SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 28, 1999
Lexington Precision Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 0-3252 22-1830121
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
767 Third Avenue, New York, NY 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 319-4657
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(Former name or former address, if changed since last report)
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Item 5. Other Events
On December 28, 1999, Lexington Precision Corporation issued a press
release, a copy of which is attached hereto as Exhibit 99.1 and incorporated
herein by reference, announcing the commencement of its consent solicitation.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
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Exhibit 4.1 Consent Solicitation Statement dated
December 28, 1999.
Exhibit 99.1 Press release dated December 28, 1999.
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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 hereunto duly authorized.
Dated: January 10, 2000 LEXINGTON PRECISION CORPORATION
By:/s/Micheal A. Lubin
------------------------
Michael A. Lubin
Chairman of the Board
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EXHIBIT INDEX
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Exhibit
Number Exhibit Name Location
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4.1 Consent Solicitation Statement dated Filed herewith.
December 28, 1998.
99.1 Press release dated December 28, 1999. Filed herewith.
EXHIBIT 4.1
LEXINGTON PRECISION CORPORATION
[LOGO]
CONSENT SOLICITATION STATEMENT
SOLICITATION OF CONSENTS TO AMEND THE INDENTURE
IN RESPECT OF $27,412,125 AGGREGATE PRINCIPAL AMOUNT OF
12 3/4% SENIOR SUBORDINATED NOTES DUE FEBRUARY 1, 2000
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Lexington Precision Corporation is soliciting consents from the
registered holders of its 12 3/4% Senior Subordinated Notes due February 1,
2000, to amend the indenture pursuant to which the Senior Subordinated Notes
were issued. This solicitation is subject to all of the terms and conditions set
forth in this consent solicitation statement.
CUSIP NUMBER: The CUSIP number for the Senior Subordinated Notes
presently is 529529 AA 7.
RECORD DATE: Registered holders of Senior Subordinated Notes on
December 27, 1999, which is the record date, will have the right to consent to
the proposed amendments and to receive consent payments.
PROPOSED AMENDMENTS: The proposed amendments to the indenture will have
the following effects:
1. The maturity date of the Senior Subordinated Notes will be
extended from February 1, 2000, to February 1, 2003.
2. The annual interest rate payable on the Senior Subordinated Notes
will be increased from 12 3/4% to the rates set forth in the
following table:
PERIOD INTEREST RATE
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February 1, 2000 - January 31, 2001 13 1/2%
February 1, 2001 - July 31, 2001 15 1/2%
August 1, 2001 - January 31, 2002 16%
February 1, 2002 - July 31, 2002 17%
August 1, 2002 - January 31, 2003 18%
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THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS DECEMBER 28, 1999.
<PAGE>
PAYMENT FOR CONSENTS: Subject to the terms and conditions set forth in
this consent solicitation statement, we will make a cash payment to each
registered holder of Senior Subordinated Notes who consents to the proposed
amendments in an amount equal to one percent (1%) of the principal amount of the
Senior Subordinated Notes for which the holder has delivered a valid consent. We
will make a payment of the aggregate consent payments to The Bank of New York,
as the tabulating agent and depositary (which we refer to as the depositary), on
the business day following the day the proposed amendments become effective, and
the depositary will then make consent payments to consenting holders (or, if the
consenting holders are participants in the Depository Trust Company, credit the
participants' DTC accounts) as soon as possible thereafter. We recommend that
you review the sections captioned "The Consent Solicitation - Acceptance of
Consents" and "The Consent Solicitation - Conditions to the Consent
Solicitation" for a discussion of conditions that must be met for the consent
payment to be made.
MINIMUM CONSENTS REQUIRED: Valid consents of registered holders of not
less than 98% of the aggregate principal amount of Senior Subordinated Notes
outstanding are required for adoption of the proposed amendments.
TREATMENT OF NON-CONSENTING HOLDERS: If the minimum required consents
are obtained and the proposed amendments become effective, holders of Senior
Subordinated Notes who did not consent to the proposed amendments will be paid
the full principal of and interest accrued on their Senior Subordinated Notes on
the later of February 1, 2000, or the date the proposed amendments become
effective. NON-CONSENTING HOLDERS WILL NOT RECEIVE ANY CONSENT PAYMENT.
EXPIRATION OF CONSENT SOLICITATION: This consent solicitation will
expire at 5:00 P.M., New York City time, on JANUARY 27, 2000, unless extended.
EXECUTION OF SUPPLEMENTAL INDENTURE: If the minimum required valid
consents have been received and not revoked, we intend to execute the
supplemental indenture implementing the proposed amendments on or promptly
following the expiration of the consent solicitation. The supplemental indenture
amends the indenture, dated as of August 1, 1993, by and between Lexington
Precision Corporation, as issuer, and The Bank of New York, as successor to IBJ
Whitehall Bank and Trust Company, as trustee, pursuant to which the Senior
Subordinated Notes were issued.
CONSIDERATIONS AND TAX CONSEQUENCES: You should review the section
captioned "Certain Considerations" and "Certain United States Federal Income Tax
Consequences" for a discussion of factors that should be considered in
evaluating the consent solicitation.
DELIVERY OF CONSENTS: Any holder of Senior Subordinated Notes who
wishes to deliver a consent should complete and sign the consent letter (or
deliver an agent's message in lieu thereof) in accordance with the instructions
set forth therein and mail or deliver the manually signed consent letter (or
deliver an agent's message in lieu thereof), and any other required documents,
to The Bank of New York, as depositary for the consent solicitation. See the
section captioned "The Consent Solicitation - Procedures for Delivering
Consents" for detailed instructions.
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CONSENT LETTERS MUST BE SENT ONLY TO THE DEPOSITARY. DO NOT SEND THE
CONSENT LETTER TO US, THE INDENTURE TRUSTEE, OR THE DEPOSITORY TRUST COMPANY. DO
NOT SEND YOUR NOTES AT THIS TIME. IF THE REQUISITE NUMBER OF CONSENTS ARE
OBTAINED AND WE IMPLEMENT THE PROPOSED AMENDMENTS, WE WILL NOTIFY YOU REGARDING
THE PROCEDURES FOR REPLACEMENT OF YOUR NOTES WITH REVISED NOTES WHICH REFLECT
THE CHANGES MADE BY THE PROPOSED AMENDMENTS.
ABILITY TO REVOKE CONSENTS: Consents may be revoked at any time prior
to the expiration date of the consent solicitation. If we elect to extend the
consent solicitation, your right to revoke will be extended for an equal period
of time.
LEXINGTON PRECISION'S RIGHTS TO EXTEND, TERMINATE, OR AMEND THE CONSENT
SOLICITATION: Subject to compliance with applicable securities laws and the
terms set forth in this consent solicitation statement, we reserve the right to
extend or terminate the consent solicitation or to otherwise amend the consent
solicitation in any respect.
QUESTIONS AND REQUESTS: You should direct questions and requests for
assistance or for additional copies of this consent solicitation statement or
the accompanying consent letter either to us or to the depositary at the
respective addresses and telephone numbers set forth on the back cover hereof.
Beneficial owners of Senior Subordinated Notes may also contact their broker,
dealer, commercial bank, trust company, or other nominee for assistance
concerning the consent solicitation.
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THIS STATEMENT HAS NOT BEEN FILED WITH OR REVIEWED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY OF ANY COUNTRY, NOR HAS ANY
COMMISSION OR AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND MAY BE A CRIMINAL OFFENSE.
No person has been authorized to make any recommendation on our behalf
as to whether you should deliver consents pursuant to the consent solicitation.
No person has been authorized to give any information or to make any
representation on our behalf other than those contained herein or in the
accompanying consent letter. If made or given, that recommendation, information,
or representation must not be relied upon as having been authorized by us.
The consent solicitation is not being made to (nor will consents be
accepted from or on behalf of) holders of notes in any jurisdiction in which the
making or acceptance of the consent solicitation would not be in compliance with
the laws of such jurisdiction. However, we, in our sole discretion, may take
such action as we may deem necessary to make the consent solicitation in any
that jurisdiction, and may extend the consent solicitation to holders of notes
in that jurisdiction.
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THIS CONSENT SOLICITATION STATEMENT CONTAINS IMPORTANT INFORMATION. YOU
SHOULD READ IT CAREFULLY BEFORE YOU MAKE A DECISION TO CONSENT TO, OR NOT TO
CONSENT TO, THE PROPOSED AMENDMENTS.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and special reports, proxy statements, and
other information with the Securities and Exchange Commission. You may read and
copy any reports and other information we file at the offices of the Securities
and Exchange Commission, Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. You can also obtain copies of filed documents electronically
through the Commission's web site on http://www.sec.gov.
We also file certain information with the indenture trustee and
transmit certain information to holders of the Senior Subordinated Notes in
accordance with the requirements of Section 314(a) of the Trust Indenture Act of
1939, as amended.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this consent solicitation statement, and information
that we file later with the Commission will automatically update and supersede
this information. We are incorporating by reference in this statement the
following documents:
1. Our annual report on Form 10-K for our fiscal year ended December
31, 1998.
2. Our quarterly reports on Form 10-Q for the quarters ended March
31, 1999, June 30, 1999, and September 30, 1999.
We are also incorporating by reference in this consent solicitation
statement all reports and other documents that we file after the date of this
statement pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act,
prior to the termination of the consent solicitation. These reports and
documents will be incorporated by reference in, and considered to be a part of,
this statement as of the date of filing of these reports and documents.
You may obtain copies of any document incorporated by reference herein
without charge, upon written request to Lexington Precision Corporation, 767
Third Avenue, New York, NY 10017, Attention: President.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information contained in this statement, including the
documents that are incorporated by reference, as set forth in "Incorporation of
Certain Information by Reference," may contain forward-looking statements.
Forward-looking statements are generally characterized by use of words such as
"believes," "expects," "anticipates," "intends," "plans," "estimates," or
similar expressions, or by discussions of strategy that involve risks and
uncertainties. These statements may address activities, events, or developments
that we anticipate may occur in the future, including such things as strategy,
competitive strengths, goals, expansion and growth of our business and
operations, plans, future sales, earnings, expenses, or capital expenditures.
Forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause our actual results, performance, or achievements
to be materially different from any future results, performance, or achievements
expressed in or implied by those forward-looking statements.
We do not assume any obligation to update these forward-looking
statements to reflect actual results, changes in assumptions, or changes in
other factors affecting these forward-looking statements. Consequently, all of
our forward-looking statements are qualified by these cautionary statements and
we cannot assure you that the future results anticipated will be realized or,
even if substantially realized, that they will have the expected consequences to
or effect on us and our subsidiaries or our business or operations. Holders of
Senior Subordinated Notes are cautioned not to place undue reliance on any
forward-looking statements.
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NO DEALER, SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED
IN THIS CONSENT SOLICITATION STATEMENT, OTHER THAN THOSE CONTAINED HEREIN OR IN
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, THAT
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US. THE DELIVERY OF THIS STATEMENT, WHICH INCLUDES THE MATERIALS APPENDED
HERETO AND THE MATERIALS INCORPORATED BY REFERENCE, SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR
AFFAIRS SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN, OR IN ANY
INCORPORATED DOCUMENT, IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE>
TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION.........................................iv
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................iv
FORWARD-LOOKING STATEMENTS...................................................v
SUMMARY......................................................................1
DESCRIPTION OF OUR BUSINESS..................................................4
THE CONSENT SOLICITATION.....................................................6
Background to the Consent Solicitation...................................6
Description of Solicitation Process; Consent Payment.....................6
Amendments; Extensions; Termination......................................7
Acceptance of Consents...................................................8
Procedures for Delivering Consents.......................................9
Conditions to the Consent Solicitation..................................11
Revocation Rights.......................................................12
Depositary..............................................................12
Trustee.................................................................13
Fees and Expenses.......................................................13
MARKET AND TRADING INFORMATION..............................................13
CERTAIN CONSIDERATIONS......................................................14
THE PROPOSED AMENDMENTS.....................................................24
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.......................25
U.S. Holders............................................................25
Non-U.S. Holders........................................................31
Consequences to Lexington Precision Corporation.........................32
Information Reporting and Backup Withholding............................33
Treatment of Consent Payment............................................33
ANNEX A -- FORM OF FIRST SUPPLEMENTAL INDENTURE.............................A-1
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SUMMARY
For your convenience, certain terms used in this consent solicitation
are summarized below. The following summary is not intended to be complete and
is qualified in its entirety by reference to the more detailed information
included or incorporated by reference in this statement. You are urged to read
carefully and in their entirety this consent solicitation statement, the
accompanying consent letter, and the documents incorporated by reference.
PURPOSE OF THE CONSENT SOLICITATION: The purpose of the consent
solicitation is to obtain
consents to the adoption of
the proposed amendments, which
would extend the maturity date
of, and increase the interest
rate payable on, the Senior
Subordinated Notes.
HOW TO DELIVER CONSENTS: Please refer to the section
captioned "The Consent
Solicitation Procedures for
Delivering Consents." For
further information, contact
The Bank of New York at its
telephone number and address
set forth on the back cover of
this statement or consult your
broker, dealer, commercial
bank, or trust company.
PAYMENT FOR CONSENT: We will pay an amount in cash
equal to one percent (1%) of
the principal amount of the
Senior Subordinated Notes in
respect of which consents are
validly given. We will make
the payment to the depositary
on the business day following
the day the proposed
amendments become effective.
The depositary will then pay
consenting holders (or, if the
consenting holders are
participants in DTC, credit
the participants' DTC
accounts) as soon as possible
thereafter. See the sections
captioned "The Consent
Solicitation - Acceptance of
Consents" and "The Consent
Solicitation - Conditions to
the Consent Solicitation."
MINIMUM CONSENTS REQUIRED: Valid consents of registered
holders of not less than 98%
of the aggregate principal
amount of the Senior
Subordinated Notes outstanding
are required for adoption of
the proposed amendments. We
will consummate the consent
solicitation only if we obtain
the minimum required consents.
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TREATMENT OF NON-CONSENTING If the minimum required
HOLDERS: consents are obtained and the
proposed amendments become
effective, holders of Senior
Subordinated Notes who did not
consent to the proposed
amendments will be paid the
full principal of and interest
accrued on their Senior
Subordinated Notes on the
later of February 1, 2000, or
the date the proposed
amendments become effective.
Non-consenting holders will
not receive any consent
payment.
EXPIRATION OF CONSENT SOLICITATION: This consent solicitation will
expire at 5:00 p.m., New York
City time, on January 27,
2000, unless extended.
EXECUTION OF SUPPLEMENTAL If the minimum required valid
INDENTURE: consents have been received
and not revoked, we intend to
execute the supplemental
indenture implementing the
proposed amendments on or
promptly following the
expiration of the consent
solicitation.
ABILITY TO REVOKE CONSENTS: Consents may be revoked at any
time prior to the expiration
of the consent solicitation,
by following the procedures
described in this consent
solicitation statement.
Consents may not be revoked
following the expiration of
the consent solicitation. See
the sections captioned "The
Consent Solicitation" and "The
Consent Solicitation -
Revocation Rights."
AMENDMENTS; EXTENSIONS; We expressly reserve the
TERMINATION: right, in our sole discretion,
subject to applicable law, at
any time or from time to time,
to (1) amend the terms of the
consent solicitation, (2)
delay the payment of consent
payments if any of the
conditions set forth in the
section captioned "Conditions
to the Consent Solicitation"
are not satisfied, (3) extend
the expiration date and retain
all consents delivered prior
to that date, subject,
however, to the revocation
rights described in the
section captioned "The Consent
Solicitation - Revocation
Rights," or (4) terminate the
consent solicitation.
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MAXIMUM AGGREGATE PRINCIPAL In order for the proposed
PAYMENTS TO NON-CONSENTING amendments to become
HOLDERS: effective, holders of at least
98% of the aggregate principal
amount of Senior Subordinated
Notes must consent to the
proposed amendments. This
means that holders of up to 2%
of the aggregate principal
amount of Senior Subordinated
Notes could be non-consenting.
Accordingly, we may pay a
maximum of approximately
$548,000 in principal amount
to non-consenting holders.
CERTAIN CONSIDERATIONS: For a discussion of certain
risks and other factors that
should be considered in
evaluating the consent
solicitation, please refer to
the section captioned "Certain
Considerations."
TAX CONSEQUENCES: For a discussion of certain
tax matters that should be
considered in evaluating the
consent solicitation, please
refer to the section captioned
"Certain United States Federal
Income Tax Consequences."
COMMISSIONS: No commissions are payable by
holders of the Senior
Subordinated Notes to us or to
The Bank of New York, as
depositary.
TABULATING AGENT AND DEPOSITARY: The Bank of New York.
FURTHER INFORMATION: For questions or assistance,
or to obtain copies of the
documents incorporated herein
by reference, you may write us
or call us at:
Lexington Precision
Corporation 767 Third Avenue
New York, NY 10017 (212)
319-4657
You may also contact your
broker, dealer, commercial
bank, trust company, or
nominee for assistance
concerning this consent
solicitation.
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<PAGE>
DESCRIPTION OF OUR BUSINESS
We are a Delaware corporation and conduct our business substantially in
the continental United States. Through our two operating segments, the Rubber
Group and the Metals Group, we manufacture, to customer specifications, rubber
and metal component parts used primarily by manufacturers of automobiles,
automotive replacement parts, medical devices, and industrial equipment. We have
implemented a strategy of focusing each of our manufacturing facilities on a
particular product line with a well-defined market. Our operations are
decentralized, with each division having a management team that is responsible
for all aspects of production, sales, and customer service.
RUBBER GROUP
Our Rubber Group manufactures silicone and organic rubber components.
The Rubber Group consists of four divisions: Lexington Connector Seals,
Lexington Insulators, Lexington Medical, and Lexington Technologies. In 1998 and
the nine months ended September 30, 1999, net sales of the Rubber Group totaled
$92.6 million, or 73.1%, and $76.3 million, or 72.8%, respectively, of our
consolidated net sales.
LEXINGTON CONNECTOR SEALS. Lexington Connector Seals manufactures
molded rubber seals used in automotive wiring systems. The seals are designed to
ensure the electrical integrity of the many connectors required throughout the
wiring systems. We believe that Lexington Connector Seals is the largest
manufacturer of seals for automotive wiring systems in North America, with
approximately 1.5 billion seals sold during the nine months ended September 30,
1999.
LEXINGTON INSULATORS. Lexington Insulators manufactures molded rubber
insulators used in ignition wire sets for automobiles and light trucks.
Insulators are used to shield the electrical connections made by the ignition
wire at the distributor and at the spark plug. During the nine months ended
September 30, 1999, net sales of insulators to original equipment manufacturers,
or their tier-one suppliers, represented 50.2% of Lexington Insulators' net
sales, and net sales of insulators to manufacturers of aftermarket ignition wire
sets represented 49.8% of Lexington Insulators' net sales. We believe that
Lexington Insulators is the largest manufacturer of insulators for ignition wire
sets in North America. Approximately 252 million insulators were sold by
Lexington Insulators during the nine months ended September 30, 1999.
LEXINGTON MEDICAL. Lexington Medical manufactures molded rubber
components used in a variety of medical devices, such as drug delivery systems,
syringes, laparoscopic instruments, and catheters.
LEXINGTON TECHNOLOGIES. Lexington Technologies manufactures molds that
are sold to customers of the other divisions of the Rubber Group. The molds are
used by the Rubber Group to produce component parts. Lexington Technologies also
provides specialized engineering and design services to the other divisions of
the Rubber Group.
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METALS GROUP
Our Metals Group manufactures aluminum die castings and machines
aluminum, brass, and steel components. The Metals Group consists of three
divisions: Lexington Die Casting and the Arizona and New York Divisions of
Lexington Machining. In 1998 and the nine months ended September 30, 1999, net
sales of the Metals Group totaled $34.1 million, or 26.9%, and $28.4 million, or
27.2%, respectively, of our consolidated net sales.
LEXINGTON DIE CASTING. Lexington Die Casting manufactures aluminum die
castings used primarily by manufacturers of automotive assemblies, industrial
equipment, computers, and office equipment.
LEXINGTON MACHINING. Lexington Machining, through its Arizona and New
York Divisions, manufactures machined aluminum, brass, and steel components used
primarily by manufacturers of initiators and inflators for automotive airbag
systems, industrial equipment, automotive assemblies, recreational equipment,
and home appliances.
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Our principal executive offices are located at 767 Third Avenue, New
York, NY 10017, and our telephone number is (212) 319-4657.
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THE CONSENT SOLICITATION
BACKGROUND TO THE CONSENT SOLICITATION
In early 1999, we began working with two investment banking firms on an
offering of $100 million principal amount of non-investment grade debt
securities, the proceeds of which would be used to repay substantially all of
our outstanding indebtedness, including the Senior Subordinated Notes. During
August 1999, we determined, with the concurrence of the investment banking
firms, that conditions in the market for non-investment grade debt securities
had deteriorated and that it was unlikely that we would be able to complete the
proposed offering, on reasonable terms, prior to the maturity date of the Senior
Subordinated Notes. As a result, we determined that the best alternative for us
and the holders of the Senior Subordinated Notes was to undertake the consent
solicitation to effect the proposed amendments. The amendments provide for a
three-year extension of the maturity date of the Senior Subordinated Notes,
which will permit us to continue to make interest payments to the holders of the
Senior Subordinated Notes and afford us adequate time to complete a refinancing
of the Senior Subordinated Notes.
In the event that we are not able to effect the proposed amendments and
extend the maturity date of the Senior Subordinated Notes, we will be in default
under the indenture governing the Senior Subordinated Notes on February 1, 2000.
If a default occurs, it will trigger other defaults, pursuant to cross-default
provisions, under agreements relating to other indebtedness. Holders of
indebtedness on which defaults exist would be entitled to accelerate the
maturity thereof if the maturity date had not already passed. Lenders extending
lines of credit to us would be able to cease making any further advances
otherwise permitted under the credit facilities. Secured lenders would be able
to seek to foreclose upon any assets securing the defaulted indebtedness.
Creditors would also be able to pursue other remedies. Any of these actions by
creditors could have a material adverse effect upon us. If any of these actions
were taken, we would consider alternatives, including seeking relief from our
creditors under applicable bankruptcy laws.
In the event that we are not able to effect the proposed amendments by
February 1, 2000, we may withhold payments of principal and interest on the
Senior Subordinated Notes while we consider alternatives.
DESCRIPTION OF SOLICITATION PROCESS; CONSENT PAYMENT
Upon the terms and subject to the conditions of the consent
solicitation, including the terms and conditions of any extension or amendment
to the consent solicitation, we are soliciting consents from the holders of the
Senior Subordinated Notes to the proposed amendments. The purpose of the consent
solicitation is to obtain consents to the adoption of the proposed amendments,
which would extend the maturity date of, and increase the interest rate payable
on, the Senior Subordinated Notes. Please refer to the section captioned "The
Proposed Amendments" for additional information on the amendments. We are
offering to pay to each holder of Senior Subordinated Notes who validly consents
to the proposed amendments, a consent payment in cash equal to 1% of the
principal amount of the Senior Subordinated Notes for which consents are validly
delivered, and not revoked. We will make the total consent
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payment to the depositary on the business day following the date the proposed
amendments become effective, and the depositary will then make payments to
consenting holders (or, if the consenting holders are participants in DTC,
credit the participants' DTC accounts) as soon as possible thereafter.
Not less than 98% in aggregate outstanding principal amount of the
Senior Subordinated Notes must consent to the proposed amendments in order for
the proposed amendments to become effective.
If the proposed amendments become effective, they will be implemented
by the execution of a supplemental indenture. That supplemental indenture,
including the proposed new form of Senior Subordinated Note, modified to reflect
the proposed amendments, will be in substantially the form attached hereto as
Annex A.
If the minimum required consents are obtained, holders of the Senior
Subordinated Notes who did not consent to the proposed amendments will be paid
the full principal of and interest accrued on their Senior Subordinated Notes on
the later of February 1, 2000, or the date the proposed amendments become
effective and will not receive any consent payment. Because holders of at least
98% in aggregate outstanding principal amount of the Senior Subordinated Notes
must consent to the proposed amendments in order for the proposed amendments to
be effective, up to 2% of the aggregate principal amount of the Senior
Subordinated Notes may be paid to holders who do not consent. Accordingly, we
may pay a maximum of approximately $548,000 in principal amount, plus accrued
and unpaid interest, to non-consenting holders.
Consents may be validly revoked at any time prior to the expiration
date of the consent solicitation. In the event of a termination of the consent
solicitation, the consents delivered pursuant thereto will be promptly returned
to the delivering holders.
AMENDMENTS; EXTENSIONS; TERMINATION
The consent solicitation will expire at 5:00 p.m., New York City time,
on January 27, 2000, unless extended by us or earlier terminated, as herein
provided, which we refer to as the expiration date.
We reserve the right, in our sole discretion and subject to applicable
law, at any time or from time to time, to:
1. extend the expiration date of the consent solicitation and
retain all consents delivered pursuant thereto, subject,
however, to the revocation rights of holders of Senior
Subordinated Notes described in the section captioned "The
Consent Solicitation - Revocation Rights;" and
2. amend the terms of the consent solicitation in any respect until
the consents are accepted.
If we extend the expiration date of the consent solicitation, or if,
for any reason, the acceptance of, or the payment for, consents is delayed, or
if we are unable to accept or pay for consents pursuant to the consent
solicitation, then the depositary may retain, on our behalf,
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delivered consents that have not been previously revoked and those consents may
not be revoked except to the extent delivering holders are entitled to
revocation rights as described in the section captioned "The Consent
Solicitation - Revocation Rights."
We may amend the terms of the consent solicitation, extend the
expiration date, or terminate the consent solicitation, by giving written or
oral notice thereof to the depositary, which we will follow as promptly as
practicable with a public announcement thereof. In the case of an extension, a
public announcement will be issued prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date. Without
limiting the manner in which we may choose to make any public announcement, we
shall have no obligation to publish, advertise, or otherwise communicate any
public announcement other than by making a release to the Bloomberg and Dow
Jones news services, or otherwise as required by law. Consents delivered
pursuant to the consent solicitation prior to any extension and not subsequently
revoked will remain subject to the consent solicitation.
ACCEPTANCE OF CONSENTS
Upon the terms and subject to the conditions of the consent
solicitation, including the terms and conditions of any extension or amendment,
and applicable law, we will accept and pay for all consents that have been
validly delivered, and have not been revoked. We will deliver the aggregate
amount to be paid in respect of the consent payments to the depositary on the
business day following the effective date of the proposed amendments. The
depositary will then pay each of the consenting holders as soon as possible
thereafter by transfer to an account at the Depository Trust Company, wire
transfer, or if holders do not provide adequate instructions in their consent
letter, by check.
We reserve the right, in our sole discretion, to delay acceptance of
consents delivered under the consent solicitation, or the payment for consents
accepted, in order to comply, in whole or in part, with applicable law. In all
cases, however, payments will be made in respect of consents delivered and
accepted pursuant to the consent solicitation only after timely receipt by the
depositary, at its address on the back cover page hereof, of:
1. a properly completed and duly executed consent letter (or a
properly transmitted agent's message, as defined below); and
2. any other documents required by the consent letter, in each case
together with any required signature guarantees.
In no circumstances will we pay interest on any consent payments by
reason of any delay in making those consent payments.
For purposes of the consent solicitation, we will be deemed to have
accepted delivered consents if and when we give oral or written notice to the
depositary of our acceptance of those consents. The depositary will act as agent
for receiving consent payments from us and then transmitting payment to the
consenting holders.
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PROCEDURES FOR DELIVERING CONSENTS
Holders of Senior Subordinated Notes must deliver consents in
accordance with the procedures set forth herein and prior to the expiration date
of the consent solicitation. The proper delivery of a consent pursuant to one of
the procedures set forth herein will constitute the giving of a consent to the
proposed amendments and to the execution of the supplemental indenture. Holders
of Senior Subordinated Notes who desire to deliver their consents pursuant to
the consent solicitation and to receive the consent payment are required to
deliver their consents prior to the expiration date of the consent solicitation.
Only registered holders of the Senior Subordinated Notes as of the
record date are authorized to deliver consents. The procedures by which consents
are given by beneficial owners of the Senior Subordinated Notes that are not
registered holders will depend upon the manner in which the Senior Subordinated
Notes are held, as described below.
DELIVERY OF CONSENTS BY BENEFICIAL OWNERS OF SENIOR SUBORDINATED NOTES
HELD THROUGH A NOMINEE. Any beneficial owner of Senior Subordinated Notes that
are held of record by a custodian bank, depositary, broker, trust company, or
other nominee who wishes to deliver a consent should promptly contact the record
holder and instruct that record holder to deliver a consent on the beneficial
owner's behalf according to one of the procedures described herein.
DELIVERY OF CONSENTS BY BENEFICIAL OWNERS OF SENIOR SUBORDINATED NOTES
HELD WITH DTC. Pursuant to authority granted by The Depository Trust Company,
which we refer to as DTC, any DTC participant that has Senior Subordinated Notes
credited to its DTC account, and thereby held of record by DTC's nominee, may
deliver a consent directly as if it were the record holder thereof, and
references herein to registered or record holders shall include those
participants. Participants in DTC may deliver consents with respect to the
Senior Subordinated Notes by either:
1. transmitting an agent's message (as defined below); or
2. completing and signing consent letters in accordance with the
instructions set forth therein and delivering those properly
completed and signed consent letters, together with required
signature guarantees, if any, and other documents required
thereby, to the depositary at its address set forth on the back
cover page of this consent solicitation statement.
In each case, if you desire to consent, action must be taken prior to
the expiration date of the consent solicitation.
The term "agent's message" means a message, transmitted by DTC to, and
received by, the depositary, forming a part of a book-entry confirmation which
states that DTC has received the express acknowledgment from a DTC participant,
which acknowledgment states that the participant has received and agrees to be
bound by the terms of the consent letter (including, without limitation, the
fact that the participant has consented to the proposed amendments in accordance
with the terms of the consent letter and that we may enforce that agreement
against the DTC participant).
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DELIVERY OF CONSENT BY BENEFICIAL OWNERS OF SENIOR SUBORDINATED NOTES
HELD IN PHYSICAL FORM. A holder of Senior Subordinated Notes held in physical
form must comply with the following instructions to deliver a consent:
1. complete and sign the consent letter in accordance with the
instructions set forth therein; and
2. deliver a properly completed and duly executed consent letter
(or a facsimile thereof), together with required signature
guarantees, if any, and other documents required thereby, to the
depositary at the address set forth on the back cover page of
this statement prior to the expiration date of the consent
solicitation.
If the Senior Subordinated Notes are registered in the name of a person
other than the signer of a consent letter, then, in order to deliver a valid
consent pursuant to the consent solicitation, the consent must be endorsed, with
the signature(s) on the consent guaranteed as provided below. In addition, the
consent must be accompanied by a properly executed consent letter from, or a
valid proxy of, the registered holder or holders of the Senior Subordinated
Notes, guaranteed by an eligible institution.
PROPER EXECUTION AND DELIVERY OF CONSENT LETTER. The method of delivery
of consents, any required signature guarantees, and all other required
documents, is at the option and risk of the delivering holders, and except as
otherwise provided in the consent letters, delivery will be deemed made when
actually received by the depositary. If delivery is by mail, we recommend that
it be made sufficiently in advance of the expiration date of the consent
solicitation to allow enough time to ensure timely delivery.
If Senior Subordinated Notes are registered in more than one name, the
consent letter must be executed by each of the registered holders. If a consent
letter is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or other person signing in a
fiduciary or representative capacity, that person should so indicate when
signing and should submit with the consent letter appropriate evidence of
authority to execute the consent letter. Signatures need not be guaranteed if
the person executing the consent letter is a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, each being hereinafter referred to as an
eligible institution. In all other cases, all signatures must be medallion
signature guaranteed by an eligible institution. Please follow the directions on
the consent letter as to all matters set forth therein. In each instance, the
consent letter should set forth the certificate numbers of Senior Subordinated
Notes with respect to which a consent is given. If a consent letter relates to
less than the total principal amount of Senior Subordinated Notes registered in
the name of a holder, the holder must list the certificate numbers and principal
amount of the Senior Subordinated Notes to which the consent letter relates.
Otherwise, the consent letter will be deemed to relate to the total principal
amount of Senior Subordinated Notes registered in the name of the holder
executing the consent letter.
No alternative, conditional, irregular, or contingent consents will be
accepted, although we may waive defects or irregularities. By executing the
consent letter (or facsimile thereof) or
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transmitting an agent's message, the holder delivering the consent waives any
right to receive any notice of the acceptance of the consent.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of delivered consents
pursuant to the procedures described above will be determined by us in our sole
discretion, and our determination will be final and binding. We reserve the
absolute right to reject any or all deliveries of consents that we determine not
to be in proper form or the acceptance of which may, in the opinion of our
counsel, be unlawful. We also reserve the absolute right, in our sole
discretion, subject to applicable law, to waive any defects or irregularities in
any delivery of a consent, whether or not similar defects or irregularities are
waived in the case of other deliveries of consents. Our interpretation of the
terms and conditions of the consent solicitation, including the instructions in
the consent letter, will be final and binding. Unless waived, any irregularities
in connection with the delivery of consents must be cured within the time that
we determine. None of the depositary, DTC, or Lexington Precision Corporation
shall be under any duty to give notification of defects or irregularities in any
deliveries of consents or incur any liability for failure to give any
notification. Deliveries of consents will not be deemed to have been made until
any irregularities have been cured or waived.
CONDITIONS TO THE CONSENT SOLICITATION
Notwithstanding any other provisions of the consent solicitation, or
any extensions or amendments thereof, we have the right to extend or amend the
consent solicitation at any time in our sole discretion and we may accept or pay
for any consents delivered, terminate the consent solicitation at any time in
our sole discretion, postpone the acceptance of any consent delivered pursuant
to the consent solicitation, or delay the payment for consents accepted. In
addition, we will complete the consent solicitation only if we have received the
minimum required consents on or before the expiration date of the consent
solicitation.
These conditions are for the benefit of Lexington Precision Corporation
and the holders of the Senior Subordinated Notes, and may be waived with the
approval of Lexington Precision Corporation and holders of a majority in
aggregate principal amount of Senior Subordinated Notes not owned by us or our
affiliates.
In addition, we will not consummate the consent solicitation unless our
$1,000,000 outstanding principal amount of 14% Junior Subordinated Convertible
Notes have been converted into common stock and our 14% Junior Subordinated
Non-Convertible Note, in the outstanding principal amount of $346,667, has been
amended to extend its maturity date to May 1, 2003. Our Chairman of the Board
and our President, who are the holders of these notes, have agreed to effect
this conversion and amendment. This condition is for the benefit of the holders
of the Senior Subordinated Notes and cannot be waived without the consent of the
holders of 98% in aggregate outstanding principal amount of the Senior
Subordinated Notes.
Michael A. Lubin, our Chairman of the Board, and Warren Delano, our
President, and their associates and affiliates, hold an aggregate of $1,500,000
of Senior Subordinated Notes and have agreed to consent to the proposed
amendments. Receipt of consents in respect of those Senior Subordinated Notes is
a further condition to the consent solicitation that cannot be waived
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without the consent of the holders of at least 98% in aggregate outstanding
principal amount of the Senior Subordinated Notes.
REVOCATION RIGHTS
Consents may be revoked at any time prior to the expiration date of the
consent solicitation (but not thereafter, except as otherwise described below)
by following the procedures described herein. IF, AFTER THE EXPIRATION DATE OF
THE CONSENT SOLICITATION, WE DECREASE THE CONSENT PAYMENT, THEN PREVIOUSLY
DELIVERED CONSENTS MAY BE VALIDLY REVOKED UNTIL TEN BUSINESS DAYS AFTER THE
LATER OF THE EXPIRATION DATE OF THE CONSENT SOLICITATION THEN IN EFFECT AND THE
DATE THAT NOTICE OF THE REDUCTION IS FIRST PUBLISHED, GIVEN, OR SENT BY US TO
HOLDERS OF THE SENIOR SUBORDINATED NOTES.
For a revocation of consents to be effective, a written notice must be
received by the depositary at its address set forth on the back cover of this
statement. The notice of revocation must:
1. specify the name of the person who delivered the consent to be
revoked;
2. be signed by the holder in the same manner as the original
signature on the consent letter (including any required
signature guarantees); and
3. be in form satisfactory to us, in our sole discretion.
Revocation of consents can only be accomplished in accordance with the
foregoing procedures. A purported notice of revocation that lacks any of the
required information will not be effective.
WE WILL DETERMINE, IN OUR SOLE DISCRETION, ALL QUESTIONS AS TO THE
VALIDITY (INCLUDING TIME OF RECEIPT) OF NOTICES OF REVOCATION, AND OUR
DETERMINATION WILL BE FINAL AND BINDING. NONE OF LEXINGTON PRECISION
CORPORATION, THE DEPOSITARY, DTC, OR ANY OTHER PERSON WILL BE UNDER ANY DUTY TO
GIVE NOTIFICATION OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF REVOCATION,
OR SHALL INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY NOTIFICATION THEREOF.
DEPOSITARY
The Bank of New York has been appointed as depositary for the consent
solicitation. Consent letters and all correspondence in connection with the
consent solicitation should be sent or delivered by each holder of Senior
Subordinated Notes or that holder's broker, dealer, commercial bank, trust
company, or other nominee to the depositary at the address set forth on the back
cover page of this consent solicitation statement.
Any holder of Senior Subordinated Notes who has questions concerning
delivery procedures should contact the depositary at the address and telephone
number set forth on the back cover page of this consent solicitation statement.
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TRUSTEE
The Bank of New York, as successor in interest to IBJ Whitehall Bank
and Trust Company, is serving as trustee under the Indenture.
FEES AND EXPENSES
We will pay the depositary reasonable and customary fees for its
services and will reimburse the depositary for its reasonable out-of-pocket
expenses in connection therewith. We will also pay brokerage houses and other
custodians, nominees, and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this consent solicitation statement and
related documents to the beneficial owners of Senior Subordinated Notes and in
handling or forwarding deliveries for their customers.
MARKET AND TRADING INFORMATION
The Senior Subordinated Notes are not listed on any national or
regional securities exchange or reported on a national quotation system. To the
extent that Senior Subordinated Notes are traded, prices of Senior Subordinated
Notes may fluctuate greatly depending on the trading volume and the balance
between buy and sell orders. Quotations for securities that are not widely
traded, such as the Senior Subordinated Notes, may differ from actual trading
prices and should be viewed as approximations. Holders are urged to obtain
current information with respect to the market prices for the Senior
Subordinated Notes.
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CERTAIN CONSIDERATIONS
You should carefully review the following discussion of important
issues related to the consent solicitation, in addition to the other information
described elsewhere herein or incorporated herein by reference, before deciding
whether to participate in the consent solicitation. You should also review the
section captioned "Certain United States Federal Income Tax Consequences" for a
discussion of certain tax issues that should be considered and the section
captioned "The Proposed Amendments" for a description of the proposed
amendments, in considering the consequences of the adoption of the proposed
amendments.
OUR HIGH LEVEL OF DEBT MAY ADVERSELY AFFECT OUR FINANCIAL AND OPERATING
FLEXIBILITY AND HINDER OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR SUBORDINATED
NOTES.
We have substantial debt, including obligations under various secured
financing arrangements, and we will be permitted to incur additional debt. Our
various secured obligations are collateralized by substantially all of our
assets. Our ratio of earnings before interest, taxes, depreciation and
amortization, which we refer to as EBITDA, to cash interest expense for the
twelve-month period ended September 30, 1999 was 2.4x and our ratio of total
debt at September 30, 1999 to EBITDA for the twelve-month period then ended was
4.3x.
Our substantial debt may have important consequences for us, including:
* our ability to satisfy our obligations with respect to the
Senior Subordinated Notes may be limited;
* our ability to obtain additional financing to fund future debt
service requirements, working capital requirements, capital
expenditures, acquisitions, and other general corporate
requirements may be limited;
* a substantial portion of our cash flow will be required to make
debt service payments;
* our ability to capitalize on significant business opportunities
and our flexibility to plan for, or react to, changes in our
business and our industry may be limited;
* we could be at a disadvantage relative to those of our
competitors that are less highly leveraged; and
* we may be more vulnerable in the event of a downturn in the
economy or a disruption in our business.
Our ability to repay or refinance our current debt, including the
Senior Subordinated Notes, and to fund our working capital requirements, planned
capital expenditures, and research and development efforts depend on our future
financial and operating performance and on our ability to implement our business
strategy. Our financial and operational performance, and our ability to
implement our business strategy, depends on a number of factors, many of which
are beyond our control. These include:
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* general economic conditions and consumer spending levels in
North America;
* economic and competitive conditions in the automotive industry
and other industries that we serve;
* increased raw materials prices or operating costs;
* pricing pressures;
* governmental regulation of auto safety; and
* potential labor difficulties.
If the proposed amendments are adopted we believe that our cash flow
from operations, together with available borrowings under our credit facility,
will be adequate to meet our anticipated liquidity needs, including interest and
principal payments on our debt, up to, but not including, the maturity date of
the Senior Subordinated Notes; however, if our cash flow and other resources are
insufficient for these purposes, we may need to refinance all or a portion of
our debt, including the Senior Subordinated Notes, prior to the maturity of the
Senior Subordinated Notes. In addition, we do not believe that our cash flow
from operations will be adequate to repay the principal of the Senior
Subordinated Notes at maturity. As a result, we anticipate that we will have to
refinance the Senior Subordinated Notes at maturity. We cannot assure you that
we will be able to refinance any of our debt, including the Senior Subordinated
Notes, either on commercially reasonable terms or at all.
WE ARE HIGHLY DEPENDENT ON TWO MAJOR CUSTOMERS.
Our two largest customers are Delphi Automotive Systems Corporation,
which, until May 1999, was a subsidiary of General Motors Corporation, and
Prestolite Wire Corporation. During 1998, 1997, and 1996, our sales to Delphi
Automotive represented approximately 20.7%, 22.3%, and 21.8%, respectively, of
our net sales and, during 1998, net sales to Prestolite Wire represented
approximately 11.4%, of our net sales. No other customer accounted for more than
10% of our total net sales during 1998, 1997, or 1996. Loss of a significant
amount of business from either Delphi Automotive or Prestolite Wire could have a
material adverse effect on our net sales, results of operations, and financial
condition.
We have an agreement with Delphi Automotive that governs, through 2001,
the purchase and sale of substantially all of the components that we currently
sell to Delphi Automotive. Under the terms of the agreement:
* Delphi Automotive has agreed to purchase from us approximately
100% of its requirements for all specified components;
* we have warranted that those components will remain competitive
in terms of technology, design, and quality;
* our selling prices of those components will be adjusted to
reflect increases or decreases in the cost of our raw materials;
and
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* our selling prices of those components will be reduced by
specified amounts in each of the years covered by the agreement.
Although we believe that a portion of the price reductions granted to
Delphi Automotive will be offset by reductions in direct manufacturing costs and
that a portion of the price reductions will be offset by greater absorption of
manufacturing overhead as a result of volume increases, we cannot assure you
that we will be able to achieve these anticipated costs savings. Our failure to
achieve these savings could have a material adverse effect on our results of
operations and financial condition. Additionally, we cannot assure you that we
will be able to renew or extend our agreement with Delphi Automotive upon its
expiration, on satisfactory terms or at all.
WE ARE HIGHLY DEPENDENT ON THE AUTOMOTIVE INDUSTRY.
Net sales to customers in the automotive industry represented
approximately 81.3%, 75.0%, and 69.5% of our net sales in 1998, 1997, and 1996,
respectively. Approximately 51.3% of our net sales in 1998 were to companies
that supply electrical wiring and ignition systems to manufacturers of new cars
and trucks. Sales to these suppliers are highly sensitive to the rate of sales
of new vehicles, which is subject to significant fluctuation. New automobile
sales are principally affected by:
* general economic conditions and interest rates;
* consumer spending levels;
* the timing of the introduction of new models;
* changes in consumer preferences;
* strikes, lockouts, and work stoppages; and
* shortages of supplies and other risks of production.
A decline in new automobile sales could have an adverse effect on our
net sales, results of operations, and financial condition. Although sales to
automotive aftermarket manufacturers tend to increase at times when new car
sales are declining, we do not believe that increases in our aftermarket
business would fully offset the effect on our net sales of a decline in new car
sales.
As a result of the well-publicized cost containment programs of the
automobile manufacturers, we face, and expect to continue to face, pressure on
the selling prices of our products. To date, we have been able to reduce our
prices without significant adverse impact on our profits by continuously
refining and improving our manufacturing processes and efficiencies,
reformulating our materials, and taking advantage of the economies of scale that
have resulted from our growth; however, we cannot assure you that we will, in
the future, be able to absorb the price reductions required by our customers or
to pass on to our customers future increases in our raw material or labor costs.
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WE ENCOUNTER SIGNIFICANT COMPETITION.
We encounter substantial competition in each of our principal markets
primarily from manufacturers that are of similar size to us. Many of our
competitors are not as leveraged as we are and, accordingly, may be better able
to withstand changes in demand and industry pricing pressures and have greater
operating and financial flexibility than we do. Some of our customers, including
Delphi Automotive, also have their own manufacturing operations that compete
with us and have resources substantially greater than ours. In addition, several
of our other customers, as well as a number of large, diversified manufacturing
companies, have the capability to compete with us but do not currently
participate in our principal market niches.
We compete primarily on the basis of price and our ability to deliver
large volumes of high-quality products. We cannot assure you that we will not
encounter increased competition or that we will be able to lower our costs in
the face of future pricing pressures from our competitors. Either of these
events could have a material adverse effect on our results of operations and
financial condition.
RESTRICTIVE DEBT COVENANTS CONTAINED IN OUR CREDIT FACILITY AND THE INDENTURE
LIMIT OUR OPERATING FLEXIBILITY.
Our credit facility and the indenture contain a number of significant
covenants. These covenants limit our ability to, among other things:
* amend or repay the Senior Subordinated Notes;
* borrow additional money;
* make capital expenditures, investments, and acquisitions;
* grant liens on our assets;
* merge, consolidate, or dispose of our assets;
* enter into transactions with our affiliates;
* repay debt; and
* pay dividends.
In addition, our credit facility requires us to meet certain financial
tests, including a minimum net worth test. These restrictions could impair our
ability to finance our future operations or capital expenditures or to make
acquisitions that may be in our interest. We are currently in compliance with
the covenants and restrictions contained in our credit facility and the
indenture. However, our ability to continue to comply with these covenants and
restrictions may be affected by events beyond our control, including prevailing
economic and financial conditions in our industry. The failure to comply with
these covenants and restrictions would cause a default under our credit
facility, in which event, if the default were not waived, the lenders under our
credit facility could declare all amounts outstanding thereunder, including
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accrued interest, to be immediately due and payable. If this were to occur we
might not be able to pay our debt or borrow sufficient funds to refinance it.
Even if new financing were available, it might not be on terms that are
acceptable to us. If we were unable to repay or refinance those borrowings when
due, the lenders under our credit facility could proceed to liquidate their
collateral, which includes substantially all of our assets.
WE ARE HIGHLY DEPENDENT ON KEY MANAGEMENT PERSONNEL.
Our success depends on the continued services of Michael A. Lubin and
Warren Delano, our Chairman of the Board and President, respectively, and the
key management personnel in each of our divisions. Mr. Lubin and Mr. Delano are
also partners of Lubin, Delano & Company, an investment banking and consulting
firm. If Messrs. Lubin and Delano are required to devote a substantial amount of
their time to Lubin, Delano & Company, they will have less time to devote to the
management of Lexington Precision Corporation, which could have a material
adverse effect on our results of operations and financial condition.
OUR LABOR RELATIONS MAY AFFECT OUR BUSINESS AND YOUR INVESTMENT.
At one of our production facilities, approximately 64 hourly workers
are subject to a collective bargaining agreement, which expires on October 19,
2001. In addition, there have been several unsuccessful attempts to organize the
employees at another of our facilities. We cannot assure you that our existing
union contract will be successfully renegotiated upon its expiration or that
further labor organizing activities or other labor difficulties, such as work
stoppages or slowdowns, will not occur at one or more of our facilities. Labor
difficulties at our facilities or at those of our principal suppliers,
transportation providers, or customers could have a material adverse effect on
our results of operations and financial condition.
WE ARE VULNERABLE TO FLUCTUATIONS IN THE COST AND SUPPLY OF RAW MATERIALS.
We purchase raw materials from various suppliers. While all raw
materials are available from numerous independent suppliers, commodity raw
materials are subject to fluctuations in price. Because raw materials in the
aggregate constitute approximately 36% of our cost of goods sold, these
fluctuations could have a material adverse effect on our results of operations.
Although we have historically been able to pass on gradual increases in raw
material prices to our customers, sharp increases in material prices are more
difficult to pass through to customers in a short period of time and may have an
adverse impact on our short-term financial performance. We cannot assure you
that we will continue to be able to pass on increases in raw material prices to
our customers in the future.
WE ARE SUBJECT TO NUMEROUS ENVIRONMENTAL LAWS AND REGULATIONS.
Our past and present business operations and ownership and operation of
real property are subject to extensive and changing environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposal of wastes, including solid and hazardous wastes, and the
protection of the environment. Some of our existing and former locations use and
have used, substances, and currently generate or have generated or disposed of
wastes, which are or may be considered hazardous or otherwise are subject to
applicable environmental requirements. In addition, we utilize storage tanks and
bulk containers for
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petrochemicals and other substances at our facilities. Based on our experience
to date, we do not expect environmental claims or the costs of compliance with
federal, state, local, and foreign environmental laws and regulations to have a
material impact on our capital expenditures, earnings, or financial condition.
We cannot assure you, however, that the discovery of presently unknown
environmental conditions, changes in environmental laws and regulations or their
interpretation, or other unanticipated events will not give rise to expenditures
or liabilities that may have a material adverse effect on our business, results
of operations, and financial condition.
OUR EFFORTS TO EXPAND OUR BUSINESS MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
A component of our business strategy is the expansion of our domestic
business into new market niches for molded rubber products. Our ability to
compete successfully in these market niches will be subject to a number of
factors, many of which are beyond our control, including:
* our ability to successfully identify new market niches and
develop manufacturing technology that permits us to compete
successfully in those niches;
* general economic conditions and technological developments in
the automotive industry;
* the reactions of competitors to increased competition by us;
* our ability to attract and retain key individuals to manage new
operations;
* our ability to acquire manufacturing facilities for new
operations on commercially attractive terms; and
* governmental regulations.
We also plan to expand our business into foreign markets. If we proceed
with this expansion, we could encounter difficulties in our international
operations that could have a material adverse effect on our financial condition
and hinder our ability to make payments on our debt, including the notes. These
difficulties include:
* unexpected changes in, or delays resulting from, regulatory
requirements, tariffs, customs, duties, and other trade
barriers;
* difficulties in staffing and managing foreign operations;
* longer payment cycles and problems in collecting accounts
receivable;
* political instability, expropriation, nationalization, war,
insurrection, and other political risks;
* fluctuations in currency exchange rates and foreign exchange
controls that restrict or prohibit repatriation of funds;
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* restrictions or prohibitions on the import or export of
technology;
* delays from customs brokers or government agencies;
* seasonal reductions in business activity during the summer
months in Europe and other parts of the world; and
* potentially adverse tax consequences, which could adversely
affect the success of our international operations.
We cannot assure you that one or more of these factors will not have a
material adverse effect on our domestic and international expansion plans and,
consequently, on our results of operations or financial condition.
The costs of expansion may require additional financing. The indenture
and our credit facility limit our ability to incur additional debt. We cannot
assure you that we will be able to obtain sufficient financing to complete our
expansion plans on terms acceptable to us or at all. If we fail to obtain
sufficient additional financing in the future, we could be forced to curtail our
growth or delay capital expenditures.
WE ARE VULNERABLE TO THE POTENTIAL FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE THE
YEAR 2000.
In operating our business, we are dependent on information technology
and process control systems that employ computers as well as embedded
microprocessors. We are also dependent on the proper functioning of the business
systems of third parties, particularly our customers and suppliers. Many
computer systems and microprocessors can only process dates in which the year is
represented by two digits. As a result, some of these systems and processors may
interpret "00" incorrectly as the year 1900 instead of the year 2000, in which
event they could malfunction or become inoperable after December 31, 1999.
Systems and processors that can properly recognize the year 2000 are referred to
as "year 2000 compliant."
We have completed our assessment of our exposure to the potential
impact of the year 2000 problem. We currently believe that our significant
systems are year 2000 compliant. Based on our assessment, we believe that our
internal systems will be year 2000 compliant through normal equipment and
software upgrades and that the cost of achieving year 2000 compliance will have
only a minimal impact on our business; however, we cannot assure you that our
assessment will prove to be correct.
We have also taken steps to determine whether our principal suppliers
and customers are, or expect to be, year 2000 compliant by the end of this year.
Based on our inquiries, we are reasonably comfortable that our major suppliers
will be year 2000 compliant. In addition, we believe, based on our inquiries,
that our major customers who account for substantially all of our total sales
are or will be year 2000 compliant.
While we believe that our planning efforts are adequate to address our
internal year 2000 concerns, we cannot assure you that the systems of our major
trading partners, on which our systems and operations rely, will be year 2000
compliant. If a significant number of our major trading partners experience
failures in their computer systems or operations due to year 2000
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non-compliance, these events could have a material adverse effect on our
business, revenues, and results of operations. Furthermore, if for any reason we
or any of our 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 our business, revenues, and
results of operations.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
Our business exposes us to potential product liability risks which are
inherent in the marketing and use of the components which we manufacture. Many
of the components manufactured and sold by us are designed to be used for long
periods of time. Component failures, manufacturing flaws, design defects, or
inadequate disclosure of product-related risks with respect to the products
manufactured or sold by us could result in product failure or, particularly in
the case of our products sold to the medical industry or to automotive airbag
manufacturers, an unsafe condition or injury to, or death of, consumers. The
occurrence of these problems could result in product liability claims or a
recall of, or safety alert relating to, our products. We cannot assure you that
the product liability insurance maintained by us will be available or sufficient
to satisfy all claims against us or that we will be able to obtain insurance in
the future at satisfactory rates, in adequate amounts, or at all. Future product
liability claims, regardless of their ultimate outcome, or product recalls could
result in costly litigation and could have a material adverse effect on our
business, results of operations, and financial condition, and to our reputation
and our ability to attract and retain customers for our products.
WE ARE CONTROLLED BY MESSRS. DELANO AND LUBIN.
Warren Delano and Michael A. Lubin, our President and Chairman of the
Board, respectively, are the beneficial owners of a majority of our common stock
and, as a result, have the power to control our policies and affairs. The
interests of Lexington Precision Corporation, and of Messrs. Delano and Lubin,
may, from time to time, differ from the interests of the holders of the Senior
Subordinated Notes.
THE SENIOR SUBORDINATED NOTES ARE SUBORDINATED TO ALL OF OUR SENIOR DEBT.
The Senior Subordinated Notes are subordinated to all of our existing
and future senior debt. Most of our senior debt is secured by collateral
comprising substantially all of our assets. In the event we default on any of
our secured debt or in the event we undergo a bankruptcy, liquidation,
dissolution, reorganization, or similar proceeding, the proceeds of the sale of
our assets would first be applied to the repayment of our secured debt before
any of those proceeds would be available to make payments on our unsecured debt,
including the Senior Subordinated Notes. In addition, to the extent that our
assets cannot fully satisfy our senior debt, the holders of our secured debt
would have a claim for any shortfall that would rank equally with our senior
unsecured debt, all of which would be senior in right of payment to the Senior
Subordinated Notes. Accordingly, upon an acceleration of the Senior Subordinated
Notes, there may be no assets remaining from which claims of the holders of the
Senior Subordinated Notes could be satisfied or, if any assets remained, they
might be insufficient to satisfy those claims in full. As of September 30, 1999,
we had $59.4 million of borrowings and approximately $0.8 million of undrawn
letters of credit outstanding under our various secured financing arrangements
and
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approximately $7.5 million of senior unsecured debt, and had the ability to
borrow an additional $2.5 million. In addition, we will be permitted to incur
additional secured debt and senior unsecured debt in the future.
WE MAY BE UNABLE TO PURCHASE YOUR SENIOR SUBORDINATED NOTES UPON A CHANGE OF
CONTROL.
Upon the occurrence of specified change-of-control events, we are
required to offer to purchase all of the outstanding Senior Subordinated Notes
at a price of 100% of their principal amount plus accrued interest. We may not
have sufficient financial resources to purchase all of the notes that holders
may tender to us upon a change of control. The occurrence of a change of control
would also constitute an event of default under our credit facility. The lenders
under our credit facility also have the right to prohibit any of these
purchases, in which event we would be in default on the Senior Subordinated
Notes. In addition, certain important corporate events such as a leveraged
recapitalization that would increase the level of our debt, would not constitute
a "change of control" under the indenture.
THE CONSENT PAYMENTS COULD BE SUBJECT TO FRAUDULENT TRANSFER AND PREFERENCE
CONSIDERATIONS.
Although the standards will vary depending on the law of the
jurisdiction applied, in general, if a court were to find that, at the time the
holders of Senior Subordinated Notes received a consent payment, either:
* we paid those amounts, or incurred any related indebtedness, or
made other related distributions with the intent of hindering,
delaying, or defrauding creditors; or
* we received less than fair consideration, or a reasonably
equivalent value, for paying those amounts, or for incurring any
related indebtedness, or for making other related distributions;
and
* we either:
* were insolvent or rendered insolvent by reason of the
distribution or payment of those amounts, the incurrence
of that indebtedness, or the making of those related
distributions,
* were engaged in a business for which our remaining assets
constituted unreasonably small capital, or
* were acting with the intent or belief that we would incur
debts beyond our ability to repay these debts as they
mature (as the foregoing terms are defined in or
interpreted under applicable federal and state fraudulent
conveyance statutes),
then that court may find that those payments involved the incurring of
obligations or the transfer of interests in property deemed to be a fraudulent
conveyance under applicable law. To the extent those payments were deemed to be
a fraudulent conveyance, there is a risk that those payments would be avoided
and that consenting holders of Senior Subordinated Notes would be
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ordered by a court to turn over to us, to a fund for the benefit of our
creditors, or to our judgment creditors, all or a portion of the consideration
paid to holders for their consents.
The measure of insolvency for purposes of the foregoing will vary
depending on the law of the jurisdiction that is being applied. Generally,
however, a corporation would be considered insolvent if the present fair
saleable value of its assets were less than the amount that would be required to
pay its probable liabilities on its existing debts as they become absolute and
matured. There can be no assurance as to what standard a court would use to
determine whether we were "solvent" in connection with the making of the consent
payments or as to whether, regardless of the standard used, we would be found to
have been solvent in that connection.
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THE PROPOSED AMENDMENTS
The following sets forth a description of the proposed amendments for
which consents are being sought pursuant to the consent solicitation. The text
of the supplemental indenture that will effectuate the proposed amendments will
be in substantially the form included as Annex A to this consent solicitation
statement.
The proposed amendments will have the following effects:
1. The maturity date of the Senior Subordinated Notes will be
extended from February 1, 2000, to February 1, 2003.
2. The annual interest rate payable on the Senior Subordinated Notes
will be increased from 12 3/4% to the rates set forth in the
following table:
PERIOD INTEREST RATE
------ -------------
February 1, 2000 - January 31, 2001 13 1/2%
February 1, 2001 - July 31, 2001 15 1/2%
August 1, 2001 - January 31, 2002 16%
February 1, 2002 - July 31, 2002 17%
August 1, 2002 - January 31, 2003 18%
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the adoption of the proposed amendments pursuant to the consent
solicitation and the receipt of the consent payment. This summary does not
purport to be a comprehensive description of all tax considerations that may be
relevant to the decision by a holder to consent to the proposed amendments. This
summary addresses only holders that hold the Senior Subordinated Notes as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended, which we refer to as the "Code." It does not address
holders subject to special treatment under the United States federal income tax
laws, including, without limitation, dealers, financial institutions, insurance
companies, United States expatriates, tax-exempt entities, persons having a
functional currency other than the United States dollar, and persons who hold
Senior Subordinated Notes as part of a hedging, straddle, integrated, or
conversion strategy. This summary does not address any considerations under any
foreign, state, local, or other tax laws.
This discussion also assumes that the Senior Subordinated Notes, and
the "modified notes" issued pursuant to the "deemed exchange," both as described
below, will be treated as debt and not equity for U.S.
federal income tax purposes.
Except as otherwise described herein, this discussion applies only to a
person who is a U.S. holder. A U.S. holder is an initial beneficial owner at the
"issue price," as defined below, of the modified notes, who is (1) a citizen or
resident of the United States for U.S. federal income tax purposes, (2) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (3) an estate
or trust the income of which is subject to U.S. federal income taxation
regardless of its source. A non-U.S. holder is any holder that is not a U.S.
holder.
This summary is based on the Code, Treasury regulations promulgated
thereunder (final, temporary, and proposed), Internal Revenue Service rulings
and practice, and judicial decisions, all as in effect on the date hereof. These
authorities are subject to change or differing interpretations, possibly with
retroactive effect, in which case the United States federal income tax
consequences could differ from those described below. We cannot assure you that
the treatment of the proposed amendments described herein will be respected by
the Internal Revenue Service (which we refer to as the IRS) or, if challenged,
by a court.
HOLDERS OF SENIOR SUBORDINATED NOTES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM, INCLUDING THE TAX
CONSEQUENCES UNDER UNITED STATES FEDERAL TAX LAWS AND ANY STATE, LOCAL, FOREIGN,
AND OTHER TAX LAWS, OF THE RECEIPT OF THE CONSENT PAYMENT AND THE ADOPTION OF
THE PROPOSED AMENDMENTS.
U.S. HOLDERS
DEEMED EXCHANGE. The alterations to the terms of the Senior
Subordinated Notes, in particular the alteration increasing the interest payable
under the Senior Subordinated Notes, will
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result in a "significant modification" of the Senior Subordinated Notes, which
in turn will cause a deemed exchange of the Senior Subordinated Notes for
"modified" Senior Subordinated Notes (which we call modified notes) under
Treasury Regulation ss.1.1001-3. The modified notes will be treated for federal
income tax purposes as new debt issued in exchange for the Senior Subordinated
Notes. The tax effect of the deemed exchange will depend upon whether both the
Senior Subordinated Notes and the modified notes may be treated as "securities".
For reasons given below, it is likely that the deemed exchange will be treated
as a taxable sale of the Senior Subordinated Notes in exchange for the modified
notes, although an improbable case could be made for tax-free treatment.
DEEMED EXCHANGE AS TAXABLE SALE. The deemed exchange could qualify as a
tax-free reorganization under the Code only if both the Senior Subordinated
Notes and the modified notes were treated as securities. Generally, a debt
instrument qualifies as a security if its original maturity date is ten years or
more. A debt instrument with a maturity date of less than five years generally
does not constitute a security. Securities with maturity dates of between five
and ten years fall into an uncertain area. Because the three-year term of the
modified notes is relatively short, it is likely that the deemed exchange of the
Senior Subordinated Notes for modified notes will constitute a taxable sale of
the Senior Subordinated Notes. A U.S. holder would, in this event, recognize
taxable gain or loss based on the difference between that holder's "amount
realized," which would most likely be the "issue price" of the modified notes
received in the deemed exchange, and that U.S. holder's adjusted tax basis in
the Senior Subordinated Notes. A new holding period on the modified notes would
begin on the day following the date of issue. See "Original Issue Discount" and
"The Amount of Original Issue Discount" for the definition of issue price. Any
gain representing accrued market discount would be taxed as ordinary income, and
any remaining gain or any loss would be taxed as capital gain or loss, assuming
the Senior Subordinated Notes were held as capital assets, which would be
long-term or short-term depending on whether or not a holder's period were in
excess of one year.
Certain holders of Senior Subordinated Notes may be able to defer
reporting any gain realized on the deemed exchange under the installment sale
rules. Under recently enacted legislation, the installment sale method is no
longer available for accrual method U.S. holders. However, cash method U.S.
holders of Senior Subordinated Notes may continue to report any gain on the
deemed exchange using the installment sale method provided:
1. the cash method U.S. holder is not a dealer in the Senior
Subordinated Notes;
2. neither the Senior Subordinated Notes nor the modified notes are
"readily tradable" as defined in the installment sale regulations;
and
3. the cash method U.S. holder does not elect out of the installment
sale method.
A cash method U.S. holder of Senior Subordinated Notes qualifying for the
installment sale method of reporting gain could still be liable in certain
circumstances for the interest charge on the deferred tax liability provided by
section 453A of the Code.
ALTERNATIVE TREATMENT OF DEEMED EXCHANGE AS A TAX-FREE
RECAPITALIZATION. Although very unlikely, it is possible that both the modified
notes and the Senior Subordinated Notes
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would be treated as securities, with the result that the deemed exchange of
Senior Subordinated Notes for modified notes would be treated as a tax-free
recapitalization pursuant to section 368(a)(1)(E) of the Code.
In the event the deemed exchange of Senior Subordinated Notes for
modified notes qualified as a recapitalization, no loss would be recognized to
an exchanging U.S. holder and any realized gain would be recognized only to the
extent of the fair market value of the excess of the principal amount of the
modified notes received over the principal amount of the Senior Subordinated
Notes surrendered. Realized gain is generally defined as any excess of the issue
price of the modified notes (or, possibly, their fair market value, particularly
in the case of a cash method U.S. holder) over a U.S. holder's adjusted basis in
the Senior Subordinated Notes. It appears that principal amount should refer to
the issue price and adjusted issue price of the respective debt instruments
being exchanged, although it may refer to their respective face amounts.
Assuming the issue price construction is determinative, any realized gain will
be recognized only to the extent of the fair market value of the excess of the
issue price of the modified notes received over the issue price of the Senior
Subordinated Notes exchanged in the deemed exchange, which is referred to as
boot. This amount is expected to be zero.
ORIGINAL ISSUE DISCOUNT. The modified notes will be issued at a
discount and will be considered to bear "original issue discount" for U.S.
federal income tax purposes. Each U.S. holder, whether a cash or accrual basis
taxpayer, will be required to include in income in each taxable year, in advance
of the receipt of cash payments on the modified notes, that portion of the
original issue discount, if any, attributable to each day during that year on
which the U.S. holder held the Notes. These computations must be made on a
constant yield basis. See "--Taxation of Original Issue Discount."
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT. The amount of original issue
discount with respect to each modified note will equal the excess of its "stated
redemption price at maturity" over its issue price. The amount of the original
issue discount borne by the modified notes is unclear and will depend on whether
the Senior Subordinated Notes or the modified notes are "publicly traded," as
discussed below.
The determination of the issue price of the modified notes depends upon
whether they, or the Senior Subordinated Notes, are considered as traded on an
established market within the meaning of Treasury Regulation ss.1.1273-2(f)
(which we refer to as "publicly traded"). Generally, a debt instrument is
treated as publicly traded if, at any time during the 60-day period ending 30
days after the issue date, the debt instrument is described in any one of four
paragraphs of that Treasury regulation. The 60-day period described above
relates to both the original issuance of the Senior Subordinated Notes and
presumably also to the deemed issuance of the modified notes in the deemed
exchange. Of the four possible descriptions, the only two potentially applicable
to the Senior Subordinated Notes and the modified notes are whether either is:
1. "property appearing on a quotation medium," or
2. a "readily quotable debt instrument."
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A debt instrument is property appearing on a quotation medium, and thus
publicly traded, if it appears on a system of general circulation, including a
computer listing disseminated to subscribing brokers, dealers, or traders, that
provides a reasonable basis to determine fair market value by disseminating
either recent price quotations of one or more identified brokers, dealers, or
traders or actual prices (including rates, yields, or other pricing information)
of recent sales transactions. A quotation medium does not include a directory or
listing of brokers, dealers, or traders for specific securities, such as yellow
sheets, that provides neither price quotations nor actual prices of recent sales
transactions.
A debt instrument is a readily quotable debt instrument and thus
publicly traded if price quotations are readily available from dealers, brokers
or traders. A series of safe harbors applies, however, which provide that a debt
instrument is in any event not a readily quotable debt instrument if:
1. no other outstanding debt instrument of the issuer, or of any
person who guarantees the debt instrument, is described in any of
the four paragraphs alluded to above;
2. the original stated principal amount of the issue that includes
the debt instrument does not exceed $25 million;
3. the conditions and covenants relating to the issuer's performance
with respect to the debt instrument are materially less
restrictive than the conditions and covenants included in all of
the issuer's other traded debt (e.g., the debt instrument is
subject to an economically significant subordination provision
whereas the issuer's other traded debt is senior); or
4. the maturity date of the debt instrument is more than three years
after the latest maturity date of the issuer's other traded debt.
Due to significant interpretative difficulties with respect to these
definitions and factual uncertainties regarding the market for the Senior
Subordinated Notes and the modified notes, it is unclear whether either the
Senior Subordinated Notes or modified notes are or will be publicly traded. We
believe that the Senior Subordinated Notes are not currently publicly traded. It
is possible, however, depending on events occurring before or after the
effective date, that the Senior Subordinated Notes or the modified notes will be
publicly traded.
If neither the Senior Subordinated Notes nor the modified notes are
publicly traded, the issue price of the modified notes would be their principal
amount. If the modified notes were publicly traded (which is possible, though
uncertain), their trading price would determine their issue price. If the
modified notes were not publicly traded but the Senior Subordinated Notes were
publicly traded (which seems unlikely), the trading price of the Senior
Subordinated Notes would determine the issue price of the modified notes. In the
event that either the Senior Subordinated Notes or the modified notes were
publicly traded, it is likely that the issue price of the modified notes would
be substantially less than their face amount and a substantial amount of
additional original issue discount would result.
As noted, we believe that the Senior Subordinated Notes are not
currently publicly traded and will determine whether the modified notes are
publicly traded, or the Senior Subordinated
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Notes become publicly traded, based on our best judgment. However, the Internal
Revenue Service, may disagree with our position and we cannot assure you that
our position would be sustained in court.
Under the original issue discount regulations, the stated redemption
price at maturity of each modified note will include all payments to be made in
respect thereof, including both principal and any stated interest payments,
other than:
1. qualified stated interest (which is generally defined as stated
interest that is unconditionally payable in cash or property,
other than debt instruments of the issuer, at least annually at a
single fixed rate that appropriately takes into account the length
of intervals between payments); and
2. payments subject to remote or incidental contingencies.
Under applicable Treasury regulations, all interest payable on the modified
notes to the extent it does not exceed 13 1/2% will constitute qualified stated
interest, while the excess (or "stepped") portion will not. Accordingly, the
excess portion of the interest will be part of the stated redemption price at
maturity of the modified notes and will accrue as original issue discount.
Actual payments of the excess interest will be treated first as payments of
previously accrued original issue discount and then as payments of the principal
amount of the modified notes.
Accordingly, depending upon the determination of the issue price of the
modified notes, the original issue discount with respect to the modified notes
will equal either:
1. in the case neither the Senior Subordinated Notes nor modified
notes are publicly traded, the amount of interest payable under
the modified notes which exceeds the amount payable at 13 1/2%
over the term of the modified notes, referred to above as the
stepped interest; or
2. in the case where either the Senior Subordinated Notes or modified
notes are publicly traded, the sum of the stepped interest plus
the excess of the principal amount of the modified notes over
their issue price as determined under the publicly traded rules.
TAXATION OF ORIGINAL ISSUE DISCOUNT. A U.S. holder of a modified note
will be required to include as gross income for U.S. federal income tax purposes
an amount equal to the sum of the daily portions of the original issue discount
attributable to each day during the taxable year on which the U.S. holder holds
the modified note. The daily portions of original issue discount required to be
included in a U.S. holder's gross income in a taxable year will be determined on
a constant yield basis by allocating to each day a pro rata portion of the
original issue discount on the modified note that is attributable to the accrual
period in which the day is included. Accrual periods with respect to a modified
note may be of any length selected by the U.S. holder and may vary in length
over the term of the modified note as long as no accrual period is longer than
one year and each scheduled payment of interest or principal on the modified
note occurs on either the first or last day of an accrual period.
TAX BASIS IN THE MODIFIED NOTES. Assuming the deemed exchange is a
taxable event and the installment method is not available, a U.S. holder's
initial tax basis in a modified note will be
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equal to the U.S. Holder's amount realized, which is probably the issue price of
the modified note on the deemed exchange, as determined above. In this event, a
U.S. holder's tax basis in a modified note will be increased subsequently by the
amount of original issue discount or market discount that is included in that
U.S. holder's income with respect to the modified note and will be decreased by
the amount of any cash payments received. If the deemed exchange were treated as
a tax-free recapitalization, a U.S. holder's basis in the modified notes
received in the deemed exchange would be its adjusted tax basis in the Senior
Subordinated Notes, increased by any gain recognized on the deemed exchange and
decreased by the amount of any boot received.
MARKET DISCOUNT; ACQUISITION PREMIUM; PREMIUM. If a U.S. holder
receives or purchases a modified note for an amount that is less than the
"revised issue price" of the modified note at the time of acquisition, the
amount of the difference will be treated as "market discount" for U.S. federal
income tax purposes, unless the difference is less than a specified de minimis
amount. The revised issue price of a debt obligation generally equals the sum of
its issue price and the total amount of original issue discount includable in
the gross income of all U.S. holders for periods before the acquisition of the
debt obligation by the current U.S. holder (without regard to any reduction in
the income resulting from acquisition premium) and less any cash payments in
respect of the debt obligation (other than qualified stated interest). Under the
market discount rules, a U.S. holder will be required to treat any principal
payment on, or any gain on the sale, exchange, retirement or other disposition
of, a modified note as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on that modified note at the time of that payment or disposition. If a
U.S. holder makes a gift of a modified note, accrued market discount, if any,
will be recognized as if that U.S. holder had sold that modified note for a
price equal to its fair market value. In addition, the U.S. holder may be
required to defer, until the maturity of the modified note or, in certain
circumstances, the earlier disposition of the modified note in a taxable
transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry that modified note.
Any market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of the
modified note, unless the U.S. holder elects to accrue market discount on a
constant interest method. A U.S. holder of a modified note may elect to include
market discount in income currently as it accrues, on either a straight-line
basis or constant interest method, in which case the rules described above
regarding the deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, is irrevocable and
applies to all market discount obligations acquired on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS.
A U.S. holder who receives or purchases a modified note for an amount
that is greater than the adjusted issue price of that modified note, but that is
less than or equal to the stated redemption price at maturity of the modified
note after the purchase date, will be considered to have purchased that modified
note at an acquisition premium. Under the acquisition premium rules of the Code
and the Treasury regulations, the amount of original issue discount which that
U.S. holder must include in its gross income with respect to that modified note
for any taxable year will be reduced for each accrual period by an amount equal
to the product of the amount of original issue discount otherwise includable for
the period and a fraction, the numerator of which
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is the acquisition premium and the denominator of which is the excess of the
amounts payable on the modified note after the purchase date over that modified
note's adjusted issue price.
A U.S. holder of a modified note purchased at a premium over its stated
redemption price at maturity may elect to amortize that premium over the
remaining term of the modified note (or possibly by reference to an earlier call
date) on a constant yield basis. Such election would apply to all debt
instruments held at any time during the taxable year or thereafter acquired and
would not be revocable without the consent of the IRS.
SALE, REDEMPTION, OR EXCHANGE OF NOTES. Unless a nonrecognition
provision applies, the sale, exchange, redemption (including pursuant to an
offer by us), or other disposition of a modified note generally will be a
taxable event for U.S. federal income tax purposes. In that event, a U.S. holder
of a modified note will generally recognize gain or loss equal to the difference
between the amount of cash plus the fair market value of any property received
upon that sale, exchange, redemption, or other taxable disposition and the U.S.
holder's adjusted tax basis therein. Except with respect to accrued market
discount, the gain or loss should be capital gain or loss and will be long-term
capital gain or loss if the note was held by the U.S. holder for more than one
year at the time of that sale, exchange, redemption, or other disposition. The
excess of net long-term capital gains over net short-term capital losses is
taxed at a lower rate than ordinary income for certain non-corporate taxpayers.
The distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
NON-U.S. HOLDERS
PAYMENT OF INTEREST. A non-U.S. holder will not be subject to United
States federal income tax by withholding or otherwise on the accrual or payment
of original issue discount or on payments of interest on a modified note,
provided that the beneficial owner of the modified note fulfills the statement
requirements set forth in applicable Treasury regulations, unless:
1. the non-U.S. holder actually or constructively owns 10% or more of
the total combined voting power of all classes of our stock
entitled to vote; or
2. the interest or original issue discount is effectively connected
with the conduct of a trade or business by the non-U.S. holder in
the United States.
GAIN ON DISPOSITION OF SENIOR SUBORDINATED NOTES. A non-U.S. holder
will not be subject to United States federal income tax by withholding or
otherwise on gain realized on the disposition of a Senior Subordinated Note in
the deemed exchange or a modified note unless:
1. in the case of a non-U.S. holder who is an individual and is
present in the United States for a period or periods aggregating
183 days or more during the taxable year of the disposition, and
certain other conditions are met, in which case such individual
will be taxed as a U.S. holder in any event; or
2. the gain is effectively connected with the conduct of a trade or
business by the non-U.S. holder in the United States.
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EFFECTIVELY CONNECTED INCOME. To the extent that interest income or
gain on the disposition of modified notes are effectively connected with the
conduct of a trade or business of the non-U.S. holder in the United States, the
income will be subject to United States federal income tax at the same rates
generally applicable to United States persons. Additionally, in the case of a
non-U.S. holder which is a corporation, the effectively connected income may be
subject to the United States branch profits tax at the rate of 30%, or lower
treaty rates.
ESTATE TAX. Modified notes held at the time of death by an individual
non-U.S. holder will not be subject to United States federal estate tax,
provided that at the time of death the holder did not actually or constructively
own 10% or more of the total combined voting power of all classes of our stock
entitled to vote, and the modified notes were not held in connection with the
holder's trade or business in the United States.
TREATIES. Applicable treaties between the United States and a country
in which a non-U.S. holder is a resident may alter the tax consequences
described above.
CONSEQUENCES TO LEXINGTON PRECISION CORPORATION
ORIGINAL ISSUE DISCOUNT. Depending upon the determination of the issue
price of the modified notes, the original issue discount with respect to the
modified notes will equal either:
1. in the case neither the Senior Subordinated Notes nor modified
notes are publicly traded, the amount of interest payable under
the modified notes which exceeds the amount payable at 13 1/2%
over the term of the modified notes; or
2. in the case where either the Senior Subordinated Notes or modified
notes are publicly traded, the sum in item 1, above, plus the
excess of the principal amount of the modified notes over the
issue price as determined under the publicly traded rules.
We would deduct original issue discount on a constant yield to maturity basis
over the term of the modified notes.
CANCELLATION OF INDEBTEDNESS INCOME. We could also recognize
cancellation of indebtedness income on the deemed exchange of Senior
Subordinated Notes for modified notes to the extent the issue price of the
modified notes was less than the adjusted issue price of the Senior Subordinated
Notes, which should be their principal amount. Depending on the resolution of
the proper determination of the issue price of the modified notes, we will
either have:
1. in the case neither the modified notes nor the Senior Subordinated
Notes are publicly traded, cancellation of indebtedness income of
zero; or
2. in the case either the modified notes or the Senior Subordinated
Notes are publicly traded, cancellation of indebtedness income
equal to the excess of the principal amount of the Senior
Subordinated Notes over the issue price of the modified notes as
determined under the publicly traded rules.
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<PAGE>
In the latter case, however, we anticipate that our present net operating loss
carryovers will be available to absorb all or substantially all of any resulting
cancellation of indebtedness income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In addition to the withholding rules described above, interest and
payments of proceeds from the disposition by certain non-corporate holders of
the Senior Subordinated Notes may be subject to backup withholding at a rate of
31%. A non-corporate U.S. holder generally will be subject to backup withholding
at a rate of 31% unless the recipient of that payment supplies an accurate
taxpayer identification number, as well as certain other information, or
otherwise establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. holder's federal income tax, upon furnishing the
required information.
Generally, backup withholding of United States federal income tax at a
rate of 31% and information reporting may apply to payments of principal,
interest, and premium to non-U.S. holders that are not exempt recipients and
that fail to provide certain information as may be required by United States law
and applicable regulations.
TREATMENT OF CONSENT PAYMENT
The consent payments will likely be treated as separate payments in the
nature of fees for the consents. As a result, U.S. holders will likely be
required to include the amount of any consent payments made to them in ordinary
income for federal income tax purposes.
Alternatively, it is possible that the consent payments would be
treated as separate payments for certain rights of the U.S. holders and,
therefore, represent a tax-free return of capital on the modified notes. In that
event, a U.S. holder would not be required to include any amount in taxable
income, but would instead reduce its tax basis in the modified notes by the
amount of the consent payment made to it. This would in turn affect the amount
of gain or loss recognized on the deemed exchange.
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<PAGE>
[Page Intentionally Left Blank]
<PAGE>
Annex A to
Consent Solicitation Statement
------------------------------
LEXINGTON PRECISION CORPORATION
12 3/4% SENIOR SUBORDINATED NOTES DUE FEBRUARY 1, 2000
---------------------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF JANUARY __, 2000
TO
INDENTURE
DATED AS OF AUGUST 1, 1993
---------------------------------
THE BANK OF NEW YORK
AS TRUSTEE
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<PAGE>
[Page Intentionally Left Blank]
A-2
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of January __, 2000, between
Lexington Precision Corporation, a Delaware corporation (the "Company"), and The
Bank of New York, a New York banking corporation and successor in interest to
IBJ Whitehall Bank & Trust Company, as Trustee (the "Trustee").
WHEREAS, the Company and the Trustee executed an Indenture, dated as of
August 1, 1993, in respect of the Company's 12 3/4% Senior Subordinated Notes
due February 1, 2000 (the "Securities");
WHEREAS, an aggregate of $27,412,125 in principal amount of the
Securities are presently outstanding;
WHEREAS, the Company desires to amend the Indenture (i) to extend the
maturity date of the Securities from February 1, 2000, to February 1, 2003, (ii)
to increase the initial interest rate and provide for interest rate increases up
to a maximum of 18%; and (iii) to make certain amendments to the Indenture and
the Securities in connection therewith;
WHEREAS, Section 9.02 of the Indenture provides that the Indenture and
the Securities may be amended with the consent of each affected Holder of
Securities;
WHEREAS, the Company undertook a consent solicitation (the
"Solicitation") seeking the written consent of Holders to implement the
amendments set forth in this First Supplemental Indenture;
WHEREAS, the Company has received in the Solicitation the valid written
consents of the Holders of at least 98% in aggregate principal amount
outstanding of the Securities, consenting to the substance of the amendments set
forth in this First Supplemental Indenture;
WHEREAS, all conditions and requirements necessary to make this First
Supplemental Indenture a valid, binding, and legal instrument in accordance with
the terms of the Indenture have been performed and fulfilled and the execution
and delivery hereof have been in all respects duly authorized; and
WHEREAS, in accordance with the terms of the Indenture, the Company has
requested that the Trustee execute and deliver this First Supplemental Indenture
and has delivered to the Trustee a copy of a Board Resolution authorizing the
execution of this First Supplemental Indenture.
NOW, THEREFORE, in consideration of the above premises, each party
agrees, for the benefit of the other and for the equal and ratable benefit of
the Holders of the Securities, as follows:
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<PAGE>
ARTICLE I
AMENDMENTS
Section 1.01. The Indenture is hereby amended as follows:
(a) In the second paragraph of the Preamble, the words "12
3/4% Senior Subordinated Notes due February 1, 2000" shall be deleted and
replaced with the words "Increasing Rate Senior Subordinated Notes due February
1, 2003."
(b) The definitions of "Junior Notes" and "New Junior Notes"
in Section 1.01 of the Indenture are hereby amended to add the phrase ", as
amended from time to time" at the end of each such definition.
(c) Exhibit A to the Indenture is hereby amended by deleting
it in its entirety and replacing it with Exhibit A attached hereto.
Section 1.02. The Company hereby agrees to issue, execute, and
deliver, and the Trustee hereby agrees to authenticate, a replacement
certificate or certificates representing any Securities outstanding on the date
of this First Supplemental Indenture, which certificate or certificates shall
reflect the amendments to the Securities effected pursuant to Sections 1.01(a),
1.01(b) and 1.01(c) hereof.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.01. Terms Defined. For all purposes of this First
Supplemental Indenture, except as otherwise defined herein, capitalized terms
used in this First Supplemental Indenture shall have the meanings ascribed to
such terms in the Indenture.
Section 2.02. Indenture. Except as amended hereby, the
Indenture and the Securities are in all respects ratified and confirmed and all
their terms shall remain in full force and effect. From and after the
effectiveness of this First Supplemental Indenture, any reference to the
Indenture or the Securities shall mean the Indenture or the Securities, as the
case may be, as so amended by this First Supplemental Indenture.
Section 2.03. Governing Law. The internal laws of the State of
New York shall govern this First Supplemental Indenture, without regard to the
principles of conflicts of law thereof.
Section 2.04. Successors. All agreements of the Company in
this First Supplemental Indenture and the Securities shall bind its successors
and assigns. This First Supplemental Indenture shall be binding upon each Holder
of Securities and their respective successors and assigns.
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<PAGE>
Section 2.05. Multiple Counterparts. The parties may sign
multiple counterparts of this First Supplemental Indenture. Each signed
counterpart shall be deemed an original, but all of them together shall
represent the same agreement.
Section 2.06. Effectiveness. The provisions of this First
Supplemental Indenture shall become effective upon the execution and delivery
hereof by the Company and the Trustee. In accordance with Sections 9.06 and
12.04 of the Indenture, the Company has delivered to the Trustee an Officers'
Certificate and Opinion of Counsel as conclusive evidence that this First
Supplemental Indenture complies with the applicable requirements of the
Indenture and that all of the conditions precedent to the effectiveness of this
First Supplemental Indenture have been satisfied.
Section 2.07. Trustee Disclaimer. The Trustee accepts the
amendment of the Indenture and the Securities effected by this First
Supplemental Indenture and agrees to execute the trust created by the Indenture
as hereby amended, but only upon the terms and conditions set forth in the
Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit its liabilities and responsibilities in
the performance of the trust created by the Indenture as hereby amended. Without
limiting the generality of the foregoing, the Trustee shall not be responsible
in any manner whatsoever for or with respect to any of the recitals or
statements contained herein, all of which recitals or statements are made solely
by the Company, or for or with respect to (i) the validity, efficacy, or
sufficiency of this First Supplemental Indenture or any of the terms or
provisions hereof, (ii) the proper authorization hereof by the Company by
corporate action or otherwise, or (iii) the due execution hereof by the Company,
and the Trustee makes no representation with respect to any such matters.
Section 2.08. Separability Clause. In case any clause of this
First Supplemental Indenture shall be invalid, illegal, or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first above
written.
LEXINGTON PRECISION CORPORATION
By:________________________________________
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:________________________________________
Name:
Title:
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<PAGE>
Exhibit A to
First Supplemental Indenture
INCREASING RATE SENIOR SUBORDINATED
NOTES DUE FEBRUARY 1, 2003
No. _______ CUSIP No. _________
LEXINGTON PRECISION CORPORATION
promises to pay to _______________________________________ or registered assigns
the principal sum of _________________________ dollars on February 1, 2003.
Interest Payment Dates: February 1 and August 1, commencing August 1, 2000
Record Dates: January 15 and July 15
Reference is hereby made to the further provisions of this Note set forth on the
reverse hereof, which provisions shall have the same effect as if set forth at
this place.
LEXINGTON PRECISION CORPORATION
By:________________________________________
Name:
Title:
Attested:
By:________________________________________
Secretary
(Seal)
Trustee's Certificate of Authentication
THE BANK OF NEW YORK,
as Trustee, certifies that this is one
of the Securities referred
to in the Indenture.
By: ____________________________
Authorized Signatory
A-7
<PAGE>
LEXINGTON PRECISION CORPORATION
INCREASING RATE SENIOR SUBORDINATED NOTE DUE FEBRUARY 1, 2003
1. INTEREST.
LEXINGTON PRECISION CORPORATION (the "Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Note at
the following rates per annum during the respective periods set forth below:
PERIOD INTEREST RATE
------ -------------
February 1, 2000 - January 31, 2001 13 1/2%
February 1, 2001 - July 31, 2001 15 1/2%
August 1, 2001 - January 31, 2002 16%
February 1, 2002 - July 31, 2002 17%
August 1, 2002 - January 31, 2003 18%
The Company will pay interest semi-annually on February 1 and August 1
of each year, commencing on August 1, 2000. Interest on the Notes will accrue
from the most recent date to which interest has been paid. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Company
will pay interest on overdue principal at the rate per annum then prevailing; it
shall pay interest on overdue installments of interest at the same rate to the
extent lawful.
2. METHOD OF PAYMENT.
The Company will pay interest on the Notes (except Defaulted Interest)
to the persons who are registered holders of Notes ("Noteholders" or "Holders")
at the close of business on the January 15 or July 15 preceding the interest
payment date. Holders must surrender Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. The Company may, however, pay principal and interest by
mailing its check payable in such money to a Holder's registered address.
3. PAYING AGENT, REGISTRAR.
Initially, The Bank of New York will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar, or co-Registrar without
notice. The Company or any of its Subsidiaries may act as Paying Agent,
Registrar, or co-Registrar.
4. INDENTURE.
The Company issued the Notes under an Indenture dated as of August 1,
1993, as supplemented by the First Supplemental Indenture dated as of January
__, 2000 (the "Indenture") between the Company and The Bank of New York, as
successor in interest to IBJ Schroder Bank & Trust Company, as Trustee (the
"Trustee"). The terms of the Notes include those stated in the
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<PAGE>
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb), as amended (the
"Act"). The Notes are subject to all such terms, and Noteholders are referred to
the Indenture and the Act for a statement of such terms. The Notes are unsecured
general obligations of the Company, limited to $27,412,125 in aggregate
principal amount, except as otherwise provided in the Indenture.
5. OPTIONAL REDEMPTION.
The Notes are subject to redemption, as a whole or from time to time in
part, at any time (subject to the provisions of the Indenture), at the option of
the Company, on not less than 30 nor more than 60 days' prior notice given as
provided in the Indenture, at the redemption price of 100.00% (expressed as a
percentage of principal amount), together with accrued interest to the
redemption date.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed at least 30 days, but not more than
60 days, before the redemption date to each Holder to be redeemed at his
registered address. The selection of Notes for any redemption will be made by
the Trustee pursuant to the terms of the Indenture. If less than all the Notes
are to be redeemed, Notes in denominations larger than $1,000 may be redeemed in
part but only in integral multiples of $1,000. On and after the redemption date
interest ceases to accrue on Notes or portions of them called for redemption.
7. SUBORDINATION.
The Notes are subordinated in right of payment to Senior Debt (as
defined in the Indenture). Senior Debt does not include (a) Indebtedness of the
Company to any of its subsidiaries or Affiliates (or any interest, fees,
charges, or other amounts outstanding in respect of such Indebtedness), (b) any
Indebtedness or liability for compensation to employees of the Company, or
incurred for the purchase of goods, materials, or services in the ordinary
course of business and which constitutes a trade payable, even if overdue (or
any interest, fees, charges, or other amounts outstanding in respect of such
Indebtedness), (c) any liability for federal, state, local, or other taxes owed
or owing by the Company, (d) any Indebtedness, guarantee, or obligation which is
contractually subordinate or junior in right and priority of payment to the
Notes, (e) any payments or obligations in respect of any Preferred Stock,
Redeemable Stock, or Exchangeable Stock, (f) that portion of any Indebtedness
that at the time of issuance is issued in violation of this Indenture, and (g)
the Indebtedness represented by the Company's 14% Junior Subordinated
Non-Convertible Notes and 14% Junior Subordinated Convertible Notes. To the
extent provided in the Indenture, Senior Debt must be paid before the Notes may
be paid. Each Noteholder, by accepting a Note, agrees to the subordination and
authorizes the Trustee to give it effect.
8. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples of $1,000 except to the extent of
fractional Notes outstanding on the effective date of the First Supplemental
Indenture or to the extent necessary to effect
A-9
<PAGE>
transfers in whole of such fractional Notes or to issue Notes upon a partial
redemption or upon the completion of an Asset Sale Offer or a Change of Control
Offer (as such terms are defined in the Indenture). A Holder may transfer or
exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or exchange any Note selected for
redemption, or transfer or exchange any Notes for a period of 15 days before a
selection of Notes to be redeemed.
9. PERSONS DEEMED OWNERS.
The registered Holder of a Note may be treated as the owner of it for
all purposes.
10. UNCLAIMED MONEY.
If money held by the Trustee or the Paying Agent for the payment of
principal or interest remains unclaimed for two years, the Trustee or Paying
Agent shall repay the money to the Company at its request. After that, Holders
entitled to the money must look to the Company for payment unless an applicable
escheat or abandoned or unclaimed property law designates another person.
11. AMENDMENT, SUPPLEMENT, WAIVER.
Subject to certain exceptions, with the consent of the Holders of at
least a majority in principal amount of the outstanding Notes, the Indenture or
the Notes may be amended or supplemented, any past default may be waived, and
compliance with any provision of the Indenture may be waived. Without the
consent of any Noteholder, the Company may amend or supplement the Indenture to
provide for assumption of the Company's obligations hereunder in connection with
a merger, consolidation, or transfer of assets as permitted by the Indenture or
the Notes, to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, or to
make any change that does not materially adversely affect the rights of any
Noteholder.
12. SUCCESSOR CORPORATION.
When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture (in accordance with the terms of
the Indenture), the predecessor corporation will be released from those
obligations.
13. DEFAULTS AND REMEDIES.
An Event of Default is: default for 30 days in payment of interest on
the Notes; default in payment of principal on the Notes, upon maturity,
redemption or otherwise; failure by the Company for 60 days after notice to it
to comply with any of its other covenants, conditions, or agreements in the
Indenture or the Notes; the occurrence of an event which permits the
acceleration of the maturity of any Indebtedness in excess of $250,000; judgment
for the payment for more than $250,000 rendered against the Company or any
Subsidiary and not discharged within 60 days after such judgment becomes final
and non-appealable; and certain events of bankruptcy or insolvency. If an Event
of Default (other than an Event of Default as the
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<PAGE>
result of certain events of bankruptcy or insolvency) occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Notes may declare all the Notes to be due and payable immediately.
If an Event of Default occurs as the result of certain events of bankruptcy or
insolvency, all the Notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or any Holder. Noteholders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of a majority in
principal amount of the outstanding Notes may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Noteholders notice of any
continuing default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Company is
required to file periodic reports with the Trustee as to the absence of default.
14. SALES OF ASSETS.
The Company shall make offers to purchase Notes at a purchase price of
100% of their principal amount plus accrued interest to the Asset Sale Purchase
Date (as defined in the Indenture), pursuant to and subject to the conditions
set forth in the Indenture, within 270 days following the consummation of an
Asset Sale (as defined in the Indenture) (or in the case of Net Available Cash
(as defined in the Indenture) from the conversion of securities, within 270 days
after the receipt of such cash).
15. CHANGE OF CONTROL.
The Company shall make offers to purchase Notes at a purchase price of
100% of their principal amount plus accrued interest to the Change of Control
Purchase Date (as defined in the Indenture), pursuant to and subject to the
conditions set forth in the Indenture, in the event of a Change of Control (as
defined in the Indenture).
16. TRUSTEE DEALINGS WITH THE COMPANY.
Subject to the provisions of the Act and regulations promulgated
thereunder, the Trustee, in its individual or any other capacity, may make loans
to, accept deposits from, and perform services for the Company or its
affiliates, and may otherwise deal with the Company or its affiliates, as if it
were not Trustee.
17. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Noteholder, by accepting a Note, waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
18. AUTHENTICATION.
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
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<PAGE>
19. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Noteholder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entirety), JT TEN (= joint tenants with right of survivorship and not as tenants
in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
20. INSPECTION OF INDENTURE AND REQUESTS FOR COPIES.
Holders may inspect the Indenture at the principal executive office of
the Company.
The Company will furnish to any Noteholders, upon written request and
without charge, a copy of the Indenture. Requests may be made to:
Lexington Precision Corporation
767 Third Avenue
New York, NY 10017
Attention: President
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<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I, or we, assign and transfer this Note to:
------------------------------
------------------------------
(Insert assignee's
social security or tax ID number)
------------------------------
------------------------------
------------------------------
------------------------------
(Print or type assignee's
name, address, and zip code)
and irrevocably appoint _______________________________________________agent to
transfer this Note on the books of the Company. The agent may substitute anothe
to act for him.
Date: ________________________ Your Signature:_________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you the holder want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box: |_|
If you want to elect to have only part of this Note purchased by the Company,
state the amount: $ .*
*As set forth in the Indenture, any purchase pursuant to
Section 4.07 is subject to proration in the event the offer is
oversubscribed.
Date: ________________________ Your Signature:_________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
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<PAGE>
Any questions regarding the terms of the consent solicitation may be
directed to Warren Delano, President, or Michael A. Lubin, Chairman of the
Board:
Lexington Precision Corporation
767 Third Avenue
New York, NY 10017
(212) 319-4657
Any questions or requests for assistance or additional copies of this
statement or the consent letter may be directed to us at the telephone number
and address listed above. A holder of Senior Subordinated Notes may also contact
that holder's broker, dealer, commercial bank, trust company, or nominee for
assistance concerning this consent solicitation.
The Depositary for the consent solicitation is:
THE BANK OF NEW YORK
By Overnight Courier or Mail: By Hand:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street 101 Barclay Street
New York, NY 10286 New York, NY 10286
Attn: Reorganization Unit - 7E Ground Level
Corporate Trust Services Window
Attn: Reorganization Unit - 7E
Facsimile:
(212) 815-6339
Confirm by Telephone:
(212) 815-3738
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
- ---------------------
LEXINGTON PRECISION SOLICITS CONSENTS TO EXTEND MATURITY OF 12 3/4% SENIOR
SUBORDINATED NOTES
NEW YORK, December 28, 1999 - Lexington Precision Corporation (LEXP - OTC)
announced today that it is soliciting consents from registered holders, as of
December 27, 1999, of its 12 3/4% Senior Subordinated Notes due February 1, 2000
(CUSIP number 529529 AA 7). The consent solicitation, which commenced today,
will expire at 5:00 p.m., New York City time, on January 27, 2000, unless
extended by the company. The principal balance currently outstanding on the
notes is $27,412,000.
The company is seeking consents to effect amendments which would extend the
maturity date of the notes from February 1, 2000, to February 1, 2003, and
increase the annual interest rate payable on the notes from 12 3/4% to a rate of
13 1/2% for the period from February 1, 2000, to January 31, 2001; 15 1/2% from
February 1, 2001, to July 31, 2001; 16% from August 1, 2001, to January 31,
2002; 17% from February 1, 2002, to July 31, 2002; and 18% from August 1, 2002,
to January 31, 2003.
The company will pay to each record holder who consents to the proposed
amendments an amount in cash equal to 1% of the principal amount of the notes
for which the holder has delivered a valid consent. This payment will be made
after the proposed amendments become effective.
The consent solicitation is subject to, among other things, the delivery of the
valid consents of holders of not less than 98% of the notes.
If the minimum required consents are obtained and the proposed amendments become
effective, the company will pay holders of notes who do not consent to the
proposed amendments the full principal of and accrued interest on their notes. A
maximum of 2%, or $548,000, of the aggregate principal amount of the notes will
be paid to holders who do not consent.
The detailed terms and conditions of the consent solicitation are set forth in
the consent solicitation statement, which will be distributed to the holders of
the notes. The company has the right to extend, amend, or terminate the consent
solicitation.
Lexington Precision Corporation manufactures precision rubber and metal
components, which are used primarily by manufacturers of automobiles, automotive
replacement parts, medical devices, and industrial equipment.
Contact: Warren Delano (212) 319-4657
