<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 PERIOD ENDED MARCH 31, 1997
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, $0.25 PAR VALUE - 4,263,036 SHARES AS OF MAY 6, 1997
(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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<PAGE> 2
LEXINGTON PRECISION CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <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.....................................18
</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>
MARCH 31, DECEMBER 31,
1997 1996
----------- ---------------
ASSETS:
<S> <C> <C>
Current assets:
Cash $ 86 $ 187
Accounts receivable 14,475 16,820
Inventories 9,148 8,899
Prepaid expenses and other assets 3,023 3,211
Deferred income taxes 1,728 1,728
--------- ----------
Total current assets 28,460 30,845
--------- ----------
Property, plant, and equipment:
Land 1,533 1,533
Buildings 21,788 19,915
Equipment 71,117 68,232
--------- ----------
94,438 89,680
Less accumulated depreciation 38,301 36,380
--------- ----------
Property, plant, and equipment, net 56,137 53,300
--------- ----------
Excess of cost over net assets of businesses acquired, net 9,331 9,410
--------- ----------
Other assets, net 3,332 3,475
--------- ----------
$ 97,260 $ 97,030
========= ==========
</TABLE>
See notes to consolidated financial statements. (continued on next page)
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<PAGE> 4
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ---------------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,768 $ 14,334
Accrued expenses 6,036 8,282
Short-term debt 11,427 7,326
Current portion of long-term debt 5,521 5,225
--------- ----------
Total current liabilities 33,752 35,167
--------- ----------
Long-term debt, excluding current portion 67,044 65,148
--------- ----------
Deferred income taxes and other long-term liabilities 1,315 1,307
--------- ----------
Redeemable preferred stock, $100 par value,
at redemption value 930 930
Less excess of redemption value over par value 465 465
--------- ----------
Redeemable preferred stock at par value 465 465
--------- ----------
Stockholders' deficit:
Common stock, $0.25 par value, 10,000,000
shares authorized, 4,348,951 shares issued 1,087 1,087
Additional paid-in-capital 12,386 12,395
Accumulated deficit (18,572) (18,322)
Cost of common stock in treasury, 85,915 shares (217) (217)
--------- ----------
Total stockholders' deficit (5,316) (5,057)
--------- ----------
$ 97,260 $ 97,030
========= ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 5
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1996
---- ----
<S> <C> <C>
Net sales $ 28,592 $ 27,898
Cost of sales 23,815 22,742
-------- --------
Gross profit 4,777 5,156
Selling and administrative expenses 2,877 2,664
-------- --------
Income from operations 1,900 2,492
Interest expense 2,150 1,954
-------- --------
Income/(loss) before income taxes (250) 538
Provision for income taxes -- 181
-------- --------
Net income/(loss) (250) 357
Preferred stock dividends 9 10
Allocated portion of excess of redemption value over par
value of preferred stock to be redeemed during fiscal year 11 11
-------- --------
Net income/(loss) attributable to common
stockholders $ (270) $ 336
======== ========
Net income/(loss) per primary and fully diluted
common share:
Primary $ (0.06) $ 0.08
======== ========
Fully diluted $ (0.06) $ 0.08
======== ========
</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>
THREE MONTHS ENDED MARCH 31
1997 1996
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income/(loss) $ (250) $ 357
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation 1,953 1,588
Amortization-- operating expense 321 279
Amortization-- interest expense 38 70
Changes in operating assets and liabilities that
provided/(used) cash:
Receivables 2,345 (1,012)
Inventories (249) (722)
Prepaid expenses and other assets 188 (617)
Accounts payable (3,566) (428)
Accrued expenses (2,246) (935)
Other 8 42
-------- --------
Net cash used by operating activities (1,458) (1,378)
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (4,798) (5,320)
Decrease/(increase) in equipment deposits, net 387 (79)
Proceeds from sales of property, plant, and equipment 6 35
Expenditures for tooling owned by customers (265) (116)
-------- --------
Net cash used by investing activities (4,670) (5,480)
-------- --------
FINANCING ACTIVITIES:
Net increase in short-term debt 4,101 5,413
Proceeds from issuance of long-term debt 31,829 6,947
Repayment of long-term debt (29,640) (5,416)
Other (263) (140)
-------- --------
Net cash provided by financing activities 6,027 6,804
-------- --------
Net decrease in cash (101) (54)
Cash at beginning of period 187 118
-------- --------
Cash at end of period $ 86 $ 64
======== ========
</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 and its subsidiary (collectively,
the "Company"). 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, except as described below, in
Note 1 to the consolidated financial statements in the Company's annual report
on Form 10-K for the year ended December 31, 1996, 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 March 31, 1997, and the Company's results
of operations and cash flows for the fiscal quarters ended March 31, 1997 and
1996. All such adjustments were of a normal recurring nature.
The results of operations for the first fiscal quarter of 1997 are not
necessarily indicative of the results to be expected for the full year or for
any succeeding quarter.
NOTE 2 -- INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market. Inventory levels by principal classification are set forth below
(dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -------------
<S> <C> <C>
Finished goods $3,850 $3,615
Work in process 2,737 2,360
Raw materials and purchased parts 2,561 2,924
------ ------
$9,148 $8,899
====== ======
</TABLE>
NOTE 3 -- ACCRUED EXPENSES
At March 31, 1997, and December 31, 1996, accrued expenses included
accrued interest expense of $705,000 and $1,754,000, respectively.
NOTE 4 -- DEBT
At March 31, 1997, and December 31, 1996, short-term debt consisted of
loans outstanding under the Company's revolving line of credit. At March 31,
1997, and December 31, 1996, $460,000 and $6,856,000, respectively, of loans
outstanding under the revolving line of credit were classified as long-term debt
because they were refinanced under long-term agreements before the consolidated
financial statements for the respective periods were issued.
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<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In March 1997, the revolving line of credit was amended to, among other
things, extend the expiration date from January 2, 1998, to April 1, 2000, and
reduce the rate of interest charged on loans outstanding under the revolving
line of credit from prime rate plus 1% or the London Interbank Offered Rate
("LIBOR") plus 3.25% to prime rate plus 0.25% or LIBOR plus 2.75%.
Long-term debt at March 31, 1997, and December 31, 1996, is set forth
below (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ -----------
<S> <C> <C>
Long-term secured debt:
Revolving line of credit, prime rate plus 0.25% or LIBOR plus
2.75% at March 31, 1997, prime rate plus 1% or LIBOR plus
3.25% at December 31, 1996 $ 460(1) $ 6,856(1)
Term loans payable in equal monthly principal installments, final
maturities in 2000, 75% of prime rate - 4,767(2)
Term loan payable in increasing monthly principal installments,
final maturity in 2000, 12% 2,001 2,136
Term loans payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturities in 2001, 8.27% 3,311 3,389
Term loan payable in equal monthly principal installments, final
maturity in 2001, prime rate plus 0.75% or LIBOR plus 3.00% 1,440(2) 1,560
Term loan payable in equal monthly principal installments, final
maturity in 2002, LIBOR plus 2.75% 2,618 -
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity 2002, 9.37% 1,582 -
Term loans, interest only at prime rate plus 0.75% through June 1997
and then payable in equal monthly principal installments based on a
180-month amortization schedule, final maturity in 2002, interest
fixed in June 1997 at 5-year treasury note rate plus 3% 1,862(3) -
Term loans payable in equal monthly principal installments, final
maturity in 2002 and 2003, prime rate plus 1% or LIBOR plus - 17,626(2)
3.25%
Term loans payable in equal monthly principal installments, final maturity
in 2003, prime rate plus 0.25% or LIBOR plus 2.75% at March 31, 1997,
prime rate plus 1% or LIBOR plus 3.25% at
December 31, 1996 703(4) 734(4)
Term loans payable in equal monthly principal installments, final
maturity in 2004, prime rate plus 0.25% or LIBOR plus 2.75% 25,289(4) -
-------- -------
Total long-term secured debt 39,266 37,068
-------- -------
</TABLE>
(continued on next page)
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<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued from prior page)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Long-term unsecured debt:
12.75% Senior subordinated notes, due 2000 $ 31,720 $ 31,717
14% Junior subordinated convertible notes, due 2000, convertible
into 440,000 shares of common stock 1,000 1,000
14% Junior subordinated nonconvertible notes, due 2000 347 347
Other unsecured obligations 232 241
-------- -------
Total long-term unsecured debt 33,299 33,305
-------- -------
Total long-term debt 72,565 70,373
Less current portion 5,521 5,225
-------- -------
Total long-term debt, excluding current portion $ 67,044 $ 65,148
======== =======
<FN>
(1) Classified as long-term debt because the loans were refinanced under
long-term agreements before the consolidated financial statements for the
respective periods were issued.
(2) Refinanced under long-term agreements before the consolidated financial
statements for the respective periods were issued. Current portions are
based upon the terms of the new borrowings.
(3) Represents borrowings under a construction line of credit and related
permanent financing.
(4) Maturity date can be accelerated by the lender if the Company's revolving
line of credit expires prior to the stated maturity date of the term loan.
</TABLE>
The loans outstanding under the revolving line of credit and the secured
term loans listed above are collateralized by substantially all of the assets of
the Company, including accounts receivable, inventory, equipment, certain real
estate, and the stock of the Company's subsidiary.
RESTRICTIVE COVENANTS
Certain of the Company's financing arrangements 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 the incurrence 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 5 -- PROVISION FOR INCOME TAXES
At March 31, 1997, and December 31, 1996, the excess of the Company's
deferred tax assets over its deferred tax liabilities was substantially offset
by a valuation allowance. There was no material change in the components of the
deferred tax assets, deferred tax liabilities, or the valuation allowance during
the first quarter of 1997.
-8-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 -- 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 first quarters of 1997 and 1996 are set forth below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY NET INCOME/(LOSS) PER COMMON SHARE:
Weighted average common shares outstanding during period 4,263 4,228
Common equivalent shares -- incentive stock options -- 26
------- -------
Weighted average common and common equivalent shares 4,263 4,254
======= =======
Net income/(loss) $ (250) $ 357
Preferred stock dividends (9) (10)
Allocated portion of excess of redemption value over par value of
preferred stock to be redeemed during fiscal year (11) (11)
------- -------
Primary net income/(loss) attributable to common stockholders $ (270) $ 336
======= =======
Primary net income/(loss) per common share $ (0.06) $ 0.08
======= =======
FULLY DILUTED NET INCOME/(LOSS) PER COMMON SHARE:
Weighted average common shares outstanding during period 4,263 4,228
Pro forma conversion of 14% junior subordinated convertible notes 440 440
Common equivalent shares-- incentive stock options -- 26
------- -------
Weighted average common and common equivalent shares 4,703 4,694
======= =======
Net income/(loss) $ (250) $ 357
Preferred stock dividends (9) (10)
Allocated portion of excess of redemption value over par value of
preferred stock to be redeemed during fiscal year (11) (11)
Pro forma elimination of interest expense on the 14% junior
subordinated convertible notes, net of applicable income taxes 26 27
------- -------
Fully diluted net income/(loss) attributable to common
stockholders $ (244) $ 363
======= =======
Fully diluted net income/(loss) per common share $ (0.06)(1) $ 0.08
======= =======
<FN>
(1) Because the fully diluted net loss per share for the first
quarter of 1997 was calculated to be antidilutive, the reported
fully diluted net loss per share equals the primary net loss
per share.
</TABLE>
In February 1997, the Financial Accounting Standards Board issued
"Financial Accounting Standard No. 128, Earnings per Share" ("FAS 128"), which
is effective for fiscal periods ending after December 15, 1997. Earlier
application is not permitted. FAS 128 requires the presentation of basic and
diluted earnings per share. Basic earnings per share is based on the
weighted-average number of common shares outstanding
-9-
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
during each period, and diluted earnings per share includes the dilutive effect
of stock options, convertible securities, and other potentially dilutive
securities. Upon adoption, FAS 128 requires the Company to restate all
previously reported earnings per share amounts. The calculation of earnings per
share data according to the provisions of FAS 128 is not expected to have any
impact on earnings per share data presented herein for the quarters ended March
31, 1997, and March 31, 1996. The impact of FAS 128 on the calculation of
primary and fully diluted earnings per share for all quarters in 1997 is not
expected to be material.
NOTE 7 -- 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, including actions naming the Company as a potentially 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. The Company records provisions for such loss contingencies when it is
probable that an asset has been impaired or a liability incurred and the amount
of the loss can be reasonably estimated. 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.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued "Statement of Position
No. 96-1, Environmental Remediation Liabilities" ("SOP 96-1"), which clarifies
the existing authoritative guidance on loss contingencies that apply in
determining environmental liabilities. Adoption of SOP 96-1 during the first
quarter of 1997 by the Company was not material to the Company's results of
operations.
-10-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Various statements in this Item 2 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, labor
interruptions at the Company or at its customers, 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 operated with lower financial leverage and
greater 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.
RESULTS OF OPERATIONS -- FIRST QUARTER OF 1997 VERSUS FIRST QUARTER OF 1996
The Company manufactures, to customer specifications, component parts
through two business segments, the Rubber Group and the Metals Group.
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components.
The Rubber Group consists of four operating companies: Lexington Connector
Seals, Lexington Insulators, Lexington Medical, and Lexington Technologies.
During the first quarters of 1997 and 1996, net sales of automotive components
represented 91.2% and 88.9%, respectively, of the Rubber Group's total net
sales. Any material reduction in the level of activity in the automotive
industry may have a material adverse effect on the results of operations of the
Rubber Group and the Company.
During the first quarter of 1997, the Company and the largest customer
of Lexington Connector Seals and of the Company, Delphi Packard Electric
Systems, a division of General Motors Corporation ("Delphi Packard Electric"),
entered into an agreement that will govern, through 2001, the purchase of
substantially all of the component parts that the Company currently sells to
Delphi Packard Electric. Under the terms of the agreement, (i) the Company
agreed to sell and Delphi Packard Electric agreed to purchase approximately 100%
of Delphi Packard Electric's requirements for all specified component parts,
(ii) the Company agreed to warrant that the specified components will remain
competitive in terms of technology, design, and quality, (iii) the Company and
Delphi Packard Electric agreed to adjust selling prices of the specified
components to reflect increases or decreases in material costs, and (iv) the
Company agreed to reduce the selling prices of the specified components by
certain specified amounts in each of the five years covered by the agreement.
Although there can be no assurance given, the Company currently believes that it
will be able to offset a significant portion of the price reductions granted to
Delphi Packard Electric through reductions in manufacturing costs.
-11-
<PAGE> 13
The following table sets forth the operating results of the Rubber Group
for the first quarters of 1997 and 1996 (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 19,483 100.0% $ 18,151 100.0%
Cost of sales 15,401 79.0 14,272 78.6
--------- ---- -------- ----
Gross profit 4,082 21.0 3,879 21.4
Selling and administrative expenses 1,220 6.3 1,056 5.8
--------- ---- -------- ----
Income from operations $ 2,862 14.7% $ 2,823 15.6%
========= ==== ======== ====
</TABLE>
During the first quarter of 1997, net sales of the Rubber Group totaled
$19,483,000, an increase of $1,332,000, or 7.3%, compared to the first quarter
of 1996. This increase was primarily due to increased unit sales of connector
seals and insulators for automotive wiring systems, offset, in part, by reduced
sales of tooling and medical components and price reductions granted to Delphi
Packard Electric.
During the first quarter of 1997, income from operations totaled
$2,862,000, an increase of $39,000, or 1.4%, compared to the first quarter of
1996.
Cost of sales as a percentage of net sales increased at a faster rate
than net sales during the first quarter of 1997 primarily because of
(i) increased indirect labor expense resulting primarily from (a) the hiring of
technical and supervisory personnel as Lexington Connector Seals prepared for
production of a new style of seal and (b) start-up expenses incurred at
Lexington Technologies, (ii) increased employee fringe benefit costs, and
(iii) increased depreciation and amortization, which totaled $1,396,000 during
the first quarter of 1997, compared to $1,131,000 during the first quarter of
1996. These increases were offset, in part, by reduced material costs expressed
as a percentage of net sales resulting primarily from reduced sales of tooling.
Selling and administrative expenses as a percentage of net sales increased
during the first quarter of 1997 compared to the first quarter of 1996 primarily
because of the addition of personnel and increases in compensation rates.
METALS GROUP
The Metals Group manufactures aluminum, magnesium, and zinc die castings
and machines aluminum, brass, and steel components. The Metals Group consists of
three operating companies: Lexington Die Casting, Lexington Machining, and
Lexington Safety Components. During the first quarters of 1997 and 1996, net
sales of automotive components represented 39.9% and 31.3%, respectively, of the
Metals Group's total net sales.
-12-
<PAGE> 14
The following table sets forth the operating results of the Metals Group
for the first quarters of 1997 and 1996 (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $ 9,109 100.0% $ 9,747 100.0%
Cost of sales 8,414 92.4 8,470 86.9
-------- ----- -------- -----
Gross profit 695 7.6 1,277 13.1
Selling and administrative expenses 1,100 12.1 991 10.2
-------- ----- -------- -----
Income/(loss) from operations $ (405) (4.5)% $ 286 2.9%
======== ===== ======== =====
</TABLE>
During the first quarter of 1997, net sales of the Metals Group totaled
$9,109,000, a decrease of $638,000, or 6.5%, compared to the first quarter of
1996. This reduction resulted primarily from lower net sales of components for
computers and business machines at Lexington Die Casting and lower net sales of
a variety of components at Lexington Machining, offset, in part, by an increase
in net sales of airbag components at Lexington Safety Components.
During the first quarter of 1997, the Metals Group incurred a loss from
operations of $405,000, compared to income from operations of $286,000 during
the first quarter of 1996.
While material and direct labor costs as a percentage of net sales
decreased during the first quarter of 1997, manufacturing overhead as a
percentage of net sales increased primarily because of (i) reduced sales and an
underabsorption of fixed overhead at Lexington Die Casting and Lexington
Machining, (ii) start-up expenses related to the production of new airbag
components and the installation of new metal machining equipment at Lexington
Safety Components, (iii) increased depreciation, which totaled $708,000 during
the first quarter of 1997, compared to $580,000 during the first quarter of
1996, and (iv) increased indirect labor costs resulting, in part, from the
hiring of additional technical and professional staff. Increased selling and
administrative expenses resulted primarily from the addition of personnel.
The Company commenced, during 1996, a program to try to increase net
sales, profitability, and operating cash flow of the Metals Group. Actions taken
included (i) hiring of new technical and professional staff with the goal of
improving the Metals Group's manufacturing processes, quality systems, and
administrative capabilities, (ii) formation of Lexington Safety Components as a
separate business unit with its own management team, (iii) elimination of sales
representatives and hiring of in-house sales engineers, (iv) addition of
equipment and construction of 44,000 square feet of manufacturing and office
space at Lexington Safety Components, (v) reduction of low-volume, unprofitable
production, (vi) focus on higher-volume business in target markets, and
(vii) enhancement of quality systems with the objective of obtaining QS 9000
registration status in 1997. The management of the Company believes that certain
of these actions may adversely affect the short-term profitability of the
Company.
CORPORATE OFFICE
Corporate office expenses, which are consolidated with selling and
administrative expenses of the Rubber Group and the Metals Group in the
Company's consolidated financial statements, totaled $557,000 and $617,000
during the first quarters of 1997 and 1996, respectively. During the first
quarter of 1997, corporate office expenses decreased primarily because of
reduced accruals for incentive compensation.
-13-
<PAGE> 15
INTEREST EXPENSE
During the first quarters of 1997 and 1996, interest expense totaled
$2,150,000 and $1,954,000, respectively. The increase during the first quarter
of 1997 was caused primarily by an increase in average borrowings outstanding.
PROVISION FOR INCOME TAXES
At March 31, 1997, and December 31, 1996, the excess of the Company's
deferred tax assets over its deferred tax liabilities was substantially offset
by a valuation allowance. There was no material change in the components of the
deferred tax assets, deferred tax liabilities, or the valuation allowance during
the first quarter of 1997.
The income tax provision recorded during the first quarter of 1996 was
primarily attributable to state income taxes and alternative minimum taxes and
was calculated using the then-projected effective tax rate for the year ending
December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first quarter of 1997, the operating activities of the
Company used $1,458,000 of cash.
During the first quarter of 1997, accounts payable and accrued expenses
were reduced by $3,566,000 and $2,246,000, respectively. At March 31, 1997, the
Company's accounts payable included approximately $3,268,000 relating to the
purchase of new property, equipment, and customer-owned tooling, compared to
$4,305,000 relating to such activities at December 31, 1996. After excluding
accounts payable balances related to the purchase of new property, equipment,
and customer-owned tooling, accounts payable decreased by $2,529,000. Accrued
expenses were reduced primarily by payment of accrued incentive bonus awards
earned during 1996, payment of an accrued profit sharing contribution to the
Company's retirement and savings plan for the 1996 plan year, and payment of
accrued interest on the Company's 12.75% senior subordinated notes. At March 31,
1997, accounts payable were at a level that the Company believes is customary in
the industries in which it operates.
During the first quarter of 1997, accounts receivable declined by
$2,345,000 primarily because in January the Company received a payment of
$1,612,000 that was due in December 1996 from its largest customer.
-14-
<PAGE> 16
INVESTING ACTIVITIES
During the first quarter of 1997, the investing activities of the
Company used $4,670,000 of cash, primarily for capital expenditures. Capital
expenditures attributable to the Rubber Group and the Metals Group totaled
$1,573,000 and $3,225,000, respectively. The Company presently expects that
capital expenditures will total approximately $14,500,000 during 1997, including
$12,500,000 for equipment and $2,000,000 for buildings. At March 31, 1997, the
Company had commitments outstanding for capital expenditures totaling
approximately $2,500,000.
FINANCING ACTIVITIES
During the first quarter of 1997, the financing activities of the
Company provided $6,027,000 of cash.
During the first quarter of 1997, the Company obtained new term loans in
the aggregate amount of $31,369,000. Proceeds from the new term loans refinanced
$21,350,000 of existing term loans, $9,397,000 of loans outstanding under the
revolving line of credit, and $622,000 of capital expenditures. Certain
information concerning the new term loans is set forth below.
- In January 1997, the Company borrowed $1,600,000 collateralized by a
mortgage on the Company's facility in LaGrange, Georgia, and by other
assets of the Company. Proceeds from the new term loan refinanced an
existing term loan in the amount of $1,071,000 and $529,000 of loans
outstanding under the Company's revolving line of credit. The new term
loan bears interest at the fixed rate of 9.37% and is repayable in 59
equal monthly principal installments of $9,000 with a final payment of
$1,076,000 due in 2002.
- In the first quarter of 1997, the Company borrowed $1,862,000 under a
$3,000,000 construction line of credit for an addition to its Casa
Grande, Arizona, facility. Proceeds from the construction loans
refinanced an existing term loan in the amount of $322,000, $918,000
of loans outstanding under the Company's revolving line of credit, and
$622,000 of capital expenditures. At the completion of construction,
the borrowings under the construction line of credit will convert to a
term loan payable in 59 equal monthly principal installments of
$17,000 with a final payment of $2,017,000 due in 2002. The loans
currently bear interest at prime rate plus 0.75%.
- In March 1997, the Company amended certain of its financing agreements
to, among other things, extend the expiration date of the Company's
revolving line of credit from January 2, 1998, to April 1, 2000, and
obtain term loans in the aggregate amount of $27,907,000 to refinance
$19,957,000 of existing term loans and $7,950,000 of loans outstanding
under the revolving line of credit. The new term loans bear interest
at prime rate plus 0.25% or LIBOR plus 2.75%. New term loans in the
amount of $25,289,000 are payable in 84 monthly principal installments
of $301,000, and new term loans in the amount of $2,618,000 are
payable in 60 monthly principal installments of $44,000. The Company
obtained two equipment lines of credit in the aggregate amount of
$6,882,000, which will be used to fund new equipment purchases.
During the first quarter of 1997, borrowings under the revolving line of
credit decreased by $2,295,000.
In April 1997, the Company borrowed $1,900,000 secured by certain
equipment and other assets of the Company. Proceeds from the new term loan
refinanced an existing term loan in the amount of $1,440,000 and loans
outstanding under the Company's revolving line of credit in the amount of
$460,000. The new term
-15-
<PAGE> 17
loan bears interest at prime rate plus 0.25% or LIBOR plus 2.75% and is payable
in 84 monthly principal installments of $23,000.
LIQUIDITY
The Company finances its operations with cash from operating activities
and a variety of financing arrangements, including loans under a revolving line
of credit and term loans. The ability of the Company to borrow under its
revolving line of credit is subject to certain availability formulas based on
the levels of accounts receivable and inventories of the Company and covenant
compliance.
The Company operates with high financial leverage and limited liquidity.
As a result of increased borrowings during the first quarter of 1997, aggregate
indebtedness of the Company, excluding accounts payable, increased by $6,293,000
to $83,992,000. During 1997, cash interest and principal payments are projected
to total approximately $8,600,000 and $5,200,000, respectively.
At May 9, 1997, availability under the Company's revolving line of
credit totaled $2,129,000 before deducting outstanding checks of approximately
$1,608,000.
The Company had a net working capital deficit of $5,292,000 at March 31,
1997. Except for certain loans that were refinanced under long-term agreements
before the consolidated financial statements for the quarter ended March 31,
1997, were issued, loans outstanding under the revolving line of credit
classified as short-term debt at March 31, 1997, totaled $11,427,000. The
working capital deficit resulted, in part, from the classification of loans
outstanding under the Company's revolving line of credit as current liabilities.
These loans are classified as current liabilities 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
agreement, and the lender has the ability to modify certain terms of the
revolving line of credit without the prior approval of the Company. The
expiration date of the revolving line of credit is April 1, 2000.
Based on the Company's current business plan, the Company anticipates
that, in addition to its projected cash flows from operations, new borrowings in
the amount of approximately $4,200,000 will be required to meet the Company's
working capital, capital expenditure, and debt service requirements during the
remainder of 1997. Peak borrowings of approximately $87,500,000 are projected to
occur during July 1997. Although no assurance can be given, the Company believes
that, based on its current business plan, cash flow from operations and
borrowings available to the Company under its various financing agreements will
enable the Company to meet presently anticipated working capital, capital
expenditure, and debt service requirements during the remainder of 1997 and for
the first quarter of 1998. If actual operating profits are materially less than
those currently projected, or if working capital requirements are materially
higher than those currently projected, the Company may be forced to delay
certain planned capital expenditures, to take further actions to reduce
operating expenses, and to extend payments to its trade creditors beyond terms
that the Company believes are customary in the industries in which it operates.
Certain of the Company's financing arrangements, which are secured by
substantially all of the Company's assets and the stock of its subsidiary,
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 the incurrence 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.
-16-
<PAGE> 18
ACQUISITIONS
The Company is seeking to acquire assets and businesses related to its
current operations with the intention of expanding its existing operations.
Depending on the size, terms and other aspects of such acquisitions, the Company
may be required to obtain additional financing and, in some cases, the consents
of its existing lenders. The Company's ability to effect acquisitions may be
dependent upon its ability to obtain such financing and, to the extent
applicable, consents.
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; although there can be no assurance as to the
outcome of existing or potential environmental litigation, in the event such
litigation were commenced, based upon the information currently available to the
Company, the Company believes that the outcome of such actions will not have a
material adverse effect upon its financial position.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued "Statement of Position
No. 96-1, Environmental Remediation Liabilities" ("SOP 96-1"), which clarifies
the existing authoritative guidance on loss contingencies that apply in
determining environmental liabilities. Adoption of SOP 96-1 during the first
quarter of 1997 by the Company was not material to the Company's results of
operations.
FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
"Financial Accounting Standard No. 128, Earnings per Share" ("FAS 128"), which
is effective for fiscal periods ending after December 15, 1997. Earlier
application is not permitted. FAS 128 requires the presentation of basic and
diluted earnings per share. Basic earnings per share is based on the
weighted-average number of common shares outstanding during each period, and
diluted earnings per share includes the dilutive effect of stock options,
convertible securities, and other potentially dilutive securities. Upon
adoption, FAS 128 requires the Company to restate all previously reported
earnings per share amounts. The calculation of earnings per share data according
to the provisions of FAS 128 is not expected to have any impact on earnings per
share data presented herein for the quarters ended March 31, 1997, and March 31,
1996. The impact of FAS 128 on the calculation of primary and fully diluted
earnings per share for all quarters in 1997 is not expected to be material.
-17-
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith:
10-1 Amendment to Financing Agreements and Consent dated April
17, 1997, between Lexington Precision Corporation and
Congress Financial Corporation
10-2 Amendment to Financing Agreements and Consent dated April
17, 1997, between Lexington Components, Inc. and Congress
Financial Corporation
10-3 First Amendment Agreement dated April 17, 1997, between and
among Lexington Precision Corporation, Lexington Components,
Inc., and Bank One, Akron, NA
10-4 Amended and Restated Promissory Note dated April 17, 1997,
of Lexington Precision Corporation and Lexington Components,
Inc. to Bank One, Akron, NA
27-1 Financial Data Schedule
(b) REPORTS OF FORM 8-K
On March 12, 1997, the Company filed a Form 8-K with the
Securities and Exchange Commission stating that, on March 11,
1997, the Company had amended its credit facility with Congress
Financial Corporation to, among other things, increase the
aggregate facility from $40,000,000 to $50,000,000, reduce the
rate of interest payable under the facility from prime rate plus
1% or LIBOR plus 3.25% to prime rate plus 0.25% or LIBOR plus
2.75%, and extend the maturity date of the Company's revolving
line of credit from January 2, 1998, to April 1, 2000.
-18-
<PAGE> 20
LEXINGTON PRECISION CORPORATION
FORM 10-Q
MARCH 31, 1997
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)
May 12, 1997 By: /s/ Michael A. Lubin
- ------------ --------------------------
Date Michael A. Lubin
Chairman of the Board
May 12, 1997 By: /s/ Warren Delano
- ------------ -----------------------
Date Warren Delano
President
May 12, 1997 By: /s/ Dennis J. Welhouse
- ------------ -------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
-19-
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Location
- ------- ------- --------
<S> <C> <C>
10-1 Amendment to Financing Agreements and Filed with this Form 10-Q
Consent dated April 17, 1997, between Lexington
Precision Corporation and Congress
Financial Corporation
10-2 Amendment to Financing Agreements and Filed with this Form 10-Q
Consent dated April 17, 1997, between Lexington
Components, Inc. and Congress Financial
Corporation
10-3 First Amendment Agreement dated April 17, Filed with this Form 10-Q
1997, between and among Lexington Precision
Corporation and Lexington Components, Inc.
and Bank One, Akron, NA
10-4 Amended and Restated Promissory Note Filed with this Form 10-Q
dated April 17, 1997, of Lexington
Precision Corporation and Lexington
Components, Inc. to Bank One, Akron, NA
27-1 Financial Data Schedule Filed with this Form 10-Q
</TABLE>
<PAGE> 1
Exhibit 10-1
April 17, 1997
--
Lexington Precision Corporation
767 Third Avenue
New York, New York 10017
Re: Amendment to Financing Agreements and Consent
---------------------------------------------
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").
Pursuant to the January 1997 Consent (as defined below), Congress has
previously consented to certain financing arrangements between LPC and LCI, as
co-borrowers, and Bank One, Akron, N.A. ("Bank One"), including a security
interest in certain equipment granted by LPC to Bank One in order to secure a
certain loan by Bank One to LPC and LCI in the aggregate original principal
amount of $1,530,000 (among other loans by Bank One to LPC and LCI as provided
in the January 1997 Consent). LPC has requested Congress' consent to (i) an
increase in the amount of such loan to an aggregate principal amount, as of the
date hereof, of $1,900,000 and (ii) to the granting to Bank One of a security
interest in certain additional equipment of LPC and in certain equipment of LCI.
LPC and LCI have advised Congress that LPC and LCI shall be jointly and
severally liable for all obligations of each of them to Bank One.
Congress is willing to provide such consent upon the terms and
conditions set forth in this Amendment to Financing Agreements and Consent (this
"Amendment") and, in connection with such consent, 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. Amendments to Definitions.
(a) The definition of "Bank One Collateral" set forth in
paragraph 1(b) of the letter agreement re: Amendment to Financing Agreements and
Consent, dated March 14, 1996 (the "March 1996 Consent"), as previously amended
by the letter
<PAGE> 2
agreement re: Amendment to Financing Agreements and Consent, dated January 31,
1997 (the "January 1997 Consent") is hereby further amended such that, on and
after the date hereof, the description of that portion of the Bank One
Collateral set forth on Exhibit F annexed to the January 1997 Consent shall be
deleted in its entirety and replaced by the description of collateral set forth
on Exhibit F annexed hereto.
(b) Anything contained in the definition of "Bank One
Financing" set forth in paragraph 1(c) of the March 1996 Consent, as amended by
the January 1997 Consent, to the contrary notwithstanding, on and after the date
hereof, the Bank One Financing consented to by Congress pursuant thereto shall
include the "Equipment Term Loan" in the original principal amount of $1,900,000
(as defined in and as provided in the First Amendment Agreement, dated the date
hereof, among Bank One, LPC and LCI).
(c) The definition of "Bank One Financing Agreements" set
forth in paragraph 1(d) of the March 1996 Consent, as amended by the January
1997 Consent, is hereby further amended such that, on and after the date hereof,
the term "Bank One Financing Agreements" shall mean the Credit Facility and
Security Agreement, dated as of January 31, 1997, among LPC, LCI and Bank One,
as amended by the First Amendment Agreement, dated as of the date hereof, among
Bank One, LPC and LCI (the "Bank One First Amendment"), together with the
promissory notes, guarantees and mortgages delivered thereunder and all other
documents, instruments and agreements executed in connection therewith or
pursuant thereto, as the same now exist or may hereafter be amended, modified,
supplemented, renewed, restated or replaced.
2. CONSENT REGARDING BANK ONE COLLATERAL. To the extent such consent is
required, and has not been previously given under the Financing Agreements,
including the March 1996 Consent and the January 1997 Consent, Congress hereby
consents to the mortgage liens and security interests in the Bank One Collateral
granted by LPC and LCI to Bank One to secure the Bank One Financing pursuant to
the Bank One Financing Agreements, including any documents contemplated thereby
which are to be executed and delivered after the date hereof in connection with
the loans to be advanced pursuant to the Bank One Financing Agreements after the
date hereof, such consent to be effective as of the date hereof.
3. ADDITIONAL COVENANTS RELATING TO THE BANK ONE COLLATERAL. In
addition to all other covenants, representations and warranties contained in the
Financing Agreements applicable to the types or items of property included in
the Bank One Collateral (whether or not included in the Collateral), LPC agrees
as follows:
-2-
<PAGE> 3
(a) LPC shall not remove from the premises of LPC described in
Exhibit A annexed hereto (the "North Canton Property"), any of the tangible
personal property comprising part of the Bank One Collateral, nor shall any
equipment or other tangible personal property of LPC, or any subsidiary of LPC,
be moved from another location of LPC or a subsidiary of LPC, to the North
Canton Property, in each case, except upon prior written notice to Congress.
Notices given under this Section 3(a) shall include serial numbers or other
information sufficient to identify the particular items removed.
(b) LPC shall furnish to Congress all material written notices
or demands concerning the Bank One Financing required to be delivered pursuant
to the Bank One Financing Agreements, other than notices under the Bank One
Financing Agreements as to future advances or loans or interest rates or
interest periods on borrowings, either received by LPC, promptly after receipt
thereof, or sent by LPC or on its behalf, promptly upon the sending thereof, as
the case may be.
4. ADDITIONAL 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
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 and on the date of each
advance in respect of the Bank One Financing.
(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.
5. CONDITIONS TO THE EFFECTIVENESS OF THIS AMENDMENT. Anything
contained in this Amendment to the contrary notwithstanding, this Amendment
shall be effective only 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) true and complete copies of the Bank One First
Amendment and any notes and financing statements delivered thereunder, as in
effect on the date hereof;
-3-
<PAGE> 4
(ii) an Amendment No. 1 to Amended and Restated
Intercreditor Agreement between Congress and Bank One, dated as of the date
hereof, duly executed and delivered on behalf of Bank One;
(iii) an executed original or executed original
counterparts of a letter agreement, dated as of the date hereof, pursuant to
which LPC and LCI acknowledge and consent to the Amendment No. 1 to Amended and
Restated Intercreditor Agreement between Congress and Bank One and agree that,
although neither LPC nor LCI is a party thereto, each of LPC and LCI will,
together with its successors and assigns, be bound by the provisions thereof;
and
(iv) an executed original or executed original
counterparts of a letter agreement re: Amendment to Financing Agreements and
Consent, dated as of the date hereof, pertaining to the Bank One Collateral to
be granted by LCI to Bank One pursuant to the Bank One Financing and related
matters, together with the documents, instruments and agreements to be delivered
pursuant thereto;
(b) All representations and warranties contained herein, in
the Accounts Agreements and in the other Financing Agreements shall be true and
correct in all material respects; and
(c) No Event of Default shall have occurred and no event shall
have occurred or condition shall be existing which, with notice or passage of
time or both, would constitute an Event of Default.
6. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the
Accounts Agreement and all supplements to the Accounts Agreement, including,
without limitation, the Covenant Supplement 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.
7. FURTHER ASSURANCES. LPC shall execute and deliver such additional
documents and take such additional actions as may reasonably be requested by
Congress to effectuate the provisions and purposes of this Amendment.
8. 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.
-4-
<PAGE> 5
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 A. Chiovari
---------------------------
Title: Vice President
------------------------
AGREED AND ACCEPTED:
LEXINGTON PRECISION CORPORATION
By: Warren Delano
----------------------------
Title: President
-------------------------
-5-
<PAGE> 6
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 ("LPC") to CONGRESS FINANCIAL CORPORATION ("Congress"),
including, without limitation, all indebtedness, liabilities and obligations
under the Financing Agreements as amended hereby.
LEXINGTON COMPONENTS, INC.
By: Warren Delano
--------------------------
Title: President
-----------------------
-6-
<PAGE> 1
Exhibit 10-2
April 17, 1997
--
Lexington Components, Inc.
767 Third Avenue
New York, New York 10017
Re: Amendment to Financing Agreements and Consent
---------------------------------------------
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").
Pursuant to the January 1997 Consent (as defined below), Congress has
previously consented to certain financing arrangements between LPC and LCI, as
co-borrowers, and Bank One, Akron, N.A. ("Bank One"), including a security
interest in certain equipment granted by LPC to Bank One in order to secure a
certain loan by Bank One to LPC and LCI in the aggregate original principal
amount of $1,530,000 (among other loans by Bank One to LPC and LCI as provided
in the January 1997 Consent). LCI has requested Congress' consent to (i) an
increase in the amount of such loan to an aggregate principal amount, as of the
date hereof, of $1,900,000 and (ii) to the granting to Bank One of a security
interest in certain additional equipment of LPC and in certain equipment of LCI.
LPC and LCI have advised Congress that LPC and LCI shall be jointly and
severally liable for all obligations of each of them to Bank One.
Congress is willing to provide such consent upon the terms and
conditions set forth in this Amendment to Financing Agreements and Consent (this
"Amendment") and, in connection with such consent, 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. AMENDMENTS TO DEFINITIONS.
(a) The definition of "Bank One Collateral" set forth in
paragraph 1(b) of the letter agreement re: Amendment to Financing Agreements and
Consent, dated March 14, 1996 (the "March 1996 Consent"), as previously amended
by the letter agreement re: Amendment to Financing Agreements and Consent,
<PAGE> 2
dated January 31, 1997 (the "January 1997 Consent") is hereby further amended
such that, on and after the date hereof, the description of that portion of the
Bank One Collateral set forth on Exhibit F annexed to the January 1997 Consent
shall be deleted in its entirety and replaced by the description of collateral
set forth on Exhibit F annexed hereto.
(b) Anything contained in the definition of "Bank One
Financing" set forth in paragraph 1(c) of the March 1996 Consent, as amended by
the January 1997 Consent, to the contrary notwithstanding, on and after the date
hereof, the Bank One Financing consented to by Congress pursuant thereto shall
include the "Equipment Term Loan" in the original principal amount of $1,900,000
(as defined in and as provided in the First Amendment Agreement, dated the date
hereof, among Bank One, LPC and LCI).
(c) The definition of "Bank One Financing Agreements" set
forth in paragraph 1(d) of the March 1996 Consent, as amended by the January
1997 Consent, is hereby further amended such that, on and after the date hereof,
the term "Bank One Financing Agreements" shall mean the Credit Facility and
Security Agreement, dated as of January 31, 1997, among LPC, LCI and Bank One,
as amended by the First Amendment Agreement, dated as of the date hereof, among
Bank One, LPC and LCI (the "Bank One First Amendment"), together with the
promissory notes, guarantees and mortgages delivered thereunder and all other
documents, instruments and agreements executed in connection therewith or
pursuant thereto, as the same now exist or may hereafter be amended, modified,
supplemented, renewed, restated or replaced.
2. CONSENT REGARDING BANK ONE COLLATERAL. To the extent such consent is
required, and has not been previously given under the Financing Agreements,
including the March 1996 Consent and the January 1997 Consent, Congress hereby
consents to the mortgage liens and security interests in the Bank One Collateral
granted by LPC and LCI to Bank One to secure the Bank One Financing pursuant to
the Bank One Financing Agreements, including any documents contemplated thereby
which are to be executed and delivered after the date hereof in connection with
the loans to be advanced pursuant to the Bank One Financing Agreements after the
date hereof, such consent to be effective as of the date hereof.
3. ADDITIONAL COVENANTS RELATING TO THE BANK ONE COLLATERAL. In
addition to all other covenants, representations and warranties contained in the
Financing Agreements applicable to the types or items of property included in
the Bank One Collateral (whether or not included in the Collateral), LCI agrees
as follows:
-2-
<PAGE> 3
(a) LCI shall not remove from the premises of LPC described in
Exhibit A annexed hereto (the "North Canton Property"), any of the tangible
personal property comprising part of the Bank One Collateral, nor shall any
equipment or other tangible personal property of LCI be moved from another
location of LCI, LPC or a subsidiary of LPC, to the North Canton Property, in
each case, except upon prior written notice to Congress. Notices given under
this Section 3(a) shall include serial numbers or other information sufficient
to identify the particular items removed.
(b) LCI shall furnish to Congress all material written notices
or demands concerning the Bank One Financing required to be delivered pursuant
to the Bank One Financing Agreements, other than notices under the Bank One
Financing Agreements as to future advances or loans or interest rates or
interest periods on borrowings, either received by LCI promptly after receipt
thereof, or sent by LCI or on its behalf, promptly upon the sending thereof, as
the case may be.
4. ADDITIONAL 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
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 and on the date of each advance in
respect of the Bank One Financing.
(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.
5. CONDITIONS TO THE EFFECTIVENESS OF THIS AMENDMENT. Anything
contained in this Amendment to the contrary notwithstanding, this Amendment
shall be effective only 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) true and complete copies of the Bank One First
Amendment and any notes and financing statements delivered thereunder, as in
effect on the date hereof;
-3-
<PAGE> 4
(ii) an Amendment No. 1 to Amended and Restated
Intercreditor Agreement between Congress and Bank One, dated as of the date
hereof, duly executed and delivered on behalf of Bank One;
(iii) an executed original or executed original
counterparts of a letter agreement, dated as of the date hereof, pursuant to
which LPC and LCI acknowledge and consent to the Amendment No. 1 to Amended and
Restated Intercreditor Agreement between Congress and Bank One and agree that,
although neither LPC nor LCI is a party thereto, each of LPC and LCI will,
together with its successors and assigns, be bound by the provisions thereof;
and
(iv) an executed original or executed original
counterparts of a letter agreement re: Amendment to Financing Agreements and
Consent, dated as of the date hereof, pertaining to the Bank One Collateral to
be granted by LPC to Bank One pursuant to the Bank One Financing and related
matters, together with the documents, instruments and agreements to be delivered
pursuant thereto;
(b) All representations and warranties contained herein, in
the Accounts Agreements and in the other Financing Agreements shall be true and
correct in all material respects; and
(c) No Event of Default shall have occurred and no event shall
have occurred or condition shall be existing which, with notice or passage of
time or both, would constitute an Event of Default.
6. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the
Accounts Agreement and all supplements to the Accounts Agreement, including,
without limitation, the Covenant Supplement 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.
7. FURTHER ASSURANCES. LCI shall execute and deliver such additional
documents and take such additional actions as may reasonably be requested by
Congress to effectuate the provisions and purposes of this Amendment.
8. 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.
-4-
<PAGE> 5
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 A. Chiovari
---------------------------
Title: Vice President
------------------------
AGREED AND ACCEPTED:
LEXINGTON COMPONENTS, INC.
By: Warren Delano
---------------------------
Title: President
------------------------
-5-
<PAGE> 6
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. ("LCI") to CONGRESS FINANCIAL CORPORATION ("Congress"),
including, without limitation, all indebtedness, liabilities and obligations
under the Financing Agreements as amended hereby.
LEXINGTON PRECISION CORPORATION
By: Warren Delano
---------------------------
Title: President
------------------------
-6-
<PAGE> 1
Exhibit 10-3
FIRST AMENDMENT AGREEMENT
-------------------------
THIS FIRST AMENDMENT AGREEMENT ("Agreement") is made as of the 17 day
of April, 1997, by and between BANK ONE, AKRON, NA ("Lender"), LEXINGTON
PRECISION CORPORATION, a Delaware corporation ("LPC"), and LEXINGTON COMPONENTS,
INC., a Delaware corporation ("LCI", hereinafter LPC and LCI are referred to
each as Borrower singularly and referred to jointly and severally as the
"Borrowers," which term shall mean each of the companies individually and both
of the companies collectively).
WHEREAS, Borrowers and Lender are parties to a certain Credit Facility
and Security Agreement, including Rider A thereto, dated as of January 31, 1997,
as it may from time to time be amended, supplemented or otherwise modified,
which provides for certain credit facilities all upon the terms and conditions
set forth therein ("Credit and Security Agreement");
WHEREAS, Borrower and Lender desire to amend the Credit and Security
Agreement by increasing the commitment amount under the Equipment Term Loan (as
defined in the Credit Agreement), amending and restating the Equipment Term Note
(as defined in the Credit and Security Agreement) and by modifying certain other
provisions thereof; and
WHEREAS, each term used herein shall be defined in accordance with the
Credit and Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein and for other valuable considerations Borrowers and Lender
agree as follows:
1. The Credit and Security Agreement is hereby amended to delete
Section 2.A thereof in its entirety and to insert a new Section 2.A in place
thereof as follows:
A. FACILITY 1: EQUIPMENT TERM LOAN.
---------------------------------
1. EQUIPMENT TERM LOAN. Lender will make a term
loan (the "Equipment Term Loan") to LPC in a principal amount not to
exceed ONE MILLION NINE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,900,000.00). The Equipment Term Loan shall be subject to repayment
in accordance with, and bear interest as provided in, Section 2.A.2 of
this Agreement and shall otherwise be evidenced by, and repayable in
accordance with, the Equipment Term Note.
2. PAYMENT TERMS OF EQUIPMENT TERM LOAN.
(a) INTEREST. The Equipment Term Loan shall bear
interest on the unpaid principal balance until the date paid in full at
a rate per annum equal to the LIBOR Interest Rate on the Core Borrowing
Amount, if any, pursuant to
<PAGE> 2
Section 2.A.2(b) below and at a rate per annum equal to one-quarter
percent (.25%) in excess of the Base Rate on the unpaid principal
amount excluding the Core Borrowing Amount, such interest being payable
monthly on the first day of each calendar month, commencing on June 1,
1997 and continuing on the first day of each calendar month thereafter.
Interest shall be computed on a three hundred sixty (360)- day year
basis based upon the actual number of days elapsed.
(b) CORE BORROWING AMOUNT. LPC may request that a
portion of the outstanding balance of the Equipment Term Loan accrue
interest at the LIBOR Interest Rate (the "Core Borrowing Amount") by
delivering to Lender a written, telephonic, or telegraphic request
(effective upon receipt) by facsimile, telephone, or telegraph by 12:00
p.m. three (3) Business Days prior to the Business Day the LIBOR
Interest Rate is to be effective. The request shall specify (i) the
Core Borrowing Amount, which shall be in incremental amounts of ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00), not to exceed the
Core Cap and (ii) the duration of the LIBOR Interest Period which shall
be either one (1) month or two (2) months, provided that at no time may
the Core Borrowing Amount exceed the Core Cap. During the term of the
Equipment Term Loan, the Core Borrowing Amount shall not exceed the
Core Cap. It shall be the responsibility of the Borrowers to ensure
that at no time shall the Core Borrowing Amount exceed the Core Cap. If
such an event occurs, the Core Borrowing Amount shall be immediately
reduced to a figure equal to or less than the Core Cap, and LPC shall
pay to Lender on demand a TWENTY-FIVE DOLLAR ($25) fee, together with
interest on the incremental amount(s) which was in excess of the Core
Cap at a rate per annum equal to one-quarter percent (.25%) in excess
of the Base Rate less any interest previously paid at the LIBOR
Interest Rate during such period that there was an amount in excess of
the Core Cap.
(c) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise
to the terms and provisions of the Equipment Term Note, the principal
balance of the Equipment Term Loan shall be payable in eighty-three
(83) consecutive equal monthly installments of TWENTY TWO THOUSAND SIX
HUNDRED DOLLARS ($22,600.00) each, commencing on June 1, 1997 and
continuing on the first day of each calendar month thereafter and a
final installment of TWENTY FOUR THOUSAND TWO HUNDRED DOLLARS
($24,200.00) payable on May 1, 2004.
2. The Credit and Security Agreement is hereby amended by deleting
Section 2.J thereof in its entirety and replacing it with the following:
J. SECURITY. As security for the prompt and complete payment
and performance when due of all the Obligations and in order to induce
Lender to enter into this Agreement and make the Loans and to extend
other credit from time to time to Borrower, whether under this
Agreement or otherwise, LPC hereby grants to Lender a first priority
2
<PAGE> 3
security interest in all LPC's right, title, and interest in, to, and
under the Equipment and the North Canton Equipment, and the proceeds of
the Equipment and the North Canton Equipment. As security for the
prompt and complete payment and performance when due of all the
Obligations and in order to induce Lender to enter into this Agreement
and make the Loans and to extend other credit from time to time to
Borrower, whether under this Agreement or otherwise, LCI hereby grants
to Lender a first priority security interest in all LCI's right, title,
and interest in, to, and under the North Canton Equipment, and the
proceeds of the North Canton Equipment. As security for the prompt and
complete payment and performance when due of all the Obligations and in
order to induce Lender to enter into this Agreement and make the loans
and to extend other credit from time to time to Borrower, whether under
this Agreement or otherwise, LPC or LCI, as applicable, shall execute
and deliver an open-end mortgage, granting the Lender the first and
best lien on the North Canton Property, the Vienna Property, the Casa
Grande Property and the LaGrange Property, subject only to Permitted
Encumbrances.
3. Rider A to the Credit and Security Agreement is hereby amended to
delete the definitions of "CORE CAP", "LIBOR INTEREST RATE" and "NORTH CANTON
EQUIPMENT" therefrom and to insert in place thereof the following:
"CORE CAP": An amount that the Core Borrowing Amount shall not
exceed at any time during the term of the Equipment Term Loan. The Core
Cap shall be ONE MILLION SIX HUNDRED THOUSAND DOLLARS ($1,600,000)
until September 31, 1997, on which date it shall be reduced to ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) and shall be reduced
by another ONE HUNDRED THOUSAND DOLLARS ($100,000) on the first day of
the month every fifth (5th) month thereafter until January 1, 2004, on
which date it shall be reduced to ZERO DOLLARS ($0.00).
"LIBOR INTEREST RATE": Means the London Interbank Offered Rate
on United States dollars plus two hundred seventy-five (275) basis
points per annum.
"NORTH CANTON EQUIPMENT": The LPC North Canton Equipment and
the Additional North Canton Equipment.
4. Rider A to the Credit and Security Agreement is hereby amended to
add the following definitions of "ADDITIONAL NORTH CANTON EQUIPMENT", "LPC NORTH
CANTON EQUIPMENT" and "INTERCREDITOR AGREEMENT" thereto:
"ADDITIONAL NORTH CANTON EQUIPMENT": Specific machinery and
equipment of LCI and/or LPC consisting of: lathes, machining centers,
molding machines, grinders, ultrasonic cleaning tank, cabinets,
drilling machines, bandsaw, vacuum pump, lift truck, scrubber,
compressor/dryer, cutter grinder, computer, sweeper, vacuum tank, drill
sharpener, monitor, bowl feeders and loaders, and feeder bowls now
owned or hereafter acquired by LCI and/or
3
<PAGE> 4
LPC, as more particularly described on a certain Supplement to Schedule
of North Canton Equipment dated as of the date of this Agreement,
executed by LCI, LPC and Lender or on any Schedule of Equipment
hereafter executed by LCI and/or LPC and Lender which is designated as
a "Supplement to Schedule of North Canton Equipment" if and only if
Congress agrees in writing that the machinery and equipment on such
Supplement to Schedule of North Canton Equipment shall constitute
"Specific Additional Equipment" pursuant to the Intercreditor Agreement
(collectively, together with the LPC North Canton Equipment, the
"Specific Additional Equipment"), together with all currently owned or
hereafter acquired accessories and parts for, and repairs,
modifications, improvements, upgrades, accessions and attachments to,
the Specific Additional Equipment referred to in this definition,
PROVIDED, in each case that such machinery and equipment is either (i)
located at the North Canton Property as of April __, 1997, or (ii)
moved to the North Canton Property at any time after April __, 1997 or
(iii) removed from the North Canton Property at any time after April
__, 1997; and replacements and substitutions for the Specific
Additional Equipment acquired after the date hereof that are (A)
located at the North Canton Property at any time after April __, 1997;
or (B) removed from the North Canton Property at any time after April
__, 1997.
"INTERCREDITOR AGREEMENT": The Amended and Restated
Intercreditor Agreement dated as of January 31, 1997 between Lender and
Congress, as the same may be amended, supplemented, modified or
restated from time to time.
"LPC NORTH CANTON EQUIPMENT": Specific machinery and equipment
of LPC consisting of: lathes, transfer molding machines and injection
molding machines, now owned or hereafter acquired by LPC, as more
particularly described on a certain Schedule of Additional North Canton
Equipment dated as of January 31, 1997, executed by LPC and Lender,
together with all currently owned or hereafter acquired accessories and
parts for, and repairs, modifications, improvements, upgrades,
accessions and attachments to, the foregoing machinery and equipment,
PROVIDED, in each case that such machinery and equipment is either (i)
located at the North Canton Property as of January 31, 1997, or (ii)
moved to the North Canton Property at any time after January 31, 1997
or (iii) removed from the North Canton Property at any time after
January 31, 1997; and replacements and substitutions for the foregoing
machinery and equipment acquired after the date hereof that are (A)
located at the North Canton Property at any time after January 31,
1997; or (B) removed from the North Canton Property at any time after
January, 1997.
5. Rider A to the Credit and Security Agreement is hereby amended to
delete Paragraph 2D thereof in it entirety and replace it with the following:
D. Not incur, make, or continue to make any expenditure in
respect of the purchase or other acquisition of fixed or capital
assets, including leases which in accordance with generally accepted
accounting principles should be capitalized on the books of LPC
(including normal replacements and maintenance), which after giving
effect thereto would
4
<PAGE> 5
cause the aggregate amount of such capital expenditures by LPC to
exceed TWENTY-THREE MILLION DOLLARS ($23,000,000) in fiscal year 1996,
to exceed EIGHTEEN MILLION DOLLARS ($18,000,000) (on a non-cumulative
basis) in fiscal year 1997, or to exceed FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00) (on a non-cumulative basis) in any fiscal year
after 1997.
6. The Credit and Security Agreement is hereby amended by deleting
Exhibit A in its entirety and by substituting in place thereof a new Exhibit A
in the form of Exhibit 1 attached hereto.
7. Concurrently with the execution of this Agreement, Borrower shall
deliver to Lender the following: (a) certified copies of the resolutions of the
board of directors of each Borrower evidencing approval of the execution of this
Agreement; (b) such UCC financing statements as may be required by Lender; (c)
an Amended and Restated Equipment Term Note dated as of January 31, 1997 in the
form and substance of Exhibit 1 attached hereto; and (d) a Supplement to
Schedule of North Canton Equipment.
8. After receipt of the Amended and Restated Equipment Term Note, the
Lender will mark the Equipment Term Note being amended and restated thereby
"Amended and Restated" and return the same to Borrower.
9. Borrowers hereby represent and warrant to Lender that (a) each
Borrower has the legal power and authority to execute and deliver this
Agreement; (b) this Agreement has been duly executed and delivered by each
Borrower; (c) the execution and delivery hereof by each Borrower and the
performance and observance by each Borrower of the provisions hereof do not
violate or conflict with the organizational documents of such Borrower or any
law applicable to such Borrower or result in a breach of any provision of or
constitute a default under any other agreement, instrument or document binding
upon or enforceable against such Borrower; (d) as of the date hereof, and after
giving effect to the transactions contemplated by this Agreement, each Borrower
is able to pay its debts as they mature and each Borrower's capital is
sufficient and not unreasonably small for the business and transaction in which
such Borrower is engaged or about to engage; (e) no Default or Event of Default
exists under the Credit and Security Agreement, nor will a Default or Event of
Default occur upon the execution and delivery of this Agreement; and (f) this
Agreement has been duly authorized, executed, and delivered by each Borrower and
constitutes a legal, valid and binding obligation of each Borrower, enforceable
in accordance with its terms.
10. Each reference that is made in the Credit and Security Agreement or
any other writing shall hereafter be construed as a reference to the Credit and
Security Agreement as amended hereby. Except as herein otherwise specifically
provided, all provisions of the Credit and Security Agreement shall remain in
full force and effect in accordance with their terms and shall not be amended or
modified hereby.
11. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be
5
<PAGE> 6
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
12. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OHIO. EXCEPT
AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR AS REQUIRED BY APPLICABLE LAW,
BORROWER WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NONPAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE, (ii) NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES AND (iii) ITS
RIGHT TO A JURY TRIAL IN THE EVENT OF ANY LITIGATION INSTITUTED IN RESPECT OF
THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER CREDIT DOCUMENTS. BORROWER
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO
THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT. BORROWER HEREBY
IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN CONNECTION WITH THIS
AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF OHIO, IN THE COUNTY OF
STARK OR THE UNITED STATES COURTS FOR THE NORTHERN DISTRICT OF OHIO, AS LENDER
MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY
IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH
COURTS. BORROWER AND LENDER ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL
EXPENSES AND DELAYS NOT OCCASIONED BY NON-JURY TRIALS. BORROWER AND LENDER AGREE
AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL JUDGE BY
MEANS OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING, AND AS A
SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, BORROWER AND LENDER HEREBY
EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION ARISING UNDER THIS AGREEMENT, OR THE TRANSACTIONS RELATED HERETO,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; AND BORROWER AND LENDER HEREBY AGREE AND CONSENT THAT
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of April __, 1997.
LEXINGTON PRECISION CORPORATION
("Borrower")
By: Dennis J. Welhouse
------------------------------
Name: Dennis J. Welhouse
Title: Senior Vice President and
Assistant Secretary
LEXINGTON COMPONENTS, INC.
("Borrower")
By: Dennis J. Welhouse
------------------------------
Name: Dennis J. Welhouse
Title: Senior Vice President and
Assistant Secretary
Accepted at Cleveland, Ohio, as of the date
first above written.
BANK ONE, AKRON, NA
By Rudolf G. Bentlage
-----------------------------
Name: Rudolf G. Bentlage
Title: Vice President
7
<PAGE> 8
EXHIBIT 1
EXHIBIT A
AMENDED AND RESTATED
PROMISSORY NOTE
---------------
(Equipment Term Loan)
$1,900,000.00 Cleveland, Ohio
April __, 1997
FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation
organized under the laws of the State of Delaware ("LPC") and LEXINGTON
COMPONENTS, INC., a corporation organized and existing under the laws of the
State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as
Borrower singularly and referred to jointly and severally as the "Borrowers,"
which term shall mean each of the companies individually and both of them
collectively), jointly and severally promise to pay to the order of BANK ONE,
AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of ONE
MILLION NINE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,900,000.00) on June 1, 2004
or sooner as hereinafter provided, with interest on the unpaid balance of said
principal amount from the date hereof at a rate per annum equal to the LIBOR
Interest Rate (as defined in the Agreement, defined below) on the Core Borrowing
Amount, if any, pursuant to the immediately succeeding paragraph and at a rate
per annum equal to one-quarter percent (.25%) in excess of the Base Rate (as
defined in the Agreement), which definition is hereby accepted by the Borrowers,
as the same may from time to time be established on the unpaid principal amount
excluding the Core Borrowing Amount (as defined below). If any installment of
principal, interest or other amounts due and payable hereunder are not paid when
due, or within any applicable grace periods set forth in the Agreement, the
Borrowers shall pay interest thereon at the rate of three percent (3.0%) per
annum in excess of the Base Rate (as defined in the Agreement hereinafter
referred to) as the same may from time to time be established but not to exceed
the maximum rate allowed by law. Bank shall have the right to assess a late
payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS
($50.00) or five percent (5%) of the scheduled payment in the event of a default
in payment that remains uncured for a period of at least ten (10) days.
The Borrowers shall have the right to elect to have a portion of the
outstanding balance of the Equipment Term Loan accrue interest at the LIBOR
Interest Rate (the "Core Borrowing Amount") by delivering to the Bank a written,
telephonic, or telegraphic request (effective upon receipt) by facsimile,
telephone, or telegraph by 12:00 p.m. three (3) Business; Days prior to the
Business Day the LIBOR Interest Rate is to be effective, specifying (i) the Core
Borrowing Amount, which shall be in incremental strips of ONE HUNDRED THOUSAND
AND NO/100 DOLLARS ($100,000.00) and which shall not exceed the Core Cap (as
defined in the Agreement) in the aggregate and (ii) the duration of the LIBOR
Interest Period which shall be either one (1) month or two (2) months.
8
<PAGE> 9
If the Borrowers shall fail to give the Bank the notice as specified
above for the renewal of the LIBOR Interest Rate on the Core Borrowing Amount
prior to the end of the LIBOR Interest Period with respect thereto, the interest
rate on the Core Borrowing Amount shall automatically be converted into an
interest rate per annum equal to one-quarter percent (.25%) in excess of the
Base Rate, as the same may from time to time be established, on the last day of
the LIBOR Interest Period for such Core Borrowing Amount.
The Borrowers agree to pay the principal amount of this Note in fifty
(83) consecutive equal installments of TWENTY TWO THOUSAND SIX HUNDRED DOLLARS
($22,600.00) each, commencing on June 1, 1997 and continuing on the first day of
each calendar month thereafter and a final installment of TWENTY FOUR THOUSAND
TWO HUNDRED DOLLARS ($24,200.00) payable on May 1, 2004. Monthly payments
hereunder shall be applied first to interest due and the balance to reduction of
the principal amount outstanding.
Payments of both principal of and interest on this Note shall be made
in lawful money of the United States of America, at 50 South Main Street, Akron,
Ohio 44308-1888, or at such other place as the Bank or any subsequent holder
hereof shall have designated to the Borrowers in writing. Interest payable on
this Note shall be computed on a three hundred sixty (360) day per year basis
counting the actual number of days elapsed. If any payment under this Note
becomes due and payable on a day which is not a Business Day (as defined in this
Agreement), payment thereof shall be made on the immediately succeeding Business
Day.
This Note is issued pursuant to and is entitled to the benefits of a
Credit Facility and Security Agreement dated as of January 31, 1997, by and
among the Borrowers and the Bank, as amended (the "Agreement"), to which
Agreement reference is hereby made for a statement of the rights and obligations
of the Bank and the duties and obligations of the Borrowers in relation thereto;
but neither this reference to said Agreement nor any provisions thereof shall
affect or impair the absolute and unconditional obligation of the Borrowers to
pay the principal of or interest on this Note when due.
The Borrowers may prepay all or any portion of this Note at any time
and in any amount without penalty or premium, provided that all prepayments
shall be applied to installments of principal in the inverse order of their
maturities and subject to the terms of prepayment of the Core Borrowing Amount
set forth herein. The Core Borrowing Amount accruing interest at the LIBOR
Interest Rate may be prepaid only on the last day of the LIBOR Interest Period
(as defined in the Agreement) for the Core Borrowing Amount without premium or
penalty; provided, however, as long as the Bank has not matched funds in a money
market to fund the Core Borrowing Amount, (i) the Borrowers may prepay the Core
Borrowing Amount during a LIBOR Interest Period if the Borrowers pay a penalty
in the amount of one percent (1%) of the prepayment amount and (ii) the
outstanding balance of the Core Borrowing Amount upon the application of the
prepayment amount shall be an increment of ONE HUNDRED THOUSAND AND NO/100
DOLLARS ($100,000.00).
9
<PAGE> 10
If an Event of Default (as defined in the Agreement) shall occur and
shall be continuing, the principal of this Note may be declared immediately due
and payable at the option of the Bank.
In the event that the Borrowers fail to pay any regularly scheduled
principal or interest payment on this Note when due (other than as a result of
acceleration thereof based on a default or event of default other than the
failure to make any such regularly scheduled payments of principal or interest
on this Note when due) which failure is not cured within the ten (10) day cure
period provided in Section 6A of the Agreement (a "Payment Default"), or if an
Event of Default occurs and is continuing, which arises from fraudulent act(s)
or practice(s) of either Borrower which Event of Default is not cured within
three (3) Business Days after the Borrowers' receipt of written notice thereof
from the Bank (a "Fraud Default"), the Borrowers hereby authorize any
attorney-at-law to appear in any court of record in the State of Ohio, or in any
other state or territory of the United States, at any time or times after the
above sum becomes due, and waive the issuance and service of process and confess
judgment against either Borrower or Borrowers, in favor of any holder of this
Note, for the amount then appearing due, together with the costs of suit, and
thereupon to release all errors and waive all rights of appeal and stay of
execution. The foregoing warrant of attorney shall survive any judgment, it
being understood that should any judgment be vacated for any reason, the
foregoing warrant of attorney nevertheless may thereafter be used for obtaining
an additional judgment or judgments. To the extent that the provisions of the
cognovit warning set forth above the Borrowers' signature specifically
contradict the provisions of this paragraph regarding the requirement of a
Payment Default or a Fraud Default to take a cognovit judgment, the provisions
of this paragraph control.
No delay on the part of any holder hereof in exercising any power or
rights hereunder shall operate as a waiver of any power or rights. Any demand or
notice hereunder to the Borrowers shall be deemed duly given or made when sent,
if given by telecopier, when delivered, if given by personal delivery or
overnight commercial carrier, or the fifth calendar day after deposit in the
United States mail, certified mail, return receipt requested, addressed to the
address (or telecopier number) set forth in Rider A of the Agreement or such
other address or telecopier number as may be hereafter designated in writing by
the Borrowers to the Bank.
10
<PAGE> 11
This note is executed at Cleveland, Ohio, County of Cuyahoga.
- --------------------------------------------------------------------------------
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT
YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
- --------------------------------------------------------------------------------
LEXINGTON PRECISION CORPORATION
("Borrower")
By:
----------------------------------
Name: Dennis J. Welhouse
Title: Senior Vice President and
Assistant Secretary
LEXINGTON COMPONENTS, INC.
("Borrower")
By:
----------------------------------
Name: Dennis J. Welhouse
Title: Senior Vice President and
Assistant Secretary
11
<PAGE> 1
Exhibit 10-4
AMENDED AND RESTATED
PROMISSORY NOTE
---------------
(Equipment Term Loan)
$1,900,000.00 Cleveland, Ohio
April 17, 1997
--
FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation
organized under the laws of the State of Delaware ("LPC") and LEXINGTON
COMPONENTS, INC., a corporation organized and existing under the laws of the
State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as
Borrower singularly and referred to jointly and severally as the "Borrowers,"
which term shall mean each of the companies individually and both of them
collectively), jointly and severally promise to pay to the order of BANK ONE,
AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of ONE
MILLION NINE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,900,000.00) on June 1, 2004
or sooner as hereinafter provided, with interest on the unpaid balance of said
principal amount from the date hereof at a rate per annum equal to the LIBOR
Interest Rate (as defined in the Agreement, defined below) on the Core Borrowing
Amount, if any, pursuant to the immediately succeeding paragraph and at a rate
per annum equal to one-quarter percent (.25%) in excess of the Base Rate (as
defined in the Agreement), which definition is hereby accepted by the Borrowers,
as the same may from time to time be established on the unpaid principal amount
excluding the Core Borrowing Amount (as defined below). If any installment of
principal, interest or other amounts due and payable hereunder are not paid when
due, or within any applicable grace periods set forth in the Agreement, the
Borrowers shall pay interest thereon at the rate of three percent (3.0%) per
annum in excess of the Base Rate (as defined in the Agreement hereinafter
referred to) as the same may from time to time be established but not to exceed
the maximum rate allowed by law. Bank shall have the right to assess a late
payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS
($50.00) or five percent (5%) of the scheduled payment in the event of a default
in payment that remains uncured for a period of at least ten (10) days.
The Borrowers shall have the right to elect to have a portion of the
outstanding balance of the Equipment Term Loan accrue interest at the LIBOR
Interest Rate (the "Core Borrowing Amount") by delivering to the Bank a written,
telephonic, or telegraphic request (effective upon receipt) by facsimile,
telephone, or telegraph by 12:00 p.m. three (3) Business; Days prior to the
Business Day the LIBOR Interest Rate is to be effective, specifying (i) the Core
Borrowing Amount, which shall be in incremental strips of ONE HUNDRED THOUSAND
AND NO/100 DOLLARS ($100,000.00) and which shall not exceed the Core Cap (as
defined in the Agreement) in the aggregate and (ii) the duration of the LIBOR
Interest Period which shall be either one (1) month or two (2) months.
If the Borrowers shall fail to give the Bank the notice as specified
above for the renewal of the LIBOR Interest Rate on the Core Borrowing Amount
prior to the end of the LIBOR Interest Period with respect thereto, the interest
rate on the Core Borrowing Amount shall
<PAGE> 2
automatically be converted into an interest rate per annum equal to one-quarter
percent (.25%) in excess of the Base Rate, as the same may from time to time be
established, on the last day of the LIBOR Interest Period for such Core
Borrowing Amount.
The Borrowers agree to pay the principal amount of this Note in fifty
(83) consecutive equal installments of TWENTY TWO THOUSAND SIX HUNDRED DOLLARS
($22,600.00) each, commencing on June 1, 1997 and continuing on the first day of
each calendar month thereafter and a final installment of TWENTY FOUR THOUSAND
TWO HUNDRED DOLLARS ($24,200.00) payable on May 1, 2004. Monthly payments
hereunder shall be applied first to interest due and the balance to reduction of
the principal amount outstanding.
Payments of both principal of and interest on this Note shall be made
in lawful money of the United States of America, at 50 South Main Street, Akron,
Ohio 44308-1888, or at such other place as the Bank or any subsequent holder
hereof shall have designated to the Borrowers in writing. Interest payable on
this Note shall be computed on a three hundred sixty (360) day per year basis
counting the actual number of days elapsed. If any payment under this Note
becomes due and payable on a day which is not a Business Day (as defined in this
Agreement), payment thereof shall be made on the immediately succeeding Business
Day.
This Note is issued pursuant to and is entitled to the benefits of a
Credit Facility and Security Agreement dated as of January 31, 1997, by and
among the Borrowers and the Bank, as amended (the "Agreement"), to which
Agreement reference is hereby made for a statement of the rights and obligations
of the Bank and the duties and obligations of the Borrowers in relation thereto;
but neither this reference to said Agreement nor any provisions thereof shall
affect or impair the absolute and unconditional obligation of the Borrowers to
pay the principal of or interest on this Note when due.
The Borrowers may prepay all or any portion of this Note at any time
and in any amount without penalty or premium, provided that all prepayments
shall be applied to installments of principal in the inverse order of their
maturities and subject to the terms of prepayment of the Core Borrowing Amount
set forth herein. The Core Borrowing Amount accruing interest at the LIBOR
Interest Rate may be prepaid only on the last day of the LIBOR Interest Period
(as defined in the Agreement) for the Core Borrowing Amount without premium or
penalty; provided, however, as long as the Bank has not matched funds in a money
market to fund the Core Borrowing Amount, (i) the Borrowers may prepay the Core
Borrowing Amount during a LIBOR Interest Period if the Borrowers pay a penalty
in the amount of one percent (1%) of the prepayment amount and (ii) the
outstanding balance of the Core Borrowing Amount upon the application of the
prepayment amount shall be an increment of ONE HUNDRED THOUSAND AND NO/100
DOLLARS ($100,000.00).
If an Event of Default (as defined in the Agreement) shall occur and
shall be continuing, the principal of this Note may be declared immediately due
and payable at the option of the Bank.
<PAGE> 3
In the event that the Borrowers fail to pay any regularly scheduled
principal or interest payment on this Note when due (other than as a result of
acceleration thereof based on a default or event of default other than the
failure to make any such regularly scheduled payments of principal or interest
on this Note when due) which failure is not cured within the ten (10) day cure
period provided in Section 6A of the Agreement (a "Payment Default"), or if an
Event of Default occurs and is continuing, which arises from fraudulent act(s)
or practice(s) of either Borrower which Event of Default is not cured within
three (3) Business Days after the Borrowers' receipt of written notice thereof
from the Bank (a "Fraud Default"), the Borrowers hereby authorize any
attorney-at-law to appear in any court of record in the State of Ohio, or in any
other state or territory of the United States, at any time or times after the
above sum becomes due, and waive the issuance and service of process and confess
judgment against either Borrower or Borrowers, in favor of any holder of this
Note, for the amount then appearing due, together with the costs of suit, and
thereupon to release all errors and waive all rights of appeal and stay of
execution. The foregoing warrant of attorney shall survive any judgment, it
being understood that should any judgment be vacated for any reason, the
foregoing warrant of attorney nevertheless may thereafter be used for obtaining
an additional judgment or judgments. To the extent that the provisions of the
cognovit warning set forth above the Borrowers' signature specifically
contradict the provisions of this paragraph regarding the requirement of a
Payment Default or a Fraud Default to take a cognovit judgment, the provisions
of this paragraph control.
No delay on the part of any holder hereof in exercising any power or
rights hereunder shall operate as a waiver of any power or rights. Any demand or
notice hereunder to the Borrowers shall be deemed duly given or made when sent,
if given by telecopier, when delivered, if given by personal delivery or
overnight commercial carrier, or the fifth calendar day after deposit in the
United States mail, certified mail, return receipt requested, addressed to the
address (or telecopier number) set forth in Rider A of the Agreement or such
other address or telecopier number as may be hereafter designated in writing by
the Borrowers to the Bank.
<PAGE> 4
This note is executed at Cleveland, Ohio, County of Cuyahoga.
- --------------------------------------------------------------------------------
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT
YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
- --------------------------------------------------------------------------------
LEXINGTON PRECISION CORPORATION
("Borrower")
By: Dennis J. Welhouse
----------------------------------
Name: Dennis J. Welhouse
Title: Senior Vice President and
Assistant Secretary
LEXINGTON COMPONENTS, INC.
("Borrower")
By: Dennis J. Welhouse
----------------------------------
Name: Dennis J. Welhouse
Title: Senior Vice President and
Assistant Secretary
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 14,475
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<PP&E> 94,438
<DEPRECIATION> 38,301
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<COMMON> 1,087
465
0
<OTHER-SE> (6,403)
<TOTAL-LIABILITY-AND-EQUITY> 97,260
<SALES> 28,592
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