-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FYteRhnHTugg1RgpXhfexNGDQvyt1jfxaGFR5LX+GVvRyWftKCH6Wl1zG7It/9f5 jb6py1Ca9PWYdOXbwOyZxw== 0000950152-97-002405.txt : 19970329 0000950152-97-002405.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950152-97-002405 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON PRECISION CORP CENTRAL INDEX KEY: 0000012570 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 221830121 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-03252 FILM NUMBER: 97567569 BUSINESS ADDRESS: STREET 1: 767 THIRD AVE 29TH FL CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2123194657 MAIL ADDRESS: STREET 1: 30195 CHAGRIN BLVD STREET 2: SUITE 208W CITY: CLEVELAND STATE: OH ZIP: 44124-5755 FORMER COMPANY: FORMER CONFORMED NAME: BLASIUS INDUSTRIES INC DATE OF NAME CHANGE: 19890116 10-K 1 LEXINGTON PRECISION CORPORATION / 10-K 1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-3252 LEXINGTON PRECISION CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-1830121 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 767 THIRD AVENUE, NEW YORK, NY 10017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 319-4657 ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.25 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant at February 28, 1997 was approximately $2,991,000. The number of shares outstanding of the registrant's common stock at February 28, 1997 was 4,263,036. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement to be issued in connection with its 1997 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III. Only those portions of the Proxy Statement which are specifically incorporated by reference are deemed filed as part of this report on Form 10-K. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 LEXINGTON PRECISION CORPORATION ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.......................................................................................1 Item 2. Properties.....................................................................................6 Item 3. Legal Proceedings..............................................................................6 Item 4. Submission of Matters to a Vote of Security Holders............................................6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................7 Item 6. Selected Financial Data........................................................................8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................................................9 Item 8. Financial Statements and Supplementary Data...................................................18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........................................................................43 PART III Item 10. Directors and Executive Officers of the Registrant............................................44 Item 11. Executive Compensation........................................................................44 Item 12. Security Ownership of Certain Beneficial Owners and Management................................44 Item 13. Certain Relationships and Related Transactions................................................44 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..............................45
3 PART I ITEM 1. BUSINESS Lexington Precision Corporation (the "Company") is a Delaware corporation that was incorporated in 1966. The Company's business is conducted primarily in the continental United States. Through its two business segments, the Rubber Group and the Metals Group, the Company manufactures, to customer specifications, rubber and metal component parts used primarily by manufacturers of automobiles, automotive replacement parts, industrial equipment, medical devices and computers and office equipment. The Company has implemented a strategy of seeking to focus each of its manufacturing facilities on a particular product line with a well-defined market. Operations are decentralized, with each operating company having a management team that is responsible for all aspects of production, sales and customer service. RUBBER GROUP The Company's Rubber Group manufactures silicone and organic rubber components. The Rubber Group consists of four operating companies: Lexington Connector Seals, Lexington Insulators, Lexington Medical and Lexington Technologies. 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 connections required throughout the wiring system. The seals are typically generic in nature and can be used in a variety of car models. The largest customer of Lexington Connector Seals and of the Company is Delphi Packard Electric Systems, a division of General Motors Corporation ("Delphi Packard Electric"). General Motors Corporation named Lexington Connector Seals a "Supplier of the Year" for both 1995 and 1996. 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. In 1996, insulators manufactured for original equipment manufacturers ("OEMs"), or tier-one suppliers to OEMs, represented 38.5% of Lexington Insulators' net sales. The balance of net sales were for aftermarket ignition wire sets. The Company believes that Lexington Insulators is North America's largest manufacturer of insulators for ignition wire sets. LEXINGTON MEDICAL. Lexington Medical manufactures molded rubber components used in a variety of medical devices, such as intravenous feeding systems, syringes, laparoscopic instruments and catheters. LEXINGTON TECHNOLOGIES. Lexington Technologies manufactures molds that are sold to customers of the other operating companies 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 operating companies of the Rubber Group. During 1995, the Company sold the Rubber Group's Extruded and Lathe-Cut Products Division. The Division manufactured extruded rubber components used by manufacturers in a variety of industries. During 1995 and 1994, net sales of the Extruded and Lathe-Cut Products Division represented 2.1% and 5.5%, respectively, of the Rubber Group's net sales. -1- 4 METALS GROUP The Company's Metals Group manufactures metal components. The Metals Group consists of three operating companies: Lexington Die Casting, Lexington Machining and Lexington Safety Components. LEXINGTON DIE CASTING. Lexington Die Casting manufactures aluminum, magnesium and zinc die castings used primarily by manufacturers of industrial equipment, computers and office equipment and automobiles. Many of the die castings are machined by Lexington Die Casting using computer-controlled machining centers and other secondary machining equipment. In an effort to increase manufacturing efficiencies while improving the potential for sales growth, during the fourth quarter of 1996, Lexington Die Casting commenced a strategic shift to focus its production on higher-volume parts and to expand its magnesium die casting business, particularly with automotive customers. LEXINGTON MACHINING. Lexington Machining produces machined aluminum, brass and steel components used primarily by manufacturers of industrial equipment, automobiles, recreational equipment and home appliances. In 1996, Lexington Machining, for reasons similar to Lexington Die Casting, commenced a program to focus its business on higher-volume parts. LEXINGTON SAFETY COMPONENTS. Lexington Safety Components machines high-quality metal components used by manufacturers of initiators and inflators for automotive airbag systems. In 1996, Lexington Safety Components was spun off from Lexington Machining and began to function as a stand-alone operating company with its own management team and professional staff. Lexington Safety Components is currently expanding its manufacturing facility from 26,000 square feet to 64,000 square feet. DIVISIONAL NAME CHANGES Effective September 30, 1996, most of the operating companies of the Company changed their names to better reflect their respective lines of business and to clarify their affiliation with the Company and each other. The following chart sets forth the current and former names of each of the operating companies:
CURRENT NAME FORMER NAME ------------ ----------- Lexington Connector Seals Precision Seals Division Lexington Insulators Electrical Insulator Division Lexington Medical (no change) Lexington Technologies Lexington Manufacturing Lexington Die Casting Falconer Die Casting Company Lexington Machining Ness Precision Products (New York) Lexington Safety Components Ness Precision Products (Arizona)
-2- 5 PRINCIPAL END USES FOR THE COMPANY'S PRODUCTS The following table summarizes net sales of the Company during 1996, 1995 and 1994 by the type of product in which the Company's component parts were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ------------------------------------------------------------------- 1996 1995 1994 ------------------- ------------------ ------------------ Automobiles and light trucks $ 79,832 69.5% $ 68,083 65.3% $ 53,005 59.9% Industrial equipment 11,870 10.3 10,916 10.5 9,639 10.9 Medical devices 8,371 7.3 6,973 6.7 5,959 6.7 Computers and office equipment 6,016 5.2 8,670 8.3 6,835 7.7 Recreational equipment and home appliances 4,693 4.1 6,154 5.9 8,710 9.8 Other 4,090 3.6 3,502 3.3 4,384 5.0 --------- ------- --------- ------ --------- ------ $ 114,872 100.0% $ 104,298 100.0% $ 88,532 100.0% ========= ======= ========= ====== ========= ======
The following table summarizes net sales of the Rubber Group and the Metals Group during 1996, 1995 and 1994 by the type of product in which each Group's component parts were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 -------------------------------------------------------------------- 1996 1995 1994 ------------------ ------------------ ------------------ Rubber Group: Automobiles and light trucks $ 65,420 87.1% $ 53,734 86.2% $ 37,584 80.2% Medical devices 8,077 10.7 6,577 10.6 5,536 11.8 Other 1,625 2.2 1,991 3.2 3,748 8.0 -------- ------- -------- ------- -------- ------- $ 75,122 100.0% $ 62,302 100.0% $ 46,868 100.0% ======== ======= ======== ======= ======== ======= Metals Group: Automobiles and light trucks $ 14,412 36.3% $ 14,349 34.2% $ 15,421 37.0% Industrial equipment 11,723 29.5 10,581 25.2 9,083 21.8 Computers and office equipment 6,016 15.1 8,655 20.6 6,800 16.3 Recreational equipment and home appliances 4,693 11.8 5,733 13.6 7,871 18.9 Other 2,906 7.3 2,678 6.4 2,489 6.0 -------- ------- -------- ------- -------- ------- $ 39,750 100.0% $ 41,996 100.0% $ 41,664 100.0% ======== ======= ======== ======= ======== =======
(For additional information concerning the Rubber Group and the Metals Group, see Part II, Item 7, and Note 10 to the consolidated financial statements in Part II, Item 8.) MAJOR CUSTOMERS During 1996, 1995 and 1994, net sales to Delphi Packard Electric, the largest customer of the Company, represented 21.8%, 22.5% and 20.6%, respectively, of the Company's net sales and 33.4%, 37.6% -3- 6 and 38.9%, respectively, of the Rubber Group's net sales. No other customer accounted for more than 10% of the Company's net sales during 1996. Loss of a significant amount of business from Delphi Packard Electric or any of the Company's other large customers could have a material adverse effect on the business of the Company if such business were not replaced by additional business from existing or new customers. (See also Part II, Item 7.) MARKETING AND SALES The marketing and sales effort within the Rubber Group is carried out by management personnel and internal sales personnel. The marketing and sales effort within the Metals Group has been carried out by management personnel, internal sales personnel and independent sales representatives. In an effort to improve communications between the Company and its customers, during 1996 and the first quarter of 1997, the Company reduced the number of independent sales representatives used by the Metals Group and began to rely almost entirely on management personnel and internal sales personnel. RAW MATERIALS Each of the principal raw materials used by the Company is available at competitive prices from several major manufacturers. All raw materials have been readily available, and the Company does not foresee any significant shortages. SEASONAL VARIATIONS The Company's business generally is not subject to significant seasonal variations. BACKLOG Sales of the Company's products are made pursuant to a variety of purchasing arrangements and practices. Customers typically reserve the right to, and frequently do, revise purchase orders and release schedules so that they correspond with their own production requirements. The Company believes that the aggregate value of scheduled releases outstanding on its books at any time cannot be considered firm backlog since they may be subject to postponement or cancellation at any time and that increases or decreases in the aggregate value of scheduled releases are not necessarily indicative of any trend in the Company's net sales. COMPETITION The Company competes for business primarily on the basis of quality, service, engineering capabilities and price. The Rubber Group and the Metals Group encounter substantial competition from a large number of manufacturing companies. Competitors range from small and medium-sized specialized firms to large diversified companies, many of which have resources substantially greater than those of the Company. Additionally, some of the Company's customers have internal manufacturing operations that compete with the Company. PRODUCT LIABILITY RISKS The Company is subject to potential product liability risks inherent in the manufacture and sale of component parts. Although there exist no claims against the Company that the Company believes will have a significant adverse effect upon its business, financial position or results of operations, there can be no assurance that any existing claims or any claims made in the future will not have a material adverse effect -4- 7 upon the business, financial position or results of operations of the Company. Although the Company maintains insurance coverage for product liability, there can be no assurance that, in the event of a claim, such insurance coverage would automatically apply or that, in the event of an award arising out of a claim, the amount of such insurance coverage would be sufficient to satisfy the award. ENVIRONMENTAL COMPLIANCE The Company's operations are subject to numerous federal, state and local laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. Although the Company continues to make expenditures for the protection of the environment, compliance with federal, state and local environmental regulations has not had a significant impact on the capital spending requirements, earnings or competitive position of the Company. There can be no assurance that changes in environmental laws and regulations, or the interpretation or enforcement thereof, will not require material expenditures by the Company in the future. (See also Part I, Item 3.) EMPLOYEES At December 31, 1996, the Company employed 1,200 individuals. The Rubber Group and the Metals Group employed 649 and 546 individuals, respectively, with 51 hourly workers at one plant location within the Rubber Group subject to a collective bargaining agreement. At December 31, 1996, the Company's corporate office employed 5 individuals. The Company believes that its employee relations are generally good. -5- 8 ITEM 2. PROPERTIES The following table shows the location and square footage of each of the manufacturing facilities of the Rubber Group and the Metals Group at December 31, 1996:
SQUARE LOCATION FEET ------------------- --------- Rubber Group: Lexington Connector Seals Vienna, OH 60,000(1) Lexington Connector Seals LaGrange, GA 77,000(1) Lexington Insulators Jasper, GA 91,000 Lexington Medical Rock Hill, SC 60,000(1) Lexington Technologies North Canton, OH 41,000(1) --------- 329,000 --------- Metals Group: Lexington Die Casting Lakewood, NY 99,000(1)(2) Lexington Die Casting Manchester, NY 21,000 Lexington Machining Rochester, NY 60,000(1)(3) Lexington Safety Components Casa Grande, AZ 64,000(1)(4) --------- 244,000 --------- 573,000 =========
(1) Encumbered by mortgage. (2) Leased from an industrial development authority pursuant to a lease that expires in 2006 and provides the Company with an option to purchase the facility for nominal consideration. (3) Leased from an industrial development authority pursuant to a lease that expires in 2000 and provides the Company with an option to purchase the facility for nominal consideration. (4) Includes 44,000 square feet of space under construction at December 31, 1996. The Company expects the construction to be completed during the second quarter of 1997. All of the plants are general manufacturing facilities suitable for the Company's operations. The Company believes that the facilities are adequate to meet the Company's current operating needs. The Company occupies, in the aggregate, 6,000 square feet of office space for corporate administrative purposes. The Company leases a Cleveland office and reimburses an affiliate for a portion of the cost of leasing a New York office. ITEM 3. LEGAL PROCEEDINGS The Company is a party to certain legal actions arising in the ordinary course of its business, including actions naming the Company as a potentially responsible party or as a third-party defendant in cost recovery actions initiated pursuant to environmental laws. Based upon the information presently available to the Company, the Company believes that the ultimate outcome of these actions will not have a material adverse effect upon its financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1996. -6- 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded in the over-the-counter market. At February 28, 1997, there were approximately 1,050 holders of record of the Company's common stock. Trading in shares of the Company's common stock is limited. During 1996 and 1995, trading data for the Company's stock was available on the OTC Bulletin Board operated by the National Association of Securities Dealers, Inc. (NASD). The following table sets forth selling prices of the Company's common stock as reported on the OTC Bulletin Board:
YEARS ENDED DECEMBER 31 ---------------------------------------------- 1996 1995 --------------------- -------------------- HIGH LOW HIGH LOW ------- --------- -------- ------- First quarter $2.75 $2.00 $2.375 $1.25 Second quarter $3.00 $2.375 $3.25 $1.50 Third quarter $2.75 $2.125 $3.125 $2.00 Fourth quarter $2.50 $2.125 $3.75 $2.50
The Company is not able to determine whether retail markups, markdowns or commissions were included in the above prices. The Company believes that five brokerage firms currently make a market in the Company's common stock, although both bid and asked quotations may at times be limited. No dividends have been paid on the Company's common stock since 1979. The future payment of dividends is dependent upon, among other things, the earnings and capital requirements of the Company. The agreements pursuant to which certain of the Company's indebtedness is outstanding, and the terms of the Company's preferred stock, contain provisions limiting the Company's ability to make dividend payments on its common stock. (See also Notes 5 and 6 to the consolidated financial statements in Part II, Item 8.) The Board of Directors of the Company intends, for the foreseeable future, to follow a policy of retaining the Company's earnings in order to reduce the indebtedness of the Company and/or finance the development and expansion of its business. -7- 10 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company for each of the years in the five-year period ended December 31, 1996 (dollar amounts in thousands, except per share amounts). The financial data has been taken from the consolidated financial statements of the Company, which have been audited by Ernst & Young LLP, independent certified public accountants. The information set forth below is not necessarily indicative of the results of future operations; it should be read in conjunction with, and is qualified by, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7, and the consolidated financial statements in Part II, Item 8.
YEARS ENDED DECEMBER 31 ------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- SUMMARY OF OPERATIONS: Net sales $ 114,872 $ 104,298 $ 88,532 $ 74,976 $ 65,201 ========= ======== ======== ========= ========= Income from operations $ 8,565 $ 9,657 $ 8,102 $ 6,347 $ 548 (1) Interest expense 8,542 7,585 6,272 5,496 5,041 Other income, net - 641 536 - - Provision for income taxes 40 425 34 - - --------- -------- -------- --------- --------- Net income/(loss) $ (17) $ 2,288 $ 2,332 $ 851 $ (4,493) ========= ======== ======== ========= ========= Net income/(loss) per fully diluted common share $ (0.02) $ 0.49 $ 0.51 $ 0.13 $ (1.11) ========= ======== ======== ========= ========= OTHER DATA: Average number of employees 1,166 1,147 968 860 883 Depreciation and amortization expenses $ 8,696 $ 6,449 $ 5,060 $ 4,297 $ 5,050 Capital expenditures $ 15,708 $ 17,902 $ 15,319 $ 6,288 $ 2,235 DECEMBER 31 ------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- FINANCIAL POSITION: Current assets $ 30,845 $ 24,478 $ 22,752 $ 15,715 $ 14,257 Current liabilities 35,167 29,253 24,330 12,733 51,224 (2) --------- -------- -------- --------- --------- Net working capital/(deficit) $ (4,322) $ (4,775) $ (1,578) $ 2,982 $ (36,967) ========= ======== ======== ========= ========= Total assets $ 97,030 $ 81,876 $ 67,396 $ 49,983 $ 45,584 Long-term debt, excluding current portion $ 65,148 $ 56,033 $ 49,627 $ 46,273 $ 3,795 Redeemable preferred stock at par value $ 465 $ 510 $ 555 $ 600 $ 735 Total stockholders' deficit $ (5,057) $ (4,976) $ (7,215) $ (9,623) $ (10,170)
(1) In 1992, income from operations included charges of $1,113,000 for the amortization of and $2,132,000 for the write-off of covenants not to compete. (2) At December 31, 1992, $29,046,000 of debt obligations with scheduled maturities of one year or more were classified as current liabilities because of certain defaults thereunder. -8- 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Various statements in this Item 7 are based upon projections and estimates, as distinct from past or historical facts and events. These forward-looking statements are subject to a number of risks, uncertainties and contingencies that could cause actual results to be materially different. Such risks and uncertainties include increases and decreases in business awarded to the Company by its various customers, unanticipated operating results and cash flows, increases in capital expenditures, changes in future economic conditions, changes in the competitive environment, changes in the capital markets and a number of other factors. Because the Company operates with substantial financial leverage and limited liquidity, the impact of any negative event may have a greater adverse effect upon the Company than if the Company operated with lower financial leverage and greater liquidity. The results of operations for any particular fiscal period of the Company are not necessarily indicative of the results to be expected for any one or more succeeding fiscal periods. RESULTS OF OPERATIONS -- COMPARISON OF 1996, 1995 AND 1994 The Company manufactures, to customer specifications, component parts through two business segments, the Rubber Group and the Metals Group. RUBBER GROUP The Rubber Group manufactures silicone and organic rubber components. During 1996, 1995 and 1994, automotive industry customers of the Rubber Group represented 87.1%, 86.2% and 80.2%, respectively, of the Rubber Group's net sales. Any material reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Rubber Group and the Company. The three largest customers of the Rubber Group accounted for 53.4%, 56.7% and 57.3% of the Rubber Group's net sales during 1996, 1995 and 1994, respectively. The largest customer of the Rubber Group, Delphi Packard Electric, accounted for 33.4%, 37.6% and 38.9% of the Rubber Group's net sales during the same respective periods. Loss of a significant amount of business from any of the Rubber Group's large customers, if not replaced by business from other customers, could have a material adverse effect upon the Rubber Group and the Company as a whole. During the first quarter of 1997, the Company and Delphi Packard Electric entered into an agreement that will govern, through 2001, the purchase of substantially all of the component parts that the Company currently sells to Delphi Packard Electric. Under the terms of the agreement, (i) the Company agreed to sell and Delphi Packard Electric agreed to purchase approximately 100% of Delphi Packard Electric's requirements for all specified component parts, (ii) the Company agreed to warrant that the specified components will remain competitive in terms of technology, design and quality, (iii) the Company will adjust selling prices of the specified components to reflect increases or decreases in material costs, and (iv) the Company will reduce the selling prices of the specified components by certain specified amounts in each of the five years covered by the agreement. Although there can be no assurance given, the Company currently believes that it will be able to offset a significant portion of the price reductions granted to Delphi Packard Electric through reductions in manufacturing costs. -9- 12 The following table sets forth the operating results of the Rubber Group for 1996, 1995 and 1994 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 --------------------------------------------------------------- 1996 1995 1994 ----------------- ---------------- ---------------- Net sales $ 75,122 100.0% $ 62,302 100.0% $ 46,868 100.0% Cost of sales 59,515 79.2 50,623 81.3 39,314 83.9 -------- ------ ------- ------ ------- ------ Gross profit 15,607 20.8 11,679 18.7 7,554 16.1 Selling and administrative expenses 4,785 6.4 4,175 6.7 3,694 7.9 -------- ------ ------- ------ ------- ------ Income from operations $ 10,822 14.4% $ 7,504 12.0% $ 3,860 8.2% ======== ====== ======= ====== ======= ======
During 1996, net sales of the Rubber Group totaled $75,122,000, an increase of $12,820,000, or 20.6%, compared to 1995. This increase was primarily due to increased unit sales of connector seals and insulators for automotive wiring systems. To a lesser extent, sales of medical components and tooling, which increased 18.8% and 15.2%, respectively, also contributed to increased net sales during 1996. During 1996, income from operations totaled $10,822,000, an increase of $3,318,000, or 44.2%, compared to 1995. This increase resulted from increased net sales of components, reduced cost of certain materials and the sale of the Company's Extruded and Lathe-Cut Products Division, which recorded operating losses during 1995 until its sale on June 30, 1995. Factory overhead expense as a percentage of net sales was lower in 1996 primarily because factory overhead expense grew at a slower rate than net sales, which increased by 20.6%. The improvement in factory overhead expense as a percentage of net sales was limited by increased depreciation and amortization, which totaled $5,183,000 during 1996, compared to $3,731,000 during 1995, and by startup expenses incurred at Lexington Technologies, the Rubber Group's new mold manufacturing and engineering operation. Selling and administrative expenses as a percentage of net sales decreased to 6.4% in 1996 from 6.7% in 1995 primarily because most selling and administrative expenses grew at a slower rate than net sales. During 1995, net sales of the Rubber Group totaled $62,302,000, an increase of $15,434,000, or 32.9%, compared to 1994. This increase was primarily due to increased unit sales of connector seals and insulators for automotive wiring systems resulting primarily from increased sales of existing and new components to the Group's existing customers. To a lesser extent, sales of medical components and tooling, which increased by 24.5% and 89.7%, respectively, also contributed to increased net sales in 1995. If net sales of the Extruded and Lathe-Cut Products Division, which was sold on June 30, 1995, were excluded from the above table, net sales of the Rubber Group would have increased from $44,306,000 to $60,981,000, an increase of 37.6%. During 1995, income from operations totaled $7,504,000, an increase of $3,644,000, or 94.4%, compared to 1994. This increase resulted primarily from increased net sales of components and reduced direct labor cost. Direct labor cost as a percentage of net sales decreased during 1995 primarily because of the purchase of new equipment and the introduction of improved manufacturing processes. Factory overhead expense as a percentage of net sales was lower in 1995 primarily because factory overhead expense grew at a slower rate than net sales, which increased 32.9%. The improvement in factory overhead expense as a percentage of net sales was limited in part by costs associated with the development -10- 13 and startup of new products at Lexington Medical and startup expenses and production inefficiencies incurred at the Group's production facility in LaGrange, Georgia. Selling and administrative expenses as a percentage of net sales decreased to 6.7% during 1995, primarily because most selling and administrative expenses grew at a slower rate than net sales and because of reduced legal expenses. METALS GROUP The Metals Group manufactures aluminum, magnesium and zinc die castings and machines aluminum, brass and steel components. During 1996, 1995 and 1994, net sales to automotive industry customers represented 36.3%, 34.2% and 37.0%, respectively, of the Metals Group's net sales. The majority of the net sales to automotive industry customers represented sales of components for airbag initiators and inflators. The three largest customers of the Metals Group accounted for 20.4%, 32.1% and 35.5% of the Metals Group's net sales during 1996, 1995 and 1994, respectively. Loss of a significant amount of business from any of the Metals Group's large customers, if not replaced by business from other customers, could have a material adverse effect upon the Metals Group and the Company as a whole. The following table sets forth the operating results of the Metals Group for 1996, 1995 and 1994 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ---------------------------------------------------------------- 1996 1995 1994 ----------------- ----------------- ----------------- Net sales $ 39,750 100.0% $ 41,996 100.0% $ 41,664 100.0% Cost of sales 35,536 89.4 34,138 81.3 32,320 77.6 -------- ------ -------- ------ -------- ------ Gross profit 4,214 10.6 7,858 18.7 9,344 22.4 Selling and administrative expenses 4,433 11.2 3,712 8.8 3,284 7.9 -------- ------ -------- ------ -------- ------ Income/(loss) from operations $ (219) (0.6)% $ 4,146 9.9% $ 6,060 14.5% ======== ====== ======== ====== ======== ======
During 1996, net sales of the Metals Group totaled $39,750,000, a decrease of $2,246,000, or 5.3%, compared to 1995. This reduction resulted from lower sales of die castings, primarily components for computers and business machines. An increase in the net sales of a variety of components at Lexington Machining and Lexington Safety Components was substantially offset by the continued decline, as previously anticipated, in net sales of a single automotive airbag component to TRW Vehicle Safety Systems, Inc. ("TRW VSSI"). The $3,860,000 decline in net sales of the single component resulted from the planned phaseout during 1995 and 1996 of the inflator system in which the component was used. During 1996, the Metals Group incurred a loss from operations of $219,000, compared to the Metals Group's $4,146,000 income from operations in 1995. The loss from operations resulted primarily from loss of profits previously generated by the higher sales of die castings and the single airbag component, increased cost of sales because of startup expenses related to the production of new airbag components, increased depreciation, which totaled $2,534,000 during 1996 compared to $1,970,000 during 1995, and increases in a variety of other factory overhead expenses. These other expenses resulted in part from the installation of new equipment and the hiring and relocation of additional technical and professional staff. Selling and administrative expenses increased by $721,000, or 19.4%, during 1996, primarily as a result of increased legal costs and increased personnel costs resulting, in part, from the hiring of additional professional staff. -11- 14 During 1995, net sales of the Metals Group totaled $41,996,000, an increase of $332,000, or 0.8%, compared to 1994. Although net sales of die-cast components increased by 8.3% during 1995, net sales of machined metal parts were adversely affected by a decline of $3,978,000 in net sales of the single airbag component to TRW VSSI during 1995. During 1995, income from operations totaled $4,146,000, a decrease of $1,914,000, or 31.6%, compared to 1994. This reduction resulted from the decrease of $3,978,000 in net sales of the single airbag component, increased cost of sales and increased selling and administrative expenses. Cost of sales increased by $1,818,000 during 1995 primarily because of costs associated with the installation of new equipment, startup expenses associated with new products and increased depreciation expense, which totaled $1,970,000 during 1995 compared to $1,424,000 during 1994. Selling and administrative expenses increased by $428,000, or 13.0%, during 1995 primarily as a result of increased sales commissions, personnel costs and legal expenses. As part of the effort to reverse the Metals Group's trend of declining profitability, during 1996, the Company commenced a program with the objective of increasing net sales, profitability and operating cash flow. The actions taken included (i) hiring of new technical and professional staff with the goal of improving the Metals Group's manufacturing processes, quality systems and administrative capabilities, (ii) formation of Lexington Safety Components as a separate business unit with its own management team, (iii) elimination of sales representatives and hiring of in-house sales engineers, (iv) upgrading of equipment and addition of 44,000 square feet of manufacturing and office space at Lexington Safety Components, (v) reduction of low-volume, unprofitable production, (vi) focus on higher-volume business in target markets and (vii) enhancement of quality systems with the objective of obtaining QS 9000 registration status in 1997. CORPORATE OFFICE Corporate office expenses, which are consolidated with selling and administrative expenses of the Rubber Group and the Metals Group in the Company's consolidated financial statements, totaled $2,038,000, $1,993,000 and $1,818,000 during 1996, 1995 and 1994, respectively. During 1996, corporate office expenses increased primarily because of increased consulting fees and legal costs, offset, in part, by reduced accruals for incentive compensation. During 1995, corporate office expenses increased primarily because of increased wage expenses and increased accruals for incentive compensation, offset in part by reduced legal expenses. INTEREST EXPENSE During 1996, 1995 and 1994, interest expense totaled $8,542,000, $7,585,000 and $6,272,000, respectively. The increases in 1996 and 1995 were caused primarily by an increase in average borrowings outstanding in both years. OTHER INCOME On June 30, 1995, the Company sold the Extruded and Lathe-Cut Products Division of the Rubber Group for cash and the assumption by the purchaser of certain liabilities, which resulted in a pre-tax gain of $578,000. In addition, during 1995, the Company realized a pre-tax gain in the amount of $63,000 on the sale of several pieces of equipment. During 1994, other income consisted of a gain of $336,000 on the sale of marketable securities and a gain of $200,000 from the sale of real estate in connection with the settlement of litigation. -12- 15 PROVISION FOR INCOME TAXES During 1996, the provision for income taxes consisted of (i) federal alternative minimum taxes, (ii) state income taxes, (iii) the reversal of a credit resulting from the recognition, in 1995, of the projected utilization of federal operating loss carryforwards in 1996 and (iv) a credit resulting from the recognition of the projected utilization of federal operating loss carryforwards in 1997. Recognition of the utilization of federal operating loss carryforwards is based upon a projection of the Company's taxable income for 1997. At December 31, 1996, the Company's valuation allowance was adjusted to recognize the change in the Company's deferred tax assets and deferred tax liabilities and the credit resulting from the recognition of the projected utilization of federal operating loss carryforwards in 1997. During 1996, the Company's valuation allowance decreased by $2,124,000 primarily because of the expiration, during 1996, of $2,177,000 of capital loss carryforwards that were fully reserved at December 31, 1995. The income tax provisions otherwise recognizable during 1995 and 1994 were reduced by the utilization of portions of the Company's tax loss carryforwards and tax credit carryforwards. In 1995, the income tax provision was also reduced by $265,000 because the Company's valuation allowance was reduced by the recognition of that portion of the federal operating loss carryforwards that the Company expected to utilize during 1996. The Company's valuation allowance decreased $703,000 in 1995. (For additional information concerning income tax expense and the utilization of tax loss carryforwards and tax credit carryforwards, see Note 9 to the consolidated financial statements in Part II, Item 8.) LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES During 1996, the operating activities of the Company provided $8,054,000 of cash. During 1996, cash was used to fund increased levels of accounts receivable, inventories and prepaid expenses and other current assets. Accounts receivable increased by $3,861,000 during 1996 because of increased levels of sales during the fourth quarter of 1996, compared to the fourth quarter of 1995, and because the receipt of a $1,612,000 payment from the Company's largest customer was delayed until shortly after year-end. Inventories increased by $794,000 during 1996 primarily because of the increased production during the fourth quarter of 1996. Prepaid expenses and other current assets increased by $1,110,000 primarily because of increased customer tooling in process. During 1996, cash provided by operating activities included $3,706,000 of cash provided by increased accounts payable. At December 31, 1996, the Company's accounts payable included approximately $4,305,000 relating to the purchase of new property, equipment and customer-owned tooling, compared to $2,876,000 relating to such activities at December 31, 1995. After excluding accounts payable balances related to the purchase of new property, equipment and customer-owned tooling, accounts payable to trade creditors increased by $2,277,000, from $7,752,000 at December 31, 1995, to $10,029,000 at December 31, 1996. The increase in accounts payable of all types resulted primarily from the extension of accounts payable balances beyond terms that the Company believes are customary in the industries in which it operates and, to a lesser extent, the higher levels of production that occurred during the fourth quarter of 1996. In the first quarter of 1997, the Company completed new financing arrangements that permitted the Company to reduce -13- 16 its accounts payable balances to levels that the Company believes are customary in the industries in which it operates. Compared to December 31, 1995, accrued expenses at December 31, 1996, included increased accruals for employee wages and incentive compensation and related taxes, other employee benefits and legal expenses. INVESTING ACTIVITIES During 1996, the investing activities of the Company used $17,121,000 of cash, primarily for capital expenditures. The following table sets forth capital expenditures for the Rubber Group, the Metals Group and the corporate office during 1996, 1995 and 1994 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ----------------------------------- 1996 1995 1994 TOTAL ---- ---- ---- ----- Rubber Group: Equipment $ 5,869 $ 8,487 $ 6,537 $ 20,893 Land and buildings 2,959 4,097 2,114 9,170 -------- ------- -------- -------- 8,828 12,584 8,651 30,063 -------- ------- -------- -------- Metals Group: Equipment 6,012 3,384 6,622 16,018 Land and buildings 840 1,918 34 2,792 -------- ------- -------- -------- 6,852 5,302 6,656 18,810 -------- ------- -------- -------- Corporate offices: Equipment 28 16 12 56 Land and buildings - - - - -------- ------- -------- -------- 28 16 12 56 -------- ------- -------- -------- Total Company: Equipment 11,909 11,887 13,171 36,967 Land and buildings 3,799 6,015 2,148 11,962 -------- ------- -------- -------- $ 15,708 $ 17,902 $ 15,319 $ 48,929 ======== ======= ======== ========
In 1994, the Company commenced a major expansion and renovation program, that continued through 1996. Net sales increased from $88,532,000 in 1994 to $104,298,000 in 1995 and to $114,872,000 in 1996. The Company estimates that approximately $5,000,000 of capital expenditures are required annually to maintain or replace existing equipment or to effect cost reductions and that the balance of capital expenditures is for the expansion of facilities and the purchase of production equipment to meet increased demand for component parts. The Company presently estimates that capital expenditures will total approximately $14,500,000 during 1997, including $6,300,000 at the Rubber Group and $8,200,000 at the Metals Group. At December 31, 1996, the Company had commitments outstanding for capital expenditures totaling approximately $6,400,000. The Company anticipates that the funds needed for capital expenditures -14- 17 in 1997 will be provided by cash flows from operations and from borrowings. (See also "Liquidity" in this Item 7.) During 1996, $949,000 of funds were used to pay for a portion of the cost of certain tooling that was purchased by customers and is being used by the Company to produce component parts. An additional $626,000 of funds were used to manufacture or purchase tooling that was sold to customers with payment terms exceeding one year. FINANCING ACTIVITIES During 1996, the financing activities of the Company provided $9,136,000 of cash. During 1996, the Company refinanced $4,035,000 of term loans and $12,042,000 of loans outstanding under the Company's revolving line of credit with new term loans in the aggregate amount of $16,077,000. The new term loans were payable in monthly installments through 2000, 2001 or 2002 and were secured by the Company's receivables, inventories and equipment and by certain of the Company's real property. During 1996, borrowings under the revolving line of credit increased by $2,930,000. LIQUIDITY The Company finances its operations with cash from operating activities and a variety of financing arrangements including loans under a revolving line of credit and term loans. The ability of the Company to borrow under its revolving line of credit is subject to certain availability formulas based on the levels of accounts receivable and inventories of the Company and covenant compliance. During the first quarter of 1997, the Company entered into several new financing arrangements. o In January 1997, the Company borrowed $1,600,000 collateralized by a mortgage on the Company's facility in LaGrange, Georgia, and by other assets of the Company. Proceeds from the new term loan refinanced an existing term loan in the amount of $1,071,000 and $529,000 of loans outstanding under the Company's revolving line of credit. The new term loan bears interest at the fixed rate of 9.37% and is repayable in 59 equal monthly installments of $9,000 with a final payment of $1,076,000 due in 2002. o In the first quarter of 1997, the Company borrowed $1,862,000 for an addition to its Casa Grande, Arizona, facility. Proceeds from the new construction loan refinanced an existing term loan in the amount of $322,000, $918,000 of loans outstanding under the Company's revolving line of credit and $622,000 of capital expenditures. The Company may borrow up to a total of $3,000,000. At the completion of construction, the loan will convert to a term loan payable in 59 equal monthly principal installments of $17,000 with a final payment of $2,017,000 due in 2002. The loan currently bears interest at a rate per annum of prime plus 0.75%. o In March 1997, the Company amended certain of its financing agreements to, among other things, extend the expiration date of the Company's revolving line of credit from January 2, 1998, to April 1, 2000, and to obtain term loans in the aggregate amount of $27,907,000 to refinance $19,957,000 of existing term loans and $7,950,000 of loans outstanding under the revolving line of credit. The new term loans bear interest at the rate per annum of prime plus 0.25% or the London Interbank Offered Rate ("LIBOR") plus 2.75%. New term loans in the amount of $25,289,000 are payable in 84 monthly principal installments of $301,000. New term loans in the amount of $2,618,000 are payable in 60 monthly principal installments of $44,000. The Company obtained two equipment lines of credit in the aggregate amount of $6,882,000, which will be used to fund new equipment purchases. -15- 18 As a result of the refinancings in the first quarter of 1997, $6,856,000 of loans outstanding under the revolving line of credit were classified as long-term debt at December 31, 1996. The Company operates with high financial leverage and limited liquidity. During 1996, aggregate indebtedness of the Company, excluding accounts payable, increased by $9,613,000 to $77,699,000. As a result of increased borrowings during the first quarter of 1997, the aggregate indebtedness of the Company, excluding accounts payable, totaled $86,256,000 as of March 26, 1997. Cash interest and principal payments totaled $8,167,000 and $5,279,000, respectively, in 1996. During 1997, cash interest and principal payments are projected to total approximately $8,600,000 and $5,200,000, respectively. At March 26, 1997, availability under the Company's revolving line of credit totaled $1,540,000 before outstanding checks of approximately $1,070,000 were deducted. The Company had a net working capital deficit of $4,322,000 at December 31, 1996. Except for certain loans which were refinanced under long-term agreements before the consolidated financial statements for the year ended December 31, 1996 were issued, loans outstanding under the revolving line of credit classified as short-term debt at December 31, 1996 totaled $7,326,000. The working capital deficit results, in part, from the classification of loans outstanding under the Company's revolving line of credit as current liabilities. These loans are classified as current liabilities because the Company's cash receipts are automatically used to reduce the loans outstanding under the revolving line of credit on a daily basis, by means of a lock-box sweep agreement, and the lender has the ability to modify certain terms of the revolving line of credit without the prior approval of the Company. The expiration date of the revolving line of credit is April 1, 2000. During 1997, the Company anticipates that, in addition to its projected cash flows from operations, new borrowings in the amount of approximately $10,200,000 will be required to meet the Company's working capital, capital expenditure and debt service requirements. Peak borrowing requirements during 1997 of approximately $89,000,000 are projected to occur during August 1997, the month in which the scheduled payment of $2,022,000 of interest on the Company's 12.75% senior subordinated notes is due. Although no assurance can be given, the Company believes that, based on its current business plan, cash flow from operations and borrowings available to the Company under its various financing agreements will enable the Company to meet presently anticipated working capital, debt service and capital expenditure requirements of its existing operations through 1997 and thereafter. In the event that the Company's business plan proves to be inaccurate and if remedial actions fail to provide the cash flow necessary to meet the Company's anticipated working capital needs, the Company might have to delay certain capital expenditures or take actions to reduce operating expenses. Certain of the Company's financing arrangements, which are secured by substantially all of the Company's assets and the stock of LCI, contain covenants with respect to the maintenance of minimum levels of working capital, net worth and cash flow coverage and place certain restrictions on the Company's business and operations, including restrictions on the incurrence or assumption of additional debt, the sale of all or substantially all of the Company's assets, the funding of capital expenditures, the purchase of common stock, the redemption of preferred stock and the payment of cash dividends. ACQUISITIONS The Company is seeking to acquire assets and businesses related to its current operations with the intention of expanding its existing operations. Depending on the size, terms and other aspects of such acquisitions, the Company may be required to obtain additional financing and, in some cases, the consents -16- 19 of its existing lenders. The Company's ability to effect acquisitions may be dependent upon its ability to obtain such financing and, to the extent applicable, consents. INFLATION Many customers of the Company will not accept price increases from the Company to compensate for increases in labor and overhead expenses that result from inflation. To the extent practical, fluctuations in material costs are passed through to customers. Although the Company may, in certain cases, commit to a fixed material cost for a specified time period, generally, a similar offsetting commitment is made to the Company by its material supplier. To offset inflationary costs that the Company cannot pass through to its customers and to maintain or improve its operating margins, the Company attempts to improve its production efficiencies and manufacturing processes. ENVIRONMENTAL MATTERS The Company has been named from time to time as one of numerous potentially responsible parties under applicable environmental laws for restoration costs at waste disposal sites, as a third-party defendant in cost recovery actions pursuant to applicable environmental laws and as a defendant or potential defendant in various other environmental law matters. It is the Company's policy to record accruals for such matters when a loss is deemed probable and the amount of such loss can be reasonably estimated. The various actions to which the Company is or may be a party in the future are at various stages of completion; although there can be no assurance as to the outcome of existing or potential environmental litigation, in the event such litigation were commenced, based upon the information currently available to the Company, the Company believes that the outcome of such actions will not have a material adverse effect upon its financial position. -17- 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS
Page ---- Report of Independent Auditors.........................................................19 Consolidated Balance Sheets at December 31, 1996 and 1995..............................20 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.....................................................22 Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1996, 1995 and 1994.....................................23 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.....................................................24 Notes to Consolidated Financial Statements.............................................26
-18- 21 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Lexington Precision Corporation and Subsidiary We have audited the accompanying consolidated balance sheets of Lexington Precision Corporation and subsidiary at December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the table of contents in Part IV, Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lexington Precision Corporation and subsidiary at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Cleveland, Ohio March 24, 1997 -19- 22 LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
DECEMBER 31 -------------------- 1996 1995 ---- ---- ASSETS: Current assets: Cash $ 187 $ 118 Accounts receivable 16,820 12,959 Inventories 8,899 8,105 Prepaid expenses and other assets 3,211 2,101 Deferred income taxes 1,728 1,195 --------- --------- Total current assets 30,845 24,478 --------- --------- Property, plant and equipment: Land 1,533 1,525 Buildings 19,915 17,190 Equipment 68,232 57,110 --------- --------- 89,680 75,825 Less accumulated depreciation 36,380 30,887 --------- --------- Property, plant and equipment, net 53,300 44,938 --------- --------- Excess of cost over net assets of businesses acquired, net 9,410 9,726 --------- --------- Other assets, net 3,475 2,734 --------- --------- $ 97,030 $ 81,876 ========= =========
See notes to consolidated financial statements. (Continued) -20- 23 LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) (THOUSANDS OF DOLLARS)
DECEMBER 31 -------------------- 1996 1995 ---- ---- LIABILITIES AND STOCKHOLDERS' DEFICIT: Current liabilities: Accounts payable $ 14,334 $ 10,628 Accrued expenses 8,282 6,572 Short-term debt 7,326 7,522 Current portion of long-term debt 5,225 4,531 --------- --------- Total current liabilities 35,167 29,253 --------- --------- Long-term debt, excluding current portion 65,148 56,033 --------- --------- Deferred income taxes and other long-term liabilities 1,307 1,056 --------- --------- Redeemable preferred stock, $100 par value, at redemption value 930 1,020 Less excess of redemption value over par value 465 510 --------- --------- Redeemable preferred stock at par value 465 510 --------- --------- Stockholders' deficit: Common stock, $0.25 par value, 10,000,000 shares authorized, 4,348,951 shares issued 1,087 1,087 Additional paid-in-capital 12,395 12,547 Accumulated deficit (18,322) (18,305) Cost of common stock in treasury, 85,915 and 120,915 shares, respectively (217) (305) --------- --------- Total stockholders' deficit (5,057) (4,976) --------- --------- $ 97,030 $ 81,876 ========= =========
See notes to consolidated financial statements. -21- 24 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 ---------------------------------------- 1996 1995 1994 ---- ---- ---- Net sales $ 114,872 $ 104,298 $ 88,532 Cost of sales 95,051 84,761 71,634 --------- --------- --------- Gross profit 19,821 19,537 16,898 Selling and administrative expenses 11,256 9,880 8,796 --------- --------- --------- Income from operations 8,565 9,657 8,102 Interest expense 8,542 7,585 6,272 Other income - 641 536 --------- --------- --------- Income before income taxes 23 2,713 2,366 Provision for income taxes 40 425 34 --------- --------- --------- Net income/(loss) (17) 2,288 2,332 Preferred stock dividends 41 44 47 Excess of redemption value over par value of preferred stock redeemed 45 45 45 --------- --------- --------- Net income/(loss) attributable to common stockholders $ (103) $ 2,199 $ 2,240 ========= ========= ========= Net income/(loss) per primary and fully diluted common share: Primary $ (0.02) $ 0.52 $ 0.53 ========= ========= ========= Fully diluted $ (0.02) $ 0.49 $ 0.51 ========= ========= =========
See notes to consolidated financial statements. -22- 25 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL COMMON PAID-IN- ACCUMULATED TREASURY STOCKHOLDERS' STOCK CAPITAL DEFICIT STOCK DEFICIT ----- ------- ------- ----- ------- Balance at December 31, 1993 $ 1,087 $ 12,975 $ (22,925) $ (760) $ (9,623) Net income - - 2,332 - 2,332 Preferred stock dividends and redemptions - (92) - - (92) Issuance of common shares - (224) - 392 168 -------- -------- --------- -------- -------- Balance at December 31, 1994 $ 1,087 $ 12,659 $ (20,593) $ (368) $ (7,215) ======== ======== ========= ======== ======== Net income - - 2,288 - 2,288 Preferred stock dividends and redemptions - (89) - - (89) Issuance of common shares - (23) - 63 40 -------- -------- --------- -------- -------- Balance at December 31, 1995 $ 1,087 $ 12,547 $ (18,305) $ (305) $ (4,976) ======== ======== ========= ======== ======== Net loss - - (17) - (17) Preferred stock dividends and redemptions - (86) - - (86) Issuance of common shares - (66) - 88 22 -------- -------- --------- -------- -------- Balance at December 31, 1996 $ 1,087 $ 12,395 $ (18,322) $ (217) $ (5,057) ======== ======== ========= ======== ========
See notes to consolidated financial statements. -23- 26 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31 ----------------------------------------- 1996 1995 1994 ---- ---- ---- OPERATING ACTIVITIES: Net income/(loss) $ (17) $ 2,288 $ 2,332 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation 7,129 5,228 4,239 Amortization 1,567 1,221 821 Deferred income taxes (320) (265) - Loss/(gain) on sale of property, plant and equipment 6 (668) - Gain on sale of marketable equity securities - - (336) Gain on sale of real estate - - (200) Changes in operating assets and liabilities that provided/(used) cash: Receivables (3,861) (481) (3,399) Inventories (794) 81 (2,488) Prepaid expenses and other assets (1,110) (92) (1,149) Accounts payable 3,706 139 6,037 Accrued expenses 1,710 382 (110) Other 38 27 210 -------- --------- ----------- Net cash provided by operating activities 8,054 7,860 5,957 -------- --------- ----------- INVESTING ACTIVITIES: Purchases of property, plant and equipment (15,708) (17,902) (15,319) Decrease in equipment deposits, net 37 20 229 Proceeds from sales of property, plant and equipment 211 998 614 Proceeds from sale of marketable securities - - 338 Expenditures for tooling owned by customers (949) (958) (824) Other (712) (155) (4) -------- --------- ----------- Net cash used by investing activities (17,121) (17,997) (14,966) -------- --------- -----------
See notes to consolidated financial statements. (Continued) -24- 27 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31 -------------------------------------- 1996 1995 1994 ---- ---- ---- FINANCING ACTIVITIES: Net increase/(decrease) in short-term debt $ (196) $ 2,470 $ 5,052 Proceeds from issuance of long-term debt 22,031 15,566 9,847 Repayment of long-term debt (12,257) (7,263) (5,735) Redemption of preferred stock (90) (90) (90) Preferred stock dividends (41) (44) (47) Issuance of common stock 22 40 90 Other (333) (503) (62) --------- -------- -------- Net cash provided by financing activities 9,136 10,176 9,055 --------- -------- -------- Net increase in cash 69 39 46 Cash at beginning of year 118 79 33 --------- -------- -------- Cash at end of year $ 187 $ 118 $ 79 ========= ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 8,167 $ 7,299 $ 9,779 Income taxes paid $ 381 $ 99 $ 26
See notes to consolidated financial statements. -25- 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Lexington Precision Corporation and its subsidiary (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities at the time of purchase of less than three months to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory levels by principal classification are set forth below (dollar amounts in thousands):
DECEMBER 31 ------------------- 1996 1995 ---- ---- Finished goods $ 3,615 $ 3,040 Work in process 2,360 2,213 Raw materials and purchased parts 2,924 2,852 ------ ------ $ 8,899 $ 8,105 ====== ======
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated principally on the straight-line method over the estimated useful lives of the various assets (15 to 32 years for buildings and 3 to 10 years for equipment). At December 31, 1996 the Company had commitments for the purchase of property, plant and equipment totaling approximately $6,400,000. When property is retired or otherwise disposed of, the related cost and accumulated depreciation are eliminated. Maintenance and repair expenses were $3,612,000, $3,167,000 and $2,484,000 for 1996, 1995 and 1994, respectively. Maintenance and repair expenses are charged against income as incurred, while major improvements are capitalized. -26- 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED Excess of cost over net assets of businesses acquired (goodwill) is amortized on the straight-line method, principally over 40 years. At December 31, 1996 and 1995, accumulated amortization of goodwill was $2,580,000 and $2,264,000, respectively. During each of 1996, 1995 and 1994, amortization of goodwill totaled $316,000. In accordance with Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("FAS 121"), the carrying value of goodwill is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Based upon such review, the Company believes that no impairment of goodwill existed at December 31, 1996. NET INCOME OR LOSS PER COMMON SHARE Primary and fully diluted net income or loss per common share is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding. For purposes of the net income or loss per share calculations, net income or loss attributable to common stockholders is reduced by preferred stock dividends and the amount by which payments made to redeem shares of preferred stock exceed the par value of such shares. Common equivalent shares are those shares issuable upon the assumed exercise of outstanding dilutive stock options and conversion of convertible preferred stock, calculated using the treasury stock method. Fully diluted net income per share also assumes conversion of the 14% junior subordinated convertible notes, due May 1, 2000, if dilutive. REVENUE RECOGNITION Substantially all of the Company's revenues result from the sale of rubber and metal component parts. The Company recognizes revenue from product sales upon shipment and passage of title to customers according to shipping schedules and terms of sale mutually agreed to by the Company and the customer. FINANCIAL ACCOUNTING STANDARD NO. 121 -- IMPAIRMENT OF LONG-LIVED ASSETS During the first quarter of 1996, the Company adopted FAS 121, which requires that losses be recorded on long-lived assets used in operations where indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of such assets. The Company's adoption of FAS 121 did not affect the Company's financial position or results of operations. NOTE 2 -- PREPAID EXPENSES AND OTHER ASSETS At December 31, 1996 and 1995, other current assets included $2,249,000 and $1,790,000, respectively, of tooling manufactured or purchased by the Company pursuant to purchase orders issued by customers of the Company. Upon customer approval of the components produced by such tooling, which normally takes less than 90 days, the customer pays for the tooling in accordance with previously agreed-upon terms. -27- 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 -- OTHER NONCURRENT ASSETS The Company has paid for a portion of the cost of certain tooling that was purchased by customers and is being used by the Company to produce component parts. The payments have been recorded as a noncurrent asset and are amortized on a straight-line basis over three years or, if less, the period during which the tooling is expected to produce components. At December 31, 1996 and 1995, other noncurrent assets of the Company included $1,449,000 and $1,322,000, respectively, of the unamortized portion of such capitalized payments. During 1996, 1995 and 1994, the Company amortized $822,000, $626,000 and $272,000, respectively, of such capitalized payments. NOTE 4 -- ACCRUED EXPENSES Accrued expenses at December 31, 1996 and 1995 are summarized below (dollar amounts in thousands):
DECEMBER 31 ------------------ 1996 1995 ---- ---- Interest $ 1,754 $ 1,717 Employee fringe benefits 2,366 1,196 Salaries and wages 1,938 1,562 Taxes 968 1,264 Other 1,256 833 ------ ------ $ 8,282 $ 6,572 ====== ======
NOTE 5 -- DEBT At December 31, 1996 and 1995, short-term debt consisted of loans outstanding under the Company's revolving line of credit. Except for certain loans that were refinanced under long-term agreements before the consolidated financial statements were issued, the loans outstanding under the revolving line of credit at December 31, 1996 and 1995 have been classified as short-term debt because the Company's cash receipts are automatically used to reduce the loans outstanding under the revolving line of credit on a daily basis, by means of a lock-box sweep arrangement, and its lender has the ability to modify certain terms of the revolving line of credit without the prior approval of the Company. At December 31, 1996 and 1995, letters of credit outstanding under the revolving line of credit totaled $968,000 and $1,151,000, respectively. In March 1997, the Company and its lender amended the revolving line of credit to, among other things, extend the expiration date from January 2, 1998, to April 1, 2000, and to reduce the rate of interest charged on loans outstanding under the revolving line of credit from LIBOR plus 3.25% or prime plus 1.00% to LIBOR plus 2.75% or prime plus 0.25%. At December 31, 1996, 1995 and 1994, the weighted average interest rates on borrowings under the revolving line of credit were 9.0%, 9.1% and 10.0%, respectively. -28- 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Long-term debt at December 31, 1996 and 1995 is summarized below (dollar amounts in thousands):
DECEMBER 31 -------------------------- 1996 1995 ---- ---- Secured debt: Revolving line of credit, LIBOR plus 3.25% or prime plus 1% (9.0% at December 31, 1996) $ 6,856(1) $ 3,730(1) Term loan payable in equal monthly installments, final maturity in 2000, 75% of prime (6.19% at December 31, 1996) 398(2) 498 Term loans payable in equal monthly installments, final maturities in 2000, LIBOR plus 3% (8.69% at December 31, 1996) 4,369(2) - Term loan payable in increasing monthly installments, final maturity in 2000, 12% 2,136 2,635 Term loans payable in equal monthly installments based on a 180-month amortization schedule, final maturities in 2001, 8.37% 3,389 - Term loan payable in equal monthly installments, final maturity in 2001, LIBOR plus 3% or prime plus 0.75% (8.74% at December 31, 1996) 1,560 - Term loans payable in equal monthly installments, final maturities in 2002, LIBOR plus 3.25% or prime plus 1% (8.83% at December 31, 1996) 16,211(2)(3) 19,572(3) Term loans payable in equal monthly installments, final maturities in 2003, LIBOR plus 3.25% or prime plus 1% (8.83% at December 31, 1996) 1,415(2)(3) 916(3) Term loans payable in equal monthly installments, final maturities in 2003, LIBOR plus 3.25% or prime plus 1% (8.83% at December 31, 1996) 734(3) - Unsecured debt: 12.75% Senior subordinated notes, due 2000 31,717 31,682 14% Junior subordinated convertible notes, due 2000, convertible into 440,000 shares of common stock 1,000 1,000 14% Junior subordinated nonconvertible notes, due 2000 347 347 Other unsecured obligations 241 184 ------- ------- Total long-term debt 70,373 60,564 Less current portion 5,225 4,531 ------- ------- Total long-term debt, excluding current portion $ 65,148 $ 56,033 ======= =======
(1) Classified as long-term debt because the loans were refinanced under long-term agreements before the consolidated financial statements for the respective years were issued. (2) Refinanced under long-term agreements before the consolidated financial statements were issued. Long-term and current portions are based upon the terms of the new borrowings. (3) Maturity date can be accelerated by the lender if the Company's revolving line of credit expires prior to the stated maturity date of the term loan. -29- 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The loans outstanding under the revolving line of credit and the secured term loans listed above are collectively collateralized by substantially all of the assets of the Company, including accounts receivable, inventory, equipment, certain real estate and the stock of the Company's subsidiary. During the first quarter of 1997, the Company entered into several new financing arrangements, including the amendment of its revolving line of credit. In connection with these financings, the Company obtained term loans in the aggregate amount of $31,369,000. Proceeds from the new term loans refinanced $21,350,000 of existing term loans, $9,397,000 of loans outstanding under the revolving line of credit and $622,000 of capital expenditures. Term loans obtained during the first quarter of 1997 are listed below (dollar amounts in thousands): Term loan payable in equal monthly installments, final maturity in 2002, LIBOR plus 2.75% $ 2,618 Term loan payable in equal monthly installments based on a 180-month amortization schedule, final maturity 2002, 9.37% 1,600 Term loan, interest only at prime plus 0.75% through June 1997 then payable in equal monthly installments based on a 180-month amortization schedule, final maturity in 2002, interest fixed in June 1997 at 5-year treasury note rate plus 3% 1,862(1) Term loans payable in equal monthly installments, final maturities in 2004, LIBOR plus 2.75% or prime plus 0.25% 25,289(2) -------- $ 31,369 ========
(1) Represents borrowings under a construction line of credit and related permanent financing totaling $3,000,000. (2) Maturity date can be accelerated by the lender if the Company's revolving line of credit is not renewed by April 1, 2000, the current expiration date of the revolving line of credit. The secured term loans listed above are collectively collateralized by substantially all of the assets of the Company, including accounts receivable, inventory, equipment, certain real estate and the stock of the Company's subsidiary. SCHEDULED MATURITIES OF LONG-TERM DEBT Scheduled maturities of long-term debt for the years ending December 31 are listed below (dollar amounts in thousands): 1997 $ 5,225 1998 5,264 1999 5,336 2000 37,899 2001 6,591 2002 and future years 10,058 -------- $ 70,373 ========
-30- 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESTRICTIVE COVENANTS Certain of the Company's financing arrangements contain covenants with respect to the maintenance of minimum levels of working capital, net worth and cash flow coverage and place certain restrictions on the Company's business and operations, including restrictions on the incurrence or assumption of additional debt, the sale of all or substantially all of the Company's assets, the funding of capital expenditures, the purchase of common stock, the redemption of preferred stock and the payment of cash dividends. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company believes that, at December 31, 1996, the fair value of the secured term loans and the loans outstanding under the revolving line of credit approximately equaled the carrying value of such loans. There is a limited market for the 12.75% senior subordinated notes, and trading data is not publicly available. The Company believes that, based on informal discussions with brokers and purchasers who were involved in trades of the 12.75% senior subordinated notes, these notes traded at discounts of between 7% and 20% of their carrying value during 1996. The Company believes that the 14% junior subordinated nonconvertible notes would be valued at a percentage discount equal to or in excess of the percentage discount that might exist for the 12.75% senior subordinated notes and that the 14% junior subordinated convertible notes would be valued at approximately carrying value because, at December 31, 1996, they were convertible at a price per common share of $2.2727, which represented only a 7% premium above the last reported trade of the Company's common stock in 1996. Fair value estimates of the Company's securities are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined definitively. Any change in the market for similar securities, the financial performance of the Company or interest rates could materially affect the fair value of all of the Company's securities. FINANCIAL LEVERAGE AND LIQUIDITY The Company operates with substantial financial leverage and limited liquidity. As a result, the impact of any negative event may have a greater adverse effect upon the Company than if the Company operated with lower financial leverage and greater liquidity. NOTE 6 -- PREFERRED STOCK REDEEMABLE PREFERRED STOCK Each share of the Company's $8.00 cumulative convertible redeemable preferred stock, series B ("Redeemable Preferred Stock"), is (i) entitled to one vote, (ii) redeemable for $200 plus accumulated and unpaid dividends, (iii) convertible into 14.8148 shares of common stock (subject to adjustment) and (iv) entitled, upon voluntary or involuntary liquidation and after payment of the debts and other liabilities of the Company, to a liquidation preference of $200 plus accumulated and unpaid dividends. On November 30, 1996, 450 shares of Redeemable Preferred Stock were redeemed for $90,000. Further redemptions of $90,000 -31- 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are scheduled on November 30 of each year in order to retire annually 450 shares of Redeemable Preferred Stock. Scheduled redemptions for the years 1997 through 2001 aggregate $450,000. For accounting purposes, when such stock is redeemed, the redeemable preferred stock account is reduced by the $100 par value of each share redeemed and paid-in-capital is charged for the $100 excess of redemption value over par value of each share redeemed. Under the terms of the Redeemable Preferred Stock, the Company may not declare any cash dividends on its common stock if there exists a dividend arrearage on the Redeemable Preferred Stock. During 1996, the Company paid the holders of the Redeemable Preferred Stock regular dividends aggregating $8.00 per share, and no dividends were in arrears at December 31, 1996. OTHER AUTHORIZED PREFERRED STOCK The Company's Restated Certificate of Incorporation provides that the Company is authorized to issue 2,500 shares of 6% cumulative convertible preferred stock, series A, $100 par value. At December 31, 1996 and 1995, no shares of the series A preferred stock were issued or outstanding. The Company's Restated Certificate of Incorporation also provides that the Company is authorized to issue 2,500,000 shares of preferred stock having a par value of $1 per share. At December 31, 1996 and 1995, no shares of the $1 par value preferred stock were issued or outstanding. NOTE 7 -- COMMON STOCK AND STOCK OPTIONS COMMON STOCK, $0.25 PAR VALUE At December 31, 1996 and 1995, there were 4,263,036 and 4,228,036 shares, respectively, of the Company's common stock outstanding and 350,000 shares reserved for issuance under the Company's Restricted Stock Award Plan. During 1995, the Financial Accounting Standards Board issued "Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation" ("FAS 123"), which established new standards for the measurement and recognition of stock-based compensation but allows entities to continue using "Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees" ("APB 25") to account for the issuance of stock-based compensation with disclosure of the pro forma effect of stock-based compensation on net income and net income per share as if FAS 123 had been adopted. FAS 123 is effective for 1996. The Company will continue to use the provisions of APB 25 to account for stock-based compensation. The adoption of FAS 123 would have no effect on net income or net income per share in 1996. RESTRICTED STOCK AWARD PLAN The Company has a restricted stock award plan pursuant to which the Company may award restricted shares of common stock to officers and key employees. With respect to restricted shares, the Company recognizes compensation expense on the date of grant equal to the then-current market value of the Company's common shares. Plan participants are entitled to receive cash dividends (if any) and to vote their respective shares. The restricted shares vest at a rate set by the Compensation Committee of the Company's Board of Directors, which has generally set the rate at 25% per year on each of the first four anniversaries of the award date. Unless otherwise amended, the restricted stock award plan expires on December 31, 2001. -32- 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS No compensation expense has been incurred for the Company's restricted stock award plan during 1996, 1995 or 1994 because no restricted stock was awarded during such years. At December 31, 1996 and 1995, 350,000 shares of common stock were available for grant under the terms of the restricted stock award plan. STOCK OPTION PLAN The Company had an incentive stock option plan that provides for grants to officers and key employees of incentive and nonqualified stock options to purchase shares of the Company's common stock. The exercise price of an option was established by the Compensation Committee of the Company's Board of Directors at the date of grant at a price not less than the then-current market price of the Company's common stock. During 1996, 1995 and 1994, no options were granted. At December 31, 1996, the stock option plan was no longer in effect because no options to purchase common shares were outstanding and no options were available for future grant. The Company applies the intrinsic value method as set forth in APB 25 and related interpretations to account for stock options granted to employees to purchase common stock under the Company's incentive stock option plan. Under this method, no compensation expense is recognized on the grant date because on that date the option price equals the market price of the underlying common shares. Activity in the Company's incentive stock option plan for 1996, 1995 and 1994 is summarized below:
WEIGHTED-AVERAGE SHARES EXERCISE PRICE UNDER OPTION --------------------- ---------------- Outstanding at December 31, 1993 $1.345 125,000 Granted None Exercised $1.625 55,000 Forfeited $1.625 10,000 ---------- Outstanding at December 31, 1994 $1.042 60,000 ========== Granted None Exercised $1.625 25,000 Forfeited None ---------- Outstanding at December 31, 1995 $0.625 35,000 ========== Granted None Exercised $0.625 35,000 Forfeited None ---------- Outstanding at December 31, 1996 None ==========
-33- 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 -- EMPLOYEE BENEFIT PLANS RETIREMENT AND SAVINGS PLAN The Company maintains a retirement and savings plan (the "Plan") pursuant to Section 401 of the Internal Revenue Code (i.e., a 401(k) plan). All employees of the Company are entitled to participate in the Plan after meeting the eligibility requirements. Generally, employees may contribute up to 15% of their annual compensation but not more than prescribed amounts as established by the United States Secretary of the Treasury. Employee contributions, up to a maximum of 6% of an employee's compensation, are matched 50% by the Company. During 1996, 1995 and 1994, matching contributions made by the Company totaled approximately $443,000, $372,000 and $339,000, respectively. In addition, the Company has the option to make a profit-sharing contribution to the Plan. The size of the profit-sharing contribution is set annually at the end of each Plan year by the Company's Board of Directors. Provisions recorded for profit-sharing contributions authorized by the Company's Board of Directors totaled $489,000, $401,000 and $370,000 during 1996, 1995 and 1994, respectively. Company contributions to the Plan vest at a rate of 20% per year commencing in the participant's third year of service until the participant becomes fully vested after seven years of service. INCENTIVE COMPENSATION PLAN The Company has incentive compensation plans that provide for the payment of cash bonus awards to certain officers and key employees of the Company. The Compensation Committee of the Company's Board of Directors, which consists of two directors who are not employees of the Company, oversees the administration of the plans and approves the cash bonus awards. Bonus awards for eligible operating company employees are based upon the attainment of predetermined profit targets at each operating company and the achievement of other objectives. Bonus awards for corporate officers are based upon the attainment of predetermined consolidated profit targets and the achievement of other objectives. Accruals for bonuses totaled $858,000, $560,000 and $214,000 at December 31, 1996, 1995 and 1994, respectively. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company maintains programs to fund certain costs related to a prescription drug card program for retirees of one of its former divisions and to fund insurance premiums for certain retirees of one of its divisions. At December 31, 1996, the Company's accumulated postretirement benefit obligation totaled $447,000. The Company is amortizing its accumulated postretirement benefit obligation over the remaining life expectancy of the participants (i.e., an annual rate of $57,000). -34- 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The funded status of the postretirement benefits at December 31, 1996, 1995 and 1994 is set forth below (dollar amounts in thousands):
DECEMBER 31 -------------------------------- 1996 1995 1994 ---- ---- ---- Accumulated postretirement benefit obligation: obligation: Retirees $ 376 $ 500 $ 469 Fully eligible active plan participants 17 16 13 Other active plan participants 54 48 39 ----- ----- ----- 447 564 521 Unrecognized net gain 181 83 156 Unrecognized transition obligation (464) (521) (578) ----- ----- ----- Accrued postretirement benefit cost $ 164 $ 126 $ 99 ===== ===== =====
Net periodic postretirement benefit costs for 1996, 1995 and 1994 are summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 -------------------------------- 1996 1995 1994 ---- ---- ---- Service cost $ 1 $ 1 $ 1 Interest cost 39 41 41 Net amortization and deferral 46 42 46 ----- ----- ----- Net periodic postretirement benefit cost $ 86 $ 84 $ 88 ===== ===== =====
The weighted average annual rate of increase in the per capita cost of covered benefits for the prescription drug card program is assumed to be 9% in 1997 and is projected to decrease gradually thereafter until it reaches 5% in 2005. Changing the assumed rate of increase in the prescription drug cost by one percentage point in each year would not have a significant effect on the accumulated postretirement benefit obligation. The Company's program to fund certain insurance premiums for retirees of one of its divisions has a defined dollar benefit and is therefore unaffected by increases in health care costs. The weighted average discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1996 and 1995, was 7.5% and 7.25%, respectively. The change in the discount rate at December 31, 1996, reflects higher prevailing interest rates. -35- 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 -- INCOME TAXES PROVISION FOR INCOME TAXES The components of the provisions for income taxes in 1996, 1995 and 1994 are set forth below (dollar amounts in thousands): YEARS ENDED DECEMBER 31 ------------------------------- 1996 1995 1994 ---- ---- ---- Current: Federal $ 255 $ 537 $ 34 State 105 153 - ----- ----- ---- 360 690 34 Deferred: Federal (320) (265) - ----- ----- ---- Provision for income taxes $ 40 $ 425 $ 34 ===== ===== ====
During 1996, the provision for income taxes consisted of (i) federal alternative minimum taxes, (ii) state income taxes, (iii) the reversal of a credit resulting from the recognition, in 1995, of the projected utilization of federal operating loss carryforwards in 1996 and (iv) a credit resulting from the recognition of the projected utilization of federal operating loss carryforwards in 1997. PRO FORMA PROVISION FOR INCOME TAXES AT THE FEDERAL STATUTORY RATE Reconciliations of the pro forma provision for income taxes at the federal statutory rate to the Company's recorded provision for income taxes in 1996, 1995 and 1994 are set forth below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ---------------------------------- 1996 1995 1994 ---- ---- ---- Federal statutory income tax provision $ 8 $ 922 $ 804 Change in valuation allowance 53 (703) (1,156) Amortization of nondeductible goodwill 107 107 107 State income taxes, net of federal benefit 105 99 - Adjustment to deferred tax assets and liabilities and other (233) - 279 -------- -------- -------- Recorded income tax provision $ 40 $ 425 $ 34 ======== ======== ========
-36- 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEFERRED TAX ASSETS AND LIABILITIES The following table sets forth the deferred tax assets and the deferred tax liabilities of the Company at December 31, 1996 and 1995 (dollar amounts in thousands):
DECEMBER 31 ------------------- 1996 1995 ---- ---- Deferred tax assets: Tax carryforwards: Federal operating losses $ 2,768 $ 2,510 State operating losses 600 643 Capital loss - 2,177 Federal alternative minimum taxes 1,065 623 Investment tax credit 146 232 Other tax credit 81 81 ------- ------- Total tax carryforwards 4,660 6,266 Asset loss reserves 192 223 Tax inventory over book 566 332 Deferred compensation liabilities 82 63 Vacation accruals 237 53 Non-economic performance accruals 206 224 Deferred financing costs 119 112 Other 13 11 ------- ------- Total deferred tax assets 6,075 7,284 Valuation allowance (2,935) (5,059) ------- ------- Net deferred tax assets 3,140 2,225 Deferred tax liabilities - tax over book depreciation 2,555 1,960 ------- ------- Net deferred taxes $ 585 $ 265 ======= =======
At December 31, 1996, the valuation allowance was reduced to recognize the change in the Company's deferred tax assets and deferred tax liabilities and the benefit resulting from the recognition of the projected utilization of federal operating loss carryforwards in 1997. Recognition of the federal operating loss carryforwards during 1996 is based upon a projection of the Company's taxable income for 1997. During 1996, the Company's valuation allowance decreased by $2,124,000 primarily because of the expiration of $2,177,000 of capital loss carryforwards which were fully offset by a valuation allowance at December 31, 1995. During 1995, the Company's valuation allowance decreased by $703,000. At December 31, 1995, the Company's valuation allowance was equal to the excess of Company's deferred tax assets over its deferred tax liabilities, partially offset by the amount of federal operating loss carryforwards expected to be utilized during 1996. At December 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of $8,141,000 that expire in the years 2005 through 2011 and alternative minimum tax credits of $1,065,000 that can be used to offset future payments of regular federal income taxes, if any, without limitation as to time. -37- 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 -- INDUSTRY SEGMENTS NATURE OF OPERATIONS Through its two business segments, the Rubber Group and the Metals Group, the Company manufactures, to customer specifications, rubber and metal components. The Rubber Group manufactures silicone and organic rubber components used primarily by manufacturers of automobiles, automotive replacement parts and medical devices. The Metals Group manufactures metal components used primarily by manufacturers of automobiles, industrial equipment, computers and office equipment and home appliances. The Company's business is conducted primarily in the continental United States. INDUSTRY CONCENTRATION; RELIANCE ON LARGE CUSTOMERS During 1996, 1995 and 1994, net sales to customers in the automotive industry totaled $79,832,000, $68,083,000 and $53,005,000, respectively, which represented 69.5%, 65.3% and 59.9%, respectively, of the Company's net sales. At December 31, 1996 and 1995, accounts receivable from automotive customers totaled $12,206,000 and $8,357,000, respectively. The Company provides for credit losses based upon historical experience and ongoing credit evaluations of its customers' financial condition but does not generally require collateral from its customers to support the extension of trade credit. At December 31, 1996 and 1995, the Company had reserves for credit losses of $156,000 and $175,000, respectively. During 1996, 1995 and 1994, net sales to Delphi Packard Electric Systems, a division of General Motors Corporation, represented 21.8%, 22.5% and 20.6%, respectively, of the Company's net sales and 33.4%, 37.6% and 38.9%, respectively, of the Rubber Group's net sales. No other customer of the Company accounted for more than 10% of the Company's net sales during 1996. In 1996, the three largest customers of the Rubber Group, including Delphi Packard Electric, accounted for 53.4% of the Rubber Groups's net sales. In 1996, the three largest customers of the Metals Group accounted for 20.4% of the Metals Group's net sales. At December 31, 1996, accounts receivable from the Company's three largest customers totaled $5,503,000. The Company believes that there is limited credit risk in the accounts receivable from the three largest customers of the Company. Loss of a significant amount of business from Delphi Packard Electric or any of the Company's other large customers could have a severe impact on the Company if such business were not replaced with additional business from other customers. During the first quarter of 1997, the Company and Delphi Packard Electric entered into an agreement that will govern, through 2001, the purchase of substantially all of the component parts that the Company currently sells to Delphi Packard Electric. Under the terms of the agreement, (i) the Company agreed to sell and Delphi Packard Electric agreed to purchase approximately 100% of Delphi Packard Electric's requirements for all specified component parts, (ii) the Company agreed to warrant that the specified components will remain competitive in terms of technology, design and quality, (iii) the Company will adjust selling prices of the specified components to reflect increases or decreases in material costs, and (iv) the Company will reduce the selling prices of the specified components by certain specified amounts in each of the five years covered by the agreement. Although there can be no assurance given, the Company currently believes that it will be able to offset a significant portion of the price reductions granted to Delphi Packard Electric through reductions in manufacturing costs. -38- 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEGMENT FINANCIAL DATA Information relating to the Company's industry segments for 1996, 1995 and 1994 is summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ------------------------------------------- 1996 1995 1994 ---- ---- ---- NET SALES: Rubber Group $ 75,122 $ 62,302 $ 46,868 Metals Group 39,750 41,996 41,664 --------- --------- --------- Total net sales $ 114,872 $ 104,298 $ 88,532 ========= ========= ========= INCOME/(LOSS) FROM OPERATIONS: Rubber Group $ 10,822 $ 7,504 $ 3,860 Metals Group (219) 4,146 6,060 --------- --------- --------- Subtotal 10,603 11,650 9,920 Corporate expense (2,038) (1,993) (1,818) --------- --------- --------- Total income from operations $ 8,565 $ 9,657 $ 8,102 ========= ========= ========= IDENTIFIABLE ASSETS: Rubber Group $ 63,008 $ 52,288 $ 42,013 Metals Group 31,994 28,479 25,025 --------- --------- --------- Subtotal 95,002 80,767 67,038 Corporate 2,028 1,109 358 --------- --------- --------- Total identifiable assets $ 97,030 $ 81,876 $ 67,396 ========= ========= ========= DEPRECIATION AND AMORTIZATION: Rubber Group $ 5,596 $ 4,106 $ 3,316 Metals Group 2,638 2,045 1,510 --------- --------- --------- Subtotal 8,234 6,151 4,826 Corporate 462 298 234 --------- --------- --------- Total depreciation and amortization $ 8,696 $ 6,449 $ 5,060 ========= ========= ========= CAPITAL EXPENDITURES: Rubber Group $ 8,828 $ 12,584 $ 8,651 Metals Group 6,852 5,302 6,656 --------- --------- --------- Subtotal 15,680 17,886 15,307 Corporate 28 16 12 --------- --------- --------- Total capital expenditures $ 15,708 $ 17,902 $ 15,319 ========= ========= =========
-39- 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 -- NET INCOME OR LOSS PER COMMON SHARE The calculations of primary and fully diluted net income or loss per common share for 1996, 1995 and 1994 are set forth below (dollar amounts in thousands, except per share data):
YEARS ENDED DECEMBER 31 --------------------------------- 1996 1995 1994 ---- ---- ---- PRIMARY NET INCOME/(LOSS) PER COMMON SHARE: Weighted average common shares outstanding during period 4,250 4,219 4,186 Common equivalent shares - incentive stock options - 26 23 ------- ------- ------- Weighted average common and common equivalent shares 4,250 4,245 4,209 ======= ======= ======= Net income/(loss) $ (17) $ 2,288 $ 2,332 Preferred stock dividends (41) (44) (47) Excess of the redemption cost over the par value of preferred stock redeemed (45) (45) (45) ------- ------- ------- Primary net income/(loss) attributable to common stockholders $ (103) $ 2,199 $ 2,240 ======= ======= ======= Primary net income/(loss) per common share $ (0.02) $ 0.52 $ 0.53 ======= ======= ======= FULLY DILUTED NET INCOME/(LOSS) PER COMMON SHARE: Weighted average common shares outstanding during period 4,263 4,228 4,203 Pro forma conversion of 14% junior subordinated convertible notes 440 440 440 Common equivalent shares - incentive stock options - 26 23 ------- ------- ------- Weighted average common and common equivalent shares 4,703 4,694 4,666 ======= ======= ======= Net income/(loss) $ (17) $ 2,288 $ 2,332 Preferred stock dividends (41) (44) (47) Excess of the redemption cost over the par value of preferred stock redeemed (45) (45) (45) Pro forma elimination of interest expense on the 14% junior subordinated convertible notes, net of applicable income taxes 108 104 140 ------- ------- ------- Fully diluted net income/(loss) attributable to common stockholders $ 5 $ 2,303 $ 2,380 ======= ======= ======= Fully diluted net income/(loss) per common share $ (0.02) $ 0.49 $ 0.51 ======= ======= =======
The calculation of fully diluted net loss per common share for 1996 is antidilutive; therefore, fully diluted net loss per common share for 1996 is equal to the primary net loss per common share. -40- 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 -- COMMITMENTS AND CONTINGENCIES LEASES The Company is lessee under various operating leases relating to buildings and equipment. Total rent expense under operating leases aggregated $263,000, $269,000 and $177,000 for 1996, 1995 and 1994, respectively. At December 31, 1996, future minimum lease commitments under non-cancelable operating leases were not significant for any year or in the aggregate. LEGAL ACTIONS The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities, including actions naming the Company as a potentially responsible party or a third-party defendant, along with other companies, for certain waste disposal sites. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be decided unfavorably to the Company. The Company records provisions for such loss contingencies when it is probable that an asset has been impaired or a liability incurred and the amount of the loss can be reasonably estimated. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial position of the Company. NOTE 13 -- RELATED PARTIES The Chairman of the Board and the President of the Company are the two largest holders of the Company's common stock, are the holders of the 14% junior subordinated notes and are the beneficial owners of $200,000 principal amount of the 12.75% senior subordinated notes. In addition, the Chairman of the Board and certain of his affiliates hold an aggregate of $1,300,000 principal amount of the 12.75% senior subordinated notes. The Chairman of the Board and the President of the Company are partners of an investment banking firm that was retained by the Company to provide management and investment banking services through December 31, 1996, for an annual fee of $400,000. Additionally, the firm may receive incentive compensation tied to the Company's operating performance and other compensation for specific transactions completed by the Company with the assistance of the firm. The Company also has agreed to reimburse the firm for certain expenses. During 1996, the Company paid the firm fees of $400,000 and a bonus award of $150,000 for 1995 and reimbursed it for direct and indirect expenses of $208,000. During 1995, the Company paid the firm fees of $600,000 and reimbursed it for direct and indirect expenses of $97,000. During 1994, the Company paid the firm fees of $678,000 and reimbursed it for indirect expenses of $135,000. The Secretary of the Company, who is also a member of the Company's Board of Directors, is a stockholder of a professional corporation that is a partner in a law firm that serves as general counsel to the Company. During 1996, 1995 and 1994, the Company made payments to the law firm for legal services in the amounts of $442,000, $371,000 and $364,000, respectively. During 1995 and 1994, a member of the Board of Directors of the Company was a member of the board of directors of an insurance brokerage firm that specializes in brokering commercial, life and accident -41- 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS insurance coverage and providing third-party administration of health claims. After competitive bidding, the Company has from time to time secured large portions of its insurance coverage through this firm and purchased third-party administrative services from this firm. During 1995 and 1994, the Company made cash payments to the brokerage firm for insurance premiums, including commissions thereon, of $798,000 and $1,319,000, respectively, and for administrative fees for services performed in connection with the administration of the Company's hospital and medical plans of $88,000 and $70,000, respectively. -42- 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -43- 46 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by Item 10 is incorporated by reference to the Company's proxy statement to be issued in connection with its 1997 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1996. ITEM 11. EXECUTIVE COMPENSATION Information required by Item 11 is incorporated by reference to the Company's proxy statement to be issued in connection with its 1997 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by Item 12 is incorporated by reference to the Company's proxy statement to be issued in connection with its 1997 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by Item 13 is incorporated by reference to the Company's proxy statement to be issued in connection with its 1997 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1996. -44- 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The consolidated financial statements of Lexington Precision Corporation (the "Company") and its wholly owned subsidiary, Lexington Components, Inc. ("LCI"), are included in Part II, Item 8. 2. FINANCIAL STATEMENT SCHEDULE Schedule II, Valuation and Qualifying Accounts and Reserves, is included in this Part IV, Item 14, on page 52. All other schedules are omitted because the required information is not applicable, not material or included in the consolidated financial statements or notes thereto. 3. EXHIBITS 3-1 Articles of Incorporation and Restatement thereof 3-2 By-Laws, as amended 3-3 Certificate of Correction dated September 21, 1976 3-4 Certificate of Ownership and Merger dated May 24, 1977 3-5 Certificate of Ownership and Merger dated May 31, 1977 3-6 Certificate of Reduction of Capital dated December 30, 1977 3-7 Certificate of Retirement of Preferred Shares dated December 30, 1977 3-8 Certificate of Reduction of Capital dated December 28, 1978 3-9 Certificate of Retirement of Preferred Shares dated December 28, 1978 3-10 Certificate of Reduction of Capital dated January 9, 1979 3-11 Certificate of Reduction of Capital dated December 20, 1979 3-12 Certificate of Retirement of Preferred Shares dated December 20, 1979 3-13 Certificate of Reduction of Capital dated December 16, 1982 3-14 Certificate of Reduction of Capital dated December 17, 1982 -45- 48 3-15 Certificate of Amendment of Restated Certificate of Incorporation dated September 26, 1984 3-16 Certificate of Retirement of Stock dated September 24, 1986 3-17 Certificate of Amendment of Restated Certificate of Incorporation dated November 21, 1986 3-18 Certificate of Retirement of Stock dated January 15, 1987 3-19 Certificate of Retirement of Stock dated February 22, 1988 3-20 Certificate of Amendment of Restated Certificate of Incorporation dated January 6, 1989 3-21 Certificate of Retirement of Stock dated August 17, 1989 3-22 Certificate of Retirement of Stock dated January 9, 1990 3-23 Certificate of the Designations, Preferences and Relative Participating, Optional and Other Special Rights of 12% Cumulative Convertible Exchangeable Preferred Stock, Series C, and the Qualifications, Limitations and Restrictions thereof dated January 10, 1990 3-24 Certificate of Ownership and Merger dated April 25, 1990 3-25 Certificate of Elimination of 12% Cumulative Convertible Exchangeable Preferred Stock, Series C, dated June 4, 1990 3-26 Certificate of Retirement of Stock dated March 6, 1991 3-27 Certificate of Retirement of Stock dated April 29, 1994 3-28 Certificate of Retirement of Stock dated January 6, 1995 3-29 Certificate of Retirement of Stock dated January 5, 1996 3-30 Certificate of Retirement of Stock dated January 6, 1997 4-1 Certificate of Designations, Preferences, Rights and Number of Shares of Preferred Stock, Series B 4-2 Purchase Agreement dated as of February 7, 1985, between the Company and L&D Precision Limited Partnership ("L&D Precision") and exhibits thereto 4-3 Amendment Agreement dated as of April 27, 1990, between the Company and L&D Precision with respect to Purchase Agreement dated as of February 7, 1985 -46- 49 4-4 Recapitalization Agreement dated as of April 27, 1990, between the Company and Woolens and exhibits thereto 4-5 Specimen of Junior Subordinated Convertible Increasing Rate Note, due May 1, 2000 4-6 Specimen of 14% Junior Subordinated Note, due May 1, 2000 4-7 Indenture dated as of August 1, 1993, between the Company and IBJ Schroder Bank & Trust Company, as Trustee 4-8 Specimen of 12.75% Senior Subordinated Note, due February 1, 2000 10-1 Purchase Agreement dated as of February 7, 1985, between the Company and L&D Precision and exhibits thereto 10-2 Amendment Agreement dated as of April 27, 1990, between the Company and L&D Precision with respect to Purchase Agreement dated as of February 7, 1985 10-3 *Lexington Precision Corporation Flexible Compensation Plan, as amended 10-4 *1986 Restricted Stock Award Plan, as amended 10-5 *Lexington Precision Corporation Retirement & Savings Plan, as amended 10-6 *Description of 1996 Compensation Arrangements with Lubin, Delano, & Company 10-7 *Corporate Office 1996 Management Cash Bonus Plan 10-8 Consent and Amendment Letter Agreement between Chemical Bank of New Jersey and the Company dated as of December 29, 1993 10-9 Promissory Note dated November 30, 1988, of Lexington Components, Inc. ("LCI") payable to the order of Paul H. Pennell in the original principal amount of $3,530,000 10-10 Guaranty dated as of November 30, 1988, from the Company to Paul H. Pennell 10-11 Amendment Agreement dated as of November 30, 1991, between LCI and Paul H. Pennell 10-12 Release and Notice Agreement dated as of March 31, 1993, between LCI and Paul H. Pennell 10-13 Recapitalization Agreement dated as of April 27, 1990, between the Company and Woolens and exhibits thereto -47- 50 10-14 Accounts Financing Agreement [Security Agreement] dated as of January 11, 1990, between Congress Financial Corporation ("Congress") and the Company 10-15 Accounts Financing Agreement [Security Agreement] dated as of January 11, 1990, between Congress and LCI 10-16 Covenants Supplement to Accounts Financing Agreement [Security Agreement] dated as of January 11, 1990, between Congress and the Company 10-17 Covenants Supplement to Accounts Financing Agreement [Security Agreement] dated as of January 11, 1990, between Congress and LCI 10-18 Letter dated April 11, 1990, from the Company and Wise to Congress 10-19 Letter Agreement dated February 28, 1991, between the Company and Congress amending certain financing agreements and consent thereto of LCI 10-20 Letter Agreement dated February 28, 1991, between LCI and Congress amending certain financing agreements and consent thereto of the Company 10-21 Letter Agreement dated January 14, 1994, between the Company and Congress amending certain financing agreements and consent thereto of LCI 10-22 Letter Agreement dated January 14, 1994, between LCI and Congress amending certain financing agreements and consent thereto of the Company 10-23 Letter Agreement dated March 25, 1994, between Congress and the Company, and consent thereto of LCI 10-24 Letter Agreement dated March 25, 1994, between Congress and LCI, and consent thereto of the Company 10-25 Letter Agreement dated as of August 1, 1994, between the Company and Congress amending certain financing agreements and consent thereto of LCI 10-26 Letter Agreement dated as of August 1, 1994, between LCI and Congress amending certain financing agreements and consent thereto of the Company 10-27 Trade Financing Agreement Supplement to Accounts Financing Agreement[Security Agreement] dated as of July 19, 1994, between the Company and Congress 10-28 Letter Agreement dated January 13, 1995, between LCI and Congress amending certain financing agreements and consent thereto of the Company 10-29 Letter Agreement dated January 31, 1995, between the Company and Congress amending certain financing agreements and consent thereto of LCI -48- 51 10-30 Letter Agreement dated January 31, 1995, between LCI and Congress amending certain financing agreements and consent thereto of the Company 10-31 Amendment to Financing Agreements dated August 1, 1995, from the Company in favor of Congress Financial Corporation 10-32 Amendment to Financing Agreements dated August 1,1995, from LCI in favor of Congress Financial Corporation 10-33 Amendment to Financing Agreements dated January 16, 1996, from the Company in favor of Congress Financial Corporation 10-34 Term Promissory Note dated January 16, 1996, in the amount of $375,000 from the Company in favor of Congress Financial Corporation 10-35 Term Promissory Note dated January 16, 1996, in the amount of $450,000 from the Company in favor of Congress Financial Corporation 10-36 Letter Agreement re Amendment to Financing Agreements and Consent dated February 28, 1996, from the Company in favor of Congress Financial Corporation 10-37 Amendment to Financing Agreements and Consent dated March 14, 1996, from the Company in favor of Congress Financial Corporation 10-38 Amendment to Financing Agreements and Consent dated March 14, 1996, from LCI in favor of Congress Financial Corporation 10-39 Term Note dated May 31, 1996, from the Company in favor of Congress Financial Corporation 10-40 Amendment to Financing Agreements dated August 21, 1996, from LCI in favor of Congress Financial Corporation 10-41 Amendment to Financing Agreements dated August 21, 1996, from the Company in favor of Congress Financial Corporation 10-42 Amendment to Financing Agreements dated January 31, 1997, from the Company in favor of Congress Financial Corporation 10-43 Amendment to Financing Agreements dated January 31, 1997, from LCI in favor of Congress Financial Corporation 10-44 Credit Facility and Security Agreement and Rider A to Credit Facility and Security Agreement dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA -49- 52 10-45 Promissory Note (Equipment Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA 10-46 Promissory Note (North Canton Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA 10-47 Promissory Note (Vienna Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA 10-48 Promissory Note (Casa Grande Note) dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA 10-49 Promissory Note (LaGrange Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA 10-50 Promissory Note (North Canton Equipment Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA 10-51 Fourth Amended and Restated Promissory Note dated March 11, 1997, from LCI in favor of Congress Financial Corporation 10-52 Fourth Amended and Restated Promissory Note dated March 11, 1997, from the Company in favor of Congress Financial Corporation 10-53 Amendment to Financing Agreements dated March 11, 1997, from LCI in favor of Congress Financial Corporation 10-54 Amendment to Financing Agreements dated March 11, 1997, from the Company in favor of Congress Financial Corporation 10-55 Loan and Security Agreement and Rider A to Loan and Security Agreement dated March 19, 1997, from the Company in favor of The CIT Group/Equipment Financing, Inc. 10-56 Promissory Note dated March 19, 1997, from the Company in favor of The CIT Group/Equipment Financing, Inc. 10-57 **Additional Purchase Order Provisions Lifetime Contract Between Delphi Packard Electric Systems and Lexington Connector Seals 21-1 Subsidiary of Registrant 27-1 ***Financial Data Schedule * Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(a)(3). -50- 53 ** This Exhibit has been filed in redacted form pursuant to a request for confidential treatment, filed separately with the Commission pursuant to Rule 24b-2. ***Not deemed filed for purposes of Section 11 of the Securities Act of 1933, Section 18 of the Securities Exchange Act of 1934 and Section 323 of the Trust Indenture Act of 1939, or otherwise subject to the liabilities of such sections and not deemed part of any regulation statement to which such exhibit relates. Note: Pursuant to section (b)(4)(iii) of item 601 of Regulation S-K, the Company agrees to furnish to the Securities and Exchange Commission upon request documents defining the rights of other holders of long-term debt. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1996. -51- 54 LEXINGTON PRECISION CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (THOUSANDS OF DOLLARS)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND FROM AT END OF PERIOD EXPENSES RESERVES OF PERIOD --------- -------- -------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS ----------------- Year ended December 31, 1996 $ 175 $ 21 $ 40 $ 156 Year ended December 31, 1995 174 1 - 175 Year ended December 31, 1994 159 20 5 174 INVENTORY RESERVE ----------------- Year ended December 31, 1996 $ 374 $ 37 $ 90 $ 321 Year ended December 31, 1995 367 49 42 374 Year ended December 31, 1994 337 92 62 367
-52- 55 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEXINGTON PRECISION CORPORATION (Registrant) By: /s/ Warren Delano --------------------- Warren Delano, President March 26, 1997 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 26, 1997: PRINCIPAL EXECUTIVE OFFICERS: /s/ Michael A. Lubin - ---------------------------------------- Michael A. Lubin, Chairman of the Board /s/ Warren Delano - ---------------------------------------- Warren Delano, President and Director PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER: /s/ Dennis J. Welhouse - ----------------------------------------- Dennis J. Welhouse, Senior Vice President and Chief Financial Officer DIRECTORS: /s/ William B. Conner - ----------------------------------------- William B. Conner, Director /s/ Kenneth I. Greenstein - ----------------------------------------- Kenneth I. Greenstein, Secretary and Director /s/ Phillips E. Patton - ----------------------------------------- Phillips E. Patton, Director -53- 56 EXHIBIT INDEX
Exhibit Number Exhibit Location - ------ ------- -------- 3-1 Articles of Incorporation and Restatement Incorporated by reference from Exhibit 3-1 thereof Lexington Precision Corporation's (the "Company") to the Company's Form 10-K for the year ended May 31, 1981 located under Securities and Exchange Commission File No. 0-3252 ("1981 10-K") 3-2 By-laws, as amended Incorporated by reference from Exhibit 3-2 to the Company's Form 10-K for the year ended December 31, 1991 located under Securities and Exchange Commission File No. 0-3252 ("1991 10-K") 3-3 Certificate of Correction dated Incorporated by reference from Exhibit 3-3 September 21, 1976 to the Company's Form 10-K for the year ended May 31, 1983 located under Securities and Exchange Commission File No. 0-3252 ("1983 10-K") 3-4 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-4 dated May 24, 1977 to 1983 10-K 3-5 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-5 dated May 31, 1977 to 1983 10-K 3-6 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-6 December 30, 1977 to 1983 10-K 3-7 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-7 Shares dated December 30, 1977 to 1983 10-K 3-8 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-8 December 28, 1978 to 1983 10-K 3-9 Certificate of Retirement of Preferred Shares Incorporated by reference from Exhibit 3-9 dated December 28, 1978 to 1983 10-K 3-10 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-10 January 9, 1979 to 1983 10-K 3-11 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-11 December 20, 1979 to 1983 10-K 3-12 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-12 Shares dated December 20, 1979 to 1983 10-K 3-13 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-13 December 16, 1982 to 1983 10-K
57 -2-
3-14 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-14 December 17, 1982 to 1983 10-K 3-15 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-15 Certificate of Incorporation dated to the Company's Form 10-K for the year September 26, 1984 ended May 31, 1985 located under Securities and Exchange Commission File No. 0-3252 3-16 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 4-3 September 24, 1986 to the Company's Registration Statement on Form S-2 located under Securities and Exchange Commission File No. 33-9380 ("1933 Act Registration Statement") 3-17 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-17 Certificate of Incorporation dated to the Company's Form 10-K for the year November 21, 1986 ended May 31, 1987 located under Securities and Exchange Commission File No. 0-3252 3-18 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 4-5 January 15, 1987 to Amendment No. 1 to 1933 Act Registration Statement 3-19 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-19 February 22, 1988 to the Company's Form 10-K for the year ended May 31, 1989 located under Securities and Exchange Commission File No. 0-3252 ("May 31, 1989 10-K") 3-20 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-20 Certificate of Incorporation dated to May 31, 1989 10-K January 6, 1989 3-21 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-21 August 17, 1989 to May 31, 1989 10-K 3-22 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-22 January 9, 1990 to the Company's Form 10-K for the seven months ended December 31, 1989 located under Securities and Exchange Commission File No. 0-3252 ("December 31, 1989 10-K") 3-23 Certificate of the Designations, Incorporated by reference from Exhibit 3-1 Preferences and Relative Participating, to the Company's Form 10-Q for the quarter Optional and Other Special Rights of ended November 30, 1989 located under 12% Cumulative Convertible Securities and Exchange Commission File No. Exchangeable Preferred Stock, Series C 0-3252 ("November 30, 1989 10-Q") and the Qualifications, Limitations and Restrictions thereof dated January 10, 1990
58 -3-
3-24 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-24 dated April 25, 1990 to December 31, 1989 10-K 3-25 Certificate of Elimination of 12% Incorporated by reference from Exhibit 3-25 Cumulative Convertible Exchangeable to the Company's Form 10-K for the year Preferred Stock, Series C, dated ended December 31, 1990 located under June 4, 1990 Securities and Exchange Commission File No. 0-3252 ("1990 10-K") 3-26 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-26 March 6, 1991 to 1990 10-K 3-27 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-27 April 29, 1994 to 1994 10-K 3-28 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-28 January 6, 1995 to 1994 10-K 3-29 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-29 January 5, 1996 to 1995 10-K 3-30 Certificate of Retirement of Stock dated Filed with this Form 10-K January 6, 1997 4-1 Certificate of Designations, Preferences, Incorporated by reference from Exhibit 3-3 Rights and Number of Shares of to 1981 10-K Preferred Stock, Series B 4-2 Purchase Agreement dated as of Incorporated by reference from Exhibit 4-1 February 7, 1985 between the Company to the Company's Form 8-K dated February 7, and L&D Precision Limited Partnership 1985 (date of earliest event reported) ("L&D Precision") and exhibits thereto located under Securities and Exchange Commission File No. 0-3252 4-3 Amendment Agreement dated as of Incorporated by reference from Exhibit 10-2 April 27, 1990 between the Company and to 1990 10-K L&D Precision with respect to Purchase Agreement dated as of February 7, 1985 4-4 Recapitalization Agreement dated as of Incorporated by reference from Exhibit 4-10 April 27, 1990 between the Company and to December 31, 1989 10-K Woolens and exhibits thereto 4-5 Specimen of Junior Subordinated Incorporated by reference from Exhibit 4-11 Convertible Increasing Rate Note Due to December 31, 1989 10-K May 1, 2000 4-6 Specimen of 14% Junior Subordinated Included in Exhibit 4-6 hereto Note due May 1, 2000
59 -4-
4-7 Indenture dated as of August 1, 1993 Incorporated by reference from Exhibit 4-2 between the Company and IBJ Schroder to the Company's Form 8-K dated January 18, Bank & Trust Company, as Trustee 1994 (date of earliest event reported) located under Securities and Exchange Commission File No. 0-3252 4-8 Specimen of 12-3/4% Senior Included in Exhibit 4-8 hereto Subordinated Note due February 1, 2000 10-1 Purchase Agreement dated as of See Exhibit 4-2 hereto February 7, 1985 between the Company and L&D Precision and exhibits thereto 10-2 Amendment Agreement dated as of See Exhibit 4-3 hereto April 27, 1990 between the Company and L&D Precision with respect to Purchase Agreement dated as of February 7, 1985 10-3 Lexington Precision Corporation Flexible Incorporated by reference from Exhibit 10-3 Compensation Plan, as amended to 1991 10-K 10-4 1986 Restricted Stock Award Plan, as Incorporated by reference from Exhibit amended 10-38 to December 31, 1989 10-K 10-5 Lexington Precision Corporation Incorporated by reference from Exhibit 10-9 Retirement and Savings Plan, as amended to 1991 10-K 10-6 Description of 1996 Compensation Filed with this Form 10-K Arrangements with Lubin, Delano & Company 10-7 Lexington Precision Corporate Office Filed with this Form 10-K 1996 Management Cash Bonus Plan 10-8 Consent and Amendment Letter Incorporated by reference from Exhibit 10-1 Agreement between Chemical Bank of to the Company's Form 8-K dated December New Jersey and the Company dated as of 30, 1993 (date of earliest event reported) December 29, 1993 located under Securities and Exchange Commission File No. 0-3252 10-9 Promissory Note dated November 30, Incorporated by reference from Exhibit 1988 of Lexington Components, Inc. 10-32 to May 31, 1989 10-K ("LCI") payable to the order of Paul H. Pennell in the original principal amount of $3,530,000 10-10 Guaranty dated as of November 30, 1988 Incorporated by reference from Exhibit from the Company to Paul H. Pennell 10-33 to May 31, 1989 10-K 10-11 Amendment Agreement dated as of Incorporated by reference from Exhibit November 30, 1991 between LCI and 10-28 to 1991 10-K Paul H. Pennell
60 -5-
10-12 Release and Notice Agreement dated as Incorporated by reference from Exhibit of March 31, 1993 between LCI and Paul 10-40 to the Company's Form 10-K for the H. Pennell year ended December 31, 1992 located under Securities and Exchange Commission File No. 0-3252 10-13 Recapitalization Agreement dated as of See Exhibit 4-4 hereto April 27, 1990 between the Company and Woolens and exhibits thereto 10-14 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-2 Agreement] dated as of January 11, 1990 to November 30, 1989 10-Q between Congress Financial Corporation ("Congress") and the Company 10-15 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-3 Agreement] dated as of January 11, 1990 to November 30, 1989 10-Q between Congress and LCI 10-16 Covenants Supplement to Accounts Incorporated by reference from Exhibit Financing Agreement [Security 10-49 to 1990 10-K Agreement] dated as of January 11, 1990 between Congress and the Company 10-17 Covenants Supplement to Accounts Incorporated by reference from Exhibit Financing Agreement [Security 10-50 to 1990 10-K Agreement] dated as of January 11, 1990 between Congress and LCI 10-18 Letter dated April 11, 1990 from the Incorporated by reference from Exhibit Company and Wise to Congress 10-51 to 1990 10-K 10-19 Letter Agreement dated February 28, Incorporated by reference from Exhibit 1991 between the Company and Congress 10-54 to 1990 10-K amending certain financing agreements and consent thereto of LCI 10-20 Letter Agreement dated February 28, Incorporated by reference from Exhibit 1991 between LCI and Congress 10-56 to 1990 10-K amending certain financing agreements and consent thereto of the Company 10-21 Letter Agreement dated January 14, 1994 Incorporated by reference from Exhibit between the Company and Congress 10-26 to the Company's Form 10-K for the amending certain financing agreements and year ended December 31, 1993 located under consent thereto of LCI Securities and Exchange Commission File No. 0-3252 ("1993 10-K") 10-22 Letter Agreement dated January 14, 1994 Incorporated by reference from Exhibit between LCI and Congress amending certain 10-27 to 1993 10-K financing agreements and consent thereto of the Company
61 -6-
10-23 Letter Agreement dated March 25, 1994 Incorporated by reference from Exhibit between Congress and the Company, and 10-30 to 1993 10-K consent thereto of LCI 10-24 Letter Agreement dated March 25, 1994 Incorporated by reference from Exhibit between Congress and LCI, and consent 10-31 to 1993 10-K thereto of the Company 10-25 Letter Agreement dated as of August 1, Incorporated by reference from Exhibit 10-1 1994 between the Company and Congress to the Company's Form 10-Q for the quarter amending certain financing agreements and ended September 30, 1994 located under consent thereto of LCI Securities and Exchange Commission File No. 0-3252 ("September 30, 1994 10-Q") 10-26 Letter Agreement dated as of August 1, Incorporated by reference from Exhibit 10-2 1994 between LCI and Congress amending to September 30, 1994 10-Q certain financing agreements and consent thereto of the Company 10-27 Trade Financing Agreement Supplement to Incorporated by reference from Exhibit 10-3 Accounts Financing Agreement [Security to September 30, 1994 10-Q Agreement] dated as of July 19, 1994 between the Company and Congress 10-28 Letter Agreement dated January 13, 1995 Incorporated by reference from Exhibit between LCI and Congress amending certain 10-32 to 1994 Form 10-K financing agreements and consent thereto of the Company 10-29 Letter Agreement dated January 31, 1995 Incorporated by reference from Exhibit between the Company and Congress amending 10-34 to 1994 Form 10-K certain financing agreements and consent thereto of LCI 10-30 Letter Agreement dated January 31, 1995 Incorporated by reference from Exhibit between LCI and Congress amending certain 10-36 to 1994 Form 10-K financing agreements and consent thereto of the Company 10-31 Amendment to Financing Agreements dated Incorporated by reference from Exhibit 10-1 August 1, 1995 from the Company in favor to the Company's Form 10-Q for the quarter of Congress Financial Corporation ended September 30, 1995 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1995 Form 10-Q") 10-32 Amendment to Financing Agreements dated Incorporated by reference from Exhibit 10-2 August 1,1995 from LCI in favor of to September 30, 1995 Form 10-Q Congress Financial Corporation
62 -7-
10-33 Amendment to Financing Agreements dated Incorporated by reference from Exhibit January 16, 1996 from the Company in favor 10-49 to the Company's Form 10-K for the of Congress Financial Corporation year ended December 31, 1995 located under Securities and Exchange Commission File No.0-3252 ("1995 Form 10-K") 10-34 Term Promissory Note dated January 16, Incorporated by reference from Exhibit 1996 in the amount of $375,000 from the 10-50 to 1995 Form 10-K Company in favor of Congress Financial Corporation 10-35 Term Promissory Note dated January 16, Incorporated by reference from Exhibit 1996 in the amount of $450,000 from the 10-51 to 1995 Form 10-K Company in favor of Congress Financial Corporation 10-36 Letter Agreement re Amendment to Financing Incorporated by reference from Exhibit Agreements and Consent dated February 28, 10-62 to 1995 Form 10-K 1996 from the Company in favor of Congress Financial Corporation 10-37 Amendment to Financing Agreements and Incorporated by reference from Exhibit Consent dated March 14, 1996 from the 10-63 to 1995 Form 10-K Company in favor of Congress Financial Corporation 10-38 Amendment to Financing Agreements and Incorporated by reference from Exhibit Consent dated March 14, 1996 from LCI in 10-64 to 1995 Form 10-K favor of Congress Financial Corporation 10-39 Term Note dated May 31, 1996 from the Incorporated by reference from Exhibit 10-1 Company in favor of Congress Financial to the Company's Form 10-Q for the quarter Corporation ended June 30, 1996 located under Securities and Exchange Commission File No. 0-3252 10-40 Amendment to Financing Agreements dated Incorporated by reference from Exhibit 10-3 August 21, 1996 from LCI in favor of to the Company's Form 10-Q for the quarter Congress Financial Corporation ended September 30, 1996 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1996 Form 10-Q") 10-41 Amendment to Financing Agreements dated Incorporated by reference from Exhibit 10-4 August 21, 1996 from the Company in favor to September 30, 1996 Form 10-Q of Congress Financial Corporation 10-42 Amendment to Financing Agreements dated Filed with this Form 10-K January 31, 1997 from the Company in favor of Congress Financial Corporation
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10-43 Amendment to Financing Agreements dated Filed with this Form 10-K January 31, 1997 from LCI in favor of Congress Financial Corporation 10-44 Credit Facility and Security Agreement and Filed with this Form 10-K Rider A to Credit Facility and Security Agreement dated January 31, 1997 from the Company and LCI in favor of Bank One, Akron., NA 10-45 Promissory Note (Equipment Term Loan) Filed with this Form 10-K dated January 31, 1997 from the Company and LCI in favor of Bank One, Akron, NA 10-46 Promissory Note (North Canton Term Loan) Filed with this Form 10-K dated January 31, 1997 from the Company and LCI in favor of Bank One, Akron, NA 10-47 Promissory Note (Vienna Term Loan) dated Filed with this Form 10-K January 31, 1997 from the Company and LCI in favor of Bank One, Akron, NA 10-48 Promissory Note (Casa Grande Note) dated Filed with this Form 10-K January 31, 1997 from the Company and LCI in favor of Bank One, Akron, NA 10-49 Promissory Note (LaGrange Term Loan) dated Filed with this Form 10-K January 31, 1997 from the Company and LCI in favor of Bank One, Akron, NA 10-50 Promissory Note (North Canton Equipment Filed with this Form 10-K Loan) dated January 31, 1997 from the Company and LCI in favor of Bank One, Akron, NA 10-51 Fourth Amended and Restated Promissory Filed with this Form 10-K Note dated March 11, 1997 from LCI in favor of Congress Financial Corporation 10-52 Fourth Amended and Restated Promissory Filed with this Form 10-K Note dated March 11, 1997 from the Company in favor of Congress Financial Corporation
64 -9-
10-53 Amendment to Financing Agreements dated Filed with this Form 10-K March 11, 1997 from LCI in favor of Congress Financial Corporation 10-54 Amendment to Financing Agreements dated Filed with this Form 10-K March 11, 1997 from the Company in favor of Congress Financial Corporation 10-55 Loan and Security Agreement and Rider A to Filed with this Form 10-K Loan and Security Agreement dated March 19, 1997 from the Company in favor of The CIT Group/Equipment Financing, Inc. 10-56 Promissory Note dated March 19, 1997 from Filed with this Form 10-K the Company in favor of The CIT Group/Equipment Financing, Inc. 10-57 Additional Purchase Order Provisions Filed with this Form 10-K in redacted form Lifetime Contract Between Delphi Packard pursuant to Rule 24b-2 Electric Systems and Lexington Connector Seals 21-1 Subsidiary of Registrant Incorporated by reference from Exhibit 22-1 to 1991 10-K 27-1 Financial Data Schedule Filed with this Form 10-K
EX-3.30 2 EXHIBIT 3.30 1 Exhibit 3.30 CERTIFICATE OF RETIREMENT OF STOCK LEXINGTON PRECISION CORPORATION, a corporation organized and existing as under the General Corporation Law of the State of Delaware ("the Corporation"), DOES HEREBY CERTIFY: FIRST: That the Corporation acquired an aggregate of Four Hundred Fifty (450) shares of the Corporation's $4 - $8 Cumulative Convertible Preferred Stock, Series B, par value $100 per share, which shares had capital applied in connection with their acquisition and which shares upon their acquisition became retired shares. SECOND: That the Restated Certificate of Incorporation of the Corporation prohibits the reissue of the shares of $4 - $8 Cumulative Convertible Preferred Stock, Series B, when so retired; and pursuant to the provisions of Section 243 of the General Corporation Law of the State of Delaware, upon the effective date of the filing of this certificate as therein provided, the Restated Certificate of Incorporation of the Corporation shall be amended so as to effect a reduction in the authorized number of shares of the $4 - - $8 Cumulative Convertible Preferred Stock, Series B, to the extent of Four Hundred Fifty (450) shares, being the total number of shares retired with a par value of $100 per share, and an aggregate par value of $45,000. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Dennis J. Welhouse, its Senior Vice President and Assistant Secretary, and attested to by Kelly L. MacMillan, its Treasurer, this 6th day of January, 1997. LEXINGTON PRECISION CORPORATION By: Dennis J. Welhouse ------------------- Dennis J. Welhouse Senior Vice President and Assistant Secretary ATTEST: By: Kelly L. MacMillan -------------------- Kelly L. MacMillan Treasurer EX-10.6 3 EXHIBIT 10.6 1 Exhibit 10.6 DESCRIPTION OF 1996 COMPENSATION ARRANGEMENTS WITH LUBIN, DELANO & COMPANY During 1996, Lexington Precision Corporation (the "Company") compensated Michael A. Lubin, its Chairman of the Board, and Warren Delano, its President, indirectly through payments to Lubin, Delano & Company, an investment banking firm of which they are the only partners. These compensation arrangements provided for payment to Lubin, Delano & Company of (i) a basic fee of $400,000, (ii) an incentive fee based upon the 1996 budgeted operating profit of the Company, and (iii) transaction fees as agreed upon by the Company and Lubin, Delano & Company in connection with acquisitions, divestitures, financings and other similar transactions. EX-10.7 4 EXHIBIT 10.7 1 Exhibit 10.7 LEXINGTON PRECISION CORPORATE OFFICE 1996 MANAGEMENT CASH BONUS PLAN 2 LEXINGTON PRECISION CORPORATE OFFICE TABLE OF CONTENTS
SECTION NUMBER PAGE -------- ---- I. PURPOSE OF PLAN 1 II. ELIGIBILITY 1 III. PLAN YEAR 1 IV. GROUPING OF PARTICIPANTS 1 V. SETTING OF TARGET BONUS PERCENTAGES 1 VI. AUTHORIZATION FORM 2 VII. NOTIFICATION OF EMPLOYEES 2 VIII. BASIS FOR BONUS PAYMENTS 3 IX. SETTING OF GOALS 3 X. CALCULATING THE BONUS POOL 4 XI. TIMING OF BONUS PAYMENTS 5 XII. OTHER 5
3 LEXINGTON PRECISION CORPORATE OFFICE 1996 MANAGEMENT CASH BONUS PLAN I. PURPOSE OF PLAN The "1996 Management Cash Bonus Plan" (the "Plan") is designed to provide meaningful incentives for officers and key employees of the Corporate Office (the "Bonus Group") of Lexington Precision Corporation (the "Company") to increase profitability while efficiently managing the Company's assets. II. ELIGIBILITY A "Participant" shall mean an individual who meets both of the following criteria: (1) The individual has been selected to participate in the Plan by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington Precision Corporation; and (2) The individual is a full-time, salaried, exempt employee of the Company on the last day of the plan year. Participants who retire during the plan year and are aged 62 or older on the date of retirement and estates of Participants who die during the plan year will be paid bonuses (if and to the extent earned) at the same time that all other Participants receive their bonuses after the end of the plan year. III. PLAN YEAR The plan year shall mean the year ending December 31, 1996. IV. GROUPING OF PARTICIPANTS The Participants in the Bonus Group, will be designated at the beginning of the plan year by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington Precision Corporation. -1- 4 V. SETTING OF TARGET BONUS PERCENTAGES Subject to the adjustment for Personal Performance (defined in Section XI below), the "Target Bonus" for each Participant shall mean the amount calculated by multiplying the Participant's aggregate base-salary received during the year by a "Target Bonus Percentage" which will be set at the beginning of the plan year by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington Precision Corporation. The "Group Target Bonus" shall mean the aggregate of the Target Bonuses of all Participants in a Bonus Group. The Target Bonus Percentage for the president of the Company will be set by the president of Lexington Precision Corporation. A Participant's bonus will always be based on the aggregate base-salary received during the year, not on the base-salary level at any particular point during the year (i.e., when calculating bonuses for Participants who received salary increases during the year, for Participants who are hired during the year or for Participants who retire or die during the year). As a general guideline, the Target Bonus Percentage levels which would typically be assigned to various categories of employees in the Bonus Group are set forth below:
TARGET BONUS POSITION PERCENTAGE -------- ---------- Senior Vice Presidents 20-35% Vice Presidents 15-25% Junior Officers 5-15%
If a Participant moves to a higher management level during the year, such Participant's Target Bonus Percentage will be reset at an appropriate higher level determined by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington Precision Corporation, as if the Target Bonus Percentage had been at the higher level for the entire year. If a Participant moves to a lower management level during the year, such Participant's Target Bonus Percentage will be reset at an appropriate lower level determined by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington Precision Corporation, as if the Target Bonus Percentage had been at the lower level for the entire year. VI. AUTHORIZATION FORM Attached hereto as Exhibit A is the "Authorization Form" which shall be used by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington -2- 5 Precision Corporation at the beginning of each plan year when designating Participants, Target Bonus Percentages and the Bonus Group's Target Pre-Bonus Operating Profit (defined in Section IX below). VII. NOTIFICATION OF EMPLOYEES Attached hereto as Exhibit B is the form of memorandum which shall be used at the beginning of each plan year to inform employees of their participation in the Plan and their Target Bonus Percentages and Target Bonuses. VIII. BASIS FOR BONUS PAYMENTS After the end of the plan year, when financial results for the year are available, a calculation will be made to determine the bonus that will be paid to each Participant. The percentage of Target Bonus earned by each Participant will depend on the following: (1) how well the Bonus Group performed relative to its Target Pre-Bonus Operating Profit; and (2) the Participant's Personal Performance (discussed below). All bonuses will be subject to the review and approval of the Board of Directors of Lexington Precision Corporation. IX. SETTING OF GOALS "Operating Profit" means profit before interest, income taxes and other non-operating expenses in accordance with the Company's standard accounting procedures. "Pre-Bonus Operating Profit" means operating profit before deducting any expenses for bonuses relating to the 1996 Management Cash Bonus Plan. The "Target Pre-Bonus Operating Profit" for the Bonus Group will be set at the beginning of the year by the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation of the president of Lexington Precision Corporation. The Target Pre-Bonus Operating Profit will equal ONE of the following: (1) the Bonus Group's "Budgeted Pre-Bonus Operating Profit" as reflected in the annual budget for the Company; -3- 6 (2) an amount higher than the Company's Budgeted Pre-Bonus Operating Profit if the Budgeted Pre- Bonus Operating Profit is below reasonable performance-standards (taking into account, among other things, industry performance standards, historical performance standards, and the amount of capital invested in the Company); or (3) an amount lower than the Company's Budgeted Pre-Bonus Operating Profit if the Budgeted Pre- Bonus Operating Profit is above reasonable performance-standards (taking into account, among other things, industry performance standards, historical performance standards, and the amount of capital invested in the Company). The "reasonable performance standards" discussed above will be determined in the sole discretion of the Compensation Committee of the Board of Directors of Lexington Precision Corporation upon recommendation by the president of Lexington Precision Corporation. The Target Pre-Bonus Operating Profit will not be revised during the plan year, except in cases where an acquisition or divestiture of a business completed during the plan year materially affects reported operating results during that plan year. X. CALCULATING THE BONUS POOL To calculate the bonus for each of the Participants in the Bonus Group, it is first necessary to calculate the "Group Bonus Pool". The Group Bonus Pool will be calculated by multiplying the Group Target Bonus by the percentage in the column on the right below, opposite the percentage of the Target Pre-Bonus Operating Profit which was attained by that Bonus Group.
PERCENTAGE PERCENTAGE OF TARGET OF TARGET BONUS EARNED PRE-BONUS (BEFORE ADJUSTING FOR OPERATING PROFIT ATTAINED PERSONAL PERFORMANCE) ------------------------- --------------------- less than 85.00% None 85.00 - 89.99% 25% 90.00 - 94.99% 50 95.00 - 99.99% 75 100.00 - 109.99% (target) 100 110.00 - 119.99% 125 120.00 - 129.99% 150 130.00 - 139.99% 175 140.00% or more 200 (maximum)
-4- 7 The percentage of Target Bonus earned, before giving effect to adjustments for Personal Performance, must be in the increments shown on the above chart. For example, if the Bonus Group attained 108% of the Target Pre-Bonus Operating Profit, the percentage used for each Participant in the Bonus Group would be 100% (not 120% or 125%). The percentages of Target Bonus earned are "stepped," not linear. No bonuses will be earned by any Participants in the Bonus Group if less than 85% of the Target Pre-Bonus Operating Profit is attained. The Group Bonus Pool cannot exceed 200% of the Group Target Bonus. XI. TIMING OF BONUS PAYMENTS All bonus payments will be made as soon as practicable after the end of the plan year. Before any bonus payments can be made the following two requirements must be met: (1) necessary accounting and audit work must be completed so that all bonus calculations can be made; and (2) the bonus must be approved by a vote of the Board of Directors of Lexington Precision Corporation. It is anticipated that bonuses will be paid approximately 45-75 days after the end of the plan year. XII. OTHER Bonuses will be subject to income and employment tax withholding to the extent required by applicable law. Bonuses and the right to receive bonuses cannot be pledged, assigned or alienated, voluntarily or involuntarily, by any Participant. THE 1996 MANAGEMENT CASH BONUS PLAN AND ANY BONUSES GRANTED UNDER THE 1996 MANAGEMENT CASH BONUS PLAN SHALL NOT CONFER UPON ANY PARTICIPANT ANY RIGHT WITH RESPECT TO THE CONTINUANCE OF EMPLOYMENT BY THE COMPANY, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY TO TERMINATE A PARTICIPANT'S EMPLOYMENT AT ANY TIME. THE 1996 MANAGEMENT CASH BONUS PLAN MAY BE REVISED, MODIFIED OR TERMINATED IN ANY WAY, FOR ANY REASON AND AT ANY TIME AT THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF LEXINGTON PRECISION CORPORATION BY VOTE OF A MAJORITY OF THE BOARD AT ANY REGULAR OR SPECIAL MEETING OF THE BOARD. Revised and approved by the Board of Directors of Lexington Precision Corporation on October 18, 1994 -5- EX-10.42 5 EXHIBIT 10.42 1 Exhibit 10.42 January 31, 1997 -- Lexington Precision Corporation 767 Third Avenue New York, New York 10017 Re: Amendment to Financing Agreements and Consent --------------------------------------------- Gentlemen: Reference is made to certain financing agreements dated January 11, 1990 between Lexington Precision Corporation ("LPC") and Congress Financial Corporation ("Congress"), including, but not limited to, an Accounts Financing Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all supplements thereto and all other related financing and security agreements (collectively, all of the foregoing, as the same have heretofore or contemporaneously been or may be hereafter, amended, replaced, extended, modified or supplemented, the "Financing Agreements"). LPC has requested Congress' consent to certain financing arrangements between LPC and LCI, as co-borrowers, and Bank One (as such term is defined in the March 1996 Consent (as defined below)), which incorporate and restate the Bank one Financing (as such term is defined in the March 1996 Consent) and provide for the following additional financing arrangements: (i) a mortgage lien to be granted by LPC to Bank One upon certain real property and related personal property in Casa Grande, Arizona in order to secure certain additional loans by Bank One to LPC in the aggregate principal amount of up to $3,000,000, (ii) a security interest in certain additional equipment to be granted by LPC to Bank One in order to secure certain additional loans by Bank One to LPC in the aggregate principal amount of up to $950,000, (iii) a mortgage lien to be granted by LCI to Bank One covering certain real property and related personal property in LaGrange, Georgia to secure certain additional loans by Bank One to LCI in the aggregate principal amount of up to $1,600,000 and (iv) a line of credit for credit cards issued to officers of LPC and LCI of up to $400,000. LPC and LCI have advised Congress that LPC and LCI shall be jointly and severally liable for all obligations of each of them to Bank One. Congress is willing to provide such consent upon the terms and conditions set forth in this Amendment to Financing Agreements and Consent (this "Amendment") and, in connection with such consent and other matters pertaining to the financing arrangements pursuant to the Accounts Agreement and the other Financing Agreements, the parties hereto hereby agree to amend the Financing Agreements as set forth below (capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed thereto in the Accounts Agreement and the other Financing Agreements): -1- 2 1. Amendments to Definitions. -------------------------- (a) The definition of "Bank One Collateral" set forth in paragraph 1(b) of the Amendment to Financing Agreements and Consent, dated March 14, 1996 (the "March 1996 Consent") is hereby amended such that, on and after the date hereof, the term "Bank One Collateral" shall mean the collateral set forth on Exhibits A, B, C, D, E and F annexed hereto. (b) The definition of "Bank One Financing" set forth in paragraph 1(c) of the March 1996 Consent is hereby amended such that, on and after the date hereof, the reference to "$5,800,000" in such definition shall be replaced with "$11,000,000". (c) The definition of "Bank One Financing Agreements" set forth in paragraph 1(d) of the March 1996 Consent is hereby amended such that, on and after the date hereof, the term "Bank One Financing Agreements" shall mean the Credit Facility and Security Agreement, dated as of the date hereof, among LPC, LCI and Bank One, together with the promissory notes, guarantees and mortgages delivered thereunder and all other documents, instruments and agreements executed in connection therewith or pursuant thereto, as the same now exist or may hereafter be amended, modified, supplemented, renewed, restated or replaced. 2. CONSENT REGARDING BANK ONE COLLATERAL. To the extent such consent is required, and has not been previously given under the Financing Agreements, including the March 1996 Consent, Congress hereby consents to the mortgage liens and security interests in the Bank One Collateral granted by LPC and LCI to Bank One to secure the Bank One Financing pursuant to the Bank One Financing Agreements, including any documents contemplated thereby which are to be executed and delivered after the date hereof in connection with the loans to be advanced pursuant to the Bank One Financing Agreements after the date hereof, such consent to be effective as of the date hereof. 3. ADDITIONAL COVENANTS RELATING TO THE BANK ONE COLLATERAL. In addition to all other covenants, representations and warranties contained in the Financing Agreements applicable to the types or items of property included in the Bank One Collateral (whether or not included in the Collateral), LPC agrees as follows: (a) LPC shall not remove from the premises of LPC described in Exhibit A annexed hereto (the "North Canton Property"), any of the tangible personal property comprising part of the Bank One Collateral, nor shall any equipment or other tangible personal property of LPC, or any subsidiary of LPC, be moved from another location of LPC or a subsidiary of LPC, to the North Canton Property, in each case, except upon prior written -2- 3 notice to Congress. Notices given under this Section 3(a) shall include serial numbers or other information sufficient to identify the particular items removed. (b) LPC shall furnish to Congress all material written notices or demands concerning the Bank One Financing required to be delivered pursuant to the Bank One Financing Agreements, other than notices under the Bank One Financing Agreements as to future advances or loans or interest rates or interest periods on borrowings, either received by LPC, promptly after receipt thereof, or sent by LPC or on its behalf, promptly upon the sending thereof, as the case may be. 4. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by LPC to Congress pursuant to the Financing Agreements, LPC hereby represents, warrants and covenants with and to Congress as follows (which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements): (a) No Event of Default exists or has occurred and is continuing on the date of this Amendment and on the date of each advance in respect of the Bank One Financing. (b) This Amendment has been duly executed and delivered by LPC and is in full force and effect as of the date hereof, and the agreements and obligations of LPC contained herein constitute the legal, valid and binding obligations of LPC enforceable against LPC in accordance with their terms. 5. CONDITIONS TO THE EFFECTIVENESS OF THIS AMENDMENT. Anything contained in this Amendment to the contrary notwithstanding, this Amendment shall be effective only upon the satisfaction of the following conditions precedent: (a) Congress shall have received an executed original or executed original counterparts (as the case may be) of this Amendment together with the following, each of which shall be in form and substance satisfactory to Congress: (i) true and complete copies of the Bank One Financing Agreements as in effect on the date hereof; (ii) an Amended and Restated Intercreditor Agreement between Congress and Bank One, dated as of the date hereof, duly executed and delivered on behalf of Bank One; (iii) an executed original or executed original counterparts of a letter agreement, dated as of the date hereof, pursuant to which LPC and LCI acknowledge and consent to the -3- 4 Amended and Restated Intercreditor Agreement between Congress and Bank One and agree that, although neither LPC nor LCI is a party thereto, each of LPC and LCI will, together with its successors and assigns, be bound by the provisions thereof; and (iv) an executed original or executed original counterparts of a letter agreement re: Amendment to Financing Agreements and Consent, dated as of the date hereof, pertaining to the Bank One Collateral to be granted by LCI to Bank One pursuant to the Bank One Financing and related matters, together with the documents, instruments and agreements to be delivered pursuant thereto; (b) Bank One shall have disbursed, in immediately available funds, for the account of LPC and LCI (i) the sum of $321,428.52, representing partial disbursement to LPC of the "Casa Grande Loan" (as defined in the Bank One Financing Agreements), which funds shall have been received by Congress and applied to fully prepay the outstanding principal amount of the LPC Arizona Real Estate Loan; and (ii) the sum of $1,071,428.64, representing partial disbursement to LCI of the "LaGrange Term Loan" (as defined in the Bank One Financing Agreements), which funds shall have been received by Congress and applied to fully prepay the outstanding principal amount of the LCI Georgia Real Estate Loan (as defined in the LCI Financing Agreements); (c) All representations and warranties contained herein, in the Accounts Agreements and in the other Financing Agreements shall be true and correct in all material respects; and (d) No Event of Default shall have occurred and no event shall have occurred or condition shall be existing which, with notice or passage of time or both, would constitute an Event of Default. 6. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the Accounts Agreement and all supplements to the Accounts Agreement, including, without limitation, the Covenant Supplement and all other Financing Agreements, are hereby specifically ratified, restated and confirmed by the parties hereto as of the date hereof and no existing defaults or Events of Default have been waived in connection herewith. To the extent of conflict between the terms of this Amendment and the Accounts Agreement or any of the other Financing Agreements, the terms of this Amendment control. 7. FURTHER ASSURANCES. LPC shall execute and deliver such additional documents and take such additional actions as may reasonably be requested by Congress to effectuate the provisions and purposes of this Amendment. -4- 5 8. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without reference to its principles of conflicts of law. By the signatures hereto of the duly authorized officers, the parties hereto mutually covenant, warrant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: Frank A. Chiovari -------------------------------- Title: Vice President -------------------------------- AGREED AND ACCEPTED: LEXINGTON PRECISION CORPORATION By: Warren Delano ---------------------------------- Title: President ------------------------------- -5- 6 CONSENT ------- The undersigned guarantor hereby consents to the foregoing Amendment, agrees to be bound by its terms applicable to it, and ratifies and confirms the terms of its Guarantee and Waiver dated January 11, 1990 as applicable to all present and future indebtedness, liabilities and obligations of LEXINGTON PRECISION CORPORATION ("LPC") to CONGRESS FINANCIAL CORPORATION ("Congress"), including, without limitation, all indebtedness, liabilities and obligations under the Financing Agreements as amended hereby. LEXINGTON COMPONENTS, INC. By: Warren Delano -------------------------- Title: President ----------------------- -6- EX-10.43 6 EXHIBIT 10.43 1 Exhibit 10.43 January 31, 1997 Lexington Components, Inc. 767 Third Avenue New York, New York 10017 Re: Amendment to Financing Agreements and Consent --------------------------------------------- Gentlemen: Reference is made to certain financing agreements dated January 11, 1990 between Lexington Components, Inc. ("LCI") and Congress Financial Corporation ("Congress"), including, but not limited to, an Accounts Financing Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all supplements thereto and all other related financing and security agreements (collectively, all of the foregoing, as the same have heretofore or contemporaneously been or may be hereafter, amended, replaced, extended, modified or supplemented, the "Financing Agreements"). LCI has requested Congress' consent to certain financing arrangements between LCI and LPC, as co-borrowers, and Bank One (as such term is defined in the March 1996 Consent (as defined below)), which incorporate and restate the Bank One Financing (as such term is defined in the March 1996 Consent and provide for the following additional financing arrangements: (i) a mortgage lien to be granted by LCI to Bank One upon certain real property and related personal property in LaGrange, Georgia in order to secure certain additional loans by Bank One to LCI in the aggregate principal amount of up to $1,600,000, (ii) a security interest in certain additional equipment and mortgage liens upon certain real property and related personal property of LPC, to be granted by LPC to Bank One to secure certain additional loans by Bank One to LPC in the aggregate principal amount of up to $3,950,000, and (iii) a line of credit for credit cards issued to officers of LPC and LCI of up to $400,000. LPC and LCI have advised Congress that LPC and LCI shall be jointly and severally liable for all obligations of each of them to Bank One. Congress is willing to provide such consent upon the terms and conditions set forth in this Amendment to Financing Agreements and Consent (this "Amendment") and, in connection with such consent and other matters pertaining to the financing arrangements pursuant to the Accounts Agreement and the other Financing Agreements, the parties hereto hereby agree to amend the Financing Agreements, as set forth below (capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed thereto in the Accounts Agreement and the other Financing Agreements): 1. Amendments to Definitions. (a) The definition of "Bank One Collateral" set forth in paragraph 1(b) of the Amendment to Financing Agreements and Consent, dated March 14, 1996 (the "March 1996 Consent") is hereby amended such that, on and after the date hereof, the term -1- 2 "Bank One Collateral" shall mean the collateral set forth on Exhibits A, B, C, D, E and F annexed hereto. (b) The definition of "Bank One Financing" set forth in paragraph 1(c) of the March 1996 Consent is hereby amended such that, on and after the date hereof, the reference to "$5,800,000" in such definition shall be replaced with "$11,000,000". (c) The definition of "Bank One Financing Agreements" set forth in paragraph 1(d) of the March 1996 Consent is hereby amended such that, on and after the date hereof, the term "Bank One Financing Agreements" shall mean the Credit Facility and Security Agreement, dated as of the date hereof, among LPC, LCI and Bank One, together with the promissory notes, guarantees and mortgages delivered thereunder and all other documents, instruments and agreements executed in connection therewith or pursuant thereto, as the same now exist or may hereafter be amended, modified, supplemented, renewed, restated or replaced. 2. CONSENT REGARDING BANK ONE COLLATERAL. To the extent such consent is required, and has not been previously given under the Financing Agreements, including the March 1996 Consent, Congress hereby consents to the mortgage liens and security interests in the Bank One Collateral granted by LPC and LCI to Bank One to secure the Bank One Financing pursuant to the Bank One Financing Agreements, including any documents contemplated thereby which are to be executed and delivered after the date hereof in connection with the loans to be advanced pursuant to the Bank One Financing Agreements after the date hereof, such consent to be effective as of the date hereof. 3. ADDITIONAL COVENANTS RELATING TO THE BANK ONE COLLATERAL. In addition to all other covenants, representations and warranties contained in the Financing Agreements applicable to the types or items of property included in the Bank One Collateral, LCI shall furnish to Congress all material written notices or demands concerning the Bank One Financing, required to be delivered pursuant to the Bank One Financing Agreements, other than notices under the Bank One Financing Agreements as to future advances or loans or interest rates or interest periods on borrowings, either received by LCI, promptly after receipt thereof, or sent by LCI or on its behalf, promptly upon the sending thereof, as the case may be. 4. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by LCI to Congress pursuant to the Financing Agreements, LCI hereby represents, warrants and covenants with and to Congress as follows (which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements): -2- 3 (a) No Event of Default exists or has occurred and is continuing on the date of this Amendment and on the date of each advance in respect of the CIT Financing and Bank One Financing. (b) This Amendment has been duly executed and delivered by LCI and is in full force and effect as of the date hereof, and the agreements and obligations of LCI contained herein constitute the legal, valid and binding obligations of LCI enforceable against LCI in accordance with their terms. 5. CONDITIONS TO THE EFFECTIVENESS OF THIS AMENDMENT. Anything contained in this Amendment to the contrary notwithstanding, this Amendment shall be effective only upon the satisfaction of the following conditions precedent: (a) Congress shall have received an executed original or executed original counterparts (as the case may be) of this Amendment together with the following, each of which shall be in form and substance satisfactory to Congress: (i) true and complete copies of the Bank One Financing Agreements as in effect on the date hereof; (ii) an Amended and Restated Intercreditor Agreement between Congress and Bank One, dated as of the date hereof, duly executed and delivered on behalf of Bank One; (iii) an executed original or executed original counterparts of a letter agreement, dated as of the date hereof, pursuant to which LPC and LCI acknowledge and consent to the Amended and Restated Intercreditor Agreement between Congress and Bank One and agree that, although neither LPC nor LCI is a party thereto, each of LPC and LCI will, together with its successors and assigns, be bound by the provisions thereof; and (iv) an executed original or executed original counterparts of a letter agreement re: Amendment to Financing Agreements and Consent, dated as of the date hereof, pertaining to the Bank One Collateral to be granted by LPC pursuant to the Bank One Financing and related matters, together with the documents, instruments and agreements to be delivered pursuant thereto; (b) Bank One shall have disbursed, in immediately available funds, for the account of LPC and LCI (i) the sum of $321,428.52, representing partial disbursement to LPC of the "Casa Grande Loan" (as defined in the Bank One Financing Agreements), which funds shall have been received by Congress and applied to fully prepay the outstanding principal amount of the LPC Arizona Real Estate Loan; and (ii) the sum of $1,071,428.64, representing partial disbursement to LCI of the "LaGrange Term Loan" (as defined in the Bank One Financing Agreements), which funds shall have been received by Congress and applied to fully -3- 4 prepay the outstanding principal amount of the LCI Georgia Real Estate Loan (as defined in the LCI Financing Agreements); (c) All representations and warranties contained herein, in the Accounts Agreements and in the other Financing Agreements shall be true and correct in all material respects; and (d) No Event of Default shall have occurred and no event shall have occurred or condition shall be existing which, with notice or passage of time or both, would constitute an Event of Default. 6. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the Accounts Agreement and all supplements to the Accounts Agreement, including, without limitation, the Covenant Supplement and all other Financing Agreements, are hereby specifically ratified, restated and confirmed by the parties hereto as of the date hereof and no existing defaults or Events of Default have been waived in connection herewith. To the extent of conflict between the terms of this Amendment and the Accounts Agreement or any of the other Financing Agreements, the terms of this Amendment control. 7. FURTHER ASSURANCES. LCI shall execute and deliver such additional documents and take such additional actions as may reasonably be requested by Congress to effectuate the provisions and purposes of this Amendment. 8. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without reference to its principles of conflicts of law. By the signatures hereto of the duly authorized officers, the parties hereto mutually covenant, warrant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: Frank A. Chiovari ----------------------------- Title: Vice President ----------------------------- AGREED AND ACCEPTED: LEXINGTON COMPONENTS, INC. By: Warren Delano ------------------------------- Title: President ------------------------------- -4- 5 CONSENT ------- The undersigned guarantor hereby consents to the foregoing Amendment, agrees to be bound by its terms applicable to it, and ratifies and confirms the terms of its Guarantee and Waiver dated January 11, 1990 as applicable to all present and future indebtedness, liabilities and obligations of LEXINGTON COMPONENTS, INC. ("LCI") to CONGRESS FINANCIAL CORPORATION ("Congress"), including, without limitation, all indebtedness, liabilities and obligations under the Financing Agreements as amended hereby. LEXINGTON PRECISION CORPORATION By: Warren Delano ------------------------------- Title: President -------------------------- -5- EX-10.44 7 EXHIBIT 10.44 1 Exhibit 10.44 CREDIT FACILITY AND SECURITY AGREEMENT -------------------------------------- THIS CREDIT FACILITY AND SECURITY AGREEMENT ("Agreement") is made as of the 31 day of January, 1997, by and between BANK ONE, AKRON, NA, a national banking association organized and existing under the laws of the United States of America ("Lender"), with its principal place of business located at 50 South Main Street, Akron, Ohio 44308, and LEXINGTON PRECISION CORPORATION, a corporation organized and existing under the laws of the State of Delaware ("LPC"), with its principal place of business and executive offices located at 767 Third Avenue, New York, New York 10017-2023, and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI"), with its principal place of business and executive offices located at 767 Third Avenue, New York, New York 10017-2023 (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of the companies collectively). WITNESSETH: WHEREAS, LPC is the parent of LCI; and WHEREAS, LCI is a wholly subsidiary of LPC; and WHEREAS, Borrowers desire to refinance certain credit facilities with Congress Financial Corporation, to obtain new financing and to enter into this Agreement, all as more fully set forth in this Agreement. NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extension of credit heretofore, now or hereafter made by Lender to Borrowers, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS All capitalized terms which are not defined herein are defined in Rider A attached hereto and made a part hereof ("Rider A"). Accounting terms not specifically defined shall be construed in accordance with generally accepted accounting principles. All other terms contained in this Agreement shall have, unless the context indicates to the contrary, the meanings provided for by the Code to the extent the same are used or defined therein. All definitions shall be equally applicable to both the singular and plural forms of the defined terms. 2 SECTION 2. AMOUNT AND TERMS OF LOANS; GRANT OF SECURITY INTEREST Subject to the terms and conditions of this Agreement and each of the other Credit Documents and otherwise provided that no loan advances need be made by Lender if, at the date of any request for a loan advance hereunder by Borrower, an Event of Default, or event or condition which, with notice, lapse of time or both, would constitute an Event of Default, then exists, Lender will provide the credit facility described in this Section 2 for the account of Borrowers. A. FACILITY 1: EQUIPMENT TERM LOAN. ------------------------------------ 1. EQUIPMENT TERM LOAN. Lender will make a term loan (the "Equipment Term Loan") to LPC in a principal amount of ONE MILLION FIVE HUNDRED THIRTY THOUSAND AND NO/100 DOLLARS ($1,530,000.00). The Equipment Term Loan shall be subject to repayment in accordance with, and bear interest as provided in, Section 2.A.2 of this Agreement and shall otherwise be evidenced by, and repayable in accordance with, the Equipment Term Note. 2. PAYMENT TERMS OF EQUIPMENT TERM LOAN. ------------------------------------- (a) INTEREST. The Equipment Term Loan shall bear interest on the unpaid principal balance until the date paid in full at a rate per annum equal to the LIBOR Interest Rate on the Core Borrowing Amount, if any, pursuant to Section 2.A.2(b) below and at a rate per annum equal to three-quarters percent (.75 %) in excess of the Base Rate on the unpaid principal amount excluding the Core Borrowing Amount, such interest being payable monthly on the first day of each calendar month, commencing on February 1, 1997 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) CORE BORROWING AMOUNT. LPC may request that a portion of the outstanding balance of the Equipment Term Loan accrue interest at the LIBOR Interest Rate (the "Core Borrowing Amount") by delivering to Lender a written, telephonic, or telegraphic request (effective upon receipt) by facsimile, telephone, or telegraph by 12:00 p.m. three (3) Business Days prior to the Business Day the LIBOR Interest Rate is to be effective. The request shall specify (i) the Core Borrowing Amount, which shall be in incremental amounts of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00), not to exceed the Core Cap and (ii) the duration of the LIBOR Interest Period which shall be either one (1) month or two (2) months, provided that at no time may the Core Borrowing Amount exceed the Core Cap. During the term of the Equipment Term Loan, the Core Borrowing Amount shall not exceed the Core Cap. It shall be the responsibility of the Borrowers to ensure that at no time shall the Core Borrowing Amount exceed the Core Cap. If such an event occurs, the Core Borrowing Amount shall be immediately reduced to a figure equal to or less than the Core Cap, and LPC shall pay to Lender on demand a TWENTY-FIVE DOLLAR ($25) fee, together with interest on the incremental amount(s) which was in excess of the Core Cap at a rate per annum equal to three-quarters percent (.75%) in excess of the 2 3 Base Rate less any interest previously paid at the LIBOR Interest Rate during such period that there was an amount in excess of the Core Cap. (c) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the Equipment Term Note, the principal balance of the Equipment Term Loan shall be payable in fifty (50) consecutive equal monthly installments of THIRTY THOUSAND DOLLARS ($30,000.00) each, commencing on February 1, 1997, and continuing on the first day of each calendar month thereafter and a final installment of THIRTY THOUSAND DOLLARS ($30,000,00) payable on April 1, 2001. B. FACILITY 2: NORTH CANTON TERM LOAN. --------------------------------------- 1. NORTH CANTON TERM LOAN. Lender will make a term loan (the "North Canton Term Loan") to LPC in a principal amount of ONE MILLION NINE HUNDRED FORTY FOUR THOUSAND FOUR HUNDRED FORTY FOUR AND 45/100 DOLLARS ($1,944,444.45). The North Canton Term Loan shall be subject to repayment in accordance with, and bear interest as provided in Section 2.B.2 of this Agreement and shall otherwise be evidenced by, and repayable in accordance with, the North Canton Term Note. 2. PAYMENT TERMS OF NORTH CANTON TERM LOAN. ---------------------------------------- (a) INTEREST. The North Canton Term Loan shall bear interest at a fixed rate on the unpaid principal balance until the date paid in full at a rate per annum equal to eight and thirty-seven one-hundredths percent (8.37%), such interest being payable monthly on the first day of each calendar month, commencing February 1, 1997 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the North Canton Term Note, the principal balance of the North Canton Term Loan shall be payable in fifty-four (54) consecutive, equal monthly installments of ELEVEN THOUSAND ONE HUNDRED ELEVEN AND 11/100 DOLLARS ($11,111.11) commencing on February 1, 1997 and continuing on the first day of each calendar month thereafter with a final installment of ONE MILLION THREE HUNDRED FORTY-FOUR THOUSAND FOUR HUNDRED FORTY- FOUR AND 51/100 DOLLARS ($1,344,444.51) payable on August 1, 2001. C. FACILITY 3: VIENNA TERM LOAN. --------------------------------- 1. VIENNA TERM LOAN. Lender will make a term loan (the "Vienna Term Loan") to LCI in the principal amount of ONE MILLION FOUR HUNDRED TWENTY FIVE THOUSAND AND 03/100 DOLLARS ($1,425,000.03). The Vienna Term Loan shall be subject to repayment in accordance with, and bear interest as provided in Section 2.C.2 of this Agreement and shall otherwise be evidenced by, and repayable in accordance with, the Vienna Term Note. 3 4 2. PAYMENT TERMS OF VIENNA TERM LOAN. ---------------------------------- (a) INTEREST. The Vienna Term Loan shall bear interest at a fixed rate on the unpaid principal balance until the date paid in full at a rate per annum equal to eight and thirty-seven one-hundredths percent (8.37%), such interest being payable monthly commencing on February 1, 1997 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the Vienna Term Note, the principal balance of the Vienna Term Loan shall be payable in Fifty (50) consecutive, equal monthly installments of EIGHT THOUSAND THREE HUNDRED THIRTY THREE AND 00/100 DOLLARS ($8,333.33) each, commencing on February 1, 1997, and continuing on the first day of each calendar month thereafter and a final installment of ONE MILLION EIGHT THOUSAND THREE HUNDRED THIRTY THREE and 53/100 DOLLARS ($1,008,333.53) on April 1, 2001. D. FACILITY 4: CASA GRANDE LOANS. ----------------------------------- 1. CASA GRANDE CONSTRUCTION LOANS. During the Casa Grande Commitment Period, Lender will make a loan(s) (the "Casa Grande Construction Loans") to LPC in such amount or amounts as LPC may from time to time request, but not exceeding the Casa Grande Commitment. Subject to the provisions of this Agreement, LPC shall be entitled to borrow funds in such amounts as LPC shall from time to time request during the Casa Grande Commitment Period. The Casa Grande Construction Loans shall be disbursed in accordance with Section 2.D.3 below. All disbursements under the Casa Grande Commitment shall be made prior to the expiration of the Casa Grande Commitment Period. During the Casa Grande Commitment Period, the Casa Grande Construction Loans shall bear interest at a rate per annum equal to the Base Rate plus three-quarters percent (.75%), and shall otherwise be evidenced by, and repayable in accordance with, the Casa Grande Note. Such interest is payable monthly commencing on the first day of the second calendar month following the disbursement of the loan or loans and continuing on the first day of each calendar month thereafter until the expiration of the Casa Grande Commitment Period. Interest shall be computed on a three hundred sixty (360)-day basis based upon the actual number of days elapsed. 2. CASA GRANDE TERM LOAN. As of the end of the Casa Grande Commitment Period (the "Conversion Date"), the Casa Grande Construction Loans shall automatically convert to a term loan (the "Casa Grande Term Loan"). The Casa Grande Note shall evidence the Casa Grande Term Loan in addition to the Casa Grande Construction Loans. The Casa Grande Term Loan shall be payable in fifty-nine (59) consecutive, equal monthly principal installments of SIXTEEN THOUSAND SIX HUNDRED SIXTY-SIX AND 66/100 DOLLARS ($16,666.66) (assuming the Casa Grande Commitment is fully drawn), or such lesser installment 4 5 amount as determined pursuant hereto if not fully drawn, commencing on the first day of the second month which follows the expiration of the Casa Grande Commitment Period and continuing on the first day of each calendar month thereafter based on a fifteen (15) year amortization schedule, with a sixtieth (60th) payment of TWO MILLION SIXTEEN THOUSAND SIX HUNDRED SIXTY-SEVEN AND 06/100 DOLLARS ($2,016,667.06) (assuming the Casa Grande Commitment is fully drawn), or the remaining balance as determined pursuant hereto if the Casa Grande Commitment is not fully drawn, on the first day of the sixtieth (60th) month thereafter. The Casa Grande Term Loan shall bear interest on the unpaid principal balance at a rate per annum equal to the Treasury Rate plus three percent (3%). Such interest is payable monthly commencing on the first day of the month immediately following the expiration of the Casa Grande Commitment Period and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day basis based upon the actual number of days elapsed. 3. CASA GRANDE LOAN DISBURSEMENT PROCEDURES AND CONDITIONS. Subject to the terms and conditions hereof, Lender undertakes to disburse the proceeds of the Casa Grande Construction Loans, from time to time, during the Casa Grande Commitment Period, for payment of, among other things, construction costs of the Casa Grande Improvements, as such construction occurs as determined by Lender's inspecting architect/inspecting engineer ("Inspecting Architect/Inspecting Engineer"). Disbursements shall be made upon request of LPC in the following manner: (a) Not less than five (5) business days before the date on which LPC desires a disbursement, LPC shall submit to Lender a requisition using AIA Form G702 accompanied by a cost breakdown, the accuracy of which shall be certified by LPC and such other information and documentation required hereunder. Lender's "Use of Proceeds" form shall serve as the disbursement control for each line item. Lender shall not be required to disburse funds for any line item in excess of the amount shown in the "Scheduled Value Column" set forth in such "Use of Proceeds" form; (b) Requests for disbursements after the first disbursement shall not be made more often than once a month and the total amount advanced shall not at any time exceed an amount equal to (i)(x) the percentage of completion evidenced by the inspections of the Casa Grande Improvements by the Inspecting Architect/Inspecting Engineer, multiplied by (y) the estimated total construction costs filed by Borrowers and General Contractor and approved by Lender, minus (ii) an amount equal to ten percent (10%) of the value of all construction work which has been completed. Prior to each disbursement, at Borrowers' expense, an Inspecting Architect/Inspecting Engineer shall inspect the Casa Grande Improvements to verify that the request for disbursement accurately reflects the amount of construction completed to date; (c) Borrowers shall furnish Lender and the Title Company with any evidence, lien waivers, or affidavits reasonably required by the Title Company (consistent with this Agreement) at the time of each disbursement to insure that all bills then due and payable for labor and materials used in constructing the Casa Grande Improvements and all bills due and payable to 5 6 contractors, subcontractors, laborers, and materialmen have been paid in full or, with respect to those bills to be paid with the proceeds of such disbursement, will be paid in full upon such disbursement; provided, however, that Lender may, at Lender's election, pay all bills for labor or materials, directly to the persons furnishing such labor or materials. Lender will make Casa Grande Construction Loan disbursements for the cost of materials stored at the Project for a time period of not more than forty-five (45) days, provided the same are adequately secured and insured. Lender will not make Casa Grande Construction Loan disbursements based on the cost of materials not stored at the Project. Each submission by LPC to Lender of a requisition for a disbursement of the Casa Grande Construction Loan shall constitute Borrowers' representation and warranty to Lender that: (i) all completed construction is substantially in accordance with the Plans and Specifications, and (ii) all construction and other costs and expenses for the payment of which Lender has previously advanced funds have in fact been paid. E. FACILITY 5: LAGRANGE TERM LOAN. ----------------------------------- 1. LAGRANGE TERM LOAN. Lender will make a term loan (the "LaGrange Term Loan") to LCI in the principal amount of ONE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($1,600,000.00). The LaGrange Term Loan shall be subject to repayment in accordance with, and bear interest as provided in Section 2.F.2 of this Agreement and shall otherwise be evidenced by, and repayable in accordance with, the LaGrange Term Note. 2. PAYMENT TERMS OF LAGRANGE TERM LOAN. ------------------------------------ (a) INTEREST. The LaGrange Term Loan shall bear interest at a fixed rate on the unpaid principal balance until the date paid in full at a rate per annum equal to the 9.37%, such interest being payable monthly commencing on March 1, 1997 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the LaGrange Term Note, the principal balance of the LaGrange Term Loan shall be payable in fifty-nine (59) consecutive, equal monthly installments of EIGHT THOUSAND EIGHT HUNDRED EIGHTY-EIGHT AND 89/100 DOLLARS ($8,888.89) each, commencing on March 1, 1997 and continuing on the first day of each calendar month thereafter and a final installment of ONE MILLION SEVENTY-FIVE THOUSAND FIVE HUNDRED FIFTY-FIVE AND 49/100 ($1,075,555.49) on February 1, 2002. F. FACILITY 6: NORTH CANTON EQUIPMENT LOAN. ------------------------------------------- 1. NORTH CANTON EQUIPMENT DISBURSEMENT LOANS. During the North Canton Equipment Loan Commitment Period, Lender will make an equipment loan or loans (the "North Canton Equipment Disbursement Loans") to LPC in such amount or amounts as 6 7 LPC may from time to time request for the purchase of the North Canton Equipment, but not exceeding in aggregate principal amount at any one time outstanding hereunder the North Canton Equipment Loan Commitment. Subject to the provisions of this Agreement, LPC shall be entitled to borrow funds in such amounts as LPC shall from time to time request during the North Canton Equipment Loan Commitment Period. The North Canton Equipment Disbursement Loans shall be disbursed in accordance with Section 2.F.3 below. The North Canton Equipment Disbursement Loans shall bear interest on the unpaid principal balance at a rate per annum equal to the Base Rate plus three-quarters percent (.75%) and shall otherwise be evidenced by, and repayable in accordance with, the North Canton Equipment Note. Such interest shall be payable monthly on the first day of each calendar month, commencing on the first day of the second calendar month following the disbursement of the loan or loans and continuing on the first day of each calendar month thereafter until the expiration of the North Canton Equipment Loan Commitment Period. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. 2. NORTH CANTON EQUIPMENT TERM LOAN. At the end of the North Canton Equipment Loan Commitment Period, the North Canton Disbursement Equipment Loan shall automatically convert to a term loan (the " North Canton Equipment Term Loan"). The North Canton Equipment Note shall evidence the North Canton Equipment Term Loan in addition to the North Canton Equipment Disbursement Loans. The North Canton Equipment Note shall be payable in fifty-nine (59) equal consecutive monthly principal installments of FIFTEEN THOUSAND EIGHT HUNDRED THIRTY-THREE AND 33/100 DOLLARS ($15,833.33) (assuming the North Canton Equipment Loan Commitment is fully drawn), or such lesser amount as determined pursuant hereto if not fully drawn, commencing the first day of the second month which follows the expiration of the North Canton Equipment Loan Commitment Period and continuing on the first day of each calendar month thereafter, based on a five (5) year amortization schedule, with a sixtieth (60th) payment of FIFTEEN THOUSAND EIGHT HUNDRED FIFTY-THREE AND 00/100 DOLLARS ($15,853.00) (assuming the North Canton Equipment Loan Commitment is fully drawn), or the remaining balance if the North Canton Equipment Loan Commitment is not fully drawn, on the first day of the sixtieth (60th) month thereafter. The North Canton Equipment Term Loan shall bear interest the unpaid principal balance at a rate per annum equal to the Base Rate plus three-quarters percent (.75%), such interest being payable monthly on the first day of each calendar month, commencing on the first day of the second calendar month following the expiration of the North Canton Equipment Loan Commitment Period and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. 3. NORTH CANTON EQUIPMENT DISBURSEMENT LOAN DISBURSEMENT PROCEDURE Upon ordering any North Canton Equipment by LPC, the purchase orders for such orders shall be submitted to Lender for Lender's review of the same as equipment to be purchased under the North Canton Equipment Disbursement Loan. To the extent the seller of the equipment has not already been paid, funds disbursed under the North Canton Equipment Disbursement Loan shall be paid directly to the seller of the equipment to such extent. 7 8 All purchases of equipment under the North Canton Equipment Disbursement Loan shall be completed by the end of the North Canton Equipment Loan Commitment Period. Notwithstanding anything to the contrary contained in this Section 2.F, Lender shall have no obligation to disburse loan proceeds under the North Canton Equipment Disbursement Loan until Congress has evidenced in writing its approval that such North Canton Equipment is "Specific Additional North Canton Equipment" as referenced in the definition of "North Canton Equipment" contained on Rider A hereto. G. DEFAULT RATE. Upon and after the occurrence of an Event of Default, and during the continuation thereof, unless Lender otherwise agrees, the Notes and the obligations under this Agreement shall bear interest, calculated daily on the basis of a three hundred and sixty (360)-day year, for the actual days elapsed, at the Default Rate. H. LIBOR-RELATED PROVISIONS ------------------------ (1) ILLEGALITY; LENDER'S POLICY. Notwithstanding any other provision in this Agreement, if the Lender determines that any applicable law, rule, regulation, or directive (whether or not having the force of law) shall make it (1) unlawful or impossible for the Lender to extend the LIBOR Interest Rate, or (2) imposes or modifies any reserve, special deposit, compulsory loan, or similar requirements relating to any extensions of credit or their assets, or any deposits with or other liabilities, of such Lender; or (3) imposes any other condition adversely affecting Lender's rights hereunder, or (4) if Lender no longer offers the LIBOR Interest Rate, then the interest rate shall automatically convert to a rate per annum equal to three-quarters percent (. 75 %) in excess of the Base Rate. Borrower shall not be required to pay any costs, penalties, or other amounts as a result of or in connection with any such conversion. (2) DISASTER; COSTS. Notwithstanding anything to the contrary herein, if the Lender determines (which determination shall be conclusive) that (i) quotations of interest rates for the relevant deposits referred to in the definition of LIBOR Interest Rate are not being provided in the relevant amounts or for the relative maturities for purposes of determining the LIBOR Interest Rate as provided in this Agreement; or (ii) if the Lender determines (which determination shall be conclusive) that the relevant rates of interest referred to in the definition of LIBOR Interest Rate, do not accurately cover the cost to the Lender of extending the LIBOR Interest Rate, or (iii) the Lender matches funds in the London Interbank market or in any other money market, then the interest rate shall, upon notice to Borrower, automatically convert to a rate per annum equal to three-quarters percent (.75%) in excess of the Base Rate. Borrower shall not be required to pay any costs, penalties, or other amounts as a result of or in connection with any such conversion. I. ORIGINATION FEE. In order to compensate Lender for its services in preparing and reviewing the Credit Documents and the documentation relating thereto in connection with this Agreement and the credit facilities made available hereunder, Borrower shall pay to Lender a fee 8 9 in the amount of THIRTY NINE THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($39,750.00) (the "Origination Fee"), on or prior to the date hereof. J. SECURITY. As security for the prompt and complete payment and performance when due of all the Obligations and in order to induce Lender to enter into this Agreement and make the Loans and to extend other credit from time to time to Borrower, whether under this Agreement or otherwise, LPC hereby grants to Lender a first priority security interest in all LPC's right, title, and interest in, to, and under the Equipment and the North Canton Equipment, and the proceeds of the Equipment and the North Canton Equipment. As security for the prompt and complete payment and performance when due of all the Obligations and in order to induce Lender to enter into this Agreement and make the loans and to extend other credit from time to time to Borrower, whether under this Agreement or otherwise, LPC or LCI, as applicable, shall execute and deliver an open-end mortgage, granting the Lender the first and best lien on the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property, subject only to Permitted Encumbrances. SECTION 3. CONDITIONS OF BORROWING Notwithstanding any other provision of this Agreement or any of the other Credit Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, it is understood and agreed that the additional facilities to be made available to Borrower under Sections 2D, 2E and 2F of this Agreement shall not be available unless and until the following conditions have been satisfied, and Lender shall have no obligation at any time under Sections 2D, 2E and 2F of this Agreement unless the following conditions are satisfied at the time the relevant loan is made, all in form and substance satisfactory to Lender and its counsel: A. CONDITIONS. The following conditions shall have been and shall continue to be satisfied, in the sole discretion of Lender: (1) No legal action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or any of the other Credit Documents or the consummation of the transactions contemplated hereby or thereby, or which, in Lender's opinion would make it inadvisable to consummate the transactions contemplated by this Agreement. (2) The representations and warranties of the Borrowers herein are true and correct in all respects and no Event of Default or condition which, with notice, lapse of time or both, would constitute an Event of Default then exists. (3) No event, occurrence or condition shall then exist which might have a Material Adverse Effect. 9 10 B. DOCUMENTATION. Lender shall have received the following documents, each to be in form and substance satisfactory to Lender and its counsel: (1) Certificates of insurance or certified copies of each Borrower's casualty insurance policies, evidencing the existence of the insurance coverage required pursuant to this Agreement, together with loss payable endorsements thereto naming Lender as a loss payee or additional insured in form and substance satisfactory to Lender. (2) Such UCC financing statements as are required by Lender to perfect the Liens of Lender in the Collateral (subject to the provisions in Section 5.A.(7) hereof) and evidence, in a form acceptable to Lender, that such Liens will constitute valid and first priority perfected Liens. (3) A Certificate of the secretary or an assistant secretary of each Borrower, dated as of the date of this Agreement, certifying (i) that attached thereto is a true and complete copy of the Bylaws of Borrower, as in effect on the date of such certification, (ii) that attached thereto is a true and complete copy of resolutions, in form satisfactory to Lender, adopted by the Board of Directors of Borrower, authorizing the execution, delivery and performance of this Agreement and each of the other Credit Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, and (iii) as to the incumbency and genuineness of the signature of each officer of Borrower executing this Agreement or any of the other Credit Documents to which Borrower is a party. (4) A copy of the Certificate of Incorporation of each Borrower, and all amendments thereto, certified by the Secretary or Assistant Secretary of each Borrower. (5) A good standing certificate for each Borrower issued by the Secretary of State of the jurisdictions indicated as follows: as to LPC, in Delaware, Arizona and Ohio; and as to LCI, in Delaware, Georgia and Ohio. (6) A certificate of each Borrower signed by the chairman, vice chairman, president or chief financial officer of each Borrower and dated as of the date of this Agreement, stating that (i) the representations and warranties set forth in Section 4 hereof are true and correct on and as of such date, (ii) Borrower is on such date in compliance with all the terms and provisions set forth in this Agreement, and (iii) on such date no Event of Default exists and no event or condition has occurred or is continuing which, with the giving of notice, the lapse of time, or both, would constitute an Event of Default. (7) Written instructions from Borrower directing the disbursement of the loan proceeds pursuant to the facilities set forth in Sections 2.D, 2.E and 2.F hereof. 10 11 (8) The written opinion of counsel to Borrowers as to the transactions contemplated by this Agreement and the Credit Documents, in form and substance satisfactory to Lender. (9) The Equipment Term Note, the North Canton Term Note, the Vienna Term Note, the Casa Grande Note, the LaGrange Term Note and the North Canton Equipment Note duly executed by Borrowers, and such other agreements, instruments and documents, including, without limitation, assignments, security agreements, mortgages, deeds of trust, pledges, guaranties and consents, which Lender may require to be executed in connection herewith, including, but not limited to, the following: (a) Environmental Assessments, Appraisals of Real Property , the Equipment and the North Canton Equipment, ALTA Lender Title Policies and Surveys of the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property, together with any other items or information requested by Lender in regard to the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property. (b) Duly executed UCC-1 Financing Statements as requested by Lender from Borrowers, in recordable form, in form and substance acceptable to Lender and its counsel. (c) Duly executed and delivered open-end mortgages of the North Canton Property and the Casa Grande Property from LPC in recordable form, in form and substance acceptable to Lender and its counsel, granting Lender the first lien on the North Canton Property and the Casa Grande Property, subject only to Permitted Encumbrances. (d) Duly executed and delivered open-end mortgages of the Vienna Property and the LaGrange Property from LCI in recordable form, in form and substance acceptable to Lender and its counsel, granting Lender the first lien on the Vienna Property and the LaGrange Property, subject only to Permitted Encumbrances. (10) An Amended and Restated Intercreditor Agreement executed by Congress in form and substance acceptable to Lender and its counsel subordinating the rights of Congress to Lender's rights in the Collateral. (11) Lender shall have reviewed and approved in its sole discretion: the Project budget, which budget shall include costs incurred to date and verifiable costs to complete the Project. 11 12 (12) A Collateral Assignment of Agreements and Plans (the "Contract Assignment") to Lender of (i) the Plans and Specifications; (ii) LPC's agreements with the General Contractor and the Project architect retained by LPC in connection with the construction of the Casa Grande Improvements duly executed by LPC, and (iii) consents to any of the assignments referred to in items (i) and (ii) above by the other parties to the contracts and agreements being assigned, together with the confirmation by such other parties that they will continue to perform under contracts and agreements, as the same may be, after enforcement of and realization of such assignment by Lender. (13) An Assignment of Licenses and Permits duly executed by LPC to Lender of all licenses, permits, certificates of occupancy and similar documents or instruments relating to the Project. (14) The Environmental Report satisfactory to Lender. (15) Evidence that Borrowers have met the insurance requirements of Lender set forth in this Agreement, all in form satisfactory to Lender. (16) The Plans and Specifications. (17) All building, zoning, and other required permits covering construction of the Casa Grande Improvements. (18) Evidence satisfactory to Lender that no portion of the Casa Grande Property is included in a special flood hazard area as designated by the Federal Emergency Management Agency ("FEMA") on its Flood Hazard Boundary Map ("FHBMs") and Flood Insurance Rate Maps ("FIRMs"), and the Department of Housing and Urban Development, Federal Insurance Administration, Special Flood Hazard Area Maps. (19) A certification from the Inspecting Architect/Inspecting Engineer to the effect that the construction of the Casa Grande Improvements in accordance with the Plans and Specifications and the intended use of the Casa Grande Improvements complies with all Legal Requirements to the Project, and evidence satisfactory to Lender that there is no pending proceeding, either administrative, legislative or judicial, which would in any manner adversely affect the status of the zoning with respect to the Project. (20) Evidence that all utility services necessary for construction and use of the Casa Grande Improvements (including without limitation, electric, gas and water) are available to, and adequate for, the Project, and LPC has the right to connect into and use all such utility services without restriction; and that all necessary easements to provide such utility services to the Project have been obtained. (21) The Federal Tax Identification number of each Borrower. 12 13 (22) Soil reports of the Casa Grande Property, showing that the soil will adequately support the buildings, parking areas, driveways and other structures that are part of the Casa Grande Improvements when constructed in accordance with the Plans and Specifications. (23) A letter from an appropriate officer of the township in which the Casa Grande Property is located regarding zoning and building code compliance or certification of same by either Borrower's attorney. (24) A list of all known and proposed contractors and subcontractors to be used for development of the Project. (25) On or prior to the date of each disbursement of the Casa Grande Construction Loan made after the first disbursement thereof, Lender shall have received the following: (a) Plans and Specifications for the Casa Grande Improvements to the extent not already delivered to Lender. No disbursement shall be made by Lender hereunder for any portion of construction of the Casa Grande Improvements until the Plans and Specifications for such Casa Grande Improvements shall have been delivered to and approved by Lender. (b) A certificate from the Inspecting Architect/Inspecting Engineer certifying (A) that the construction of the Casa Grande Improvements theretofore completed, if any, has been performed substantially in accordance with the Plans and Specifications; (B) that the quality of construction of the Casa Grande Improvements theretofore completed is in accordance with generally accepted standards in the construction industry for the construction of similar Casa Grande Improvements; (C) the estimated total cost of the construction of the Casa Grande Improvements; (D) that the nondisbursed portion of the Loan as shown on the budget plus any equity contribution made or to be made by LPC is adequate to complete the construction of the Casa Grande Improvements pursuant to the Plans and Specifications; and (E) that the completion of the Casa Grande Improvements will reasonably occur on or before the Completion Date. (c) Receipt by Lender of an endorsement to the Title Policy indicating that since the last preceding disbursement of the Casa Grande Construction Loan there has been no change in the state of title and no survey exceptions not theretofore approved by Lender and increasing the coverage of the Title Policy by an amount equal to the disbursement then being made so that the total amount insured equals the total amount disbursed by Lender under the terms hereof and changing the effective date of the Title Policy to the date of the disbursement. (26) Borrowers will, on or prior to the date of the final disbursement of the Casa Grande Loan hereunder, deliver or cause to be delivered to Lender the following: 13 14 (a) Evidence satisfactory to Lender of the issuance by all appropriate governmental authorities of certificates of use and occupancy for the Casa Grande Improvements. (b) A final as-built survey satisfactory to Lender, bearing a proper certificate by the surveyor, showing the completed Casa Grande Improvements and all easements and right-of-ways. (c) An additional endorsement to the Title Policy insuring the priority of the Mortgage covering the Casa Grande Property as required hereunder in the full amount of the Casa Grande Construction Loan against mechanic's and materialmen's liens (including inchoate liens) arising by reason of unpaid labor and materials supplied in connection with the construction and development of the Project. (d) A certificate by the Inspecting Architect/Inspecting Engineer or other person satisfactory to Lender stating that the Casa Grande Improvements have been substantially completed in accordance with the Plans and Specifications. (e) An affidavit of Borrowers stating that each person providing any material or performing any work in connection with the Project has been (or will be, with the proceeds of and immediately following receipt by Borrowers of such final Casa Grande Construction Loan disbursement) paid in full or bonded or insured to the reasonable satisfaction of Lender. SECTION 4. REPRESENTATIONS AND WARRANTIES In order to induce Lender to enter into this Agreement and to make each Loan, Borrowers jointly and severally represent and warrant to Lender that: A. Each Borrower is a corporation duly organized, validly existing, and in good standing under the laws of its state of incorporation, has the necessary authority and power to own its respective Collateral and its other assets and to transact the business in which it is engaged, is duly qualified to do business in each jurisdiction where the Collateral is located and in each other jurisdiction in which the conduct of its business or the ownership of its assets requires such qualification, and its chief executive office is located at the address set forth in paragraph 4.B of Rider A; B. Each Borrower has full power, authority, and legal right to execute and deliver this Agreement and each of the other Credit Documents to which it is a party, to perform its obligations hereunder and thereunder, to borrow hereunder and to grant the security interest created hereby, as to properties purported to be owned by each Borrower, and to grant the Mortgages on the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property; 14 15 C. This Agreement, the Notes and each of the other Credit Documents have been duly authorized, executed, and delivered by the Borrowers a party thereto and constitute a legal, valid, and binding obligation of the Borrowers a party thereto enforceable in accordance with their respective terms; D. The execution, delivery, and performance by Borrowers of this Agreement and each of the Credit Documents to which it is a party does not and will not violate any provision of any applicable law or regulation or of any judgment or order of any court or governmental instrumentality, and will not violate any provision of, or cause a default under, any loan, other agreement, contract, or judgment to which either Borrower is a party; E. Borrowers' uses of the proceeds of the Equipment Term Loan, the North Canton Term Loan, the Vienna Term Loan, the Casa Grande Loan, the LaGrange Term Loan and the North Canton Equipment Loan, as applicable, made by Lender to such Borrower pursuant to this Agreement are, and will continue to be, legal and proper corporate uses, and such uses are and will continue to be consistent with all applicable laws and statutes; F. As of the date hereof, and after giving effect to the transactions contemplated by this Agreement, (i) each Borrower is able to pay its debts as they mature and is not otherwise insolvent in any respect, and (ii) each Borrower's capital is sufficient and not unreasonably small for the business and transactions in which such Borrower is engaged or about to engage. G. Neither Borrower is in default under any agreement, contract, or judgment to which it is a party which such default (or defaults considered in the aggregate) is reasonably expected to have a Material Adverse Effect. H. Borrowers have filed all tax returns that are required to be filed and have paid all taxes as shown on said returns and all assessments received by them to the extent such taxes and assessments have become due other than those which are the subject of valid extensions and those which are being contested in good faith by appropriate proceedings and as to which appropriate reserves are being maintained by Borrowers in accordance with generally accepted accounting principles and so long as such proceedings operate during the pendency thereof to prevent the sale, forfeiture, or loss of the Collateral by or to such taxing authority, and Borrowers do not have any knowledge of any actual or proposed deficiency or additional assessment in connection therewith; I. To the best of Borrowers' knowledge, there is no action, audit, investigation, or proceeding pending or threatened against or affecting either Borrower or any of Borrowers' assets which involve any of the Collateral or any of the contemplated transactions hereunder or which, if adversely determined, could reasonably be expected to have a Material Adverse Effect on Borrowers' business, operations, or financial condition; J. On each Closing Date, Borrowers shall have good and marketable title to the Collateral being secured on such date and, upon the filing of proper financing statements and 15 16 recording of the Mortgages, Lender shall have a perfected first Lien on such Collateral (subject to Permitted Encumbrances and those encumbrances expressly permitted under the Mortgages); and (1) Except as disclosed in writing to Lender (including in any environmental audit or assessment report) the operations of Borrowers at the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property comply in all material respects with all applicable Environmental Laws; and (2) Except as disclosed in writing to Lender (including in any environmental audit or assessment report): (a) None of the operations of Borrowers at the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property are subject to any judicial or administrative proceeding alleging the violation of any Environmental Laws; (b) None of the operations of Borrowers at the North Canton Property, the Vienna Property, the Casa Grande Property and the LaGrange Property is the subject of an investigation to determine whether any remedial action is needed to respond to a release of any Hazardous Material into the environment; and (c) Borrowers have no known contingent liability with respect to the North Canton Property, the Vienna Property, the Casa Grande Property, or the LaGrange Property in connection with any release of any Hazardous Material into the environment; K. All annual and quarterly financial statements of Borrowers, included in any annual reports on form 10-K or included in any quarterly reports on form 10-Q, which have been delivered to Lender have been prepared in accordance with generally accepted accounting principles consistently applied, and present fairly in all material respects Borrowers' financial position as at, and the results of its operations for, the periods ended on the dates set forth on such financial statements, and there has been no material adverse change in Borrowers' financial condition, business, or operations since September 30, 1996, as reflected in such financial statements; L. Neither Borrower has changed its corporate name since March 1, 1991 or done business or been known under any other name except as disclosed in writing to Lender; and M. No consent of any person, and no consent, license, approval, or authorization of, or registration or filing with, any governmental authority, bureau, or agency is required in connection with the execution, delivery, and performance of, and payment under, this Agreement or the Notes, other than the consent of Congress, the filing of financing statements and the recording of the Mortgages. 16 17 N. Neither this Agreement, nor any written statement made by Borrowers in connection herewith, contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which Borrowers have not disclosed to Lender which has, or is reasonably expected to have, a Material Adverse Effect. O. All Equipment is in good operating condition and repair and all necessary replacements of and repairs to the same have been made so that the value and operating efficiency thereof has been maintained and preserved, reasonable wear and tear excepted. None of the Equipment is so affixed to the real property where located (other than the North Canton Property) so that an interest therein arises under the real property laws of such jurisdiction nor is any such Equipment an accession to any other personal property not otherwise a part of the Collateral. Each request for an advance made by Borrowers pursuant to this Agreement shall, unless Lender is otherwise notified in writing prior to the time of such advance, constitute (i) an automatic representation and warranty by Borrowers to Lender that there does not then exist an Event of Default or any event or condition which, with notice, lapse of time and/or the making of such advance, would constitute an Event of Default, and (ii) a reaffirmation as of the date of said request of all of the representations and warranties of Borrowers contained in this Agreement or any of the other Credit Documents. Borrowers covenant, warrant and represent to Lender that all representations and warranties of Borrowers contained in this Agreement and each of the other Credit Documents shall be true at the time of Borrowers' execution of this Agreement and such other Credit Documents, and shall survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 5. COVENANTS Borrowers covenant and agree that from and after the date hereof and so long as any Obligations remain unsatisfied, unless otherwise consented to by Lender in writing: A. Each Borrower will: (1) Promptly give written notice to Lender of the occurrence of any Event of Loss; (2) Observe all material requirements of any governmental authorities relating to the conduct of its business, to the performance of its obligations hereunder, to the use, operation or ownership of the Equipment, or to its other properties or assets, maintain its existence as a legal entity and obtain and keep in full force and effect all material rights, franchises, licenses and permits which are necessary to the proper conduct of its business, and pay all fees, taxes, assessments and governmental charges or levies imposed upon any of the Equipment; 17 18 (3) At any reasonable time or times, permit Lender or its authorized representative (a) upon prior written notice, to inspect the Collateral and Borrowers' books and records pertaining to the Collateral and, (b) following the occurrence and during the continuation of an Event of Default, to inspect all of the books and records of Borrowers, (4) In accordance with generally accepted accounting principles, keep proper books of record and account in which entries will be made of all dealings or transactions in relation to its business and activities; (5) Furnish to Lender the following financial statements, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved, (a) as soon as available, but not later than 120 days after the end of each fiscal year, its consolidated balance sheet as at the end of such fiscal year, and its consolidated statements of income and consolidated statements of cash flow, including all footnotes, or such fiscal year, together with comparative information for the prior fiscal year, audited by Ernst & Young, LLP or other certified public accountants reasonably acceptable to Lender; and (b) as soon as available, but not later than 45 days after the end of each of the first three quarterly periods of each fiscal year, its consolidated balance sheet as at the end of such quarterly period and its consolidated statements of income and consolidated statements of cash flow for such quarterly period and for the portion of the fiscal year then ended together with comparative information for the prior comparable period, certified as to their accuracy by its chief financial officer, (6) Furnish to Lender, (i) together with the financial statements described in clauses 5.A.(5)(a) and 5.A.(5)(b) above, a statement of LPC signed by LPC's chief financial officer certifying that Borrowers are in compliance with all financial covenants contained herein, or if Borrowers are not in compliance, the nature of such noncompliance or default, and the status thereof (such statement shall set forth the actual calculations of any financial covenants), and (ii) promptly, such additional financial and other information as Lender may from time to time reasonably request; (7) Promptly, at Borrowers' expense, execute and deliver to Lender such instruments and documents, and take such action, as Lender may from time to time reasonably request in order to carry out the intent and purpose of this Agreement and to establish and protect the rights, interests and remedies created, or intended to be created, in 18 19 favor of Lender hereby, including, without limitation, the execution, delivery, recordation and filing of financing statements (hereby authorizing Lender, in such jurisdictions where such action is authorized by law, to effect any such recordation or filing of financing statements without Borrowers' signature, and to file as valid financing statements in the applicable financing statement records, photocopies hereof and of any other financing statement executed in connection herewith); PROVIDED, HOWEVER, notwithstanding anything in this Agreement or any other Credit Document to the contrary, in no event shall Lender file or record any financing statement or other public document which specifically lists the particular items of Equipment or North Canton Equipment included in the Collateral; (8) Warrant and defend its good and marketable title to the Equipment, and Lender's perfected first priority security interest in the Collateral, against all claims and demands whatsoever (hereby agreeing that the Equipment shall be and at all times remain separately identifiable personal property, and shall not become part of any real estate other than the North Canton Property), and will, at its expense, take such action as may be necessary to prevent any other Person (other than Congress) from acquiring any right or interest in the Equipment; (9) At Borrowers' expense, if requested by Lender in writing, attach to the Equipment a notice satisfactory to Lender disclosing Lender's security interest in the Equipment; (10) At Borrowers' expense, maintain the Equipment in good condition and working order and furnish all parts, replacements and servicing required therefor so that the value, condition and operating efficiency thereof will at all times be maintained, normal wear and tear excepted, and any repairs, replacements and parts added to the Equipment in connection with any repair or maintenance or with any improvement, change, addition or alteration shall immediately, without further act, become part of the Equipment and subject to the security interest created by this Agreement; and (11) Deliver to Lender, upon demand, any and all evidence of ownership of the Equipment, inclusive of any certificates of title or applications therefor, and maintain accurate, itemized records describing the kind, type, quantity and value of all the Equipment, a summary of which shall be provided to Lender on at least an annual basis and more frequently if requested by Lender. (12) Obtain and maintain at all times on the Equipment, at Borrowers' expense, "All-Risk" physical damage and, if required by Lender, liability insurance (including bodily injury and property damage) in such amounts, against such risks, in such form and with such insurers as shall be reasonably satisfactory to Lender; PROVIDED, HOWEVER, that the amount of physical damage insurance shall not be less than the then aggregate outstanding principal amount of the Equipment Term Note. All physical damage insurance policies shall be made payable to Lender as its interest may appear, if liability insurance is required by Lender, the 19 20 liability insurance policies shall name Lender as an additional insured. Borrowers shall maintain and deliver to Lender the original certificates of insurance or other documents reasonably satisfactory to Lender prior to policy expiration or upon Lender's request, but Lender shall bear no duty or liability to ascertain the existence or adequacy of such insurance. Each insurance policy shall, among other things, require that the insurer give Lender at least 30 days' prior written notice of any material alteration in the terms of such policy or the cancellation thereof and that the interests of Lender continue to be insured regardless of any breach of or violation by Borrowers of any warranties, declarations or conditions contained in such insurance policy. The insurance maintained by the Borrowers shall be primary with no other insurance maintained by Lender (if any) contributory. Unless Lender otherwise agrees in writing, following the occurrence of an Event of Default and during the continuance thereof Lender shall have the sole right, in its name or in Borrowers' name, to file claims under any insurance policies, to receive, receipt, and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments, or other documents that may be necessary to effect the collection, compromise, or settlement of any claims under any such insurance policies. B. Neither Borrower will: (1) Sell, convey, transfer, exchange, lease or otherwise relinquish possession or dispose of any of the Collateral or attempt or offer to do any of the foregoing; provided, however, that Borrowers may offer to sell Collateral after giving Lender notice of its wish to offer Collateral for sale; (2) Create, assume or suffer to exist any Lien upon the Collateral except for the security interest created hereby and the subordinate security interest in favor of Congress subordinated to the extent provided in an Intercreditor Agreement of even date herewith and except for Permitted Encumbrances; (3) Liquidate or dissolve; (4) Change the form of organization of its business; or (5) Without thirty (30) days prior written notice to Lender, change its name or its chief executive office; (6) As to the Equipment, and at any time after Lender advances the North Canton Equipment Loan as to the North Canton Equipment, move (or in the case of titled vehicles, change the principal base of) any of the Equipment or North Canton Equipment from the North Canton Property without the prior written consent of Lender except within the continental United States upon thirty (30) days prior written notice to Lender (provided that Borrower delivers to Lender such financing statements as Lender requests to maintain its perfected first priority security interest in such Equipment); or 20 21 (7) Make or authorize any improvement, change, addition or alteration to the Equipment which would impair its originally intended function or use or its value. C. Each Borrower further will comply with all terms and provisions contained in Paragraph 2 of Rider A hereto. D. After obtaining the written consent of Lender as to each item of Equipment, Borrowers shall have the right to substitute up to THREE HUNDRED SIXTY THOUSAND AND NO/100 DOLLARS ($360,000.00) of items of Equipment with other items of Equipment of a similar type and of a value to Lender equal to or greater than the Equipment replaced or with other items of Equipment acceptable to Lender. E. Borrowers shall comply with the following requirements regarding the Project: (1) LPC will cause construction of the Casa Grande Improvements to be carried on continuously and to be substantially completed, lien free and ready for full use and occupancy, not later than the Completion Date. The Project will be constructed in substantial conformity with the Plans and Specifications, all applicable Legal Requirements and this Agreement. The Project will be constructed entirely on the Casa Grande Property and will not encroach upon or overhang any easement, building line or right of way and, when erected, will not violate applicable use or other restrictions of record. If, in Lender's judgment, the Project is not in substantial conformity with the foregoing, Lender shall have the right to stop the work and order repair or reconstruction in accordance therewith and to withhold its consent to all further disbursements, until the work is in substantial conformity with the Plans and Specifications, all Legal Requirements and this Agreement. Upon notice from Lender to LPC, or LPC's discovery irrespective of such notice, that the work is not in substantial conformity with the Plans and Specifications and/or all Legal Requirements and/or this Agreement, LPC shall commence correcting the deviation, as promptly as is practicable, and in any event within thirty (30) days after the notice or discovery and shall prosecute such work diligently to completion. (2) LPC shall not authorize any changes in the Plans and Specifications without the prior written consent of Lender if such changes (i) are major or significant changes, (ii) cause a material decrease in the value of the Project or (iii) materially increase the cost of the Project. (3) Lender will have the right to cause the Project (and records, books and contracts with respect thereto) to be inspected for its benefit from time to time during or after construction, until the Casa Grande Note is fully paid. (4) All materials incorporated in such construction will be purchased so that absolute ownership and title vest in LPC upon delivery of such materials to the Project and payment of the applicable vendors of such material. 21 22 (5) Except as permitted in paragraph 2 above no change will be made in the Plans and Specifications, the terms and conditions of the construction contract ("Construction Contract") for the Casa Grande Improvements previously delivered to and approved by Lender, or the identity of the General Contractor without the prior written consent of Lender; PROVIDED, that changes in the Plans and Specifications and the Construction Contract (including change orders thereunder) which do not modify materially the scope or use of the Casa Grande Improvements contemplated by the Plans and Specifications and which do not result in an increase or decrease in the aggregate cost of the Casa Grande Improvements by more than One Hundred Thousand Dollars ($100,000.00) in any twelve (12) month period shall be permitted hereunder without the prior written consent of Lender. (6) The construction of the Casa Grande Improvements shall be carried forward with reasonable diligence and, subject to force majeure, will be substantially completed on or before the Completion Date; the Casa Grande Improvements will be constructed substantially in accordance with the Plans and Specifications approved by Lender hereunder and in compliance with all Legal Requirements and this Agreement; construction of the Casa Grande Improvements will be located entirely upon the Casa Grande Property; and title to said Project and Casa Grande Improvements will, during the entire construction period and upon completion of construction, be free from all liens, claims, and encumbrances, except for the Mortgages, taxes and assessments which are a lien but not yet due and payable, and any other liens or exceptions that are approved in writing by Lender. (7) Borrowers will promptly obtain and provide to Lender a conditional lien release from the General Contractor for the Project for each payment request as well as an unconditional lien release from the General Contractor for the Project. All lien releases will be in form required by Arizona statute. Lender may condition disbursements upon receipt of a conditional lien release from the General Contractor on the Project and receipt of an unconditional release from the General Contractor for all payments previously made. Borrowers will also record a notice of completion in accordance with Arizona law promptly upon completion. Borrowers shall obtain endorsements acceptable to Lender providing insurance over mechanics and materialmen liens in the policy of title insurance to be provided to Lender and shall indemnify, defend and hold Lender harmless from, and shall defend the priority of Deed of Trust against, any claims for unpaid amounts due for work performed at, or materials furnished to, the Project whether before or after the recording of the Deed of Trust. Borrowers will give Lender prompt notice of all contractors, subcontractors, and suppliers working on the Project as well as copies of any twenty- day (20) notices received by Borrowers from persons asserting lien rights on the Project. Borrowers will within thirty (30) days after receipt of notice bond over or otherwise remove of record any mechanics liens or materialmen liens which attach to any or all of the Project, and if Borrower fails to do so, Lender shall have the right but not the obligation to do so. Any amounts paid by Lender to remove a lien shall be a part of the Obligations, shall be immediately due from Borrowers to Lender, and shall bear interest at the Default Rate from the date disbursed until the date paid. 22 23 F. Until otherwise directed by Lender, LPC shall obtain and keep in full force and effect (i) comprehensive general liability insurance, personal and bodily injury, death and property damage insurance, in amounts adequate and customary for a project such as the Casa Grande Improvements and otherwise reasonably acceptable to Lender, for injury to or death of one (1) person and for overall personal injury, (ii) all-risk insurance regarding damage to the Project following completion of construction, and (iii) an amount similarly adequate and customary and otherwise acceptable, builder's risk insurance during construction of the Casa Grande Improvements. Lender shall be named as an additional insured upon such liability policies and as mortgagee upon any all-risk insurance policies. G. LPC shall comply with the following with regard to environmental matters: (1) LPC shall, and LPC shall cause all employees, agents, contractors, and subcontractors of LPC and any other persons who now or hereafter are present on or occupying the Project, to use, operate, keep and maintain the Project, as applicable, including, without limitation, the soil and ground water thereof, in material compliance with, and not cause or knowingly permit the Project, including the soil and ground water thereof, to be in material violation of any applicable Environmental Laws if such noncompliance or violation would have a Material Adverse Effect. Neither LPC nor any other persons who now or hereafter occupy or are present on the Project whose presence LPC is aware of shall (i) use, handle, generate, manufacture, store, or dispose of, on, under, around or above the Project or transport to or from the Project any Hazardous Materials, except as such may be required to be used, handled, stored, or transported in connection with the construction of the Project and permitted uses of the Project and then only in material compliance with Environmental Laws; or (ii) perform, cause to be performed or permit any fill activities or other acts which would in any way fill, destroy, eliminate, alter, obstruct, interfere with, or otherwise affect any Wetlands, in material violation of any "Wetlands Laws." (2) LPC shall immediately notify Lender in writing of: (i) any written notices (whether such notices are received from the United States Environmental Protection Agency, the Arizona Environmental Protection Agency, or any other federal, state, or local governmental agency or regional office thereof) of an actual violation or potential violation occurring at the Project which is received by LPC of any Environmental Laws or of any Wetlands Laws; (ii) any and all enforcement, cleanup, removal or other governmental actions threatened, instituted or completed with respect to the Project pursuant to any Environmental Laws or Wetlands Laws; 23 24 (iii) any claims made or threatened by any third party against LPC or the Project relating to actual or alleged damage, contribution, obligations, cost recovery, compensation, loss or injury resulting from any Hazardous Materials or Wetlands (the matters set forth in clauses (i), (ii) and (iii) above are hereinafter referred to as "Hazardous Materials or Wetlands Claims"); and (iv) LPC's discovery of any occurrence or condition in, on, under, around or above the Project or any real property adjoining or in the vicinity of the Project that could cause the Project to be subject to any restrictions on the ownership, occupancy, transferability or use of the Project under any Environmental Laws or Wetlands Laws. LPC shall be deemed to have advised Lender of any such matter set forth in any environmental audit or assessment report delivered to Lender. (3) LPC shall be solely responsible for, and Borrowers agree to indemnify and hold harmless Lender, and its directors, officers, employees, agents, successors and assigns from and against, any claim, action, cause of action, loss, damage, cost, expense or liability directly or indirectly, in whole or in part, arising out of or related or attributable to (i) the breach, violation or threatened violation of any applicable Environmental Laws, including, but not limited to, Wetlands Laws, relating to the Project; (ii) the use, handling, generation, storage, release, threatened release, discharge or disposal of Hazardous Materials in, on or under the Project in violation of Environmental Laws; or (iii) any Wetlands in, on or about the Project or any filling or draining thereof or damage thereto in violation of Wetlands Laws. Notwithstanding anything in this Agreement to the contrary, LPC shall not have any liability or obligation under this Agreement (i) to any Person other than the Lender or any entity which acquires the Lender or into which or with which the Lender is merged or consolidated (a "Lender Successor"), or (ii) in respect of any event, condition or circumstance arising out of the ownership after the date hereof of the Project by any Person other than LPC and any Person to whom LPC sells, assigns or transfers the Project in violation of the Mortgage in favor of the Lender with respect to the Project unless the Lender consents thereto in writing, or (iii) arising out of the direct control, occupancy, use, or operation of the Project after the date hereof by any Person other than LPC as a result of the exercise by the Lender or any successor or assignee of the Lender of any of the Lender's rights or remedies under the Loan Documents. (4) Any costs or expenses reasonably incurred by Lender for which Borrowers are responsible or for which Borrowers have indemnified Lender shall be paid to Lender within thirty (30) days after demand, and failing such reimbursement, shall be added to the indebtedness secured by the Mortgages and earn interest at the Default Rate until paid in full. (5) LPC shall promptly notify Lender if such Borrower takes any remedial action in response to the presence of any Hazardous Materials or Wetlands in, on, under or above any portion of the Project in violation of Environmental Laws or enters into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material or Wetlands Claims with respect to the Project. 24 25 (6) Borrowers' responsibilities under Section 5.G shall survive the satisfaction of the Obligations and the releases of any or all mortgages. (7) [INTENTIONALLY OMITTED] H. Borrowers shall reimburse Lender promptly for all reasonable out-of-pocket costs and expenses of Lender incidental to the Loans, including but not limited to the costs of title insurance policies, title examinations, recording fees, surveys, appraisal fees, inspection fees, reasonable attorneys' fees and out-of-pocket expenses, all of which Lender is authorized to deduct from the proceeds of disbursements hereunder. Borrowers shall promptly and provided Lender that notifies Borrower in advance of obtaining such appraisal upon demand reimburse Lender for the reasonable cost and expense of any appraisal of the Project obtained by Lender on or after the date hereof if such appraisal must be obtained by Lender pursuant to any Legal Requirements or the requirements of any rule, regulation, interpretive ruling, opinion, or directive of any state or federal governmental agency or unit governing, regulating, or controlling the activities of Lender, whether now existing or hereafter enacted. I. At all times during the Casa Grande Commitment Period: (1) No materials, equipment, personal property, or fixtures of any kind will be purchased or acquired by LPC for installation or use in, on or about the Casa Grande Improvements under any conditional sales contract any lease agreement, and all such materials, equipment, personal property, and fixtures shall be fully paid for before payment therefor becomes past due or in any event within fifty (50) days after delivery thereof; provided, however, that the foregoing shall not apply to amounts withheld and unpaid on account of bona fide disputes with the suppliers. 25 26 (2) LPC shall at any time or times upon request of Lender, deposit with Lender such additional construction funds as are reasonably determined by the Inspecting Architect/Inspecting Engineer as necessary to pay for completion of construction of the Casa Grande Improvements, and such funds shall be disbursed by Lender in the same manner as the proceeds of the Casa Grande Loan. (3) LPC shall furnish or cause to be furnished to the Title Company and Lender any affidavits, lien waivers, releases, or other evidences reasonably requested by the Title Company, from time to time, to establish that all bills for labor and materials relating to the construction of the Casa Grande Improvements and/or the development of the Project and all bills of the contractor and all bills of subcontractors, laborers, and materialmen in said construction or development have been paid in full except for those bills which have become due and payable since the next preceding disbursement by Lender hereunder. (4) Except as otherwise permitted by this Agreement, LPC shall not without the prior written consent of Lender modify or amend in any material respect any contract of LPC relating to the development of financing of the Casa Grande Improvements, including any such contracts described herein. (5) LPC shall allow Lender and its agents and Inspecting Architect/Inspecting Engineer, at all reasonable times during construction: (i) the right of entry and free access to the site of the Casa Grande Improvements; (ii) the right to inspect all work done, labor performed and materials furnished in and about the Casa Grande Improvements; and (iii) to require to be replaced or otherwise corrected any material or work that is not in substantial conformity with the Plans and Specifications. (6) LPC shall, within thirty (30) days from the date hereof, erect at the Project a temporary project sign, acceptable to Lender, stating that financing for the Project is being provided by Lender. LPC hereby agrees that Lender may release publicity articles concerning the financing of the Project. SECTION 6. EVENTS OF DEFAULT; REMEDIES The following events shall each constitute an "EVENT OF DEFAULT" hereunder: A. Borrowers shall fail to pay any principal or interest on any Notes within 10 days after the same becomes due (whether at the stated maturity, by acceleration or otherwise) which failure is not cured within 10 days after Borrowers' receipt of written notice from Lender or shall fail to pay any other Obligation when due (whether at the stated maturity, by acceleration or otherwise), which failure is not cured within 10 days after Borrowers' receipt of written notice from Lender; B. Any representation or warranty made by Borrowers in this Agreement or in any document, certificate or financial or other statement now or hereafter furnished by Borrowers in 26 27 connection with this Agreement or any Loan shall at any time prove to be untrue or misleading in any material respect as of the time when made; C. Borrowers shall fail to observe any covenant, condition or agreement contained in Sections 5.A.(11) or 5.B hereof or in paragraphs 2 or 3.A of Rider A, which failure shall continue for a period of 10 days after receipt of written notice from Lender; D. Borrowers shall fail to observe or perform any covenant or condition (other than Section 5.A.(11) or 5.B hereof or Paragraph 2 or 3.A of Rider A) contained in this Agreement, and such failure shall continue unremedied for a period of 30 days after the date on which written notice thereof shall be given by Lender to Borrower; E. Borrowers or any guarantor of the Obligations fails to perform, keep or observe any other term, provision, condition, covenant, warranty or representation contained in any of the Credit Documents other than this Agreement or the Notes, which is required to be performed, kept or observed by Borrowers or any such guarantor, which failure shall continue unremedied for a period of thirty (30) days after the date on which written notice thereof shall be given by Lender to Borrower. F. Borrowers or any subsidiary of either Borrower shall default (i) in the payment of, or other performance under, any obligation for payment or lease (whether or not capitalized) or any guarantee to Lender or any affiliate of Lender (excluding all Participation Obligations) beyond the period of grace, if any, provided with respect thereto, (ii) in the payment of any obligation for borrowed money in excess of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) to any other Person beyond the period of grace, if any, provided with respect thereto, if such obligation for borrowed money is accelerated as a result thereof, or (iii) in the performance of any obligation for borrowed money in excess of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) to any other Person beyond the period of grace, if any, provided with respect thereto if such obligation for borrowed money is accelerated as a result thereof; G. A complaint in bankruptcy or for arrangement or reorganization or for relief under any insolvency law is filed by or against either Borrower (and when filed against either Borrower is in effect for 60 days) or either Borrower admits its inability to pay its debts as they mature; H. Any material adverse change in the value of the Collateral or the financial condition or operating results of Borrowers or any other guarantor taken together of the Obligations; or I. If the Casa Grande Improvements erected on the Casa Grande Property shall encroach upon the street or upon the adjoining property, and such encroachment shall not be removed or appropriate easements or other rights obtained within thirty (30) days after Lender shall have delivered notice thereof to Borrowers. 27 28 J. If the construction of the Casa Grande Improvements is not carried on with reasonable dispatch in the reasonable judgment of Lender or if the Casa Grande Improvements are not completed within thirty (30) days after or prior to the Completion Date. K. Failure or refusal by the Title Company, by reason of any matter affecting title to the Casa Grande Property or Casa Grande Improvements, to insure any Loan disbursement as giving rise to a valid first lien, subject only to Permitted Encumbrances and those exceptions approved by Lender, if such failure is not remedied within thirty (30) days after notice. If an Event of Default shall occur and be continuing, Lender may in addition to any of the remedies otherwise available to Lender, by notice of default given to Borrower, do any one or more of the following: 1. Terminate the Commitment and/or 2. Declare the Notes to be due and payable, whereupon the principal amount of the Notes, together with accrued interest thereon and all other amounts owing under this Agreement and the Notes or the other Credit Documents, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived (and in the case of any Event of Default specified in clause 6.G of the above paragraph, such acceleration of the Notes shall be automatic, without any notice by Lender). In addition, if an Event of Default shall occur and be continuing, Lender may exercise all other rights and remedies available to it, whether under this Agreement, under any other instrument or agreement securing, evidencing or relating to the Obligations, under the Code, or otherwise available at law or in equity. Without limiting the generality of the foregoing, Borrowers agree that in any such event, Lender, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale and any notice specified in any applicable mortgage) to or upon Borrowers or any other Person (all and each of which demands, advertisement and notices are hereby expressly waived), may forthwith do any one or more of the following: collect, receive, appropriate and realize upon the Collateral or any part thereof, and sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver, the Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales at such places and at such prices as it may deem best, for cash or on credit or for future delivery without the assumption of any credit risk. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of Borrower, which right or equity is hereby expressly released. Borrower further agrees, at Lender's request, to assemble (at Borrower's expense) the Collateral and make it available to Lender at such places which Lender shall select, whether at Borrower's premises or elsewhere but not more than 1000 miles from Borrower's premises. Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale (after deducting all reasonable costs and expenses of every kind incurred therein or incident al to the care, safekeeping or otherwise of any or all of the Collateral or in any way relating to the rights of Lender hereunder, including reasonable attorney's fees and legal expenses) to the payment in whole or in part of the Obligations, in such order as Lender may elect. Borrower agrees that 28 29 Lender need not give more than 10 days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Borrower shall be liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Lender is entitled. Borrower agrees to pay all costs of Lender, including reasonable attorneys' fees, incurred with respect to collection of any of the Obligations and enforcement of any of Lender's rights hereunder. To the extent permitted by law, Borrower hereby waives presentment, demand, protest or any notice (except as expressly provided in this Section 6) of any kind in connection with this Agreement or any of the other Credit Documents or any Collateral except as otherwise specifically provided in any Credit Document. SECTION 7. MISCELLANEOUS A. No failure or delay by Lender in exercising any right, remedy or privilege hereunder or under any Notes or any of the other Credit Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy or privilege hereunder or thereunder preclude any other or further exercise therefor the exercise of any other right, remedy or privilege. No right or remedy in this Agreement or any of the other Credit Documents is intended to be exclusive but each shall be cumulative and in addition to any other remedy referred to herein or otherwise available to Lender at law or in equity; and the exercise by Lender of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lender of any or all such other remedies. No express or implied waiver by Lender of an Event of Default shall in any way be, or be construed to be, a waiver of any other or subsequent Events of Default. The acceptance by Lender of any regular installment payment or any other sum owing hereunder shall not (a) constitute a waiver of any Event of Default in existence at the time, regardless of Lender's knowledge or lack of knowledge thereof at the time of such acceptance, or (b) constitute a waiver of any Event of Default unless Lender shall have agreed in writing to waive the Event of Default. B. All notices, requests and demands to or upon any party hereto shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to such party it its address (or telecopier number) set forth in paragraph 4 of Rider A or such other address or telecopier number as may be hereafter designated in writing by such party to the other party hereto. C. Borrowers agree to pay or reimburse Lender for (i) all expenses of Lender in connection with the documentation hereof, (ii) all fees, taxes and expenses of whatever nature reasonably incurred in connection with the creation, preservation and protection of Lender's security interest in the Collateral, including, without limitation, all filing and lien search fees, payment or discharge of any taxes or Liens upon, or in respect to, the Collateral, and all other fees and expenses reasonably incurred in connection with protecting or maintaining the Collateral or in connection with defending or prosecuting any actions, suits or proceedings arising out of, or related to, the Collateral; (iii) all costs and expenses (including reasonable legal fees and disbursements) of Lender in connection with the enforcement of this Agreement or any of the other Credit Documents, including, but not limited to (a) any court or administrative proceeding involving the Collateral or the Credit Documents to which Lender is made a party or is 29 30 subject to subpoena by reason of its being the holder of any Credit Documents, including, without limitation, bankruptcy, insolvency, or a reorganization, and (b) any court or administrative proceeding or other action undertaken by Lender to enforce any remedy or to collect any indebtedness due under the Credit Documents and (c) any remedy exercised by Lender; (iv) any activity in connection with any request by Borrowers or anyone acting on behalf of Borrowers that the Lender consent to a proposed action which, pursuant to the Credit Documents may be undertaken or consummated only with the prior consent of Lender, whether or not such consent is granted; and (v) any negotiation undertaken between Borrowers and Lender, or anyone acting on behalf of Borrowers, pertaining to the existence or cure of any default under or the modification or extension of any of the Credit Documents, and D. Borrowers agree to pay, and to indemnify and hold Lender harmless from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, out-of-pocket costs, expenses (including reasonable legal expenses) or disbursements of any kind or nature whatsoever arising out of or with respect to (a) this Agreement or any of the other Credit Documents, the Collateral or Lender's interest therein, including, without limitation, the execution, delivery, enforcement, performance or administration of this Agreement or any of the other Credit Documents and the manufacture, purchase, ownership, possession, use, selection, operation or condition of the Collateral or any part thereof, or (b) Borrowers' violation or alleged violation of any Environmental Laws or any law or regulation relating to Hazardous Materials (the foregoing being referred to as the "indemnified liabilities"), provided, that Borrowers shall have no obligation hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of Lender. If Borrowers fail to perform or comply with any of their respective agreements contained in this Agreement or any of the other Credit Documents and Lender shall itself perform, comply or cause performance or compliance, the expenses of Lender so incurred, together with interest thereon at the Default Rate, shall be payable by Borrowers to Lender on demand and until such payment is made shall constitute Obligations hereunder. The agreements and indemnities contained in this paragraph shall survive termination of this Agreement or any of the other Credit Documents and payment of the Notes. E. This Agreement together with Rider A and the other Credit Documents contains the complete, final and exclusive statement of the terms of the agreement between Lender and Borrower related to the contemplated transactions. Lender and Borrowers hereby agree that this agreement supersedes and replaces the Credit Facility and Security Agreement dated as of March 14, 1996 among Lender and Borrowers, as amended (the "1996 Credit Agreement") and promissory notes and guaranties executed and delivered pursuant thereto and the obligations of the Borrowers thereunder. Notwithstanding anything herein or in the 1996 Credit Agreement or the documents executed and delivered in connection therewith to the contrary, upon the execution and delivery of this Agreement, the 1996 Credit Agreement all the promissory notes and guarantees of either Borrower executed and delivered pursuant thereto, and the obligations of the Borrowers thereunder, shall automatically be cancelled and terminated and shall have no further force or effect. Neither this Agreement, the Notes, or the other Credit Documents, nor any terms hereof, may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of a change, waiver, discharge or termination is sought. 30 31 F. This Agreement and the other Credit Documents shall be binding upon, and inure to the benefit of, Borrower and Lender and their respective successors and assigns, except that Borrower may not assign or transfer its rights hereunder or any interest herein without the prior written consent of Lender. Borrowers hereby consent to Lender's participation, sale, assignment, transfer, or other disposition to a bank or other financial institution which does not and whose affiliates are not competitors of either Borrower, at any time or times hereafter, of this Agreement, or any of the other Credit Documents, or any portion hereof or thereof, including, without limitation, Lender's rights, title, interest, remedies, powers, and/or duties hereunder or thereunder. G. Headings of sections and paragraphs are for convenience only, are not part of this Agreement and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability shall not invalidate or render unenforceable such provision in any other jurisdiction. H. Borrower hereby authorizes Lender to correct patent errors and to fill in such blanks as dates herein and in the Notes and in any of the other Credit Documents. I. All agreements, obligations, and covenants contained herein and in the Credit Documents which are to be kept and performed by each of the Borrowers shall be joint and several. J. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OHIO. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR AS REQUIRED BY APPLICABLE LAW, BORROWER WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NONPAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE, (ii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES AND (iii) ITS RIGHT TO A JURY TRIAL IN THE EVENT OF ANY LITIGATION INSTITUTED IN RESPECT OF THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER CREDIT DOCUMENTS. BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT. BORROWER HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF OHIO, IN THE COUNTY OF STARK OR THE UNITED STATES COURTS FOR THE NORTHERN DISTRICT OF OHIO, AS LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS 31 32 PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH COURTS. BORROWER AND LENDER ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY NON-JURY TRIALS. BORROWER AND LENDER AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING, AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, BORROWER AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, OR THE TRANSACTIONS RELATED HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND BORROWER AND LENDER HEREBY AGREE AND CONSENT THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their duly authorized officers as of January 31, 1997. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse --------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse --------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary Accepted at Cleveland, Ohio, as of the date first above written. BANK ONE, AKRON, NA By Rudolf G. Bentlage --------------------------- Name: Rudolf G. Bentlage Title: Vice President 32 33 RIDER A TO CREDIT FACILITY AND SECURITY AGREEMENT DATED AS OF JANUARY 31, 1997, AMONG BANK ONE, AKRON, NA ("LENDER"), AND LEXINGTON PRECISION CORPORATION ("LPC") AND LEXINGTON COMPONENTS, INC. ("LCI") (HEREINAFTER LPC AND LCI ARE REFERRED TO EACH AS BORROWER SINGULARLY AND REFERRED TO JOINTLY AND SEVERALLY AS THE "BORROWERS," WHICH TERM SHALL MEAN EACH OF THE COMPANIES INDIVIDUALLY AND BOTH OF THE COMPANIES COLLECTIVELY) 1. DEFINITIONS As used in the Credit Facility and Security Agreement, the following terms shall have the following defined meanings (applicable to both singular and plural forms), unless the context otherwise requires: "AGREEMENT": "Hereof," "hereto," "hereunder" and words of similar meaning: the Credit Facility and Security Agreement of even date herewith between Borrower and Lender including this Rider A and any other rider, schedule and exhibit executed by Borrower and Lender in connection herewith, as from time to time amended, modified or supplemented. "BASE RATE": The Lender's Prime Rate for commercial loans, as in effect from time to time, or such other designation announced in replacement of such Prime Rate for commercial loans, which in either instance may not necessarily be the most favorable or lowest or best rate offered by Lender. "BUSINESS DAY": A day other than a Saturday, Sunday or legal holiday under the laws of the State of Ohio or day on which commercial banks are authorized or required to close in Ohio. "CASA GRANDE COMMITMENT": The obligation hereunder of Lender to make the Casa Grande Loan, up to the aggregate principal amount of Three Million Dollars ($3,000,000.00). "CASA GRANDE COMMITMENT PERIOD": The earlier of (a) the date the Casa Grande Improvements are completed, (b) June 30, 1997, and (c) the date when the aggregate amount of the Casa Grande Commitment outstanding is equal to Three Million Dollars ($3,000,000.00). "CASA GRANDE CONSTRUCTION LOANS": As defined in Section 2.D.1 of this Agreement. "CASA GRANDE IMPROVEMENTS": The addition being added to the Casa Grande Property in accordance with plans and specifications previously delivered to Lender. "CASA GRANDE NOTE": The term promissory note to be executed by LPC in the form attached as Exhibit F to this Agreement (with such changes or modifications, if any, to which Lender may agree) evidencing the Casa Grande Loan made by Lender pursuant to Section 2.D of this Agreement, together 1 34 with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "CASA GRANDE PROPERTY": Certain property owned by LPC located in Pinal County, Arizona, described in Exhibit G hereto "CASA GRANDE TERM LOAN": As defined in Section 2.D.2 of this Agreement. "CASH FLOW RATIO": The ratio of cash flow to debt service calculated as fiscal net income plus depreciation and amortization minus dividends divided by current maturities of all long-term debt, excluding the twelve and three-quarter percent (12.75%) Senior Subordinated Notes of LPC due February 1, 2000, in the original principal amount of THIRTY-ONE MILLION SEVEN HUNDRED TWENTY THOUSAND ONE HUNDRED TWENTY-FIVE AND NO/100 DOLLARS ($31,720,125.00), the fourteen percent (14%) junior subordinated notes of LPC due May 1, 2000, in the original principal amount of THREE HUNDRED FORTY-SIX THOUSAND SIX HUNDRED SIXTY-SIX DOLLARS AND SIXTY-SEVEN CENTS ($346,666.67), and the junior subordinated convertible increasing rate notes of LPC due May 1, 2000, in the original principal amount of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00); provided, however, that for the purposes of this calculation, the Borrowers' results of operations for any four fiscal quarter period shall exclude any write down or write-off of asset (whether tangible or intangible) of any manufacturing facility or business unit of the Borrowers which is recorded by Borrowers as a result of the restructuring, relocation, shutdown, or sale of such manufacturing facility or business unit or as a result of compliance with Financial Accounting Standard No. 121, accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to Be Disposed of. "CLOSING DATE": Each date on which a Loan is made. "CODE": The Uniform Commercial Code as from time to time in effect in any applicable jurisdiction. "COLLATERAL": The Equipment, North Canton Equipment, North Canton Property, Vienna Property, Casa Grande Property, LaGrange Property, and all other assets or property of the Borrowers now or at any time or times hereafter subject to a Lien in favor of Lender pursuant to the Credit Documents and the Proceeds thereof. "COMMITMENT": Lender's obligation to make Loans in the aggregate principal amount set forth in this Agreement. "COMPLETION DATE" shall mean the date by which the construction of the Casa Grande Improvements shall be substantially completed in accordance with the Plans and Specifications, which date shall be June 30, 1997. "CONGRESS": Congress Financial Corporation and its successors and assigns. 2 35 "CONVERSION DATE": As defined in Section 2.D.2 of this Agreement. "CORE BORROWING AMOUNT": That portion of the outstanding balance of the Equipment Term Loan designated by Borrowers to accrue interest at the LIBOR Interest Rate during the LIBOR Interest Period and which shall be in incremental amounts of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) and which shall not exceed the Core Cap. "CORE CAP": An amount that the Core Borrowing Amount shall not exceed at any time during the term of the Equipment Term Loan. The Core Cap shall be ONE MILLION THREE HUNDRED THOUSAND AND NO/100 ($1,300,000.00) until April 1, 1997 on which date it shall be reduced to ONE MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($1,200,000.00) and shall be reduced by another ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) on the first day of each month every four (4) months thereafter until December 1, 2000, on which date it shall be reduced to ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00). "COST": With respect to any item of new Equipment, the seller's invoiced purchase price therefor (after giving effect to any discount or other reduction) payable by Borrower excluding all other amounts and expenses payable by Borrower unless approved by Lender such as installation, freight, tooling, delivery charges, sales taxes, site preparation, and other similar costs with respect to Equipment or, with respect to any item of used Equipment, such amount as Lender may approve. "CREDIT DOCUMENTS": This Agreement, the Notes, and all other agreements, instruments and documents (including, without limitation, all assignments, security agreements, mortgages, deeds of trust, lien waivers, subordinations, guarantees, pledges, powers of attorney and consents) heretofore, now or hereafter executed by Borrower in respect of the transactions contemplated by this Agreement or any amendments or additions thereto, in each instance as amended from time to time, provided, in no event shall the Credit Documents include any agreement with respect to any Participation Obligation. "DEFAULT": Any event which with notice, lapse of time, or both would constitute an Event of Default. "DEFAULT RATE": For all loans, a fluctuating rate of interest equal to three percentage points (3.0%) above the Base Rate but not to exceed the maximum rate allowed by law. "ENVIRONMENTAL LAWS": The Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Federal Occupational Safety and Health Act, the Environmental Protection Act, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any solid or hazardous or toxic or dangerous waste, substance or material, as now or at any time hereafter in effect, as well as any other substance the ownership, possession, use, storage, or disposal of which is regulated under any federal, state, or local laws, ordinances, regulations, codes, rules, orders, or decrees pertaining to environmental, health, or safety matters. 3 36 "ENVIRONMENTAL REPORT": As defined in Section 5.F.8 of this Agreement. "EQUIPMENT": Specific machinery and equipment of LPC consisting of: lathes, machining centers, grinders, band saw, drilling machine, transfer molding presses, vacuum pump, ultrasonic cleaning tank, compressor/dryer, lift truck, sweeper, scrubber and cabinets, now owned or hereafter acquired by LPC, as more particularly described on a certain Schedule of Equipment dated March 14, 1996, executed by LPC and Lender (the "Specific Equipment"), together with all currently owned or hereafter acquired accessories and parts for, and repairs, modifications, improvements, upgrades, accessions and attachments to, the Specific Equipment, PROVIDED, in each case that such machinery and equipment is either (i) located at the North Canton Property as of March 14, 1996, or (ii) moved to the North Canton Property at any time after March 14, 1996, or (iii) removed from the North Canton Property at any time after March 14, 1996; and replacements and substitutions for the Specific Equipment acquired after the date hereof that are (i) located at the North Canton Property at any time after March 14, 1996, or (ii) removed from the North Canton Property at any time after March 14, 1996. "EQUIPMENT TERM LOAN": As defined in Section 2.A of this Agreement. "EQUIPMENT TERM NOTE": The term promissory note to be executed by LPC in the form attached as Exhibit A to this Agreement (with such changes or modifications, if any, to which Lender may agree) evidencing the Equipment Term Loan made by Lender pursuant to Section 2.A of this Agreement, together with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "EVENT OF DEFAULT": As set forth in Section 6 of the Agreement. "EVENT OF LOSS": With respect to any item of Equipment or North Canton Equipment (i) the actual or constructive loss or loss of use thereof, due to theft, destruction, damage beyond repair or to an extent which makes repair uneconomical, or (ii) the condemnation, confiscation or seizure thereof, or requisition of title thereto, or use thereof, by any Person. "GENERAL CONTRACTOR": shall mean the general contractor engaged in connection with the Casa Grande Improvements (or any substitute general contractor). "HAZARDOUS MATERIALS": Any substance, pollutant or contaminant regulated by (or for the purposes of) any Environmental Laws including, but not limited to, petroleum, any radioactive material, and asbestos in any form or condition. "INDEBTEDNESS": Shall mean all items which, in accordance with generally accepted accounting principles, consistently applied, would be included in determining total liabilities of Borrower shown on the liability side of its balance sheet as at the date such Indebtedness is to be calculated. "INSTALLMENT PAYMENT DATE": With respect to any Note, each date on which a regular installment of interest is due. 4 37 "LAGRANGE TERM LOAN": As defined in Section 2.E of this Agreement. "LAGRANGE TERM NOTE": The term promissory note to be executed by Borrowers in the form attached as Exhibit H to this Agreement (with such changes or modifications, if any, to which Lender may agree) evidencing the LaGrange Term Loan made by Lender pursuant to Section 2.E of this Agreement, together with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "LAGRANGE PROPERTY": Certain property owned by LCI located in Troup County, Georgia, described in Exhibit I hereto. "LEGAL REQUIREMENTS" shall mean all laws, statutes, ordinances, rules, regulations, guidelines, codes and restrictive covenants affecting or applicable to the Casa Grande Property, Casa Grande Improvements or Borrowers. "LIBOR INTEREST PERIOD": The period commencing on the date the LIBOR Interest Rate on the Core Borrowing Amount is to be made, and ending, as the Borrowers may elect, pursuant to Section 2.A.(2) of the Agreement, one (1) month or two (2) months thereafter; provided that all of the foregoing provisions relating to interest periods are subject to the following: (i) No interest period may extend beyond any demand of payment made by Lender; (ii) If an interest period would end on a day that is not a Business Day, such interest period shall be extended to the next Business Day. "LIBOR INTEREST RATE": Means the London Interbank Offered Rate on United States dollars plus three hundred (300) basis points per annum. "LIENS": Liens, mortgages, security interests, financing statements or other encumbrances of any kind whatsoever. "LOANS": Collectively, the Casa Grande Construction Loans, the Casa Grande Term Loan, the Equipment Term Loan, the North Canton Term Loan, the Vienna Term Loan, the LaGrange Term Loan, the North Canton Equipment Disbursement Loan and the North Canton Equipment Term Loan. "MATERIAL ADVERSE EFFECT": As to any events, occurrences or conditions, if the result thereof would, either singly or in the aggregate, have a material and adverse effect on (i) the Borrowers' Property, business, operations, prospects, profitability or condition (financial or otherwise), (ii) Borrowers' ability to repay the Obligations or (iii) Lender's Lien on the Collateral or the priority thereof. "MORTGAGES": The First Amendment to the Open-End Mortgage and Security Agreement by LPC in favor of Lender with respect to the North Canton Property and the Deed of Trust and Assignment of Rents with Security Agreement and Financing Statements (Fixture Filing) by LPC in favor of Lender 5 38 with respect to the Casa Grande Property and the First Amendment to the Open-End Mortgage and Security Agreement by LCI in favor of Lender with respect to the Vienna Property and the Deed to Secure Debt, Security Agreement and Assignment of Leases and Rent by LCI in favor of Lender with respect to the LaGrange Property. "NORTH CANTON EQUIPMENT": Specific machinery and equipment of LPC consisting of: lathes, transfer molding machines and injection molding machines, now owned or hereafter acquired by LPC, as more particularly described on a certain Schedule of Additional North Canton Equipment dated January __, 1997, executed by LPC and Lender or on any Schedule of Equipment hereafter executed by LPC and Lender which is designated as a "Supplement to Schedule of North Canton Equipment" if and only if Congress agrees in writing that such Supplement to Schedule of North Canton Equipment shall constitute "Specific Additional North Canton Equipment" pursuant to this Agreement (collectively, the "Specific Additional North Canton Equipment"), together with all currently owned or hereafter acquired accessories and parts for, and repairs, modifications, improvements, upgrades, accessions and attachments to, the Specific North Canton Equipment, PROVIDED, in each case that such machinery and equipment is either (i) located at the North Canton Property as of January __, 1997, or (ii) moved to the North Canton Property at any time after January __, 1997 or (iii) removed from the North Canton Property at any time after January __, 1997; and replacements and substitutions for the Specific North Canton Equipment acquired after the date hereof that are (A) located at the North Canton Property at any time after January __, 1997; or (B) removed from the North Canton Property at any time after January __, 1997. "NORTH CANTON EQUIPMENT DISBURSEMENT LOANS": As defined in Section 2.F.1 of this Agreement. "NORTH CANTON EQUIPMENT LOAN COMMITMENT": The obligation hereunder of Lender to make the North Canton Equipment Loan, up to the aggregate principal amount of Nine Hundred Fifty Thousand Dollars ($950,000) or an amount not in excess of eighty percent (80%) of the purchase price of the North Canton Equipment acquired prior to the expiration of the North Canton Equipment Period Loan Commitment Period, whichever is less. "NORTH CANTON EQUIPMENT LOAN COMMITMENT PERIOD": The earlier of (a) January 31, 1998, or (b) the date when the aggregate amount of the North Canton Equipment Loans outstanding is equal Nine Hundred Fifty Thousand Dollars ($950,000.00). "NORTH CANTON EQUIPMENT NOTE": The term note to be executed by Borrowers in the form of Exhibit J to this Agreement evidencing the North Canton Equipment Loan made by Lender pursuant to Section 2.F of this Agreement, together with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "NORTH CANTON EQUIPMENT TERM LOAN": As defined in Section 2.F.2 of this Agreement. "NORTH CANTON LOCATION": LPC's building and offices located at 3565 Highland Park NW, North Canton, Ohio. 6 39 "NORTH CANTON PROPERTY": Certain property owned by LPC located in Stark County, Ohio, described on Exhibit B hereto. "NORTH CANTON TERM LOAN": As defined in Section 2.C of this Agreement. "NORTH CANTON TERM NOTE": The term promissory note to be executed by Borrowers in the form attached as Exhibit C to this Agreement (with such changes or modifications, if any, to which Lender may agree) evidencing the North Canton Term Loan made by Lender pursuant to Section 2.C of this Agreement, together with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "NOTES": The Equipment Term Note, the North Canton Term Note, the Vienna Term Note, the Casa Grande Note, the LaGrange Term Note, the North Canton Equipment Note and any other promissory note or other instrument evidencing a Borrower's obligation to repay any Obligations. "OBLIGATIONS": All debts, liabilities and obligations of each Borrower to Lender under this Agreement and also any and all other debts, liabilities and obligations of Borrower to Lender of every kind and description, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including without limiting the generality of the foregoing, any debt, liability or obligation of Borrower to Lender under any guaranty, and all interest, fees, charges and expenses which at any time may be payable by Borrower to Lender thereunder, provided that in no event shall the Obligations include any Participation Obligations or any obligation, guarantee, or liability of Borrower to any other Person which Lender may have obtained by assignment, grant, or transfer. "ORIGINATION FEE": As defined in Section 2.K of this Agreement. "PARENT COMPANY": Any Person having beneficial ownership (directly or indirectly) of 25% or more of LPC's shares of voting stock. "PARTICIPATION OBLIGATIONS": Any obligation, guarantee, or other liability of any kind whatsoever to Lender or any affiliate of Lender as a result of or arising out of Lender's or any affiliate of Lender's participation in any loan, credit facility, or other extension of credit to or with any Borrower by Congress or any other Person. "PERMITTED ENCUMBRANCES": The (i) Lien of Congress, (ii) any Liens which are not in excess of TWENTY-FIVE THOUSAND DOLLARS ($25,000) in the aggregate, and (iii) any other "Permitted Encumbrances" listed on EXHIBIT K hereto. "PERSON": An individual, partnership, corporation, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. 7 40 "PLANS AND SPECIFICATIONS" shall mean detailed architectural, structural, mechanical, electrical and landscaping plans and specifications for the Casa Grande Improvements, which are hereby deemed approved in writing by Lender, as the same may be modified or amended from time to time with the Lender's approval or otherwise in accordance with this Agreement. "PRIME RATE": The interest rate established from time to time by Lender as the Lender's Prime Rate, whether or not publicly announced, which may not necessarily be the most favorable or lowest or best rate offered by Lender. "PROCEEDS": All proceeds of the Equipment and the North Canton Equipment, which proceeds shall include the meaning assigned to it in the Code, and in any event, including, without limitation, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Equipment or the North Canton Equipment; (ii) any and all payments made, or due and payable from time to time in connection with any requisition, confiscation condemnation, seizure or forfeiture of all or any part of the Equipment or the North Canton Equipment by any Person; (iii) any and all accounts arising out of a sale or lease of any of the Equipment or the North Canton Equipment, or chattel paper evidencing a lease of any of the Equipment or the North Canton Equipment; (iv) any and all other rents or profits or other amounts from time to time paid or payable upon the sale, lease, or other disposition of any of the Equipment or North Canton Equipment; and (v) all books and records (including, without limitation, programs, printouts, and other accounting records) of LPC pertaining to the Equipment or the North Canton Equipment. "PROJECT": The Casa Grande Improvements to be made at the Casa Grande Property. "SUBORDINATED DEBT": The 14% Junior Subordinated Notes of LPC due May 1, 2000 in the original principal amount of $346,666.67, the Junior Subordinated Convertible Increasing Rate Notes of LPC due May 1, 2000 in the original principal amount of $1,000,000, the 12.75% Senior Subordinated Notes of LPC due February 1, 2000, in the original principal amount of $31,720,125 and such other Indebtedness which is subordinated and junior in right of payment to the Obligations to the extent, in such manner, and pursuant to an instrument evidencing such subordination, acceptable to Lender. "TANGIBLE NET WORTH": At any time, Stockholder's Equity plus Preferred Stock plus Subordinated Debt, less the sum of: (i) any surplus resulting from any write-up of assets of Borrower subsequent to September 30, 1995; and (ii) good will, including any amounts, however designated on a balance sheet of the Borrower, representing the excess of the purchase price paid for assets or stock acquired over the value assigned thereto on the books of the Borrower; and (iii) proprietary rights of Borrower, including all patents, trademarks, trade names and copyrights; and (iv) loans and advances to stockholders of Borrower who own five percent (5%) or more of LPC's common stock. 8 41 "TITLE COMPANY": shall mean First American Title Insurance Agency of Pinal. "TREASURY RATE": The weekly average yield on United States Treasury securities adjusted to a constant maturity of five (5) years as in effect from time to time. Should the United States Treasury Department cease to issue Treasury securities having a maturity as noted above in the same manner existing on the date of this Agreement, then the Lender shall select an index that in the opinion of the Lender, accurately reflects monetary trends intended to be reflected by the Treasury Rate. "VIENNA PROPERTY": Certain property owned by LCI located in Trumbull County, Ohio, described on Exhibit D hereto. "VIENNA TERM LOAN": As defined in Section 2.D of this Agreement. "VIENNA TERM NOTE": The term promissory note to be executed by Borrowers in the form attached as Exhibit E to this Agreement (with such changes or modifications, if any, to which Lender may agree) evidencing the Vienna Term Loan made by Lender pursuant to Section 2.D of this Agreement, together with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "WETLANDS": means as defined in 33 C.F.R. Section 328.3 and in any comparable state and local law, statute, ordinances, rule or regulation. "WETLANDS LAWS": means any federal, state or local laws, statute, ordinances, rules or regulations pertaining to Wetlands. 2. FINANCIAL COVENANTS So long as any Obligations remain unsatisfied, Borrowers covenant that, unless otherwise consented to by Lender in writing, LPC shall: A. Maintain on a basis consolidated with LPC's direct and indirect subsidiaries at all times a Tangible Net Worth equal to or greater than FIFTEEN MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($15,300,000.00). B. Maintain on a basis consolidated with LPC's direct and indirect subsidiaries a positive Cash Flow Ratio of (i) not less than 1.15 to 1.0 from January 1, 1997 through May 31, 1997, (ii) not less than 1.2 to 1.00 from June 1, 1997 through November 30, 1997, and (iii) not less than 1.25 to 1.0 on and after December 1, 1997, to be calculated on a rolling four quarter basis. C. Maintain on a basis consolidated with LPC's direct and indirect subsidiaries operating working capital (excess of current assets over current liabilities as determined in accordance with generally accepted accounting principles) (excluding notes payable and the current portion of long-term 9 42 indebtedness) of not less than THREE MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($3,800,000.00). D. Not incur, make, or continue to make any expenditure in respect of the purchase or other acquisition of fixed or capital assets, including leases which in accordance with generally accepted accounting principles should be capitalized on the books of LPC (including normal replacements and maintenance), which after giving effect thereto would cause the aggregate amount of such capital expenditures by LPC to exceed TWENTY-THREE MILLION DOLLARS ($23,000,000) in fiscal year 1996 or to exceed FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) (on a non-cumulative basis) in any fiscal year after 1996. E. Maintain on a consolidated basis with LPC's direct and indirect subsidiaries at all times a ratio of Debt (defined below) to Tangible Net Worth of no greater than 4.5 to 1.0 from the date hereof until December 30, 1997, and thereafter no greater than 4.25 to 1. For purposes of this subpoenaed E, "Debt" shall mean LPC's total liabilities (on a consolidated basis with LPC's direct and indirect subsidiaries and determined in accordance with generally accepted accounting principles) excluding the twelve and three-quarter percent (12.75%) Senior Subordinated Notes of LPC due February 1, 2000 in the original principal amount of $31,720,125, the fourteen percent (14%) junior subordinated notes of LPC due May 1, 2000 in the original principal amount of $346,666.67 and the junior subordinated convertible increasing rate notes of LPC due May 1, 2000 in the original principal of $1,000,000. 3. PREPAYMENT A. Should any item of Equipment or North Canton Equipment suffer an Event of Loss, Borrower shall either replace such item of Equipment or North Canton Equipment within 60 days with equipment (which shall become Equipment or North Canton Equipment, as appropriate) of a value and utility equal to or greater than that of the Equipment or the North Canton Equipment suffering the Event of Loss (such determination of value and utility being deemed made immediately prior to the Event of Loss) or make a prepayment on the corresponding Note within 60 days after the occurrence of the Event of Loss. The amount to be prepaid shall be (i) the unpaid principal amount of such Note multiplied by a fraction the numerator of which is the Cost of the item of Equipment or North Canton Equipment which suffered the Event of Loss and the denominator of which is the Cost of all items of Equipment and North Canton Equipment less the Cost of each item of Equipment and North Canton Equipment which previously suffered an Event of Loss or for which a prepayment has otherwise previously been made (the "PREPAID PRINCIPAL AMOUNT") and (ii) all other amounts then due and owing hereunder and under the Notes. B. On any Installment Payment Date Borrower may, at its option, on at least 30 days' prior written notice to Lender, prepay all, but not less than all, of the outstanding principal under all Notes executed hereunder together with (i) all interest accrued thereon to the date of prepayment and (ii) all other amounts then due and owing hereunder or under the Notes. 10 43 4. ADDRESSES FOR NOTICE PURPOSES AND DEBTOR'S CHIEF EXECUTIVE OFFICE A. If to Lender, at: Bank One, Akron, NA Attention: Rudolf G. Bentlage 50 South Main Street Akron, Ohio 44308 Telecopier No. (216) 438-8212 With a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L. Attention: Elizabeth A. Dellinger 2300 BP America Building 200 Public Square Cleveland, Ohio 44114 Telecopier No. (216) 363-4588 B. If to Borrowers, at: Lexington Precision Corporation Attention: Warren Delano 767 Third Avenue New York, New York 10017 Telecopier No. (212) 319-4659 With a copy to: Nixon, Hargrave, Devans & Doyle Attention: Lauren E. Wiesenberg 437 Madison Avenue, 24th Floor New York, New York 10022 Telecopier No. (212) 940-3111 or to such other address as each party may designate for itself by like notice given in accordance with this section. 11 44 THE PROVISIONS SET FORTH IN THIS RIDER A ARE INCORPORATED IN AND MADE A PART OF THE CREDIT FACILITY AGREEMENT BETWEEN LENDER AND BORROWERS DATED AS OF JANUARY 31, 1997. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ---------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse --------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary Accepted at Canton, Ohio, as of the date first above written. BANK ONE, AKRON, NA By: Rudolf G. Bentlage ------------------------------- Name: Rudolf G. Bentlage Title: Vice President 12 EX-10.45 8 EXHIBIT 10.45 1 Exhibit 10.45 PROMISSORY NOTE --------------- (Equipment Term Loan) $1,530,000.00 New York, New York January 31, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of them collectively), jointly and severally promise to pay to the order of BANK ONE, AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of ONE MILLION FIVE HUNDRED THIRTY THOUSAND AND NO/100 DOLLARS ($1,530,000.00) on April 1, 2001, or sooner as hereinafter provided, with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to the LIBOR Interest Rate (as defined in the Agreement, defined below) on the Core Borrowing Amount, if any, pursuant to the immediately succeeding paragraph and at a rate per annum equal to three-quarter percent (.75%) in excess of the Base Rate (as defined in the Agreement), which definition is hereby accepted by the Borrowers, as the same may from time to time be established on the unpaid principal amount excluding the Core Borrowing Amount (as defined below). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the rate of three percent (3.0 %) per annum in excess of the Base Rate (as defined in the Agreement hereinafter referred to) as the same may from time to time be established but not to exceed the maximum rate allowed by law. Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers shall have the right to elect to have a portion of the outstanding balance of the Equipment Term Loan accrue interest at the LIBOR Interest Rate (the "Core Borrowing Amount") by delivering to the Bank a written, telephonic, or telegraphic request (effective upon receipt) by facsimile, telephone, or telegraph by 12:00 p.m. three (3) Business; Days prior to the Business Day the LIBOR Interest Rate is to be effective, specifying (i) the Core Borrowing Amount, which shall be in incremental strips of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) and which shall not exceed the Core Cap (as defined in the Agreement) in the aggregate and (ii) the duration of the LIBOR Interest Period which shall be either one (1) month or two (2) months. If the Borrowers shall fail to give the Bank the notice as specified above for the renewal of the LIBOR Interest Rate on the Core Borrowing Amount prior to the end of the LIBOR Interest Period with respect thereto, the interest rate on the Core Borrowing Amount shall automatically be converted into an interest rate per annum equal to three-quarter percent (.75%) 2 in excess of the Base Rate, as the same may from time to time be established, on the last day of the LIBOR Interest Period for such Core Borrowing Amount. The Borrowers agree to pay the principal amount of this Note in fifty (50) consecutive equal installments of THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00) each, together with all accrued interest due at the time of payment of each such installment of principal, commencing on February 1, 1997, and continuing on the first day of each calendar month thereafter and a final installment of THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00), together with all accrued interest due at the time of payment of such installment, on April 1, 2001. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated as of January 31, 1997, by and among the Borrowers and the Bank (the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities and subject to the terms of prepayment of the Core Borrowing Amount set forth herein. The Core Borrowing Amount accruing interest at the LIBOR Interest Rate may be prepaid only on the last day of the LIBOR Interest Period (as defined in the Agreement) for the Core Borrowing Amount without premium or penalty; provided, however, as long as the Bank has not matched funds in a money market to fund the Core Borrowing Amount, (i) the Borrowers may prepay the Core Borrowing Amount during a LIBOR Interest Period if the Borrowers pay a penalty in the amount of one percent (1%) of the prepayment amount and (ii) the outstanding balance of the Core Borrowing Amount upon the application of the prepayment amount shall be an increment of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00). 3 If an Event of Default (as defined in the Agreement) shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on this Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against either Borrower or Borrowers, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrowers shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 4 This note is executed at New York, County, New York. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ---------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse ---------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary EX-10.46 9 EXHIBIT 10.46 1 Exhibit 10.46 PROMISSORY NOTE ------------------------ (North Canton Term Loan) $1,944,444.45 New York, New York January 31, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of them collectively), jointly and severally promise to pay to the order of BANK ONE, AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of ONE MILLION NINE HUNDRED FORTY-FOUR THOUSAND FOUR HUNDRED FORTY-FOUR AND 45/100 DOLLARS ($1,944,444.45) on August 1, 2001 or sooner a hereinafter provided, with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to eight and thirty-seven one-hundredths percent (8.37%). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the rate of three percent (3.0%) per annum in excess of the Base Rate, as defined in the Agreement hereinafter referred to, as the same may from time to time be established but not to exceed the maximum rate allowed by law. Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5 %) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note in fifty-four (54) consecutive, equal monthly installments of ELEVEN THOUSAND ONE HUNDRED ELEVEN AND 11/100 DOLLARS ($11,111.11) each, together with all accrued interest due at the time of payment of each such installment of principal, commencing on February 1, 1997, and continuing on the first day of each month thereafter and a final installment of ONE MILLION THREE HUNDRED FORTY-FOUR THOUSAND FOUR HUNDRED FORTY-FOUR AND 51/100 DOLLARS ($1,344,444.51), together with all accrued interest due at the time of payment of such installment, on August 1, 2001. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. 2 This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated as of January 31, 1997, by and among the Borrowers and the Bank (the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default, as defined in said Agreement, shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option, of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrowers shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 3 This note is executed at New York, New York County, New York. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANOTHER CAUSE. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ------------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse ------------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary EX-10.47 10 EXHIBIT 10.47 1 Exhibit 10.47 PROMISSORY NOTE ------------------ (Vienna Term Loan) $1,425,000.03 New York, New York January 31, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of them collectively), jointly and severally promise to pay to the order of BANK ONE, AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of ONE MILLION FOUR HUNDRED TWENTY-FIVE THOUSAND AND 03/100 DOLLARS ($1,425,000.03), on April 1, 2001, or sooner as hereinafter provided, with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to eight and thirty-seven one-hundredths percent (8.37 %). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the rate of three percent (3.0%) per annum in excess of the Base Rate (as defined in the Agreement) as the same may from time to time be established but not to exceed the maximum rate allowed by law. Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note in fifty (50) consecutive equal installments of EIGHT THOUSAND THREE HUNDRED THIRTY-THREE DOLLARS THIRTY-THREE CENTS ($8,333.33) each, together with all accrued interest due at the time of payment of each such installment of principal, commencing on February 1, 1997, and continuing on the first day of each month thereafter and a final installment of ONE MILLION EIGHT THOUSAND THREE HUNDRED THIRTY-THREE DOLLARS FIFTY-THREE CENTS ($1,008,333.53), together with all accrued interest due at the time of payment of such installment, on April 1, 2001. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. 2 This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Company shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 3 This note is executed at New York, New York County, New York. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ------------------------------------------ Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse ------------------------------------------ Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary EX-10.48 11 EXHIBIT 10.48 1 Exhibit 10.48 PROMISSORY NOTE ------------------ (Casa Grande Note) $3,000,000.00 New York, New York January 31, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of them collectively), jointly and severally promise to pay to the order of BANK ONE, AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), or the aggregate unpaid principal amount of the Casa Grande Construction Loans and the Casa Grande Term Loan (each as defined in the Agreement, defined below) made by Lender to Borrowers pursuant to Section 2.D of the Agreement, whichever is less, with interest on the unpaid principal balance as follows: (i) for the period from the date of disbursement of the Casa Grande Construction Loan or Loans pursuant to Section 2.D.1. until the end of the Casa Grande Commitment Period (as defined in the Agreement), at a rate per annum equal to the Base Rate (as defined in the Agreement) plus three-quarters percent (.75%); and (ii) for the period commencing as of the end of the Casa Grande Commitment Period until the date the Casa Grande Term Loan (as defined in the Agreement) is paid in full at a rate per annum equal to the Treasury Rate (as defined in the Agreement plus Three Percent (3%) Interest on the Casa Grande Construction Loan is payable monthly commencing on the first day of the second calendar month following the disbursement of the loan or loans and continuing on the first day of each calendar month thereafter until the expiration of the Casa Grande Commitment Period. Interest on the Casa Grande Term Loan is payable monthly commencing on the first day of the second month which immediately follows the expiration of the Casa Grande Commitment Period and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360) day basis based upon the actual number of days elapsed. If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the Default Rate (as defined in the Agreement). Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note in fifty-nine (59) consecutive, equal monthly installments of principal commencing on the first day of the second month which follows the expiration of the Casa Grande Commitment Period and continuing on the first day of each calendar month thereafter based on a fifteen (15) year amortization schedule, 2 with a sixtieth (60th) payment of the remaining balance on the first day of the sixtieth (60th) month thereafter as more fully set forth in the Agreement. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. This Note evidences the obligations of Borrowers in respect of the Casa Grande Construction Loans and the Casa Grande Term Loan. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph 3 regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrowers shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. This note is executed at New York, New York County, New York. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ------------------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse ------------------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary EX-10.49 12 EXHIBIT 10.49 1 Exhibit 10.49 PROMISSORY NOTE -------------------- (LaGrange Term Loan) $1,600,000.00 New York, New York January 31, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of them collectively), jointly and severally promise to pay to the order of BANK ONE, AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of ONE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($1,600,000.00), on February 1, 2002, or sooner as hereinafter provided, with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to 9.37%. If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the Default Rate (as defined in the Agreement). Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note in fifty-nine (59) consecutive equal installments of EIGHT THOUSAND EIGHT HUNDRED EIGHTY-EIGHT AND 89/100 DOLLARS ($8,888.89) each, together with all accrued interest due at the time of payment of each such installment of principal, commencing on March 1, 1997, and continuing on the first day of each month thereafter and a final installment of ONE MILLION SEVENTY-FIVE THOUSAND FIVE HUNDRED FIFTY-FIVE AND 49/100 DOLLARS ($1,075,555.49), together with all accrued interest due at the time of payment of such installment, on February 1, 2002. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and 2 obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrower shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 3 This note is executed at New York, New York County, New York. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ------------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse -------------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary EX-10.50 13 EXHIBIT 10.50 1 Exhibit 10.50 PROMISSORY NOTE ----------------------------- (North Canton Equipment Loan) $950,000.00 New York, New York January 31, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON COMPONENTS, INC., a corporation organized and existing under the laws of the State of Delaware ("LCI") (hereinafter LPC and LCI are referred to each as Borrower singularly and referred to jointly and severally as the "Borrowers," which term shall mean each of the companies individually and both of them collectively), jointly and severally promise to pay to the order of BANK ONE, AKRON, NA (hereinafter referred to as the "Bank"), the principal amount of NINE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($950,000), or the aggregate unpaid principal amount of the North Canton Equipment Disbursement Loan and the North Canton Equipment Term Loan (each as defined in the Agreement, defined below) made by Lender to Borrowers pursuant to Section 2.F of the Agreement, whichever is less, with interest on the unpaid principal balance at a rate per annum equal to the Base Rate (as defined in the Agreement) plus three-quarters percent (.75%), such interest is payable monthly commencing on the first day of the second calendar month following the disbursement of the loan or loans and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360) day basis based upon the actual number of days elapsed. If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the Default Rate (as defined in the Agreement). Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note in fifty-nine (59) consecutive, equal monthly installments of principal commencing on the first day of the second month which follows the expiration of the North Canton Equipment Loan Commitment Period (as defined in the Agreement) and continuing on the first day of each calendar month thereafter based on a five (5) year amortization schedule, with a sixtieth (60th) payment of the remaining balance on the first day of the sixtieth (60th) month thereafter, as more fully set forth in the Agreement. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes 2 due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. This Note evidences the obligations of Borrowers in respect of the North Canton Equipment Disbursement Loan and the North Canton Equipment Loan, each as defined in the Agreement. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrower shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after 3 deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. This note is executed at New York, New York County, New York. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. LEXINGTON PRECISION CORPORATION ("Borrower") By: Dennis J. Welhouse ---------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. ("Borrower") By: Dennis J. Welhouse ---------------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary EX-10.51 14 EXHIBIT 10.51 1 Exhibit 10.51 FOURTH AMENDED AND RESTATED PROMISSORY NOTE -------------------- $13,965,000 New York, New York March 11, 1997 -- FOR VALUE RECEIVED, LEXINGTON COMPONENTS, INC., a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of THIRTEEN MILLION NINE HUNDRED SIXTY-FIVE THOUSAND AND NO/100 DOLLARS ($13,965,000) in lawful money of the United States of America and in immediately available funds, in eighty-four (84) consecutive monthly installments (or earlier as hereinafter referred to) on the first day of each month commencing April 1, 1997, of which the first eight-three (83) installments shall each be in the amount of ONE HUNDRED SIXTY-SIX THOUSAND TWO HUNDRED FIFTY AND NO/100 DOLLARS ($166,250), and the last (i.e. eighty-fourth (84th)) installment shall be in the amount of the entire unpaid balance of this Note. Debtor hereby further promises to pay interest to the order of Payee on the unpaid principal balance hereof at the Interest Rate. Such interest shall be paid in like money at said office or place from the date hereof, commencing April 1, 1997 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or after the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings - 1 - 2 assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate applicable to Prime Rate Loans payable hereunder shall increase or decrease by an amount equal to each increase or decrease, respectively, in the Prime Rate, effective on the first day of the month after any change in the Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is the "LCI Fourth Restated Note" issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of the date hereof, between Debtor and Payee. The principal amount of this Note represents the unpaid principal balance of $5,525,400 outstanding under that certain Third Amended and Restated Promissory Note, dated August 21, 1996, in the original principal sum of $6,087,000 made by Debtor to Payee PLUS the aggregate unpaid principal balance of $4,850,067 outstanding under the New Equipment Term Note, dated January 30, 1997, made by Debtor to the order of Payee, in the original principal amount of $500,000, the New Equipment Term Note, dated July 1, 1996, made by Debtor to the order of Payee, in the original principal amount of $500,000, the New Equipment Term Note, dated March 15, 1996, made by Debtor to the order of Payee, in the original principal amount of $800,000, the New Equipment Term Note, dated December 15, 1995, made by Debtor to the order of Payee, in the original principal amount of $600,000, the New Equipment Term Note, dated October 11, 1995, made by Debtor to the order of Payee, in the original principal amount of $700,000, the New Equipment Term Note, dated September 13, 1995, made by Debtor to the order of Payee, in the original principal amount of $600,000, the Term Promissory Note, dated August 1, 1995, made by Debtor to the order of Payee, in the original principal amount of $1,000,000 and the New Equipment Term Note, dated June 26, 1995, made by Debtor to the order of Payee, in the original principal amount of $1,300,000 (collectively, the "Existing Promissory Notes") PLUS an additional one-time advance made on the date hereof by Payee to Debtor in the principal sum of $3,589,533 (the "Additional Term Loan"). None of the outstanding indebtedness evidenced by the Existing Promissory Notes shall be deemed extinguished by Debtor's issuance or Payee's acceptance of this Note. This Note shall be deemed to evidence the Additional Term Loan and to substitute for, and to amend and restate in its entirety, the Existing Promissory Notes as to the indebtedness previously evidenced thereby, and the Existing Promissory Notes shall be so marked by Payee. - 2 - 3 This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Financing Agreements (the "Obligations"), including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the then applicable rate stated above until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of collection hereof, including, but not limited to, reasonable attorneys' fees. Debtor (i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for any holder hereof to first institute suit in order to enforce payment of this Note and (iii) consents to any one or more extensions or postponements of time of payment, release, surrender or substitution of collateral security, or forbearance or other indulgence, without notice or consent. Upon the occurrence and during the continuance of any Event of Default, Payee shall have the right, but not the obligation to setoff against this Note all money owed by Payee to Debtor. Payee shall not be required to resort to any Collateral for payment, but may proceed against Debtor and any guarantors or endorsers hereof in such order and manner as Payee may choose. None of the rights of Payee shall be waived or diminished by any failure or delay in the exercise thereof. - 3 - 4 Debtor hereby waives the right to a trial by jury and all rights of setoff and rights to interpose counterclaims and cross-claims in any litigation or proceeding arising in connection with this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral, other than compulsory counterclaims, the non-assertion of which would result in a permanent waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of the State of New York and of the United States District Court for the Southern District of New York for all purposes in connection with any action or proceeding arising out of or relating to this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral and further consents that any process or notice of motion or other application to said Courts or any judge thereof, or any notice in connection with any proceeding hereunder may be served (i) inside or outside the State of New York by registered or certified mail, return receipt requested, and service or notice so served shall be deemed complete five (5) days after the same shall have been posted or (ii) in such other manner as may be permissible under the rules of said Courts. Within thirty (30) days after such mailing, Debtor shall appear in answer to such process or notice of motion or other application to said Courts, failing which Debtor shall be deemed in default and judgment may be entered by Payee against Debtor for the amount of the claim and other relief requested therein. The execution and delivery of this Note has been authorized by the Board of Directors of Debtor. This Note, the other Obligations and the Collateral shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of Debtor and inure to the benefit of Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Payee or the holder hereof. Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to include their respective successors and assigns. LEXINGTON COMPONENTS, INC. By: Warren Delano ---------------------------- Title: President ------------------------- - 4 - EX-10.52 15 EXHIBIT 10.52 1 Exhibit 10.52 FOURTH AMENDED AND RESTATED PROMISSORY NOTE -------------------- $11,324,000 New York, New York March 11, 1997 -- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ELEVEN MILLION THREE HUNDRED TWENTY-FOUR THOUSAND AND NO/100 DOLLARS ($11,324,000) in lawful money of the United States of America and in immediately available funds, in eighty-four (84) consecutive monthly installments (or earlier as hereinafter referred to) on the first day of each month commencing April 1, 1997, of which the first eight-three (83) installments shall each be in the amount of ONE HUNDRED THIRTY-FOUR THOUSAND EIGHT HUNDRED TEN AND NO/100 DOLLARS ($134,810), and the last (i.e. eighty-fourth (84th)) installment shall be in the amount of the entire unpaid balance of this Note. Debtor hereby further promises to pay interest to the order of Payee on the unpaid principal balance hereof at the Interest Rate. Such interest shall be paid in like money at said office or place from the date hereof, commencing April 1, 1997 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or after the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings - 1 - 2 assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate applicable to Prime Rate Loans payable hereunder shall increase or decrease by an amount equal to each increase or decrease, respectively, in the Prime Rate, effective on the first day of the month after any change in the Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is the "LPC Fourth Restated Note" issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of the date hereof, between Debtor and Payee. The principal amount of this Note represents the unpaid principal balance of $4,752,704 outstanding under that certain Third Amended and Restated Promissory Note, dated August 21, 1996, in the original principal sum of $5,236,304 made by Debtor to Payee PLUS the unpaid principal balance of $792,800 outstanding under that certain New Equipment Term Note, dated July 1, 1996, in the original principal sum of $900,000, made by Debtor to Payee (collectively, the "Existing Promissory Notes") PLUS an additional one-time advance made on the date hereof by Payee to Debtor in the principal sum of $5,778,496 (the "Additional Term Loan"). None of the outstanding indebtedness evidenced by the Existing Promissory Notes shall be deemed extinguished by Debtor's issuance or Payee's acceptance of this Note. This Note shall be deemed to evidence the Additional Term Loan and to substitute for, and to amend and restate in its entirety, the Existing Promissory Notes as to the indebtedness previously evidenced thereby, and the Existing Promissory Notes shall be so marked by Payee. This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or - 2 - 3 if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Financing Agreements (the "Obligations"), including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the then applicable rate stated above until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of collection hereof, including, but not limited to, reasonable attorneys' fees. Debtor (i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for any holder hereof to first institute suit in order to enforce payment of this Note and (iii) consents to any one or more extensions or postponements of time of payment, release, surrender or substitution of collateral security, or forbearance or other indulgence, without notice or consent. Upon the occurrence and during the continuance of any Event of Default, Payee shall have the right, but not the obligation to setoff against this Note all money owed by Payee to Debtor. Payee shall not be required to resort to any Collateral for payment, but may proceed against Debtor and any guarantors or endorsers hereof in such order and manner as Payee may choose. None of the rights of Payee shall be waived or diminished by any failure or delay in the exercise thereof. Debtor hereby waives the right to a trial by jury and all rights of setoff and rights to interpose counterclaims and cross-claims in any litigation or proceeding arising in connection with this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral, other than compulsory counterclaims, the non-assertion of which would result in a permanent waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of the State of New York and of the United States District Court for the Southern District of New York for all purposes in connection with any action or proceeding arising out of or relating to this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral and further consents that any process or notice of motion or other application to said Courts or any judge thereof, or any notice in connection with any proceeding hereunder may be served (i) inside or outside the - 3 - 4 State of New York by registered or certified mail, return receipt requested, and service or notice so served shall be deemed complete five (5) days after the same shall have been posted or (ii) in such other manner as may be permissible under the rules of said Courts. Within thirty (30) days after such mailing, Debtor shall appear in answer to such process or notice of motion or other application to said Courts, failing which Debtor shall be deemed in default and judgment may be entered by Payee against Debtor for the amount of the claim and other relief requested therein. The execution and delivery of this Note has been authorized by the Board of Directors of Debtor. This Note, the other Obligations and the Collateral shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of Debtor and inure to the benefit of Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Payee or the holder hereof. Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to include their respective successors and assigns. LEXINGTON PRECISION CORPORATION By: Warren Delano ------------------------------- Title: President ------------------------------ - 4 - EX-10.53 16 EXHIBIT 10.53 1 Exhibit 10.53 March 11, 1997 -- Lexington Components, Inc. 767 Third Avenue New York, New York 10017 Re: Amendment to Financing Agreements --------------------------------- Gentlemen: Reference is made to certain financing agreements dated January 11, 1990 between Lexington Components, Inc. ("LCI") and Congress Financial Corporation ("Congress"), including, but not limited to, an Accounts Financing Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all supplements thereto and all other related financing and security agreements (collectively, all of the foregoing, as the same have heretofore or contemporaneously been or may be hereafter, amended, replaced, extended, modified or supplemented, the "Financing Agreements"). In connection with the financing arrangements pursuant to the Accounts Agreement and the other Financing Agreements, the parties hereto hereby agree to amend the Financing Agreements, as set forth below: 1. Definitions: ------------ (a) The definition of "Term Loans" contained in the letter agreement re: Amendment to Financing Agreements, dated January 31, 1995, between LCI and Congress (the "January 1995 Amendment"), as amended by the letter agreement re: Amendment to Financing Agreements, dated January 16, 1996, between LCI and Congress, is hereby amended to mean and include all term loans now outstanding or hereafter made by Congress to LCI, including, without limitation, the LCI Fourth Restated Note (as defined below) and any and all New Equipment Term Notes hereafter executed by LCI, as any such notes may hereafter be amended, renewed, extended, restated or replaced. (b) Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed thereto in the Accounts Agreement and the other Financing Agreements. 2. Maximum Credit. --------------- (a) Section 1.7 of the Accounts Agreement, as heretofore amended, is hereby deleted in its entirety and replaced with the following: "1.7. "Maximum Credit" shall mean the amount of $50,000,000." -1- 2 (b) For purposes of Section 2.3 of the Accounts Agreement, all existing and future Term Loans, including, without limitation, the Loans evidenced by the LCI Fourth Restated Note and any and all New Equipment Term Notes executed by LCI after the date hereof, shall be considered made pursuant to a supplement to the Accounts Agreement, and the "Term Loans" to LPC, including, without limitation, the "Loans" evidenced by the "LPC Fourth Restated Note", the "LPC New York Real Estate Notes" and any and all "New Equipment Term Notes" (as each such quoted term is defined in the LPC Financing Agreements) executed by LPC after the date hereof, shall be considered made pursuant to a supplement to the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, between LPC and Congress, as amended. 3. ADDITIONAL TERM LOAN. Contemporaneously herewith, in order to evidence the balance of the outstanding Obligations owed by LCI pursuant to the Third Amended and Restated Promissory Note, dated August 21, 1996, made by LCI to the order of Congress, in the original principal amount of $6,087,000, the New Equipment Term Note, dated January 30, 1997, made by LCI to the order of Congress, in the original principal amount of $500,000, the New Equipment Term Note, dated July 1, 1996, made by LCI to the order of Congress, in the original principal amount of $500,000, the New Equipment Term Note, dated March 15, 1996, made by LCI to the order of Congress, in the original principal amount of $800,000, the New Equipment Term Note, dated December 15, 1995, made by LCI to the order of Congress, in the original principal amount of $600,000, the New Equipment Term Note, dated October 11, 1995, made by LCI to the order of Congress, in the original principal amount of $700,000, the New Equipment Term Note, dated September 13, 1995, made by LCI to the order of Congress, in the original principal amount of $600,000, the Term Promissory Note, dated August 1, 1995, made by LCI to the order of Congress, in the original principal amount of $1,000,000 and the New Equipment Term Note, dated June 26, 1995, made by LCI to the order of Congress, in the original principal amount of $1,300,000, and in order to evidence an additional one-time advance to LCI, which shall be made upon the effective date hereof in the principal amount of $3,589,533 (the "March 1997 Additional LCI Term Loan"), LCI is executing and delivering to Congress a Fourth Amended and Restated Promissory Note in the original principal amount of $13,965,000 (as the same now exists or may hereafter be amended, supplemented, renewed, extended, restated or replaced, the "LCI Fourth Restated Note"). The Obligations evidenced by the LCI Fourth Restated Note shall be payable, including interest and other amounts, as provided therein and, to the extent not inconsistent with the terms of the LCI Fourth Restated Note, as provided in the other Financing Agreements, and shall be secured by all Collateral. -2- 3 4. New Equipment Term Loans. ------------------------- (a) Sections 2(a) and 2(b) of the letter agreement re: Amendment to Financing Agreements, dated as of March 25, 1994, between Congress and LCI, as heretofore amended by the letter agreement re: Amendment to Financing Agreements, dated as of August 1, 1994 and the January 1995 Amendment (as so amended, the "New Equipment Term Loan Agreement") are hereby deleted in their entirety and replaced with the following: "(a) Subject to and upon the terms and conditions contained herein and in the other Financing Agreements, including the sublimit set forth below in Section 2(b), Congress shall, in its discretion, make New Equipment Term Loans to LCI, from time to time, at LCI's request, of up to (i) forty-five (45%) percent of the Cost of Eligible New Equipment, or (ii) if LCI shall elect to obtain an Appraisal Report (as defined below) or if the Eligible New Equipment which is the subject of the New Equipment Term Loan requested hereunder is equivalent in all respects (including, without limitation, model, make and manufacturer) to Equipment shown in an acceptable Appraisal Report prepared not more than twenty-four (24) months prior to the date the requested New Equipment Term Loan is to be made, ninety (90%) percent of the appraised orderly liquidation value of such Eligible New Equipment (or such equivalent Equipment) as shown in such Appraisal Report. As used herein, "Appraisal Report" shall mean an orderly liquidation value appraisal report prepared for Congress, at LCI's expense, by MB Valuation Services, Inc., Daley-Hodkin Appraisal Corporation or other appraiser reasonably satisfactory to Congress, and including the orderly liquidation value appraisal reports of MB Valuation Services Inc., dated January 15, 1997, with respect to LCI's Equipment. (b) Except in Congress' discretion the aggregate original principal amount of all New Equipment Term Loans made to LCI plus the aggregate original principal amount of all "New Equipment Term Loans" (as defined in the LPC Financing Agreements) made to LPC under the LPC Financing Agreements at any time after the date hereof, shall not exceed $3,500,000. Except in Congress' discretion, New Equipment Term Loans shall only be available (subject to the foregoing lending formula and sublimit set forth herein) in integral multiples of $100,000 and in amounts not less than $500,000 for each New Equipment Term Loan." -3- 4 (b) Exhibit I to the New Equipment Term Loan Agreement, as heretofore amended, is hereby replaced with the form designated as Exhibit I annexed hereto. Each New Equipment Term Loan shall be payable, including interest and other amounts, as provided in the form of New Equipment Term Note annexed hereto as Exhibit I, and, to the extent not inconsistent with Exhibit I, as provided in the other Financing Agreements, and shall be secured by all Collateral. 5. INTEREST. Effective with respect to interest accruing on or after the date hereof, the definition of "Interest Rate" set forth in the January 1995 Amendment is hereby amended as follows: (a) by deleting the reference to "one (1%) percent" and replacing it with "one quarter of one (1/4%) percent"; (b) by deleting the reference to "three and one-quarter (3 1/4%) percent" and replacing it with "two and three-quarters (2 3/4%) percent"; (c) by deleting the reference to "three (3%) percent" and replacing it with "two and one-quarter (2 1/4%) percent"; and (d) by deleting the reference to "five and one-quarter (5 1/4%) percent" and replacing it with "four and three-quarters (4 3/4%) percent". 6. INVENTORY SUBLIMIT. Paragraph 3 of the letter agreement re: Inventory Loans, dated March 23, 1990, is hereby further amended by deleting the reference to "$5,000,000" and replacing it with "$6,000,000". 7. FINANCIAL COVENANTS. Sections IV(g)(i) and IV(g)(ii) of the Covenant Supplement to the Accounts Agreement, dated January 11, 1990, as amended, are each hereby further amended by deleting them in their entirety and replacing them with the following: "(i) Borrower shall, at all times, maintain on a basis consolidated with LPC and LPC's direct and indirect Subsidiaries, Working Capital not less than $2,500,000; and (ii) Borrower shall, at all times, maintain on a basis consolidated with LPC and LPC's direct and indirect Subsidiaries, a Net Worth not less than negative $8,500,000 (-$8,500,000)." 8. TERM. The first sentence of Section 9.1 of the Accounts Agreement, as heretofore amended, is hereby deleted in its entirety and replaced with the following: -4- 5 "This Agreement shall become effective upon acceptance by you and shall continue in full force and effect for a term ending April 1, 2000 (the "Renewal Date"), unless sooner terminated pursuant to the terms hereof." 9. Fees. ----- (a) LCI shall pay to Congress a facility amendment and extension fee in an amount equal to $50,000, payable simultaneously with the execution hereof, which fee is fully earned as of the date hereof. (b) Section 3.5 of the Account Agreement is hereby deleted in its entirety and replaced with the following: "3.5 If the average outstanding daily principal balance of all Loans made and Credits provided by you to us under this Agreement or any supplement hereto for any calendar month, plus the average outstanding daily principal balance of all "Loans" made or "Credits" provided by you to LPC under (and as such quoted terms are defined in) the LPC Financing Agreements for such calendar month, shall be less than $25,000,000 (the "Unused Line Base Amount"), we and LPC shall be jointly and severally obligated to pay to you, on or before the tenth (10th) day of the next succeeding calendar month, an unused line fee calculated at the rate of one-half of one (1/2 of 1%) percent per annum upon the amount by which the Unused Line Base Amount exceeds the average outstanding daily principal balance of all such Loans and Credits to us and LPC in respect of such month. If, after March 1, 1997, we shall issue debt or equity securities in a public offering, the proceeds of which are used contemporaneously therewith to reduce the aggregate amount of the then-outstanding Obligations of us and LPC to you to an amount equal to or less than $10,000,000, then, provided the Financing Agreements and LPC Financing Agreements have not been terminated, the Unused Line Base Amount shall be reduced to $10,000,000, effective upon the closing of such public offering and contemporaneous reduction of the aggregate amount of the then-outstanding Obligations of us and LPC to you to the amount of $10,000,000 or less." (c) Section 9.2 of the Accounts Agreement, as heretofore amended, is hereby deleted in its entirety and replaced with the following: "9.2 If for any reason the Financing Agreements are terminated prior to April 1, 2000, in view of the impracticability and extreme difficulty of ascertaining -5- 6 actual damages and by mutual agreement of the parties as to a reasonable calculation of your lost profits as a result thereof, we hereby agree to pay to you upon the effective date of such termination, jointly and severally with LPC, an early termination fee in an amount equal to: (a) two (2%) percent of the Maximum Credit if such termination occurs on or prior to March 31, 1998, (b) one (1%) percent of the Maximum Credit if such termination occurs after March 31, 1998, but on or prior to March 31, 1999, or (c) one-half of one (1/2 of 1%) of the Maximum Credit if such termination occurs after March 31, 1999, but on or prior to September 30, 1999. No early termination fee shall be payable if termination occurs effective after September 30, 1999. The early termination fee payable as provided for herein shall be presumed to be the amount of damages sustained by you as a result of said early termination and we agree that it is reasonable under the circumstances currently existing. The early termination fee provided for herein shall be deemed included in the Obligations." 10. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by LCI to Congress pursuant to the Financing Agreements, LCI hereby represents, warrants and covenants with and to Congress as follows (which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements): (a) No Event of Default exists or has occurred and is continuing on the date of this Amendment. (b) This Amendment has been duly executed and delivered by LCI and is in full force and effect as of the date hereof, and the agreements and obligations of LCI contained herein constitute the legal, valid and binding obligations of LCI enforceable against LCI in accordance with their terms. 11. Use of Proceeds. ---------------- The proceeds of the March 1997 Additional LCI Term Loan to be made by Congress pursuant to Paragraph 3 hereof shall be credited to LCI's Revolving Loan account maintained by Congress under the Financing Agreements. 12. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. Anything contained in this Amendment to the contrary notwithstanding, the terms and provisions of this Amendment shall only become effective upon the satisfaction of the following additional conditions precedent: -6- 7 (a) Congress shall have received an executed original or executed original counterparts (as the case may be) of this Amendment together with the following, each of which shall be in form and substance satisfactory to Congress: (i) the LCI Fourth Restated Note; (ii) certified resolutions of the Board of Directors of LCI duly authorizing the execution and delivery of this Amendment and the instruments and transactions hereunder; and (iii) an Amendment between LPC and Congress with respect to the LPC Financing Agreements and the documents and instruments required thereunder and the satisfaction of all conditions precedent to the effectiveness thereof (the "March 1997 LPC Amendment"). (b) Arrangements satisfactory to Congress shall be made by LPC such that the proceeds of the March 1997 Additional LPC Term Loan (as defined in the March 1997 LPC Amendment) shall be used as required therein, and that, contemporaneously therewith: (i) CIT shall release all of its liens and security interests in the assets and properties of LPC which constitute "CIT Collateral" pursuant to the Subordination Agreement between CIT and Congress, as amended; (ii) CIT and Congress shall enter into an agreement, in form and substance satisfactory to Congress, terminating or amending the Subordination Agreement dated as of January 17, 1996 between CIT and Congress, as amended, to provide for, among other things, the release referred to in clause (i) of this paragraph 12(b); and (iii) LPC shall have delivered to Congress a payoff letter from Chase, setting forth the amount of the Rochester IRB Balance as of the date hereof, and shall have authorized Congress to disburse a portion of the March 1997 Additional LPC Term Loan directly to Chase in payment thereof. -7- 8 (c) All representations and warranties contained herein, in the Accounts Agreement and in the other Financing Agreements shall be true and correct in all material respects; and (d) No Event of Default shall have occurred and no event shall have occurred or condition be existing which, with notice or passage of time or both, would constitute an Event of Default. 13. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the Accounts Agreement and all supplements to the Accounts Agreement and all other Financing Agreements, are hereby specifically ratified, restated and confirmed by the parties hereto as of the date hereof and no existing defaults or Events of Default have been waived in connection herewith. To the extent of conflict between the terms of this Amendment and the Accounts Agreement or any of the other Financing Agreements, the terms of this Amendment control. 14. FURTHER ASSURANCES. LCI shall execute and deliver such additional documents and take such additional actions as may reasonably be requested by Congress to effectuate the provisions and purposes of this Amendment. 15. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without reference to its principles of conflicts of law. By the signatures hereto of the duly authorized officers, the parties hereto mutually covenant, warrant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: Frank A.Chiovari -------------------------------- Title: Vice President ----------------------------- AGREED AND ACCEPTED: LEXINGTON COMPONENTS, INC. By: Warren Delano -------------------------------- Title: President ------------------------------ -8- 9 CONSENT ------- The undersigned guarantor hereby consents to the foregoing Amendment, agrees to be bound by its terms applicable to it, and ratifies and confirms the terms of its Guarantee and Waiver dated January 11, 1990 as applicable to all present and future indebtedness, liabilities and obligations of LEXINGTON COMPONENTS, INC. ("LCI") to CONGRESS FINANCIAL CORPORATION ("Congress"), including, without limitation, all indebtedness, liabilities and obligations under the Financing Agreements as amended hereby. LEXINGTON PRECISION CORPORATION By: Warren Delano -------------------------------- Title: President ------------------------------ -9- 10 EXHIBIT I NEW EQUIPMENT TERM NOTE* $ , 19 - -------------------- -------------- --- FOR VALUE RECEIVED, LEXINGTON COMPONENTS, INC., a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ____________________________ DOLLARS ($_________) in lawful money of the United States of America and in immediately available funds, in eighty-four (84) consecutive monthly installments (or earlier as hereinafter referred to) on the first day of each month commencing __________, 19__, of which the first eighty-three (83) installments shall each be in the amount of ___________________ DOLLARS ($________), and the last (i.e. eighty-fourth (84th)) installment shall be in the amount of the entire unpaid balance of this Note. Debtor hereby further promises to pay interest to the order of Payee on the unpaid principal balance hereof at the Interest Rate. Such interest shall be paid in like money at said office or place from the date hereof, commencing on the first day of the month next following the date hereof, and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a - -------- * For preparation of Note: The blanks are to be completed such that the principal amount of the New Equipment Term Loan is amortized in eighty-four (84) equal, consecutive monthly installments of principal commencing on the first day of the month following the date of advance and ending with a final (i.e. 84th) installment of the remaining unpaid balance. -1- 11 rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate payable hereunder as to Prime Rate Loans shall increase or decrease by an amount equal to each increase or decrease, respectively, in such Prime Rate, effective on the first day of the month after any change in such Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of March __, 1997 between Debtor and Payee (the "Amendment") to evidence a "New Equipment Term Loan" (as defined in the New Equipment Term Loan Agreement as referred to in and as modified by the Amendment) made by Payee to Debtor. This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, -2- 12 not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Financing Agreements (the "Obligations"), including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the then applicable rate stated above until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of collection hereof, including, but not limited to, reasonable attorneys' fees. Debtor (i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for any holder hereof to first institute suit in order to enforce payment of this Note and (iii) consents to any one or more extensions or postponements of time of payment, release, surrender or substitution of collateral security, or forbearance or other indulgence, without notice or consent. Upon the occurrence of any Event of Default and during the continuance thereof, Payee shall have the right, but not the obligation to setoff against this Note all money owed by Payee to Debtor. Payee shall not be required to resort to any Collateral for payment, but may proceed against Debtor and any guarantors or endorsers hereof in such order and manner as Payee may choose. None of the rights of Payee shall be waived or diminished by any failure or delay in the exercise thereof. Debtor hereby waives the right to a trial by jury and all rights of setoff and rights to interpose counterclaims and cross-claims in any litigation or proceeding arising in connection with this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral, other than compulsory counterclaims, the non-assertion of which would result in a permanent waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of the State of New York and of the United States District Court for the Southern District of New York for all purposes in connection with any action or proceeding arising out of or relating to this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral and further consents that any process or notice of motion or other application to said Courts or any judge thereof, or any notice in connection with any proceeding hereunder may be served (i) inside or outside the State of New York by registered or certified mail, return receipt requested, and service or notice so served shall be deemed complete five (5) days after the same shall have been posted or (ii) in such other manner as may be permissible under the rules of said Courts. Within thirty (30) days after such mailing, Debtor shall appear in answer to such process or notice of motion -3- 13 or other application to said Courts, failing which Debtor shall be deemed in default and judgment may be entered by Payee against Debtor for the amount of the claim and other relief requested therein. The execution and delivery of this Note has been authorized by the Board of Directors of Debtor. This Note, the other Obligations and the Collateral shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of Debtor and inure to the benefit of Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Payee or the holder hereof. Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to include their respective successors and assigns. LEXINGTON COMPONENTS, INC. ATTEST: By: --------------------------- - --------------------- Secretary Title: ----------------------- [Corporate Seal] -4- EX-10.54 17 EXHIBIT 10.54 1 Exhibit 10.54 March 11, 1997 -- Lexington Precision Corporation 767 Third Avenue New York, New York 10017 Re: Amendment to Financing Agreements --------------------------------- Gentlemen: Reference is made to certain financing agreements dated January 11, 1990 between Lexington Precision Corporation ("LPC") and Congress Financial Corporation ("Congress"), including, but not limited to, an Accounts Financing Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all supplements thereto and all other related financing and security agreements (collectively, all of the foregoing, as the same have heretofore or contemporaneously been or may be hereafter, amended, replaced, extended, modified or supplemented, the "Financing Agreements"). In connection with the financing arrangements pursuant to the Accounts Agreement and the other Financing Agreements, the parties hereto hereby agree to amend the Financing Agreements, as set forth below: 1. Definitions: ------------ (a) The definition of "Term Loans" contained in the letter agreement re: Amendment to Financing Agreements, dated January 31, 1995, between LPC and Congress (the "January 1995 Amendment"), as amended by the letter agreement re: Amendment to Financing Agreements, dated January 16, 1996, between LPC and Congress, is hereby amended to mean and include all term loans now outstanding or hereafter made by Congress to LPC, including, without limitation, the term loans made by Congress to LPC evidenced by the LPC New York Real Estate Notes, the LPC Fourth Restated Note (as defined below) and any and all New Equipment Term Notes hereafter executed by LPC, as any such notes may hereafter be amended, renewed, extended, restated or replaced. (b) Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed thereto in the Accounts Agreement and the other Financing Agreements. 2. Maximum Credit. --------------- (a) Section 1.7 of the Accounts Agreement, as heretofore amended, is hereby deleted in its entirety and replaced with the following: -1- 2 "1.7. "Maximum Credit" shall mean the amount of $50,000,000." (b) For purposes of Section 2.3 of the Accounts Agreement, all existing and future Term Loans, including, without limitation, the Loans evidenced by the LPC Fourth Restated Note, the LPC New York Real Estate Notes and any and all New Equipment Term Notes executed by LPC after the date hereof, shall be considered made pursuant to a supplement to the Accounts Agreement, and the "Term Loans" to LCI, including, without limitation, the "Loans" evidenced by the "LCI Fourth Restated Note" and any and all "New Equipment Term Notes" (as each such quoted term is defined in the LCI Financing Agreements) executed by LCI after the date hereof, shall be considered made pursuant to a supplement to the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, between LCI and Congress, as amended. 3. ADDITIONAL TERM LOAN. Contemporaneously herewith, in order to evidence the balance of the outstanding Obligations owed by LPC pursuant to the Third Amended and Restated Promissory Note, dated August 21, 1996, made by LPC to the order of Congress, in the original principal amount of $5,236,304 and the New Equipment Term Note, dated July 1, 1996, made payable by LPC in favor of Congress, in the original principal amount of $900,000, and in order to evidence an additional one-time advance to LPC, which shall be made upon the effective date hereof in the principal amount of $5,778,496 (the "March 1997 Additional LPC Term Loan"), LPC is executing and delivering to Congress a Fourth Amended and Restated Promissory Note in the original principal amount of $11,324,000 (as the same now exists or may hereafter be amended, supplemented, renewed, extended, restated or replaced, the "LPC Fourth Restated Note"). The Obligations evidenced by the LPC Fourth Restated Note shall be payable, including interest and other amounts, as provided therein and, to the extent not inconsistent with the terms of the LPC Fourth Restated Note, as provided in the other Financing Agreements, and shall be secured by all Collateral. 4. NEW EQUIPMENT TERM LOANS. ------------------------- (a) Sections 2(a) and 2(b) of the letter agreement re: Amendment to Financing Agreements, dated as of March 25, 1994, between Congress and LPC, as heretofore amended by the letter agreement re: Amendment to Financing Agreements, dated as of August 1, 1994 and the January 1995 Amendment (as so amended, the "New Equipment Term Loan Agreement") are hereby deleted in their entirety and replaced with the following: -2- 3 "(a) Subject to and upon the terms and conditions contained herein and in the other Financing Agreements, including the sublimit set forth below in Section 2(b), Congress shall, in its discretion, make New Equipment Term Loans to LPC, from time to time, at LPC's request, of up to (i) forty-five (45%) percent of the Cost of Eligible New Equipment, or (ii) if LPC shall elect to obtain an Appraisal Report (as defined below) or if the Eligible New Equipment which is the subject of the New Equipment Term Loan requested hereunder is equivalent in all respects (including, without limitation, model, make and manufacturer) to Equipment shown in an acceptable Appraisal Report prepared not more than twenty-four (24) months prior to the date the requested New Equipment Term Loan is to be made, ninety (90%) percent of the appraised orderly liquidation value of such Eligible New Equipment (or such equivalent Equipment) as shown in such Appraisal Report. As used herein, "Appraisal Report" shall mean an orderly liquidation value appraisal report prepared for Congress, at LPC's expense, by MB Valuation Services, Inc., Daley-Hodkin Appraisal Corporation or other appraiser reasonably satisfactory to Congress, and including the orderly liquidation value appraisal reports of MB Valuation Services Inc., dated January 15, 1997, with respect to LPC's Equipment. (b) Except in Congress' discretion the aggregate original principal amount of all New Equipment Term Loans made to LPC plus the aggregate original principal amount of all "New Equipment Term Loans" (as defined in the LCI Financing Agreements) made to LCI under the LCI Financing Agreements at any time after the date hereof, shall not exceed $3,500,000. Except in Congress' discretion, New Equipment Term Loans shall only be available (subject to the foregoing lending formula and sublimit set forth herein) in integral multiples of $100,000 and in amounts not less than $500,000 for each New Equipment Term Loan." (b) Exhibit I to the New Equipment Term Loan Agreement, as heretofore amended, is hereby replaced with the form designated as Exhibit I annexed hereto. Each New Equipment Term Loan shall be payable, including interest and other amounts, as provided in the form of New Equipment Term Note annexed hereto as Exhibit I, and, to the extent not inconsistent with Exhibit I, as provided in the other Financing Agreements, and shall be secured by all Collateral. -3- 4 5. INTEREST. Effective with respect to interest accruing on or after the date hereof, the definitions of "Interest Rate" set forth in the January 1995 Amendment and the first page of each of the LPC New York Real Estate Notes are each hereby amended as follows: (a) by deleting the reference to "one (1%) percent" and replacing it with "one quarter of one (1/4%) percent"; (b) by deleting the reference to "three and one-quarter (3 1/4%) percent" and replacing it with "two and three-quarters (2 3/4%) percent"; (c) by deleting the reference to "three (3%) percent" and replacing it with "two and one-quarter (2 1/4%) percent"; and (d) by deleting the reference to "five and one-quarter (5 1/4%) percent" and replacing it with "four and three-quarters (4 3/4%) percent". 6. INVENTORY SUBLIMIT. Paragraph 3 of the letter agreement re: Inventory Loans, dated March 23, 1990, is hereby further amended by deleting the reference to "$5,000,000" and replacing it with "$6,000,000". 7. FINANCIAL COVENANTS. Sections IV(g)(i) and IV(g)(ii) of the Covenant Supplement to the Accounts Agreement, dated January 11, 1990, as amended, are each hereby further amended by deleting them in their entirety and replacing them with the following: "(i) Borrower shall, at all times, maintain on a basis consolidated with Borrower's direct and indirect Subsidiaries, Working Capital not less than $2,500,000; and (ii) Borrower shall, at all times, maintain on a basis consolidated with Borrower's direct and indirect Subsidiaries, a Net Worth not less than negative $8,500,000 (-$8,500,000)." 8. TERM. The first sentence of Section 9.1 of the Accounts Agreement, as heretofore amended, is hereby deleted in its entirety and replaced with the following: "This Agreement shall become effective upon acceptance by you and shall continue in full force and effect for a term ending April 1, 2000 (the "Renewal Date"), unless sooner terminated pursuant to the terms hereof." -4- 5 9. FEES. ----- (a) LPC shall pay to Congress a facility amendment and extension fee in an amount equal to $50,000, payable simultaneously with the execution hereof, which fee is fully earned as of the date hereof. (b) Section 3.5 of the Account Agreement is hereby deleted in its entirety and replaced with the following: "3.5 If the average outstanding daily principal balance of all Loans made and Credits provided by you to us under this Agreement or any supplement hereto for any calendar month, plus the average outstanding daily principal balance of all "Loans" made or "Credits" provided by you to LCI under (and as such quoted terms are defined in) the LCI Financing Agreements for such calendar month, shall be less than $25,000,000 (the "Unused Line Base Amount"), we and LCI shall be jointly and severally obligated to pay to you, on or before the tenth (10th) day of the next succeeding calendar month, an unused line fee calculated at the rate of one-half of one (1/2 of 1%) percent per annum upon the amount by which the Unused Line Base Amount exceeds the average outstanding daily principal balance of all such Loans and Credits to us and LCI in respect of such month. If, after March 1, 1997, we shall issue debt or equity securities in a public offering, the proceeds of which are used contemporaneously therewith to reduce the aggregate amount of the then-outstanding Obligations of us and LCI to you to an amount equal to or less than $10,000,000, then, provided the Financing Agreements and LCI Financing Agreements have not been terminated, the Unused Line Base Amount shall be reduced to $10,000,000, effective upon the closing of such public offering and contemporaneous reduction of the aggregate amount of the then-outstanding Obligations of us and LCI to you to the amount of $10,000,000 or less." (c) Section 9.2 of the Accounts Agreement, as heretofore amended, is hereby deleted in its entirety and replaced with the following: "9.2 If for any reason the Financing Agreements are terminated prior to April 1, 2000, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of your lost profits as a result thereof, we hereby agree to pay to you upon the effective date of such termination, jointly and severally with LCI, an early termination fee in an amount equal to: (a) two (2%) percent of the Maximum -5- 6 Credit if such termination occurs on or prior to March 31, 1998, (b) one (1%) percent of the Maximum Credit if such termination occurs after March 31, 1998, but on or prior to March 31, 1999, or (c) one-half of one (1/2 of 1%) of the Maximum Credit if such termination occurs after March 31, 1999, but on or prior to September 30, 1999. No early termination fee shall be payable if termination occurs effective after September 30, 1999. The early termination fee payable as provided for herein shall be presumed to be the amount of damages sustained by you as a result of said early termination and we agree that it is reasonable under the circumstances currently existing. The early termination fee provided for herein shall be deemed included in the Obligations." 10. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by LPC to Congress pursuant to the Financing Agreements, LPC hereby represents, warrants and covenants with and to Congress as follows (which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements): (a) No Event of Default exists or has occurred and is continuing on the date of this Amendment. (b) This Amendment has been duly executed and delivered by LPC and is in full force and effect as of the date hereof, and the agreements and obligations of LPC contained herein constitute the legal, valid and binding obligations of LPC enforceable against LPC in accordance with their terms. 11. Use of Proceeds. ---------------- The proceeds of the March 1997 Additional LPC Term Loan to be made by Congress pursuant to Paragraph 3 hereof and of the March 1997 Additional LCI Term Loan (as defined in the March 1997 LCI Amendment, as defined below), shall be used (i) to repay the outstanding balance owed by LPC to The CIT Group/Equipment Financing, Inc. ("CIT") evidenced by the promissory note dated January 16, 1996 in the original principal amount of $4,554,900 and the promissory note dated February 29, 1996 in the original principal amount of $822,364.71, which outstanding balances are $3,511,068.76 and $633,906.11, respectively, and (ii) to fully repay all outstanding indebtedness and obligations owed by LPC to The Chase Manhattan Bank ("Chase") and the Monroe County Industrial Development Agency (collectively, with Chase, the "Rochester IRB Parties") in respect of the County of Monroe Industrial Development Agency, 1985 Industrial Development Revenue Bonds (Blasius Industries, Inc. Facility) (the "Rochester -6- 7 IRB"), in the amount of approximately $383,000 (the "Rochester IRB Balance"). The balance thereof remaining after the use and application of such proceeds as described in clauses (i) and (ii) shall be credited to LPC's Revolving Loan account maintained by Congress under the Financing Agreements. 12. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. Anything contained in this Amendment to the contrary notwithstanding, the terms and provisions of this Amendment shall only become effective upon the satisfaction of the following additional conditions precedent: (a) Congress shall have received an executed original or executed original counterparts (as the case may be) of this Amendment together with the following, each of which shall be in form and substance satisfactory to Congress: (i) the LPC Fourth Restated Note; (ii) certified resolutions of the Board of Directors of LPC duly authorizing the execution and delivery of this Amendment and the instruments and transactions hereunder; and (iii) an Amendment between LCI and Congress with respect to the LCI Financing Agreements and the documents and instruments required thereunder and the satisfaction of all conditions precedent to the effectiveness thereof (the "March 1997 LCI Amendment"). (b) Arrangements satisfactory to Congress shall be made by LPC and LCI such that the proceeds of the March 1997 Additional LPC Term Loan shall be used as required herein and such that the proceeds of the March 1997 Additional LCI Term Loan (as defined in the March 1997 LCI Amendment) shall be used as required therein, and that, contemporaneously therewith: (i) CIT shall release all of its liens and security interests in the assets and properties of LPC which constitute "CIT Collateral" pursuant to the Subordination Agreement between CIT and Congress, as amended; (ii) CIT and Congress shall enter into an agreement, in form and substance satisfactory to Congress, terminating or amending the Subordination Agreement dated as of January 17, 1996 between CIT and Congress, as amended, to provide for, -7- 8 among other things, the release referred to in clause (i) of this paragraph 12(b); and (iii) LPC shall have delivered to Congress a payoff letter from Chase, setting forth the amount of the Rochester IRB Balance as of the date hereof, and shall have authorized Congress to disburse a portion of the March 1997 Additional LPC Term Loan directly to Chase in payment thereof. (c) All representations and warranties contained herein, in the Accounts Agreement and in the other Financing Agreements shall be true and correct in all material respects; and (d) No Event of Default shall have occurred and no event shall have occurred or condition be existing which, with notice or passage of time or both, would constitute an Event of Default. 13. ROCHESTER IRB. LPC shall, within forty-five (45) days after the date hereof, arrange for the execution, delivery and recordation of instruments conveying title to assets of LPC subject to the Rochester IRB and the termination and release of record of all liens and security interests held by the Rochester IRB Parties upon such assets. 14. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, the Accounts Agreement and all supplements to the Accounts Agreement and all other Financing Agreements, are hereby specifically ratified, restated and confirmed by the parties hereto as of the date hereof and no existing defaults or Events of Default have been waived in connection herewith. To the extent of conflict between the terms of this Amendment and the Accounts Agreement or any of the other Financing Agreements, the terms of this Amendment control. 15. FURTHER ASSURANCES. LPC shall execute and deliver such additional documents and take such additional actions as may reasonably be requested by Congress to effectuate the provisions and purposes of this Amendment. 16. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without reference to its principles of conflicts of law. -8- 9 By the signatures hereto of the duly authorized officers, the parties hereto mutually covenant, warrant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: Frank A. Chiovari ---------------------------- Title: President ------------------------- AGREED AND ACCEPTED: LEXINGTON PRECISION CORPORATION By: Warren Delano ----------------------------- Title: President --------------------------- -9- 10 CONSENT ------- The undersigned guarantor hereby consents to the foregoing Amendment, agrees to be bound by its terms applicable to it, and ratifies and confirms the terms of its Guarantee and Waiver dated January 11, 1990 as applicable to all present and future indebtedness, liabilities and obligations of LEXINGTON PRECISION CORPORATION ("LPC") to CONGRESS FINANCIAL CORPORATION ("Congress"), including, without limitation, all indebtedness, liabilities and obligations under the Financing Agreements as amended hereby. LEXINGTON COMPONENTS, INC. By: Warren Delano ------------------------- Title: President ---------------------- -10- 11 EXHIBIT I NEW EQUIPMENT TERM NOTE* $ , 19 - ---------------------- ------------- ----- FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ____________________________ DOLLARS ($_________) in lawful money of the United States of America and in immediately available funds, in eighty-four (84) consecutive monthly installments (or earlier as hereinafter referred to) on the first day of each month commencing __________, 19__, of which the first eighty-three (83) installments shall each be in the amount of ___________________ DOLLARS ($________), and the last (i.e. eighty-fourth (84th)) installment shall be in the amount of the entire unpaid balance of this Note. Debtor hereby further promises to pay interest to the order of Payee on the unpaid principal balance hereof at the Interest Rate. Such interest shall be paid in like money at said office or place from the date hereof, commencing on the first day of the month next following the date hereof, and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a - -------- * For preparation of Note: The blanks are to be completed such that the principal amount of the New Equipment Term Loan is amortized in eighty-four (84) equal, consecutive monthly installments of principal commencing on the first day of the month following the date of advance and ending with a final (i.e. 84th) installment of the remaining unpaid balance. -1- 12 rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate payable hereunder as to Prime Rate Loans shall increase or decrease by an amount equal to each increase or decrease, respectively, in such Prime Rate, effective on the first day of the month after any change in such Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of March __, 1997 between Debtor and Payee (the "Amendment") to evidence a "New Equipment Term Loan" (as defined in the New Equipment Term Loan Agreement as referred to in and as modified by the Amendment) made by Payee to Debtor. This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, -2- 13 not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Financing Agreements (the "Obligations"), including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the then applicable rate stated above until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of collection hereof, including, but not limited to, reasonable attorneys' fees. Debtor (i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for any holder hereof to first institute suit in order to enforce payment of this Note and (iii) consents to any one or more extensions or postponements of time of payment, release, surrender or substitution of collateral security, or forbearance or other indulgence, without notice or consent. Upon the occurrence of any Event of Default and during the continuance thereof, Payee shall have the right, but not the obligation to setoff against this Note all money owed by Payee to Debtor. Payee shall not be required to resort to any Collateral for payment, but may proceed against Debtor and any guarantors or endorsers hereof in such order and manner as Payee may choose. None of the rights of Payee shall be waived or diminished by any failure or delay in the exercise thereof. Debtor hereby waives the right to a trial by jury and all rights of setoff and rights to interpose counterclaims and cross-claims in any litigation or proceeding arising in connection with this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral, other than compulsory counterclaims, the non-assertion of which would result in a permanent waiver. Debtor hereby irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of the State of New York and of the United States District Court for the Southern District of New York for all purposes in connection with any action or proceeding arising out of or relating to this Note, the Accounts Agreement, the other Financing Agreements, the Obligations or the Collateral and further consents that any process or notice of motion or other application to said Courts or any judge thereof, or any notice in connection with any proceeding hereunder may be served (i) inside or outside the State of New York by registered or certified mail, return receipt requested, and service or notice so served shall be deemed complete five (5) days after the same shall have been posted or (ii) in such other manner as may be permissible under the rules of said Courts. Within thirty (30) days after such mailing, Debtor shall appear in answer to such process or notice of motion -3- 14 or other application to said Courts, failing which Debtor shall be deemed in default and judgment may be entered by Payee against Debtor for the amount of the claim and other relief requested therein. The execution and delivery of this Note has been authorized by the Board of Directors of Debtor. This Note, the other Obligations and the Collateral shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of Debtor and inure to the benefit of Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Payee or the holder hereof. Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to include their respective successors and assigns. LEXINGTON PRECISION CORPORATION ATTEST: By: ---------------------------- - --------------------- Secretary Title: -------------------------- [Corporate Seal] -4- EX-10.55 18 EXHIBIT 10.55 1 Exhibit 10.55 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT dated as of March 19, 1997, is made by and between LEXINGTON PRECISION CORPORATION ("DEBTOR") and THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT"). SECTION 1. DEFINITIONS. All capitalized terms which are not defined herein are defined in Rider A attached hereto and made a part hereof ("RIDER A"). Accounting terms not specifically defined shall be construed in accordance with generally accepted accounting principles. SECTION 2. AMOUNT AND TERMS OF LOANS; GRANT OF SECURITY INTEREST. Subject to the terms and conditions hereof, CIT agrees to make Loans to Debtor from time to time, in the amounts described in paragraph 2 of Rider A. Each Loan shall be evidenced by Debtor's Note, which Note shall set forth the repayment terms and Interest Rate for such Loan. As security for the prompt and complete payment and performance when due of all the Obligations and in order to induce CIT to enter into this Agreement and make the Loans and to extend other credit from time to time to Debtor, whether under this Agreement or otherwise, Debtor hereby grants to CIT a first priority security interest in all Debtor's right, title and interest in, to and under the Collateral. SECTION 3. CONDITIONS OF BORROWING. CIT shall not be required to make any Loan hereunder unless on the Closing Date thereof all legal matters with respect to, and all legal documents executed in connection with, the contemplated transactions are satisfactory to CIT and all of the following conditions are met to the satisfaction of CIT (except that (a) and (b) are required in connection with the initial Loan only): (a) CIT has received a satisfactory Secretary's Certificate certified by Debtor's Secretary or Assistant Secretary; (b) Debtor has executed and delivered to CIT the Note evidencing, and a Supplement describing the Equipment to be financed by, such Loan; (c) the Equipment being financed by such Loan has been delivered to, and accepted by, Debtor and CIT has received satisfactory evidence that the Equipment is insured in accordance with the provisions hereof and that the Cost thereof has been, or concurrently with the making of the Loan shall be, fully paid; (d) CIT has received copies of the invoices and bills of sale, if any, with respect to the Equipment being financed by such Loan; (e) all filings, recordings and other actions (including the obtaining of landlord and/or mortgagee waivers and a satisfactory intercreditor Agreement with Congress) deemed necessary or desirable by CIT in order to perfect a first priority security interest in the Equipment being financed by such Loan have been duly effected, and all fees, taxes and other charges relating to such filings and recordings have been paid by Debtor; (f) the representations and warranties contained in this Agreement are true and correct in all material respects with the same effect as if made on and as of such date, and no Default or Event of Default is in existence on such date or shall occur as a result of such Loan; (g) in the sole judgment of CIT, there has been no material adverse change in the financial condition, business or operations of Debtor from the date referred to in Section 4(j) hereof; (h) CIT has received from Debtor such other documents and information as CIT has reasonably requested; and (i) CIT has inspected and appraised each item of used Equipment and found it satisfactory in value and condition, and all items of Equipment shall be satisfactory to CIT in value, condition and type. SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce CIT to enter into this Agreement and to make each Loan, Debtor represents and warrants to CIT that: (a) Debtor is a corporation duly organized, validly existing and in good standing under the laws of its State of incorporation, has the necessary authority and power to own the Equipment and its other assets and to transact the business in which it is engaged, is duly qualified to do business in each jurisdiction where the Equipment is located and in each other jurisdiction in which the conduct of its business or the ownership of its assets requires such qualification, and its chief executive office is located at the address set forth in paragraph 6 of Rider A; (b) Debtor has full power, authority and legal right to execute and deliver this Agreement and the Notes, to perform its obligations hereunder and thereunder, to borrow hereunder and to grant the security interest created hereby; (c) this Agreement has been (and each Note when executed and delivered shall have been) duly authorized, executed and delivered by Debtor and constitutes (and each Note when executed and delivered shall constitute) a legal, valid and binding obligation of Debtor enforceable in accordance with its terms except as such rights may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally; (d) the execution, delivery and performance by Debtor of this Agreement and the Notes do not and will not violate any provision of any applicable law or regulation or of any judgment or order of any court or governmental instrumentality, and will not violate any provision of, or cause a default under, any loan, other agreement, contract or judgment to which Debtor is a party; (e) Debtor is not in default under any material agreement, contract or judgment to which Debtor is a party; (f) Debtor has filed all tax returns that are required to be filed and has paid all taxes as shown on said returns and all assessments received by it to the extent such taxes and assessments have become due other than those which are the subject of valid extensions and those which are being contested in good faith by appropriate Page 1 of 5 2 proceedings and as to which appropriate reserves are being maintained by Debtor in accordance with generally accepted accounting principles and so long as such proceedings operate during the pendency thereof to prevent the sale, forfeiture, or loss of the Collateral by or to such taxing authority, and Debtor does not have any knowledge of any actual or proposed deficiency or additional assessment in connection therewith; (g) to the best of its knowledge, there is no action, audit, investigation or proceeding pending or threatened against or affecting Debtor or any of its assets which involves any of the Equipment or any of the contemplated transactions hereunder or which, if adversely determined, could reasonably be expected to have a material adverse effect on Debtor's business, operations or financial condition; (h) on each Closing Date, Debtor shall have good and marketable title to the Equipment being financed on such date and CIT shall have a perfected first Lien on such Equipment; and (i) (i) the operations of Debtor comply in all material respects with all applicable Environmental Laws; and (ii) except as disclosed to CIT, (A) none of the operations of Debtor are subject to any judicial or administrative proceeding alleging the violation of any Environmental Laws; (B) none of the operations of Debtor is the subject of an investigation to determine whether any remedial action is needed to respond to a release of any Hazardous Material into the environment; and (C) Debtor has no known material contingent liability in connection with any release of any Hazardous Material into the environment: (j) all annual and quarterly financial statements of Debtor which have been delivered to CIT have been prepared in accordance with generally accepted accounting principles consistently applied, and present fairly in all material respects Debtor's financial position as at, and the results of its operations for, the periods ended on the dates set forth on such financial statements, and there has been no material adverse change in Debtor's financial condition, business or operations since September 30, 1996, as reflected in such financial statements; (k) Debtor has not changed its name in the last five years or done business under any other name except as previously disclosed in writing to CIT; and (l) no consent of any Person, and no consent, license, approval or authorization of, or registration or filing with, any governmental authority, bureau or agency is required in connection with the execution, delivery and performance of, and payment under, this Agreement or the Notes other than the consent of Congress and the filing of financing statements. SECTION 5. COVENANTS. Debtor covenants and agrees that from and after the date hereof and so long as the Commitment or any of the Notes is outstanding: (a) It will: (i) promptly give written notice to CIT of the occurrence of any Event of Loss; (ii) observe all material requirements of any governmental authorities relating to the conduct of its business, to the performance of its obligations hereunder, to the use, operation or ownership of the Equipment, or to its other properties or assets, maintain its existence as a legal entity and obtain and keep in full force and effect all material rights, franchises, licenses and permits which are necessary to the proper conduct of its business, and pay all fees, taxes, assessments and governmental charges or levies imposed upon any of the Equipment; (iii) at any reasonable time or times, permit CIT or its authorized representative (A) upon prior written request to inspect the Equipment and, (B) following the occurrence and during the continuation of an Event of Default, to inspect the books and records of Debtor; (iv) in accordance with generally accepted accounting principles, keep proper books of record and account in which entries will be made of all dealings or transactions in relation to its business and activities; (v) furnish to CIT the following financial statements, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved, (A) as soon as available, but not later than 120 days after the end of each fiscal year, its consolidated balance sheet as at the end of such fiscal year, and its consolidated statements of income and consolidated statements of cash flow, including all footnotes, or such fiscal year, together with comparative information for the prior fiscal year, audited by Ernst & Young, LLP or other certified public accountants reasonably acceptable to CIT; and (B) as soon as available, but not later than 90 days after the end of each of the first three quarterly periods of each fiscal year, its consolidated balance sheet as at the end of such quarterly period and its consolidated statements of income and consolidated statements of cash flow for such quarterly period and for the portion of the fiscal year then ended together with comparative information for the prior comparable period, certified as to their accuracy by its chief financial officer; (vi) furnish to CIT, (A) together with the financial statements described in clauses (v)(A) and (v)(B) above, a statement signed by Debtor's chief financial officer certifying that Debtor is in compliance with all financial covenants contained herein, or if Debtor is not in compliance, the nature of such noncompliance or default, and the status thereof (such statement shall set forth the actual calculations of any financial covenants), and (B) promptly, such additional financial and other information as CIT may from time to time reasonably request; (vii) promptly, at Debtor's expense, execute and deliver to CIT such instruments and documents, and take such action, as CIT may from time to time reasonably request in order to carry out the intent and purpose of this Agreement and to establish and protect the rights, interests and remedies created, or intended to be created, in favor of CIT hereby, including, without limitation, the execution, delivery, recordation and filing of financing statements (hereby authorizing CIT, in such jurisdictions where such action is authorized by law, to effect any such recordation or filing of financing statements without Debtor's signature, and to file as valid financing statements in the applicable financing statement records, photocopies hereof and of any other financing statement executed in connection herewith); PROVIDED, HOWEVER, notwithstanding anything in this Agreement to the contrary, in no event shall CIT file any financing statement or other public document which specifically lists the particular items of Equipment included in the Collateral; (viii) warrant and defend its good and marketable title to the Equipment, and CIT's perfected first priority security interest in the Collateral, against all claims and demands whatsoever (hereby agreeing that the Equipment shall be and at all times remain separately identifiable personal property, and shall not become part of any real estate), and will, at its expense, take such action as may be necessary to prevent any other Person (other than Congress) from acquiring any right or interest in the Equipment; (ix) at Debtor's expense, if requested by CIT in writing, attach to the Equipment a notice satisfactory to CIT disclosing CIT's security interest Page 2 of 5 3 in the Equipment; (x) at Debtor's expense, maintain the Equipment in good condition and working order and furnish all parts, replacements and servicing required therefor so that the value, condition and operating efficiency thereof will at all times be maintained, normal wear and tear excepted, and any repairs, replacements and parts added to the Equipment in connection with any repair or maintenance or with any improvement, change, addition or alteration shall immediately, without further act, become part of the Equipment and subject to the security interest created by this Agreement; and (xi) obtain and maintain at all times on the Collateral, at Debtor's expense, "All-Risk" physical damage and, if required by CIT, liability insurance (including bodily injury and property damage) in such amounts, against such risks, in such form and with such insurers as shall be reasonably satisfactory to CIT; PROVIDED, HOWEVER, that the amount of physical damage insurance shall not be less than the then aggregate outstanding principal amount of the Notes. All physical damage insurance policies shall be made payable to CIT as its interest may appear; if liability insurance is required by CIT, the liability insurance policies shall name CIT as an additional insured. Debtor shall maintain and deliver to CIT the original certificates of insurance or other documents satisfactory to CIT prior to policy expiration or upon CIT's request, but CIT shall bear no duty or liability to ascertain the existence or adequacy of such insurance. Each insurance policy shall, among other things, require that the insurer give CIT at least 30 days' prior written notice of any material alteration in the terms of such policy or the cancellation thereof and that the interests of CIT be continued insured regardless of any breach of or violation by Debtor of any warranties, declarations or conditions contained in such insurance policy. The insurance maintained by the Debtor shall be primary with no other insurance maintained by CIT (if any) contributory. (b) It will not: (i) sell, convey, transfer, exchange, lease or otherwise relinquish possession or dispose of any of the Collateral or attempt or offer to do any of the foregoing; (ii) create, assume or suffer to exist any Lien upon the Collateral except for the security interest created hereby and the subordinate security interest in favor of Congress; (iii) liquidate or dissolve; (iv) change the form of organization of its business; or (v) without thirty (30) days prior written notice to CIT, change its name or its chief executive office; (vi) move (or in the case of titled vehicles, change the principal base of) any of the Equipment from the location specified on the Supplement relating thereto without the prior written consent of CIT except within the continental United States upon 30 days prior written notice to CIT (provided that Debtor delivers to CIT such financing statements as CIT requests to maintain its perfected first priority security interest in such Equipment); or (vii) make or authorize any improvement, change, addition or alteration to the Equipment which would impair its originally intended function or use or its value. Notwithstanding anything herein to the contrary, Debtor shall have the right to substitute up to $1,000,000.00 of items of Equipment included in the Collateral with other items of Equipment of a like type and of a value and utility equal to or greater than the Equipment replaced, or other items of Equipment acceptable to CIT. Any Equipment which is so substituted for shall no longer be Collateral for purposes of this Agreement. SECTION 6. EVENTS OF DEFAULT; REMEDIES. The following events shall each constitute an "EVENT OF DEFAULT" hereunder: (a) Debtor shall fail to pay any principal or interest on any Note within 10 days after the same becomes due (whether at the stated maturity, by acceleration or otherwise) or shall fail to pay any other Obligation when due (whether at the stated maturity, by acceleration or otherwise) which failure is not cured within 10 days after Debtor's receipt of notice from CIT; (b) any representation or warranty made by Debtor in this Agreement or in any document, certificate or financial or other statement now or hereafter furnished by Debtor in connection with this Agreement or any Loan shall at any time prove to be untrue or misleading in any material respect as of the time when made; (c) Debtor shall fail to observe any covenant, condition or agreement contained in Sections 5.A(11) or 5.B hereof or in paragraphs 4 or 5(b) of Rider A, which failure shall continue for a period of ten (10) days after receipt of notice from CIT; (d) Debtor shall fail to observe or perform any other covenant or condition contained in this Agreement, and such failure shall continue unremedied for a period of 30 days after the date on which notice thereof shall be given by CIT to Debtor; (e) Debtor or any affiliate of Debtor shall default (i) in the payment of, or other performance under, any obligation for payment or lease (whether or not capitalized) or any guarantee to CIT or any affiliate of CIT beyond the period of grace, if any, provided with respect thereto, or (ii) in the payment or performance of any obligation for borrowed money to any other Person beyond the period of grace, if any, provided with respect thereto, where such obligation or amount guaranteed is in excess of $100,000 if such obligation for borrowed money is accelerated as a result thereof; (f) a complaint in bankruptcy or for arrangement or reorganization or for relief under any insolvency law is filed by or against Debtor (and when filed against Debtor is in effect for 60 days) or Debtor admits its inability to pay its debts as they mature; or (g) upon the expiration of Debtor's current revolving loan facility with Congress, Debtor shall fail to renew such facility with Congress or shall fail to replace such facility with another lender reasonably acceptable to CIT with terms and conditions reasonably acceptable to CIT. If an Event of Default shall occur and be continuing, CIT may, by notice of default given to Debtor, do any one or more of the following: (a) terminate the Commitment and/or (b) declare the Notes to be due and payable, whereupon the principal amount of the Notes, together with accrued interest thereon and all other amounts owing under this Agreement and the Notes, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived (and in the case of any Event of Default specified in clause (f) of the above paragraph, such acceleration of the Notes shall be automatic, without any notice by CIT). In addition, if an Event of Default shall occur and be continuing, CIT may exercise all other rights and remedies available to it, whether under this Agreement, under any other instrument or agreement securing, evidencing or relating to the Obligations, under the Code, or otherwise available at law or in equity. Without limiting the generality of the foregoing, Debtor agrees that in any such event, Page 3 of 5 4 CIT, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Debtor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived), may forthwith do any one or more of the following: collect, receive, appropriate and realize upon the Collateral or any part thereof, and sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver, the Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales at such places and at such prices as it may deem best, for cash or on credit or for future delivery without the assumption of any credit risk. CIT shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of Debtor, which right or equity is hereby expressly released. Debtor further agrees, at CIT's request, to assemble (at Debtor's expense) the Collateral and make it available to CIT at such places which CIT shall select, whether at Debtor's premises or elsewhere but not more than 1000 miles from Debtor's premises. CIT shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale (after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any or all of the Collateral or in any way relating to the rights of CIT hereunder, including reasonable attorney's fees and legal expenses) to the payment in whole or in part of the Obligations, in such order as CIT may elect. Debtor agrees that CIT need not give more than 10 days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Debtor shall be liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which CIT is entitled. Debtor agrees to pay all costs of CIT, including reasonable attorneys' fees, incurred with respect to collection of any of the Obligations and enforcement of any of CIT's rights hereunder. To the extent permitted by law, Debtor hereby waives presentment, demand, protest or any notice (except as expressly provided in this Section 6) of any kind in connection with this Agreement or any Collateral. SECTION 7. MISCELLANEOUS. (a) No failure or delay by CIT in exercising any right, remedy or privilege hereunder or under any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy or privilege. No right or remedy in this Agreement is intended to be exclusive but each shall be cumulative and in addition to any other remedy referred to herein or otherwise available to CIT at law or in equity; and the exercise by CIT of any one or more of such remedies shall not preclude the simultaneous or later exercise by CIT of any or all such other remedies. No express or implied waiver by CIT of an Event of Default shall in any way be, or be construed to be, a waiver of any other or subsequent Event of Default. The acceptance by CIT of any regular installment payment or any other sum owing hereunder shall not (a) constitute a waiver of any Event of Default in existence at the time, regardless of CIT's knowledge or lack of knowledge thereof at the time of such acceptance, or (b) constitute a waiver of any Event of Default unless CIT shall have agreed in writing to waive the Event of Default. (b) All notices, requests and demands to or upon any party hereto shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to such party at its address (or telecopier number) set forth in paragraph 6 of Rider A or such other address or telecopier number as may be hereafter designated in writing by such party to the other party hereto. (c) Debtor agrees (A) to pay or reimburse CIT for (i) all expenses of CIT in connection with the documentation hereof; (ii) all fees, taxes and expenses of whatever nature incurred in connection with the creation, preservation and protection of CIT's security interest in the Collateral, including, without limitation, all filing and lien search fees, payment or discharge of any taxes or Liens upon, or in respect to, the Collateral, and all other fees and expenses reasonably incurred in connection with protecting or maintaining the Collateral or in connection with defending or prosecuting any actions, suits or proceedings arising out of, or related to, the Collateral; and (iii) all costs and expenses (including reasonable legal fees and disbursements) of CIT in connection with the enforcement of this Agreement and the Notes, and (B) to pay, and to indemnify and hold CIT harmless from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, out-of-pocket costs, expenses (including reasonable legal expenses) or disbursements of any kind or nature whatsoever arising out of or with respect to (a) this Agreement, the Collateral or CIT's interest therein, including, without limitation, the execution, delivery, enforcement, performance or administration of this Agreement and the Notes and the manufacture, purchase, ownership, possession, use, selection, operation or condition of the Collateral or any part thereof, or (b) Debtor's violation or alleged violation of any Environmental Laws or any law or regulation relating to Hazardous Materials (the foregoing being referred to as the "indemnified liabilities"), PROVIDED, that Debtor shall have no obligation hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of CIT. If Debtor fails to perform or comply with any of its agreements contained in this Agreement and CIT shall itself perform, comply or cause performance or compliance, the expenses of CIT so incurred, together with interest thereon at the Late Charge Rate, shall be payable by Debtor to CIT on demand and until such payment is made shall constitute Obligations hereunder. The agreements and indemnities contained in this paragraph shall survive termination of this Agreement and payment of the Notes. Page 4 of 5 5 (d) This Agreement contains the complete, final and exclusive statement of the terms of the agreement between CIT and Debtor related to the contemplated transactions, and neither this Agreement, nor any terms hereof, may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of a change, waiver, discharge or termination is sought. (e) This Agreement shall be binding upon, and inure to the benefit of, Debtor and CIT and their respective successors and assigns, except that Debtor may not assign or transfer its rights hereunder or any interest herein without the prior written consent of CIT. (f) Headings of sections and paragraphs are for convenience only, are not part of this Agreement and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability shall not invalidate or render unenforceable such provision in any other jurisdiction. (g) Debtor hereby authorizes CIT to correct patent errors and to fill in such blanks as dates herein and in the Notes, Supplements and in any document executed in connection herewith. (h) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. DEBTOR HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF NEW YORK, IN THE COUNTY OF NEW YORK OR THE UNITED STATES COURTS FOR THE SOUTHERN DISTRICT OF NEW YORK, AS CIT MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, DEBTOR HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH COURTS. DEBTOR AND CIT ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY NONJURY TRIALS. DEBTOR AND CIT AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING, AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, DEBTOR AND CIT HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, OR THE TRANSACTIONS RELATED HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND DEBTOR AND CIT HEREBY AGREE AND CONSENT THAT DEBTOR OR CIT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their duly authorized officers as of March 27, 1997. CIT: DEBTOR: THE CIT GROUP/EQUIPMENT LEXINGTON PRECISION CORPORATION, FINANCING, INC., A DELAWARE CORPORATION A NEW YORK CORPORATION By: Wendy Berney By: Michael A. Lubin ------------------------------ ------------------------------- Title: Vice President Title: Chairman --------------------------- ---------------------------- Page 5 of 5 6 RIDER A TO LOAN AND SECURITY AGREEMENT DATED AS OF MARCH 19, 1997 BETWEEN THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT") AND LEXINGTON PRECISION CORPORATION ("DEBTOR"). 1. DEFINITIONS. As used in the Loan and Security Agreement, the following terms shall have the following defined meanings (applicable to both singular and plural forms), unless the context otherwise requires: "AGREEMENT": "hereof", "hereto", "hereunder" and words of similar meaning: the Loan and Security Agreement of even date herewith between Debtor and CIT including this Rider A and any other rider, schedule and exhibit executed by Debtor and CIT in connection herewith, as from time to time amended, modified or supplemented. "APPRAISAL": an appraisal satisfactory to CIT commissioned by CIT with respect to the items of used Equipment. {this definition can be made more specific once the appraiser is engaged and the appraisal conducted]. "BUSINESS DAY": a day other than a Saturday, Sunday or legal holiday under the laws of the State of New York. "CASH FLOW COVERAGE RATIO": with respect to Debtor shall mean at any time, the sum of Debtor's net income, depreciation and amortization less its dividends divided by the current portion of its long term debt excluding its 12 3/4% Senior Subordinated Notes due February 1, 2000 in the original principal amount of $31,720,000; PROVIDED; that for the purposes of this calculation the Debtor's results of operations for any four consecutive fiscal quarters shall exclude any write-down or write-off of assets (whether tangible or intangible) of any manufacturing facility or business unit of the Debtor which is recorded by Debtor as a result of the restructuring, relocation, shutdown or sale of such manufacturing facility or business unit or as a result of compliance with Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. "CLOSING DATE": each date on which a Loan is made. "CODE": the Uniform Commercial Code as from time to time in effect in any applicable jurisdiction. "COMMITMENT": CIT's obligation to make Loans in the aggregate principal amount stated in paragraph 2 of this Rider A. "CONGRESS": Congress Financial Corporation and its successors and assigns. "COST": with respect to any item of new Equipment (up to six months since purchase), the seller's invoiced purchase price therefor (after giving effect to any discount or other reduction) payable by Debtor excluding all other amounts and expenses payable by Debtor (unless approved by CIT) such as installation, freight, tooling, delivery charges, sales taxes, site preparation, and other similar costs with respect Equipment or, with respect to any item of used Equipment (more than six and not more than twelve months since purchase), such amount as CIT may approve. The Cost shall be set forth in the applicable Supplement. "DEFAULT": any event which with notice, lapse of time, or both would constitute an Event of Default. "EQUIPMENT": any and all items of property which are listed on Supplements, together with all now owned or hereafter acquired accessories, parts, repairs, replacements, substitutions, attachments, modifications, additions, improvements, upgrades and accessions of, to or upon such items of property. "ENVIRONMENTAL LAWS": the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. "EVENT OF DEFAULT": as set forth in Section 6 of the Agreement. "EVENT OF LOSS": with respect to any item of Equipment, (i) the actual or constructive loss or loss of use thereof, due to theft, destruction, damage beyond repair or to an extent which makes repair uneconomical, or (ii) the condemnation, confiscation or seizure thereof, or requisition of title thereto, or use thereof, by any Person. Page 1 of 4 7 "HAZARDOUS MATERIALS": any pollutant or contaminant defined as such in (or for the purposes of) any Environmental Laws including, but not limited to, petroleum, any radioactive material, and asbestos in any form or condition. "INDEBTEDNESS" shall mean all items which, in accordance with generally accepted accounting principles, consistently applied, would be included in determining total liabilities of Debtor shown on the liability side of its balance sheet as at the date such Indebtedness is to be calculated. "INSTALLMENT PAYMENT DATE": with respect to any Note, each date on which a regular installment of interest is due. "INTEREST RATE": as set forth in paragraph 3 of this Rider A. "INTEREST RATE PERIOD": with respect to the first Interest Rate Period, the period commencing the day such Loan is made and ending on the last day of the second month following the day the Loan is made and with respect to each Interest Rate Period thereafter, each successive one-month period thereafter, commencing on the first day of each month. "LATE CHARGE RATE": a rate per annum equal to the higher of 3% over the applicable Interest Rate, but not to exceed the highest rate permitted by applicable law. "LIBOR RATE": shall mean the rate of interest equal to the thirty (30)-day London Interbank Offered Rate on United States Dollars as reported and published in THE WALL STREET JOURNAL. The LIBOR Rate in effect during any Interest Rate Period shall be the LIBOR Rate in effect at the close of business on the latest Rate Determination Date preceding the Installment Payment Date upon which such Interest Rate Period commences. "LIENS": liens, mortgages, security interests, financing statements or other encumbrances of any kind whatsoever. "LOAN": each loan made pursuant to the Agreement. "NOTE": each promissory note executed and delivered by Debtor pursuant hereto, satisfactory in form and substance to CIT. "OBLIGATIONS": all indebtedness, obligations, liabilities and performance of Debtor to CIT, now existing or hereafter incurred under, arising out of, or in connection with, the Agreement or any Note. "PARENT COMPANY": any Person having beneficial ownership (directly or indirectly) of 25% or more of Debtor's shares of voting stock. "PERSON": an individual, partnership, corporation, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "PREPAYMENT PERCENTAGE": on the date of any prepayment of any Note pursuant to the Agreement (i) during or prior to the first twelve months thereof, 3%, (ii) during the second twelve months thereof, 1.5%, (iii) during the third twelve months thereof, 0.75% and (iv) thereafter 0%. "PROCEEDS": the meaning assigned to it in the Code, and in any event, including, without limitation, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Equipment; (ii) any and all payments made, or due and payable from time to time, in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Equipment by any Person; (iii) any and all accounts arising out of, or chattel paper evidencing a lease of, any of the Equipment; and (iv) any and all other rents or profits or other amounts from time to time paid or payable in connection with any of the Equipment. "PROHIBITED TRANSACTION": a transaction in which: (i) Debtor enters into any transaction of merger or consolidation where (x) it shall not be the surviving corporation or (y) if it is the surviving corporation, after giving effect to such merger or consolidation its tangible net worth does not equal or exceed that which existed prior to such merger or consolidation; or (ii) Debtor sells, transfers or otherwise disposes of all or substantially all its assets; or (iii) any Person, or group of Persons acting together, becomes or agrees to become the beneficial owner (directly or indirectly) of 25% or more of Debtor's shares of voting stock (excluding current shareholders and their affiliates as of the date of this Agreement owning in the aggregate 25% or more of Debtor's shares of voting stock). "RATE DETERMINATION DATE" shall mean with respect to any Interest Rate Period for any Loan made hereunder, shall mean the third preceding Business Day prior to the commencement of any Interest Rate Period, or if such day is not a day on which THE WALL STREET JOURNAL is published (or if published, does not publish the LIBOR Rate), then on the next preceding day prior to the day on which THE WALL STREET JOURNAL is published and reports the LIBOR Rate. Page 2 of 4 8 "SUPPLEMENT": each supplement executed and delivered by Debtor pursuant hereto, satisfactory in form and substance to CIT. "WORKING CAPITAL": shall mean and include, at any time, the amount, if any, by which (i) the aggregate net book value of all assets of Debtor which would, in accordance with generally accepted accounting principles, consistently applied, be classified as current assets at any such time, exceeds (ii) all Indebtedness of Debtor which would, in accordance with generally accepted accounting principles, consistently applied, be classified as current liabilities at such time; PROVIDED, THAT in computing Working Capital hereunder, none of the Obligations of Debtor to CIT and none of the obligations of Debtor to Congress or Bank One, Akron, NA shall be considered current liabilities. 2. LOAN AND COMMITMENT. The aggregate principal amount of all Loans shall not exceed the lesser of (a) $6,000,000.00 and (b) 100% of the Cost of new items of Equipment and 90% of the Cost of used items of Equipment. Each Loan shall be in a principal amount of not less than $300,000, and CIT shall not make more than four (4) Loans. Each Loan shall be amortized in sixty (60) level payments of principal. Interest on the unpaid principal balance shall be payable at the rate specified in the Notes. Interest shall be payable monthly on the first day of each calendar month commencing with the second calendar month after the day the Loan is made. CIT's Commitment shall terminate on December 31, 1997. The proceeds of each Loan shall be to finance the purchase of, or reimburse Debtor for the cost of, the Equipment. 3. INTEREST RATE. The interest rate per annum on the unpaid principal amount of each Loan shall be equal to the LIBOR Rate plus 2.75%. 4. FINANCIAL COVENANTS. Debtor agrees that so long as any Note remains outstanding and unpaid, Debtor shall, directly or indirectly, at all times: (a) maintain on a basis consolidated with Debtor's direct and indirect subsidiaries, Working Capital of not less than $1,000,000; (b) maintain on a basis consolidated with Debtor's direct and indirect subsidiaries, a minimum Net Worth of not less than negative $8,500,000; (c) maintain a Cash Flow Coverage Ratio of (i) not less than 1.15 to 1.0 from January 1, 1997 through May 31, 1997, (ii) not less than 1.2 to 1.0 from June 1, 1997 through November 30, 1997, and (iii) not less than 1.25 to 1.0 on and after December 1, 1997, calculated on a rolling four quarter basis; or (d) not incur, make or commit to make any expenditure in respect of the purchase or other acquisition of fixed or capital assets including leases which in accordance with generally accepted accounting principles should be capitalized on the books of Debtor (including normal replacements and maintenance) which after giving effect thereto, would cause the aggregate amount of such capital expenditures by Debtor to exceed $18,000,000 in Debtor's fiscal year 1997 and $15,000,000 (on a non-cumulative basis) in any fiscal year thereafter. 5. PREPAYMENT. (a) Should any item of Equipment suffer an Event of Loss, Debtor shall either replace such item of Equipment within 60 days with equipment (which shall become Equipment) of a value and utility equal to or greater than that of the Equipment suffering the Event of Loss (such determination of value and utility being deemed made immediately prior to the Event of Loss) or make a prepayment on the corresponding Note within 60 days after the occurrence of the Event of Loss. The amount to be prepaid shall be (i) the unpaid principal amount of such Note multiplied by a fraction the numerator of which is the Cost of the item of Equipment which suffered the Event of Loss and the denominator of which is the Cost of all items of Equipment less the Cost of each item of Equipment which previously suffered an Event of Loss or for which a prepayment has otherwise previously been made (the "PREPAID PRINCIPAL AMOUNT"), (ii) all other amounts then due and owing hereunder and under the Notes and (iii) an amount equal to the product of the Prepayment Percentage and the Prepaid Principal Amount. (b) A Prohibited Transaction may be consummated only with CIT's prior written consent. Not less than twenty (20) Business Days prior to the date the proposed Prohibited Transaction is expected to be consummated, Debtor shall give CIT written notice of the proposed Prohibited Transaction. In the event CIT does not consent to the Prohibited Transaction and the Prohibited Transaction is nonetheless to be consummated, Debtor shall, on or prior to the date the Prohibited Transaction is to be consummated, prepay the outstanding principal under all Notes together with (1) all interest accrued thereon, (2) all other amounts then due and owing hereunder and under the Notes, and (3) an amount equal to the product of the Prepayment Percentage and the outstanding principal amount of the Notes. Page 3 of 4 9 (c) On any Installment Payment Date Debtor may, at its option, on at least 30 days' prior written notice to CIT, prepay all, but not less than all, of the outstanding principal under all Notes executed hereunder together with (i) all interest accrued thereon to the date of prepayment, (ii) all other amounts then due and owing hereunder or under the Notes, and (iii) an amount equal to the product of the outstanding principal under all Notes and the Prepayment Percentage. (d) Except as provided in (a), (b) or (c) of this paragraph 5, the Notes may not be prepaid in whole or in part. 6. ADDRESSES FOR NOTICE PURPOSES AND DEBTOR'S CHIEF EXECUTIVE OFFICE.
CIT: DEBTOR: THE CIT GROUP/EQUIPMENT FINANCING, INC. LEXINGTON PRECISION CORPORATION 900 Ashwood Parkway c/o Lubin Delano & Co. Suite 600 767 Third Avenue Atlanta, Georgia 30338 New York, New York 10017 Telecopier No. (770) 551-7867 Telecopier No. (212) 319-4659 Attention: William Hickey Attention: Warren Delano, President
with a copy to: THE CIT GROUP/EQUIPMENT FINANCING, INC. 650 CIT Drive Livington, New Jersey 07039 Telecopier No. (201) 740-5005 Attention: Vice President, Credit 7. COMMITMENT FEE. CIT acknowledges receipt from Debtor of a commitment fee in the amount of $5000 ("Commitment Fee"). Of this amount $2000 shall be in all events non-refundable. CIT agrees to refund to Debtor after the expiration of the commitment period hereunder and completion by CIT of all follow-up matters related to the transactions contemplated hereby, as the refundable portion of the Commitment Fee, the amount determined in accordance with the following formula and the following proviso: Refund = $3000 Aggregate principal amount of all Loans made X hereunder - not to exceed $6,000,000 -------------------------------------------- $6,000,0000 PROVIDED, HOWEVER, that such refund shall be net of any unreimbursed out-of-pocket fees, costs, disbursements and expenses incurred by CIT in connection with the transactions contemplated hereby. Debtor agrees that the difference, if any, between the refundable portion of the Commitment Fee and the amount determined in accordance with the foregoing formula shall be retained by CIT. THE PROVISIONS SET FORTH IN THIS RIDER A ARE INCORPORATED IN AND MADE A PART OF THE LOAN AND SECURITY AGREEMENT BETWEEN CIT AND DEBTOR DATED AS OF MARCH 19, 1997. CIT: DEBTOR: THE CIT GROUP/EQUIPMENT LEXINGTON PRECISION CORPORATION, FINANCING, INC., A NEW YORK CORPORATION A DELAWARE CORPORATION By: WENDY BERNEY By: MICHAEL A. LUBIN -------------------------------- ----------------------------- Title: VICE PRESIDENT Title: CHAIRMAN ----------------------------- -------------------------- Page 4 of 4 EX-10.56 19 EXHIBIT 10.56 1 Exhibit 10.56 PROMISSORY NOTE New York, New York $2,618,000.00 March 19, 1997 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION ("Debtor") promises to pay to the order of THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT"), at such address as CIT may designate, in lawful money of the United States, the principal sum of TWO MILLION SIX HUNDRED EIGHTEEN THOUSAND and no/100 DOLLARS ($2,618,000.00) in sixty (60) consecutive monthly installments, commencing on May 1, 1997, with the following installments on the first day of each month thereafter until payment in full of this Note. The first fifty-nine monthly installments shall be level payments of principal each in the amount of $43,600.00, and the sixtieth (60th) and final payment shall be a payment of principal in the amount of $45,600.00. Debtor shall pay interest together with each such installment of principal, in like money, from the date hereof until payment in full, on the unpaid principal balance hereof at an interest rate per annum equal to two and seventy-five hundredths percent (2.75%) above the LIBOR Rate. Each payment shall be applied first to the payment of any unpaid interest on the principal sum and then to payment of principal. Interest shall be calculated on the basis of a 360-day year and actual number of days elapsed. Any amount not paid when due under this Note shall bear late charges thereon, calculated at the Late Charge Rate, from the due date thereof until such amount shall be paid in full. Any payment received after the maturity of any installment of principal shall be applied first to the payment of unpaid late charges, second to the payment of any unpaid interest on said principal, and third to the payment of principal. This Note is one of the Notes referred to in the Loan and Security Agreement dated as of March 19, 1997, between Debtor and CIT (herein, as the same may from time to time be amended, supplemented or otherwise modified, called the "Agreement"), is secured as provided in the Agreement, and is subject to prepayment only as provided therein, and the holder hereof is entitled to the benefits thereof. Terms defined in the Agreement shall have the same meaning when used in this Note, unless the context shall otherwise require. Except as provided in Section 6 of the Agreement, Debtor hereby waives presentment, demand of payment, notice of dishonor, and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this Note and hereby consents to any extensions of time, renewals, releases of any party to this Note, waivers or modifications that may be granted or consented to by the holder of this Note. Upon the occurrence and during the continuance of any one or more of the Events of Default specified in the Agreement, the amounts then remaining unpaid on this Note, together with any interest accrued, may be declared to be (or, with respect to certain Events of Default, automatically shall become) immediately due and payable as provided therein. In the event that any holder shall institute any action for the enforcement or the collection of this Note, there shall be immediately due and payable, in addition to the unpaid balance hereof, all late charges and all reasonable costs and expenses of such action, including reasonable attorneys' fees. In accordance with the provisions of the Agreement, Debtor and CIT waive trial by jury in any litigation relating to or in connection with this Note in which they shall be adverse parties and Debtor hereby waives the right to interpose any setoff counterclaim or defense of any nature or description whatsoever, but Debtor shall have the right to assert in an independent action against CIT any such defense, offset or counterclaim (including any compulsory counterclaim) which it may have which has not Page 1 of 2 2 otherwise been waived pursuant to the Agreement. Debtor agrees that its liabilities hereunder are absolute and unconditional without regard to the liability of any other party, and that no delay on the part of the holder hereof in exercising any power or right hereunder shall operate a waiver thereof; nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. If at any time this transaction would be usurious under applicable law, then regardless of any provision contained in the Agreement, in this Note or in any other agreement made in connection with this transaction, it is agreed that (a) the total of all consideration which constitutes interest under applicable law that is contracted for, charged or received upon the Agreement, this Note or any such other agreement shall under no circumstances exceed the maximum rate of interest authorized by applicable law and any excess shall be credited to Debtor and (b) if CIT elects to accelerate the maturity of, or if CIT permits Debtor to prepay the indebtedness described in, this Note, any amounts which because of such action would constitute interest may never include more than the maximum rate of interest authorized by applicable law and any excess interest, if any, shall be credited to Debtor automatically as of the date of acceleration or prepayment. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. LEXINGTON PRECISION CORPORATION By: MICHAEL A. LUBIN ------------------------ Title: CHAIRMAN -------------------- Page 2 of 2 EX-10.57 20 EXHIBIT 10.57 1 EXHIBIT 10-57 CONFIDENTIAL TREATMENT REQUESTED -------------------------------- ADDITIONAL PURCHASE ORDER PROVISIONS LIFETIME CONTRACT BETWEEN DELPHI PACKARD ELECTRIC SYSTEMS AND LEXINGTON CONNECTOR SEALS GPS # RFQ # 1. PURCHASE OF PRODUCT ------------------- Seller agrees to sell, and Buyer agrees to purchase, approximately one hundred percent (100%) of Buyer's production and service requirements for the following Products: PART "AWARDED" DAILY NUMBER DESCRIPTION PER UNIT PRICE TOTAL CAPACITY ------ ----------- -------------- -------------- (See attached Schedule I) 2. TERM ---- The term of this Purchase Order is listed below for each part number. Service parts will be provided at production part pricing for three years beyond production build. The terms and conditions found on the reverse side of Buyer's purchase order shall also be in effect. 3. PRICES; PRICE REDUCTION ----------------------- The per unit price of the Product is firm, F.O.B. Seller's manufacturing facilities. This price is subject to the following minimum annual percentage reduction from the prior year's price: PART EFFECTIVE NUMBER % REDUCTION PRICE DATE ------ ----------- ----- ---- (See attached Schedule II) No adjustments will be made for cost increases, including increases in Seller's costs for labor, material or overhead, except that the cost of material purchased from Buyer by Seller as of the date hereof will be subject to upward or downward adjustments to the extent such cost changes. Engineering changes will be cost varianced off current business with agreement of divisional buyer if part number stays the same or changes. Piece price breakdowns will be available upon request. In addition, Buyer and Seller will use their best efforts to implement cost savings of productivity improvements in order to reduce Seller's costs with the understanding that the net savings in excess of the scheduled price reductions set forth on Schedule II will be applied (a) 50% to reduce the price of the product to Buyer and (b) 50% for the benefit of Seller. Net savings shall be calculated after deducting expenditures for development, applications, engineering, tools, prototypes and financing. Page 1 of 3 2 CONFIDENTIAL TREATMENT REQUESTED -------------------------------- Lifetime Contract RFQ # Page 2 of 3 4. SUPPLIER DEVELOPMENT; QUALITY CONTROL ------------------------------------- Seller agrees to participate in Buyer's supplier development program(s). In addition, Seller will institute a quality control and inspection system which incorporates the General Quality Standards of General Motors and such other standards and procedures as may be required by Buyer. 5. RIGHT TO PURCHASE FROM OTHERS ----------------------------- Seller will assure that the Product remains competitive in terms of technology, design, and quality with similar goods available to Buyer during the term of this Agreement. If, in the reasonable opinion of Buyer, the Product does not remain competitive, Buyer, to the extent it is free to do so, will advise Seller in writing of the area(s) in which another product is more competitive with respect to technology, design or quality. If within ninety days, Seller does not agree to immediately sell the Product with comparable technology, design or quality, Buyer may terminate this Purchase Order and purchase from another supplier without liability to Seller. 6. TECHNICAL INFORMATION; WAIVER OF CLAIMS --------------------------------------- 6.1 Upon the request of Buyer, Seller will deliver to Buyer information relating to the Product in sufficient detail to enable Buyer or its designee to manufacture the Product. Such information will include, to the extent available, part drawings, parts lists, process and material specification, product software and mask works, purchasing specifications, inspection processes, assurance and reliability projections, process capability studies, test reports, and failure mode and analysis studies. Such information will be delivered free of restrictions as to use and will be updated by Seller to reflect any changes in the Product or its manufacture. 6.2 In the event Buyer exercises its right to terminate or cancel this Agreement and then makes the Product or purchases the Product from another supplier, Seller agrees not to bring any action or claim against Buyer, its suppliers, dealers, or customer for any reason, including any claim for infringement of patents or other proprietary rights, arising from the manufacture, use and sale of the Product or use of the information furnished by Seller to Buyer under this Agreement. Seller will secure the necessary agreements with its employees and sub-contractors to assure compliance with this Section 6. 3 CONFIDENTIAL TREATMENT REQUESTED -------------------------------- Lifetime Contract RFQ # Page 3 of 3 Delphi Packard Electric Systems Lexington Connector Seals World Wide Purchasing /s/ Dan Wheelock 1/6/97 /s/ Keith Blockinger 12/11/96 - -------------------------------- ------------------------------------ (Date) Keith Blockinger (Date) Buyer - -------------------------------- (Date) Supervisor /s/ Gloria Kesseler 1/7/97 - -------------------------------- Gloria Kesseler (Date) Chemical Commodity Manager /s/ Michael H. Lapinski 1/7/97 - -------------------------------- Michael H. Lapinski (Date) Purchasing Director 4 CONFIDENTIAL TREATMENT REQUESTED -------------------------------- SCHEDULE I - PRODUCTS TO BE PURCHASED UNDER ADDITIONAL PURCHASE ORDER PROVISIONS LIFETIME CONTRACT BETWEEN DELPHI PACKARD ELECTRIC SYSTEMS AND LEXINGTON CONNECTOR SEALS * - ---------- * Three and one-quarter pages omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission under Rule 24b-2. 5 CONFIDENTIAL TREATMENT REQUESTED -------------------------------- SCHEDULE II - ANNUAL PER UNIT PRICE AND PERCENTAGE REDUCTION FROM PRIOR YEAR'S PRICE SCHEDULE ** - ---------- ** Two and one-third pages omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission under Rule 24b-2. EX-27 21 EXHIBIT 27
5 FINANCIAL STATEMENTS 1000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 187 0 16,820 156 8,899 30,845 89,680 36,380 97,030 35,167 65,148 1,087 465 0 (6,144) 97,030 114,872 114,872 95,051 95,051 0 21 8,542 23 40 (17) 0 0 0 (17) (.02) (.02)
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