<PAGE>
The following items were the subject of
a Form 12b-25 and are included herein:
Items 6, 7 and 13.
Exhibits 10.5, 10.6, 10.7, 10.8 and 27.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission file number 811-3584
--------------
LEVCOR INTERNATIONAL, INC.
---------------------------------------------------------------
(Name of Small Business Issuer In Its Charter)
Delaware 06-0842701
------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporated or Organization) Identification Number)
1071 Avenue of the Americas, New York, New York 10018
- ----------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code (203) 264-7428
-----------------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $0.56 per share
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for
past 90 days.
Yes _X_ No _____
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of issuer'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. / /
Issuer's revenues for the fiscal year ended December 31, 1997: $3,392,171
As of March 30, 1998, 1,743,499 shares of Common Stock of the
issuer were outstanding and the aggregate market value of the voting
common stock held by non-affiliates, computed by reference to the sale
price of the Common Stock as of March 30, 1998, was approximately
$2,506,165.
Transitional Small Business Disclosure Format: Yes _____ No _X_
Documents incorporated by reference: None
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PART I
Page
<S> <C> <C>
Item 1. Description of Business......................................................................................... 1
Item 2. Description of Property......................................................................................... 6
Item 3. Legal Proceedings............................................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders............................................................. 9
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.............................................................................................10
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................................11
Item 7. Financial Statements and Supplementary Data.....................................................................12
Item 8. Changes in, and Disagreements with, Accountants on
Accounting and Financial Disclosure.............................................................................28
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act....................................................................................................29
Item 10. Executive Compensation..........................................................................................31
Item 11. Security Ownership of Certain Beneficial Owners and
Management......................................................................................................32
Item 12. Certain Relationships and Related Transactions..................................................................33
Item 13. Exhibits, Lists and Reports on Form 8-K.........................................................................33
Signatures......................................................................................................37
</TABLE>
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
Levcor International, Inc. (the "Company"), was incorporated in 1964
under the laws of the Islands of Bermuda and was reorganized in 1967 under the
laws of the State of Delaware. On September 7, 1995, by amendment to its
Certificate of Incorporation, the Company changed its name from Pantepec
International, Inc. to Levcor International, Inc. and effected a one-for-four
reverse stock split of its common stock par value $0.56 per share (the "Common
Stock").
Since its incorporation, the Company has been engaged in the
ownership of fractional interests in oil and gas wells and leases with respect
thereto.
In 1995, the Company acquired a woven fabric converting business
that produces fabrics used in the production of apparel. This acquisition
formed the basis of the Company's new line of business, the Looms
Division, which concentrates on converting cotton and cotton-blend
fabrics for sale to domestic apparel manufacturers.
On October 1, 1997, the Company formed the Paradox Division,
which specializes in converting pure-synthetic-fiber fabrics for sale to
domestic apparel manufacturers.
With significantly reduced revenues from its oil and gas
properties, a naturally diminishing asset, the operation of the Looms and
Paradox Divisions (collectively, the "Woven Fabrics Division") now
comprise the Company's primary business focus for the foreseeable future.
It is anticipated that the Paradox Division line of business will
substantially contribute to the Company's sales figures in 1998.
BUSINESS OF THE ISSUER
(A) The Woven Fabrics Division
The Company's current business activities in the woven fabrics
industry consist of the business of the Woven Fabrics Division, which is
engaged in converting textiles for sale to domestic apparel manufacturers.
The converting process consists of (i) designing fabrics and commissioning
textile mills to weave the greige fabric (i.e., undyed) according to
the Company's specifications, and (ii) commissioning fabric finishers
(i.e., dye plants) to dye, print and finish the greige fabric again
according to the Company's specifications. The Company contracts with
commercial transporters to deliver greige fabric from textile mills
to dyers, and to deliver finished fabric from dyers
<PAGE>
to apparel manufacturers. The Company places orders for the sale of finished
fabrics through its sales personnel and independent commissioned contractors.
The raw materials used by the Woven Fabrics Division to fabricate
textiles are typically a combination or blend of two or more fibers, such as
rayon, acetate, polyester, cotton and flax. The principal suppliers of the
greige fabric (i.e., undyed) used by the Woven Fabrics Division are Kaltex
America, Inc., JPS Converter and Industrial Corp., Duro Industries, Inc. and
Imtex International Corp. The primary dyers in the conversion process used by
the Woven Fabrics Division are Oxford Textiles, TextPrint, Inc., Brittany Dyeing
and Finishing Co., Priority Finishing Corp. and Dorado Processing.
In 1997, Banner Industries, Inc., a manufacturer of women's
apparel, accounted for $387,744 (approximately 12%) of the Woven Fabrics
Division's sales revenues, and Star City Sportswear, Inc., a manufacturer
of women's apparel, accounted for $280,767 (approximately 8%) of the
Woven Fabrics Division's sales revenues.
In 1997, research and development expenses related to the Woven
Fabrics Division, the costs of which were not passed on to the Company's
customers, were approximately $16,000.
(B) Ownership of Interests in Oil and Gas Wells
The Company's current business activities in this industry
segment consist of the ownership of fractional interests in oil and gas
wells and leases with respect thereto. At December 31, 1997, the Company
held fractional interests in four wells located in the United States. All
of the Company's fractional interests in wells are owned pursuant to
working interest ("WI") agreements. Such agreements provide that the
Company is obligated to pay its proportionate share of the cost of
developing and operating such wells and will be paid its proportionate
share of any revenues derived from such wells only after all owners of
royalty interests therein have been paid their proportionate share of any
revenues derived from such wells. During 1997, the Company earned
revenues and incurred production costs (exclusive of severance taxes)
under the terms of such agreements of $43,123 and $19,518, respectively.
Other than one well for which the Company acts as titular operator, the
Company is not directly involved in operating any of such wells or in the
marketing and sale of any oil and/or gas derived therefrom. Such
operations and marketing activities are conducted by third parties, who
typically have substantial interests in the wells, pursuant to the terms
of operating agreements which provide that such third-party operators,
for a fee, are responsible for the development and operation of such wells
and the marketing and sale of the resources derived therefrom.
During 1997, the Company's share of
2
<PAGE>
the fees payable to well operators for services performed pursuant to the terms
of such agreements was approximately $7,000.
A description of the Company's significant oil and gas well
holdings by geographic area, and the revenues earned and expenses
incurred therefrom, is contained below.
Wehrenberg #26-1 Well, Sooner Trend Field,
Kingfisher County, Oklahoma
In November 1988, the Company acquired a 70% WI in a well
located in Oklahoma which, after payment of all royalty interests
therein, earned a 56% net revenue interest ("NRI"). This interest was
acquired in a public auction from the bankruptcy trustee of Schick Energy
Corporation for $11,167. Although the Company is the titular operator of
the well, the Company has retained Petroleum Management Professionals,
Inc. of Oklahoma City, Oklahoma to perform all of its duties as operator
of the well. From December 1, 1988, the effective date of the acquisition
of the well, through December 31, 1997, the well produced 117,000 MCF and
13,700 BC (average daily production during 1997 was 31 MCF and 2 BC). Of
such amounts, approximately 66,000 MCF and 7,670 BC (average daily
production of 17 MCF and 1 BC during 1997) represented the Company's
proportionate share of production from this well. During 1997, gross
production revenues earned from the well's activities were $56,200, of
which $31,500 were attributed to the Company, representing 73.0% of the
Company's total revenues derived from oil and gas sales during such year.
The total production costs (exclusive of severance taxes) estimated to
have been incurred during 1997 in connection with such activities were
$19,100, of which $13,300 were attributed to the Company.
J.F. Curry Nos. 1 and 2, Mollie Hasson #1-27, Alfalfa County,
Oklahoma, American Exploration Co., Operator
In March 1989, the Company acquired a 22.2% WI in each of the
J.F. Curry 1 and 2 wells and a 31.7% WI in the Mollie Hasson #1-27 well,
which, after payment of all royalty interests therein, earned 19.4%,
19.4% and 23.8% NRI, respectively. These interests were acquired from
Energetics, Inc. at a public auction for $14,000. From April 1, 1989, the
effective date of the acquisition, until December 31, 1997, these wells
produced 317,000 MCF and 19,000 BC (average daily production during 1997
was 68 MCF and 3 BC). Of such amounts, approximately 63,000 MCF and 3,940
BC (average daily production of 13 MCF and 1 BC during 1997) represented
the Company's proportionate share of production from these wells. During
1997, gross production revenues earned from the activities of these wells
were $59,000, of which $11,700 were attributed to the Company, representing
27% of the Company's total revenues derived from oil and gas sales during
such year. The total production costs (exclusive of severance taxes)
3
<PAGE>
estimated to have been incurred during such year in connection with such
activities were $22,300, of which $5,700 were attributed to the Company.
Maze Federal 32-35 and Powell Federal E-1, Campbell County and
Converse County, Wyoming - Various Operators
On August 1, 1996, the Company sold its interest in the Maze
Federal 32-35 Well (the "Maze Well") for $3,000, and on September 1, 1996
sold its interest in the Powell Federal E-1 Well (the "Powell Well") for
$7,500. Each of the Maze Well and the Powell Well was sold at a price
above book value.
Through the date of its sale, the Maze Well had a WI of 12.5%
and an NRI of 10.825%. Through the date of its sale, the Powell Well had
a WI of 1.5625% and an NRI of 0.9791% for oil and 1.4687% for gas. From
the effective date of the acquisition of the Maze Well and the Powell
Well by the Company through August 31, 1996, such wells in the aggregate
produced 1,024,000 MCF and 74,000 BC. Of such amounts, approximately
15,000 MCF and 1,900 BC represented the Company's proportionate share of
production from these wells.
4
<PAGE>
COMPETITION
The textile conversion business is extremely competitive,
particularly in light of existing trade laws that allow low-cost imported
fabric and finished garments into the domestic apparel market. Within the
domestic textile converting business, the Company competes on the basis
of the price and uniqueness in styling of its fabrications.
The exploration for and production of oil and gas are highly
competitive operations, both within the oil and gas industry and with
producers of other types of energy. The ability to exploit a discovery of
oil or gas is dependent upon such considerations as the ability to
finance development costs, the availability of equipment and engineering,
and construction delays and difficulties. Competitive conditions may also
be substantially affected by various forms of energy and trade
legislation currently being considered. However, it is not possible to
predict the nature of any such legislation which may ultimately be
adopted, or the possible effects such legislation may have on the
Company's future operations.
In pursuing its business objectives, the Company must compete
with companies having substantially greater financing and other
resources.
SEASONALITY
The Company's Looms Division business is seasonal, and typically
realizes higher revenues and operating income in the first and fourth
calendar quarters. Such seasonality, taking into account the standard
lead time required by the fashion industry to manufacture apparel,
corresponds respectively to the autumn and spring retail selling seasons.
The Company's oil and gas business is not seasonal, except that
sales of natural gas peak during the winter heating season.
ENVIRONMENTAL REGULATION
Environmental laws and regulations of the jurisdictions in which
the Company conducts business could potentially have a significant impact
on the exploration for and development of natural resources by the
Company. The Company believes that its operations are in compliance with
all environmental laws and regulations applicable thereto.
EMPLOYEES
The Company currently employs eleven persons, all of whom are
employed full time. The Company relies on consultants for legal, income
tax, data processing, geological, sales and administrative services.
5
<PAGE>
Item 2. DESCRIPTION OF PROPERTY.
The Woven Fabrics Division
In connection with the acquisition of the Looms Division from
Andrex Industries Corp., a New York corporation ("Andrex"), the Company
entered into a three-year agreement with Andrex in May 1995 pursuant to
which the Company leases office space located at 1071 Avenue of the
Americas, 7th Floor, New York, New York 10018 from Andrex, and Andrex
provides the Company with certain administrative services. The Company's
cost in 1997 for the lease of such property pursuant to the Agreement was
$55,000.
Oil and Gas Properties
The Company's oil and gas properties consist of WI in wells
located in the State of Oklahoma. The Company has an interest in four
wells, with an aggregate WI equivalent to 1.46 wells with an aggregate
NRI of 1.19 wells.
Set forth below is certain information with respect to the
Company's oil and gas properties.
1. Reserves Reported to Other Agencies.
Not applicable.
2. Production: Average Sales Price Per Unit and Average
Production Cost for Oil and Gas Produced During the Last
Three Years.
Average Sales Price Average Production Cost
------------------- -----------------------
Oil Gas Oil Gas
Year (Per BC) (Per MCF) (Per BC) (Per MCF)
- ---- -------- --------- -------- ---------
1997 . . . . $19.92 $2.22 $6.89 $1.18
1996 . . . . $19.27 $1.67 $6.75 $0.75
1995 . . . . $15.62 $1.25 $8.62 $1.46
3. Productive Wells And Acreage.
(a) Productive wells as of Oil Gas
December 31, 1997 Gross Net Gross Net
----- --- ----- ---
1 0.27 3 1.19
Gross Acres Net Acres
(b) Developed Acreage ----------- ---------
as of December 31, 1997 320 114
6
<PAGE>
4. Undeveloped Acreage as of December 31, 1997.
Gross Acres Net Acres
----------- ---------
Working Interest 552 200
5. Drilling Activity.
There was no drilling activity in any of the Company's wells in
the United States during the three years ended December 31,
1997.
6. Present Activities.
On December 31, 1997, no wells in which the Company has
interests were drilling. The status of the Company's interest in
four productive wells is as follows:
Number of Wells Status
--------------- ------
4 Producing oil or gas
Item 3. LEGAL PROCEEDINGS.
The 0.67% carried interest in the Kotaneelee gas field sold by
the Company in August 1991, as well as Magellan Petroleum Corporation's
2.67% carried interest in such field, is held in trust by Canada Southern
Petroleum Ltd. ("Canada Southern"), which has a 30% carried interest in
such field. In late 1987, Canada Southern commenced an action against
Allied-Signal, Inc. in Florida alleging its failure to fulfill certain
contractual obligations to develop the field. In September 1988, Allied
Signal, Inc. commenced an action (the "Allied-Signal Action") in Calgary,
Canada against Dome Petroleum Limited, Amoco Production Company and Amoco
Canada Petroleum Company, Ltd. ("Amoco Canada" and collectively, the
"Amoco-Dome Group") seeking a declaration that the defendants were
responsible for the development of the field, and also seeking
reimbursement of its legal costs incurred in the Florida litigation. The
Florida litigation has since been dismissed.
In March 1989, Allied-Signal, Inc. amended its complaint in the
Allied-Signal Action to add the Company, Canada Southern and Magellan
Petroleum Corporation ("Magellan") as additional defendants. Certain of
the other defendants in the Allied-Signal Action have filed counterclaims
against the Company and other defendants seeking indemnification for
unspecified costs and expenses incurred by them in defending the
Allied-Signal Action. In January 1996, the Company, Allied-Signal, Inc.,
Canada Southern and Magellan Petroleum Corporation entered into a
settlement whereby each party agreed not to sue any of the other parties
and, subsequently, the Allied-Signal Action was discontinued.
7
<PAGE>
Shortly after the Allied-Signal Action commenced, the Amoco-Dome
Group filed a counterclaim against the Company, Canada Southern and
Magellan seeking certain declaratory relief with respect to their alleged
failure to fulfill certain contractual obligations to develop and market
gas from the Kotaneelee gas field. The trial on the counterclaim action
commenced on September 3, 1996, and is ongoing.
On October 27, 1989, in the Court of Queen's Bench of Alberta,
Judicial District of Calgary, Canada (the "Canada Court"), Canada
Southern filed a statement of claim against the Amoco-Dome Group,
Columbia Gas Development of Canada Ltd. ("Columbia"), Mobil Oil Canada
Ltd. ("Mobil") and Esso Resources of Canada Ltd. ("Esso") seeking a
declaratory judgment (the "Declaratory Action") regarding two issues
relating to the Kotaneelee field: (1) whether interest accrued on the
carried interest account, which is the account for costs recoverable by
the working interest parties prior to such time as the carried interest
parties are entitled to participate in revenues derived from the field's
activities (Canada Southern maintains it does not), and (2) whether
expenditures for gathering lines and dehydration equipment are
expenditures chargeable to the carried interest account (Canada Southern
maintains they are). Mobil, Esso and Columbia have filed answers
essentially agreeing to the granting of the relief requested by Canada
Southern. The Amoco-Dome group has now admitted one of two claims, i.e.,
that interest does not accrue on the carried interest account.
In 1991, Anderson Exploration Ltd. acquired all of the
shares in Columbia, and changed its name to Anderson Oil & Gas
Inc. ("Anderson"). Anderson is now the sole operator of the
field, and is a direct defendant in the Declaratory Action.
Columbia's previous parent, The Columbia Gas System, Inc., was
reorganized in a bankruptcy proceeding in the United States, and
is contractually liable to Anderson in the Declaratory Action.
On March 7, 1990, Canada Southern filed a statement of claim in
the Canada Court against the Amoco-Dome Group, Columbia, Mobil and Esso
seeking forfeiture of the Kotaneelee gas field, damages and other relief
for breach of fiduciary duty (the "Forfeiture Action"). The Company was
added as a party plaintiff to this action in November 1993. If such claim
is upheld, the Company could recover a 2 percent interest in the
Kotaneelee field and damages. The defendants have contested the claim and
Canada Southern is pursuing discovery and trial. Columbia filed a
counterclaim seeking, if Canada Southern is successful in its claims,
repayment from Canada Southern, the Company and Magellan Petroleum
Corporation of all sums expended by Columbia on the Kotaneelee fields
before Canada Southern, the Company and Magellan Petroleum Corporation
are entitled to their interests. The trial commenced in September 1996,
and is ongoing. Based on recently discovered evidence, Canada Southern
has petitioned the
8
<PAGE>
Canada Court for leave to amend its complaint to add a claim that the
defendants failed to develop the field in a timely manner.
The field operator has entered into a contract for the sale of
Kotaneelee gas. The Company believes that it is too early to determine
the impact, if any, that this contract may have on the status of these
cases.
On August 6, 1991, the Company sold to an independent third
party (the "Buyer") its carried interest in a lease in property,
including the Kotaneelee field. The agreement for the transfer of the
Company's interest provides that the Company shall continue to prosecute
the Declaratory Action and the Forfeiture Action. The Company and the
Buyer have agreed to share equally all costs and expenses of the
Declaratory Action and the Forfeiture Action and to share equally any
payments or other benefit resulting from the resolution of such actions.
The agreement further provides that the Company shall indemnify the Buyer
against all actions, proceedings, claims, demands, damages and expenses
brought against or suffered by the Buyer which arise out of, or are
attributable to, the Allied-Signal Action.
The Company has been advised that under Canadian law certain
costs (known as "taxable costs") of a litigation may be assessed against
a nonprevailing party. Taxable costs consist primarily of attorney's and
expert witness fees incurred during a trial. In addition, a judge in
complex and lengthy trials has the discretion to increase an award of
taxable costs.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during
the fourth quarter of 1997.
9
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock, par value $0.56 per share (the
"Common Stock"), is traded in the "pink sheets" in the over-the-counter
market under the symbol "LEVC". On March 30, 1998, the closing bid price
of the Common Stock was $1.61 per share. The Common Stock is traded
sporadically and no established liquid trading market currently exists
therefor.
The following table sets forth the range of high and low bid
prices in the "pink sheets" in the over-the-counter market for the
periods indicated. Such quotations reflect inter-dealer prices or
transactions solely between market-makers without retail mark-up,
mark-down or commissions, and may not necessarily represent actual
transactions. The prices have been adjusted to give retroactive effect to
the one-for-four reverse stock split of the issued Common Stock which
became effective September 11, 1995.
Period Price
------ -----
1997 High Low
---- ---- ---
First Quarter $0.25 $0.0625
Second Quarter $0.125 $0.0625
Third Quarter $0.3125 $0.0156
Fourth Quarter $1.00 $0.0156
1996 High Low
---- ---- ---
First Quarter $0.75 $0.25
Second Quarter $0.75 $0.25
Third Quarter $0.63 $0.625
Fourth Quarter $0.38 $0.125
Holders of Record
As of March 30, 1998, there were approximately 6,658 holders of
record of the Common Stock.
10
<PAGE>
Dividend Policy
The Company has not paid any cash dividends on the Common Stock
and has no present intention to declare or pay cash dividends on the
Common Stock in the foreseeable future. The Company intends to retain any
earnings which it may realize in the foreseeable future to finance its
operations.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company's revenues for 1997 were $334,582, an increase of $259,010,
or 343%, from $75,572 for 1996. Such increase was primarily attributable to an
increase of $390,551 in sales, less the cost of goods sold, on sales from the
Woven Fabrics Division in 1997 as compared to 1996. Such increase was partially
offset by a reduction in sales, less the cost of goods sold, from oil and gas
operations of $131,461 in 1997 as compared to 1996. This reduction was primarily
due to a downward revaluation of the Company's remaining petroleum reserves,
based on the reduced oil and gas prices for such reserves at December 31, 1997.
The Company's expenses for 1997 were $685,852, a decrease of $110,391,
or 14%, from $796,243 for 1996. Such decrease was due to a decrease in selling
expenses for the Woven Fabrics Division in 1997 of $110,510, or 26%, as compared
to 1996. General and administrative expenses for 1997 were $378,025, an increase
of $119, or less than 1%, as compared to 1996; in this respect, interest
expenses and factor fees increased for 1997, while salaries, benefits, payroll
taxes and legal expenses decreased for 1997.
As a result of the foregoing, net losses for 1997 were $351,270, a
decrease of $369,401, or 51%, from net losses of $720,671 for 1996.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's revenues for 1996 were $75,572, an increase of $41,240,
or 120%, from $34,332 for 1995. Such increase was primarily attributable to:
(i) an increase of $76,952 in sales, less the cost of goods sold, from oil
and gas operations in 1996, compared to 1995, due primarily to an upward
revaluation of remaining petroleum reserves attributable to improved year-end
1996 oil and gas prices on which such reserves are valued; and (ii) an
increase of $4,450 in sales, less the cost of goods sold, on sales from the
Looms Division in 1996 compared to 1995 (the Company acquired the Looms
Division in May 1995). Such increase was partially offset by a reduction of
$40,162 in interest and royalties attributable to certain loans which were
repaid to the Company in June 1995.
The Company's expenses for 1996 were $796,243, an increase of $180,861,
or 29%, from $615,382 for 1995. Such increase was due primarily to: (i) an
increase in selling expenses in 1996 of the Looms Division of $133,115, or 47%,
compared to 1995; and (ii) to a lesser extent, an increase in general and
administrative expenses in 1996 of $47,746, or 14%, compared to 1995, including
increases in 1996 of accounting and administrative fees, factors fees and
interest expense, partially offset by reductions in legal fees and stockholder
communications expenses.
As a result of the foregoing, net losses for 1996 were $720,671, an
increase of $139,621, or 24%, from $581,050 for 1995.
Liquidity and Capital Resources
The primary source of the Company's working capital during 1997 was,
and in 1998 will be, derived from proceeds from the sale of woven fabrics
produced by the Company's Woven Fabrics Division and, to a lesser extent,
proceeds from the sale of oil and gas from the Company's ownership interest in
oil and gas wells. The Company's unrestricted cash and cash equivalents at
December 31, 1997 as $42,043, an increase of $37,139 from $4,904 at December 31,
1996.
In connection with the operation of the Looms Division, the Company
entered into a Factoring Agreement with NationsBanc Commercial Corporation
("NationsBanc") as of June 1, 1995 (the "NationsBanc Factoring Agreement")
which was subsequently amended effective September 1, 1996 and January 1,
1997. The amended NationsBanc Factoring Agreement was terminated on November
1, 1997.
In connection with the operation of the Woven Fabrics Division, the
Company entered into a Discount Factoring Agreement with Congress Talcott
Corporation ("Congress Talcott") as of November 14, 1997 (the "Congress
Talcott Factoring Agreement"). Pursuant to the terms of the Congress Talcott
Factoring Agreement, the Company, among other things: (i) has agreed to (a)
assign to Congress Talcott its interest in all receivables derived from the
sale of the woven fabrics produced by the Woven Fabrics Division, and (b) pay
Congress Talcott a commission of 0.6% of the gross amount on such receivables,
with a minimum commission of $4,000 for each and every month of the term
thereof; and (ii) may (a) request advances up to 90% of the net purchase price
of the receivables, and (b) pay interest on such advances at the rate of 0.5%
above CoreStates Bank, N.A.'s prime rate for the term thereof. The Congress
Talcott Factoring Agreement has an initial term expiration date of November 14,
1998 and is automatically renewed for one-year periods thereafter, unless
terminated on the initial term expiration date (or any anniversary thereof) by
either party giving not less than sixty days prior written notice.
The Company continues to sustain substantial losses which have
adversely affected the Company's liquidity. In addition, in connection with the
purchase of the woven fabric inventory, the Company issued a promissory note to
Andrex in May 1996 which bears interest at the rate of 6% per annum, pursuant to
which the Company, commencing on May 1, 1996 and continuing through May 1, 2000,
is required to make five annual debt payments of approximately $283,000 to
Andrex. In order to meet the $282,800 debt payments that were due on May 1, 1996
and May 1, 1997, Robert A. Levinson, the Chief Executive Officer of the Company,
made a loan to the Company on each such date of $370,000 and $300,000,
respectively, at a rate of 6% per annum. No repayment date has yet been set for
either of these loans. Mr. Levinson has also agreed to continue to personally
support the Company's cash requirements to enable it to meet its current
obligations through December 31, 1998. The Company also plans to continue to
aggressively market and sell the woven fabric product. Although there can be no
assurances that these measures will be successful, the Company believes that its
current operations and the financial
11
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arrangements described above will provide
sufficient liquidity to fund the Company's operations for 1998.
12
<PAGE>
Item 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Levcor International, Inc.
We have audited the accompanying balance sheet of Levcor International, Inc.
as of December 31, 1997 and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the years ended December
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Levcor International, Inc. at
December 31, 1997 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
/s/GRANT THORNTON LLP
GRANT THORNTON LLP
New York, New York
April 10, 1998
13
<PAGE>
Levcor International, Inc.
BALANCE SHEET
December 31, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 42,043
Accounts receivable 9,653
Due from factor 527,192
Inventories 2,026,588
Prepaid expenses 7,460
-------------
Total current assets 2,612,936
PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,611 14,493
OIL AND GAS PROPERTIES (using full cost
method), net of accumulated depletion and
depreciation of $870,907 24,909
INTANGIBLE ASSETS, net of accumulated
amortization of $418 12,651
--------------
$ 2,664,989
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,425,232
Current maturities of long-term debt 282,800
--------------
Total current liabilities 2,708,032
LONG-TERM DEBT, less current maturities 565,600
DUE TO OFFICER 670,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - par value $.56 per share; authorized,
15,000,000 shares; outstanding, 1,733,499 shares 969,994
Capital in excess of par value 5,002,966
Accumulated deficit (7,251,603)
--------------
(1,278,643)
--------------
$ 2,664,989
==============
The accompanying notes are an integral part of this statement.
14
<PAGE>
Levcor International, Inc.
STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenue
Woven Fabrics Division sales $ 3,349,048 $ 2,848,778
Less cost of sales 2,974,072 2,864,353
----------- -----------
Gross profit (loss) 374,976 (15,575)
----------- -----------
Oil and gas sales 43,123 49,141
Less cost of sales 83,517 (41,926)
----------- -----------
Gross profit (loss) (40,394) 91,067
Interest income and royalties 80
------------ -----------
334,582 75,572
Expenses
Selling expenses - Looms Division
Salaries, benefits and payroll taxes 147,405 236,759
Commissions 55,382 133,494
Other selling expenses 105,040 48,084
----------- -----------
307,827 418,337
General and administrative expenses
Salaries, benefits and payroll taxes 55,347 71,684
Accounting and administrative fees 58,138 58,803
Audit fees 16,000 21,000
Directors' fees and expenses 5,000 5,000
Factor fees 30,024 26,232
Insurance 11,106 15,122
Interest expense 155,927 125,015
Legal fees 19,859 29,929
Transfer agent fees 4,200 7,558
Other business taxes 2,949 2,816
Other expenses 19,475 14,747
----------- -----------
Total general and administrative expenses 378,025 377,906
----------- -----------
Total expenses 685,852 796,243
----------- -----------
NET LOSS (351,270) (720,671)
----------- -----------
Accumulated deficit - beginning of year (6,900,333) (6,179,662)
----------- -----------
Accumulated deficit - end of year $(7,251,603) $(6,900,333)
=========== ===========
Average number of shares outstanding 1,733,439 1,713,499
=========== ===========
Net loss per common share $(.20) $(.42)
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
Levcor International, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common stock Capital in
--------------------------------- excess of par Accumulated
Shares Amount value deficit
---------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 1,673,499 $ 936,394 $ 5,006,566 $ (6,179,662)
Shares issued for services rendered 50,000 28,000 (3,000)
Net loss (720,671)
---------------- ------------- ---------------- ------------
Balances at December 31, 1996 1,723,499 964,394 5,003,566 (6,900,333)
Shares issued for services rendered 10,000 5,600 (600)
Net loss (351,270)
---------------- ------------- ---------------- ------------
Balances at December 31, 1997 1,733,499 $ 969,994 $ 5,002,966 $ (7,251,603)
================ ============= ================ ============
</TABLE>
The accompanying notes are an integral part of this statement.
16
<PAGE>
Levcor International, Inc.
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996
------------ ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (351,270) $(720,671)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Write-down of oil and gas properties 47,520 (75,026)
Depletion, depreciation and amortization 15,415 11,129
Services paid in common stock 5,000 25,000
Changes in operating assets and liabilities,
net of assets acquired
Accounts receivable (1,839) 32,642
Due from factor (182,689) (291,811)
Inventories (1,150,268) 646,420
Prepaid expenses 2,116 11,338
Accounts payable and accrued expenses 1,665,127 267,565
------------ ---------
Net cash provided by (used in) operating activities 49,112 (93,414)
------------ ---------
Cash flows from investing activities
Proceeds on sale of property - net 14,822
Purchase of property and equipment and intangible asset (29,173)
------------
Net cash (used in) provided by investing activities (29,173) 14,822
------------ ---------
Cash flows from financing activities
Advances from shareholder 300,000 370,000
Payment to shareholder (30,000)
Payment of long-term debt (282,800) (282,800)
------------ ---------
Net cash provided by financing activities 17,200 57,200
------------ ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 37,139 (21,392)
Cash and cash equivalents at beginning of year 4,904 26,296
------------ ---------
Cash and cash equivalents at end of year $ 42,043 $ 4,904
============ ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 155,927 $ 110,215
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - SUMMARY OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
1. Nature of Operations and Liquidity
Levcor International, Inc. (the "Company") is engaged in two
industry segments: the ownership of fractional interests in oil and
gas wells and leases with respect thereto; and the operation of a
woven fabric converting business producing fabrics used in the
production of apparel.
The Company continues to sustain substantial losses, which has
adversely affected the Company's liquidity. The Company required cash
advances from the Chief Executive Officer amounting to $300,000 and
$370,000 to pay the debt payment and interest that was due on May 1,
1997 and 1996, respectively. The Company is also required to make
another debt payment on May 1, 1998 amounting to approximately
$283,000. The Chief Executive Officer of the Company has agreed to
continue to personally support the Company's cash requirement to
enable the Company to meet its current obligations through December
31, 1998 and fund future operations. In addition, the Company plans
to aggressively market and sell its product and continue to contain
costs. Although there can be no assurance that these measures will be
successful, the Company believes that future operations and support
from the Chief Executive Officer will provide sufficient liquidity to
fund current operations.
2. Oil and Gas Properties
The Company accounts for oil and gas properties using a lower of cost
(full cost method) or market basis. The Company's oil and gas
properties financial statement carrying value was determined in good
faith by the Board of Directors in fiscal 1997. The fiscal 1997 oil
and gas properties financial statement carrying values have been
determined using year-end oil and gas prices and operating costs in
the individual local producing areas. These have been held constant
throughout the life of the properties. Established decline rates have
been used and projected net revenues have been discounted ten percent
a year in arriving at the present value shown. Plugging and
abandonment costs are assumed to be balanced by the sale of lease
equipment. The present worth values are not necessarily indicative of
values that would be realized on the sale of these properties.
18
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE A (continued)
3. New Pronouncements
Earnings (Loss) Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which
requires public companies to present basic earnings per share and,
if applicable, diluted earnings per share. All comparative periods
must be restated as of December 31, 1997 in accordance with SFAS No.
128.
The computation of basic loss per share of common stock is based upon
the weighted average number of common shares outstanding during the
period, plus (in periods in which they have a dilutive effect) the
effect of common shares contingently issuable upon exercise of stock
options (see Note H). Diluted earnings per share are considered equal
to basic earnings per share for all years presented as the effect of
other potentially dilutive securities would be antidilutive.
Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income," which is effective for the
Company's year ending December 31, 1998. The statement addresses the
reporting and displaying of comprehensive income and its components.
Earnings per share will only be reported for net income and not for
comprehensive income and its components. Adoption of SFAS No. 130
related to disclosure within the financial statements and is not
expected to have a material effect on the Company's financial
statements.
Segment Information
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), "Disclosure About Segments of an
Enterprise and Related Information," which is effective for the
Company's year ending December 31, 1998. SFAS No. 131 changes the way
public companies report information about segments of their business
in their financial statements and requires them to report selected
segment information in their quarterly reports. Adoption of SFAS No.
131 relates to disclosure within the financial statements and is not
expected to have a material effect on the Company's financial
statements.
19
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE A (continued)
4. Inventories
Inventories are stated at the lower of cost (principally average
cost) or current value based on prevailing market prices. Inventories
consist of greige and work-in-process goods.
The Company estimates the markdowns required for the inventory based
upon future marketability as well as general economic conditions.
Consequently, an adverse change in those factors could affect the
Company's estimate of the markdowns.
5. Taxes
Deferred income taxes are recognized for the estimated future tax
effects of the temporary differences between the financial reporting
basis and the tax basis of assets and liabilities.
6. Statements of Cash Flows
For purpose of the statements of cash flows, the Company considers
all highly liquid debt instruments with a maturity of less than three
months at the date of purchase as cash equivalents.
7. Stock-Based Compensation Plans
The Company maintains a stock option plan, as more fully described in
Note H to the financial statements, accounted for using the
"intrinsic value" method pursuant to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The fair value and pro forma effects on the Company's net
loss and net loss per share are not presented as the fair value of
the options granted (determined pursuant to Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation") is not material to the financial statements.
20
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE A (continued)
8. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE B - OIL AND GAS PROPERTIES
The Company holds various interests in oil and gas leases in the United
States. At December 31, 1997 and 1996, the Company held interests in 4
wells located in Oklahoma having a total working interest equivalent of
1.46 wells and a net revenue interest of 1.19 wells.
NOTE C - ACCOUNTS RECEIVABLE FACTORED
Under the factoring agreement, the factor purchases the trade accounts
receivable and assumes substantially all credit risks with respect to
such accounts. The agreement allows the Company to obtain advances from
the factor which bear interest at 1/2% above the bank's prime rate. These
advances are collateralized by all of the factored accounts receivable.
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1997 are as follows:
Promissory note payable in five equal
consecutive annual installments
of $282,800, commencing on May 1, 1996.
The note shall bear interest prior to
maturity at the rate of 6% per annum. $848,400
Less current maturities 282,800
-------
Total long-term obligations $565,600
========
21
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE E - REMUNERATION OF AFFILIATED PERSONS AND
RELATED PARTY TRANSACTIONS
1. During 1997 and 1996, the Chief Executive Officer advanced $300,000
and $370,000, respectively, to the Company to pay current
obligations. The amount bears interest at 6% and has no specified
due date.
2. During 1997 and 1996, the directors of the Company accrued $5,000 in
fees for both years. In 1997 and 1996, the Chief Executive Officer
received a salary of $26,000 and $25,000 in 1997 and 1996,
respectively, and the Treasurer received a salary of $25,200 and
$37,800 in 1997 and 1996, respectively.
NOTE F - INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." Under SFAS No. 109, deferred income taxes are recognized for the
estimated future tax effects of the temporary differences between the
financial reporting basis and tax basis of assets and liabilities.
At December 31, 1997, the Company had a net tax operating loss of
approximately $6,007,000 available to reduce taxable income in future
years, expiration of which occurs between 1998 and 2012 at the following
respective amounts each year: $227,000, $468,000, $771,000, $564,000,
$324,000, $690,000, $391,000, $317,000, $156,000, $147,000, $188,000,
$133,000, $473,000, $881,000 and $277,000. No assurance can be given as
to the Company's ability to realize the net operating loss carryforwards.
Additionally, the net operating loss carryforwards are subject to
Internal Revenue Code Section 382, which limits the use of the net
operating loss, if there is a change in ownership.
A deferred tax asset for this net operating loss carryforward
(approximately $2,042,000) was reduced to zero by a valuation allowance.
22
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE G - LITIGATION
The Company's interests in the Kotaneelee field are represented in trust
by Canada Southern in a statement of claim filed in the Canada court by
Canada Southern against Amoco Canada Petroleum Company Limited and other
parties, seeking forfeiture of the Kotaneelee field, damages and other
relief for breach of fiduciary duty, relating to their responsibility to
develop the field. On March 7, 1990, Canada Southern filed a statement of
claim in the Canada Court against the Amoco-Dome Group, Columbia, Mobil
and Esso seeking forfeiture of the Kotaneelee gas field, damages and
other relief for breach of fiduciary duty (the "Forfeiture Action"). The
Company was added as a party plaintiff to this action in November 1993.
If such claim is upheld, the Company could recover a 2 percent interest
in the Kotaneelee field and damages. The defendants have contested the
claim and Canada Southern is pursuing discovery and trial. Columbia filed
a counterclaim seeking, if Canada Southern is successful in its claims,
repayment from Canada Southern, the Company and Magellan Petroleum
Corporation of all sums expended by Columbia on the Kotaneelee fields
before Canada Southern, the Company and Magellan Petroleum Corporation
are entitled to their interests. The trial commenced in September 1996,
and is ongoing. Based on recently discovered evidence, Canada Southern
has petitioned the Canada Court for leave to amend its complaint to add a
claim that the defendants failed to develop the field in a timely manner.
The field operator has entered into a contract for the sale of Kotaneelee
gas. The Company believes that it is too early to determine the impact,
if any, that this contract may have on the status of these cases.
The Company has been advised that under Canadian law certain costs (known
as "taxable costs") of a litigation may be assessed against a
nonprevailing party. Taxable costs consist primarily of attorney's and
expert witness fees incurred during a trial. In addition, a judge in
complex and lengthy trials has the discretion to increase an award of
taxable costs.
On October 27, 1989, in the Court of Queens Bench of Alberta, Judicial
District of Calgary, Canada (the Canada Court), Canada Southern filed a
statement of claim against the Amoco-Dome Group, Columbia, Mobil Oil
Canada Ltd. ("Mobil") and Esso Resources of Canada Ltd. ("Esso") seeking
a declaratory judgment regarding two issues relating to the Kotaneelee
field: (1) whether interest accrued on the carried interest account,
which is the account for costs recoverable by the working interest
parties prior to such time as the carried interest parties are entitled
to participate in revenues derived from the field's activities (Canada
Southern maintains it does not), and (2) whether
23
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE G (continued)
expenditures for gathering lines and dehydration equipment are
expenditures chargeable to the carried interest account (Canada Southern
maintains they are). Mobil, Esso and Columbia have filed answers
essentially agreeing to the granting of the relief requested by Canada
Southern. The Amoco-Dome group has now admitted one of two claims, i.e.,
that interest does not accrue on the carried interest account.
NOTE H - STOCK OPTION PLAN
On December 8, 1992, the Board of Directors of the Company adopted a
Stock Option Plan (the "Plan"). The Plan, as amended, authorizes the
Company to grant options to purchase an aggregate of 500,000 shares of
Common Stock to induce employees and directors to remain in the employ or
service of the Company and its subsidiaries and to attract new employees.
Options granted under the Plan are intended to qualify as incentive stock
options ("ISOs") within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986 (the "Code"), as amended, or as nonincentive stock
options ("NISOs"). The Plan is administered by the Board of Directors.
The Plan terminates in December 2002.
The Plan provides for discretionary grants of ISOs and NISOs to employees
(including directors or officers who are also employees) of the Company
and an automatic annual grant to each non-employee director of options to
purchase the number of shares derived by dividing $1,500 by the fair
market value of a share of Common Stock on the date of grant. The initial
per share option exercise price for an ISO may not be less than the fair
market value thereof on the date of such grant, or 110% of such fair
market value with respect to an employee who, at such time, owns stock
representing more than 10% of the total combined voting power of all
classes of stock of the Company. The initial per share option exercise
price for a NISO may not be less than 85% of the fair market value
thereof on the date of the grant of such option. The initial per share
option exercise price for the options granted to the nonemployee
directors is the fair market value of the common stock on the date of the
grant thereof.
24
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE H (continued)
As described in Note A-7, the Company has adopted the disclosure-only
provisions of SFAS No. 123 and, accordingly, no compensation cost has
been recognized for grants made under its stock option plan. Had
compensation cost been determined based on the fair value at the grant
date for stock option awards in 1997 and 1996 in accordance with the
provisions of SFAS No. 123, the Company's net loss for 1997 and 1996
would have been increased by approximately $22,000 or $20,000,
respectively, and the Company's net loss per share for 1997 and 1996
would have increased by approximately $.01 or $.01 per share,
respectively. During the initial phase-in period of SFAS No. 123, such
compensation may not be representative of the future effects of applying
this statement.
As of December 31, 1993, 51,500 options had been granted at an exercise
price of $.392. Additionally, on January 4, 1994 options for the purchase
of 14,400 shares at an exercise price of $.312 were granted. During 1995,
the Company granted to the Chief Executive Officer, 150,000 options at an
exercise price of $.40 per share and 78,000 options to the Directors at
an exercise price of $.375 per share. In 1996, the Directors were granted
6,000 options at an exercise price of $.50 per share. During 1997, the
Directors were granted 12,000 options at an exercise price of $.25 per
share. During 1995, 10,800 options were cancelled.
Accordingly, at December 31, 1997, a total of 234,100 options remained
outstanding.
The weighted average fair value at date of grant for options granted
during 1997 and 1996 was $.25 and $.50 per option, respectively. The fair value
of each option at date of grant was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions for grants in:
1997 1996
--------- -------
Risk-free interest rate 6% 6%
Expected life
Employees 10 years 10 years
Officers/directors 10 years 10 years
Expected volatility 200% 200%
25
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE H (continued)
The following table summarizes option activity for the years ended
December 31, 1997 and 1996:
Incentive options
----------------------------
Weighted
Number average
of exercise
options price
------------ ---------
(in thousands)
Balance, January 1, 1996 216,100 $.392
Granted 6,000 .500
Exercised
Forfeited
Expired
-------
Balance, December 31, 1996 222,100 .395
Granted 12,000 .25
Exercised
Forfeited
Expired
-------
Balance, December 31, 1997 234,100 $.387
=======
The following table summarizes information about stock options as of
December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------ ---------------------------
Weighted
average Weighted Weighted
remaining average average
Ranges of Number contractual exercise Number exercise
exercise prices outstanding life price exercisable price
--------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$.25 to $.50 234,100 7.5 $.387 165,500 $.394
======= =======
</TABLE>
26
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE I - COMMITMENTS
The Company entered into a use and occupancy agreement with Andrex, to
lease certain office space and for Andrex to provide certain
administrative services. The annual fee which commenced May 1, 1995, is
$55,000 for a three-year period.
NOTE J - MAJOR CUSTOMERS
For the year ended December 31, 1997, one customer of the Looms Division
accounted for approximately 12% of sales and for the year ended December
31, 1996, two customers of the Looms Division accounted for approximately
22% of sales.
NOTE K - SEGMENT INFORMATION
Segment information for December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Woven
fabric
Oil and gas converting Corporate Consolidated
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
1997
----
Sales to unaffiliated customers $ 43,123 $3,349,048 $3,392,171
Operating profit (loss) (40,394) 67,149 $(378,025) (351,270)
Identifiable assets 29,355 2,586,581 49,053 2,664,989
1996
----
Sales to unaffiliated customers $ 49,141 $2,848,778 $ 80 $2,897,999
Operating profit (loss) 91,067 (433,912) (377,826) (720,671)
Identifiable assets 90,251 1,224,101 14,580 1,328,932
</TABLE>
27
<PAGE>
Item 8. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
28
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The following table sets forth information concerning each of
the directors and executive officers of the Company:
Names Age Position
- ----- --- --------
Robert A. Levinson 72 Chairman of the Board,
President and Secretary
John McConnaughy 68 Director
Peter Sprague 58 Director
Rudolph E. Bremser 66 Treasurer
Robert A. Levinson has been the Chairman of the Board, President
and Secretary of the Company since June 1989. From 1979 until May 1,
1995, Mr. Levinson was the Chairman of the Board of Directors of Andrex
Industries Corp., a company engaged in textile manufacturing and
processing. Mr. Levinson is a member of the Advisory Board of The
National Dance Institute and The Harlem School of the Arts, is Vice
Chairman of the Board of Directors of The National Committee of
U.S.-China Relations Inc. and is a director of Carlyle Industries, Inc.
(formerly known as Belding Hemingway Corp.).
John McConnaughy has been a director of the Company since June 1989.
Mr. McConnaughy is Chairman and Chief Executive Officer of JEMC Corporation, a
company engaged in exploring investment opportunities. From 1981 until his
retirement in 1992, Mr. McConnaughy was the Chairman of the Board and Chief
Executive Officer of GEO International Corporation, a company engaged in screen
printing and oil services. Mr. McConnaughy also served as President of GEO
International Corporation from 1985 until his retirement in 1992. Mr.
McConnaughy serves as a director of Riddell Sports, Inc., Redheads, Inc., Adrien
Arpel, Inc., News Communications, Inc., Mego Corporation, Transact
International, Inc., Wave Systems Corp. (formerly known as Cryptologies
International Inc.) and DeVlieg-Bullard, Inc.
Peter Sprague has been a director of the Company since June
1989. Since 1988, Mr. Sprague has been the Chairman of the Board and Chief
Executive Officer of Wave Systems Corp., a company involved in data
communication. From 1965 until May 1995, Mr. Sprague served as the Chairman of
the Board of National Semiconductor Corporation, a manufacturer of linear,
digital logic and interface integrated circuits, and hybrid devices. Mr. Sprague
serves as a director of Software Professionals, Inc.
29
<PAGE>
Rudolph E. Bremser has served as the Company's Treasurer since
December 1986. From September 1985 to December 1986, Mr. Bremser was an
independent international financial and tax consultant. From 1980 to
1985, Mr. Bremser was a Senior Financial Representative of Chevron
Overseas Petroleum, Inc.
There are no arrangements or understandings pursuant to which
any person has been elected as a director or executive officer of the
Company. Directors are elected annually by the stockholders and hold
office until the next annual meeting of stockholders and until their
respective successors are elected and qualified. Executive officers are
elected by the Board of Directors and hold office until their respective
successors are elected and qualified. There is no family relationship
among any directors or executive officers of the Company.
The Company believes that, for the year ended December 31, 1997,
it has complied with all filing requirements of Section 16(a) of the
Securities Exchange Act of 1934 applicable to its officers, directors and
greater-than-10% beneficial owners.
Certain Legal Proceedings
On October 25, 1993, GEO International Corporation, a
corporation in which Mr. McConnaughy served as a director and executive
officer, filed a petition for reorganization under Chapter 11 of the
United States Bankruptcy Code.
30
<PAGE>
Item 10. EXECUTIVE COMPENSATION.
The following table summarizes all compensation awarded to,
earned by, or paid to the President of the Company for services rendered
in all capacities to the Company for each of the Company's last three
fiscal years. No other executive officer of the Company received total
salary and bonus in excess of $100,000 during any of the last three
fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
------------------------------------------------------------
Payouts Other
- ------- Annual Securities
Name and Compen- Underlying All Other
Principal Salary Bonus sation Options Compensation
Position Year ($) ($) ($) (#) ($)
- -------- ---- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Levinson 1997 $25,000 - 0 - N/A N/A N/A
Chairman and 1996 $25,000 - 0 - N/A N/A N/A
President 1995 $25,000 - 0 - N/A 150,000 N/A
</TABLE>
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year End Option Value Table1
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options Options
Shares at Fiscal at Fiscal
Acquired Year-End(#) Year-End($)
on Value ------------ -----------
Exercise Realized Exercisable/ Exercisable/
Name # $ Unexercisable Unexercisable
- ---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Robert A. Levinson N/A N/A 137,500/50,000 N/A1
</TABLE>
- ------------------------------
1 At December 31, 1997, none of the options was in-the-money.
Compensation of Directors
Directors who are not salaried employees of the Company receive an
annual fee of $2,500 and an annual grant (in January) of options to
purchase the number of shares of Common Stock derived by dividing $1,500
by the fair market value of a share of Common Stock on the date of grant.
In 1997, the non-employee directors were granted 12,000 options to
purchase shares of Common Stock at an exercise price of $0.25 per share.
31
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth certain information as of March 30,
1998 with respect to the number of shares of the Common Stock
beneficially owned by: (i) each person known to the Company to be the
beneficial owner of more than five percent of the Common Stock; (ii) each
of the directors of the Company; and (iii) all of the directors and
executive officers of the Company as a group. Except as otherwise
indicated, each such stockholder has sole voting and investment power
with respect to the shares beneficially owned by such stockholder. A
person is deemed to beneficially own a security if he has or shares the
power to vote or dispose of the security or has the right to acquire it
within 60 days.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name and Address Ownership Class
- ---------------- ------------------------- ------------------
<S> <C> <C>
Robert A. Levinson 303,175(1) 15.8%
1071 Avenue of the Americas
New York, NY 10018
Rosenman & Colin LLP 132,250 6.9%
575 Madison Avenue
New York, NY 10022
John McConnaughy 25,775(2) 1.3%
1011 High Ridge Road
Stamford, CT 06905
Peter Sprague 25,375(2) 1.3%
540 Madison Avenue
New York, NY 10022
Rudolph Bremser 6,650(3) *
342 B Heritage Village
Southbury, CT 06488
All directors and executive 360,975(4) 18.8%
officers as a group (4 persons)
</TABLE>
- -------------------------
* Less than 1% of class.
(1) Includes 137,500 shares of Common Stock subject to currently
exercisable options.
(2) Includes 15,800 shares of Common Stock subject to currently
exercisable options.
(3) Includes 5,000 shares of Common Stock subject to currently
exercisable options.
32
<PAGE>
(4) Includes 174,100 shares of Common Stock subject to currently
exercisable options.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the payments which the Company was required to
make in 1996 and 1997 relating to the purchase of inventory pursuant to
its purchase of the Looms Division from Andrex, Mr. Levinson made one
loan to the Company on May 1, 1996 for $370,000 and another loan to the
Company on May 1, 1997 for $300,000, both of which bear interest at the
rate of 6% per annum. No repayment date has yet been set for either of
these loans.
As of March 30, 1998, Rosenman & Colin LLP ("Rosenman") beneficially
owned 132,250 shares, or approximately 6.9%, of the Company's Common
Stock (the "Shares"). The Shares were issued by the Company to Rosenman
in lieu of cash and in exchange for legal services provided by Rosenman
to the Company. The Company issued 10,000 of the Shares to Rosenman in
1997 for legal services provided by Rosenman to the Company in 1997.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
The following Financial Statements of the Company are included in
Part II, Item 7 of this report.
Report of Grant Thorton, LLP, Independent Auditors
Balance Sheet at December 31, 1997
Statements of Operations for the Years
Ended December 31, 1997 and 1996
Statement of Stockholders' Equity for
the Years Ended December 31, 1997
and 1996
Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996
Notes to Financial Statements
33
<PAGE>
(a) (2) Exhibits:
The following exhibits are included in this report:
Exhibit Description
2.1 Asset Purchase Agreement, dated as of May 1, 1995,
between the Company and Andrex Industries Corp.,
incorporated herein by reference to the Company Current
Report on Form 8-K filed on June 12, 1995.
3.1 Certificate of Incorporation filed August 17, 1967,
incorporated herein by reference to the Company's
Registration Statement on Form 8-B filed on November 27,
1967.
3.2 Amendment to Certificate of Incorporation filed August
17, 1972, incorporated herein by reference to the
Company's Current Report on Form 8-K for the month of
August 1972.
3.3 Amendment to Certificate of Incorporation filed December
17, 1984, incorporated herein by reference to the
Company's Form N-2 Amendment No. 2 filed on April 3,
1987.
3.4 Amendment to Certificate of Incorporation filed
September 8, 1995, incorporated herein by reference to
the Company's Current Report on Form 8-K filed on
September 12, 1995.
3.5 By-Laws as amended, incorporated herein by reference to
the Company's Form N-2 Amendment No. 4 filed on May 2,
1989.
4 Specimen form of the Company's Common Stock certificate,
incorporated herein by reference to the Company's Form
10-KSB filed on March 24, 1997.
10.1+ 1992 Stock Option Plan, incorporated herein by reference
to the Company's Form 10-K filed on March 30, 1993.
10.2 Occupancy and Use Agreement, dated June 1, 1995, between
the Company and Andrex Industries Corp., incorporated
herein by reference to the Company's Current Report on
Form 8-K filed on June 12, 1995.
10.3 Factoring Agreement, dated June 1, 1995, between the
Company and NationsBanc Commercial Corporation,
incorporated herein by reference to the Company's Form
10-QSB filed on August 18, 1995.
10.4 Amendment, dated August 14, 1996, effective September 1,
1996, to the Factoring Agreement between the Company and
NationsBanc Commercial Corporation dated June 1, 1995,
incorporated herein by reference to the Company's Form
10-KSB filed on March 24, 1997.
10.5 Amendment, dated January 16, 1997, effective January 1, 1997,
to the Factoring Agreement between the Company and NationsBanc
Commercial Corporation dated June 1, 1995.
10.6 Discount Factoring Agreement, dated November 14, 1997, between
the Company and Congress Talcott Corporation.
10.7 Rider "A", dated November 14, 1997, to the Factoring Agreement
between the Company and Nationsbanc Commercial Corporation
dated June 1, 1995.
10.8 Guarantee and Waiver, dated November 14, 1997, by Robert A.
Levinson to the Discount Factoring Agreement, dated
November 14, 1997, between the Company and Congress Talcott
Corporation.
27 Financial Data Schedule (Article 5) included for Electronic
Data Gathering, Analysis, and Retrieval (EDGAR) purposes only.
This Schedule contains summary financial information extracted
from the Company's balance sheets and statements of operations
dated as of and for the year ended December 31, 1997, and is
qualified in its entirety by reference to such financial
statements.
- ----------------------
+ Compensatory plan or arrangement required to be filed as an exhibit hereto.
34
<PAGE>
(b) Reports on Form 8-K:
None
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LEVCOR INTERNATIONAL, INC.
By/s/ Robert A. Levinson April 16, 1998
------------------------------
Robert A. Levinson
Chairman of the Board,
President and Secretary
By/s/ Rudolph E. Bremser April 16, 1998
------------------------------
Rudolph E. Bremser
Treasurer (Chief Financial
and Accounting Officer)
In accordance with the Securities 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.
/s/ Robert A. Levinson Chairman of the Board; April 16, 1998
- ------------------------ President; Secretary;
Robert A. Levinson Director
Director April , 1998
- ------------------------
John McConnaughy
/s/ Peter Sprague Director April 16, 1998
- ------------------------
Peter Sprague
36
<PAGE>
NationsBanc Commercial Corporation
Asset Based Financial Services
P.O. Box 4095
Atlanta, GA 30302-4095
NationsBank
January 16, 1997
Levcor International, Inc.
1071 Avenue of the Americas
New York, NY 10018
RE: Factoring Agreement between us dated June 1, 1995, as amended
(the "Factoring Agreement")
Gentlemen:
This is to confirm our understanding that effective January 1, 1997, the
minimum commissions paid each calendar year as provided in Section 2.5
of the Factoring Agreement shall be deleted in its entirety.
Except as amended herein, all other terms and conditions of the
Factoring Agreement shall remain unchanged and in full force and
effect. Would you please indicate your agreement to the foregoing by
signing where indicated below.
NationsBanc Commercial Corporation
By: /s/ Richard L. Zimmermann
------------------------------
Richard L. Zimmermann (Title)
Read and Agreed:
Levcor International, Inc.
By: Robert A. Levinson President
-----------------------------------
(Title)
A subsidiary of NationsBank Corporation
<PAGE>
DISCOUNT FACTORING AGREEMENT
BETWEEN
CONGRESS TALCOTT CORPORATION
1133 AVENUE OF THE AMERICAS
NEW YORK, N.Y. 10036
AND
LEVCOR INTERNATIONAL, INC.
--------------------------
(NAME OF CLIENT)
1071 AVENUE OF THE AMERICAS
---------------------------
(STREET ADDRESS)
NEW YORK, NY 10018
------------------
(CITY) (STATE)
<PAGE>
Date November 14, 1997
--------------------------
Gentlemen:
We hereby present to you this letter agreement under which we shall
act as your sole factor for all your sales of merchandise and/or rendition of
services.
1. No sales or deliveries of goods or rendition of services shall be
made without first requesting the prior written approval of our Credit Office
in each instance as to terms, amounts and credit of prospective purchasers
("customers"), and we shall have the right to withdraw such approval at any
time before actual delivery of merchandise or rendition of services, as the
case may be. The purchase price of all sales made by you shall be payable only
to us as factors, and all contracts of sale, bills and invoices sent to
customers shall so stipulate in form satisfactory to us. We shall be entitled
to collect and receive all proceeds of your sales and shall enjoy all the
rights and remedies of the sales of goods, including the rights of stoppage in
transit, reclamation and replevin, subject only to our obligation as factor to
account to you in accordance with the terms hereof. We shall not be liable to
any person or in any manner for refusing to give, or for withdrawing credit
approval for any customer or for exercising our rights and remedies as set
forth herein.
2. You hereby sell and assign to us all of your accounts receivable,
contract rights, and other customer obligations for the payment of money
arising out of your sale of goods or rendition of services, now existing and
hereafter arising ("accounts"), together with all proceeds thereof, all
security and guarantees therefor, all of your rights to the goods and property
represented thereby, and all of your rights and remedies against the customers
thereunder. With respect to sales approved and accepted by us, upon delivery
or performance, and acceptance of the goods or services by the customer,
without claim or dispute, we shall purchase the accounts created thereby and
shall assume the credit risk, being responsible only for the financial
inability of the customer to pay at maturity. We shall not be responsible for
any nonpayment of an account because of the assertion of a claim or dispute of
any kind by a customer (whether or not such claim or dispute relates to the
specific account) or the assertion or exercise of any counterclaim or offset,
or if any warranty made by you to us in respect of any such account has been
breached. Any sale of goods or renditions of service made by you which is not
approved in writing by us as to credit, as well as accounts for which we are
not responsible for nonpayment and as to which credit approval is withdrawn as
aforesaid, shall be known as a C.R. (client's risk) account. All such C.R.
accounts assigned to and purchased by us are with full recourse to you and at
your credit risk, but are otherwise subject to the covenants, terms and
conditions provided herein in respect of accounts on which we have assumed the
credit risk.
3. It is understood that you will promptly adjust all disputes with
customers, provided that we have not withdrawn such right to adjust from you
upon the occurrence of an Event of Default hereunder or in any event on notice
by us, and promptly advise us in writing of the same upon your receiving
notice thereof, and we shall have the right to charge back to you any account
involved in a claim, dispute or return asserted or made by a customer and
other C.R. accounts, before or after the maturity thereof, together with
interest at the then effective governing rate (as defined in paragraph 6(a)
hereof) from the date of original credit to the date of full payment. The
charge-back of any such accounts shall not be deemed a reassignment thereof,
and title thereto and to the merchandise represented thereby shall remain in
us until we shall have been fully reimbursed. We agree to reassign to you any
such charged-back account upon your payment to us, in cash, of the amount or
amounts credited by us to you thereon, together with applicable interest. As
absolute owner of each account, we may in our sole discretion enforce, effect
any compromise, settle and adjust any account, in our name or yours, without
affecting or limiting your obligations to us under this agreement and whether
or not any such account shall have been charged back. Unless we shall
otherwise direct, all credit memoranda to be issued to any customer shall be
furnished by you only to us for transmission to the customer, who shall be
solely entitled to the benefit thereof and to the benefit of any discounts and
allowances. You shall indemnify us for, and hold us harmless against, any
loss, liability, claim or expense of any kind (including reasonable attorneys'
fees and disbursements) arising from any claims of, or disputes with, your
customers (or any other persons) as to terms, price, quality, or otherwise,
directly or indirectly relating to accounts, including any claim for a return
of any payments thereunder, or pertaining to any other matter.
4. All goods shall be billed and invoiced upon forms of bill or
invoice satisfactory to us and, unless otherwise directed by us, the said
bills and invoices shall bear the words "Pay only to CONGRESS TALCOTT
CORPORATION. This account and the merchandise covered hereby is assigned and
is payable only to CONGRESS TALCOTT CORPORATION, to whom notice must be given
of any merchandise returns or of any claims for shortage, non-delivery or
otherwise", and shall be payable at such address as we shall direct. At our
request, invoices to customers shall be mailed by us at your expense.
5. At your own cost and expense you will keep proper books of
account, showing all sales and all claims, allowances, disputes and similar
information with respect to the accounts and the goods and services relating
thereto. Such books, records, correspondence and papers pertaining to sales
and accounts shall be open to our inspection and we shall have the right to
examine and make copies of such books, records, correspondence and papers and
to perform general audits at all reasonable times. All remittances, checks,
notes receivable, instruments and other proceeds of accounts shall be our
property and, if received by you, shall be held in trust and immediately
transmitted and delivered to us in the identical form received together with
any endorsement or assignment deemed necessary by us. We shall have the right,
but not the obligation, to deposit any checks or other remittances received on
accounts regardless of notations or conditions placed thereon by your
customers or deductions reflected thereby and to charge the amount of any such
deduction to your account. You further authorize us to endorse your name on
any and all checks or other forms of remittances and proceeds received in
payment of accounts whenever we deem such endorsement to be necessary to
effect collection thereof. We may request shipping receipts covering all sales
to be promptly delivered to us and you shall not be entitled to any credit
with respect to any account until the relevant shipping receipts have been
delivered to us. You will supply us with as many duplicate bills as we may
from time to time reasonable [sic] require.
6.(a) On the last day of each month we will credit you with the
purchase price for your accounts arising during such month which have been
assigned to us and are approved, accepted and purchased by us. The purchase
price for such accounts shall be their respective invoice amounts, less our
commission as provided for herein and less all selling discounts (at our
option, calculated on any terms offered), and all credits or deductions
allowed or granted to the customer at any time, and less a discount at the
governing rate then in effect, calculated for the period commencing on the
first day of the following month, to and including the weighted average
maturity date for such accounts, plus FIVE (5) additional business days for
collection and clearance of remittances. For the purpose of this agreement,
"governing rate" shall mean a rate per annum which is ONE HALF percent (1/2%)
in excess of the prime commercial interest rate from time to time publicly
announced by Philadelphia National Bank, incorporated as CoreStates Bank,
N.A., as its prime rate, whether or not such announced rate is the best rate
available at such bank. The governing rate shall increase or decrease by an
amount equal to each increase or decrease, respectively, in such prime
commercial interest rate, effective on the first day of the month after any
change in such prime commercial interest rate based on the rate in effect on
the last day of the month in which any such change occurs. The governing rate
shall be calculated based on a three hundred sixty (360) day year and actual
days elapsed.
- 2 -
<PAGE>
(b) Prior to our crediting you with the discounted value of your net
accounts purchased by us at the last day of each month, we may, upon your
request, but at our sole discretion in each instance advance to you up to
NINETY percent (90%) of the net amount of approved accounts assigned to and
accepted by us at any time during the month, so long as at all times we shall
maintain a reserve of not less than TEN percent (10%) of the net amount of
all of your accounts which have been assigned to us and are then outstanding.
You will be charged with interest on all sums advanced or charged to you under
this agreement, and other sums owed by you to us at the governing rate then in
effect. In the event that the amount of any sums advanced or charged to you
under this agreement exceeds the amount available to you pursuant to the
percentage of the net amount of outstanding approved accounts assigned to and
accepted by us as set forth above or any other percentage or sublimit set
forth in any supplement to this agreement, the "governing rate" on the entire
amount of such excess(es) shall be a rate per annum which is one-half of one
percent (1/2%) above the governing rate otherwise applicable under Section
6(a) above (whether or not such excess(es) arise or are made with or without
our knowledge or consent). On and after the date of any Event of Default or
the effective date of any termination or non-renewal hereof, the "governing
rate" on all then outstanding and unpaid Obligations shall accrue at the
governing rate provided for in the preceding sentence from the date of such
Event of Default or the effective date of any termination or non-renewal until
payment in full of all Obligations. In no event shall the rate of interest
agreed to or charged to you hereunder exceed the maximum rate of interest
permitted to be agreed to or charged to you under the law or the jurisdiction
whose laws are applicable to such rate of interest. As of the last day of each
month, we will credit you with interest on any net credit balance in your
favor during such month, at the governing rate in effect hereunder for
advances during such month except that no credits shall bear interest
subsequent to the adjusted average due date of the receivables creating such
credits. We shall remit to you upon request, or at any time at our option,
any amount to your credit on our books, subject to our right to withhold and
retain at all times, as a reserve, that amount or your accounts assigned to us
and still outstanding which in our sole discretion is or may be necessary to
allow for possible returns, allowances, claims or expenses or to provide for
the payment to us of your liabilities under this agreement.
7. For our services hereunder, we shall receive a commission equal to
SIX TENTHS OF ONE percent (.60%) of the invoice amount of each account, less
selling discounts (at our option, calculated on any terms offered), which
commission shall be due and payable by you, and chargeable to your account
with us, as at the end of the month in which such account arises, but in no
event less than $4,000.00 each and every month. Such charge is based upon
maximum selling terms of SEVENTY (70) days, and no more extended terms or
additional dating shall be granted by you to any customer without our prior
written approval in each instance. In the event that we shall give our written
approval, each time the due date on any account (whether the original due date
or any previously extended due date) is extended or further extended, as the
case may be, you shall pay to us a service fee of $5.00, which fee is due and
payable on the date of the extension. When such approval is given by us, our
charge with respect to the accounts covered thereby shall be increased at the
rate of twenty-five percent (25%) for each additional thirty (30) days or
thereof of extended terms or additional dating. The minimum factoring
commission on each invoice in respect of any account shall be $3.00. Our
assumption of credit risk shall not include any invoice which represents the
sale of samples.
8. About fifteen (15) days after the end of each month, we will
render to you a statement with respect to the accounts purchased by us in the
previous month, and all advances and charges made to your account under this
agreement. In addition to any other amounts chargeable to your account, your
account shall be charged with all discounts to customers on assigned sales and
all returns, allowances or credits. You will also be charged with interest, at
the governing rate then in effect hereunder as to advances, on the amount of
any customer credit issued on any account after the date the discounted
purchase price thereof has been credited to you, for the period from the date
of crediting of such purchase price to the date of the issuance of such
customer credit. All statements, reports or accountings rendered or issued by
us to you shall be deemed accepted by you and shall be finally conclusive and
binding upon you unless you notify us to the contrary, specifying the precise
respects in which you differ with such statement, report or accounting, by
registered or certified mail within sixty (60) days after the date such
statement, report or account is sent to you. In the event that we provide to
you or on your behalf from time to time additional statements, reports or
accounting with respect to the accounts or otherwise in connection herewith,
you shall pay to us an additional fee in the amount of $50.00 for each such
additional statement, report or accounting, which fee is due and payable on
the date of the issuance by us of such additional statement, report or
accounting.
9. As collateral security for any and all of your (and your
subsidiaries' and affiliates') indebtedness and obligations to us and to each
of our subsidiaries and affiliates, whether matured or unmatured, absolute or
contingent, now existing, or that may hereafter arise (including under
indemnity or reimbursement agreements or by subrogation) and howsoever
acquired by us, whether arising directly between us or acquired by us by
assignment, whether relating to this agreement or independent hereof,
including all obligations incurred by you to any other concern factored or
financed by us or by any subsidiary or affiliate of ours (collectively, the
"Obligations"), you do hereby grant to us, for our own account and on behalf
of our subsidiaries and affiliates, a security interest in all or your
accounts, contract rights, documents, instruments, chattel paper and general
intangibles (whether or not specifically assigned to us), now existing
and hereafter created or acquired, and in the proceeds thereof, any
security and guarantees therefor, in the goods and property represented
thereby, in all of your books and records relating to the foregoing, all
of your rights in connection with any of the foregoing, and in all sums
of money at any time to your credit with us or with any of our
subsidiaries and affiliates, and any of your property at any time in our
possession or in the possession of any of our subsidiaries and
affiliates. You hereby agree to pay all debit balances in your account
on demand and irrevocably authorize us to charge at any time to your
account any Obligations, and to pay any Obligation owing to any of our
subsidiaries and affiliates by so charging your account. You agree to
execute financing statements and any and all other instruments and
documents that we by request to perfect, protect, establish or enforce
the security interests granted hereunder or other provisions hereof. You
do hereby authorize us to file such financing statements without your
signature, signed only by us a secured party, or a reproduction of this
agreement to reflect the security interests granted hereunder. You
hereby warrant that you are solvent, that you have full right and
authority to sell and assign to us and to grant to us a security
interest in your property as provided in this agreement, that you have
not granted a security interest therein or in any of your inventory to
any other party, and that you will not hereafter grant any security
interest therein or in any of your inventory, other than to us, at any
time during the term of this agreement and until the security interest
granted hereunder has been terminated. Immediately upon our request, you
shall pay to us, or reimburse us for, all reasonable sums, costs and
expenses which we may pay or incur in connection with or related to the
negotiation, preparation, consummation, administration and enforcement
of this agreement, any supplement hereto, and all other agreements,
documents and instruments in connection herewith and therewith, and the
transactions contemplated hereunder and thereunder, together with any
amendments, supplements, consents or modifications which may be
hereafter contemplated (whether or not executed), made or entered into
in respect hereof and thereof, and all efforts made to defend, protect
or enforce the security interest and other rights granted herein or
therein or enforcing payment of the Obligations, including, without
limitation, filing fees and taxes, recording taxes, expenses for
searches, expenses heretofore incurred by us and from time to time
hereafter during the course of periodic field examinations of our
collateral or your operations (plus a charge of $500 per person per day
for our examiners in addition to reimbursement for their expenses), wire
transfer fees, check dishonor fees, the fees and disbursements of our
counsel, all fees and expenses for the service and filing of papers,
premiums on bonds and undertakings, fees of marshals, sheriffs,
custodians or auctioneers and others, travel expenses and all court
costs and collection charges, all of which shall be part of the
Obligations and shall accrue interest after demand thereof at the
highest governing rate payable on any of the Obligations. At our option,
all principal, interest, fees, commissions, costs, expenses or other
charges with respect to this agreement may be charged directly to your
account maintained by us.
10. Notwithstanding anything to the contrary contained herein, the
aggregate amount of the Obligations outstanding at any time shall not exceed
$5,000,000, except in our sole discretion. In the event that the outstanding
aggregate amount or the Obligations exceeds such amount, you shall remain
liable therefor and the entire amount of such excess shall, at our option, be
immediately due and payable upon demand.
11. You shall not be entitled to pledge our credit in connection with
any purchase of goods or for any other purpose whatsoever.
- 3 -
<PAGE>
12. If any goods are rejected or returned by, or recovered from, a
customer on any account, you shall forthwith pay us the amount of such
account, either in cash or by the assignment of new accounts acceptable to us
hereunder. Until such repayment, such goods shall be held by you in trust for
our benefit, shall be segregated and identified by you as our property, and
upon our request, at your expense, shall be delivered to or for our account or
upon our order to such place or places as we may designate. We may sell or
cause the public or private sale of any such goods, upon five (5) days written
notice to you, at such places and upon such terms as we may deem proper, and
we may be the purchaser at any public sale. The proceeds of any such sale or
sales shall first be applied to the costs and expenses of and incident to such
sale, and the balance, if any, shall be credited to your account and your
account shall be charged with any deficiencies, costs and expenses.
13. We shall have no responsibility for, or liability in respect of,
the care, shipment, transportation of, or insurance upon, any of your
inventory or other goods, our liability being solely that of a factor
purchasing the accounts arising from sales made by you which have been
approved by us and paying you therefor as hereinabove set forth.
14. (a) This agreement shall commence and become effective as of the
date hereof and shall continue in full force and effect for a term ending one
(1) year from the date hereof and renewing automatically from year to year
thereafter, unless sooner terminated pursuant to the terms hereof. You may
terminate this agreement on the anniversary of the date hereof in any year by
giving to us at least sixty (60) days prior written notice by registered or
certified mail, return receipt requested. We may terminate this agreement at
any time by giving to you at least sixty (60) days prior written notice and,
in addition, we shall have the right to terminate this agreement immediately
at any time upon the occurrence of an Event of Default. No termination of this
agreement shall relieve or discharge you of your duties, obligations and
covenants hereunder until all Obligations have been fully and finally paid and
satisfied (whether contingent or otherwise) and our continuing security
interest in any of your assets or properties shall remain in effect until such
Obligations have been fully and finally paid and satisfied (whether contingent
or otherwise).
(b) If we terminate this agreement upon the occurrence of an Event of
Default or at your request on any date other than the anniversary of the date
hereof after our receipt of sixty (60) days prior written notice from you as
provided above, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of our lost profits as a result thereof, you hereby
agree that you will pay to us in cash or other immediately available funds,
upon the effective date of such termination, an early termination fee in the
amount equal to (i) the percentage for our commission set forth in Section 7
hereof multiplied by the total aggregate amount of sales by you in the
immediately preceding twelve (12) month period, as determined by us, divided
by twelve (12) multiplied by (ii) the number of months (or any part thereof)
remaining in the then current term. Such early termination fee shall be
presumed to be the amount of damages sustained by such early termination and
you agree that it is reasonable under the circumstances currently existing.
(c) All Obligations shall be, at our option, immediately due and
payable without notice or demand immediately upon the occurrence of any Event
of Default or the termination hereof and any provision of this agreement or
any supplement hereto as to future advances by us to you shall, at our option,
terminate forthwith upon the occurrence of any Event of Default or the
termination hereof. Upon the effective date of termination or non-renewal of
this agreement, you shall pay to us in full all outstanding and unpaid
Obligations (including, but not limited to, loans and all interest,
commissions, fees (including the early termination fees provided herein, if
applicable), charges, expenses, and other amounts provided for hereunder or
otherwise) and shall furnish cash collateral to us for all undrawn amounts
available pursuant to previously issued and outstanding letter of credit
accommodations (if any), by wire transfer in federal funds to such bank
account, as we may in our discretion designate for such purpose.
15. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder and under any supplement hereto or
other agreement by you with, to or in favor of us: (a) Upon our giving you five
(5) business days written notice you fail to pay or perform when due any of the
Obligations or you breach any of the terms, covenants, conditions or provisions
contained in this agreement or any other agreement between us; (b) any present
or future representation, warranty or statement of fact made by you or on your
behalf to us in this agreement or any other agreement, schedule or instrument
referred to herein or therein or related hereto or thereto is false or
misleading at any time; (c) we in good faith believe that, because of a change
in the condition or affairs (financial or otherwise) of you or any guarantor of
any of the Obligations, either (i) the prospect of payment or performance of the
Obligations is impaired or (ii) the collateral is not sufficient to fully secure
the Obligations; and (d) the occurrence of any of the following with respect to
you or any guarantor of any of the Obligations: dissolution; termination of
existence; insolvency; business cessation or suspension; calling of a meeting of
creditors; appointment of a receiver for any property; assignment for the
benefit of creditors; commencement of any voluntary or involuntary proceeding
under any bankruptcy or insolvency law; entry of any court order which enjoins
or restrains the conduct of business in the ordinary course. Upon the occurrence
of any Event of Default hereunder, we shall have all the rights and remedies of
a secured party under the Uniform Commercial Code and other applicable laws with
respect to all collateral in which we have a security interest. We may sell or
cause to be sold any or all such collateral, in one or more sales or parcels, at
such prices and upon such terms as we reasonably deem best, and for cash or on
credit or for future delivery and at a public or private sale as we may deem
appropriate, [u]pon our giving you five (5) business days written notice. Unless
the collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, we shall give you reasonable
notice of the time and place of any public sale of collateral owned by you or of
the time after which any private sale or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be met if any such
notice is mailed, postage prepaid, to your address shown herein, at least five
(5) days before the time or the sale or disposition thereof. We may be the
purchaser at any such public sale. The proceeds of sale of such collateral shall
be applied first to all costs and expenses of and incident to such sale,
including reasonable attorneys' fees and then to the payment, in such order as
we may elect, of all sums owing to us hereunder. We shall return any excess to
you, subject to the rights of third parties or as otherwise required by
applicable law, and you shall remain liable for any deficiency.
16. You agree that you will furnish to us, as soon as available, but
in any event not later than one hundred and twenty days (120) after the close of
each fiscal year, your audited financial statements for such fiscal year
(including balance sheets, statements of income and loss, statements of cash
flow and statements of shareholders' equity), and the accompanying notes
thereto, setting forth in each case in comparative form figures for the previous
fiscal year, all in reasonable detail, fairly presenting the financial position
and the results of your operations as at the date thereof and for the fiscal
year then ended and prepared in accordance with generally accepted accounting
principles consistently applied. Such audited statements shall be examined in
accordance with generally accepted auditing standards by, and accompanied by a
report thereon unqualified as to scope of, independent certified public
accountants selected by you and acceptable to us. In addition, at such time or
times as we may request, you will furnish to us such quarterly or monthly
unaudited financial statements (including balance sheets, statements of income
and loss, statements of cash flows and statements of shareholders' equity), and
the accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and results of your operation as at the date thereof and for
such periods prepared in accordance with generally accepted accounting
principles consistently applied and such other information with respect to your
business, operations and condition (financial or otherwise), as we may from time
to time reasonably request.
17. This agreement is deemed made in the State of DELAWARE and shall
be governed, interpreted and construed in accordance with the laws of said
State. Each of the parties hereto hereby irrevocably submits and consents to
the non-exclusive jurisdiction of any local, state or Federal court located
within such State in any action or proceeding involving this agreement or any
other agreement, document or instrument by you with, to or in favor of us or
in any way relating to the relationship between us and each of the parties
hereto hereby waives any objection which it may have based on improper venue
or forum non conveniens to the conduct of any such action or proceeding in any
such court. In any such action or proceeding, you waive personal service of
any summons, complaint or other process and agree that service thereof may be
made by certified or registered mail, directed to you at your address set
forth herein. Within thirty (30) days after the receipt you shall appear in
answer to such summons and complaint or other process, failing which you shall
be deemed in default and judgment may be entered by us against you for the
amount of the claim and other relief requested therein. No modification,
waiver or discharge of this agreement shall be binding upon us unless in
writing and signed by us. If at any time we should fail to exercise any right
or remedy hereunder, it shall not constitute a waiver on our part of exercising
the same or any other right or remedy at any subsequent time. If any taxes are
imposed upon, or
-4-
<PAGE>
if we shall be required to withhold or pay any tax or penalty because of or in
connection with any transactions between us under this agreement, you agree to
indemnify us and hold us harmless in respect thereof. This agreement shall be
binding upon and inure to the benefit of each of us and our respective heirs,
executors, administrators, successors and assigns. All notices, requests and
demands to or upon the respective parties hereto shall be in writing and shall
be deemed given or made: (a) if by hand, telex, telegram, facsimile or other
telecommunication immediately upon sending; (b) if by overnight delivery
service, one (1) day after delivery to the overnight delivery service and (c)
if mailed by certified mail, return receipt requested, five (5) days after
mailing. All notices, requests and demands are to be given or made to the
respective parties at the address set forth herein (or to such other address
as either party may designate by notice in accordance with the provisions of
this section).
18. Trial by jury is hereby waived by each of us in any action,
proceeding or counterclaim brought by either of us against the other on any
matters whatsoever arising out of or in any way connected with this agreement
or the relationship created hereby.
The foregoing is acknowledged, accepted and agreed to:
CONGRESS TALCOTT CORPORATION
LEVCOR INTERNATIONAL INC. By /S/ CHRISTOPHER GOLL
- --------------------------------- --------------------------------------
(Client's Name) CHRISTOPHER GOLL VICE PRESIDENT Title
By /S/ ROBERT A. LEVINSON
------------------------------------
ROBERT A. LEVINSON PRESIDENT Title
(Seal) (Seal)
Location of Client's Books and Records: Chief Executive Office of Client
1071 AVENUE OF THE AMERICAS 1071 AVENUE OF THE AMERICAS
- ------------------------------------------- ------------------------------------
NEW YORK, NY 10018 NEW YORK, NY 10018
- ------------------------------------------- -----------------------------------
OFFICERS' CERTIFICATE
The undersigned, President and Secretary of LEVCOR INTERNATIONAL,
INC. a corporation duly organized and validly existing under the laws of the
State of DELAWARE DO HEREBY CERTIFY that the following is a true copy of
certain resolutions duly and unanimously adopted at a meeting of the Board of
Directors of said corporation, duly called and held on the 14 day of Nov,
19... [sic], at which a quorum was present and voting throughout, and which are
not in conflict with the Certificate of Incorporation, By-Laws, rules and
regulations of said corporation, and which resolutions have not been modified
or rescinded and are still in full force and effect:
"WHEREAS, this corporation proposes to enter into a factoring
agreement with CONGRESS TALCOTT CORPORATION ("CONGRESS"),
having an office 1133 [sic] AVENUE OF THE AMERICAS, NEW YORK,
NY 10036, pursuant to which this corporation will sell and
assign to Congress all of its accounts (as defined therein),
and will grant to Congress a security interest in all of its
accounts, contract rights, chattel paper and general
intangibles and certain other personal property of this
corporation (hereinafter collectively, the "collateral"), and
the form of such factoring agreement having been submitted to
and duly considered at this meeting, and the execution and
delivery thereof having been deemed to be in the best interest
of this corporation; now, therefore, be it:
"RESOLVED, that any one or more of the officers of this corporation
be, and they each hereby are, authorized, directed and empowered, in
the name and on behalf of this corporation: to enter into, execute
and deliver to Congress a factoring agreement substantially in the
form submitted to this meeting, with such changes as said officer or
officers may consider appropriate, the execution and delivery thereof
being deemed conclusive evidence of this corporation's approval of
the terms thereof; from time to time, to sell and assign to Congress
its accounts, and to borrow money and obtain advances and other
financial accommodations from Congress, and to grant a security
interest in the collateral, now existing or hereafter arising,
pursuant to the terms of said factoring agreement, or otherwise, in
such amounts and upon such terms and conditions as said officer of
officers may consider appropriate; to execute and deliver one or more
promissory notes or other evidence of indebtedness, financing
statements, supplementary agreements, assignments, schedules,
transfers, notices, contracts, subordination agreements, guarantees,
designations, consignments and other instruments and documents in
connection with the factoring agreement, as amended or supplemented
from time to time (including the grant of additional liens and
security interests in such personal property and/or real property of
this corporation as may be requested by Congress pursuant to any such
supplement), containing and upon such terms as said officer or
officers may consider appropriate, the execution and delivery thereof
being deemed conclusive evidence of this corporation's approval of
the terms thereof; to adopt a facsimile printed or rubber stamp
signature for the purpose of expediting the terms of the factoring
agreement; and to execute and deliver such further documents and to
perform such other acts as may be necessary or desirable to
effectuate the foregoing resolution; and all such action of said
officer or officers heretofore or hereafter taken shall be deemed as
the action of, and is hereby authorized, ratified, approved and
confirmed by, this corporation and the board of directors thereof;
and it is further
"RESOLVED, that until Congress receives notice in writing by
registered mail of any changes or limitations of authority of any
officers of this corporation, it is authorized to rely upon the
authority and power set forth in these resolutions."
The undersigned DO FURTHER CERTIFY that the Certificate of
Incorporation and By-Laws of this corporation contain no requirement for
shareholder approval or consent to the execution of the factoring agreement or
the consummation of any of the transactions referred to in the foregoing
resolutions. The undersigned DO FURTHER CERTIFY that the chief executive
office and all of the locations of books and records of this corporation as of
the date of the execution and delivery of the factoring agreement are as set
forth therein and shall not be changed without Congress' written consent.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
seal of this corporation this 14 day of NOVEMBER, 1997.
/S/ ROBERT A. LEVINSON
----------------------------------------
ROBERT A. LEVINSON President
(Corporate Seal)
/S/ ROBERT A. LEVINSON
----------------------------------------
ROBERT A. LEVINSON Secretary
-5-
<PAGE>
Rider "A" to the Discount Factoring Agreement
dated Nov 14, 1997
between Congress Talcott Corporation ("CTC")
and LEVCOR INTERNATIONAL, INC.
This will confirm our understanding that in the event we withdraw a credit
approval before delivery on goods for which you have specifically and
irrevocably purchased raw materials, we will be responsible for the cost of
such goods in an amount not to exceed your cost of raw material and direct
labor.
You agree to mitigate our liability by using your best efforts to resell the
goods at the maximum price possible to a new customer approved by us.
Upon such resale we will credit your account for the difference between
the final selling price of the goods and your direct cost, if any. In the
event the goods have not been resold within one hundred twenty (120) days
after the original scheduled delivery date we will credit you for your
direct cost at that time. We will have the right at any time to demand
delivery of the goods to a consignee of our choice and retain our own
agent to sell the goods on our behalf.
CONGRESS TALCOTT CORPORATION
/s/ CHRISTOPHER GOLL
By: -----------------------------
Christopher Goll, Vice President
READ AND AGREED:
LEVCOR INTERNATIONAL, INC.
By: /s/ ROBERT A. LEVINSON
----------------------------
Robert A. Levinson, President
<PAGE>
GUARANTEE AND WAIVER
November 14, 1997
In order to induce CONGRESS TALCOTT CORPORATION (herein called
"Factor"), having an office at 1133 AVENUE OF THE AMERICAS NEW YORK, NY 10036,
to enter into the foregoing factoring agreement with LEVCOR INTERNATIONAL,
INC. (herein called "Obligor") and due to the close business and financial
relationship between Obligor and the undersigned, whereby it is in the direct
interest and benefit of the undersigned, and for other good and valuable
consideration received, the undersigned irrevocably, absolutely and
unconditionally guarantees to the Factor prompt payment, performance and
observance when due (whether at the stated maturity, by acceleration or
otherwise) of any and all Obligations (as such term is defined in the
foregoing agreement) of the Obligor to the Factor. In addition, the
undersigned agrees to indemnify Factor against any loss, damage or liability
because of any wrongful acts of fraud of the Obligor.
The undersigned waives notice of acceptance of this guarantee and
notice of any liability to which it may apply, and waives presentment, demand
for payment, protest, notice of dishonor or nonpayment of any such
liabilities, suit or taking other action by the Factor against, and any other
notice, to any party liable hereon (including the undersigned), and waives any
defense Other [sic] than the defense of payment, offset or counterclaim to any
liability hereunder. The Factor may at any time and from time to time (whether
or not after revocation or termination of this guarantee) without the consent
of, or notice to, the undersigned, without incurring responsibility to the
undersigned, without impairing or releasing the obligations of the undersigned
hereunder, upon or without any terms or conditions and in whole or in part:
(1) change the manner, place or terms of payment, and/or change or extend the
time of payment of, renew or alter, any of the Obligations, any security
therefor, or any liability incurred directly or indirectly in respect hereof,
and the guarantee herein made shall apply to the Obligations as so changed,
extended, renewed or altered; (2) sell, exchange, release, surrender, realize
upon or otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever securing,
the Obligations hereby guaranteed or any liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof and/or
offset there against; (3) exercise or refrain from exercising any rights
against the Obligor or others (including the undersigned) or otherwise act or
refrain from acting; (4) settle or compromise any of the Obligations hereby
guaranteed, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and
may subordinate the payment of all or any part thereof to the payment of any
liability, (whether due or not) to creditors of the Obligor other than the
Factor and the undersigned; and (5) apply any sums by whomsoever paid or
howsoever realized to any of the Obligations regardless of what Obligations or
other liabilities of the Obligor remain unpaid.
No invalidity, irregularity or unenforceability of all or any part of
the Obligations hereby guaranteed or of any security therefor shall affect,
impair or be a defense to this guarantee. The liability of the undersigned
hereunder is primary and unconditional and shall not be subject to any offset,
defense or counterclaim of the Obligor. This guarantee is a continuing one and
all Obligations to which it applies or may apply under the terms hereof shall
be conclusively presumed to have been created in reliance hereon. The Books
and Records of the Factor shall be admissible as prima facie evidence of the
Obligations. As to each of the undersigned, this guarantee shall continue
until one of the Factor's officers has actually received, by certified mail,
written notice of revocation or termination signed by such undersigned.
Revocation or termination by, or complete or partial release for any cause of,
any one or more of the remainder of the undersigned or of the Obligor, or of
any one liable in any manner for the Obligations hereby guaranteed, or for the
liabilities (including those herein) incurred directly or indirectly in
respect thereof or hereof, or the dissolution, termination or increase,
decrease or change in personnel of any one or more of the undersigned which
may be partnerships or corporation [sic], shall not affect the others who do not
give notice as provided herein nor shall termination by operation of law or
otherwise as to any of the undersigned, affect or diminish the liability of
any of the others of the undersigned hereunder.
No revocation or termination hereof shall affect in any manner rights
arising under this guarantee with respect to (a) Obligations which shall have
been created, contracted, assumed or incurred prior to receipt by the Factor
of written notice of such revocation or termination or (b) Obligations which
shall have been created, contracted, assumed or incurred after receipt of such
written notice pursuant to any contract entered into by the Factor prior to
receipt of such notice.
Upon the happening of any of the following events: the death or
insolvency of the Obligor or any of the undersigned, or suspension of business
of the Obligor or any of the undersigned, or the issuance of any warrant of
attachment against any of the property of the Obligor or any of the
undersigned, or the making by the Obligor or any of the undersigned of any
assignment for the benefit of creditors, or a trustee or receiver being
appointed for the Obligor or any of the undersigned or for any property of
either of them, or any proceeding being commenced by or against the Obligor or
any of the undersigned under any bankruptcy, reorganization, arrangement of
debt, insolvency, readjustment of debt, receivership, liquidation or
dissolution law or statute, then and in any such event, and at any time
thereafter, the Factor may, without notice to the Obligor, or any of the
undersigned, make the Obligations, whether or not then due, immediately due
and payable hereunder as to any of the undersigned, and the Factor shall be
entitled to enforce the Obligations of the undersigned hereunder. All sums of
money at any time to the credit of the undersigned with the Factor and any of
the property of the undersigned at any time in the possession of the Factor
may be held by the Factor as security for any and all Obligations of the
undersigned hereunder, notwithstanding that any of said money or property may
have been deposited, pledged or delivered by the undersigned for any other,
different or specific purpose. Any and all claims of any nature which the
undersigned by now or hereafter have against the Obligor are hereby
subordinated to the full payment to the Factor of the Obligations, and are
hereby assigned to the Factor as additional collateral security therefor.
Notwithstanding the foregoing, as long as no Event of Default has occurred
under the Factoring Agreement, Obligor may make scheduled payments to the
undersigned of Principal and Interest.
In the event, the Factor retains attorneys for the purpose of
effecting collection of the Obligations or any of the liabilities of the
undersigned hereunder, the undersigned shall on demand, pay all costs and
expenses of every kind (including without limitation, reasonable attorneys'
fees which the undersigned agrees to be a sum equal to twenty percent of the
amount then due) [b]ased upon the attorneys' normal hourly rates. [sic] which
may be paid or incurred by the Factor in collecting or attempting to collect
any and all of the Obligations and in enforcing any rights under this
guarantee.
If claim is ever made upon the Factor for repayment or recovery of
any amount or amounts received by the Factor in payment of or on account of
any of the Obligations and the Factor repays all or part of said amount by
reason of (a) any judgment, decree, or order of any Court or administrative
body having jurisdiction over the Factor or any of its property, or (b) any
settlement or compromise of any such claim effected by the Factor with any
such claimant (including the Obligor), then and in such event the undersigned
agrees that any such judgment, decree, order, settlement or compromise shall
be binding upon the undersigned, notwithstanding any revocation or release
hereof
<PAGE>
or the cancellation of any note or other instrument evidencing any of the
Obligations, or any release of any such Obligations, and the undersigned shall
be and remain liable to the Factor hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by the Factor. The provisions of this paragraph shall survive, and
continue in effect, notwithstanding any revocation or release hereof.
No delay on the part of the Factor in exercising any of its options,
powers or rights, or partial or single exercise thereof, shall constitute a
waiver thereof. No waiver of any of its rights hereunder, and no modification
or amendment of this guarantee, shall be deemed to be made by the Factor
unless the same shall be in writing, duly signed on behalf of the Factor, and
each such waiver, if any, shall apply only with respect to the specific
instance involved, and shall in no way impair the rights of the Factor or the
obligations of the undersigned to the Factor in any other respect at any other
time. The undersigned shall have no right of subrogation, reimbursement,
exoneration, contribution, indemnification or other recourse against the
Obligor or any of its assets or property or any security held for any
Obligations.
This guarantee and the rights and obligations of the Factor and the
undersigned hereunder shall be governed and construed in accordance with the
laws of the State of NEW YORK. The undersigned hereby irrevocably submits and
consents to the non-exclusive jurisdiction and venue of any local, state of
federal court located within the City of New York in any action or proceeding
involving this agreement or any other agreement, document or instrument by the
undersigned with, to or in favor of Factor or in any way relating to the
relationship between the undersigned and Factor or the Obligor and Factor and
the undersigned hereby waives any objection which it may have based on
improper venue or forum non conveniens to the conduct of any such action or
proceeding in any such court. In any such action or proceeding, the
undersigned waives personal service of any summons, complaint or other process
and agrees that service thereof may be made by certified or registered mail,
directed to the undersigned at its address set forth herein. Within thirty
(30) days after the receipt of the summons and complaint. [sic], the
undersigned shall appear in answer to such summons and complaint or other
process, failing which it shall be deemed in default and judgment may be
entered by Factor against the undersigned for the amount of the claim and
other relief requested therein. This guarantee is binding upon the
undersigned, his, their or its heirs, executors, administrators, successors
and assigns, and shall inure to the benefit of the Factor, its successors,
endorsees, transferees and assigns.
The undersigned agree and do hereby waive trail [sic] by jury in any
action, proceeding or counterclaim brought against the undersigned on any
matters whatsoever arising out of or in any way connected with this guarantee
or the relationship created hereby.
Any acknowledgement, new promise, payment of principal of [sic]
interest or other act by the Obligor and others, with respect to the
Obligations, shall be deemed to be made as agent of the undersigned for
the purposes hereof, and shall, if the statute of limitations in favor
of the undersigned against the Factor shall have commenced to run, toll
the running of such statute of limitations, and if such statute of
limitations shall have expired, prevent the operation of such statute.
The undersigned, if more than one, shall be jointly and severally
liable hereunder and the term "undersigned" wherever used herein shall mean
the undersigned or any one or more of them. Anyone signing this guarantee
shall be bound hereby, whether or not any one else signs this guarantees [sic]
at any time. The term "Factor" includes any agent of the Factor acting for it.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS GUARANTEE
AND WAIVER THE CONTINUING LIABILITY OF THE UNDERSIGNED HEREUNDER SHALL NOT
EXCEED THE AGGREGATE AMOUNT OF (a) $250,000 PLUS (b) INTEREST AND ATTORNEY'S
FEES AS PROVIDED HEREIN.
Witness:------------------- Signature: /S/ ROBERT A. LEVINSON L.S.
ROBERT A. LEVINSON
Address:----------------------------
1035 FIFTH AVENUE
APT. 6C
NEW YORK, NY 10028
Witness:------------------- Signature:---------------------------L.S.
Address:-----------------------------
Witness:------------------- Signature:---------------------------L.S.
Address:-----------------------------
Witness:------------------- Signature:---------------------------L.S.
Address:-----------------------------
Witness:------------------- Signature:---------------------------L.S.
Address:-----------------------------
STATE OF NEW YORK )
COUNTY OF NEW YORK )ss.:
CITY OF NEW YORK )
-2-
<PAGE>
On this 14th day of NOVEMBER, 1997, before me personally came ROBERT
A. LEVINSON to me known to be the individual(s) described in, and who executed
the foregoing instrument, and acknowledged to me that he executed the same.
/s/ ANN M. HANKINS
--------------------------
NOTARY PUBLIC
ANN M. HANKINS
Notary Public, State of New York
No. 31-4727507
Qualified in New York County
Commission Expires Sept. 30, 1998
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements included in the Company's Form 10-KSB for the
year ended December 31, 1997, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 42,043
<SECURITIES> 0
<RECEIVABLES> 536,845
<ALLOWANCES> 0
<INVENTORY> 2,026,588
<CURRENT-ASSETS> 2,612,936
<PP&E> 924,989
<DEPRECIATION> 872,936
<TOTAL-ASSETS> 2,664,989
<CURRENT-LIABILITIES> 2,708,032
<BONDS> 1,235,600
0
0
<COMMON> 969,994
<OTHER-SE> (2,248,637)
<TOTAL-LIABILITY-AND-EQUITY> 2,664,989
<SALES> 3,392,171
<TOTAL-REVENUES> 334,582
<CGS> 3,057,589
<TOTAL-COSTS> 3,743,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,927
<INCOME-PRETAX> (351,270)
<INCOME-TAX> 0
<INCOME-CONTINUING> (351,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351,270)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
