UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File No. 0-11359
LARCAN-TTC INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-0854061
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
650 South Taylor Avenue, Louisville, Colorado 80027
State or other jurisdiction of (Zip Code)
incorporation or organization
Registrant's telephone number, including area code (303) 665-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None. None.
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.04 par value NASDAQ - Over the Counter
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
State registrant's revenue for it's most recent fiscal year: $5,436,000
The aggregate market value of the voting stock held by non-affiliates of
the registrants as of June 30, 1997 was $155,671 (based on the average of
the closing bid and asked prices on June 30, 1997)
The number of shares outstanding of the registrant's Common Stock, par value
$0.04, as of June 30, 1997 was 11,543,934 shares.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format ( check one ): Yes ( ) No (X)
This Form 10-KSB consists of 56 pages
INDEX
PART I
Page
Item 1 Description of Business 3
Item 2 Description of Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of
Security Holders 9
PART II
Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters 9
Item 6 Management's Discussion and Analysis
or Plan of Operation 10
Item 7 Financial Statements 13
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III
Item 9 Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Exchange Act 14
Item 10 Executive Compensation 16
Item 11 Security Ownership of Certain Beneficial
Owners and Management 17
Item 12 Certain Relationships and Related Transactions 18
Item 13 Exhibits and Reports on Form 8-K 19
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
LARCAN-TTC INC. (the Company) is a Delaware Corporation whose executive
offices and manufacturing plant are located at 650 South Taylor Avenue,
Louisville, Colorado 80027. The Company's principal telephone number is
(303) 665-8000. The Company has been in existence continuously since 1967
when it was incorporated as a Maryland corporation. It was reincorporated
in 1983 under the laws of the State of Delaware.
On October 15, 1993, Television Technology Corporation (TTC) sold to LARCAN
INC. (LARCAN) of Mississauga, Ontario, Canada, 3,636,364 shares of the
Company's authorized but previously unissued common stock for $1,000,000.
In addition, LARCAN acquired an additional 416,831 shares of the Company's
common stock from existing shareholders. As a condition of this purchase and
by vote of the shareholders of the Corporation at their annual meeting on
February 3, 1994, the TTC name was changed to LARCAN-TTC INC.
During June, 1995 LARCAN INC. subscribed for an additional 5,000,000 common
shares for $500,000 and for 500,000, 5% cumulative convertible, preferred
shares for $500,000. The subscribed shares were issued in October 1995.
LARCAN controls approximately 78 percent of the Company's outstanding common
stock as of June 30, 1997.
LARCAN was established in 1981 when the employees of Canadian General
Electric (CGE), in association with LeBlanc & Royle Enterprises Inc.,
purchased CGE's broadcast operation. LARCAN and its predecessor have been a
major supplier of VHF (Channels 2-13) television transmitters for over 35
years. LARCAN designs, manufactures, sells, and services VHF solid state
television transmitters with powers from 10 watts to 60,000 watts and has
recently manufactured and delivered 10,000 watt solid state UHF television
transmitters.
The Company is a fully integrated producer of television (TV) and FM radio
transmission equipment. At its Louisville, Colorado facility, the Company
designs, develops, and manufactures a variety of FM and television broadcast
transmitters/translators including low power television (LPTV) equipment and
high power UHF television equipment. The Company also provides system design
services, sells accessory items manufactured by the Company and others, and
performs installation as requested by its customers.
The Company's major products and markets are described below.
TRANSLATORS AND LOW POWER TELEVISION (LPTV)
Translators (sometimes known as transposers in the international marketplace)
function to rebroadcast the signal of a regular (primary) radio or TV station
automatically. They operate unattended, and retransmit the signal of the
primary station on a different (translated) channel. They are commonly
financed as a public service by local organizations or governmental entities.
They may also be owned and operated by primary stations to extend their
signal into areas which are not able to receive a clean signal (shadowed
areas) or to extend the station coverage area.
In contrast, LPTV stations have Federal Communication Commission (FCC)
authority to originate programs. Some of these stations operate a small
general purpose studio, while others maintain no studio, but continuously
transmit programs obtained from external sources. These purchased programs
may be delivered directly to the transmitter by satellite. While the low
transmitter power restricts the coverage area, LPTV stations operate under
much more flexible and less complex rules than traditional "full service" TV
stations. LPTV stations typically have much smaller start-up costs and
operating budgets. As a result, they are feasible as either commercial or
non-profit stations serving a small community or a specialized audience with
an interest in a particular programming format.
One watt to 1kW television products are normally considered by the Company to
be in the low power transmitter/translator class. The range of list prices
for the Company's line of translators and LPTV transmitters is $4,995 to
$45,000. This price is dependent primarily on the power level of the
transmitter, with special features, if any, also having an impact.
The Company believes that its continued commitment to the domestic
LPTV/Translator market has allowed the Company to maintain a reasonable share
of this market.
UHF HIGH POWER TELEVISION
Around the world, television broadcasting exists primarily in two bands, Very
High Frequency (VHF) and Ultra High Frequency (UHF). The VHF band which came
into use first, consists in the U.S. of Channels 2-13. The UHF band
consists, in the U.S., of Channels 14 - 69. The Company manufactures UHF
High Power transmitters. The Company does not manufacture VHF high power
transmitters.
The Company believes those agencies responsible for telecommunications around
the world will continue to authorize a steady expansion of the number of UHF
television stations.
Transmitters rated at greater than 1kW constitute the Company's UHF high
power television broadcasting line. In major metropolitan areas, UHF
transmitters may be rated as high as 280kW. The Company currently markets
"IOT/Klystrode type" transmitters ranging in output power from 10kW to 240kW.
The range of list prices for the Company's line of UHF high power
transmitters ranges from $250,000 to $2,000,000. The price is based
primarily on the power level of the equipment with special features and
design configurations also having an impact.
FM RADIO TRANSMITTERS
The Company offers solid-state FM radio transmitters/transposers. This
product line satisfies the technical requirements of the broadcast regulatory
authorities of most countries and sales are made throughout the world.
The FM transmitter generates the necessary power to carry the station's
program to the listening public on the assigned frequency. These
transmitters range in power from 30 watts to 12kW. Customers include
commercial and non-commercial broadcast organizations and governmental
entities worldwide.
The range of list prices for the Company's FM radio transmitters/transposers
is from $5,990 to $103,000. These prices are based primarily on the power
level of the equipment.
The Company's radio product line includes a power line surge protector
offered for use in all types of electronic installations. It also includes
an FM broadcast exciter which can be sold as a stand-alone 30-watt
transmitter or as an upgrade for older FM transmitters, regardless of
manufacturer. The current sales volume in these products continues to be
small but consistent.
SUPPLEMENTARY PRODUCTS AND ACCESSORIES
A number of products purchased by the Company from other manufacturers are
offered to complement the Company's own products. Typical items are
pre-amplifiers, filters, antennas, transmission line, studio equipment, and
test equipment. These products are obtained from a number of different
sources and no one supplier is considered critical. The Company estimates
that less than 10 percent of its sales for the fiscal year ended June 1997
was derived from the resale of these products, exclusive of products sold as
components of the Company's products or as part of an installed broadcast
system.
From time to time, at the specific request of the customer, the Company will
perform system design and/or coverage design services. The Company has
in-house expertise, or can obtain the necessary expertise, to perform these
services.
GOVERNMENTAL REGULATION
Suppliers of broadcast transmitters intended for use in the more developed
countries are generally required to obtain approval of the technical
characteristics of their transmitters from the appropriate regulatory
authority in their country. In the U.S., the Company must have FCC Type
Acceptance/Notice of its transmitters. FCC requirements are generally less
stringent than those imposed by competitive forces and, accordingly, the
Company generally does not experience difficulties obtaining Type Acceptances
for new or revised models. The Company has FCC Type Acceptances/Notices for
required products.
Customers of the Company constructing new broadcast stations of any class in
the U.S. generally must obtain a permit from the FCC. Such a permit is
granted to an applicant for an available channel based on an application
showing that the proposed station would meet the technical, legal, and
financial requirements of the FCC.
MARKETING
During fiscal 1997, the Company continued to refine its internal Sales and
Marketing Department and its technical service and support capabilities, with
the goal of exceeding industry standards. The Company continues to
investigate new ways to enhance its marketing effort and maximize its market
penetration. A more aggressive sales effort is being formulated for 1997 and
1998 along with pursuing greater synergy with the LARCAN sales force.
Domestic
The Company's rural translator business depends heavily on a network of
dealers who buy the Company's products, related supplementary products and
accessories at a discount and resell the equipment to an end user. This is
usually done as part of an installed system. In some instances, business
relationships between these dealers and employees of the Company have
continued for more than 20 years. In some circumstances the Company acts as
its own installer when contracted to do so and has the equipment, knowledge,
and personnel to complete these installations.
In the LPTV sector, equipment is sold both directly to an end user and
through distributors, some of whom focus on certain areas of interest (i.e.
religious, educational, etc.), rather than strictly on geographic areas. The
Company's internal sales/marketing staff coordinates, motivates, and assists
dealers/distributors as necessary, and makes direct sales to the Company's
end user customers when appropriate.
Beginning in fiscal 1994, the Company primarily focused its sales efforts for
high power transmitters in the United States through the efforts of LDL
Communications, Inc. (LDL) an affiliate company of LARCAN. LDL functions as
a dealer, and buys and resells LARCAN-TTC UHF high power transmitters for
resale in a stand-alone configuration or as a part of larger systems
containing materials from other manufacturers.
Sales by the Company to LDL were $1,472,000 and $1,646,000 for the fiscal
years ended June 30, 1997 and June 30, 1996 respectively. Transmitters are
custom built to the customer's specifications and thus are priced on an
individualized basis. In general, sales by the Company of transmitters to
LDL are priced to yield a maximum sales commission of 5%, which the Company
believes is less than what would be paid to an unaffiliated dealer. Such sales
accounted for 27% and 22% of total sales by the Company during the fiscal years
ended June 30, 1997 and 1996 repectively.
The Company's FM radio products are sold through a network of dealers and
representatives, and when appropriate, directly to end users.
International
On a regular basis the Company receives requests for quotations and proposals
from many parts of the world. There continues to be an upward trend in the
number of such requests which the Company believes is due to the increasing
breadth of the Company's product line and its increasing reputation in the
world market.
The Company exports directly to both end users and to dealers or agents.
Some of these dealers/agents are based in the destination country and others
concentrate on particular countries from a business location in the United
States. Internationally, the Company sells its high power transmitters to
end users directly paying a commission to independent manufacturers'
representatives where appropriate.
One of the major goals of the Company has been to achieve significant
penetration of the international low power and high power television markets
by making major sales to customers in developing countries. The Company will
continue to emphasize quality and customer satisfaction in expanding its
market share.
COMPETITION
The Company's products compete in the marketplace on the basis of their
performance characteristics, price, and the Company's reputation for the
quality of its products and service to its customers. Many of the Companies
competitors have substantially greater financial resources than the Company
has available. As a result the Company believes that some of its competitors
are better positioned to pursue the development and introduction of new
products.
In the translator and LPTV market, the Company and its three domestic
competitors ( Acrodyne, ADC/ITS, and EMCEE ) account for most of the sales
of television translators and LPTV transmitters in the United States.
In the UHF high power transmitter market, the Company competes against two
domestic manufacturers (Harris and Comark). The Company believes these
domestic competitors each have greater sales volume than the Company.
Additionally, there are other minor manufacturers of directly competing
equipment which the Company believes account for less than 5 percent of the
domestic market.
In the international market, large companies such as NEC, Thomcast, Marconi,
Harris, Itelco and Rhode & Schwarz dominate in most developed countries due
to their long-standing and well-established direct sales organizations.
Developing countries currently offer the greatest potential for the Company's
products. The growing emergence of non-state controlled broadcast stations,
both FM and TV, continues to represent new and growing opportunities for the
Company's products.
The Company estimates there are more than 25 FM radio transmitter
manufacturers worldwide, several of which are substantially larger than the
Company. Almost half of these firms actively compete with the Company. The
Company believes several competitors have significantly greater sales volume
of these products than the Company.
PRODUCT DEVELOPMENT
The Company's engineering and support group pursues product development
efforts aimed at improving current products and developing new products.
Only a small effort is made toward applied research and none towards
fundamental research. The Company expended $726,000, and $898,000
respectively, for research and development during fiscal 1997 and 1996.
Reduction in R&D costs resulted from the suspension of the development of the
high power products of the RMS series. After a detailed review of the
RMS 1000 portion of the development program, it became doubtful that the
product would be cost competitive.
The Company's product development efforts, including efforts targeted at
the emerging high definition television market have been adversely affected
by the Company's financial position. The Company's working capital and cash
flow deficiency have caused the Company to delay and curtail certain
development efforts.
SINGLE SUPPLIERS
Most materials and equipment used in manufacturing the Company's products
are available from more than one supplier and many are available from numerous
suppliers. While the Company's transmitters have been developed using some
component parts from a particular vendor, it is the Company's believe that,
with only moderate redesign efforts, a transition to another supplier could
be made. The Company strives to maintain good relationships with these
suppliers and is not aware of any plans that any of these suppliers have to
discontinue supplying these materials and components.
CUSTOMERS
A domestic high power sale accounted for 10% of the Company's sales in
fiscal 1997.
Sales to foreign customers are subject to unique risks which are not present
in sales to domestic customers. The Company attempts to mitigate these risks
by carefully considering the political and economic conditions in a foreign
country along with the financial viability of its customer before doing
business there. Generally, sales to foreign customers are priced in U.S.
dollars to avoid currency fluctuations and are sold under irrevocable letters
of credit, confirmed by a major U.S. bank, when the political, economic, or
financial viability is uncertain.
EMPLOYEES
As of June 30, 1997 the Company employed 48 full-time employees at its
headquarters in Louisville, CO. The Company's employees are not covered by
any collective bargaining agreement and management believes its employee
relations are satisfactory.
ITEM 2. PROPERTIES
The Company occupies a 44,000 square foot facility in Louisville, Colorado
under a five-year non-cancelable operating lease, expiring on April 30, 1998.
All manufacturing, warehousing, marketing, engineering, and administrative
functions are based at this location.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently engaged in litigation concerning the collection of
an outstanding accounts receivable. There are no material legal proceedings
to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended June 30, 1997 there were no matters submitted
for a vote of the security holders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been trading on the OTC Bulletin Board under
the trading symbol LTTC.
The high and low bid price for the Company's common stock for each quarter of
the last two fiscal years is shown below. The prices represent quotations
between dealers and do not include retail mark-ups, mark-downs, or
commissions and do not necessarily represent actual transactions.
Quarter Ending High Low
September 30, 1995 6/16 3/16
December 31, 1995 6/16 3/16
March 31, 1996 6/16 3/16
June 30, 1996 6/16 3/16
September 30, 1996 4/16 3/16
December 31, 1996 1/16 1/16
March 31, 1997 1/16 1/16
June 30, 1997 1/16 1/16
At June 30, 1997, the approximate number of holders of the Company's common
stock was 475, including both record and beneficial shareholders in security
position listings.
The Company has not declared or paid any cash dividends on its common stock
and has no present intention of declaring such dividend in the future.
Subsequent to June 30, 1997, the Board of Directors of the Company approved
an agreement proposing a Merger between the Company and a wholly owned
subsidiary of LARCAN. The merger, which is subject to shareholder approval,
will, when completed, result in the Company being the surviving entity and
becoming a wholly owned subsidiary of LARCAN. A Proxy Statement with respect
to the Merger will be sent to all stockholders of record at the appropriate
time.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
For the fiscal year ended June 30, 1997 the Company reported a net loss of
$2,353,000. This compares to a net loss of $2,326,000 for the fiscal year
ended June 30, 1996. Overall sales decreased 27% from 1996. Sales were
adversely impacted by the hesitancy of broadcasters to place orders for high
power product due to the uncertainty surrounding the market situation for
digital TV. Radio revenues also decreased during the year due to no large
international order comparable to the one for Saudi Arabia in 1996. Sales of
low power TV products increased by 11% in fiscal 1997 as quality and
reliability issues addressed previously had a positive impact.
Cost of sales as a percent of net sales in fiscal 1997 were 94% compared to
98% in fiscal 1996. As a result gross margin, as a percentage of sales,
increased in fiscal 1997 to 6% from 2% in fiscal 1996. Improved cost control
especially in manufacturing overhead and in distribution costs, coupled with
a modest selling price increase were the primary reasons for improvement
which was seen mostly in the core low power TV product line. While an
increase was achieved, the 6% level of gross margin attained remains well
below industry standards for companies profitability engaged in the
development, production and sale of products like those of the Company. The
Company continues to be challenged in its efforts to reduce manufacturing
costs and improve margins with respect to all of its product lines.
Selling, general, and administrative (S,G & A) expenses decreased 5% from
fiscal 1996 to fiscal 1997. These expenses were reduced from $1,573,000 in
1996 to $1,489,000 in 1997. However due to the reduced revenue base,
selling, general, and administrative costs increased as a percent of sales
from 21% in fiscal 1996 to 27% in fiscal 1997.
Selling expenses were reduced 23% from the prior fiscal year. Selling
expense fell from $574,000 to $444,000 in 1997. A smaller in-house sales
force coupled with lower travel expenses contributed to the majority of the
reduction in selling expense. A better utilization of space at the National
Association of Broadcasters show also held costs down.
General and Administrative costs increased 5% in comparison to fiscal 1996
from $999,000 to $1,045,000. An increase in staffing to enhance customer
service response time was a major factor. Other costs were held to general
inflation or reduced.
Research and product development costs, reflecting the changing emphasis
from high power projects to low power improvements, were reduced during the
year by $172,000 or 19% from the the prior year. As a percentage of revenues,
however spending increased slightly from 12% in fiscal 1996 to 13% in 1997.
The Company experienced unexpected development costs associated with a new
transmitter expected to be marketed in the current fiscal year. It became
evident that the revenue stream originally projected would not occur in the
near future and that engineering and other development costs were exceeding
projections. As a result the Company suspended this particular project and
concentrated on new marketing efforts for existing products. In addition the
Company defined more modest engineering objectives focused on current product
enhancements and cost reductions. It is believed by the Company that this new
focus is more appropriate for current market conditions.
The reduction in research and product deelopment costs is also attributable,
in part, to the financial condition of the Company. The Company's working
capital deficit and cash flow deficiency have led to delays in product
development.
Interest expense increased dramatically in recognition of the interest due
the Company's major stockholder, LARCAN, on advances made for working
capital and other purposes. The fiscal 1997 adjustment for interest due on
these advances was $420,000. Other interest expense decreased during the
year from $21,000 in 1996 to $16,000 in 1997. This reflects a decreasing
balance on the bank line of credit.
Liquidity and Capital Resources
During fiscal 1997 cash advances from LARCAN of $2,650,00 (excluding
interest) were used primarily to reduce trade payables (including
intercompany payables) from $2,108,000 as of June 30, 1996 to $534,000 at
June 30, 1997. As noted in the opinion of the Company's independent auditors
there is substantial doubt about the Company's ability to continue as a going
concern.
The deficiency in working capital grew to $6,099,000 versus $108,000 of
working capital in fiscal 1996 primarily due to the reclassification of
shareholder advances as a current liability in fiscal 1997. Had shareholder
advances been classified as a current liability in the prior fiscal year
the comparable working capital deficiency would have been $3,717,000 at June
30, 1996.
Subsequent to fiscal 1997 the Company re-negotiated its bank line of credit
reducing the outstanding balance to $75,000 with an additional $75,000 term
note. The line of credit note is due June 1, 1998 and the term note expires
September 15, 1998.
As of June 30, 1997 the Company had cash and short term investments of
$65,000, other current assets of $2,387,000 and current liabilities
(including the note to LARCAN) of $8,551,000. The Company's current ratio at
June 30, 1997, was .29, compared to 1.04 at June 30, 1996. The major impact
was the increase in cash advances from LARCAN during the year. Had shareholder
advances been classified as a current liability in the prior fiscal year the
comparable current ratio would have been .45 at June 30, 1996.
Due to the Company's current cash flow constraints, there are no current
plans for significant capital expenditures. In addition, until the Company's
operations provide adequate working capital, the Company will be dependent on
LARCAN for its cash needs. The cash needs of the Company are expected to remain
at current levels until such time as the operating efficiencies of overhead
consolidation with LARCAN are achieved.
Transmitter Industry Overview and Effect of Recent Developments on Operations
During 1997 the Company saw the Federal Communications Commission (FCC) adopt
a transmission standard for digital television (DTV). Under the FCC DTV
rules each primary broadcaster in the U.S. has been offered a second channel
to be used for the broadcast of a DTV signal while still continuing to
broadcast the current broadcast standard. The market demand for DTV
transmitters is expected to develop rapidly over a very few years,
necessitating a substantial development effort on the Company's part in order
to participate in this opportunity.
While, as stated above, the Company believes it has maintained a reasonable
share of the domestic LPTV/Translater market, a decline in its traditional
market is forecast due to the uncertainties surrounding the introduction of
DTV to the U.S. marketplace. A significant portion of LPTV stations
presently in service may be forced to cease broadcasting due to interference
created with newly deployed DTV channels. This uncertainty is apt to prevail
through the transition from analog to digital service in the U.S.
Forward Looking Statements
This annual report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act which are intended to be covered by the safe harbors created thereby.
These statements include the plans and objectives of management for future
operations based on current expectations that involve numerous risks and
uncertainties. These plans involve judgments with respect to, among other
things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this annual report will prove to be accurate. In
light of the significant uncertainties inherent in forward-looking
statements, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
ITEM 7. FINANCIAL STATEMENTS
Attached hereto and filed as a part of this Form 10-KSB are the financial
statements listed in the Index to the Financial Statements at page F-1.
The following documents are filed as part of this Form 10-KSB:
Page
Independent Auditors' Report on Financial Statements ............... F-1
Balance Sheets as of June 30, 1997 and June 30, 1996 .............. F-2
Statements of Operations for each of the two years in the period
ended June 30, 1997 ............................................... F-3
Statement of Stockholders' Deficit for each of the two years in
the period ended June 30, 1997 ..................................... F-4
Statements of Cash Flows for each of the two years in the period
ended June 30, 1997 ............................................... F-5
Notes to Financial Statements ..................................... F-6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes in nor disagreements with accountants on any matters of
accounting and financial disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, addresses, ages and terms of office of the executive officers and
directors of the Company are:
Name and Address Age Office Term Expires
G. James Wilson 63 President, Director 1997
650 S. Taylor Ave
Louisville, CO 80027
James D. Adamson 51 Director 1997
228 Ambassador Drive
Mississauga, Ontario Canada L5T 2J2
Paul A. Dickie 55
Chairman of the Board
1997
514 Chartwell Road
Oakville, Ontario Canada L6J 5C5
Dirk B. Freeman 62 Director 1997
650 S. Taylor Ave
Louisville, CO 80027
Nancy E. McGee 45 Director 1997
514 Chartwell Road
Oakville, Ontario Canada L6J 5C5
Byron W. St. Clair 72 Director 1997
650 S. Taylor Ave
Louisville, CO 80027
MEMBERS OF THE BOARD OF DIRECTORS
Paul A. Dickie has been a Director of the Company since October 15, 1993.
He joined LeBlanc & Royle Telcom Inc. as Controller in 1972. During his
years at LeBlanc & Royle, he rose steadily through the corporate ranks to his
current position as President of LeBlanc & Royle Enterprises Inc. He
oversees the operations of several of the companies in the LeBlanc Group and
is a member of the Board of Directors of LeBlanc & Royle Enterprises Inc. and
a number of its subsidiaries. Prior to joining LeBlanc & Royle, Mr. Dickie
was employed by Touche Ross, and Company, Chartered Accountants. While at
Touche Ross, he received his CA designation.
Dirk B. Freeman has been a Director of the Company since March 31, 1990.
He has a 41-year engineering and management history in the broadcast
industry. During the period from March 1987 to October 1988, he was the Vice
President of Marketing at the Company. Mr. Freeman started as a Broadcast
Engineer in the U.S. Army. After the service, he spent a four-year period on
the staff of the University of Michigan. In 1961, Mr. Freeman joined the
Broadcast Division of RCA. In the next 21 years, he held a number of
increasingly responsible engineering, sales, operations, and marketing
management positions at RCA. In 1982, Mr. Freeman left RCA to form Blair
Media,INC., a consulting firm. After founding Blair Media, Mr. Freeman was
engaged in a number of sucessful projects in broadcast management. In March
1990 Mr. Freeman was elected to the Board of Directors. From March 1990 to
October 1994 he served as President of the Company. In October of 1995 Mr.
Freeman resumed his activities with Blair Media. Mr. Freeman attended Virginia
Polytechnic Institute majoring in Business Administration. He is also a
graduate of the U.S. Army War College and a retired Colonel in the U.S.
Army reserve.
Nancy E. McGee has been a Director of the Company since October 15, 1993.
She joined LeBlanc & Royle in 1978 as Controller. Since that time, as the
company grew and invested in various other businesses, she assumed the role
of Senior Vice President. She is actively involved in the finance and
management areas of several companies in the LeBlanc group. Before joining
LeBlanc & Royle, Mrs. McGee was employed by Touche Ross & Co. where she
received her designation as a chartered accountant. Mrs. McGee serves on
the Boards of LeBlanc & Royle Enterprises Inc. and a number of its
subsidiaries.
Byron W. St. Clair, Ph.D has been a Director of the Company since its
inception in 1967. Dr. St. Clair was Chief Executive Officer from the
inception of the Company to March 1988 and from January 1990 to March 1990.
He was one of the founders and, from 1960 to 1965, the first President of
Electronics, Missiles and Communications, Inc. From 1957 to 1960 he was
Director of Reasearch and Development for Alder Electronics, Inc. In these
respective time periods, these two companies were the dominant manufacturers
of translators. From 1965 to 1967, he was General Manager of Hammarlund Mfg.
Company and from 1967 to 1970, Vice President of Racal Communications, Inc.
Dr. St. Clair recieved his B.S. and M.A. degrees from columbia University and
a Ph.D. in physics from Syracuse University.
James D. Adamson has been a Director of the company since May 9, 1996. He
joined LARCAN INC. in 1982 after serving in various capacities within
Canadian General Electric. In April 1993 he became Vice President of
Marketing for LARCAN INC. and in April 1996 he succeeded P. Clyde Turner as
President. Also in April 1996 he was appointed to the Board of Directors of
LARCAN INC..
G. James Wilson was appointed President and CEO in late fiscal year 1995
and has been a Director of the Company since October 15, 1993. He has been
associated with the Broadcast Industry since 1962. Prior to joining the
LeBlanc Organization, he was with Andrew Corporation in the position of
Canadian sales manager. He joined LeBlanc and Royle in 1977 as Sales
Manager. As the company grew, his responsibilities increased, and he assumed
the role of Vice President, Sales and Marketing. In 1984, a decision was
made to form a U.S. sales and marketing organization to focus on the U.S.
broadcast market. LDL Communications was formed, and Mr. Wilson was appointed
to the position of President. LDL is responsible for the sales and marketing
of the products manufactured by LARCAN, LeBlanc, RFS, and LARCAN-TTC. Mr.
Wilson serves on the board of LeBlanc & Royal Enterprises Inc., and other
boards within the organization.
ITEM 10. EXECUTIVE COMPENSATION
During fiscal 1997, James Wilson was compensated through an affiliated
entity. Compensation expense allocated from the affiliate was deemed
immaterial to the Company.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no options granted to executive officers in fiscal 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
There are no aggregated options or options exercised by executive officers as
of and during the year ended June 30, 1997.
LONG-TERM INCENTIVE PLAN AWARDS
None.
COMPENSATION OF DIRECTORS
The Company paid no compensation to non-employee directors during the fiscal
year ended June 30, 1997.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None.
REPORT ON REPRICING OF OPTIONS/SARs
None in 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table displays certain information, as of June 30, 1997 with
respect to (a) each person who is known by the Company to be the beneficial
owner of more than five percent of the Company's Common Stock (voting
securities) and/or Preferred shares, (b) each director of the Company and all
nominees for director, and (c) all officers and directors of the Company as a
group. All stock ownership shown below is direct unless otherwise indicated.
Number of Shares Percent
Name and Address Owned Beneficially of Class
LARCAN INC. 1)
14,053,195
84.94
228 Ambassador Drive
Mississauga, Ontario
Canada L5T 2J2
Paul A. Dickie None -----
Chairman of the Board
514 Chartwell Road
Oakville, Ontario Canada L6J 5C5
Dirk B. Freeman 905,803 5.48
Director
650 South Taylor Avenue
Louisville, CO 80027
Nancy E. McGee None ------
Director
514 Chartwell Road
Oakville, Ontario Canada L6J 5C5
James Adamson None ------
Director
650 South Taylor Avenue
Louisville, CO 80027
Dr. Byron W. St. Clair 517,379 3.13
Director
650 South Taylor Avenue
Louisville, CO 80027
G. James Wilson None ------
Director
650 South Taylor Avenue
Louisville, CO 80027 _____________ ____________
All Officers and Directors as a Group
15,476,377
93.55
All Others 1,067,557 6.45
Total Outstanding Shares
16,543,934
100.00
Series A, 5% Cumulative, Convertible Preferred shares
Number of Shares Percent
Owned Beneficially of Class
LARCAN INC. 500,000 100.00
228 Ambassador Drive
Mississauga, Ontario
Canada L5T 2J2
Includes 5,000,000 shares of Common Stock issuable upon conversion of
Series A, 5% Cumulative Convertible Preferred shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Subsequent to June 30, 1997 the Board of Directors of the Company agreed to a
proposed merger between the Company and a wholly owned subsidiary of LARCAN
with the Company as the surviving entity. Under the terms of the agreement
each outstanding share of Common Stock of the Company (other than those owned
by LARCAN) shall be cancelled in exchange for $.0625 which is the price equal
to the trading price for the 30 days preceding the merger agreement. As a
result of the merger the Company will become a wholly owned subsidiary of
LARCAN. The merger is subject to shareholder approval.
LDL, an affiliate of LARCAN, acts as a dealer, and buys and resells, the
Company's UHF high power transmitters. Sales by the Company of such transmitters
to LDL were $1,472,000 and $1,646,000 for each of the fiscal years ended June
30, 1997 and 1996, respectively.
From time to time, LARCAN furnishes engineering, technical and other support
to the Company. LARCAN charges the Company for the use of such personnel on its
customary fee schedule to thrid parties.
The following is a summary of significant transactions with affiliated
companies:
Advances from stockholder
The Company receives advances from its major stockholder, LARCAN, for working
capital and other purposes. These advances are subordinate to bank debt, and
were non-interest-bearing and unsecured, with no fixed terms of repayment
through August 1, 1996. In August 1996, LARCAN formalized its advances into
a $10,000,000 note payable with interest at 8%, collateralized by substanially
all the assets of the Company, subject to the bank debt. The note is currently
due. The Company had total borrowings from LARCAN of $6,895,000 (including
$420,000 of accrued interest) and $3,825,000 at June 30, 1997 and 1996,
respectively.
Sales to affiliates
Sales to an affiliate of the Company's major stockholder, LARCAN, were
approximately $1,570,000 and $792,000 for the years ended June 30, 1997 and
1996, respecively. Amounts owed at June 30, 1997 and 1996 by affiliates were
$96,000 and $792,000, respectively. Amounts owed to affiliates at June 30, 1997
and 1996 were $78,000 and $698,000 respectively.
Sales by the Company to LDL were $1,472,000 and $1,646,000 for the fiscal years
ended June 30, 1997 and June 30, 1996 respectively. Such sales accounted for
27% and 22% of total sales by the Company during the fiscal years ended June 30,
1997 and 1996 respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
1. Exhibits incorporated by reference
(A) Articles of Incorporation (1)
(B) Amendment to Certificate of Incorporation filed March 5, 1987 (4)
(C) Amendment to Certificate of Incorporation filed July 10, 1990 (6)
(D) Amendment to Certificate of Incorporation filed June 9, 1992 (8)
(E) Amendment to Certificate of Incorporation filed February 2, 1994 (9).
(F) By-Laws (1)
(G) Amendments to By-Laws dated March 21, 1986 (4)
(H) Specimen of Common Stock Certificate (1)
(I) The Television Technology Corporation Employee Stock Ownership Plan, as
amended and restated (4)
(J) Television Technology Corporation Stock Option Plan, as amended (4)
(K) Contract for Technology Transfer and Cooperation - Shina National
Electronic Technology Import and Export Corporation and Anshan
Broadcasting Equipment Plant (2)
(L) Real property lease dated July 27, 1987 for Louisville, Colorado facility
(5)
(M) LARCAN stock purchase agreement (9)
Notes
(1) These exhibits are incorporated by reference from the corresponding
exhibits to the Company's Registration Statement on Form S-18, as
amended, SEC File No. 2-84666-D.
(2) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1986.
(3) This is incorporated by reference to Form 8-K filed April 7, 1986.
(4) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1987.
(5) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1989.
(6) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1990.
(7) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1991.
(8) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1992.
(9) This is incorporated by reference to Form 10-K filed for the year ended
June 30, 1995.
2. The following documents are annexed hereto:
(N) Merger Agreement dated July 17, 1997
(O) Loan Agreement made between Larcan Inc. and Larcan TTC Inc. dated August
1, 1996
(P) Refinancing Agreement made between Larcan Inc. and Larcan TTC Inc. dated
August 1, 1996.
27. Financial Data Schedule
(B) Reports on form 8-K During the last quarter of the period covered by
this report the registrant did not file any report on Form 8-K.
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.
Date: September 29, 1997 LARCAN-TTC INC.
(Registrant)
By: ss\ G.James Wilson
G. James Wilson
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date
ss\ Paul A. Dickie 9/29/97
Paul A. Dickie
Chairman of the Board
ss\ Byron W. St. Clair 9/29/97
Byron W. St. Clair
Chairman of the Board Emeritus
ss/ James D. Adamson 9/29/97
James D. Adamson
Director
ss/ Dirk B. Freeman 9/29/97
Dirk B. Freeman
Director
ss/ Nancy McGee 9/29/97
Nancy McGee
Director
ss/ G. James Wilson 9/29/97
G. James Wilson
Director
EXHIBIT N
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July 17, 1997 by
and among Larcan Inc., a Canadian corporation ("Larcan"), Larcan Sub, Inc., a
Delaware corporation and wholly-owned subsidiary of Larcan ("LSI"), and
Larcan-TTC Inc., a Delaware corporation ("LTTC"). (LSI and LTTC are referred
to herein collectively as the "Constituent Corporations").
RECITALS
WHEREAS, the Boards of Directors of Larcan and LTTC each have determined
that it is in the best interests of their stockholders to effect the merger
provided for herein upon the terms and subject to the conditions set forth
herein; and
NOW THEREFORE, in consideration of the premises, and of the agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
The Merger; Effective Time
1.1 The Merger. At the Effective Time (as defined in Section 1.2) LSI shall
be merged with and into LTTC and the separate corporate existence of LSI
shall thereupon cease (the "Merger"). LTTC shall be the surviving
corporation in the Merger (the "Surviving Corporation") and shall continue to
be governed by the laws of the State of Delaware, and the separate corporate
existence of LTTC with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger shall have
the effects specified in the Delaware General Corporation Law (the "DGCL").
1.2 Effective Time. The Merger shall be effective at 5:00 p.m. Eastern Time
on the day on which a Certificate of Merger is filed with the Secretary of
State of Delaware (the "Effective Time").
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1 The Certificate of Incorporation. The Certificate of Incorporation of
LTTC in effect at the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL.
2.2 The By-Laws. The By-Laws of LTTC in effect at the Effective Time shall
be the By-Laws of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1 Officers and Directors. The directors of LSI at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation and the officers of LTTC shall, from and after the Effective
Time, be the officers of the Surviving Corporation, in each case until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws and the DGCL.
ARTICLE IV
Effect of the Merger on Capital Stock
4.1 At the Effective Time, by virtue of the Merger and without any action on
the part of the holders of any capital stock of the Constituent Corporations:
(a) Each share of the Common Stock, par value $.01 per share, of LSI
(the "LSI Shares") issued and outstanding immediately prior to the Effective
Time shall be converted into one share of the Common Stock, par value $0.04
per share of LTTC (the "LTTC Shares").
(b) Each LTTC Share issued and outstanding immediately prior to the Effective
Time (other than those owned by Larcan) shall be cancelled at the Effective
Time in exchange for the Merger Consideration (as defined below).
(c) Each LTTC Share issued and outstanding immediately prior to the Effective
Time that is owned by Larcan shall be cancelled at the Effective Time without
any consideration therefor.
(d) As used herein Merger Consideration means $0.0625, which equals the sale
price of each and every LTTC Share traded on its principal trading market for
the 30 trading days immediately prior to the date hereof.
(e) At and after the Effective Time, each holder of a certificate or
certificates theretofore representing LTTC Shares ("OLD LTTC Shares") that
were converted into the Merger Consideration in the Merger (a "Certificate")
may surrender the same to LTTC or its agent for cancellation, and each such
holder shall be entitled upon such surrender to receive in exchange therefor
a check in an amount equal to the aggregate amount of cash to which such
holder is entitled to be paid pursuant to this Article IV, without interest.
Until so surrendered, each Certificate, after the Effective Time, shall be
deemed for all purposes to evidence the right to receive such payment. If any
amount is to be paid to a person other than the person to which the Certificate
surrendered for exchange is issued, the Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and the person
requesting such exchange shall affix any requisite stock transfer tax stamps
to the Certificate surrendered or provide funds for their purchase or establish
to the reasonable satisfaction of LTTC or its agent that such taxes are not
payable.
(f) At the Effective Time, the stock transfer books of LTTC shall be closed
regarding Old LTTC Shares and no transfer of Old LTTC Shares shall thereafter
be made or recognized. Any other provision of this Agreement
notwithstanding, neither LTTC nor its agent nor any party to the Merger shall
be liable to a holder of Old LTTC Shares for any amount paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Notwithstanding any other provision hereof, any holder of Old LTTC Shares
that perfects appraisal rights under the Section 262 of the DGCL shall have
their Old LTTC Shares converted into the consideration determined in
accordance with such statute.
ARTICLE V
Conditions; Termination
5.1 Conditions. Consummation of the Merger shall be subject to satisfaction
of the following conditions (unless waived by Larcan):
(a) The stockholders of LTTC shall have approved this Agreement and the
Merger by the vote required under the DGCL.
(b) No inquiry, action or proceeding which, in the opinion of Larcan, is
material shall have been instituted to restrain or prohibit the carrying
out of the transactions contemplated by this Agreement or to challenge
the validity of such transactions or any part thereof, or seeking
damages on account or as a result thereof.
(c) There shall have been no material adverse change in the financial
condition, results of operations, business or prospects of LTTC since
March 31, 1997.
(d) All required consents and approvals shall have been obtained, all other
requirements prescribed by law which are necessary to the consummation of
the transactions contemplated hereby shall have been obtained, and all
statutory waiting periods in respect thereof shall have expired.
5.2 Termination. This Agreement may be terminated and the Merger abandoned
as follows:
(a) Larcan and LTTC may terminate this Agreement at any time prior to the
Effective Time, before or after the approval by the stockholders of LTTC,
by their mutual agreement;
(b) Larcan may terminate this Agreement at any time prior to the Effective
Time if it concludes in good faith that
( i) there has been a material adverse change in the financial condition,
results of operations, business or prospects of LTTC since March 31,
1997, or
(ii) any of the conditions specified in Section 5.1 is unlikely to be
satisfied in a timely manner.
5.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article V,
no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement.
ARTICLE VI
Miscellaneous and General
6.1 Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, Larcan and LTTC may modify
or amend this Agreement, by written agreement executed and delivered by
their duly authorized officers.
6.2 Counterparts; Effectiveness. For convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement. This Agreement
shall become effective when duly executed and delivered by Larcan and
LTTC. Larcan shall use reasonable efforts to form LSI promptly and shall
cause LSI to execute and deliver this Agreement promptly after its
formation.
6.3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws thereof.
6.4 Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions
hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
LARCAN INC.
By: SIGNED: "JAMES D. ADAMSON"
Name:
Title: President
LARCAN SUB, INC.
By: SIGNED: "JAMES D. ADAMSON"
Name:
Title: President
LARCAN TTC INC.
By: SIGNED: "G. JAMES WILSON"
Name:
Title: President
EXHIBIT O
This LOAN AGREEMENT (Agreement) is made and entered into as of the 1st day
of August, 1996, by and between:
LARCAN-TTC INC.,
a Delaware Corporation
(Borrower)
- and -
LARCAN INC., a corporation established under
the Canada Business Corporations Act, one of
the Statutes of Canada
(Lender)
(Individually a Party and collectively the Parties)
In consideration of the mutual covenants and agreements hereinafter set
forth, the Parties hereby agree as follows:
ARTICLE I
LOAN
1.1 LOAN
Subject to and in accordance with the terms and conditions of this Agreement
and in reliance upon the representations, warranties and covenants of
Borrower hereinafter set forth, Lender hereby agrees to lend to Borrower an
aggregate amount not to exceed in principal the sum of Ten Million United
States Dollars ($10,000,000.00USD) (the Loan) in such advances (including the
principal amount of advances heretofore made by Lender to Borrower) as may be
made to Borrower from time to time as required for use ofloan proceeds as
hereinafter stipulated.
1.2 PROMISSORY NOTE
The Loan shall be evidenced by a promissory note substantially in the form
of that attached hereto as Annex l.2 (the Note), which Note Borrower shall
execute and deliver to Lender at Closing.
1.3 INTEREST
1.3.1 The amount of principal from time to time outstanding under the
Note shall bear interest at the rates set forth herein both before
and after Default and before and after maturity and judgement.
Except as otherwise provided in Section 1.8, the unpaid principal
amount of the Note shall bear interest, if there is no Default, at
the rate of eight percent (8%) per annum, calculated monthly.
Past-due interest shall bear interest at the rate set forth in
Section 1.8 to the fullest extent permitted by applicable law.
1.3.2 Interest accrued on the amount of principal from time to time
outstanding under the Note shall be due and payable on the first
day of each and every month, commencing on the first day of
September, 1996.
l.4 PRINCIPAL
Principal is to be repaid on demand, or if no demand, on the 1st day of
August, 1997.
l.5 SECURITY
Payment and performance of the Obligations (as that term is hereinafter
defined) when due shall be secured as follows:
l.5.l SECURITY AGREEMENT
Borrower shall grant a security interest to Lender covering the property
described in a security agreement (the Security Agreement), in form
satisfactory to Special Counsel to Lender and duly executed on behalf of
Borrower and delivered to Lender at Closing.
The Liens and security interests stipulated for under this Section l.5 shall
be subordinate and inferior in priority only to Permitted Encumbrances.
l.6 DELIVERY OF DOCUMENTS AND INSTRUMENTS NECESSARY TO PERFECT SECURITY
INTERESTS
To the extent available, evidence of the completion of all recordings,
registration and filings as may be necessary or, in the reasonable opinion of
Special Counsel to Lender, desirable to perfect or preserve Liens and
security interests in the Collateral including, without limitation and to the
extent available, the acknowledgement copy of each Form UCC-l financing
statement duly filed under the Uniform Commercial Code of any jurisdiction as
may be necessary or, in the reasonable opinion of Special Counsel, desirable to
perfect the security interests and Liens created by the Collateral Documents,
shall be delivered by Borrower to Lender.
l.7 PRINCIPAL PREPAYMENTS
Borrower may prepay the whole or any part of the unpaid principal amount of
the Note without notice or bonus, provided that, if less than the whole is
prepaid, the amount prepaid shall, unless the Lender shall otherwise agree,
be in the amount of $50,000.00 or any multiple thereof, and provided also
that any prepayment of principal is to be accompanied by a payment of
interest accrued on the amount prepaid to the date of actual payment.
l.8 LATE PAYMENTS
If there is a Default, all amounts payable under the Note shall, to the
extent permitted by applicable law, bear interest at rate of 10%, compounded
monthly.
l.9 COMPUTATION OF INTEREST AND FEES
All computations of interest and fees under any Loan Document shall be
calculated on the basis of a year containing 360 days, and the actual number
of days elapsed.
l.l0 PAYMENT ON NON-BANKING DAYS
If any payment to be made by Borrower or any other Party under any Loan
Document shall come due on a day other than a day on which Lender is open for
business, payment shall be made on the next succeeding business day of Lender
and the extension of time shall be reflected in computing interest.
ARTICLE 2
DEFINITIONS AND ACCOUNTING TERMS
2.l DEFINED TERMS
As used in this Agreement, the following terms shall have the meanings set
forth respectively after each, in addition to other terms defined in this
Agreement:
Agreement means this Loan Agreement, either as originally executed or as it
may from time to time be supplemented, modified, amended, restated or extended.
Bank One means Bank One, Colorado, N.A..
Bank One Loan Agreement means that certain Loan Agreement by and between
Bank One and Borrower, originally dated October 30, 1994, as the same may be
amended from time to time.
Borrower means Larcan-TTC Inc., a Delaware corporation.
Closing shall mean the delivery of all of the documents required by Section
3.l hereof to be executed and delivered.
Closing Date shall mean the date upon which the last of the executed
documents required by Section 3.l to be delivered has in fact been delivered.
Collateral means, collectively, all property on or in which Lender has a
Lien pursuant to this Agreement or any other Loan Document.
Collateral Documents means, collectively, all present and future security
agreements, deeds of trust, mortgages, assignments, pledge agreements,
financing statements, landlord waivers, consents and other documents, either
as originally executed or as the document may from time to time be
supplemented, modified, amended, restated or extended, granting Liens to
Lender, or perfecting, effecting, facilitating, consenting to, providing
notice of, or otherwise evidencing such Liens.
Default shall have the meaning set forth in Section 7.l.
Dollars or $ means United States dollars.
Effective Date means August 1, 1996.
Environmental Laws shall mean all federal, state, and local laws including
statutes, regulations, ordinances, codes, rules, and other governmental
restrictions and requirements relating to the environment or hazardous
substances including, but not limited to, the Toxic Substance Act, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act of
l976, the Comprehensive Environmental Response, Compensation and Liability
Act of l980, regulations of the Environmental Protection Agency, regulations
of the Nuclear Regulatory Agency, and regulations of any state department of
natural resources or state environmental protection agency now or at any time
hereafter in effect.
ERISA means the Employee Retirement Income Security Act of l974, and any
regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time.
Event of Default means any event that, with the giving of notice or lapse
of time, or both, would be a Default.
GAAP means generally accepted accounting principles as established from
time to time by the American Institute of Certified Public Accountants and by
the Financial Accounting Standards Board.
Lender means Larcan Inc., a Canadian corporation.
Lien means any mortgage, deed of trust, pledge, hypothecation, security
interest, encumbrance, lien or charge of any kind, whether voluntarily
incurred or arising by operation of law or otherwise, affecting any property,
including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and/or the
filing of or agreement to give any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction.
Loan Documents means, collectively, this Agreement, the Note, the Security
Agreement, the Collateral Documents, and any other certificates, documents
or agreements of any type or nature heretofore or hereafter executed or
delivered by Borrower to Lender in any way relating to or in furtherance of
this Agreement, in each case either as originally executed or as the same may
from time to time be supplemented, modified, amended, restated or extended.
Note means the promissory note (and any promissory note that may be issued
in substitution, renewal, extension, replacement or exchange therefor), with
all blanks property filled in, and executed by Borrower in favour of Lender
either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or refinanced.
Obligations means all past, present and future obligations of every kind or
nature of Borrower at any time and from time to time owed to Lender under any
one or more of the Loan Documents, whether due or to become due, matured or
unmatured, liquidated or unliquidated, or contingent or noncontingent,
including obligations of performance as well as obligations of payment, and
including interest that accrues after the commencement of any bankruptcy or
insolvency proceeding by or against Borrower.
Permitted Encumbrance means:
(a) any Lien or security agreement given by Borrower prior to the
Effective Date of this Agreement pursuant to the Bank One Loan
Agreement as heretofore defined.
(b) any mortgage, charge, hypothec, pledge, lien, security interest, or
other encumbrance created, issued or assumed by Borrower to secure
indebtedness assumed by Borrower as part of, or issued or incurred to
provide Borrower with funds to pay, the purchase price of machinery,
equipment and/or real property acquired in the ordinary course of the
business of Borrower after the Effective Date of this Agreement,
provided such indebtedness does not exceed 90% of the purchase price
of machinery or equipment or 75% of thepurchase price of real
property, and further provided that such morgage, charge,hypothec,
pledge, lien, security interest, or other encumbrance is limited to
the property the acquisition of which was financed through the
assumption or issue of such indebtedness and is created, issued or
assumed substantially concurrently with the acquisition of such
property, and
(c) any other Lien created, incurred or assumed by Borrower with the prior
written consent of Lender.
Person means any individual or entity, whether trustee, corporation,
general partnership, limited partnership, joint stock company, trust
unincorporated organization, bank business association, firm, joint venture,
governmental agency, or otherwise.
Plan means each employee benefit plan of Borrower (whether now in existence
or hereafter instituted) as such term is defined in Section 3 of ERISA.
Special Counsel shall mean any counsel nominated by Lender to advise Lender
on any aspect of the transactions contemplated by this Agreement.
2.2 ACCOUNTING TERMS
All accounting terms not specifically defined in this Agreement shall be
construed in conformity with, and all financial data required to be submitted
by this Agreement shall be prepared in conformity with, GAAP applied on a
consistent basis, as in effect on the date hereof, except as otherwise
specifically prescribed herein.
ARTICLE 3
CONDITIONS PRECEDENT TO LOAN
The obligation of the Lender to make the Loan is subject to satisfaction of
all of the following conditions precedent, each of which shall be satisfied
prior to or concurrently with the making of the Loan:
3.1 DELIVERY OF DOCUMENTS
The Lender shall have received all of the following, each of which shall be
originals unless otherwise specified, each properly executed by an officer of
Borrower, as applicable, each dated as of the Effective Date, and each in
form and substance satisfactory to Lender and Special Counsel:
(a) Counterparts of this Agreement, duly executed by Borrower,
(b) The Note stipulated for in Section l.2, duly executed by Borrower,
(c) The Security Agreement stipulated for in Section l.5.l, duly executed
by Borrower,
(d) Such opinions of counsel as Lender may reasonably request,
(e) A certificate of a qualified officer of Borrower certifying that the
conditions specified in Sections 3.2 through 3.4, inclusive, have been
satisfied,
(f) Such documentation as Lender may require to establish the due
organization, valid existence and good standing of Borrower, its
qualifications to engage in business in each jurisdiction in which it is
engaged in business or required to be so qualified, its authority to
execute, deliver and perform any Loan Document to which they are
Parties, and
(g) Such other and further instruments, certificates, documents, consents
or opinions as Lender reasonably may require, including without
limitation of the foregoing, all such certificates as Special Counsel
may require to provide the evidence of recordings, registrations and
filings stipulated for in Section l.6.
3.2 REPRESENTATIONS AND WARRANTIES
The representations and warranties contained in Article 4 hereof shall be
true and correct on and as of the Effective Date, as though made on that
date, and shall remain true and correct on the Closing Date.
3.3 NO CHANGE
No material adverse change shall have occurred in the business, operations
or condition (financial or otherwise) or prospects of Borrower prior to the
Effective Date.
3.4 NO DEFAULT
No Default or Event of Default shall have occurred.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.l The Borrower hereby represents and warrants to Lender that:
(a) The Borrower is a corporation duly formed, validly existing and in good
standing under the laws of Delaware. The Borrower is duly qualified to
transact business and is in good standing in each other jurisdiction in
which the conduct of its business or the ownership or leasing of its
properties makes such qualification necessary, except where the failure
so to qualify and to be in good standing would not have a material
adverse effect on its business, operations, condition (financial or
otherwise) or prospects. The Borrower has all requisite power and
authority to conduct its business, to own and lease its properties and
to execute, deliver and perform all of its obligations under the Loan
Documents.
(b) The execution, delivery and performance by the Borrower of the Loan
Documents to which it is a Party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized
by all necessary action on the part of the respective directors and
stockholders.
(c) The Borrower is in compliance with all laws and other legal
requirements applicable to its business.
(d) Each of the Loan Documents to which Borrower is a Party will, when
executed and delivered by such Party, constitute the legal, valid and
binding obligation of such Party, enforceable against such Party in
accordance with its terms.
(e) The Borrower will maintain each Plan of Borrower in compliance with all
material applicable requirements of ERISA and of the Internal Revenue
Code (the Code) and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code.
(f) As to environmental matters:
( i) the Collateral and Borrower are now and heretofore have been at
all times in compliance with all Environmental Laws,
( ii) there have been no conditions on or about the Collateral which
required or will require clean-up, removal, remedial action or
other response pursuant to Environmental Laws,
(iii) there are no conditions on or about the Collateral now existing
or likely to exist during the term of this Agreement which
require or are likely to require clean-up, removal, remedial
action, or other response pursuant to Environmental Laws,
( iv) Borrower has never been nor is now a party to any litigation or
administrative proceeding, nor is any litigation or
administrative proceeding threatened against it, which asserts
or alleges any violation of Environmental Laws,
( v) neither the Collateral nor the Borrower is now or ever has been
subject to any judgement, decree, order, or citation related to
or arising out of Environmental Laws, and
( vi) no permits or licenses are required under Environmental Laws
relative to the Collateral or Borrower that have not been
obtained and are current and effective.
(g) All representations and warranties contained herein or in any other
Loan Document, or in any certificate or other writing delivered by or on
behalf of any one or more of the Parties to any Loan Document, shall
survive the making and repayment of all or any portion of the Loan
hereunder and the execution and delivery of the Note, and have been or
will be relied upon by Lender, notwithstanding any investigation made
by Lender or on its behalf.
ARTICLE 5
AFFIRMATIVE COVENANTS OF BORROWER
So long as any Obligation remains unpaid or unperformed, unless Lender
otherwise consents in writing, Borrower shall:
5.1 FINANCIAL STATEMENTS
Deliver to Lender at Borrower's sole expense:
(a) As soon as available, and in no event later than 60 days after the
close of each fiscal year of Borrower:
( i) balance sheets as at the end of such fiscal year, setting forth
in comparative form the corresponding figures as at the end of
its preceding fiscal year, and
( ii) statements of profit and loss and of changes in financial
position for such fiscal year, setting forth in comparative
form the corresponding figures for its preceding fiscal year,
all in reasonable detail. Such balance sheets and statements
shall be prepared in accordance with GAAP, consistently
applied, and such balance sheets and statements shall be
accompanied by a report and opinion of independent certified
public accountants of recognized standing selected by Borrower
and satisfactory to Lender, which report and opinion shall be
prepared in accordance with GAAP as at such date, and shall be
subject only to such qualifications and expections as are
acceptable to Lender, provided that nothing herein shall preclude
Lender from waiving the requirement for audited statements as
hereinbefore set out and accepting in lieu thereof financial
statements certified by the chief fianacial officer of the
Borrower.
(b) Promptly after request by Lender, copies of any detailed audit reports
submitted to Borrower by independent accountants in connection with the
accounts or books or any audit of any of them.
(c) Promptly after request by Lender, copies of any report or other
documents filed by Borrower with any governmental agency.
(d) Immediately upon becoming aware of the existence of any Event of
Default or Default, a written notice specifying the nature and period
of existence thereof and what action Borrower is taking or proposes to
take with respect thereof.
(e) Such other data and information as from time to time may be reasonably
requested by Lender.
5.2 PRESERVATION OF EXISTENCE
Preserve and maintain its respective existence, licenses, rights, franchises
and privileges in the jurisdiction of its formation and all authorizations,
consents, approvals, orders, licenses, permits, or exemptions from, or
registrations with, any governmental agency that are necessary for the
transaction of its business, and qualify and remain qualified to transact
business in each jurisdiction in which such qualification is necessary in
view of its business or the ownership or leasing of its properties.
5.3 COMPLIANCE WITH LAWS
Comply with the requirements of all applicable laws and orders of any
governmental agency non-compliance with which could materially adversely
affect the business, operations or condition (financial or otherwise) of
Borrower.
5.4 ENVIRONMENTAL MATTERS
(a) Comply with all applicable Environmental Laws,
(b) provide to Lender, immediately upon receipt, copies of any
correspondence, notice, pleading, citation, indictment, complaint,
order, decree, or other document from any source asserting or
alleging a circumstance or condition which requires or may require
a clean-up, removal, remedial action, or other response by or on the
part of Borrower under Environmental Laws or which seeks criminal or
punitive penalties from Borrower for an alleged violation of
Environment Laws, and
(c) advise Lender in writing as soon as Borrower becomes aware of any
condition or circumstance which makes the foregoing covenants
incomplete or inaccurate.
In the event of any such condition or circumstance, Borrower agrees, at its
expense and at the request of Lender, to permit an environmental audit solely
for the benefit of Lender, to be conducted by Lender or an independent agent
selected by Lender. This provision shall not relieve Borrower from
conducting its own environmental audits or taking any other steps necessary
to comply with Environmental Laws. Borrower hereby agrees to indemnify
Lender and hold Lender harmless from and against any loss, liability, cost,
damage, or expense, including, without limitation, attorneys' fees, arising
from the imposition or recordation of a Lien, the incurrence of any clean-up
and removal costs under any Environmental Laws with respect to the Collateral
or Borrower, any liability to any third party in connection with any
violation of any Environmental Laws or other action by Borrower or any of
their respective agents, or any diminution in value of the Collateral as a
result of any violation or alleged violation of any Environmental Laws by
Borrower.
5.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT
Keep adequate records and books of account reflecting all financial
transactions in conformity with GAAP, consistently applied.
5.6 USE OF PROCEEDS
Borrower will use the proceeds of the Loan for the acquisition of assets,
expansion of business operations, and other proper commercial and corporate
purposes of Borrower.
5.7 PRESERVATION OF PROPERTY
Borrower will maintain, preserve, protect and keep all property used or
useful in the conduct of business in good condition, and from time to time
make all needed repairs, renewals, and replacements so that the business and
operations carried on in connection therewith may be promptly and
advantageously conducted at all times.
5.8 TAXES AND OTHER LIABILITIES
Borrower shall pay all taxes and other governmental charges or levies
imposed upon Borrower or upon income or profits or upon any property
belonging to Borrower before the same shall become in default, and all
lawful claims for labour, materials and supplies which, if unpaid, might
become a Lien or charge upon Borrower's property or any part thereof and
shall pay and discharge when due all debts, accounts, liabilities and charges
now or hereafter owing, and shall maintain appropriate accruals and reserves
for all such liabilities in a timely fashion in accordance with GAAP; provided,
however, that Borrower may delay paying or discharging any such taxes, charges,
claims or liabilities so long as the validity thereof shall be contested in
good faith by appropriate proceedings, and Borrower shall set aside on
Borrower's books adequate reserves with respect thereto and shall pay such
taxes, charges, claims or liabilities before the property subject thereto shall
be sold to satisfy any Lien which is attached as security therefor, whether
by law or otherwise, and before any judgement shall attach to any property of
Borrower.
5.9 INSURANCE
Borrower shall keep or cause to be kept adequately insured by financially
sound and reputable insurers all property of a character usually insured by
corporations engaged in the same or similar businesses, including without
limitation the Collateral. Such insurance shall insure against fire,
casualty and any other hazards normally insured and shall be in the amount of
the full insurable value of the property. Adequate insurance against
liabilities on account of damages to persons or property and workers
compensation insurance shall be maintained at all times covering Borrower,
which insurance shall be by financially sound and reputable insurers.
Notwithstanding any of the foregoing, all of the insurance maintained by
Borrower shall cover such casualties and be in amounts and written by such
companies as shall be acceptable to Lender.
5.10 EXPENSES AND FEES
Borrower will pay Lender for any and all reasonable and necessary
out-of-pocket expenses incurred in connection with the preparation of this
Agreement and the Loan Documents and in connection with the taking and
perfecting of any security interest or other Liens hereunder or thereunder at
any time, and in connection with any amendments hereto or to the Loan
Documents or any renewals or extensions of any of the Obligations, however
evidenced, and in connection with supervising and/or causing the performance
by Borrower of this agreement or any of the Loan Documents or the collection
of the Note or enforcement of the Collateral Documents. Such reasonable
and necessary out-of-pocket expenses shall include, without limitation,
attorney fees, court costs, expert witness fees, auditors, appraisers, examiners
and other consultants fees, and all fees payable in connection with the
execution, delivery, filing, recording, and registration (and refiling,
rerecording, and reregistration) of the Agreement and the Collateral Documents,
costs of any sale of Collateral, and all reasonable and necessary out-of-pocket
expenses and disbursements including, without limitation, telephone or
telegraph services, travelling and subsistence expenses of any consultants
or of any officers or employees of Lender, it being understood and agreed by
Borrower that Lender may hire such attorneys, auditors, examiners, appraisers,
accountants, and other consultants as it may reasonably deem necessary or
desirable in connection with supervising and causing the performance by Borrower
of the Agrrement and the Loan Documents.
5.ll PERFORMANCE BY LENDER
If Borrower fails to pay taxes, licenses, fees, insurance premiums, or other
amounts required hereunder or under any of the Loan Documents, Lender may pay
the same and shall be immediately reimbursed by Borrower therefor, and all
such amounts shall constitute a part of the Obligations and shall be secured
by the Collateral.
5.l2 AFTER-ACQUIRED COLLATERAL
Promptly following the acquisition of any additional Collateral as described
in any Collateral Document, Borrower will execute and deliver to Lender such
certificates, applications, documents, instruments or agreements as Lender or
Special Counsel deems appropriate to obtain and perfect a Lien or security
interest in such Collateral in favour of Lender.
ARTICLE 6
NEGATIVE COVENANTS OF BORROWER
So long as any Obligation remains unpaid or unperformed, Borrower shall not
without the prior written consent of Lender:
6.1 CHANGE IN NATURE OF BUSINESS
Make any material change in the nature of the business of Borrower as
presently conducted.
6.2 EXTENSION OF CREDIT
Extend credit to make any loans to officers or directors of Borrower, except
reasonable advances for reimbursable out-of-pocket expenses otherwise
required or normally advanced by Borrower.
6.3 ADDITIONAL DEBT
Create, incur, assume, guarantee, endorse, become or be liable in any manner
in respect of or suffer to exist any debt, liability or obligation
(including, without limitation, all contingent or secondary, direct or
indirect, debts, liabilities or obligations whatsoever), except:
(a) the Obligations,
(b) current debts, obligations and liabilities to vendors, suppliers, and
persons providing services, for expenditures for goods and services
normally required in the ordinary course of business,
(c) taxes, assessments and governmental charges or levies which are not
delinquent,
(d) contingent liabilities arising out of the endorsement in the ordinary
course of business of negotiable instruments in the course of collection,
(e) construction contracts entered into in the ordinary course of business,
(f) existing obligations under the Bank One Loan Agreement, and
(g) any indebtedness created by reason of the purchase of machinery,
equipment or real property acquired in the ordinary course of business
of Borrower, provided such indebtedness does not exceed 90% of the
purchase price of machinery or equipment or 75% of the purchase price
of real property.
6.4 ADDITIONAL LIENS AND LEASES
Create, assume or permit to exist any mortgage, deed of trust, pledge,
encumbrance, Lien, lease or charge of any kind that would constitute a
default under the Bank One Loan Agreement.
ARTICLE 7
DEFAULT AND REMEDIES
7.l DEFAULT
The existence or occurrence of any one or more of the following events,
whatever the reason therefor, shall constitute a Default:
(a) if any payment of principal or interest on the Note is not made within
five (5) days of the date such payment is due,
(b) if Borrower fails to perform or observe any other terms, covenant or
agreement contained in this Agreement or any other Loan Document on its
part to be performed or observed within thirty (30) days after the giving
of notice by Lender of such failure,
(c) if any representation or warranty made by Borrower in this Agreement or
any other Loan Document or in any certificate, agreement, instrument or
other document made or delivered by such Party pursuant to or in
connection with this Agreement or any other Loan Document proves to
have been incorrect when made in any respect that is materially adverse
to the interests of the Lender,
(d) if there exists any condition which requires, or may require, a
clean-up, removal or other remedial action by Borrower under any
Environmental Laws, and such clean-up, removal, or other remedial
action is not completed within ninety (90) days from the date of
written notice from Lender to Borrower (or such longer period as may be
required under the circumstances; such longer period not to exceed an
additional ninety (90) days),
(e) if any default occurs under the Bank One Loan Agreement or other
Permitted Encumbrance, or
(f) a material adverse change in the business, results of operations or
condition (financial or otherwise), of the Borrower shall have occurred
which gives reasonable grounds to conclude, in the considered judgement
of the Lender, that the Borrower may not, or will be unable to, perform
or observe, in the normal course, its obligations under the loan
documents.
7.2 REMEDIES
Without limiting any other rights or remedies of the Lender provided for
elsewhere in this Agreement, any other Loan Document, at law or in equity, or
(a) upon the occurrence of any Default, Lender, without notice to or demand
upon Borrower, which is expressly waived by Borrower, may proceed to
protect, exercise and enforce its rights and remedies under this
Agreement and the other Loan Documents against Borrower and such other
rights and remedies as are provided at law or in equity,
(b) the order and manner in which Lender's rights and remedies are to be
exercised shall be determined by Lender in its sole discretion, and all
payments received by Lender, shall be applied first to the costs and
expenses of Lender; second, to the payment of accrued and unpaid interest
due under the Note to and including the date of such payment; and third,
to the payment of all unpaid principal amounts due under the Note.
No application of payments will cure any Default, or prevent
acceleration, or continued acceleration, of amounts payable under this
Agreement or other Loan Documents, or prevent the exercise, or
continued exercise, of rights or remedies of Lender hereunder,
thereunder or at law or in equity.
ARTICLE 8
MISCELLANEOUS
8.l CUMULATIVE REMEDIES: NO IMPLIED WAIVER
The rights, powers, privileges and remedies of Lender provided herein and in
the other Loan Documents are cumulative and not exclusive of any right, power,
privilege or remedy provided at law or in equity. No failure or delay on the
part of Lender in exercising any right, power, privilege or remedy may be, or
may be deemed to be, a waiver thereof; nor may any single or partial exercise
of any right, power, privilege or remedy preclude any other or further
exercise of the same or any other right, power, privilege or remedy. The terms
and conditions of Article 3 hereof are inserted for the sole benefit of Lender
and Lender may waive them in whole or in part, with or without imposing other
terms and conditions.
Notwithstanding anything in this Section or elsewhere in this Agreement
contained however, it is expressly understood that the Lender may, at the
request of the Borrower,
(a) modify or amend the content of any Loan Document, or
(b) grant a waiver, release or extension of time with respect to any
obligation of the Borrower for performance or payment therein contained,
but such modification, amendment, waiver, release or extension shall be
effective only if set out in a writing signed by the Lender, and only to the
extent, and in the instance, specified in such writing.
8.2 NOTICES
All written notices, demands and requests of any kind which any Party may be
required or may desire to serve upon any other Party hereto in connection
with this Agreement or any other Loan Document shall be deemed given and
delivered when served by personal service, or when delivered charges prepaid
to an overnight courier, or when deposited postage prepaid in registered or
certified mail, or when sent by telex or telecopy. All notices shall be
addressed to the Parties to be served as follows:
If to Lender: Larcan Inc.,
228 Ambassador Drive,
Mississauga, Ontario
Canada, L5T 2J2
If to Borrower: Larcan-TTC Inc.,
650 S. Taylor Avenue,
Louisville, Colorado 80027
U.S.A.
8.3 COUNTERPARTS
Unless Lender otherwise specifies, this Agreement and any other Loan
Document may be executed in any number of counterparts and any Party hereto
or thereto may execute any counterpart, each of which when executed and
delivered will be deemed to be an original and all of which counterparts of
this Agreement or any other Loan Document, as the case may be, when taken
together will be deemed to be but one and the same instrument. The
execution of this Agreement or any other Loan Document by any Party hereto
or thereto will not become effective until counterparts hereof or thereof,
as the case may be, have been executed by all the Parties hereto or thereto.
8.4 BINDING EFFECT: ASSIGNMENT
This Agreement and the other Loan Documents shall be binding upon and shall
inure to the benefit of the Parties hereto and thereto and their respective
successors and permitted assigns, except that Borrower may not assign their
rights hereunder or thereunder or any interest herein or therein without the
prior written consent of Lender.
8.5 ENTIRE AGREEMENT
This Agreement, all other Loan Documents, and any document or instrument
executed and delivered pursuant hereto or thereto constitute and are
intended to constitute the complete, entire and final agreement of the
Parties regarding the subject matter hereof and expressly supersede all
prior agreements, written or oral, regarding the subject matter hereof and
thereof. In the event of any conflict between the provisions of this
Agreement and those of any other Loan Document, the provisions of this
Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of
supplemental rights or remedies in favour of Lender in any other Loan
Document shall not be deemed a conflict with this Agreement.
8.6 GOVERNING LAW
This Agreement and all other Loan Documents shall be governed by and
construed and enforced in accordance with the laws of the State of Colorado.
8.7 SEVERABILITY
Any provision in this Agreement or in any other Loan Document that is held
to be inoperative, unenforceable or invalid in whole or in part as to any
Party or in any jurisdiction shall, as to that Party or jurisdiction, be
inoperative, unenforceable or invalid to such extent without affecting the
remaining provisions or the operation, enforceability or validity of that
provision as to any other Party or in any other jurisdiction, and to this
end the provisions of this Agreement and all other Loan Documents are
declared to be severable.
8.8 HEADINGS
Article and Section headings in this Agreement and the other Loan Documents
are included for convenience of reference only and are not part of this
Agreement or the other Loan Documents for any other purpose.
8.9 TIME OF THE ESSENCE
Time is of the essence of this Agreement and the other Loan Documents.
INTENDING TO BE LEGALLY BOUND, the Parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
LARCAN - TTC INC.
Per:
SIGNED: 'G. JAMES WILSON - PRESIDENT"
SIGNED: "RONALD EVE - CONTROLLER"
"BORROWER"
LARCAN INC.
Per:
SIGNED: "JAMES D. ADAMSON - PRESIDENT"
SIGNED: "MICHEL P. GAGNON - TREASURER"
"LENDER"
EXHIBIT P
THIS REFINANCING AGREEMENT (this Agreement) is made and entered into as of
the 1st day of August, 1996
BY AND BETWEEN:
LARCAN-TTC INC., a Delaware corporation
Hereinafter referred to as the Borrower
- and -
LARCAN INC., a corporation established under the
Canada Business Corporations Act, one of the Statutes
of Canada
Hereinafter referred to as the Lender
WHEREAS Lender and Borrower have, as of the date hereof, entered into a
certain Loan Agreement pursuant to which Lender has agreed to lend to
Borrower up to US$10,000,000 (the Loan Agreement).
AND WHEREAS pursuant to the Loan Agreement Borrower has executed a
Promissory Note in the form attached hereto as Annex A (the Promissory Note).
AND WHEREAS Lender and Borrower have also executed, as of the date hereof,
an agreement to provide collateral security to the Lender (the Security
Agreement) for discharge by the Borrower of its obligations under the Loan
Agreement.
AND WHEREAS prior to the date hereof, by way of temporary accommodation,
Lender has
(a) made cash advances to Borrower in the several amounts and on the dates
listed in Annex B hereto, and
(b) made further advances to Borrower by way of direct supply of goods or by
payment of invoices for goods supplied to Borrower by others on the dates
and in the amounts set out in Annexes C and D hereto,
such that as of the close of business on the 31st day of July, 1996, after
credit to the Borrower for cash repayments in the aggregate amount of
$1,200,000.00, Borrower was indebted to Lender in the total amount of
US$4,358,758.55 for temporary accommodation.
AND WHEREAS Lender and Borrower have agreed that it is in their mutual best
interest that the total amount of temporary advances be converted into a
formal loan governed by a credit agreement containing terms and conditions
as set out in the Loan Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT it is mutually acknowledged by
the Borrower and the Lender and Borrower that the total amount of
US$4,358,758.55 due for temporary advances be deemed to have been repaid by
Borrower to Lender and re-advanced by Lender to Borrower as of the date
hereof such that the sum of US$4,358,758.55 shall be recorded as an advance
made on the first day of August, 1996 under the Loan Agreement and noted on
the reverse of the Promissory Note or on a Disbursement and Payment Schedule
maintained as provided in the Promissory Note.
AND THIS AGREEMENT FURTHER WITNESSETH THAT in consideration of the premises
the Lender agrees that, notwithstanding the stipulation for payment on
demand set out in the Promissory Note, no demand will be made before the
first day of August, 1997, unless, prior thereto, an Event of Default, as
defined in the Loan Agreement, shall have occurred.
This Agreement may be executed in one or more separate counterparts, each of
which counterparts shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of
the date first above written.
BORROWER:
LARCAN-TTC INC.
By: SIGNED: "G. JAMES WILSON"
Its: PRESIDENT
LENDER:
LARCAN INC.
By: SIGNED: "JAMES D. ADAMSON"
Its: PRESIDENT
LARCAN-TTC, INC.
Financial Statements
and Independent Auditors' Report
June 30, 1997 and 1996
Table of Contents
Page
Independent Auditors' Report F - 1
Financial Statements
Balance Sheets F - 2
Statements of Operations F - 3
Statement of Stockholders' Deficit F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F - 6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
LARCAN-TTC, INC.
Louisville, Colorado
We have audited the balance sheets of LARCAN-TTC, INC. as of June 30, 1997
and 1996 and the related statements of operations, stockholders' deficit 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 misstatements. 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
fiancial staement 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 LARCAN-TTC, INC. as of June 30,
1997 and 1996 and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As further discussed in Note 2 to
the financial statements, the Company has a net working capital deficiency of
$6,099,000 and a net stockholders' deficiency of $5,804,000 at June 30, 1997,
that raises substantial doubt about its ability to continue as a going concern.
Current management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from this uncertainty.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
August 15, 1997
Denver, Colorado
Balance Sheets
June 30,
1997 1996
Assets
Current assets
Cash and cash equivalents $ 65,000 $ 98,000
Accounts receivable - trade, less allowance
for doubtful accounts of $173,000 (1997)
and $154,000 (1996) (Note 6) 378,000 363,000
Accounts receivable - related party (Note 7) 96,000 792,000
Inventories, net (Notes 3 and 6) 1,871,000 1,797,000
Other 42,000 23,000
Total current assets 2,452,000 3,073,000
Equipment and improvements (Notes 5 and 6) 2,034,000 1,923,000
Less accumulated depreciation and
amortization (1,772,000) (1,695,000)
Net equipment 262,000 228,000
Note receivable (Note 4) 13,000 19,000
Other assets 20,000 19,000
Total Other Assets 33,000 38,000
Total assets $ 2,747,000 $ 3,339,000
Liabilities and Stockholders' Deficit
Current liabilities
Line-of-credit (Note 6) $ 154,000 $ 200,000
Advances from stockholder (Note 7) 6,895,000 -
Accounts payable - trade 456,000 1,410,000
Accounts payable - related party (Note 7) 78,000 698,000
Accrued payroll and payroll taxes 145,000 181,000
Other accrued expenses and other liabilities 158,000 152,000
Accrued warranty and other reserves 110,000 32,000
Customer advances 555,000 302,000
Total current liabilities 8,551,000 2,965,000
Advances from stockholder (Note 7) - 3,825,000
Commitments (Note 9)
Stockholders' deficit (Notes 7, 10 and 13)
Preferred stock, $1.00 par value; 1,000,000
shares authorized Series A 5% cumulative
convertible, 500,000 shares issued and
outstanding, liquidation preference of $550,000 500,000 500,000
Common stock, $.04 par value; 30,000,000
shares authorized, 11,543,934 shares issued
and outstanding 462,000 462,000
Additional paid-in capital 4,694,000 4,744,000
Accumulated deficit (11,450,000) (9,147,000)
Common stock held in treasury, at cost;
1,796 shares (10,000) (10,000)
Total stockholders' deficit (5,804,000) (3,451,000)
Total liabilities and stockholders' deficit $ 2,747,000 $ 3,339,000
Statements of Operations
Fiscal Years Ended June 30,
1997 1996
Sales (Notes 7 and 11) $ 5,436,000 $ 7,474,000
Operating expenses
Cost of sales 5,089,000 7,293,000
Selling, general and administrative 1,489,000 1,573,000
Research and development 726,000 898,000
Total operating expenses 7,304,000 9,764,000
Loss from operations (1,868,000) (2,290,000)
Other income and (expense)
Interest (436,000) (21,000)
Other 1,000 (15,000)
Total other income and (expense) (435,000) (36,000)
Net loss (2,303,000) (2,326,000)
Preferred stock dividends 50,000 -
Net loss applicable to common stockholders $ (2,353,000) $ (2,326,000)
Net loss per common share $ (.20) $ (.23)
Weighted average number of
common shares outstanding 11,543,934 10,293,561
Statement of Stockholders' Deficit
For the Years Ended June 1997 and 1996
Preferred Stock, Series A Common Stock
Subscribed Subscribed
Additional Accumu-
Paid In lated
Capital Deficit
Treasury Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Year Ended June 30, 1995
- - $ - 500,000 $500,000 6,543,934 $ 262,000 5,000,000 $ 200,000
$ 4,744,000 $ (6,821,000) 1,796 $ (10,000)
Issuance of subscribed
common stock
- - - - - 5,000,000 200,000 (5,000,000) (200,000)
- - - -
Issuance of subscribed
preferred stock for cash
500,000 500,000 (500,000) (500,000) - - - - - -
Net loss
- - - - - - - - -
(2,326,000) - -
Year ended June 30.
1996
500,000 500,000 - - 11,543,934 462,000 - -
4,744,000 ( 9,147,000) 1,976 (10,000)
Preferred stock dividends
- - - - - - - - - - -
(50,000) - -
Net loss - - - - - - - -
- - (2,303,000) - -
Year ended June 30, 1997
500,000 $ 500,000 - $ - 11,543,934 $ 462,000 - $ -
$ 4,694,000 $ (11,450,000) 1,796 $ (10,000)
Statements of Cash Flows
For the Years Ended
June 30,
1997 1996
Cash flows from operating activities
Net loss $ (2,303,000) $(2,326,000)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 77,000 94,000
Provision for loss on accounts receivable 19,000 (49,000)
Provision for inventory reserves 68,000 72,000
Change in assets and liabilities
Accounts Receivable 662,000 (756,000)
Inventories (142,000) (305,000)
Other current assets (19,000) (13,000)
Accounts payable (1,574,000) 1,373,000
Accrued payroll and payroll taxes (36,000) 4,000
Other accrued expenses and other
liabilities (34,000) 42,000
Accrued warranty reserves 78,000 (2,000)
Customer deposits 253,000 (180,000)
Net cash used in operating activities (2,951,000) (2,046,000)
Cash flows from investing activities
Purchase of equipment and improvements (111,000) (135,000)
Net change of note receivable 6,000 (19,000)
Net change in other assets (1,000) -
Net cash used in investing activities (106,000) (154,000)
Cash flows from financing activities
Payments on note payable and line-of-credit (46,000) (70,000)
Borrowing from stockholder 3,270,000 2,250,000
Payments to stockholder (200,000) -
Net cash provided by fiancing activities 3,024,000 2,180,000
Net decrease in cash and cash eqivalents (33,000) (20,000)
Cash and cash equivalents at beginning of year 98,000 118,000
Cash and cash equivalents at end of year 65,000 98,000
Supplemental disclosures of cash flow information:
Cash paid for interest was $16,000 and $21,000 for 1997 and 1996,
respectively.
Supplemental disclosure of non-cash financing activities:
Accrual of undeclared, cumulative preferred stock dividends was $50,000 and
$0 for June 30, 1997 and 1996, respectively.
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
LARCAN-TTC, INC. (the Company), is a fully integrated producer of television
and FM radio transmission equipment. The Company designs, develops and
manufactures a variety of FM and television broadcast
transmitters/translators including low power television equipment and high
power UHF television equipment. The Company also provides system design
services, sells accessory items manufactured by the Company and others, and
performs installation as requested by its customers. LARCAN, INC. (a
Canadian Corporation)(LARCAN) controls approximately 78 percent of the
Company's outstanding common stock as of June 30, 1997.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The Company, at times, maintains cash balances in depository
accounts in excess of FDIC insurable limits.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation and amortization
are provided using the straight line method over the estimated useful life of
the related assets, or the related lease term for leasehold improvements.
Revenue Recognition
Sales are recognized when the product is shipped, or pursuant to the terms of
sales contracts when manufacturing is completed. Revenues from services are
recognized when the services are rendered.
Warranty Costs
The Company generally provides a limited warranty for its products of one to
two years. Included in cost of sales are projected future costs of providing
such warranties on products which have been sold.
Research and Development
Research and product development expenditures are charged to operations as
incurred.
Net loss per common share
Loss per share of common stock was computed based on the weighted average
number of common shares outstanding during the period. Common stock
equivalents are not included as their effect would be antidilutive.
Reclassification
Certain amounts in the 1996 balance sheet have been reclassified to conform
with the 1997 presentation.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, note receivable, accounts payable, accrued
expenses, and line-of-credit approximated fair value as of June 30, 1997 and
1996, because of the relatively short maturity of these instruments.
It is not practicable to estimate the fair value of the advances from
stockholder due to the inability to estimate fair value with out incurring
excessive costs.
Note 2 - Continued Operations and Realization of Assets
At June 30, 1997, the Company has a net working capital deficiency of
$6,099,000 and a net stockholders' deficiency of $5,804,000.
Management's plans in regards to these matters include ongoing efforts to
increase market share for the Company's product and continued efforts to
increase profitability. Additionally, the note payable to the Company's
majority stockholder is currently due (Note 7). The majority stockholder has
not extended the term of the note and as such it becomes due on demand (Notes 7
and 13). The Company is dependent on financing from the majority stockholder.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Note 3 - Inventories
Inventories consist of the following:
June 30,
1997 1996
Parts, raw materials and sub-assemblies $ 1,979,000 $ 1,930,000
Work in process 256,000 163,000
Gross inventory 2,235,000 2,093,000
Less inventory reserves (364,000) (296,000)
Net inventory $ 1,871,000 $ 1,797,000
Note 4 - Note Receivable Note receivable consists of the following:
June 30,
1997 1996
Note receivable related to the conversion
of trade accounts receivable, interest at 7%.
The note requires monthly principal and
interest payments of approximately $618
through May 1999 and is secured by equipment. $ 13,000 $ 19,000
Note 5 - Equipment and Improvements
Equipment and improvements consist of the following:
June 30,
1997 1996
Manufacturing equipment $ 1,167,000 $ 1,045,000
Furniture and fixtures 714,000 714,000
Leasehold improvements 123,000 123,000
Transportation equipment 30,000 41,000
Gross equipment 2,034,000 1,923,000
Less accumulated depreciation and amortization (1,772,000) (1,695,000)
Net equipment $ 262,000 $ 228,000
Note 6 - Note Payable and Line-of-Credit
Note payable and line-of-credit consist of the following:
June 30,
1997 1996
Bank revolving line-of-credit, interest at
prime plus 1.5% (8.5% at June 30, 1997), was
due June 1, 1997, collateralized by trade
accounts receivable, inventories, and equipment $ 150,000 $ 200,000
Bank term loan, paid subsequent to June 30, 1997. $ 4,000 $ -
Note 7 - Related Parties
The following is a summary of significant transactions with affiliated
companies:
Advances from Stockholder
The Company receives advances from its major stockholder, LARCAN, for working
capital and other purposes. These advances are subordinate to the bank debt
(Note 6), and were non-interest-bearing and unsecured, with no fixed terms of
repayment through August 1, 1996. In August 1996, LARCAN formalized its
advances into a $10,000,000 note payable with interest at 8%, collateralized
by substantially all the assets of the Company, subject to the bank debt
(Note 6). The Note is currently due. The Company had total borrowings from
LARCAN of $6,895,000 (including $420,000 of accrued interest) and $3,825,000
at June 30, 1997 and 1996 respectively.
Sales to Affiliates
Sales to an affiliate of the Company's major stockholder, LARCAN, were
approximately $1,570,000 and $792,000 for the years ended June 30, 1997 and
1996, respectively. Amounts owed at June 30, 1997 and 1996 by affiliates
were $96,000 and 792,000, respectively. Amounts owed to affiliates at June
30, 1997 and 1996 were $78,000 and 698,000, respectively.
Note 8 - Income Taxes
Income Taxes
The Company recognizes deferred tax liabilities and assets based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which
differences are expected to reverse. The measurement of deferred tax assets
is reduced if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Deferred income taxes at a tax rate of 37% are comprised of the following:
June 30
1997 1996
Deferred tax assets
Allowance for doubtful accounts $ 64,000 $ 57,000
Inventory 308,000 283,000
Accrued vacation and other liabilities 52,000 60,000
Accrued warranty reserves 41,000 12,000
Research and development 84,000 84,000
Net operating loss carryforwards 3,800,000 2,714,000
Valuation allowance on deferred tax assets (4,349,000) (3,186,000)
Net deferred tax asset - 24,000
Deferred tax liability-equipment
and improvements depreciation - (24,000)
Net deferred taxes $ - $ -
A valuation allowance of $4,349,000 and $3,186,000 as of June 30, 1997 and
1996, respectively, has been recognized to offset the related deferred tax
assets due to the uncertainty of realizing the benefit of these items.
The Company has available, for federal income tax purposes, net operating
loss carryforwards of approximately $10,200,000 which expire in varying
amounts through 2012. The Company's net operating loss carryforwards,
computed under the provisions of the alternative minimum tax, are not
significantly different from the Company's regular net operating loss
carryforwards. In addition, due to the change in control of stock ownership
of the Company, the Company's utilization of its net operating losses, which
were incurred prior to the change in control, are subject to an annual
limitation. The benefit is not recognized due to the valuation allowance
described above.
Note 9 - Commitments
Leases
The Company has a noncancelable operating lease for its office and
manufacturing facility and equipment. The real estate lease, which expires
in April, 1998, provides for an increase in rental payments based on
increases in the Consumer Price Index. In addition, the Company is required
to pay property taxes, insurance and maintenance costs relating to the leased
facility. The Company has also entered into certain other noncancelable
operating leases extending through 2001. As of June 30, 1997, the Company's
commitments under these operating leases are as follows:
Fiscal Years Ending June 30,
1998 $ 316,000
1999 23,000
2000 16,000
2001 1,000
Total $ 356,000
Total rental expense under operating leases for the fiscal years ended
June 1997 and 1996 was $360,000 and $378,000, respectively.
Note 10 - Stockholders' Deficit
Preferred Stock
During 1995, the Company amended its Articles of Incorporation to provide for
1,000,000 shares of preferred stock, $1.00 par value, with such rights,
preferences, designations and to be issued in such series as to be determined
by the Company's Board of Directors.
In June 1995, the Board of Directors created Series A, 5% cumulative
convertible preferred (Convertible Preferred) stock value at $1.00 per share.
The maximum issuable shares under the series is 500,000 shares. Holders of
the Convertible Preferred shares shall be entitled to dividends as declared
by the Board of Directors at $.05 per share. The non-declared cumulative
dividend was $25,000 at June 30, 1997 and 1996.
The Convertible Preferred stockholders, in the event of liquidation of the
Company, will receive an amount equal to $1.00 per share plus declared and
unpaid dividends before any holder of common stock receives any amount. The
Convertible Preferred stock is redeemable at the sole discretion of the
Company. Subsequent to January 1, 1997, each Convertible Preferred share is
convertible into common stock by multiplying the number of shares times the
"liquidation value" divided by $.10.
Stock Option Plan
The Company adopted an Incentive Stock Option Plan (the Plan) which, as
amended in February 1986, allowed the issuance of up to 687,500 shares of
both incentive stock options (ISOs), as amended, and non-qualified options
(NQOs), which are options that do not qualify as ISOs. Under the Plan, any
employee of the Company, including salaried officers and directors, could be
granted options to purchase common stock of the Company. The Plan expired in
June 1993. Stock options granted pursuant to the terms of the Plan continue to
be governed by the Plan's provisions.
The following is a summary of changes in the qualified options for the last
two years:
Number of Option Price
Shares Range Per
Share
Outstanding at June 30, 1995 110,766 .28
Canceled (36,219) .28
Outstanding at June 30, 1996 74,547 .28
Canceled (22,136) .28
Total exercisable at June 30, 1997 52,411 $ .28
Effective October 15, 1993, the Board of Directors authorized a resolution
which reset all qualified options to $.28 per share.
Note 11 - Concentration of Credit Risk
The Company operates in one industry segment and sells some products in
foreign markets. Export sales totaled $872,000 and $2,699,000, for the
fiscal years ended June 30, 1997 and 1996, respectively. During the year
ended June 30, 1997, 51% of exports sales were to Norway, while in fiscal
year 1996, 67% of export sales were to Saudi Arabia.
Sales to international customers are subject to unique risks which are not
present in sales to domestic customers. The Company attempts to mitigate
these risks by carefully considering the political and economic conditions in
a foreign country along with the financial viability of its customer before
doing business there. For international customers, sales are priced in U.S.
dollars to avoid currency fluctuations and are sold under irrevocable letters
of credit, which are usually confirmed by a major U.S. bank when the political,
economic, or fiancial validity is uncertain.
Generally, it is the Company's policy to obtain a cash advance from its
domestic customers of approximately 35% of the sales price prior to
commencement of production. Subsequently, progress payments are received
during the production of the equipment.
The Company had individual customer(s) whose sales accounted for 10% and 26%
of total sales during the years ended June 1997 and 1996, respectively.
Note 12 - Significant Fourth Quarter Adjustments
During the fourth quarter of the year ended June 30, 1997, the Company made
the following adjustments to the financial statements:
The Company accrued interest of approximately $420,000 on advances due its
major shareholder (Note 7).
Note 13 - Subsequent Event
Subsequent to June 30, 1997, the Board of Directors of the Company agreed to
a plan of merger, with a wholly owned subsidiary of its majority stockholder
with the Company as the surviving entity. Under the terms of the merger
agreement, each share of the Company's common stock not owned by LARCAN will
be canceled in exchange for $.0625, which equaled the sale price of every
Company share traded on its principal trading market for the 30 days
immediately preceding the date of the merger agreement. As a result of the
merger the Company will become a wholly owned subsidiary of LARCAN. The merger
is subject to stockholder approval. LARCAN currently owns 78.6% of the
Company's outstanding stock.
2 25 1
4
3
F - 1
LARCAN-TTC
See notes to financial statements
F-2
See notes to financial statements
F-3
See notes to financial statements
F-4
See notes to financial statements.
F - 7See notes to financial statements
F-5
LARCAN-TTC, INC.
Notes to Financial Statements
LARCAN-TTC, INC.
Notes to Financial Statements
F - 12
F - 13
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 65,000
<SECURITIES> 0
<RECEIVABLES> 647,000
<ALLOWANCES> (173,000)
<INVENTORY> 1,871,000
<CURRENT-ASSETS> 42,000
<PP&E> 2,034,000
<DEPRECIATION> (1,772,000)
<TOTAL-ASSETS> 2,747,000
<CURRENT-LIABILITIES> 8,551,000
<BONDS> 0
0
500,000
<COMMON> 462,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,747,000
<SALES> 5,436,000
<TOTAL-REVENUES> 5,436,000
<CGS> 5,089,000
<TOTAL-COSTS> 7,304,000
<OTHER-EXPENSES> (1,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436,000
<INCOME-PRETAX> (2,303,000)
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