to
indenturing/component library services being developed by TACTech and known as
"TACTRAC"). Such non-TACTRAC related revenue was derived by RAC typically under
cost plus fixed fee contracts with the Department of Defense and government
contractors and related specifically to training services, engineering support
and logistics support. These contractual services dealt with issue of
reliability, maintainability, failure analysis, reliability predictions, circuit
card redesign, provisioning and weapons system file data extraction.
It is the intention of TACTech selectively to disengage from RAC's non-TACTRAC
related activity, redirect resources toward software development and marketing,
and increase TACTRAC subscription revenue. Thus, in the short term, as TACTech
develops the TACTRAC product, software development costs will in all likelihood
increase and may exceed RAC revenues. TACTech anticipates marketing the TACTRAC
product through TACTech (rather than RAC) channels. There can be no assurance
that TACTech will be able successfully to develop and market the TACTRAC product
and that such failure will not result in a material adverse effect upon TACTech.
Note C -- Summary of Significant Accounting Policies
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented; and restatement to conform to the Statement 128
requirements was not necessary.
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PART 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain items from the statements of operations:
Percent of Net Sales
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
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Revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and
administrative expenses 120.7 82.1 109.1 78.5
Depreciation and amortization
of equipment and software
development costs 1.7 1.4 1.8 1.3
Interest expense 1.2 -- .9 --
------------------ ------------------
Income before income taxes (23.6) 16.5 (11.8) 20.2
Provision for income taxes -- 4.9 -- 6.0
------------------ ------------------
Net (loss) income (23.6) 11.6 (11.8) 14.2
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Results of Operations - Three Months Ended December 31, 1997 Compared to Three
Months Ended December 31, 1996
The Company reported a loss of $218,000 or $.36 per share for the quarter ended
December 31, 1997, a decrease from the comparable 1996 quarter of reported
income of $59,000 or $.11 per share.
The Company generates revenues primarily through license agreements for its
information services provided through the Company's libraries and data bases.
These agreements are generally for terms of twelve months and may be canceled by
either party upon 30 days notice. The number of subscriber licenses generating
revenues was greater by approximately 15% at December 31, 1997 as compared to
December 31, 1996.
Three Months Ended
December 31,
1997 1996
---- ----
Subscribers at beginning of period 93 79
Subscribers who did not renew (6) (2)
Subscribers added during period 11 8
---- ----
Subscribers at end of period 98 85
==== ====
Revenues for the three months ended December 31, 1997 were $921,000 as compared
to revenues of $510,000 for the three months ended December 31, 1996. This
increase of 80.6% is primarily due to the Company's acquisition of Research
Analysis Corporation ("RAC") in September 1997 which generated an increase in
sales revenues of $118,000. The balance of the increase in the Company's
revenues over the prior period is attributable to an approximate 15% increase in
the subscription base coupled with higher subscription prices generated by the
enhanced search engine technology made available through the RAC acquisition.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Three Months Ended December 31, 1997 Compared to Three
Months Ended December 31, 1996 (continued)
There was a 39% ($693,000) increase in selling, general and administrative
expenses as a percentage of revenues for the three months ended December 31,
1997 as compared to the comparable 1996 period. This increase primarily resulted
from increased personnel costs of $300,000 devoted to the development of the
Company's data base relating to commercial components and the continuing
enhancement of the RAC search engine technology, and increased sales and sales
related costs of $75,000. Also included in the increase in selling, general, and
administrative expenses are costs in the amount of $70,000 relating to
relocating the Company to new facilities, and legal and professional expenses in
the amount of $166,000 primarily relating to a lawsuit commenced by the Company
seeking injunctive relief to enjoin a former employee and a competitor from
misappropriating trade secrets and from soliciting the Company's employees and
customers.
There was no provision for income taxes for the three months ended December 31,
1997 because of the reported loss. The Company intends to carry forward this
loss for tax purposes. In the comparable 1996 period, the Company filed its
federal income taxes on a consolidated basis for fiscal year 1997 with its
former parent, Zing. Income taxes were computed on a separate company basis
pursuant to the liability method.
Results of Operations - Six Months Ended December 31, 1997 Compared to Six
Months Ended December 31, 1996
The number of subscriber licenses generating revenues was greater by
approximately 15% at December 31, 1997 as compared to December 31, 1996.
Six Months Ended
December 31,
1997 1996
--------- ---------
Subscribers at beginning of period 95 73
Subscribers who did not renew (11) (5)
Subscribers added during period 14 17
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Subscribers at end of period 98 85
========= =========
The Company reported a loss of $185,000 or $.32 per share loss for the six month
period ended December 31, 1997 as compared to reported income of $146,000 or
$.26 per share for the comparable 1996 period.
Revenues for the six months ended December 31, 1997 were $1,569,000 compared to
revenues for the six months ended December 31, 1996 of $1,038,000.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Six Months Ended December 31, 1997 Compared to Six
Months Ended December 31, 1996 (continued)
This $530,000 increase in revenues consisted of an approximately $158,000
increase in revenues attributable to RAC consulting and customer specific
projects; and the balance of the increase in revenue is largely attributable to
higher subscription prices for the Company's search engine technology provided
as a result of the RAC acquisition and an increase of 15% in the subscriber
base.
Selling, general and administrative expenses expressed as a percentage of
revenues, increased approximately 31% ($900,000) for the six month period ended
December 31, 1997 as compared to the comparable period in 1996. This increase
primarily resulted from increased personnel costs of $425,000 devoted to the
development of the Company's data base relating to commercial components and the
enhancement of the RAC search engine technology, and increased sales and related
costs of $125,000. Also included in the increase in selling, general and
administrative expenses are costs in the amount of $75,000 in moving costs
relating to relocating the Company to new facilities, and an additional $166,000
in legal fees incurred by the Company in seeking injunctive relief to enjoin a
former employee and a competitor from misappropriating trade secrets and from
soliciting the Company's employees and customers.
Number of Employees
Six Months Ended December 31,
1997 1996
--------- ---------
Sales, marketing, training and customer service 7 6
Software development, data base maintenance
and computer maintenance 20 13
Data Processing 3 3
General and administrative 8 9
--------- ---------
38 31
========= =========
There is no provision for income taxes for the six month period ended December
31, 1997 because of the reported loss. The Company will elect to carry forward
this loss. In the comparable period in 1996, the Company filed its federal
income taxes on a consolidated basis for fiscal year 1997 with its former
parent, Zing. Income taxes were computed on a separate company basis pursuant to
the liability method.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Liquidity and Capital Resources
For the six months ended December 31, 1996, 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 its former parent company,
Zing Technologies, Inc. For the six months ended December 31, 1997, cash from a
line of credit was used to fund operations, purchase computers and related
equipment, to liquidate all obligations to its former parent company and to pay
costs related to the acquisition of RAC.
Based upon current and anticipated levels of operations and plans for
integrating the RAC business, the Company believes that its cash flow from
operations, combined with borrowings available under the existing line of
credit, will be sufficient to meet is current and anticipated cash operating
requirements, including scheduled interest and principal payments, capital
expenditures and working capital needs for the foreseeable future. See "Item 5.
Other Information" below.
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PART II. OTHER INFORMATION
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
ITEM 5. OTHER INFORMATION
When used in this Form 10-QSB, and in future filings by TACTech with the
Securities and Exchange Commission, in TACTech's press releases and in any oral
statements made with the approval of an authorized TACTech executive officer,
the words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from historical earnings or those presently
anticipated or projected. TACTech wishes to caution readers not to place undo
reliance on such "forward-looking statements", which speak only as of the date
made. TACTech wishes to advise readers that factors listed below could affect
TACTech's financial performance and could cause TACTech's actual results for
future periods to differ materially from any opinion or statements expressed
with respect to future periods in any current statements.
TACTech will NOT undertake and specifically declines any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
Dependence on Key Personnel
The business of TACTech is substantially dependent upon the active participation
and technical expertise of its executive officers. TACTech is dependent upon the
services of Malcolm Baca, its Executive Vice President and Chief Operating
Officer. The Company currently maintains a key-man life insurance policy on such
executive officer in the amount of $1,700,000. The Company's Board of Directors
regularly re-evaluates the need for and the amount of such key-man life
insurance. There can be no assurance, however, that TACTech can obtain
executives of comparable expertise and commitment in the event of death, or that
the business of TACTech would not suffer material adverse effects as the result
of the death (notwithstanding coverage by key-man insurance), disability or
voluntary departure or any such executive officer.
Competition
TACTech's license agreements are cancelable on thirty (30) days notice.
Approximately 50% of TACTech's information for its data bases comes from
numerous companies in the private sector. Accordingly, there can be no assurance
that existing arrangements with private suppliers of data 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. Moreover, 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 or
obtain such services from others. 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.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Technical Changes and New Product Development
In the event of changes in the structure of the computer hardware systems used
by subscribers to operate TACTech's data software, TACTech would incur capital
costs for new equipment and development costs in connection with the
reconfiguring of its software programs, which cost 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 assurance that such
new products will prove profitable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Item 601 (b)(4) - Instruments Defining the Rights of Security Holders
Exhibit 4:
Transition Analysis Component Technology, Inc. 1997 Stock Option
Plan, effective January 28, 1997 and as amended on November 3, 1997
(commencing on page 16 of this report).
(b) (i) Form 8-K dated October 7, 1997 reporting the RAC acquisition (date
of event: September 22, 1997).
(ii) Form 8K/A (amendment No. 1) dated December 8, 1997 filing the
required financial statements from the RAC acquisition.
(iii) Form 8K/A (Amendment No. 2) dated January 22, 1998 amending the
financial statements previously filed on Form 8K/A Amendment No. 1
dated December 8, 1997.
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Transition Analysis Component Technology, Inc.
----------------------------------------------
(Registrant)
Date February 13, 1998 /s/ Robert E. Schrader
----------------- ----------------------------------------------
Robert E. Schrader
President and Chief Executive Officer
Date February 13, 1998 /s/ Martin S. Fawer
----------------- ----------------------------------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
15
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Exhibit 4 (Item 601 (b)(4))
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
1997 STOCK OPTION PLAN
Effective January 28, 1997 (as amended on November 3, 1997)
1. Purpose of the Plan. The Transition Analysis Component Technology,
Inc. ("Company") 1997 Stock Option Plan is intended to advance the best
interests of the Company and any of its future Subsidiaries by providing the
executive officers, employees and consultants of the Company and such
Subsidiaries with additional incentives by allowing them to acquire an ownership
interest in the Company and thereby encouraging them to contribute to the
success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the then-presently constituted Board of Directors
of Transition Analysis Component Technology, Inc.
(b) "Cause" shall mean (i) a material breach of a Participant's
employment agreement or, in the absence of a written agreement, the terms of
employment, (ii) a breach of Participant's duty of loyalty to the Company or any
act of dishonesty or fraud with respect to the Company, (iii) the commission by
Participant of a felony, a crime involving moral turpitude or other act causing
material harm to the Company's standing and reputation, or (iv) Participant's
continued failure to perform his or her lawful duties to the Company.
(c) "Change of Control" shall mean:
(i) the acquisition or beneficial ownership (within the meaning of
the Securities Exchange Act of 1934, as amended and the regulations
promulgated thereunder (the "Exchange Act") by any person or group (as
such terms are defined in the Exchange Act), in a single transaction or a
series of transactions, of more than 40% in combined voting power and/or
economic interest of the outstanding capital stock and/or securities of
the Company, in each case other than the acquisition by or ownership of
Robert E. Schrader or entities or groups controlled by or affiliated with
Robert E. Schrader,
(ii) in connection with the merger or consolidation of the Company
(A) where the Company is not the surviving or resulting entity in such
transaction, immediately following such transaction the acquiring or
owning person or group owns sufficient capital stock with combined voting
power or other interests to control, directly or indirectly, the election
or the actions of the Board of Directors of the surviving or resulting
entity or (B) where the surviving or resulting entity of such transaction
is not a corporation, immediately following such transaction such
acquiring or owning person or group has the right, directly or indirectly,
to elect the general partner or other person or persons controlling the
operations or business of the surviving or resulting entity,
(iii) the direct or indirect sale, disposition or transfer (through
sale, merger, consolidation or otherwise to such person or group) of all
or substantially all of the assets, businesses or earning power of the
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Company or the Company and its subsidiaries (taken as whole) in a single
transaction or a series of transactions, and/or
(iv) the stockholders of the Company approving a plan of complete
liquidation of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean, to the extent appointed by the Board,
committee of the Board appointed to administer the Plan. The Committee shall be
composed of two or more "non-employee directors" (as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended) as appointed
from time to time to serve by the Board of Directors.
(f) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.
(g) "Company" shall mean Transitional Analysis Component Technology,
Inc., a Delaware corporation, and any Subsidiary thereof.
(h) "Competitive Activity" shall mean (i) the participation in,
engagement by, possession of a financial or other interest in or filling a
position directly or indirectly, whether individually or as an employee, agent,
partner, shareholder, consultant, or otherwise by the Participant in any
enterprise or business if such enterprise or business competes with the business
of the Company or any of its Subsidiaries in any country in which the Company or
any such Subsidiary conducts its business; (ii) the solicitation by the
Participant of any other person or entity to engage in any of the foregoing
activities; (iii) the solicitation of any employee or consultant of the Company
or any of its Subsidiaries to leave the Company or any of its Subsidiaries, or
to do business with any enterprise or business which competes with the business
of the Company or any of its Subsidiaries; or (iv) the solicitation of any
customer, vendor or supplier of the Company or any of its Subsidiaries. The
ownership of an interest constituting not more than one percent of the
outstanding debt or equity in a company whose securities are traded on a
recognized stock exchange or traded on the over-the-counter market shall not be
deemed financial participation in a competitor even though that company may be a
competitor of the Company or any of its Subsidiaries.
(i) "Disability" shall mean the inability, due to illness, accident,
injury, physical or mental incapacity of any Participant to effectively carry
out his or her duties and obligations to the Company on a full-time basis or to
participate effectively or actively in the management of the Company for a
period of at least 90 consecutive days or for shorter periods aggregating at
least 120 days (whether or not consecutive) during any twelve-month period, as
determined in the reasonable judgment of the Board of Directors.
(j) "Employee" shall mean any person, including officers, employed by
the Company.
(k) "Fair Market Value" of the Common Stock shall be determined by the
Committee or, in the absence of the Committee, by the Board of Directors.
(l) "Incentive Stock Option" shall mean any Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code or
any successor provision.
(m) "Nonqualified Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
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(n) "Option" shall mean an Incentive Stock Option or a Nonqualified
Stock option granted pursuant to this Plan.
(o) "Option Agreement" shall mean the written option agreement entered
into between the Company and the Participant upon the grant of any Option in an
appropriate form determined by the Committee.
(p) "Optioned Stock" shall mean the Common Stock subject to an Option.
(q) "Participant" shall mean any Employee, director or consultant of the
Company who has been selected to participate in the Plan by the Committee.
(r) "Plan" shall mean the Transitional Analysis Component Technology,
Inc. 1997 Stock Option Plan.
(s) "Share" shall mean one share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(t) "Subsidiary" shall mean a "subsidiary corporation," of the Company
whether now or hereafter existing, as such term is defined in Section 424(f) of
the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be issued pursuant
to the Plan is 60,000. The Shares may be either authorized but unissued shares,
treasury shares, reacquired shares, or any combination thereof. If an Option
should expire or become unexercisable for any reason without having been
exercised in full, any Shares which would otherwise have been issuable pursuant
thereto shall then be available for regranting of further Options under the
Plan.
4. Administration of the Plan. The Plan shall be administered by the
Committee; provided, however, that if for any reason the Committee shall not
have been appointed by the Board, all authorized duties of the Committee under
the Plan shall be vested in and exercised by the Board. Subject to the
provisions of the Plan, the Committee shall have the authority, in its
discretion and in respect of all of the Participants and any single Participant:
(i) to grant Incentive Stock Options or Nonqualified Stock Options; (ii) to
determine the Fair Market Value of the Common Stock; (iii) to determine in
accordance with Section 7(b) of the Plan the exercise price per share of Options
to be granted; (iv) to determine the Participants to whom and the time or times
at which Options shall be granted, the number of Shares to be represented by
each Option, and subject to Section 7(f) below, any vesting limitations with
respect to such Options; (v) to interpret the Plan; (vi) to prescribe, amend,
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical),
including, but not limited to, the vesting schedule for each Option granted, and
modify or amend the terms of each outstanding Option; (viii) to reduce the
exercise price per share of outstanding and unexercised Options; (ix) to
accelerate or defer the exercise date of any outstanding Option; (x) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Committee; and
(xi) to make all other determinations (except a determination of "Cause" which
shall be made by a majority of the Board then in office) deemed necessary or
advisable for the administration of the Plan. All decisions, determinations, and
interpretations of the Committee shall be final and binding on all Participants
and any other holders of any Options granted under the Plan.
5. Eligibility.
(a) Options may be granted to Participants who, in the opinion of the
Committee, contribute significantly to the Company.
18
<PAGE>
(b) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding
such designations, to the extent that the aggregate Fair Market Value of the
Common Stock with respect to which Options designated as Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
(under all plans of the Company) exceeds $100,000, such Options shall be treated
as Nonqualified Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into account in
the order in which they were granted, and the Fair Market Value of the Common
Stock shall be determined as of the time the Option with respect to such Shares
is granted.
6. Term of Plan. The Plan shall become effective upon the latest of the
following two events to occur: (a) approval of the Plan by the stockholders of
the Company and (b) adoption of the Plan by the Board. The Plan shall continue
in effect for ten (10) years from the effective date, unless sooner terminated
in accordance with the provisions of section 15 of the Plan.
7. Terms of Options. Unless otherwise determined by the Committee and
set forth in the Option Agreement, Options granted pursuant to the Plan shall
have the following terms:
(a) The Option exercise period price of the Options shall be no more
than ten (10) years from the date of the grant.
(b) The per Share exercise price of the Options shall be determined by
the Committee and may be fixed at the time of grant, float in accordance with a
predetermined formula, or any combination thereof; provided, however, that (i)
in the case of Incentive Stock Options, the exercise price shall not be less
than 100% of the Fair Market Value of the Optioned Stock on the date of grant
(or 110% of the Fair Market Value of the Stock Optioned on the date of grant if
the optionee owns more their 10% of the Company's outstanding shares of Common
Stock) and (ii) in the case of Nonqualified Stock Options, the exercise price
may not be less then 75% of the Fair Market Value of the Optioned Stock on the
date of grant.
(c) Options shall be exercisable at such time or times as the Committee
shall determine at or subsequent to the grant date; and shall be subject to the
limitations on exercise as set forth in Section 8 below.
(d) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Committee at the time of grant and may be paid by tendering payment by
certified check, wire transfer of same day funds or bank check. The Committee
may determine, in its discretion, that additional forms of payment will be
permitted, including, but not limited to, by delivery of Shares held by the
Participant, together with any cash paid in connection with an exercise, having
a Fair Market Value equal to the exercise price. The Committee, in its
discretion, may at any time prior to the exercise of an Option determine that
certain forms of payment may not be available to a particular Participant.
8. Exercise of Option.
(a) Each option may be exercised in whole or in part; provided, however,
that no Option may be exercised for a fraction of a share. An Option shall be
deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option Agreement by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment
19
<PAGE>
may, as authorized by the Committee, consist of any consideration and method of
payment allowable under Section 7(d) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option.
(b) In no event shall any part of any Option be exercisable after the
date of expiration thereof (the "Expiration Date"), as determined by the
Committee pursuant to Section 7(a) above.
(c) Except as otherwise provided by the Committee in the Option
Agreement, any portion of a Participant's Option that was not vested and
exercisable on the date of the termination of such Participant's employment for
whatever reason shall expire and be forfeited as of such date; provided,
however, that: (i) if any Participant dies or becomes subject to any Disability,
such Participant's Option will expire 90 days after the date of his or her death
or Disability, but in no event after the Expiration Date, (ii) if any
Participant retires (with the approval of the Committee or the Board), his or
her Option will expire 90 days after the date of his or her retirement, but in
no event after the Expiration Date, and (iii) if any Participant is discharged
for any reason other than for Cause or voluntarily resigns from his or her
employment, such Participant's Option will expire 30 days after the date of his
or her discharge, but in no event after the Expiration Date; provided, further,
that (x) if the Participant is engaged in a Competitive Activity while employed
by the Company or any of its Subsidiaries or (y) if the Participant's employment
with the Company or any of its Subsidiaries is terminated for any reason
(including, without limitation, as a result of the Participant's voluntary
resignation) and within six (6) months after such termination Participant
engages in a Competitive Activity, then (I) such Participant's unexercised
vested Options shall be canceled immediately (and become unexercisable) and be
deemed void ab initio and (II) the Participant shall be required forthwith to
return to the Company, if the Company so elects, any shares of Common Stock
acquired by the Participant upon exercise of the Participant's Options during
the period commencing with the date that is six (6) months prior to such
termination and ending on the date that is six (6) months after such termination
in exchange for which the Company shall pay to the Participant the lesser of (1)
the exercise price paid by the Participant in respect of any such exercised
Options and (2) the then fair market value of such Option Shares as determined
by the Committee. The transferee of any Option Shares shall be bound by and
subject to the rights of the Company and obligations of the optionee under this
Section 8(c).
9. Non-Transferability of Options; Limitations on Transfer of Optioned
Stock.
(a) Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner, other than by will or
by the laws of descent or distribution, and may be exercised, during the
lifetime of the Participant, only by the Participant. In the event of the death
of a Participant, the exercise of Options granted hereunder shall be made only
by the executor or administrator of the estate of the deceased Participant or
the person or persons to whom the deceased Participant's rights under the Option
shall pass by will or the laws of descent and distribution.
(b) Except in connection with a Change of Control and then only upon the
authorization of the Committee (which authorization shall evidenced by a duly
adopted resolution of the Committee), no Participant shall be permitted to sell,
dispose, assign, hypothecate or otherwise transfer the Optioned Stock underlying
any Option until at least six months (or greater period of time as designated by
the Committee in such Participant's applicable Option Agreement) have elapsed
since the Participant acquired such Option.
20
<PAGE>
(c) 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 promulgated thereunder, and shall be exercisable during the optionee's
lifetime only by the optionee or the optionee's guardian or legal
representative.
10. Adjustments Upon Changes in Capitalization and Change of Control.
(a) In the event of a reorganization, recapitalization, stock dividend
or stock split, or combination or other change in the shares of Common Stock,
the Board or the Committee may, in its sole discretion, in order to prevent the
dilution or enlargement of rights under outstanding Options, make such
adjustments in the number and type of Shares authorized by or granted under the
Plan, the number and type of Optioned Stock and the exercise prices specified
therein as it may determine to be appropriate and equitable.
(b) The Company shall give each optionee holding unexercised Options
granted pursuant to this Plan at least fourteen (14) days prior written notice
of any Change of Control. In connection with a Change of Control, the Committee
in its sole discretion and at its option may take any of the following actions:
(i) permit all unexercised Options to continue to be
exercisable in accordance with the terms of this Plan, subject to the
vesting limitations set forth in this Plan, in which event each optionee
shall be entitled to receive, upon exercise of an Option and payment of
the exercise price therefor in accordance with the terms of this Plan, the
same number of shares of Common Stock, other securities or property
("Change of Control Consideration") as such optionee would have been
entitled to receive upon the occurrence of such Change of Control if such
optionee had been, immediately prior to such Change of Control, the holder
of the number of shares of Common Stock purchasable under such optionee's
Option,
(ii) terminate all outstanding Options, in which event all
optionees shall be entitled to receive cash in an amount equal to the
amount by which the fair market value of the Change of Control
Consideration exceeds the aggregate exercise price of their Options, or
(iii) accelerate the vesting of all outstanding Options in full at
the time of a Change of Control, in which event any such Options shall
terminate if not exercised as of the date of such Change of Control. Such
discretion may be evidenced in an Option Agreement and/or by resolution
duly adopted by the Committee.
(c) On the basis of information known to the Company, the Committee
shall make all determinations under this Section 10, and all such determinations
shall be conclusive and binding.
11. Written Agreement; Legend on Optioned Stock.
(a) Each Option granted hereunder to a Participant shall be embodied in
a written Option Agreement which shall be signed by the Participant and by a
duly authorized officer of the Company for and in the name and on behalf of the
Company and shall be subject to the terms and conditions prescribed herein.
(b) Each Certificate evidencing Optioned Stock shall contain an
appropriate legend with respect to restrictions on transfer imposed by
applicable federal and state securities laws and the following legend:
"The shares evidenced by this Certificate may
not be sold, disposed, assigned, hypothecated or
otherwise transferred until after [date designated
pursuant to Section 9(b) of this Plan], and then only
when accompanied by an authorization letter from
21
<PAGE>
counsel to the Issuer hereof that such sale,
disposition, assignment, hypothecation, or other
transfer is in conformity with (A) the Issuer's 1997
Stock Option Plan and (B) the Option Agreement
pursuant to which this Certificate was issued.
The shares evidenced by this Certificate are
subject to certain obligations of the registered
holder hereof to return such shares to the Issuer
hereof in certain circumstances as more fully set
forth in the Issuer's 1997 Stock Option Plan."
(c) The second legend set forth in Section 11(b) above shall not be
removed from a Certificate unless the optionee (who received the Option in
respect of which the Option Shares evidenced by such Certificate were issued)
furnishes the Company with a signed and notarized affidavit stating that such
optionee did not (i) engage in a Competitive Activity while employed by the
Company and (ii) if the optionee's employment relationship with the Company has
then been terminated, engage in a Competitive Activity during the six-month
period commencing with the date of such termination.
12. Listing, Registration and Compliance with Laws and Regulations.
Options shall be subject to the requirement that at any time the Committee shall
determine, in its discretion, that the listing, registration or qualification of
the Shares subject to the Options upon any securities exchange or under any
state or federal securities or other law or regulation, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Options or the issuance
or purchase of shares thereunder, no Options may be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the Company
with such certificates, representations and information as the Company shall
request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose any limitations
upon the exercise of an Option that, in the Committee's discretion, are
necessary or desirable in order to comply with such Section 16(b) and the rules
and regulations thereunder. If the Company, as part of an offering of securities
or otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
13. Rights of Participants. Nothing in this Plan shall (a) interfere
with or limit in any way the right of the Company to terminate any Participant's
employment at any time (with or without Cause), or (b) confer upon any
Participant any right to continue in the employ of the Company for any period of
time or to continue his or her present (or any other) rate of compensation.
Except as otherwise provided under this Plan or by the Committee in the Option
Agreement, in the event of any Participant's termination of employment, any
portion of such Participant's Option that was not previously vested and
exercisable will expire and be forfeited as of the date of such termination. No
Employee shall have a right to be selected as a Participant, or, having been so
selected, to be selected again as a Participant.
14. Withholding of Taxes. The Company shall be entitled, if necessary or
desirable, to withhold from any Participant from any amounts due and payable by
the Company to such Participant (or secure payment from such Participant in lieu
of withholding) the amount of any withholding or other tax due from the Company
with respect to any Shares issuable under the Plan, and the Company may defer
such issuance unless indemnified to its satisfaction. If permitted by the
22
<PAGE>
Committee, in its sole discretion, a Participant may elect to pay withholding
tax obligations by having the Company withhold Shares having a value equal to
the amount of tax required to be withheld. The value of the Shares to be
withheld shall equal the Fair Market Value of the Shares on the day the Option
is exercised.
15. Amendment, Suspension and Termination of Plan. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by
law, agreement or the rules of any exchange upon which the Common Stock is
listed, and no such amendment, suspension or termination shall impair the rights
of Participants affected thereby. No Options shall be granted hereunder after
the tenth anniversary of the adoption of the Plan.
16. Amendment, Modification and Cancellation of Outstanding Options. The
Committee may amend or modify any option in any manner to the extent that the
Committee would have had the authority under the Plan initially to grant such
Option; provided that no such amendment or modification shall impair the rights
of any Participant under any Option without the consent of such Participant.
With the Participant's consent, the Committee may cancel any Option and issue a
new Option to such Participant.
17. Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided, however, that any such Committee member shall be entitled
to the indemnification rights set forth in this Section 17 only if such member
has acted in good faith and in a manner that such member reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Committee member shall give the Company written
notice thereof and an opportunity, at its own expense, to handle and defend the
same before such Committee member undertakes to handle and defend it on his or
her own behalf.
18. Governing Law. This Plan shall be governed by and construed in
accordance with the corporate and internal laws of the state of Delaware without
giving effect to such State's conflicts of laws principles. Delaware is the
Company's jurisdiction of incorporation.
Adopted by Transition Analysis Component Technology, Inc.
Board of Directors on January 28, 1997, as amended by the Board
on November 3, 1997
23
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