<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, 1999
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 APRIL 28, 1999
(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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................22
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 229 $ 103
Accounts receivable 19,924 17,837
Inventories 9,903 10,170
Prepaid expenses and other assets 2,306 2,063
Deferred income taxes 2,025 2,025
---------- ----------
Total current assets 34,387 32,198
---------- ----------
Plant and equipment:
Land 1,549 1,549
Buildings 23,786 23,753
Equipment 92,067 90,306
---------- ----------
117,402 115,608
Accumulated depreciation 55,439 52,871
---------- ----------
Plant and equipment, net 61,963 62,737
---------- ----------
Excess of cost over net assets of businesses acquired, net 8,699 8,778
---------- ----------
Other assets, net 4,359 4,612
---------- ----------
$ 109,408 $ 108,325
========== ==========
</TABLE>
See notes to consolidated financial statements. (continued on next page)
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<PAGE> 4
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET (CONTINUED)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Trade accounts payable $ 12,332 $ 11,291
Accrued expenses 8,392 9,345
Short-term debt 14,839 12,995
Current portion of long-term debt 44,464 6,597
---------- ----------
Total current liabilities 80,027 40,228
---------- ----------
Long-term debt, excluding current portion 35,092 74,953
---------- ----------
Deferred income taxes and other long-term liabilities 2,239 2,220
---------- ----------
Redeemable preferred stock, $100 par value, at
redemption value 750 750
Excess of redemption value over par value (375) (375)
---------- ----------
Redeemable preferred stock at par value 375 375
---------- ----------
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 12,227 12,235
Accumulated deficit (21,422) (22,556)
Cost of common stock in treasury, 85,915 shares (217) (217)
---------- ----------
Total stockholders' deficit (8,325) (9,451)
---------- ----------
$ 109,408 $ 108,325
========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 5
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 34,496 $ 32,197
Cost of sales 29,404 27,412
--------- ---------
Gross profit 5,092 4,785
Selling and administrative expenses 3,066 2,803
--------- ---------
Income from operations 2,026 1,982
Interest expense 2,342 2,402
--------- ---------
Loss before income taxes and extraordinary item (316) (420)
Income tax credit (79) -
--------- ---------
Net loss before extraordinary item (237) (420)
Extraordinary gain on repurchase of long-term debt, net of
applicable income taxes 1,371 -
--------- ---------
Net income/(loss) $ 1,134 $ (420)
========= =========
Basic and diluted net income/(loss) per common share:
Net loss before extraordinary item $ (0.06) $ (0.10)
Extraordinary gain 0.32 -
--------- ---------
Net income/(loss) $ 0.26 $ (0.10)
========= =========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 6
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income/(loss) $ 1,134 $ (420)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary gain on repurchase of long-term debt (1,828) -
Depreciation 2,640 2,306
Amortization included in operating expense 435 300
Amortization included in interest expense 50 50
Changes in operating assets and liabilities that
provided/(used) cash:
Trade receivables (2,087) 310
Inventories 267 (820)
Prepaid expenses and other assets (243) 630
Trade accounts payable 1,041 (837)
Accrued expenses (953) (830)
Other 58 14
---------- ----------
Net cash provided by operating activities 514 703
---------- ----------
INVESTING ACTIVITIES:
Purchases of plant and equipment (1,888) (3,387)
Decrease in equipment deposits 63 36
Proceeds from sales of equipment 6 64
Expenditures for tooling owned by customers (204) (130)
Other - 8
---------- ----------
Net cash used by investing activities (2,023) (3,409)
---------- ----------
FINANCING ACTIVITIES:
Net increase in short-term debt 1,844 2,115
Proceeds from issuance of long-term debt 9,292 2,041
Repayment of long-term debt (7,478) (1,483)
Repurchase of long-term debt (1,980) -
Other (43) (8)
---------- ----------
Net cash provided by financing activities 1,635 2,665
---------- ----------
Net increase/(decrease) in cash 126 (41)
Cash at beginning of period 103 208
---------- ----------
Cash at end of period $ 229 $ 167
========== ==========
</TABLE>
See notes to consolidated financial statements.
-5-
<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 subsidiaries (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
included in the Company's annual consolidated financial statements. Significant
accounting policies followed by the Company are set forth in Note 1 to the
consolidated financial statements in the Company's annual report on Form 10-K
for the year ended December 31, 1998.
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, 1999, and the Company's results
of operations and cash flows for the three-month periods ended March 31, 1999
and 1998. All such adjustments were of a normal recurring nature.
The results of operations for the first quarter of 1999 are not
necessarily indicative of the results to be expected for the full year or for
any succeeding quarter.
The Company's consolidated financial statements have been presented on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Indebtedness
totaling $38,129,000 matures during the first and second quarters of 2000. The
Company's operations will not generate cash sufficient to satisfy such
obligations at their maturities. The Company may attempt to refinance these
obligations (and possibly other indebtedness that has later maturity dates) by
issuing new debt securities in the private or public market. The Company has
commenced discussions with investment banking firms relating to the issuance of
new debt securities to refinance substantially all of the Company's existing
debt. Although there can be no assurance that the Company will undertake such an
offering, or that any such offering will be successful, based on the discussions
to date, current market conditions in the market for non-investment grade debt,
and the Company's historical and projected operating results, cash flows, and
capital structure, the Company believes that it will be able to issue new debt
securities with terms and interest rates reasonably satisfactory to the Company
and in sufficient amounts to refinance substantially all of its outstanding debt
securities prior to their maturity dates. At the present time, the aggregate
principal amount of debt securities to be offered for sale and the specific
terms of such securities have not been determined. If a public offering of
securities is made, such offering will be made only by means of a prospectus. If
a private offering of securities is made, the securities offered will not be
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
If, for any reason, the anticipated sale of such debt securities is not
successful, the Company may, in the alternative, attempt to extend the maturity
dates of its existing debt securities or to exchange new debt securities that
have maturity dates later than 2000 for existing debt securities that mature in
2000. The Company's ability to refinance, extend, or exchange these securities
on or before their maturity dates will depend on many factors, including, but
not limited to, conditions in the market for non-investment grade debt.
Accordingly, there can be no assurance that the Company will be successful in
refinancing, extending, or exchanging such securities. To date, the Company has
not attempted to refinance, extend, or exchange the debt securities that mature
in 2000. In the event that the Company is not successful in refinancing,
extending, or exchanging such debt securities, defaults may occur under the
agreements
-6-
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
relating to such securities. If a default occurs, it may trigger other defaults
pursuant to cross-default provisions under other indebtedness of the Company.
Holders of indebtedness on which defaults exist would be entitled to accelerate
the maturity thereof, to cease making any further advances otherwise permitted
under the related credit facilities, to seek to foreclose upon any assets
securing such indebtedness, and to pursue other remedies. If any such actions
were to be taken, the Company might be required to consider alternatives,
including seeking relief from its creditors. Any such action by creditors could
have a material adverse effect upon the Company. The consolidated financial
statements do not include any adjustments that might result should the Company
be unable to refinance, extend, or exchange these obligations on or before their
maturity dates.
NOTE 2 -- INVENTORIES
Inventories at March 31, 1999, and December 31, 1998, are set forth
below (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------------- ----------------
<S> <C> <C>
Finished goods $ 3,509 $ 4,272
Work in process 3,277 2,834
Raw materials and purchased parts 3,117 3,064
-------- --------
$ 9,903 $ 10,170
======== ========
</TABLE>
NOTE 3 -- ACCRUED EXPENSES
At March 31, 1999, and December 31, 1998, accrued expenses included
accrued interest expense of $875,000 and $1,971,000, respectively.
NOTE 4 -- DEBT
At March 31, 1999, and December 31, 1998, short-term debt consisted of
loans outstanding under the Company's revolving line of credit. At March 31,
1999, loans outstanding under the revolving line of credit accrued interest at
the prime rate plus 0.25% and the London Interbank Offered Rate ("LIBOR") plus
2.75%. In January 1999, the revolving line of credit was amended to extend the
expiration date to April 1, 2002. Although the expiration date of the revolving
line of credit is April 1, 2002, these loans have been classified as current
liabilities because the Company's cash receipts are automatically used to reduce
such loans on a daily basis, by means of a lock-box sweep arrangement, and the
lender has the ability to modify certain terms of the revolving line of credit
without the prior approval of the Company.
-7-
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Long-term debt at March 31, 1999, and December 31, 1998, is set forth
below (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Long-term secured debt:
Revolving line of credit, prime rate plus 0.25% and LIBOR plus 2.75% $ - $ 3,850(1)
Term loan, due 2000, 12% 1,370 1,370
Term loans payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturities in 2001, 8.37% 2,863 2,921
Term loans payable in equal monthly principal installments, final
maturities in 2002, LIBOR plus 2.75% 2,397 2,584
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, 9.37% 1,378 1,404
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, 9% 2,682 2,732
Term loans payable in equal monthly principal installments, final
maturity in 2002, prime rate plus 0.25% and LIBOR plus 2.75% 2,750(2) -
Term loan payable in equal monthly principal installments, final
maturity in 2003, prime rate plus 0.25% 726 770
Term loan payable in equal monthly principal installments, final
maturity in 2003, prime rate plus 0.25% and LIBOR plus 2.75% 462(2) 492(2)
Term loan payable in equal monthly principal installments, final
maturity in 2004, LIBOR plus 2.75% 1,222 -
Term loan payable in equal monthly principal installments, final
maturity in 2004, prime rate plus 0.25% and LIBOR plus 2.75% 1,403 1,471
Term loans payable in equal monthly principal installments, final
maturity in 2004, prime rate plus 0.25% and LIBOR plus 2.75% 16,041(2) 18,967(2)
Term loan payable in equal monthly principal installments, final
maturity in 2005, LIBOR plus 2.75% 1,308 1,388
Term loan payable in equal monthly principal installments, final
maturity in 2005, prime rate plus 0.25% and LIBOR plus 2.75% 1,518(2) 1,579(2)
Term loan payable in equal monthly principal installments, final
maturity in 2006, prime rate plus 0.25% 580 -
Term loan payable in equal monthly principal installments, final
maturity in 2006, prime rate plus 0.25% and LIBOR plus 2.75% 1,269(2) 1,300(2)
Term loans payable in equal monthly principal installments, final
maturity in 2006, prime rate plus 0.25% and LIBOR plus 2.75% 4,683(2) -
--------- --------
Total long-term secured debt $ 42,652 $ 40,828
--------- --------
</TABLE>
(continued on next page)
-8-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued from prior page)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Long-term unsecured debt:
10.5% senior note, due 2000 $ 7,500 $ 7,500
12.75% senior subordinated notes, due 2000 27,912 31,720
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 145 155
--------- --------
Total long-term unsecured debt 36,904 40,722
--------- --------
Total long-term debt 79,556 81,550
Less current portion 44,464 6,597
--------- --------
Total long-term debt, excluding current portion $ 35,092 $ 74,953
========= ========
</TABLE>
(1) Refinanced under long-term agreements before the consolidated
financial statements for the period were issued. Amounts reflected
in current portion are based upon the terms of the new borrowings.
(2) 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.
The loans outstanding under the Company's 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, inventories,
equipment, certain real estate, and the stock of its wholly-owned subsidiary,
Lexington Rubber Group, Inc. (formerly known as Lexington Components, Inc.).
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. The covenants also 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. In addition,
substantially all of the Company's financing agreements include cross-default
provisions. During May 1999, a covenant related to the maintenance of net
working capital was amended.
-9-
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 -- INCOME TAXES
During the first quarter of 1999, the Company recorded income tax
expense, consisting of federal alternative minimum tax and state income tax, of
$378,000. Income tax expense of $457,000 on the extraordinary gain was offset by
a tax credit in the amount of $79,000.
At March 31, 1999, and December 31, 1998, the excess of the Company's
deferred income tax assets over its deferred income tax liabilities was fully
offset by a valuation allowance.
NOTE 6 -- NET INCOME/(LOSS) PER COMMON SHARE
The calculations of basic and diluted net income or loss per common
share for the three-month periods ended March 31, 1999 and 1998, are set forth
below (in thousands, except per share amounts). The pro forma conversion of the
Company's potentially dilutive securities (the 14% junior subordinated
convertible notes and the $8 cumulative convertible redeemable preferred stock,
series B), before giving effect to the extraordinary gain, was antidilutive. As
a result, the calculation of diluted net income or loss per common share set
forth below does not reflect any pro forma conversion.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
1999 1998
---- ----
<S> <C> <C>
Net loss before extraordinary item $ (237) $ (420)
Preferred stock dividends (8) (8)
Excess of redemption value over par value of preferred
stock redeemed during year (11) (11)
-------- --------
Net loss before extraordinary item (256) (439)
Extraordinary gain 1,371 -
-------- --------
Net income /(loss) attributable to common stockholders $ 1,115 $ (439)
======== ========
Weighted-average common shares 4,263 4,263
======== ========
Basic and diluted income /(loss) per common share:
Net loss before extraordinary item $ (0.06) $ (0.10)
Extraordinary gain 0.32 -
-------- --------
Basic and diluted net income/(loss) $ 0.26 $ (0.10)
======== ========
</TABLE>
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<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 -- SEGMENTS
Information relating to the Company's operating segments and the
corporate office for the first quarters of 1999 and 1998 is summarized below
(dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
1999 1998
---- ----
<S> <C> <C>
NET SALES:
Rubber Group $ 24,960 $ 23,834
Metals Group 9,536 8,363
---------- ----------
Total net sales $ 34,496 $ 32,197
========== ==========
INCOME/(LOSS) FROM OPERATIONS:
Rubber Group $ 3,316 $ 3,735
Metals Group (695) (1,259)
Corporate office (595) (494)
---------- ----------
Total income from operations $ 2,026 $ 1,982
========== ==========
ASSETS:
Rubber Group $ 68,198 $ 65,468
Metals Group 38,656 37,214
Corporate office 2,554 2,031
---------- ----------
Total assets $ 109,408 $ 104,713
========== ==========
DEPRECIATION AND AMORTIZATION:
Rubber Group $ 1,964 $ 1,757
Metals Group 1,106 846
Corporate office 55 53
---------- ----------
Total depreciation and amortization $ 3,125 $ 2,656
========== ==========
CAPITAL EXPENDITURES:
Rubber Group $ 1,024 $ 1,993
Metals Group 815 1,391
Corporate office 49 3
---------- ----------
Total capital expenditures $ 1,888 $ 3,387
========== ==========
</TABLE>
-11-
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and legal proceedings covering
a wide range of matters that arise in the ordinary course of its business
activities, including actions naming the Company 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 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 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.
NOTE 9 -- EXTRAORDINARY ITEM
During the first quarter of 1999, the Company recorded an extraordinary
gain, net of income tax expense, of $1,371,000 on the repurchase of $3,808,000
principal amount of its 12.75% senior subordinated notes.
NOTE 10 -- SUBSEQUENT EVENT
In May 1999, the Company decided to close its 21,000 square foot
diecasting facility in Manchester, New York. The Manchester facility had net
sales of $448,000 and $641,000 and losses from operations of $105,000 and
$19,000 for the three-month periods ended March 31, 1999 and 1998, respectively.
During 1998, the Manchester facility had net sales of $2,258,000 and a loss from
operations of $297,000. At March 31, 1999, the Manchester facility had net
assets, before deducting indebtedness for money borrowed, of $974,000. Although
the Company has not yet adopted a formal plan for the disposition of the
Manchester facility, the Company presently anticipates that it will complete the
closure and disposal during 1999 and estimates that it will incur a loss on the
closure and disposal in the range of $500,000 to $700,000.
-12-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Various statements in this Item 2 that are not historical facts are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Forward-looking statements usually can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," "estimates," "projects," or
the negative thereof. They may include discussions of strategy, which involve
risks and uncertainties, and they typically are based upon projections and
estimates, as distinct from past or historical facts and events.
Forward-looking statements are subject to a number of risks,
uncertainties, contingencies, and other factors that could cause the actual
results or performance of the Company to be materially different from the future
results or performance expressed in or implied by such statements. Such risks
and uncertainties for the Company include (1) increases and decreases in
business awarded to the Company by its various customers, (2) unanticipated
price reductions for the Company's products as a result of competition, (3)
unanticipated operating results and cash flows, (4) increases or decreases in
capital expenditures, (5) unforeseen product liability claims, (6) changes in
economic conditions, (7) changes in the competitive environment, (8) changes in
the capital markets, (9) labor interruptions at the Company or at its customers,
(10) disruptions that may be caused by year 2000 software and/or hardware
problems, (11) the inability of the Company to obtain additional borrowings
and/or to refinance its existing indebtedness, and (12) 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. Consequently, the use of forward-looking
statements should not be regarded as a representation that any such projections
or estimates will be realized, and actual results may vary materially. There can
be no assurance that any of the forward-looking statements contained herein will
prove to be accurate.
All forward-looking statements, projections, or estimates attributable
to the Company are expressly qualified by the foregoing cautionary statements.
RESULTS OF OPERATIONS -- FIRST QUARTER OF 1999 VERSUS FIRST QUARTER OF 1998
The Company manufactures, to customer specifications, component parts
through two operating segments, the Rubber Group and the Metals Group. The
Rubber Group consists of four divisions, Lexington Connector Seals, Lexington
Insulators, Lexington Medical, and Lexington Technologies. The Metals Group
consists of three divisions, Lexington Die Casting and the Arizona and New York
Divisions of Lexington Machining.
-13-
<PAGE> 15
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components
primarily for automotive industry customers. 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. The Rubber Group
received the General Motors Corporation "Supplier of the Year" award for 1995,
1996, and 1997.
The following table sets forth the operating results of the Rubber
Group for the first quarters of 1999 and 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 24,960 100.0% $ 23,834 100.0%
Cost of sales 20,022 80.2 18,622 78.1
--------- ------- --------- -------
Gross profit 4,938 19.8 5,212 21.9
Selling and administrative expenses 1,622 6.5 1,477 6.2
--------- ------- --------- -------
Income from operations $ 3,316 13.3% $ 3,735 15.7%
========= ======= ========= =======
</TABLE>
During the first quarter of 1999, net sales of the Rubber Group
increased by $1,126,000, or 4.7%, compared to the first quarter of 1998. This
increase was primarily due to increased unit sales of insulators for automotive
ignition wire sets and, to a lesser extent, increased unit sales of seals for
automotive wiring systems and components for medical devices, offset, in part,
by reduced sales of tooling and by price reductions on certain automotive
components.
During the first quarter of 1999, income from operations totaled
$3,316,000, a decrease of $419,000, or 11.2%, compared to the first quarter of
1998. Cost of sales as a percentage of net sales increased during 1999,
primarily because of production problems with certain components, including
related inspection costs, and increased depreciation and amortization expense.
The Company believes that a number of the production problems experienced during
the first quarter have been or will soon be substantially remedied through
process improvements, some of which have required investment in new equipment.
Selling and administrative expenses as a percentage of net sales
increased during the first quarter of 1999 compared to the first quarter of
1998, primarily because of increased depreciation and other expenses associated
with the Company's new computer systems, increased customer development expense,
and higher legal expenses.
During the first quarter of 1999, depreciation and amortization at the
Rubber Group totaled $1,964,000, or 7.9% of net sales, compared to $1,757,000,
or 7.4% of net sales, during the first quarter of 1998. Earnings before
interest, taxes, depreciation, and amortization ("EBITDA") decreased to
$5,280,000 in the first quarter of 1999 from $5,492,000 in the first quarter of
1998. (EBITDA is not a measure of performance under generally accepted
accounting principles. While EBITDA should not be used as a substitute for net
income, cash flows from operating activities, or other operating or cash flow
statement data prepared in accordance with generally accepted accounting
principles, management believes that it may be used by certain investors as
supplemental information to evaluate a company's financial performance,
including its ability to incur and/or service debt. In addition, the definition
of
-14-
<PAGE> 16
EBITDA used in this Form 10-Q may not be the same as the definition of EBITDA
used by other companies.)
METALS GROUP
The Metals Group manufactures aluminum, magnesium, and zinc die
castings and machines aluminum, brass, and steel components primarily for
automotive industry customers. 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 Metals Group and the Company.
Since 1997, the Company has been implementing a strategy designed to
improve the profitability and growth potential of the Metals Group by
eliminating the production of a large number of diverse, short-run components
and by repositioning productive capacity to manufacture higher-volume components
for customers in target markets. The repositioning has entailed a shift to a new
customer base and has required that the Company's manufacturing facilities be
structured and equipped to run high-volume parts efficiently and accurately. The
repositioning of the Metals Group has caused the Company to experience
underabsorption of fixed overhead resulting from the cut-back in short-run
business. The Metals Group has incurred expenses for the implementation of
improved quality systems, expenses related to moving and reinstalling equipment,
non-capitalized costs related to building upgrades, costs related to
establishing relationships with major new customers, and costs resulting from
inefficiencies experienced during the rollout of new products. These factors and
the fact that new, high-volume business is limited at this stage of the
transition adversely affected the results of operations and cash flow of the
Metals Group during the first quarters of 1998 and 1999.
The following table sets forth the operating results of the Metals
Group for the first quarters of 1999 and 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 9,536 100.0% $ 8,363 100.0%
Cost of sales 9,382 98.4 8,790 105.1
-------- ------- --------- -------
Gross profit/(loss) 154 1.6 (427) (5.1)
Selling and administrative expenses 849 8.9 832 9.9
-------- ------- --------- -------
Loss from operations $ (695) (7.3)% $ (1,259) (15.0)%
======== ======= ========= =======
</TABLE>
During the first quarter of 1999, net sales of the Metals Group
increased by $1,173,000, or 14.0%, compared to the first quarter of 1998. This
increase resulted primarily from increased net sales at Lexington Die Casting.
During the first quarter of 1999, the Metals Group incurred a loss from
operations of $695,000, compared to a loss from operations of $1,259,000 during
the first quarter of 1998. Cost of sales as a percentage of net sales decreased
during 1999, primarily due to (1) increased absorption of fixed manufacturing
overhead caused by higher sales levels and (2) reduced direct labor costs
resulting from improved efficiencies and increased utilization of skilled
equipment operators who had been retained during prior periods of low sales
volumes, offset, in part, by (3) increased depreciation and amortization
expenses.
-15-
<PAGE> 17
Selling and administrative expenses decreased as a percentage of net
sales during the first quarter of 1999 compared to the first quarter of 1998,
primarily because those expenses are partially fixed in nature.
During the first quarter of 1999, depreciation and amortization at the
Metals Group totaled $1,106,000, or 11.6% of net sales, compared to $846,000, or
10.1% of net sales, during the first quarter of 1998. EBITDA increased to
$411,000 in the first quarter of 1999 from negative $413,000 in the first
quarter of 1998.
In May 1999, the Company decided to close the Metals Group's 21,000
square foot diecasting facility in Manchester, New York. The Manchester facility
had net sales of $448,000 and $641,000 and losses from operations of $105,000
and $19,000 for the three-month periods ended March 31, 1999 and 1998,
respectively. During 1998, the Manchester facility had net sales of $2,258,000
and a loss from operations of $297,000. At March 31, 1999, the Manchester
facility had net assets, before deducting indebtedness for money borrowed, of
$974,000. Although the Company has not yet adopted a formal plan for the
disposition of the Manchester facility, the Company presently anticipates that
it will complete the closure and disposal during 1999 and estimates that it will
incur a loss on the closure and disposal in the range of $500,000 to $700,000.
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 $595,000 and $494,000
during the first quarters of 1999 and 1998, respectively. The increase in
corporate office expenses during the first quarter of 1999 resulted primarily
from the accrual of management incentive awards. No management incentive awards
were accrued for corporate office personnel during the first quarter of 1998.
During the first quarters of 1999 and 1998, depreciation at the
corporate office totaled $5,000 and $3,000, respectively.
INTEREST EXPENSE
During the first quarters of 1999 and 1998, interest expense totaled
$2,342,000 and $2,402,000, respectively. The decrease during the first quarter
of 1999 was primarily a result of the repurchase, of $3,808,000 principal amount
of 12.75% senior subordinated notes during January 1999, which was financed with
borrowings under the Company's revolving line of credit.
EXTRAORDINARY GAIN
In January 1999, the Company repurchased $3,808,000 principal amount of
its 12.75% senior subordinated notes for $1,980,000 plus accrued interest. The
Company recognized an extraordinary gain on the repurchase, net of estimated
taxes, of $1,371,000.
INCOME TAXES
During the first quarter of 1999, the Company recorded income tax
expense, consisting of federal alternative minimum tax and state income tax, of
$378,000. Income tax expense of $457,000 on the extraordinary gain was offset by
a tax credit in the amount of $79,000.
-16-
<PAGE> 18
At March 31, 1999, and December 31, 1998, the excess of the Company's
deferred income tax assets over its deferred income tax liabilities was fully
offset by a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first quarter of 1999, the operating activities of the
Company provided $514,000 of cash.
Accounts receivable increased by $2,087,000, primarily due to the
timing of payments from the Company's largest customer. Trade accounts payable
increased by $1,041,000, primarily because payables related to the purchase of
plant, equipment, and customer-owned tooling increased by $612,000 during the
first quarter of 1999, from $1,888,000 at December 31, 1998, to $2,500,000 at
March 31, 1999. Accrued expenses decreased by $953,000, primarily because of the
payment of interest on the Company's 12.75% senior subordinated notes, the
payment of an accrued profit sharing contribution to the Company's retirement
and savings plan for the 1998 plan year, and the payment of accrued incentive
bonus awards earned during 1998.
INVESTING ACTIVITIES
During the first quarter of 1999, the investing activities of the
Company used $2,023,000 of cash, primarily for capital expenditures. Capital
expenditures attributable to the Rubber Group, the Metals Group, and the
corporate office totaled $1,024,000, $815,000, and $49,000, respectively. The
Company presently projects that capital expenditures will total approximately
$13,500,000 in 1999, including $13,100,000 for equipment and $400,000 for land
and buildings. Capital expenditures for the Rubber Group, the Metals Group, and
the corporate office are projected to total $9,000,000, $4,400,000, and
$100,000, respectively. At March 31, 1999, the Company had commitments
outstanding for capital expenditures totaling approximately $2,305,000. Although
no assurance can be given, the Company anticipates that the funds needed for
capital expenditures in 1999 will be provided by cash flows from operations and
borrowings available to the Company under its revolving line of credit and its
equipment lines of credit. (See also "Liquidity" in this Item 7.)
FINANCING ACTIVITIES
During the first quarter of 1999, the financing activities of the
Company provided $1,635,000 of cash.
During the first quarter of 1999, the Company obtained new term loans
in the aggregate amount of $9,292,000, which refinanced $2,090,000 of existing
term loans and $7,202,000 of loans outstanding under the Company's revolving
line of credit. Also, during the quarter, the Company repurchased $3,808,000
principal amount of its 12.75% senior subordinated notes for $1,980,000; the
purchase was financed through borrowings under the Company's revolving line of
credit.
LIQUIDITY
The Company finances its operations with cash from operating activities
and a variety of financing arrangements, including term loans and loans under
the Company's revolving line of credit. The ability of the Company to borrow
under its revolving line of credit is subject to, among other things,
-17-
<PAGE> 19
covenant compliance and certain availability formulas based on the levels of
accounts receivable and inventories of the Company. In January 1999, the
revolving line of credit was amended to extend its expiration date to April 1,
2002. Also in January 1999, one of the Company's lenders provided the Company
with an equipment line of credit in the amount of $5,000,000, which can be used
to finance a portion of the cost of certain equipment. At March 31, 1999, the
Company had not borrowed under the line of credit. In March 1999, another of the
Company's lenders provided the Company with an equipment line of credit in the
amount of $1,822,000. At March 31, 1999, the Company had borrowed $1,222,000
under the line of credit.
The Company operates with substantial financial leverage and limited
liquidity. During the first quarter of 1998, the Company's aggregate
indebtedness, excluding trade accounts payable, decreased by $150,000 to
$94,395,000. During 1999, interest and scheduled principal payments are
projected to be approximately $9,400,000 and $7,500,000, respectively.
The Company had a net working capital deficit of $45,640,000 at March
31, 1999, compared to a net working capital deficit of $8,030,000 at December
31, 1998. The increase in the net working capital deficit resulted from the fact
that the Company's 12% term note, 10.5% senior note, and 12.75% senior
subordinated notes, which have an aggregate principal balance of $36,872,000,
mature during the first quarter of 2000 and have been classified as current
liabilities in the Company's March 31, 1999, consolidated financial statements.
In addition, although not classified as a current liability at March 31, 1999,
the Company's 14% junior subordinated notes in the aggregate principal amount of
$1,347,000 mature on May 1, 2000. Loans of $14,839,000 and $12,995,000
outstanding under the revolving line of credit were classified as short-term
debt at March 31, 1999 and December 31, 1998, respectively. Although the
expiration date of the revolving line of credit is April 1, 2002, these loans
have been classified as current liabilities because the Company's cash receipts
are automatically used to reduce such loans on a daily basis, by means of a
lock-box sweep arrangement, and the lender has the ability to modify certain
terms of the revolving line of credit without the prior approval of the Company.
At May 13, 1999, availability under the Company's revolving line of
credit totaled $2,340,000 before outstanding checks of $688,000 were deducted.
Substantially all of the assets of the Company and its subsidiary,
Lexington Rubber Group Inc., are pledged as collateral for certain of the
Company's indebtedness. In addition, 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. The covenants also place
certain restrictions on the Company's business and operations, including
covenants relating to the incurrence or assumption of additional debt, the level
of past-due trade accounts payable, the sale of all or substantially all of the
Company's assets, the purchase of plant and equipment, the purchase of common
stock, the redemption of preferred stock, and the payment of cash dividends. In
addition, substantially all of the Company's financing agreements include
cross-default provisions.
From time to time, certain of the financial covenants contained in the
Company's various loan agreements have been amended in order to maintain or
otherwise ensure current or future compliance by the Company. In May 1999, a
covenant related to the maintenance of net working capital was amended.
Based upon its most current forecast, the Company believes, although
there can be no assurance, that its cash flows from operations and borrowings
under its revolving line of credit and its equipment lines of credit will be
adequate to meet its working capital and debt service requirements and to fund
projected capital expenditures through December 31, 1999. If cash flows from
operations or availability
-18-
<PAGE> 20
under the Company's lines of credit fall below expectations, the Company may be
forced to delay planned capital expenditures, reduce operating expenses, extend
trade accounts payable balances beyond terms that the Company believes are
customary in the industries in which it operates, and/or consider other
alternatives designed to improve the Company's liquidity. Certain of such
actions could have a material adverse effect upon the Company.
As previously discussed, indebtedness totaling $38,129,000 matures
during the first and second quarters of 2000. The Company's operations will not
generate cash sufficient to satisfy such obligations at their maturities. The
Company may attempt to refinance these obligations (and possibly other
indebtedness that has later maturity dates) by issuing new debt securities in
the private or public market. The Company has commenced discussions with
investment banking firms relating to the issuance of new debt securities to
refinance substantially all of the Company's existing debt. Although there can
be no assurance that the Company will undertake such an offering, or that any
such offering will be successful, based on the discussions to date, current
market conditions in the market for non-investment grade debt, and the Company's
historical and projected operating results, cash flows, and capital structure,
the Company believes that it will be able to issue new debt securities with
terms and interest rates reasonably satisfactory to the Company and in
sufficient amounts to refinance substantially all of its outstanding debt
securities prior to their maturity dates. At the present time, the aggregate
principal amount of debt securities to be offered for sale and the specific
terms of such securities have not been determined. If a public offering of
securities is made, such offering will be made only by means of a prospectus. If
a private offering of securities is made, the securities offered will not be
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
If, for any reason, the anticipated sale of such debt securities is not
successful, the Company may, in the alternative, attempt to extend the maturity
dates of its existing debt securities or to exchange new debt securities that
have maturity dates later than 2000 for existing debt securities that mature in
2000. The Company's ability to refinance, extend, or exchange these securities
on or before their maturity dates will depend on many factors, including, but
not limited to, conditions in the market for non-investment grade debt.
Accordingly, there can be no assurance that the Company will be successful in
refinancing, extending, or exchanging such securities. In the event that the
Company is not successful in refinancing, extending, or exchanging such debt
securities, defaults may occur under the agreements relating to such securities.
If a default occurs, it may trigger other defaults pursuant to cross-default
provisions under other indebtedness of the Company. Holders of indebtedness on
which defaults exist would be entitled to accelerate the maturity thereof, to
cease making any further advances otherwise permitted under the related credit
facilities, to seek to foreclose upon any assets securing such indebtedness, and
to pursue other remedies. If any such actions were to be taken, the Company
might be required to consider alternatives, including seeking relief from its
creditors. Any such action by creditors could have a material adverse effect
upon the Company. The consolidated financial statements do not include any
adjustments that might result should the Company be unable to refinance, extend,
or exchange these obligations on or before their maturity dates.
ACQUISITIONS
The Company is seeking to acquire assets and businesses related to its
current operations in order to expand 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.
-19-
<PAGE> 21
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 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 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 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.
ORGANIZATIONAL CHANGES
On March 31, 1999, the Company changed the name of its wholly-owned
subsidiary, Lexington Components, Inc., to Lexington Rubber Group, Inc. and
contributed the stock of its wholly-owned subsidiary, Lexington Precision GmbH
and the assets, liabilities, and business operations of its Lexington
Technologies division to Lexington Rubber Group, Inc.
RECENTLY ISSUED ACCOUNTING STANDARDS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), which is effective for all
fiscal periods beginning after June 15, 1999. The statement provides standards
for the recognition and measurement of derivative and hedging activities. The
Company believes that the adoption of FAS 133 during the first quarter of 2000
will not affect the results of operations or financial position of the Company.
YEAR 2000
The Company's compliance plan for software and/or hardware failures due
to processing errors potentially arising from calculations using the year 2000
date is set forth in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the Company's annual report on Form 10-K
for the year ended December 31, 1998.
Although the Company has not yet developed specific contingency plans,
based upon the Company's review of its IT and non-IT systems to date, the
Company believes that there are no material internal issues regarding its year
2000 compliance that will not be resolved through normal equipment and software
upgrades that will be made through 1999. The Company expects to have contingency
plans in place by the third quarter of 1999.
-20-
<PAGE> 22
The status of the Company's year 2000 readiness effort as of March 31,
1999, is set forth in the table below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
RESOLUTION PHASES
------------------------------------------------------------------------------------------
ASSESSMENT REMEDIATION TESTING IMPLEMENTATION
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INFORMATION 100% complete 70% complete Expected completion Expected completion
TECHNOLOGY second quarter 1999 second quarter 1999
E -------------------------------------------------------------------------------------------------------------
X
P OPERATING 100% complete 85% complete Expected completion Expected completion
O EQUIPMENT WITH second quarter 1999 second quarter 1999
S EMBEDDED CHIPS
U OR SOFTWARE
R
E -------------------------------------------------------------------------------------------------------------
T PRODUCTS 100% complete 100% complete 100% complete 100% complete
Y -------------------------------------------------------------------------------------------------------------
P
E THIRD PARTY 75% complete Developing Expected completion Expected completion
contingency plans third quarter 1999 third quarter 1999
as appropriate
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
While the Company believes its planning efforts are adequate to address
its internal year 2000 concerns, there can be no assurance that the systems of
the Company's major trading partners, on which the Company's systems and
operations rely, will be year 2000 compliant. If a significant number of the
Company's major trading partners experience failures in their computer systems
or operations due to year 2000 non-compliance, such events could have a material
adverse affect on the business and revenues of the Company. Furthermore, if, for
any reason, the Company or its major trading partners fail to complete
appropriate remediation programs or fail to complete remediation programs on a
timely basis, such failure could have a material adverse effect on the business
and revenues of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information about market risk, refer to "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity" in
Part I, Item 2.
-21-
<PAGE> 23
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 dated March 31, 1999,
between the Company and Congress Financial Corporation
10-2 Term Promissory Note dated March 31, 1999, between the
Company and Congress Financial Corporation
10-3 Amendment to Financing Agreements dated March 31, 1999,
between Lexington Components, Inc. and Congress Financial
Corporation
10-4 Term Promissory Note dated March 31, 1999, between
Lexington Components, Inc. and Congress Financial
Corporation
27-1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the first quarter of 1999.
-22-
<PAGE> 24
LEXINGTON PRECISION CORPORATION
FORM 10-Q
MARCH 31, 1999
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 14, 1999 By: /s/ Michael A. Lubin
- ------------ ---------------------
Date Michael A. Lubin
Chairman of the Board
May 14, 1999 By: /s/ Warren Delano
- ------------ ------------------
Date Warren Delano
President
May 14, 1999 By: /s/ Dennis J. Welhouse
- ------------ -----------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
-23-
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Exhibit Location
-------- ------- --------
<S> <C> <C>
10-1 Amendment to Financing Agreements Filed with this Form 10-Q
dated March 31, 1999, between the Company
and Congress
10-2 Term Promissory Note dated March 31, 1999, Filed with this Form 10-Q
between the Company and Congress
10-3 Amendment to Financing Agreements Filed with this Form 10-Q
dated March 31, 1999, between Lexington
Components, Inc. and Congress
10-4 Term Promissory Note dated March 31, 1999, Filed with this Form 10-Q
between Lexington Components, Inc. and
Congress
27-1 Financial Data Schedule Filed with this Form 10-Q
</TABLE>
<PAGE> 1
Exhibit 10.1
As of March 31, 1999
Lexington Precision Corporation
767 Third Avenue
New York, New York 10017
Re: Amendment to Financing Agreements
---------------------------------
Gentlemen:
Reference is made to certain financing agreements dated January 11,
1990 between Lexington Precision Corporation ("LPC") and Congress Financial
Corporation ("Congress"), including, but not limited to, an Accounts Financing
Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all
supplements thereto and all other related financing and security agreements
(collectively, all of the foregoing, as the same have heretofore or
contemporaneously been or may be hereafter, amended, replaced, extended,
modified or supplemented, the "Financing Agreements").
In connection with the financing arrangements pursuant to the Accounts
Agreement and the other Financing Agreements, the parties hereto hereby agree to
amend the Financing Agreements, as set forth below:
1. DEFINITIONS:
(a) The definition of "Term Loans" contained in the letter agreement
re: Amendment to Financing Agreements, dated January 31, 1995, between LPC and
Congress (the "January 1995 Amendment"), as amended by the letter agreement re:
Amendment to Financing Agreements, dated January 16, 1996, between LPC and
Congress, the letter agreement re: Amendment to Financing Agreements, dated
March 11, 1997, between LPC and Congress, and the letter agreement re: Amendment
to Financing Agreements, dated January 28, 1999, between LPC and Congress, is
hereby further amended to mean and include all term loans now outstanding or
hereafter made by Congress to LPC, including, without limitation, the term loan
made by Congress to LPC evidenced by the March 1999 Additional LPC Term Note (as
defined below) and any and all New Equipment Term Notes heretofore or hereafter
executed by LPC, as any such notes may hereafter be amended, renewed, extended,
restated or replaced.
(b) Capitalized terms used herein, unless otherwise defined herein,
shall have the meanings ascribed thereto in the Accounts Agreement and the other
Financing Agreements.
2. ADDITIONAL TERM LOAN. In order to evidence an additional one-time
advance to LPC (the "March 1999 Additional LPC Term Loan"), which shall be made
upon the effective date
<PAGE> 2
hereof, LPC is executing and delivering to Congress a Term Promissory Note in
the principal amount of $1,100,000 (the "March 1999 Additional LPC Term Note").
The Obligations evidenced by the March 1999 Additional LPC Term Note shall be
payable, including interest and other amounts, as provided therein and, to the
extent not inconsistent with the terms of the March 1999 Additional LPC Term
Note, as provided in the other Financing Agreements, and shall be secured by all
Collateral.
3. MAXIMUM AMOUNT OF TERM LOANS. The aggregate principal amount of all
Term Loans and all "Term Loans" made to LCI (as defined in the "LCI Financing
Agreements", as hereinafter defined), at any one time outstanding, shall not
exceed the amount of $31,000,000.
4. LCI NAME CHANGE:
(a) Congress hereby waives any requirement of prior notice with
respect to the proposed corporate name change from Lexington Components, Inc. to
Lexington Rubber Group, Inc. (the "LCI Name Change"); PROVIDED, THAT, LPC or LCI
notifies Congress within three (3) days of the date of the effectiveness of the
LCI Name Change (the "LCI Name Change Date").
(b) LPC hereby acknowledges that as of the LCI Name Change Date, LCI
shall have changed its name from Lexington Components, Inc. to Lexington Rubber
Group, Inc. ("LRG"). Accordingly, the parties agree that, as of the LCI Name
Change Date, any and all references to Lexington Components, Inc. or LCI
contained anywhere in the Financing Agreements (including the use of the letters
"LCI" as part of other defined terms) shall be deemed amended to mean and refer
to LRG.
5. FEE. LPC shall pay to Congress a facility amendment fee in the
amount of $24,000, payable simultaneously with the execution hereof, which fee
is fully earned as of the date hereof.
6. 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.
(b) Within seven (7) days following the LCI Name Change Date, LPC
shall cause LCI to deliver to Congress a true
-2-
<PAGE> 3
copy of the amendment to the certificate of incorporation of LCI as certified
and issued by the Secretary of State of the State of Delaware, evidencing the
name change of Lexington Components, Inc. to Lexington Rubber Group, Inc.
(c) As soon as practicable following the LCI Name Change Date, LPC
shall cause LCI to deliver copies of related certifications of name change
and/or applications for change of name filed with the Department of State of
each state where LCI is qualified to do business as a foreign corporation.
(d) As soon as practicable following the LCI Name Change Date and
the delivery of UCC-3 amendments to LCI by Congress, LPC shall cause LCI to
execute and deliver to Congress, such UCC-3 amendments evidencing the LCI Name
Change, to be filed with respect to each financing statement currently filed
against LCI, as debtor in favor of Congress, as secured party.
(e) This Amendment and each instrument required to be executed and
delivered by LPC hereunder, 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 and therein constitute the legal, valid and
binding obligations of LPC enforceable against LPC in accordance with their
terms.
7. USE OF PROCEEDS. The proceeds of the March 1999 Additional LPC Term
Loan to be made by Congress hereof shall be credited to LPC's Revolving Loan
account maintained by Congress under the Financing Agreements.
8. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. Anything contained in this
Amendment to the contrary notwithstanding, the terms and provisions of this
Amendment shall only become effective upon the satisfaction of the following
additional conditions precedent:
(a) Congress shall have received an executed original or executed
original counterparts (as the case may be) of this Amendment together with the
following, each of which shall be in form and substance satisfactory to
Congress:
(i) the March 1999 Additional LPC Term Note;
(ii) certified resolutions of the Board of
Directors of LPC duly authorizing the
execution and delivery of this
Amendment and the instruments and
transactions hereunder; and
-3-
<PAGE> 4
(iii) an Amendment between LCI and Congress
with respect to the LCI Financing
Agreements and the documents and
instruments required thereunder and the
satisfaction of all conditions
precedent to the effectiveness thereof.
(b) All representations and warranties contained herein, in the
Accounts Agreement and in the other Financing Agreements shall be true and
correct in all material respects; and
(c) No Event of Default shall have occurred and no event shall have
occurred or condition be existing which, with notice or passage of time or
both, would constitute an Event of Default.
9. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the
Accounts Agreement and all supplements to the Accounts Agreement and all other
Financing Agreements, are hereby specifically ratified, restated and confirmed
by the parties hereto as of the date hereof and no existing defaults or Events
of Default have been waived in connection herewith. To the extent of conflict
between the terms of this Amendment and the Accounts Agreement or any of the
other Financing Agreements, the terms of this Amendment control.
10. 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, including,
but not in limitation, the following:
(a) At Congress' request, LPC shall execute and deliver to Congress
such mortgage modification agreements or similar agreements with respect to any
and all properties of LPC which are encumbered by a mortgage or deed of trust,
as the case may be, in favor of Congress, to expressly secure, without
limitation, the notes evidencing the then current Term Loans and other
Financing Agreements evidencing the Obligations (it being agreed that the
absence of such agreement shall not deprive Congress of the benefit of the
liens held by Congress on the real property covered by such mortgages or deeds
of trust, which shall continue to secure all Obligations); and
(b) In connection with such agreements under Section 10(a) of the
Amendment, LPC shall arrange for the delivery to Congress, at LPC's expense,
of an updated title insurance policy and necessary endorsements thereto in favor
of Congress, in form and substance satisfactory to Congress, for each property
that is subject to such agreements.
-4-
<PAGE> 5
11. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without reference to its
principles of conflicts of law.
By the signatures hereto of the duly authorized officers, the parties
hereto mutually covenant, warrant and agree as set forth herein.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: Herbert C. Korn
----------------------------------
Title: Assistant 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 to CONGRESS FINANCIAL CORPORATION, including, without
limitation, all indebtedness, liabilities and obligations under the Financing
Agreements as amended hereby.
LEXINGTON COMPONENTS, INC.
By: Warren Delano
-------------------------------
Title: President
------------------------------
-6-
<PAGE> 1
Exhibit 10.2
TERM PROMISSORY NOTE
--------------------
$1,100,000 March 31, 1999
FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware
corporation (the "Debtor"), hereby unconditionally promises to pay to the order
of CONGRESS FINANCIAL CORPORATION, a Delaware corporation, as successor by
merger to Congress Financial Corporation, a California corporation (the
"Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New
York 10036, or at such other place as the Payee or any holder hereof may from
time to time designate, the principal sum of ONE MILLION ONE HUNDRED THOUSAND
DOLLARS ($1,100,000) in lawful money of the United States of America and in
immediately available funds, in thirty-six (36) consecutive monthly installments
(or earlier as hereinafter referred to) on the first day of each month,
commencing May 1, 1999, of which the first thirty-five (35) installments shall
each be in the amount of THIRTY THOUSAND SIX HUNDRED DOLLARS ($30,600), and the
last (i.e. thirty-sixth (36th)) installment shall be in the amount of the entire
unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing on
April 1, 1999 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
during the continuance of an Event of Default or following the effective date of
termination or non-renewal of the Financing Agreements shall be payable upon
demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to
Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in
excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and
three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar
Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of
two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to
Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per
annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans,
upon and during the continuance of an Event of Default or following the
effective date of termination or non-renewal of the Financing Agreements, and
(b) the term "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
Unless otherwise defined herein, all capitalized terms used herein shall
<PAGE> 2
have the meanings assigned thereto in the Accounts Agreement (as hereinafter
defined) and the other Financing Agreements.
The Interest Rate payable hereunder as to Prime Rate Loans shall
increase or decrease by an amount equal to each increase or decrease,
respectively, in such Prime Rate, effective on the first day of the month after
any change in such Prime Rate, based on the Prime Rate in effect on the last day
of the month in which any such change occurs. Interest shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. In no
event shall the interest charged hereunder exceed the maximum permitted under
the laws of the State of New York or other applicable law.
This Note is issued pursuant to the terms and provisions of the letter
agreement re: Amendment to Financing Agreements, dated as of the date hereof,
between Debtor and Payee (the "Amendment") to evidence the "March 1999 Additonal
LPC Term Loan" (as defined in the Amendment) made by Payee to Debtor. This Note
is secured by the "Collateral" described in the Accounts Financing Agreement
[Security Agreement], dated January 11, 1990, by and between Payee and Debtor,
as amended (the "Accounts Agreement") and any agreement, document or instrument
now or at any time hereafter executed and/or delivered in connection therewith
or related thereto (the foregoing, as the same now exist or may hereafter be
amended, modified, supplemented, renewed, extended, restated or replaced, are
hereinafter collectively referred to as the "Financing Agreements") and is
entitled to all of the benefits and rights thereof and of the Financing
Agreements. At the time any payment is due hereunder, at its option, Payee may
charge the amount thereof to any account of Debtor maintained by Payee.
If any principal or interest payment is not made when due hereunder,
and such failure shall continue for three (3) days, or if any other Event of
Default (as defined in the Accounts Agreement) shall occur for any reason, or if
the Financing Agreements shall be terminated or not renewed for any reason
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Debtor's obligations, liabilities and indebtedness owing to Payee
under the Financing Agreements (the "Obligations"), including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof together with all interest accrued thereon, shall
forthwith become due and payable, together with interest accruing thereafter at
the then applicable rate stated above until the indebtedness evidenced by this
Note is paid in full, plus the costs and expenses of collection hereof,
including, but not limited to, reasonable attorneys' fees.
-2-
<PAGE> 3
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for any holder hereof to
first institute suit in order to enforce payment of this Note and (iii) consents
to any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. Upon the occurrence of any Event of
Default and during the continuance thereof, Payee shall have the right, but not
the obligation to setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
Debtor hereby waives the right to a trial by jury and all rights of
setoff and rights to interpose counterclaims and cross-claims in any litigation
or proceeding arising in connection with this Note, the Accounts Agreement, the
other Financing Agreements, the Obligations or the Collateral, other than
compulsory counterclaims, the non-assertion of which would result in a permanent
waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of
the Supreme Court of the State of New York and of the United States District
Court for the Southern District of New York for all purposes in connection with
any action or proceeding arising out of or relating to this Note, the Accounts
Agreement, the other Financing Agreements, the Obligations or the Collateral and
further consents that any process or notice of motion or other application to
said Courts or any judge thereof, or any notice in connection with any
proceeding hereunder may be served (i) inside or outside the State of New York
by registered or certified mail, return receipt requested, and service or notice
so served shall be deemed complete five (5) days after the same shall have been
posted or (ii) in such other manner as may be permissible under the rules of
said Courts. Within thirty (30) days after such mailing, Debtor shall appear in
answer to such process or notice of motion or other application to said Courts,
failing which Debtor shall be deemed in default and judgment may be entered by
Payee against Debtor for the amount of the claim and other relief requested
therein.
The execution and delivery of this Note has been authorized by the
Board of Directors of Debtor.
This Note, the other Obligations and the Collateral shall be governed
by and construed in accordance with the laws of the State of New York and shall
be binding upon the successors and assigns of Debtor and inure to the benefit of
Payee and its successors, endorsees and assigns. If any term or provision of
-3-
<PAGE> 4
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the Payee or the holder hereof.
Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to
include their respective successors and assigns.
LEXINGTON PRECISION
CORPORATION
ATTEST:
By: Warren Delano
Carly Strelzik --------------------------------
- -----------------------
Assistant Secretary Title: President
-----------------------------
[Corporate Seal]
-4-
<PAGE> 1
Exhibit 10.3
As of March 31, 1999
Lexington Components, Inc.
767 Third Avenue
New York, New York 10017
Re: Amendment to Financing Agreements
---------------------------------
Gentlemen:
Reference is made to certain financing agreements dated January 11,
1990 between Lexington Components, Inc. ("LCI") and Congress Financial
Corporation ("Congress"), including, but not limited to, an Accounts Financing
Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all
supplements thereto and all other related financing and security agreements
(collectively, all of the foregoing, as the same have heretofore or
contemporaneously been or may be hereafter, amended, replaced, extended,
modified or supplemented, the "Financing Agreements").
In connection with the financing arrangements pursuant to the Accounts
Agreement and the other Financing Agreements, the parties hereto hereby agree to
amend the Financing Agreements, as set forth below:
1. DEFINITIONS:
(a) The definition of "Term Loans" contained in the letter agreement
re: Amendment to Financing Agreements, dated January 31, 1995, between LCI and
Congress (the "January 1995 Amendment"), as amended by the letter agreement re:
Amendment to Financing Agreements, dated March 11, 1997, between LCI and
Congress, and the letter agreement re: Amendment to Financing Agreements, dated
January 28, 1999, between LCI and Congress, is hereby further amended to mean
and include all term loans now outstanding or hereafter made by Congress to LCI,
including, without limitation, the term loan made by Congress to LCI evidenced
by the March 1999 Additional LCI Term Note (as defined below) and any and all
New Equipment Term Notes heretofore or hereafter executed by LCI, as any such
notes may hereafter be amended, renewed, extended, restated or replaced.
(b) Capitalized terms used herein, unless otherwise defined herein,
shall have the meanings ascribed thereto in the Accounts Agreement and the other
Financing Agreements.
2. ADDITIONAL TERM LOAN. In order to evidence an additional one-time
advance to LCI (the "March 1999 Additional LCI Term Loan"), which shall be made
upon the effective date hereof, LCI is executing and delivering to Congress a
Term Promissory Note in the principal amount of $1,650,000 (the "March 1999
Additional LCI Term Note"). The Obligations evidenced by
<PAGE> 2
the March 1999 Additional LCI Term Note shall be payable, including interest and
other amounts, as provided therein and, to the extent not inconsistent with the
terms of the March 1999 Additional LCI Term Note, as provided in the other
Financing Agreements, and shall be secured by all Collateral.
3. MAXIMUM AMOUNT OF TERM LOANS. The aggregate principal amount of all
Term Loans and all "Term Loans" made to LPC (as defined in the "LPC Financing
Agreements", as hereinafter defined), at any one time outstanding, shall not
exceed the amount of $31,000,000.
4. LCI NAME CHANGE:
(a) Congress hereby waives any requirement of prior notice with
respect to the proposed corporate name change from Lexington Components, Inc. to
Lexington Rubber Group, Inc. (the "LCI Name Change"); PROVIDED, THAT, LPC or LCI
notifies Congress within three (3) days of the date of the effectiveness of the
LCI Name Change (the "LCI Name Change Date").
(b) LCI hereby acknowledges that as of the LCI Name Change Date, LCI
shall have changed its name from Lexington Components, Inc. to Lexington Rubber
Group, Inc. ("LRG"). Accordingly, the parties agree that, as of the LCI Name
Change Date, any and all references to Lexington Components, Inc. or LCI
contained anywhere in the Financing Agreements (including the use of the letters
"LCI" as part of other defined terms) shall be deemed amended to mean and refer
to LRG.
5. FEE. LCI shall pay to Congress a facility amendment fee in the
amount of $36,000, payable simultaneously with the execution hereof, which fee
is fully earned as of the date hereof.
6. 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.
(b) Within seven (7) days following the LCI Name Change Date, LCI
shall deliver to Congress a true copy of the amendment to the certificate of
incorporation of LCI as certified and issued by the Secretary of State of the
State of Delaware,
-2-
<PAGE> 3
evidencing the name change of Lexington Components, Inc. to Lexington Rubber
Group, Inc.
(c) As soon as practicable following the LCI Name Change Date, LCI
shall deliver copies of related certifications of name change and/or
applications for change of name filed with the Department of State of each state
where LCI is qualified to do business as a foreign corporation.
(d) As soon as practicable following the LCI Name Change Date and
the delivery of UCC-3 amendments to LCI by Congress, LCI shall execute and
deliver to Congress, such UCC-3 amendments evidencing the LCI Name Change, to be
filed with respect to each financing statement currently filed against LCI, as
debtor in favor of Congress, as secured party.
(e) This Amendment and each instrument required to be executed and
delivered by LCI hereunder, 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 and therein constitute the legal, valid and
binding obligations of LCI enforceable against LCI in accordance with their
terms.
7. USE OF PROCEEDS. The proceeds of the March 1999 Additional LCI Term
Loan to be made by Congress hereof shall be credited to LCI's Revolving Loan
account maintained by Congress under the Financing Agreements.
8. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. Anything contained in this
Amendment to the contrary notwithstanding, the terms and provisions of this
Amendment shall only become effective upon the satisfaction of the following
additional conditions precedent:
(a) Congress shall have received an executed original or executed
original counterparts (as the case may be) of this Amendment together with the
following, each of which shall be in form and substance satisfactory to
Congress:
(i) the March 1999 Additional LCI Term Note;
(ii) certified resolutions of the Board of
Directors of LCI duly authorizing the
execution and delivery of this Amendment and
the instruments and transactions hereunder;
and
(iii) an Amendment between LPC and Congress with
respect to the LPC Financing Agreements and
the documents and instruments required
thereunder and the satisfaction of all
-3-
<PAGE> 4
conditions precedent to the effectiveness
thereof.
(b) All representations and warranties contained herein, in the
Accounts Agreement and in the other Financing Agreements shall be true and
correct in all material respects; and
(c) No Event of Default shall have occurred and no event shall have
occurred or condition be existing which, with notice or passage of time or both,
would constitute an Event of Default.
9. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the
Accounts Agreement and all supplements to the Accounts Agreement and all other
Financing Agreements, are hereby specifically ratified, restated and confirmed
by the parties hereto as of the date hereof and no existing defaults or Events
of Default have been waived in connection herewith. To the extent of conflict
between the terms of this Amendment and the Accounts Agreement or any of the
other Financing Agreements, the terms of this Amendment control.
10. 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, including,
but not in limitation, the following:
(a) At Congress' request, LCI shall execute and deliver to Congress
such mortgage modification agreements or similar agreements with respect to any
and all properties of LCI which are encumbered by a mortgage or deed of trust,
as the case may be, in favor of Congress, to expressly secure, without
limitation, the notes evidencing the then current Term Loans and other Financing
Agreements evidencing the Obligations (it being agreed that the absence of such
agreement shall not deprive Congress of the benefit of the liens held by
Congress on the real property covered by such mortgages or deeds of trust, which
shall continue to secure all Obligations); and
(b) In connection with such agreements under Section 10(a) of the
Amendment, LCI shall arrange for the delivery to Congress, at LCI's expense, of
an updated title insurance policy and necessary endorsements thereto in favor of
Congress, in form and substance satisfactory to Congress, for each property that
is subject to such agreements.
11. 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: Herbert C. Korn
------------------------------------
Title: Assistant 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. to CONGRESS FINANCIAL CORPORATION, including, without
limitation, all indebtedness, liabilities and obligations under the Financing
Agreements as amended hereby.
LEXINGTON PRECISION CORPORATION
By: Warren Delano
-----------------------------------
Title: President
--------------------------------
-6-
<PAGE> 1
Exhibit 10.4
TERM PROMISSORY NOTE
--------------------
$1,650,000 March 31, 1999
FOR VALUE RECEIVED, LEXINGTON COMPONENTS, INC., a Delaware corporation
(the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS
FINANCIAL CORPORATION, a Delaware corporation, as successor by merger to
Congress Financial Corporation, a California corporation (the "Payee"), at the
offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at
such other place as the Payee or any holder hereof may from time to time
designate, the principal sum of ONE MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS
($1,650,000) in lawful money of the United States of America and in immediately
available funds, in thirty-six (36) consecutive monthly installments (or earlier
as hereinafter referred to) on the first day of each month, commencing May 1,
1999, of which the first thirty-five (35) installments shall each be in the
amount of FORTY-FIVE THOUSAND EIGHT HUNDRED DOLLARS ($45,800), and the last
(i.e. thirty-sixth (36th)) installment shall be in the amount of the entire
unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing on
April 1, 1999 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
during the continuance of an Event of Default or following the effective date of
termination or non-renewal of the Financing Agreements shall be payable upon
demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to
Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in
excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and
three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar
Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of
two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to
Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per
annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans,
upon and during the continuance of an Event of Default or following the
effective date of termination or non-renewal of the Financing Agreements, and
(b) the term "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
Unless otherwise defined herein, all capitalized terms used herein shall
<PAGE> 2
have the meanings assigned thereto in the Accounts Agreement (as hereinafter
defined) and the other Financing Agreements.
The Interest Rate payable hereunder as to Prime Rate Loans shall
increase or decrease by an amount equal to each increase or decrease,
respectively, in such Prime Rate, effective on the first day of the month after
any change in such Prime Rate, based on the Prime Rate in effect on the last day
of the month in which any such change occurs. Interest shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. In no
event shall the interest charged hereunder exceed the maximum permitted under
the laws of the State of New York or other applicable law.
This Note is issued pursuant to the terms and provisions of the letter
agreement re: Amendment to Financing Agreements, dated as of the date hereof,
between Debtor and Payee (the "Amendment") to evidence the "March 1999 Additonal
LCI Term Loan" (as defined in the Amendment) made by Payee to Debtor. This Note
is secured by the "Collateral" described in the Accounts Financing Agreement
[Security Agreement], dated January 11, 1990, by and between Payee and Debtor,
as amended (the "Accounts Agreement") and any agreement, document or instrument
now or at any time hereafter executed and/or delivered in connection therewith
or related thereto (the foregoing, as the same now exist or may hereafter be
amended, modified, supplemented, renewed, extended, restated or replaced, are
hereinafter collectively referred to as the "Financing Agreements") and is
entitled to all of the benefits and rights thereof and of the Financing
Agreements. At the time any payment is due hereunder, at its option, Payee may
charge the amount thereof to any account of Debtor maintained by Payee.
If any principal or interest payment is not made when due hereunder,
and such failure shall continue for three (3) days, or if any other Event of
Default (as defined in the Accounts Agreement) shall occur for any reason, or if
the Financing Agreements shall be terminated or not renewed for any reason
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Debtor's obligations, liabilities and indebtedness owing to Payee
under the Financing Agreements (the "Obligations"), including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof together with all interest accrued thereon, shall
forthwith become due and payable, together with interest accruing thereafter at
the then applicable rate stated above until the indebtedness evidenced by this
Note is paid in full, plus the costs and expenses of collection hereof,
including, but not limited to, reasonable attorneys' fees.
-2-
<PAGE> 3
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for any holder hereof to
first institute suit in order to enforce payment of this Note and (iii) consents
to any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. Upon the occurrence of any Event of
Default and during the continuance thereof, Payee shall have the right, but not
the obligation to setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
Debtor hereby waives the right to a trial by jury and all rights of
setoff and rights to interpose counterclaims and cross-claims in any litigation
or proceeding arising in connection with this Note, the Accounts Agreement, the
other Financing Agreements, the Obligations or the Collateral, other than
compulsory counterclaims, the non-assertion of which would result in a permanent
waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of
the Supreme Court of the State of New York and of the United States District
Court for the Southern District of New York for all purposes in connection with
any action or proceeding arising out of or relating to this Note, the Accounts
Agreement, the other Financing Agreements, the Obligations or the Collateral and
further consents that any process or notice of motion or other application to
said Courts or any judge thereof, or any notice in connection with any
proceeding hereunder may be served (i) inside or outside the State of New York
by registered or certified mail, return receipt requested, and service or notice
so served shall be deemed complete five (5) days after the same shall have been
posted or (ii) in such other manner as may be permissible under the rules of
said Courts. Within thirty (30) days after such mailing, Debtor shall appear in
answer to such process or notice of motion or other application to said Courts,
failing which Debtor shall be deemed in default and judgment may be entered by
Payee against Debtor for the amount of the claim and other relief requested
therein.
The execution and delivery of this Note has been authorized by the
Board of Directors of Debtor.
This Note, the other Obligations and the Collateral shall be governed
by and construed in accordance with the laws of the State of New York and shall
be binding upon the successors and assigns of Debtor and inure to the benefit of
Payee and its successors, endorsees and assigns. If any term or provision of
-3-
<PAGE> 4
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the Payee or the holder hereof.
Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to
include their respective successors and assigns.
LEXINGTON COMPONENTS, INC.
ATTEST:
By: Warren Delano
----------------------------
Carly Strelzik
- --------------------- Title: President
Assistant Secretary -------------------------
[Corporate Seal]
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 229
<SECURITIES> 0
<RECEIVABLES> 19,924
<ALLOWANCES> 0
<INVENTORY> 9,903
<CURRENT-ASSETS> 34,387
<PP&E> 117,402
<DEPRECIATION> 55,439
<TOTAL-ASSETS> 109,408
<CURRENT-LIABILITIES> 80,027
<BONDS> 35,092
375
0
<COMMON> 1,087
<OTHER-SE> 9,412
<TOTAL-LIABILITY-AND-EQUITY> 109,408
<SALES> 34,496
<TOTAL-REVENUES> 34,496
<CGS> 29,404
<TOTAL-COSTS> 29,404
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,342
<INCOME-PRETAX> (316)
<INCOME-TAX> (79)
<INCOME-CONTINUING> (237)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,371
<CHANGES> 0
<NET-INCOME> 1,134
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
