<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(212) 319-4657
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT DATE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
COMMON STOCK, $.25 PAR VALUE -- 4,263,036 SHARES AS OF NOVEMBER 7, 1996
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
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LEXINGTON PRECISION CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. Financial Information
Item 1. Financial Statements ........................................... 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 11
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K ............................... 19
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 55 $ 118
Accounts receivable 14,985 12,959
Inventories 8,737 8,105
Prepaid expenses and other assets 3,788 2,101
Deferred income taxes 843 1,195
-------- --------
Total current assets 28,408 24,478
-------- --------
Property, plant and equipment:
Land 1,533 1,525
Buildings 19,816 17,190
Equipment 66,027 57,110
-------- --------
87,376 75,825
Less accumulated depreciation 35,296 30,887
-------- --------
Property, plant and equipment, net 52,080 44,938
-------- --------
Excess of cost over net assets of businesses acquired, net 9,489 9,726
-------- --------
Other assets, net 3,031 2,734
-------- --------
$ 93,008 $ 81,876
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 12,371 $ 10,628
Accrued expenses 7,319 6,572
Short-term debt 11,928 7,522
Current portion of long-term debt 6,107 4,531
-------- --------
Total current liabilities 37,725 29,253
-------- --------
Long-term debt, excluding current portion 58,855 56,033
-------- --------
Deferred income taxes and other long-term liabilities 929 1,056
-------- --------
Redeemable preferred stock, $100 par value,
at redemption value 1,020 1,020
Less excess of redemption value over par value 510 510
-------- --------
Redeemable preferred stock, at par value 510 510
-------- --------
Stockholders' deficit:
Common stock, $.25 par value, 10,000,000
shares authorized, 4,348,951 shares issued 1,087 1,087
Additional paid-in-capital 12,450 12,547
Accumulated deficit (18,331) (18,305)
Cost of common stock in treasury, 85,915 and 120,915
shares, respectively (217) (305)
-------- --------
Total stockholders' deficit (5,011) (4,976)
-------- --------
$ 93,008 $ 81,876
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 29,287 $ 24,221 $ 85,266 $ 77,728
-------- -------- -------- --------
Costs and expenses:
Cost of sales 24,301 20,135 70,212 62,925
Selling and administrative expenses 3,024 2,306 8,467 7,440
-------- -------- -------- --------
Total costs and expenses 27,325 22,441 78,679 70,365
-------- -------- -------- --------
Income from operations 1,962 1,780 6,587 7,363
Interest expense 2,177 1,962 6,240 5,629
Other income - - - 641
-------- -------- -------- --------
Income/(loss) before income taxes (215) (182) 347 2,375
Provision/(credit) for income taxes 113 (73) 373 594
-------- -------- -------- --------
Net income/(loss) $ (328) $ (109) $ (26) $ 1,781
======== ======== ======== ========
Net income/(loss) per primary and fully diluted
common share:
Primary $ (.08) $ (.03) $ (.02) $ .40
======== ======== ======== ========
Fully diluted $ (.08) $ (.03) $ (.02) $ .38
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income/(loss) $ (26) $ 1,781
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 6,138 4,671
Deferred income taxes 188 -
Gain on sale of property, plant and equipment (14) (668)
Changes in operating assets and liabilities which
provided/(used) cash:
Receivables (2,026) (1,267)
Inventories (632) (1,136)
Prepaid expenses and other assets (1,687) (1,044)
Accounts payable 1,743 (572)
Accrued expenses 747 (170)
Other 71 -
--------- ---------
Net cash provided by operating activities 4,502 1,595
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,442) (11,943)
Increase in equipment deposits, net (380) (396)
Proceeds from sales of property, plant and equipment 195 998
Additions to deferred tooling expense (397) (705)
--------- ---------
Net cash used by investing activities (13,024) (12,046)
--------- ---------
FINANCING ACTIVITIES:
Net increase in short-term debt 4,406 6,501
Proceeds from issuance of long-term debt 12,346 6,700
Repayments of long-term debt (7,974) (2,301)
Other (319) (455)
--------- ---------
Net cash provided by financing activities 8,459 10,445
--------- ---------
Decrease in cash (63) (6)
Cash at beginning of period 118 79
--------- ---------
Cash at end of period $ 55 $ 73
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The unaudited interim consolidated financial statements include the
accounts of Lexington Precision Corporation ("LPC") and its wholly owned
subsidiary, Lexington Components, Inc. ("LCI"). Unless the context otherwise
requires, all references herein to the "Company" are to LPC and LCI. The
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, the financial statements do
not include all the information and footnotes normally included in the annual
consolidated financial statements prepared in accordance with generally accepted
accounting principles. Significant accounting policies followed by the Company
are set forth in Note 1 to the consolidated financial statements in the
Company's annual report on Form 10-K for the year ended December 31, 1995, which
was filed with the Securities and Exchange Commission.
In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company at September 30, 1996, the Company's results
of operations for the three-month and nine-month periods ended September 30,
1996 and 1995 and the Company's cash flows for the nine-month periods ended
September 30, 1996 and 1995. All such adjustments were of a normal recurring
nature.
The results of operations for the three-month and nine-month periods
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the full year or for any succeeding quarter.
NOTE 2 -- INVENTORIES
Inventories at September 30, 1996 and December 31, 1995 are summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ----------------
<S> <C> <C>
Finished goods $ 3,146 $ 3,040
Work in process 2,783 2,213
Raw materials and purchased parts 2,808 2,852
--------- --------
$ 8,737 $ 8,105
========= ========
</TABLE>
NOTE 3 -- SHORT-TERM DEBT
At September 30, 1996 and December 31, 1995, short-term debt consisted of
$11,928,000 and $7,522,000, respectively, of loans outstanding under the
Company's revolving line of credit. The revolving line of credit has an
expiration date of January 2, 1998. Except for loans totaling $3,730,000 at
December 31, 1995, which were refinanced under long-term agreements before the
1995 financial statements were issued, the loans outstanding under the revolving
line of credit have been classified as short-term debt at September 30, 1996 and
December 31, 1995 because the Company's cash receipts are automatically used to
reduce the loans outstanding under the revolving line of credit on a daily
basis, by means of a lock-box sweep arrangement, and the lender has the ability
to modify certain terms of the revolving line of credit without the prior
approval of the Company. Loans outstanding under the revolving line of credit
bear interest at the London Interbank Offered Rate ("LIBOR") plus 3-1/4% and/or
Prime Rate plus 1%.
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<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- ACCRUED EXPENSES
At September 30, 1996 and December 31, 1995, accrued expenses included
accrued interest expense of $742,000 and $1,717,000, respectively.
NOTE 5 -- LONG-TERM DEBT
Long-term debt at September 30, 1996 and December 31, 1995 is summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------------- ---------------
<S> <C> <C>
Loans outstanding under revolving line of credit $ - $ 3,730
Term loans, payable in monthly installments, final
maturities in 2000, 2001, 2002 or 2003 29,040 20,488
12% Note, payable in monthly installments, final maturity
in 2000 2,266 2,635
Industrial Revenue Bond, 75% of prime, payable in monthly
installments, final maturity in 2000 423 498
12-3/4% Senior Subordinated Notes, due 2000 31,708 31,682
14% Junior Subordinated Convertible Notes, due 2000 1,000 1,000
14% Junior Subordinated Nonconvertible Notes, due 2000 347 347
Other 178 184
-------- --------
Total long-term debt 64,962 60,564
Less current portion 6,107 4,531
-------- --------
Total long-term debt, excluding current portion $ 58,855 $ 56,033
======== ========
</TABLE>
LOANS OUTSTANDING UNDER REVOLVING LINE OF CREDIT
At December 31, 1995, $3,730,000, of borrowings outstanding under the
Company's revolving line of credit were classified as long-term debt because the
borrowings were refinanced under long-term agreements before the 1995 financial
statements were issued.
TERM LOANS
Term loans having an aggregate principal balance of $25,593,000 at
September 30, 1996 are payable in equal monthly principal installments with
maturities in 2000, 2001, 2002 or 2003. Two term loans having a total principal
balance of $3,447,000 at September 30, 1996 are payable in equal monthly
principal installments totaling $19,000 until 2001 when the remaining total
principal balance of $2,432,000 will be due. Term loans having a principal
balance of $19,239,000 at September 30, 1996 are subject to earlier maturity in
the event the Company's revolving line of credit terminates or expires.
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<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The term loans having an aggregate principal balance of $25,593,000 bear
interest at LIBOR plus 3% or 3-1/4% or Prime Rate plus 3/4% or 1%. The term
loans having a principal balance of $3,447,000 bear interest at a fixed rate of
8.37% per annum. The term loans are secured by the Company's receivables,
inventories and equipment and by certain of the Company's real property.
12% NOTE
The 12% Note, due April 30, 2000 (the "12% Note"), is payable by LCI, is
secured by a mortgage on LCI's Rock Hill, South Carolina, facility and is
guaranteed by LPC. Level payments of principal and interest in the amount of
$66,000 are due monthly until the 12% Note is paid in full.
12-3/4% NOTES
The 12-3/4% Senior Subordinated Notes, due February 1, 2000 (the "12-3/4%
Notes"), are unsecured obligations of the Company, redeemable at the option of
the Company, in whole or in part, at a declining premium over the principal
amount thereof. Interest on the 12-3/4% Notes is due semi-annually on February 1
and August 1.
14% NOTES
The 14% Junior Subordinated Convertible Notes, due May 1, 2000 (the "14%
Convertible Notes"), and 14% Junior Subordinated Nonconvertible Notes, due
May 1, 2000 (collectively with the 14% Convertible Notes, the "14% Notes"), are
unsecured obligations of the Company and are redeemable at the option of the
Company, in whole or in part, at a declining premium over the principal amount
thereof. Interest on the 14% Notes is due quarterly on February 1, May 1,
August 1 and November 1. The 14% Convertible Notes are convertible into 440,000
shares of the Company's common stock.
RESTRICTIVE COVENANTS
Certain of the Company's loan agreements contain requirements with
respect to the maintenance of minimum levels of working capital, net worth and
cash flow coverage, and place certain restrictions on the Company's business and
operations, including restrictions on the issuance or assumption of additional
debt, the sale of all or substantially all of the Company's assets, the funding
of capital expenditures, the purchase of common stock, the redemption of
preferred stock and the payment of cash dividends.
NOTE 6 -- PROVISION FOR INCOME TAXES
At September 30, 1996 and December 31, 1995, the excess of the Company's
deferred tax assets over its deferred tax liabilities was substantially offset
by a valuation allowance. The income tax provisions recorded for the three-month
and nine-month periods ended September 30, 1996 were primarily attributable to
state income taxes and deferred federal income taxes and were calculated using
the projected effective tax rate for the year ending December 31, 1996.
-8-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 -- NET INCOME OR NET LOSS PER COMMON SHARE
The calculations for primary and fully diluted net income or net loss
per common share for the three-month and nine-month periods ended September 30,
1996 and 1995 are set forth below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME/(LOSS) PER COMMON SHARE:
Weighted average common shares outstanding during period 4,263 4,228 4,245 4,215
Common stock equivalents: incentive stock options - 28 - 28
------ ------ ------- -------
Weighted average common and common equivalent shares 4,263 4,256 4,245 4,243
====== ====== ======= =======
Net income/(loss) $ (328) $ (109) $ (26) $ 1,781
Preferred stock dividends (11) (11) (31) (33)
Pro rata portion of the excess of the redemption cost over the
value of preferred stock redeemed (11) (11) (34) (33)
------ ------ ------- -------
Income for primary net income/(loss) per share $ (350) $ (131) $ (91) $ 1,715
====== ====== ======= =======
Primary net income/(loss) per common share $ (.08) $ (.03) $ (.02) $ .40
====== ====== ======= =======
FULLY DILUTED NET INCOME/(LOSS) PER COMMON SHARE:
Weighted average common shares outstanding during period 4,263 4,228 4,263 4,228
Pro forma conversion of 14% Convertible Notes 440 440 440 440
Common stock equivalents: incentive stock options - 28 - 28
------ ------ ------- -------
Weighted average common and common equivalent shares 4,703 4,696 4,703 4,696
====== ====== ======= =======
Net income/(loss) $ (328) $ (109) $ (26) $ 1,781
Preferred stock dividends (11) (11) (31) (33)
Pro rata portion of the excess of the redemption cost over the
value of preferred stock redeemed (11) (11) (34) (33)
Pro forma elimination of interest expense on the
14% Convertible Notes, net of applicable income taxes 27 26 81 78
------ ------ ------- -------
Income for fully diluted income/(loss) per share $ (323) $ (105) $ (10) $ 1,793
====== ====== ======= =======
Fully diluted net income/(loss) per common share, excluding
any antidilutive effect of the pro forma elimination of
interest on the 14% Convertible Notes $ (.08) $ (.03) $ (.02) $ .38
====== ====== ======= =======
</TABLE>
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and legal proceedings covering a
wide range of matters that arise in the ordinary course of its business
activities. In addition, the Company has been named a potentially
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<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
responsible party or a third-party defendant, along with other companies, for
certain waste disposal sites. Each of these matters is subject to various
uncertainties and it is possible that some of these matters may be decided
unfavorably to the Company. Management believes that any liability that may
ultimately result from the resolution of these matters will not have a material
adverse effect on the financial position of the Company.
-10-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unless the context otherwise requires, all references herein to the
"Company" are to Lexington Precision Corporation ("LPC") and its wholly-owned
subsidiary, Lexington Components, Inc. ("LCI"). Through its two business
segments, the Rubber Group and the Metals Group, the Company manufactures, to
customer specifications, rubber and metal component parts. The Rubber Group
manufactures silicone and organic rubber components for sale primarily to
manufacturers of automobiles, automotive replacement parts and medical devices.
The Metals Group manufactures metal components for sale primarily to
manufacturers of automobiles, industrial equipment and business machines.
Effective September 30, 1996, the majority of the operating units of the Company
changed their names to better reflect their respective lines of business and to
clarify their affiliation with LPC and the other operating units of the Company.
The following chart sets forth the current and former names of each operating
unit:
<TABLE>
<CAPTION>
CURRENT NAME FORMER NAME
------------ -----------
<S> <C> <C>
Rubber Group: Lexington Connector Seals Precision Seals Division
Lexington Insulators Electrical Insulator Division
Lexington Medical (no change)
Lexington Technologies Lexington Manufacturing
Metals Group: Lexington Die Casting Falconer Die Casting Company
Lexington Machining Ness Precision Products (New York)
Lexington Safety Components Ness Precision Products (Arizona)
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Various statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are based upon projections and estimates,
as distinct from past or historical facts and events. These forward-looking
statements are subject to a number of risks, uncertainties and contingencies
that could cause actual results to be materially different. Such risks and
uncertainties include increases and decreases in business awarded to the Company
by its various customers, unanticipated operating results and cash flows,
increases in capital expenditures, changes in future economic conditions,
changes in the competitive environment, changes in the capital markets and a
number of other factors. Because the Company operates with substantial financial
leverage and limited liquidity, the impact of any negative event may have a
greater adverse effect upon the Company than if the Company did not operate with
such substantial financial leverage and limited liquidity.
The results of operations for any particular fiscal period of the Company
are not necessarily indicative of the results to be expected for any one or more
succeeding fiscal periods.
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<PAGE> 13
RESULTS OF OPERATIONS -- THIRD QUARTER OF 1996 VERSUS THIRD QUARTER OF 1995
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
the third quarters of 1996 and 1995 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------- PERCENTAGE
1996 1995 INCREASE
-------- -------- -----------
<S> <C> <C> <C>
Rubber Group $ 18,844 $ 14,335 31.5%
Metals Group 10,443 9,886 5.6
-------- -------- ------
$ 29,287 $ 24,221 20.9%
======== ======== ======
</TABLE>
The increase in net sales of the Rubber Group was the result of increased
sales of connector seals and insulators for automotive wiring systems and
increased sales of medical components and tooling.
The increase in net sales of the Metals Group resulted primarily from
increased sales of machined automotive components manufactured by Lexington
Machining and Lexington Safety Components, offset, in part, by reduced sales of
diecast computer components manufactured by Lexington Die Casting.
COST OF SALES
A summary of cost of sales and cost of sales as a percentage of net sales
for the Rubber Group and the Metals Group for the third quarters of 1996 and
1995 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- PERCENTAGE
1996 1995 INCREASE
---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Rubber Group $ 15,115 80.2% $ 11,943 83.3% 26.6%
Metals Group 9,186 88.0 8,192 82.9 12.1
-------- ----- -------- ----- ------
$ 24,301 83.0% $ 20,135 83.1% 20.7%
======== ===== ======== ===== ======
</TABLE>
At the Rubber Group, cost of sales as a percentage of net sales decreased
to 80.2% during the third quarter of 1996 from 83.3% during the third quarter of
1995 primarily because of reduced material and factory overhead costs as
percentages of net sales. During the third quarter of 1996, material costs as a
percentage of net sales decreased primarily because of a reduction in the cost
of certain raw materials, offset, in part, by increased sales of tooling
purchased from third parties. Factory overhead expense as a percentage of net
sales decreased during the third quarter of 1996 primarily because of increased
absorption of fixed factory overhead expenses as net sales increased by 31.5%.
The improvement in factory overhead expense as a percentage of net sales was
limited by increased depreciation expense, which totaled $1,321,000 during the
third quarter of 1996, compared to $936,000 during the third quarter of 1995,
and by start-up expenses incurred at Lexington Technologies, the Rubber Group's
new mold manufacturing and engineering operation.
At the Metals Group, cost of sales as a percentage of net sales increased
to 88.0% during the third quarter of 1996 from 82.9% during the third quarter of
1995 primarily because of increased material and factory overhead costs as
percentages of net sales. During the third quarter of 1996, material cost as a
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<PAGE> 14
percentage of net sales increased because of increased tooling sales, offset, in
part, by a change in product mix. Factory overhead expense as a percentage of
net sales increased during the third quarter of 1996, primarily because of
start-up expenses related to several new automotive components, increased
depreciation expense, which totaled $629,000 during the third quarter of 1996,
compared to $530,000 during the third quarter of 1995, and increased medical
costs.
SELLING AND ADMINISTRATIVE EXPENSES
A summary of selling and administrative expenses and selling and
administrative expenses as a percentage of net sales for the Rubber Group, the
Metals Group and the Corporate Office for the third quarters of 1996 and 1995
follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- PERCENTAGE
1996 1995 INCREASE
---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Rubber Group $ 1,154 6.1% $ 910 6.3% 26.8%
Metals Group 1,309 12.5 892 9.0 46.7
Corporate Office 561 N/A 504 N/A 11.3
-------- ----- -------- ----- ------
$ 3,024 10.3% $ 2,306 9.5% 31.1%
======== ===== ======== ===== ======
</TABLE>
At the Rubber Group, selling and administrative expenses as a percentage
of net sales decreased to 6.1% for the third quarter of 1996 primarily because
most selling and administrative expenses grew at a slower rate than net sales.
At the Metals Group, selling and administrative expenses as a percentage
of net sales increased to 12.5% for the third quarter of 1996 primarily because
of increased personnel costs, commissions and legal expenses.
INTEREST EXPENSE
Interest expense totaled $2,177,000 during the third quarter of 1996, an
increase of $215,000, compared to the third quarter of 1995. The increase was
caused primarily by an increase in average borrowings outstanding.
PROVISION FOR INCOME TAXES
At September 30, 1996 and December 31, 1995, the excess of the Company's
deferred tax assets over its deferred tax liabilities was substantially offset
by a valuation allowance. The income tax provision recorded during the third
quarter of 1996 was primarily attributable to state income taxes and deferred
federal income taxes and was calculated using the projected effective tax rate
for the year ending December 31, 1996. The income tax provision otherwise
recognizable during the third quarter of 1995 was reduced by the utilization of
portions of the Company's tax loss carryforwards and tax credit carryforwards.
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<PAGE> 15
RESULTS OF OPERATIONS -- FIRST NINE MONTHS OF 1996 VERSUS FIRST NINE MONTHS OF
1995
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
the first nine months of 1996 and 1995 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, PERCENTAGE
------------------------ INCREASE/
1996 1995 (DECREASE)
------- ------- ----------
<S> <C> <C> <C>
Rubber Group $ 55,770 $ 45,946 21.4%
Metals Group 29,496 31,782 (7.2)
-------- -------- ------
$ 85,266 $ 77,728 9.7%
======== ======== ======
</TABLE>
The increase in net sales of the Rubber Group was the result of increased
sales of connector seals and insulators for automotive wiring systems and
increased sales of medical components and tooling. The first nine months of 1995
included net sales of $1,321,000 from the Rubber Group's Extruded and Lathe-Cut
Products Division, which was sold in June 1995.
The decrease in net sales of the Metals Group resulted primarily from
lower sales of die cast components for computers, business machines and
industrial equipment.
COST OF SALES
A summary of cost of sales and cost of sales as a percentage of net sales
for the Rubber Group and the Metals Group for the first nine months of 1996 and
1995 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- PERCENTAGE
1996 1995 INCREASE
---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Rubber Group $ 44,174 79.2% $ 37,379 81.4% 18.2%
Metals Group 26,038 88.3 25,546 80.4 1.9
-------- ----- -------- ----- ------
$ 70,212 82.3% $ 62,925 81.0% 11.6%
======== ===== ======== ===== ======
</TABLE>
At the Rubber Group, cost of sales as a percentage of net sales decreased
to 79.2% during the first nine months of 1996 from 81.4% during the first nine
months of 1995 primarily because of reduced material and factory overhead costs
as percentages of net sales. Material costs as a percentage of net sales
decreased during the first nine months of 1996 primarily because of a reduction
in the cost of certain raw materials and the exclusion of the sales of the
Company's Extruded and Lathe-Cut Products Division. Factory overhead expense as
a percentage of net sales decreased during the first nine months of 1996
primarily because of improved absorption of fixed factory overhead expenses as
net sales increased by 21.4% and because of reduced workers' compensation
expense. The improvement in factory overhead expense as a percentage of net
sales was limited by increased depreciation expense, which totaled $3,680,000
during the first nine months of 1996, compared to $2,631,000 during the first
nine months of 1995, and by start-up expenses incurred at Lexington
Technologies, the Rubber Group's new mold manufacturing and engineering
operation.
-14-
<PAGE> 16
At the Metals Group, cost of sales as a percentage of net sales increased
to 88.3% during the first nine months of 1996 from 80.4% during the first nine
months of 1995. Factory overhead expense as a percentage of net sales and, to a
lesser extent, direct labor cost as a percentage of net sales increased during
the first nine months of 1996 primarily because of start-up expenses related to
several new automotive components, increased depreciation expense, which totaled
$1,816,000 during the first nine months of 1996, compared to $1,455,000 during
the first nine months of 1995, and increases in a variety of factory overhead
expenses.
SELLING AND ADMINISTRATIVE EXPENSES
A summary of selling and administrative expenses and selling and
administrative expenses as a percentage of net sales for the Rubber Group, the
Metals Group and the Corporate Office for the first nine months of 1996 and 1995
follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- PERCENTAGE
1996 1995 INCREASE
---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Rubber Group $ 3,318 5.9% $ 2,981 6.5% 11.3%
Metals Group 3,291 11.2 2,736 8.6 20.3
Corporate Office 1,858 N/A 1,723 N/A 7.8
-------- ----- -------- ----- -------
$ 8,467 9.9% $ 7,440 9.6% 13.8%
======== ===== ======== ===== =======
</TABLE>
At the Rubber Group, selling and administrative expenses as a percentage
of net sales decreased to 5.9% for the first nine months of 1996 primarily
because most selling and administrative expenses grew at a slower rate than net
sales.
At the Metals Group, selling and administrative expenses as a percentage
of net sales increased to 11.2% for the first nine months of 1996 primarily
because of increased personnel costs and legal expenses.
INTEREST EXPENSE
Interest expense totaled $6,240,000 during the first nine months of 1996,
an increase of $611,000, compared to the first nine months of 1995. The increase
was caused primarily by an increase in average borrowings outstanding.
PROVISION FOR INCOME TAXES
At September 30, 1996 and December 31, 1995, the excess of the Company's
deferred tax assets over its deferred tax liabilities was substantially offset
by a valuation allowance. The income tax provision recorded during the first
nine months of 1996 was primarily attributable to state income taxes and
deferred federal income taxes and was calculated using the projected effective
tax rate for the year ending December 31, 1996. The income tax provision
otherwise recognizable during the first nine months of 1995 was reduced by the
utilization of portions of the Company's tax loss carryforwards and tax credit
carryforwards.
-15-
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first nine months of 1996, the operating activities of the
Company provided $4,502,000 of cash. Cash provided by operating activities
included $2,490,000 of cash provided by increased accounts payable and accrued
expenses, which increased primarily because of higher levels of production
during the third quarter of 1996, compared to the fourth quarter of 1995. Cash
was used to fund increased accounts receivable, prepaid expenses and other
current assets. Accounts receivable increased by $2,026,000 primarily because
net sales in September 1996 exceeded net sales in December 1995. Prepaid
expenses and other current assets increased by $1,687,000 primarily because of
increased customer tooling in process.
INVESTING ACTIVITIES
During the first nine months of 1996, the investing activities of the
Company used $13,024,000 of cash, primarily for capital expenditures. Capital
expenditures attributable to the Rubber Group and the Metals Group totaled
$7,505,000 and $4,937,000, respectively.
FINANCING ACTIVITIES
During the first nine months of 1996, the financing activities of the
Company provided $8,459,000 of cash.
The Company finances its day-to-day operations through a revolving line
of credit. The Company borrows and repays loans outstanding under the revolving
line of credit daily, depending on cash receipts and disbursements. The ability
of the Company to borrow under the revolving line of credit is governed by
certain availability formulas which are based on the levels of accounts
receivable and inventories of the Company. The Company also uses the revolving
line of credit to fund capital expenditures with the intention of later
refinancing a portion of such borrowings with term loans.
The Company uses an equipment line of credit to finance a portion of
qualified new equipment purchases with term loans, repayable in equal monthly
installments through 2002. Generally, the amount of financing available under
the equipment line of credit to fund new equipment purchases is equal to 85% of
the appraised orderly liquidation value of the equipment being purchased. At
November 4, 1996, subject to the acquisition of new equipment as collateral,
availability under the equipment line of credit totaled approximately
$5,500,000.
During the first nine months of 1996, borrowings classified as short-term
under the revolving line of credit increased by $4,406,000. Borrowings
classified as long-term decreased by $3,730,000.
During the first nine months of 1996, the Company refinanced $4,035,000
of term loans and $12,042,000 of loans outstanding under the revolving line of
credit with new term loans in the aggregate amount of $16,077,000. The new term
loans are secured by the Company's receivables, inventories and equipment and by
certain of the Company's real property. As a result of the new term loan
financings, the current portion of long-term debt increased from $4,531,000 at
December 31, 1995 to $6,107,000 at September 30, 1996.
-16-
<PAGE> 18
LIQUIDITY
The Company operates with high financial leverage and limited liquidity.
During the first nine months of 1996, aggregate indebtedness of the Company,
excluding accounts payable, increased by $8,804,000 to $76,890,000. The
Company's net working capital deficit increased by $4,542,000, primarily because
capital expenditures were financed with increased short-term borrowings under
the Company's revolving line of credit and increased term loan financings which
in turn increased the current portion of long-term debt.
At November 8, 1996, availability under the Company's revolving line of
credit totaled $1,200,000 before deducting outstanding checks of approximately
$550,000.
The Company believes that it has limited ability to extend its trade
accounts payable balances beyond current payment practices without having a
material adverse effect on the business of the Company.
The Company presently projects that capital expenditures will total
approximately $18,000,000 during 1996, including approximately $5,600,000 during
the fourth quarter. At September 30, 1996, the Company had commitments
outstanding for capital expenditures supported by purchase orders totaling
approximately $4,200,000. Effective as of August 14, 1996, the Company and its
lenders amended a loan covenant to change the Company's capital spending limit
for 1996 from $15,000,000 to $23,000,000.
In conjunction with its capital spending program, the Company is
currently negotiating loan documents with a lender for a $7,000,000 line of
credit to finance the purchase of certain metal machining equipment. Under the
terms of the equipment line of credit, as proposed, the lender will advance 100%
of the cost of the equipment financed. Borrowings under the equipment line of
credit will be repayable in 60 equal monthly principal installments with
interest at a rate of LIBOR plus 3-1/8%. The Company has also commenced
discussions with a lender for construction and permanent mortgage financing of
approximately $1,700,000 for the expansion of the Company's manufacturing
facility in Casa Grande, Arizona. There can be no assurance given that either of
the financings will be completed. If the Company is unable to obtain either
financing, the Company intends to reduce or delay its capital expenditure
program. Any such reduction or delay in capital expenditures could have an
adverse effect upon the future operating results of the Company.
The Company is currently projecting that, during the fourth quarter of
1996 and the first six months of 1997, it will require financing of
approximately $2,500,000 in excess of its current lines of credit, assuming that
the proposed $7,000,000 equipment line of credit and the proposed construction
and permanent mortgage financing of approximately $1,700,000 are consummated.
There can be no assurance given that the $2,500,000 of projected required
financing can be obtained on terms acceptable to the Company.
Certain of the Company's loan agreements contain covenants with respect
to the maintenance of minimum levels of working capital, net worth and cash flow
coverage and place certain restrictions on the Company's business and
operations, including restrictions on the issuance or assumption of additional
debt, the sale of all or substantially all of the Company's assets, the funding
of capital expenditures, the purchase of common stock, the redemption of
preferred stock and the payment of cash dividends. Based upon the Company's
current projection, the Company believes that, if certain refinancings of
existing term loans cannot be obtained, the Company may need to seek the
amendment or waiver as of December 31, 1996 and March 31, 1997 of a loan
covenant which requires that the Company maintain a cash flow coverage ratio
(net income plus depreciation and amortization to the current portion of
long-term debt) of at least 1.25 to 1.00.
Although there can be no assurance given that the financings,
refinancings or loan amendment or waiver discussed above can be obtained by the
Company, the Company believes that it will be able to meet the
-17-
<PAGE> 19
presently anticipated working capital and capital expenditure requirements
through 1997. If the Company is unable to obtain the necessary financing,
refinancing or amendment or waiver, the Company would reduce or delay its
capital expenditure program and take actions to curtail or postpone certain
operating expenses in order to increase the short-term cash flow of the Company.
In the event that the Company's projections prove to be inaccurate and if
remedial actions failed to provide the cash flow necessary to meet the Company's
anticipated working capital needs, the Company might have to delay the payment
of the scheduled interest payments on its senior and junior subordinated debt
which are due on February 1, 1997. If, as a result of a payment or covenant
default, any lender seeks to obtain a judgment against the Company or attempts
to foreclose on any material assets of the Company, the Company could decide to
seek protection from its creditors under the federal bankruptcy code in an
effort to restructure its debts in an orderly fashion. The federal bankruptcy
code generally imposes restrictions upon the ability of creditors and other
parties in interest to exercise certain rights against a debtor, including the
exercise of foreclosure remedies, without bankruptcy court approval.
ENVIRONMENTAL MATTERS
The Company has been named from time to time as one of numerous
potentially responsible parties under applicable environmental laws for
restoration costs at waste disposal sites, as a third-party defendant in cost
recovery actions pursuant to applicable environmental laws and as a defendant or
potential defendant in various other environmental law matters. It is the
Company's policy to record accruals for such matters when a loss is deemed
probable and the amount of such loss can be reasonably estimated. The various
actions to which the Company is or may be a party in the future are at various
stages of completion and, although there can be no assurance as to the outcome
of existing or potential environmental litigation, based upon the information
currently available to the Company, the Company believes that the outcome of
such actions would not have a material adverse effect upon its financial
position.
-18-
<PAGE> 20
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
10-1 Third Amended and Restated Promissory Note dated August 21, 1996 from Lexington
Components, Inc. in favor of Congress Financial Corporation
10-2 Third Amended and Restated Promissory Note dated August 21, 1996 from Lexington
Precision Corporation in favor of Congress Financial Corporation
10-3 Amendment to Financing Agreements dated August 21, 1996 from Lexington
Components, Inc. in favor of Congress Financial Corporation
10-4 Amendment to Financing Agreements dated August 21, 1996 from Lexington Precision
Corporation in favor of Congress Financial Corporation
27-1 Financial Data Schedule*
<FN>
* Not deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities
Exchange Act of 1934 and Section 323 of the Trust
Indenture Act of 1939, or otherwise subject to the
liabilities of such sections and not deemed part of any
registration statement to which such exhibit relates.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
</TABLE>
-19-
<PAGE> 21
LEXINGTON PRECISION CORPORATION
FORM 10-Q
SEPTEMBER 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEXINGTON PRECISION CORPORATION
(Registrant)
November 13, 1996 By: /s/ Michael A. Lubin
- ----------------- -------------------------
Date Michael A. Lubin
Chairman of the Board
November 13, 1996 By: /s/ Warren Delano
- ----------------- -------------------------
Date Warren Delano
President
November 13, 1996 By: /s/ Dennis J. Welhouse
- ----------------- -------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
-20-
<PAGE> 22
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NUMBER EXHIBIT LOCATION
- ------ ------- --------
<S> <C> <C>
10-1 Third Amended and Restated Promissory Note Filed with this Form 10-Q
dated August 21, 1996 from Lexington
Components, Inc. in favor of Congress
Financial Corporation
10-2 Third Amended and Restated Promissory Note Filed with this Form 10-Q
dated August 21, 1996 from Lexington
Precision Corporation in favor of Congress
Financial Corporation
10-3 Amendment to Financing Agreements dated Filed with this Form 10-Q
August 21, 1996 from Lexington Components,
Inc. in favor of Congress Financial
Corporation
10-4 Amendment to Financing Agreements dated Filed with this Form 10-Q
August 21, 1996 from Lexington Precision
Corporation in favor of Congress Financial
Corporation
27-1 Financial Data Schedule Filed with this Form 10-Q
</TABLE>
<PAGE> 1
THIRD
AMENDED AND RESTATED
PROMISSORY NOTE
---------------
$6,087,000 New York, New York
August 21, 1996
FOR VALUE RECEIVED, LEXINGTON COMPONENTS, INC., a Delaware corporation
(the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS
FINANCIAL CORPORATION, a California corporation (the "Payee"), at the offices of
Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other
place as the Payee or any holder hereof may from time to time designate, the
principal sum of SIX MILLION EIGHTY-SEVEN THOUSAND AND NO/100 DOLLARS
($6,087,000) in lawful money of the United States of America and in immediately
available funds, in sixty-five (65) consecutive monthly installments (or earlier
as hereinafter referred to) on the first day of each month commencing
October 1, 1996, of which the first sixty-four (64) installments shall each be
in the amount of NINETY-THREE THOUSAND SIX HUNDRED AND NO/100 DOLLARS
($93,600), and the last (i.e. sixty-fifth (65th)) installment shall be in the
amount of the entire unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing
September 1, 1996 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
during the continuance of an Event of Default or following the effective date of
termination or non-renewal of the Financing Agreements shall be payable upon
demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to
Prime Rate Loans, a rate of one (1%) percent per annum in excess of the Prime
Rate, and as to Eurodollar Rate Loans, a rate of three and one-quarter (3 1/4%)
percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at
Payee's option, the Interest Rate shall mean a rate of three (3%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans and a rate of five and
one-quarter (5 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate
as to Eurodollar Rate Loans, upon and during the continuance of an Event of
Default or after the effective date of termination or non-renewal of the
Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from
time to time publicly announced by CoreStates Bank, N.A., or its successors, at
its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such
announced rate is the best rate available at such bank. Unless otherwise defined
herein, all capitalized terms used herein shall have the
<PAGE> 2
meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and
the other Financing Agreements.
The Interest Rate applicable to Prime Rate Loans payable hereunder
shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective on the first day of the month after
any change in the Prime Rate, based on the Prime Rate in effect on the last day
of the month in which any such change occurs. Interest shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. In no
event shall the interest charged hereunder exceed the maximum permitted under
the laws of the State of New York or other applicable law.
This Note is the "LCI Third Restated Note" issued pursuant to the terms
and provisions of the letter agreement re: Amendment to Financing Agreements,
dated as of the date hereof, between Debtor and Payee. The principal amount of
this Note represents the unpaid principal balance of $5,087,000 outstanding
under that certain Second Amended and Restated Promissory Note, dated
January 31, 1995, in the original principal sum of $6,957,000 made by Debtor
to Payee (the "Existing Promissory Note") PLUS an additional one-time advance
made on the date hereof by Payee to Debtor in the principal sum of $1,000,000
(the "Additional Term Loan"). None of the outstanding indebtedness evidenced by
the Existing Promissory Note shall be deemed extinguished by Debtor's issuance
or Payee's acceptance of this Note. This Note shall be deemed to evidence the
Additional Term Loan and to substitute for, and to amend and restate in its
entirety, the Existing Promissory Note as to the indebtedness previously
evidenced thereby, and the Existing Promissory Note shall be so marked by
Payee.
This Note is secured by the "Collateral" described in the Accounts
Financing Agreement [Security Agreement], dated January 11, 1990, by and between
Payee and Debtor, as amended (the "Accounts Agreement") and any agreement,
document or instrument now or at any time hereafter executed and/or delivered in
connection therewith or related thereto (the foregoing, as the same now exist or
may hereafter be amended, modified, supplemented, renewed, extended, restated or
replaced, are hereinafter collectively referred to as the "Financing
Agreements") and is entitled to all of the benefits and rights thereof and of
the Financing Agreements. At the time any payment is due hereunder, at its
option, Payee may charge the amount thereof to any account of Debtor maintained
by Payee.
If any principal or interest payment is not made when due hereunder,
and such failure shall continue for three (3) days, or if any other Event of
Default (as defined in the Accounts Agreement) shall occur for any reason, or if
the Financing Agreements shall be terminated or not renewed for any reason
- 2 -
<PAGE> 3
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Debtor's obligations, liabilities and indebtedness owing to Payee
under the Financing Agreements (the "Obligations"), including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof together with all interest accrued thereon, shall
forthwith become due and payable, together with interest accruing thereafter at
the then applicable rate stated above until the indebtedness evidenced by this
Note is paid in full, plus the costs and expenses of collection hereof,
including, but not limited to, reasonable attorneys' fees.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for any holder hereof to
first institute suit in order to enforce payment of this Note and (iii) consents
to any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. Upon the occurrence and during the
continuance of any Event of Default, Payee shall have the right, but not the
obligation to setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
Debtor hereby waives the right to a trial by jury and all rights of
setoff and rights to interpose counterclaims and cross-claims in any litigation
or proceeding arising in connection with this Note, the Accounts Agreement, the
other Financing Agreements, the Obligations or the Collateral, other than
compulsory counterclaims, the non-assertion of which would result in a permanent
waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of
the Supreme Court of the State of New York and of the United States District
Court for the Southern District of New York for all purposes in connection with
any action or proceeding arising out of or relating to this Note, the Accounts
Agreement, the other Financing Agreements, the Obligations or the Collateral and
further consents that any process or notice of motion or other application to
said Courts or any judge thereof, or any notice in connection with any
proceeding hereunder may be served (i) inside or outside the State of New York
by registered or certified mail, return receipt requested, and service or notice
so served shall be deemed complete five (5) days after the same shall have been
posted or
- 3 -
<PAGE> 4
(ii) in such other manner as may be permissible under the rules of said Courts.
Within thirty (30) days after such mailing, Debtor shall appear in answer to
such process or notice of motion or other application to said Courts, failing
which Debtor shall be deemed in default and judgment may be entered by Payee
against Debtor for the amount of the claim and other relief requested therein.
The execution and delivery of this Note has been authorized by the
Board of Directors of Debtor.
This Note, the other Obligations and the Collateral shall be governed
by and construed in accordance with the laws of the State of New York and shall
be binding upon the successors and assigns of Debtor and inure to the benefit of
Payee and its successors, endorsees and assigns. If any term or provision of
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the Payee or the holder hereof.
Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to
include their respective successors and assigns.
LEXINGTON COMPONENTS, INC.
ATTEST:
By: Warren Delano
-------------------
Kenneth I. Greenstein
- ----------------------
Title: President
-------------------
[Corporate Seal]
-4-
<PAGE> 1
THIRD
AMENDED AND RESTATED
PROMISSORY NOTE
---------------
$5,236,304 New York, New York
August 21, 1996
FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware
corporation (the "Debtor"), hereby unconditionally promises to pay to the order
of CONGRESS FINANCIAL CORPORATION, a California corporation (the "Payee"), at
the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036,
or at such other place as the Payee or any holder hereof may from time to time
designate, the principal sum of FIVE MILLION TWO HUNDRED THIRTY-SIX THOUSAND
THREE HUNDRED FOUR AND NO/100 DOLLARS ($5,236,304) in lawful money of the United
States of America and in immediately available funds, in sixty-five (65)
consecutive monthly installments (or earlier as hereinafter referred to) on the
first day of each month commencing October 1, 1996, of which the first
sixty-four (64) installments shall each be in the amount of EIGHTY THOUSAND SIX
HUNDRED AND NO/100 DOLLARS ($80,600), and the last (i.e. sixty-fifth (65th))
installment shall be in the amount of the entire unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing
September 1, 1996 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
during the continuance of an Event of Default or following the effective date of
termination or non-renewal of the Financing Agreements shall be payable upon
demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to
Prime Rate Loans, a rate of one (1%) percent per annum in excess of the Prime
Rate, and as to Eurodollar Rate Loans, a rate of three and one-quarter (3 1/4%)
percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at
Payee's option, the Interest Rate shall mean a rate of three (3%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans and a rate of five and
one-quarter (5 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate
as to Eurodollar Rate Loans, upon and during the continuance of an Event of
Default or after the effective date of termination or non-renewal of the
Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from
time to time publicly announced by CoreStates Bank, N.A., or its successors, at
its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such
announced rate is the best rate available at such bank. Unless otherwise defined
herein, all capitalized terms used herein shall have the
<PAGE> 2
meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and
the other Financing Agreements.
The Interest Rate applicable to Prime Rate Loans payable hereunder
shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective on the first day of the month after
any change in the Prime Rate, based on the Prime Rate in effect on the last day
of the month in which any such change occurs. Interest shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. In no
event shall the interest charged hereunder exceed the maximum permitted under
the laws of the State of New York or other applicable law.
This Note is the "LPC Third Restated Note" issued pursuant to the terms
and provisions of the letter agreement re: Amendment to Financing Agreements,
dated as of the date hereof, between Debtor and Payee. The principal amount of
this Note represents the unpaid principal balance of $4,236,304 outstanding
under that certain Second Amended and Restated Promissory Note, dated
January 31, 1995, in the original principal sum of $6,683,000 made by
Debtor to Payee (the "Existing Promissory Note") PLUS an additional one-time
advance made on the date hereof by Payee to Debtor in the principal sum of
$1,000,000 (the "Additional Term Loan"). None of the outstanding indebtedness
evidenced by the Existing Promissory Note shall be deemed extinguished by
Debtor's issuance or Payee's acceptance of this Note. This Note shall be deemed
to evidence the Additional Term Loan and to substitute for, and to amend and
restate in its entirety, the Existing Promissory Note as to the indebtedness
previously evidenced thereby, and the Existing Promissory Note shall be so
marked by Payee.
This Note is secured by the "Collateral" described in the Accounts
Financing Agreement [Security Agreement], dated January 11, 1990, by and between
Payee and Debtor, as amended (the "Accounts Agreement") and any agreement,
document or instrument now or at any time hereafter executed and/or delivered in
connection therewith or related thereto (the foregoing, as the same now exist or
may hereafter be amended, modified, supplemented, renewed, extended, restated or
replaced, are hereinafter collectively referred to as the "Financing
Agreements") and is entitled to all of the benefits and rights thereof and of
the Financing Agreements. At the time any payment is due hereunder, at its
option, Payee may charge the amount thereof to any account of Debtor maintained
by Payee.
If any principal or interest payment is not made when due hereunder,
and such failure shall continue for three (3) days, or if any other Event of
Default (as defined in the Accounts Agreement) shall occur for any reason, or if
the Financing Agreements shall be terminated or not renewed for any reason
- 2 -
<PAGE> 3
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Debtor's obligations, liabilities and indebtedness owing to Payee
under the Financing Agreements (the "Obligations"), including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof together with all interest accrued thereon, shall
forthwith become due and payable, together with interest accruing thereafter at
the then applicable rate stated above until the indebtedness evidenced by this
Note is paid in full, plus the costs and expenses of collection hereof,
including, but not limited to, reasonable attorneys' fees.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for any holder hereof to
first institute suit in order to enforce payment of this Note and (iii) consents
to any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. Upon the occurrence and during the
continuance of any Event of Default, Payee shall have the right, but not the
obligation to setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
Debtor hereby waives the right to a trial by jury and all rights of
setoff and rights to interpose counterclaims and cross-claims in any litigation
or proceeding arising in connection with this Note, the Accounts Agreement, the
other Financing Agreements, the Obligations or the Collateral, other than
compulsory counterclaims, the non-assertion of which would result in a permanent
waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of
the Supreme Court of the State of New York and of the United States District
Court for the Southern District of New York for all purposes in connection with
any action or proceeding arising out of or relating to this Note, the Accounts
Agreement, the other Financing Agreements, the Obligations or the Collateral and
further consents that any process or notice of motion or other application to
said Courts or any judge thereof, or any notice in connection with any
proceeding hereunder may be served (i) inside or outside the State of New York
by registered or certified mail, return receipt requested, and service or notice
so served shall be deemed complete five (5) days after the same shall have been
posted or
- 3 -
<PAGE> 4
(ii) in such other manner as may be permissible under the rules of said Courts.
Within thirty (30) days after such mailing, Debtor shall appear in answer to
such process or notice of motion or other application to said Courts, failing
which Debtor shall be deemed in default and judgment may be entered by Payee
against Debtor for the amount of the claim and other relief requested therein.
The execution and delivery of this Note has been authorized by the
Board of Directors of Debtor.
This Note, the other Obligations and the Collateral shall be governed
by and construed in accordance with the laws of the State of New York and shall
be binding upon the successors and assigns of Debtor and inure to the benefit of
Payee and its successors, endorsees and assigns. If any term or provision of
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the Payee or the holder hereof.
Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to
include their respective successors and assigns.
LEXINGTON PRECISION CORPORATION
ATTEST:
By: Warren Delano
------------------------
Kenneth I. Greenstein
- ---------------------
Title: President
------------------------
[Corporate Seal]
- 4 -
<PAGE> 1
August 21, 1996
Lexington Components, Inc.
767 Third Avenue
New York, New York 10017
Re: AMENDMENT TO FINANCING AGREEMENTS
Gentlemen:
Reference is made to certain financing agreements dated
January 11, 1990 between Lexington Components, Inc. ("LCI") and Congress
Financial Corporation ("Congress"), including, but not limited to, an Accounts
Financing Agreement [Security Agreement], as amended (the "Accounts
Agreement"), and all supplements thereto and all other related financing and
security agreements (collectively, all of the foregoing, as the same have
heretofore or contemporaneously been or may be hereafter, amended, replaced,
extended, modified or supplemented, the "Financing Agreements").
In connection with the financing arrangements pursuant to the Accounts
Agreement and the other Financing Agreements, the parties hereto hereby agree to
amend the Financing Agreements, as set forth below (capitalized terms used
herein, unless otherwise defined herein, shall have the meanings ascribed
thereto in the Accounts Agreement and the other Financing Agreements):
1. ADDITIONAL TERM LOAN. Contemporaneously herewith, in order to
evidence the balance of the outstanding Obligations owed by LCI pursuant to the
Second Amended and Restated Promissory Note, dated January 31, 1995, made
payable by LCI in favor of Congress, in the original principal amount of
$6,957,000, and in order to evidence an additional one-time advance to LCI,
which is deemed to be made upon the effective date hereof, in the principal
amount of $1,000,000, LCI is executing and delivering to Congress a Third
Amended and Restated Promissory Note in the original principal amount of
$6,087,000 (as the same now exists or may hereafter be amended, supplemented,
renewed, extended, restated or replaced, the "LCI Third Restated Note"). The
Obligations evidenced by the LCI Third Restated Note shall be payable, including
interest and other amounts, as provided therein and, to the extent not
inconsistent with the terms of the LCI Third Restated Note, as provided in the
other Financing Agreements, and shall be secured by all Collateral.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by LCI to Congress pursuant to the Financing Agreements, LCI hereby
represents, warrants and covenants with and to Congress as follows (which
representations, warranties and covenants are continuing and shall survive the
<PAGE> 2
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists or has occurred and is
continuing on the date of this Amendment.
(b) This Amendment has been duly executed and delivered by LCI
and is in full force and effect as of the date hereof, and the agreements and
obligations of LCI contained herein constitute the legal, valid and binding
obligations of LCI enforceable against LCI in accordance with their terms.
3. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. Anything contained in this
Amendment to the contrary notwithstanding, the terms and provisions of this
Amendment shall only become effective upon the satisfaction of the following
conditions precedent:
(a) Congress shall have received an executed original or
executed original counterparts (as the case may be) of this Amendment, together
with the following, each of which shall be in form and substance satisfactory to
Congress:
(i) the LCI Third Restated Note; and
(ii) the Amendment between LPC and Congress with
respect to the LPC Financing Agreements and the documents and instruments
required thereunder and the satisfaction of all conditions precedent to the
effectiveness thereof.
(b) All representations and warranties contained herein, in
the Accounts Agreement and in the other Financing Agreements shall be true and
correct in all material respects.
(c) No Event of Default shall exist or have occurred and be
continuing, and no event shall have occurred or condition be existing which,
with notice or passage of time or both, would constitute an Event of Default.
4. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the
Accounts Agreement and all supplements to the Accounts Agreement and all other
Financing Agreements are hereby specifically ratified, restated and confirmed by
the parties hereto as of the date hereof and no existing defaults or Events of
Default have been waived in connection herewith. To the extent of conflict
between the terms of this Amendment and the Accounts Agreement or any of the
other Financing Agreements, the terms of this Amendment control.
5. FURTHER ASSURANCES. LCI shall execute and deliver such
- 2 -
<PAGE> 3
additional documents and take such additional actions as may reasonably be
requested by Congress to effectuate the provisions and purposes of this
Amendment.
6. GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York without reference to its
principles of conflicts of law.
By the signatures hereto of the duly authorized officers, the parties
hereto mutually covenant, warrant and agree as set forth herein.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: Frank S. Chiovari
--------------------------
Title: Vice President
--------------------------
AGREED AND ACCEPTED:
LEXINGTON COMPONENTS, INC.
By: Warren Delano
----------------------------
Title: President
----------------------------
- 3 -
<PAGE> 4
CONSENT
The undersigned guarantor hereby consents to the foregoing Amendment,
agrees to be bound by its terms applicable to it, and ratifies and confirms the
terms of its Guarantee and Waiver dated January 11, 1990 as applicable to all
present and future indebtedness, liabilities and obligations of LEXINGTON
COMPONENTS, INC. to CONGRESS FINANCIAL CORPORATION, including, without
limitation, all indebtedness, liabilities and obligations under the Financing
Agreements as amended hereby.
LEXINGTON PRECISION CORPORATION
By: Warren Delano
----------------------------
Title: President
----------------------------
- 4 -
<PAGE> 1
August 21, 1996
Lexington Precision Corporation
767 Third Avenue
New York, New York 10017
Re: AMENDMENT TO FINANCING AGREEMENTS
---------------------------------
Gentlemen:
Reference is made to certain financing agreements dated
January 11, 1990 between Lexington Precision Corporation ("LPC") and Congress
Financial Corporation ("Congress"), including, but not limited to, an Accounts
Financing Agreement [Security Agreement], as amended (the "Accounts
Agreement"), and all supplements thereto and all other related financing and
security agreements (collectively, all of the foregoing, as the same have
heretofore or contemporaneously been or may be hereafter, amended, replaced,
extended, modified or supplemented, the "Financing Agreements").
In connection with the financing arrangements pursuant to the Accounts
Agreement and the other Financing Agreements, the parties hereto hereby agree to
amend the Financing Agreements, as set forth below (capitalized terms used
herein, unless otherwise defined herein, shall have the meanings ascribed
thereto in the Accounts Agreement and the other Financing Agreements):
1. ADDITIONAL TERM LOAN. Contemporaneously herewith, in order to
evidence the balance of the outstanding Obligations owed by LPC pursuant to the
Second Amended and Restated Promissory Note, dated January 31, 1995, made
payable by LPC in favor of Congress, in the original principal amount of
$6,683,000, and in order to evidence an additional one-time advance to LPC,
which is deemed to be made upon the effective date hereof, in the principal
amount of $1,000,000, LPC is executing and delivering to Congress a Third
Amended and Restated Promissory Note in the original principal amount of
$5,236,304 (as the same now exists or may hereafter be amended, supplemented,
renewed, extended, restated or replaced, the "LPC Third Restated Note"). The
Obligations evidenced by the LPC Third Restated Note shall be payable, including
interest and other amounts, as provided therein and, to the extent not
inconsistent with the terms of the LPC Third Restated Note, as provided in the
other Financing Agreements, and shall be secured by all Collateral.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing
representations, warranties and covenants heretofore or hereafter made by LPC to
Congress pursuant to the Financing Agreements, LPC hereby represents, warrants
and covenants with and to Congress as follows (which representations, warranties
and covenants are continuing and shall survive the
<PAGE> 2
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists or has occurred and is
continuing on the date of this Amendment.
(b) This Amendment has been duly executed and delivered by LPC
and is in full force and effect as of the date hereof, and the agreements and
obligations of LPC contained herein constitute the legal, valid and binding
obligations of LPC enforceable against LPC in accordance with their terms.
3. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. Anything contained in this
Amendment to the contrary notwithstanding, the terms and provisions of this
Amendment shall only become effective upon the satisfaction of the following
conditions precedent:
(a) Congress shall have received an executed original or
executed original counterparts (as the case may be) of this Amendment, together
with the following, each of which shall be in form and substance satisfactory to
Congress:
(i) the LPC Third Restated Note; and
(ii) the Amendment between LCI and Congress with
respect to the LCI Financing Agreements and the documents and instruments
required thereunder and the satisfaction of all conditions precedent to the
effectiveness thereof.
(b) All representations and warranties contained herein, in
the Accounts Agreement and in the other Financing Agreements shall be true and
correct in all material respects.
(c) No Event of Default shall exist or have occurred and be
continuing, and no event shall have occurred or condition be existing which,
with notice or passage of time or both, would constitute an Event of Default.
4. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the
Accounts Agreement and all supplements to the Accounts Agreement and all other
Financing Agreements are hereby specifically ratified, restated and confirmed by
the parties hereto as of the date hereof and no existing defaults or Events of
Default have been waived in connection herewith. To the extent of conflict
between the terms of this Amendment and the Accounts Agreement or any of the
other Financing Agreements, the terms of this Amendment control.
5. FURTHER ASSURANCES. LPC shall execute and deliver such
- 2 -
<PAGE> 3
additional documents and take such additional actions as may reasonably be
requested by Congress to effectuate the provisions and purposes of this
Amendment.
6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York
without reference to its principles of conflicts of law.
By the signatures hereto of the duly authorized officers, the parties
hereto mutually covenant, warrant and agree as set forth herein.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: Frank S. Chiovari
------------------------
Title: Vice President
------------------------
AGREED AND ACCEPTED:
LEXINGTON PRECISION CORPORATION
By: Warren Delano
-------------------------
Title: President
-------------------------
- 3 -
<PAGE> 4
CONSENT
The undersigned guarantor hereby consents to the foregoing Amendment,
agrees to be bound by its terms applicable to it, and ratifies and confirms the
terms of its Guarantee and Waiver dated January 11, 1990 as applicable to all
present and future indebtedness, liabilities and obligations of LEXINGTON
PRECISION CORPORATION to CONGRESS FINANCIAL CORPORATION, including, without
limitation, all indebtedness, liabilities and obligations under the Financing
Agreements as amended hereby.
LEXINGTON COMPONENTS, INC.
By: Warren Delano
-------------------------
Title: President
-------------------------
- 4 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 14,985
<ALLOWANCES> 0
<INVENTORY> 8,737
<CURRENT-ASSETS> 28,408
<PP&E> 87,376
<DEPRECIATION> 35,296
<TOTAL-ASSETS> 93,008
<CURRENT-LIABILITIES> 37,725
<BONDS> 58,855
510
0
<COMMON> 1,087
<OTHER-SE> (6,098)
<TOTAL-LIABILITY-AND-EQUITY> 93,008
<SALES> 85,266
<TOTAL-REVENUES> 85,266
<CGS> 70,212
<TOTAL-COSTS> 70,212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,240
<INCOME-PRETAX> 347
<INCOME-TAX> 373
<INCOME-CONTINUING> (26)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
