-----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, A7x8AKmr7afcSt97jRcgAtY8rw0lu7lGSV+Oj0fNCqFsHA/S8Zn4NJVr7cg/4cM+ JHNLJp/SU9B0DU96ROq6bA== 0000950152-99-002918.txt : 19990402 0000950152-99-002918.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950152-99-002918 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: SEC FILE NUMBER: 000-03252 FILM NUMBER: 99582955 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 FORM 10-K 1 =============================================================================== FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1998 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 March 15, 1999, was approximately $2,055,000. The number of shares outstanding of the registrant's common stock at March 15, 1999, was 4,263,036. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement to be issued in connection with its 1999 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 7A. Quantitative and Qualitative Disclosures about Market Risk ............ 21 Item 8. Financial Statements and Supplementary Data ........................... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................................................. 48 PART III Item 10. Directors and Executive Officers of the Registrant .................... 49 Item 11. Executive Compensation ................................................ 49 Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 49 Item 13. Certain Relationships and Related Transactions ........................ 49 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...... 50
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 substantially in the continental United States. Through its two operating 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, medical devices, and industrial equipment. The Company has implemented a strategy of focusing each of its manufacturing facilities on a particular product line with a well-defined market. Operations are decentralized, with each division 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 divisions: Lexington Connector Seals, Lexington Insulators, Lexington Medical, and Lexington Technologies. In 1998, net sales of the Rubber Group totaled $92,610,000, or 73.1% of the Company's consolidated net sales. LEXINGTON CONNECTOR SEALS. Lexington Connector Seals manufactures molded rubber seals used in automotive wiring systems. The seals are designed to ensure the electrical integrity of the many connections required throughout the wiring systems. The Company believes that Lexington Connector Seals is the largest manufacturer of seals for automotive wiring systems in North America, with approximately 1.8 billion seals sold in 1998. 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 1998, net sales of insulators to original equipment manufacturers, or their tier-one suppliers, represented 51.4% of Lexington Insulators' net sales, and net sales of insulators to manufacturers of aftermarket ignition wire sets represented 48.6% of Lexington Insulators' net sales. The Company believes that Lexington Insulators is the largest manufacturer of insulators for ignition wire sets in North America, with approximately 300 million insulators sold by Lexington Insulators in 1998. LEXINGTON MEDICAL. Lexington Medical manufactures molded rubber components used in a variety of medical devices, such as drug delivery systems, syringes, laparoscopic instruments, and catheters. LEXINGTON TECHNOLOGIES. Lexington Technologies manufactures molds that are sold to customers of the other divisions of the Rubber Group. The molds are used by the Rubber Group to produce component parts. Lexington Technologies also provides specialized engineering and design services to the other divisions of the Rubber Group. METALS GROUP The Company's Metals Group manufactures aluminum, magnesium, and zinc die castings and machines aluminum, brass, and steel components. The Metals Group consists of three divisions: Lexington Die Casting and the Arizona and New York Divisions of Lexington Machining. In -1- 4 1998, net sales of the Metals Group totaled $34,107,000, or 26.9% of the Company's consolidated net sales. LEXINGTON DIE CASTING. Lexington Die Casting manufactures aluminum, magnesium, and zinc die castings used primarily by manufacturers of automotive assemblies, industrial equipment, computers, and office equipment. LEXINGTON MACHINING. Lexington Machining, through its Arizona and New York Divisions, manufactures machined aluminum, brass, and steel components used primarily by manufacturers of initiators and inflators for automotive airbag systems, industrial equipment, automotive assemblies, recreational equipment, and home appliances. In December 1998, the Company changed the name of its machining operation in Casa Grande, Arizona, from Lexington Safety Components to the Arizona Division of Lexington Machining in order to reflect the broadening of that division's focus to include customers other than manufacturers of airbag initiators and inflators. The Company's machining operation in Rochester, New York, which had been known as Lexington Machining, became the New York Division of Lexington Machining. FINANCIAL INFORMATION ABOUT THE COMPANY'S OPERATING SEGMENTS Financial information about the Company's operating segments, including revenues, income from operations, assets, depreciation and amortization, capital expenditures, and certain other data is set forth in Part II, Item 7, and in Note 10 to the consolidated financial statements in Part II, Item 8. PRINCIPAL END USES FOR THE COMPANY'S PRODUCTS The following table summarizes net sales of the Company during 1998, 1997, and 1996 by the type of product in which the Company's component parts were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ------------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------- Automobiles and light trucks $ 103,052 81.3% $ 88,961 75.0% $ 79,832 69.5% Medical devices 8,245 6.5 7,623 6.4 8,371 7.3 Industrial equipment 7,005 5.5 9,860 8.3 11,870 10.3 Recreational equipment and home appliances 3,704 2.9 4,038 3.4 4,693 4.1 Computers and office equipment 3,109 2.5 5,636 4.8 6,016 5.2 Other 1,602 1.3 2,513 2.1 4,090 3.6 ---------- ----- ---------- ----- ---------- ----- $ 126,717 100.0% $ 118,631 100.0% $ 114,872 100.0% ========== ===== ========== ===== ========== =====
-2- 5 The following table summarizes net sales of the Rubber Group and the Metals Group during 1998, 1997, and 1996 by the type of product in which each Group's component parts were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ---------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------ ------------------ Rubber Group: Automobiles and light trucks $ 84,098 90.8% $ 72,929 89.8% $ 65,420 87.1% Medical devices 8,245 8.9 7,620 9.4 8,077 10.7 Other 267 0.3 661 0.8 1,625 2.2 --------- ----- --------- ----- --------- ----- $ 92,610 100.0% $ 81,210 100.0% $ 75,122 100.0% ========= ===== ========= ===== ========= ===== Metals Group: Automobiles and light trucks $ 18,954 55.6% $ 16,032 42.8% $ 14,412 36.3% Industrial equipment 7,005 20.5 9,789 26.2 11,723 29.5 Recreational equipment and home appliances 3,704 10.9 4,038 10.8 4,693 11.8 Computers and office equipment 3,109 9.1 5,636 15.1 6,016 15.1 Other 1,335 3.9 1,926 5.1 2,906 7.3 --------- ----- --------- ----- --------- ----- $ 34,107 100.0% $ 37,421 100.0% $ 39,750 100.0% ========= ===== ========= ===== ========= =====
MAJOR CUSTOMERS The Company's largest customer is Delphi Packard Electric Systems, a division of Delphi Automotive Systems Corporation, of which General Motors Corporation is the majority stockholder. During 1998, 1997, and 1996, net sales to Delphi Packard totaled $26,233,000, $26,447,000, and $25,088,000, which represented 20.7%, 22.3%, and 21.8%, respectively, of the Company's net sales and 28.3%, 32.6%, and 33.4%, respectively, of the Rubber Group's net sales. During 1998, net sales to Prestolite Wire Corporation totaled $14,431,000, or 11.4% of the Company's net sales and 15.6% of the Rubber Group's net sales. No other customer accounted for more than 10% of the Company's net sales during 1998, 1997, or 1996. Loss of a significant amount of business from Delphi Packard, Prestolite Wire, or any of the Company's other large customers could have a material adverse effect on the Company if such business were not substantially replaced by additional business from existing or new customers. During the first quarter of 1997, the Company and Delphi Packard 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. Under the terms of the agreement, (1) the Company agreed to sell and Delphi Packard agreed to purchase approximately 100% of Delphi Packard's requirements for all specified component parts, (2) the Company warranted that the specified components will remain competitive in terms of technology, design, and quality, (3) the selling prices of the specified components will be adjusted to reflect increases or decreases in material costs, and (4) the selling prices of the specified components will be reduced by certain specified amounts in each of the five years covered by the agreement. Although no assurance can be given, the Company currently believes that a portion of the price reductions granted to Delphi Packard will be offset through reductions in direct manufacturing -3- 6 costs and that a portion of the price reductions will be offset by greater absorption of manufacturing overhead as a result of volume increases. As a result of its performance as a supplier of rubber components to Delphi Packard, the Company has received General Motors Corporation's "Supplier of the Year" award for 1996, 1997, and 1998. In each of those years, fewer than 200 of the more than 30,000 suppliers to General Motors received the "Supplier of the Year" award. MARKETING AND SALES The Company's marketing and sales effort is carried out by management personnel and internal sales personnel. The Company has a sales office in Detroit, which markets the Company's products to automotive industry customers in that area, and a wholly-owned German subsidiary, Lexington Precision GmbH, which primarily markets the Rubber Group's products in Europe. RAW MATERIALS The Company's principal raw materials are silicone and organic rubber compounds and aluminum, steel, and brass. Each of the principal raw materials used by the Company has been readily available at competitive prices from several major manufacturers and the Company anticipates that such materials will continue to be readily available at competitive prices for the foreseeable future. PATENTS AND TRADEMARKS The Company does not currently hold any patents, trademarks, or licenses that it considers to be material to the success or operation of its business. 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 regularly revise release schedules to correspond to their own production requirements, and for other reasons. 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 revision at any time. The Company also believes 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 capability, 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. -4- 7 PRODUCT LIABILITY RISKS The Company is subject to potential product liability risks inherent in the manufacture and sale of component parts. Although there are no claims against the Company that the Company believes will have a material adverse effect upon its business, financial position, or results of operations, there can be no assurance that any existing or future claims will not have such a material adverse effect. 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 laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. Although the Company makes expenditures relating to the protection of the environment, compliance with environmental laws and 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 in 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, 1998, the Company had 1,284 employees. The Rubber Group and the Metals Group had 816 and 463 employees, respectively, and the Company's corporate office had five employees. At December 31, 1998, 62 hourly workers at one plant location within the Rubber Group were subject to a collective bargaining agreement. 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, 1998:
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 101,000 Lexington Medical Rock Hill, SC 60,000(1) Lexington Technologies North Canton, OH 41,000(1) ----------- 339,000 ----------- Metals Group: Lexington Die Casting Lakewood, NY 91,000(1)(2) Lexington Die Casting Manchester, NY 21,000 Lexington Machining, Arizona Division Casa Grande, AZ 64,000(1) Lexington Machining, New York Division Rochester, NY 60,000 ----------- 236,000 ----------- 575,000 ===========
(1) Encumbered by a 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. 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 executive and administrative purposes. The Company leases an office in Cleveland, Ohio, and reimburses an affiliate for a portion of the cost of leasing an office in New York City. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities, including actions naming the Company as one of numerous potentially responsible parties under applicable environmental laws for restoration costs at waste-disposal sites, as a third-party defendant in cost-recovery actions pursuant to applicable environmental laws, and as a defendant or potential defendant in various other matters. It is the Company's policy to record accruals for such matters when a loss is deemed probable and the amount of such loss can be reasonably estimated. The various actions to which the Company is or may be a party in the future are at various stages of completion. Although there can be no assurance as to the outcome of existing or potential litigation, in the event such litigation were commenced, based upon the information currently available to the Company, the Company currently believes that the outcome of such actions would 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 1998. -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 March 12, 1999, there were approximately 980 holders of record of the Company's common stock. Trading in shares of the Company's common stock is limited. During 1998 and 1997, 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 prices at which trades in the Company's common stock were reported on the OTC Bulletin Board:
YEARS ENDED DECEMBER 31 ------------------------------------------------- 1998 1997 ------------------------ ----------------------- HIGH LOW HIGH LOW ---------- ----------- ---------- ---------- First quarter $3.00 $2.00 $2.25 $1.875 Second quarter $2.00 $1.375 $2.125 $1.625 Third quarter $1.6875 $1.2813 $3.75 $1.9375 Fourth quarter $1.75 $1.3125 $3.625 $2.25
The Company is not able to determine whether retail markups, markdowns, or commissions were included in the above prices. The Company believes that eleven 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 and the Company has no current plans to reinstate the payment of dividends. The future payment of dividends is dependent upon, among other things, (1) the Company's earnings, (2) the Company's capital requirements, (3) compliance with the Company's loan covenants, and (4) compliance with the terms of the Company's preferred stock. -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, 1998 (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 ------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- SUMMARY OF OPERATIONS: Net sales $ 126,717 $ 118,631 $ 114,872 $ 104,298 $ 88,532 ========== ========== ========== ========== ========== Income from operations $ 7,198 $ 7,784 $ 8,565 $ 9,657 $ 8,102 Interest expense 9,772 9,065 8,542 7,585 6,272 Other income, net - 425 - 641 536 Provision for income taxes 132 672 40 425 34 ---------- ---------- ---------- ---------- ---------- Net income/(loss) $ (2,706) $ (1,528) $ (17) $ 2,288 $ 2,332 ========== ========== ========== ========== ========== Net income/(loss) per diluted common share $ (0.65) $ (0.38) $ (0.02) $ 0.49 $ 0.51 ========== ========== ========== ========== ========== OTHER DATA: Average number of employees 1,258 1,220 1,166 1,147 968 Depreciation and amortization $ 11,649 $ 10,009 $ 8,696 $ 6,449 $ 5,060 Capital expenditures $ 14,877 $ 15,790 $ 15,708 $ 17,902 $ 15,319
DECEMBER 31 ------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- FINANCIAL POSITION: Current assets $ 32,198 $ 31,828 $ 30,845 $ 24,478 $ 22,752 Current liabilities 40,228 36,003 35,167 29,253 24,330 ---------- ---------- ---------- ---------- ---------- Net working capital deficit $ (8,030) $ (4,175) $ (4,322) $ (4,775) $ (1,578) ========== ========== ========== ========== ========== Total assets $ 108,325 $ 104,124 $ 97,030 $ 81,876 $ 67,396 Long-term debt, excluding current portion $ 74,953 $ 72,622 $ 65,148 $ 56,033 $ 49,627 Redeemable preferred stock, at par value $ 375 $ 420 $ 465 $ 510 $ 555 Total stockholders' deficit $ (9,451) $ (6,667) $ (5,057) $ (4,976) $ (7,215)
-8- 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Various statements in this Item 7 that are not historical facts are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). Forward-looking statements usually can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "anticipates," "estimates," "projects," or the negative thereof. They may include discussions of strategy, which involve risks and uncertainties, and they typically are based upon projections and estimates, as distinct from past or historical facts and events. Forward-looking statements are subject to a number of risks, uncertainties, contingencies, and other factors that could cause the actual results or performance of the Company to be materially different from the future results or performance expressed in or implied by such statements. Such risks and uncertainties for the Company include (1) increases and decreases in business awarded to the Company by its various customers, (2) unanticipated price reductions for the Company's products as a result of competition, (3) unanticipated operating results and cash flows, (4) increases or decreases in capital expenditures, (5) unforeseen product liability claims, (6) changes in economic conditions, (7) changes in the competitive environment, (8) changes in the capital markets, (9) labor interruptions at the Company or at its customers, (10) disruptions that may be caused by year 2000 software and/or hardware problems, (11) the inability of the Company to obtain additional borrowings and/or to refinance its existing indebtedness, and (12) a number of other factors. Because the Company operates with substantial financial leverage and limited liquidity, the impact of any negative event may have a greater adverse effect upon the Company than if the Company operated with lower financial leverage and greater liquidity. The results of operations for any particular fiscal period of the Company are not necessarily indicative of the results to be expected for any one or more succeeding fiscal periods. Consequently, the use of forward-looking statements should not be regarded as a representation that any such projections or estimates will be realized, and actual results may vary materially. There can be no assurance that any of the forward-looking statements contained herein will prove to be accurate. All forward-looking statements, projections, or estimates attributable to the Company are expressly qualified by the foregoing cautionary statements. RESULTS OF OPERATIONS -- COMPARISON OF 1998, 1997, AND 1996 The Company manufactures, to customer specifications, component parts through two operating segments, the Rubber Group and the Metals Group. The Rubber Group consists of four divisions, Lexington Connector Seals, Lexington Insulators, Lexington Medical, and Lexington Technologies. The Metals Group consists of three divisions, Lexington Die Casting and the Arizona and New York Divisions of Lexington Machining. RUBBER GROUP The Rubber Group manufactures silicone and organic rubber components. During 1998, 1997, and 1996, automotive industry customers of the Rubber Group represented 90.8%, 89.8%, and 87.1%, -9- 12 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 50.1%, 53.0%, and 53.4% of the Rubber Group's net sales during 1998, 1997, and 1996, respectively. Loss of a significant amount of business from any of the Rubber Group's large customers could have a material adverse effect upon the Rubber Group and the Company as a whole if such business were not substantially replaced by additional business from existing or new customers. The following table sets forth the operating results of the Rubber Group for 1998, 1997, and 1996 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ----------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------ ------------------ Net sales $ 92,610 100.0% $ 81,210 100.0% $ 75,122 100.0% Cost of sales 73,209 79.0 64,696 79.7 59,515 79.2 --------- ----- -------- ----- -------- ----- Gross profit 19,401 21.0 16,514 20.3 15,607 20.8 Selling and administrative expenses 6,100 6.6 5,055 6.2 4,785 6.4 --------- ----- -------- ----- -------- ----- Income from operations $ 13,301 14.4% $ 11,459 14.1% $ 10,822 14.4% ========= ===== ======== ===== ======== =====
During 1998, net sales of the Rubber Group increased by $11,400,000, or 14.0%, compared to 1997. This increase was primarily due to increased unit sales of insulators for automotive ignition wire sets and, to a lesser extent, increased unit sales of seals for automotive wiring systems and components for medical devices, offset, in part, by price reductions on certain automotive components. During 1998, income from operations totaled $13,301,000, an increase of $1,842,000, or 16.1%, compared to 1997. Cost of sales as a percentage of net sales decreased during 1998, primarily due to a credit of $622,000 resulting from a special rebate from the State of Ohio Bureau of Workers' Compensation, which represented the Company's share of a distribution of excess funds accumulated by the Bureau. Selling and administrative expenses as a percentage of net sales increased during 1998 compared to 1997, primarily because of the hiring of additional personnel, the opening, in September 1997, of a sales office in Germany, and increased costs associated with the installation of new computer systems. During 1998, depreciation and amortization at the Rubber Group totaled $7,476,000, or 8.1% of net sales, compared to $6,676,000, or 8.2% of net sales, during 1997. Earnings before interest, taxes, depreciation, and amortization ("EBITDA") increased to $20,777,000 in 1998 from $18,135,000 in 1997. (EBITDA is not a measure of performance under generally accepted accounting principles. While EBITDA should not be used as a substitute for net income, cash flows from operating activities, or other operating or cash flow statement data prepared in accordance with generally accepted accounting principles, management believes that it may be used by certain investors as supplemental information to evaluate a company's financial performance, including its ability to incur and/or service debt. In addition, the definition of EBITDA used in this Form 10-K may not be the same as the definition of EBITDA used by other companies.) -10- 13 The Company's largest customer, Delphi Packard, is a division of Delphi Automotive Systems Corporation, which, until recently, was a wholly-owned subsidiary of General Motors Corporation. In February 1999, General Motors sold to the public approximately 20% of the ownership of Delphi Automotive as a first step in the planned sale or spinoff of Delphi Automotive. Although there can be no assurance, the Company does not believe that the sale or spinoff of Delphi Automotive will have a material effect on the Company. During 1997, net sales of the Rubber Group increased by $6,088,000, or 8.1%, compared to 1996. This increase was primarily due to increased unit sales of seals for automotive wiring systems and insulators for automotive ignition wire sets and, to a lesser extent, increased sales of tooling, offset, in part, by reduced sales of components for medical devices and price reductions on certain automotive components. During 1997, income from operations totaled $11,459,000, an increase of $637,000, or 5.9%, compared to 1996. Cost of sales as a percentage of net sales increased during 1997, primarily due to (1) increased depreciation and amortization, and (2) increased indirect labor expense resulting primarily from (a) the hiring of technical and supervisory personnel in connection with the engineering and start-up of production of a new style of connector seal and (b) continuing start-up expenses incurred at Lexington Technologies, the Rubber Group's mold manufacturing and engineering operation. Selling and administrative expenses as a percentage of net sales decreased during 1997 compared to 1996, primarily because such expenses are partially fixed in nature. During 1997, depreciation and amortization at the Rubber Group totaled $6,676,000, or 8.2% of net sales, compared to $5,596,000, or 7.5% of net sales, during 1996. EBITDA increased to $18,135,000 in 1997 from $16,418,000 in 1996. During the first quarter of 1997, the Company and Delphi Packard 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. Under the terms of the agreement, (1) the Company agreed to sell and Delphi Packard agreed to purchase approximately 100% of Delphi Packard's requirements for all specified component parts, (2) the Company warranted that the specified components will remain competitive in terms of technology, design, and quality, (3) the selling prices of the specified components will be adjusted to reflect increases or decreases in material costs, and (4) the selling prices of the specified components will be reduced by certain specified amounts in each of the five years covered by the agreement. Although no assurance can be given, the Company currently believes that a portion of the price reductions granted to Delphi Packard will be offset through reductions in direct manufacturing costs and that a portion of such price reductions will be offset by greater absorption of manufacturing overhead as a result of volume increases. METALS GROUP The Metals Group manufactures aluminum, magnesium, and zinc die castings and machines aluminum, brass, and steel components. During 1998, 1997, and 1996, net sales to automotive industry customers represented 55.6%, 42.8%, and 36.3%, respectively, of the Metals Group's net sales. The three largest customers of the Metals Group accounted for 35.3%, 23.5%, and 20.4% of the Metals Group's net sales during 1998, 1997, and 1996, respectively. Loss of a significant amount of business from any of the Metals Group's large customers could have a material adverse effect upon the Metals Group and the -11- 14 Company as a whole if such business were not substantially replaced by additional business from existing or new customers. The following table sets forth the operating results of the Metals Group for 1998, 1997, and 1996 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ---------------------------------------------------------------- 1998 1997 1996 ----------------- ------------------ ------------------ Net sales $ 34,107 100.0% $ 37,421 100.0% $ 39,750 100.0% Cost of sales 35,304 103.5 34,726 92.8 35,536 89.4 -------- ----- --------- ----- --------- ----- Gross profit/(loss) (1,197) (3.5) 2,695 7.2 4,214 10.6 Selling and administrative expenses 2,877 8.4 4,275 11.4 4,433 11.2 -------- ----- --------- ----- --------- ----- Loss from operations $ (4,074) (11.9)% $ (1,580) (4.2)% $ (219) (0.6)% ======== ===== ========= ===== ========= =====
During 1998, net sales of the Metals Group decreased by $3,314,000, or 8.9%, compared to 1997. This reduction resulted primarily from lower net sales of a variety of components at Lexington Die Casting and the New York Division of Lexington Machining caused by the Company's planned elimination of certain customers who generated short-run production and by a decline in sales of components to remaining customers of the Metals Group. These reductions were offset, in part, by increased sales at the Arizona Division of Lexington Machining. During 1998, the Metals Group incurred a loss from operations of $4,074,000, compared to a loss from operations of $1,580,000 during 1997. Cost of sales as a percentage of net sales increased during 1998, primarily due to underabsorption of fixed overhead caused by low sales levels. Despite lower sales, manufacturing overhead expenses increased by $1,400,000 during 1998 compared to 1997, primarily because of (1) increased depreciation and amortization, (2) increased indirect labor costs resulting from the hiring of additional technical and supervisory personnel, and (3) a charge of $368,000 to write down to net realizable value certain equipment held for sale. To a lesser extent, material and direct labor costs as a percentage of net sales also increased during 1998 compared to 1997, primarily because of changes in product mix, lower production efficiencies resulting from the start-up of new products, and costs related to the retention of experienced equipment operators during a period of low sales. Selling and administrative expenses decreased during 1998, primarily because of reduced personnel costs, the elimination of commissions previously paid to sales representatives who were terminated during the last quarter of 1996 and the first quarter of 1997, and the settlement of certain litigation for less than had been previously estimated by the Company. During 1998, depreciation and amortization at the Metals Group totaled $3,957,000, or 11.6% of net sales, compared to $3,141,000, or 8.4% of net sales, during 1997. EBITDA decreased to negative $117,000 in 1998 from $1,561,000 in 1997. During 1997, net sales of the Metals Group decreased by $2,329,000, or 5.9%, compared to 1996. This reduction resulted primarily from lower net sales of a variety of components at Lexington Die Casting and the New York Division of Lexington Machining, caused primarily by the Company's planned elimination of certain customers who generated short-run production and a $1,400,000 reduction in sales to a customer who decided to manufacture internally most of the components previously -12- 15 manufactured for it by the New York Division of Lexington Machining. These reductions were offset, in part, by an increase in net sales of airbag components by the Arizona Division of Lexington Machining. During 1997, the Metals Group incurred a loss from operations of $1,580,000, compared to a loss from operations of $219,000 during 1996. While material and direct labor costs as a percentage of net sales decreased during 1997, manufacturing overhead as a percentage of net sales increased, primarily due to (1) underabsorption of fixed overhead caused by reduced sales at Lexington Die Casting and the New York Division of Lexington Machining and lower-than-anticipated net sales at the Arizona Division of Lexington Machining, (2) start-up expenses related to the production of new airbag components and the installation of new metal machining equipment at the Arizona Division of Lexington Machining, (3) increased depreciation, (4) increased indirect labor costs resulting, in part, from the hiring of additional technical and professional staff, and (5) the write-down of certain equipment held for sale. Reduced selling and administrative expenses resulted primarily from a reduction in commissions paid to sales representatives who were terminated during the last quarter of 1996 and the first quarter of 1997, offset, in part, by increased personnel expense and the accrual of certain litigation expenses. During 1997, depreciation and amortization at the Metals Group totaled $3,141,000, or 8.4% of net sales, compared to $2,638,000, or 6.6% of net sales, during 1996. EBITDA decreased to $1,561,000 in 1997 from $2,419,000 in 1996. During 1997 and 1998, the Company implemented a strategy to improve the profitability and growth potential of the Metals Group by eliminating the production of a large number of diverse, short-run components and by repositioning productive capacity to manufacture higher-volume components in target markets. The repositioning entails a shift to a new customer base and requires that the Company's manufacturing facilities be structured and equipped to run high-volume parts efficiently and accurately. The repositioning of the Metals Group has caused the Company to experience underabsorption of fixed overhead resulting from the cut-back in short-run business. The Metals Group has incurred expenses for the implementation of improved quality systems, expenses related to moving and reinstalling equipment, non-capitalized costs related to building upgrades, costs related to establishing relationships with major new customers, and costs resulting from inefficiencies experienced during the rollout of new production parts. These factors and the fact that new high-volume business is limited at this stage of the transition adversely affected the operating profit and cash flow of the Metals Group during 1997 and 1998. 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 $2,029,000, $2,095,000, and $2,038,000 during 1998, 1997, and 1996, respectively. During 1998, 1997, and 1996, depreciation at the corporate office totaled $18,000, $21,000, and $33,000, respectively. -13- 16 INTEREST EXPENSE During 1998, 1997, and 1996, interest expense totaled $9,772,000, $9,065,000, and $8,542,000, respectively. The increases in 1998 and 1997 were caused primarily by increases in average borrowings outstanding in both years. OTHER INCOME In December 1997, the Company received a payment in the amount of $425,000 in settlement of litigation. PROVISION FOR INCOME TAXES During 1998, the provision for income taxes consisted primarily of state income taxes. During 1997, the provision for income taxes consisted primarily of (1) federal alternative minimum taxes and (2) the reversal of a tax credit that had been recorded in 1996 based on the then-projected utilization of federal net operating loss carryforwards in 1997. During 1996, the provision for income taxes consisted of (1) federal alternative minimum taxes, (2) state income taxes, (3) the reversal of a tax credit that had been recorded in 1995 based on the then-projected utilization of federal net operating loss carryforwards in 1996, and (4) a tax credit that had been based on the then-projected utilization of federal net operating loss carryforwards in 1997. (For additional information concerning income taxes and related matters, see Note 9 to the consolidated financial statements in Part II, Item 8.) LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES During 1998, the operating activities of the Company provided $8,013,000 of cash. Inventory increased by $1,139,000, primarily because the Company is attempting to increase service levels for certain key customers. Trade accounts payable decreased by $1,337,000, primarily because payables related to the purchase of plant, equipment, and customer-owned tooling decreased by $1,568,000 during 1998, from $3,456,000 at December 31, 1997, to $1,888,000 at December 31, 1998. INVESTING ACTIVITIES During 1998, the investing activities of the Company used $15,034,000 of cash. During 1998, capital expenditures were $14,877,000 and expenditures used to pay a portion of the cost of customer-owned tooling were $1,901,000. -14- 17 The following table sets forth capital expenditures for the Rubber Group, the Metals Group, and the corporate office during 1998, 1997, and 1996 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ------------------------------------ 1998 1997 1996 TOTAL ---- ---- ---- ----- Rubber Group: Equipment $ 8,277 $ 6,632 $ 5,869 $ 20,778 Land and buildings 105 203 2,959 3,267 --------- -------- --------- --------- 8,382 6,835 8,828 24,045 --------- -------- --------- --------- Metals Group: Equipment 6,184 5,542 6,012 17,738 Land and buildings 238 3,393 840 4,471 --------- -------- --------- --------- 6,422 8,935 6,852 22,209 --------- -------- --------- --------- Corporate office: Equipment 73 20 28 121 Land and buildings - - - - --------- -------- --------- --------- 73 20 28 121 --------- -------- --------- --------- Total Company: Equipment 14,534 12,194 11,909 38,637 Land and buildings 343 3,596 3,799 7,738 --------- -------- --------- --------- $ 14,877 $ 15,790 $ 15,708 $ 46,375 ========= ======== ========= =========
The Company presently projects that capital expenditures will total approximately $13,500,000 in 1999, including $13,100,000 for equipment and $400,000 for land and buildings. Capital expenditures for the Rubber Group, the Metals Group, and the corporate office are projected to total $9,000,000, $4,400,000, and $100,000, respectively. The Company projects that approximately $3,100,000 will be expended to rebuild or replace existing equipment and buildings, approximately $3,700,000 will be expended to effect cost reductions, and approximately $6,700,000 will be expended to expand productive capacity. At December 31, 1998, the Company had commitments outstanding for capital expenditures totaling approximately $2,462,000. Although no assurance can be given, the Company anticipates that, the funds needed for capital expenditures in 1999 will be provided by cash flows from operations, borrowings available to the Company under existing financing agreements, and additional borrowings that the Company believes it will be able to obtain. (See also "Liquidity" in this Item 7.) FINANCING ACTIVITIES During 1998, the financing activities of the Company provided $6,916,000 of cash. During 1998, the Company obtained new term loans in the aggregate amount of $5,041,000, which refinanced loans outstanding under the Company's revolving line of credit. In addition, at December 31, 1998, $3,850,000 of loans outstanding under the revolving line of credit were classified as long-term borrowings because they were refinanced under long-term agreements before the consolidated financial statements for the period were issued. -15- 18 Borrowings under the Company's revolving line of credit that were classified as short-term debt increased by $4,155,000 during 1998, in part, because the Company utilized the revolving line of credit to fund certain capital expenditures that had not been refinanced by borrowings under the Company's equipment line of credit or through other financing. LIQUIDITY The Company finances its operations with cash from operating activities and a variety of financing arrangements, including term loans and loans under the Company's revolving line of credit. The ability of the Company to borrow under its revolving line of credit is subject to, among other things, covenant compliance and certain availability formulas based on the levels of accounts receivable and inventories of the Company. In January 1999, the revolving line of credit was amended to extend the expiration date of the revolving line of credit to April 1, 2002. The Company operates with substantial financial leverage and limited liquidity. As a result of increased borrowings during 1998, aggregate indebtedness of the Company, excluding trade accounts payable, increased by $7,043,000 to $94,545,000. During 1999, interest and scheduled principal payments are projected to be approximately $9,400,000 and $7,500,000, respectively. The Company had a net working capital deficit of $8,030,000 at December 31, 1998. Loans of $12,995,000 outstanding under the revolving line of credit were classified as short-term debt at December 31, 1998. Although the expiration date of the revolving line of credit is April 1, 2002, these loans are classified as current liabilities because the Company's cash receipts are automatically used to reduce such loans on a daily basis, by means of a lock-box sweep arrangement, and the lender has the ability to modify certain terms of the revolving line of credit without the prior approval of the Company. At March 26, 1999, availability under the Company's revolving line of credit totaled $1,701,000 before outstanding checks of $705,000 were deducted. During the first quarter of 1999, the Company obtained new term loans in the aggregate amount of $6,542,000. Proceeds from the new term loans refinanced $2,090,000 of existing term loans and $4,452,000 of loans outstanding under the revolving line of credit (including $3,850,000 of such loans which were outstanding at December 31, 1998). In January 1999, one of the Company's lenders provided the Company with an equipment line of credit in the amount of $5,000,000 that can be used to finance a portion of the cost of certain equipment. During the first quarter of 1999, the Company had not borrowed under the line of credit. In March 1999, another of the Company's lenders provided the Company with an equipment line of credit in the amount of $1,822,000. During the first quarter of 1999, the Company borrowed $1,222,000 under the line of credit. Substantially all of the assets of the Company and its subsidiary Lexington Components, Inc. ("LCI"), and the stock of LCI, are pledged as collateral for certain of the Company's indebtedness. In addition, certain of the Company's financing arrangements contain covenants with respect to the maintenance of minimum levels of working capital, net worth, and cash flow coverage. The covenants also place certain restrictions on the Company's business and operations, including covenants relating to the incurrence or assumption of additional debt, the level of past-due trade accounts payable, the sale of all or substantially all of the Company's assets, the purchase of plant and equipment, the purchase of -16- 19 common stock, the redemption of preferred stock, and the payment of cash dividends. In addition, substantially all of the Company's financing agreements include cross-default provisions. From time to time, certain of the financial covenants contained in the Company's various loan agreements have been amended in order to maintain or otherwise ensure current or future compliance by the Company. During the first quarter of 1998, a covenant that limited the Company's ratio of debt to tangible net worth was amended. During the third quarter of 1998, certain net worth covenants and the covenant that limited the Company's ratio of debt to tangible net worth were amended. During the first quarter of 1999, a net worth covenant was amended and the covenant that limited the Company's ratio of debt to tangible net worth was eliminated. Because certain of the Company's long-term indebtedness matures during the first half of 2000, those amounts will be classified as short-term liabilities of the Company during the first and second quarters of 1999. During July 1998, certain covenants were amended in order to avoid any defaults that would have been caused by such reclassification. The Company estimates that, in addition to cash flow from operations and borrowings under its revolving line of credit, the Company will require approximately $10,000,000 of new borrowings during 1999 to meet its working capital and debt service requirements and to fund projected capital expenditures. Of the aggregate new borrowings required in 1999, the Company had obtained new borrowings of $4,500,000 during the first quarter of 1999. The Company currently believes, although there can be no assurance, that the remaining new borrowings required will be available to the Company under its equipment lines of credit or under other financing arrangements that the Company may negotiate. Although no assurance can be given, the Company currently believes that cash flows from operations, borrowings available to the Company under existing financing arrangements, and additional borrowings that the Company believes it will be able to obtain should be adequate to meet its projected working capital and debt service requirements and to fund projected capital expenditures through December 31, 1999. If cash flows from operations or availability under existing and new financing agreements fall below expectations, the Company may be forced to delay anticipated capital expenditures, reduce operating expenses, extend trade accounts payable balances beyond terms that the Company believes are customary in the industries in which it operates, and/or consider other alternatives designed to improve the Company's liquidity. Certain of such actions could have a material adverse effect upon the Company. As previously discussed, indebtedness totaling $38,129,000, matures during the first and second quarters of 2000. The Company's operations will not generate cash sufficient to satisfy such obligations at their maturities. The Company may attempt to refinance all or a portion of these obligations (and possibly other indebtedness that has later maturity dates) by issuing new debt securities in the private or public market. The Company has commenced discussions with underwriters relating to the issuance of new debt securities to refinance substantially all of the Company's existing debt. Although there can be no assurance, based on the discussions to date, current market conditions in the high-yield debt markets, and the Company's historical and projected operating results, cash flows, and capital structure, the Company believes that it will be able to issue new debt securities with terms and interest rates reasonably satisfactory to the Company and in sufficient amounts to refinance substantially all of its outstanding debt securities prior to their maturity dates. In the alternative, the Company may attempt to reach agreements to amend the terms of its debt securities by extending the maturity dates thereof or to exchange new debt securities that have maturity dates later than 2000 for existing debt obligations that mature in 2000. The Company's ability to refinance, amend, or exchange these securities on or before their maturity dates will depend on many factors, including, but not limited to, conditions in the high -17- 20 yield debt market. Accordingly, there can be no assurance that the Company will be successful in refinancing, amending, or exchanging such securities. To date the Company has not attempted to refinance, amend, or exchange the obligations maturing in 2000. In the event that the Company is not successful in refinancing, amending, or exchanging such obligations, defaults may occur under the agreements relating to such obligations. If a default occurs, it may trigger other defaults pursuant to cross-default provisions under other indebtedness of the Company. Holders of indebtedness on which defaults exist would be entitled to accelerate the maturity thereof, to cease making any further advances otherwise permitted under the related credit facilities, to seek to foreclose upon any assets securing such indebtedness, and to pursue other remedies. If any such actions were to be taken, the Company might be required to consider alternatives, including seeking relief from its creditors. Any such action by creditors could have a material adverse effect upon the Company. ACQUISITIONS The Company is seeking to acquire assets and businesses related to its current operations in order to expand its existing operations. Depending on the size, terms, and other aspects of such acquisitions, the Company may be required to obtain additional financing and, in some cases, the consents of its existing lenders. The Company's ability to effect acquisitions may be dependent upon its ability to obtain such financing and, to the extent applicable, consents. 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. Fluctuations in material costs generally are passed through to customers. In cases in which the Company commits to a fixed material cost for a specified time period, the Company generally obtains a similar offsetting commitment from 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 or third-party defendants under applicable environmental laws for restoration costs at waste-disposal sites, 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. (For information concerning certain other commitments and contingencies of the Company, see Note 13 to the consolidated financial statements in Part II, Item 8.) RECENTLY ISSUED ACCOUNTING STANDARDS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, REPORTING COMPREHENSIVE INCOME During 1998, the Company adopted "Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for the reporting and -18- 21 presentation of comprehensive income and its components (revenues, gains, and losses) in a full set of general-purpose financial statements. The adoption of FAS 130 by the Company during 1998 did not affect the results of operations or financial position of the Company. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION On December 31, 1998, the Company adopted "Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way public enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports. FAS 131 also establishes standards for related disclosures about products, geographic areas, and major customers. FAS 131 superseded "Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise." FAS 131 requires financial information to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The adoption of FAS 131 by the Company during 1998 did not affect the results of operations or financial position of the Company. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS On December 31, 1998, the Company adopted "Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS 132"). FAS 132 does not change the recognition or measurement of pension or postretirement benefit plans, but standardizes disclosure requirements for pensions and other postretirement benefits. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), which is effective for all fiscal periods beginning after June 15, 1999. The statement provides standards for the recognition and measurement of derivative and hedging activities. The Company believes that the adoption of FAS 133 during the first quarter of 2000 will not affect the results of operations or financial position of the Company. YEAR 2000 Software and/or hardware failures due to processing errors potentially arising from calculations using the year 2000 date are a known risk. The Company recognizes the risk and, in order to ensure that its operations will not be adversely affected by year 2000 software or hardware problems, the Company has a year 2000 compliance plan that includes (1) a company-wide inventory of all information technology (software and hardware) (collectively, "IT systems") and all non-IT systems, which include embedded technology such as microprocessors commonly found in modern manufacturing equipment, (2) an evaluation of the readiness of major trading partners, including suppliers of materials and services and customers, (3) documenting the year 2000 compliance of the Company's IT and non-IT systems through appropriate testing, (4) replacement of non-compliant systems as necessary, (5) testing replaced systems for year 2000 compliance as necessary, and (6) developing contingency plans as appropriate. The Company's year 2000 compliance plan calls for all formal documentation and testing of IT and non-IT systems to be completed by June 30, 1999. -19- 22 Although the Company does not have a system in place for tracking costs related to its year 2000 compliance plan, the Company believes that costs incurred to date by the Company to assess, modify, or replace non-compliant systems have been approximately $50,000. Furthermore, the Company anticipates, based on the information currently available, that future costs to modify or replace non-compliant systems will be approximately $600,000. Such costs are being accounted for as part of normal, ongoing operations. The Company has not developed a specific contingency plan to address the most reasonably likely worst case scenario for year 2000, but it may develop one after it has assessed the year 2000 readiness of its major trading partners since the Company believes that any such scenario would most likely result from the lack of year 2000 readiness of one or more of those major trading partners. Based upon the Company's review of its IT and non-IT systems to date, the Company believes that there are no material internal issues regarding its year 2000 compliance that will not be resolved through normal equipment and software upgrades that will be made through 1999. The status of the Company's year 2000 readiness effort is set forth in the table below: YEAR 2000 DISCLOSURE CHART
---------------------------------------------------------------------------------------------------------------- RESOLUTION PHASES ASSESSMENT REMEDIATION TESTING IMPLEMENTATION ---------------------------------------------------------------------------------------------------------------- E Information 100% complete 70% complete Expected completion Expected completion X technology second quarter 1999 second quarter 1999 P ---------------------------------------------------------------------------------------------------------------- O Operating 100% complete 85% complete Expected completion Expected completion S equipment with second quarter 1999 second quarter 1999 U embedded chips R or software E ---------------------------------------------------------------------------------------------------------------- Products 100% complete 100% complete 100% complete Completed first T quarter 1999 Y ---------------------------------------------------------------------------------------------------------------- P Third party 75% complete Developing Expected completion Expected completion E contingency plans third quarter 1999 third quarter 1999 as appropriate ----------------------------------------------------------------------------------------------------------------
While the Company believes its planning efforts are adequate to address its internal year 2000 concerns, there can be no assurance that the systems of the Company's major trading partners, on which the Company's systems and operations rely, will be year 2000 compliant. If a significant number of the Company's major trading partners experience failures in their computer systems or operations due to year 2000 non-compliance, such events could have a material adverse affect on the business and revenues of the Company. Furthermore, if, for any reason, the Company or its major trading partners fail to complete appropriate remediation programs or fail to complete remediation programs on a timely basis, such failure could have a material adverse effect on the business and revenues of the Company. -20- 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information about market risk, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity" in Part II, Item 7 and Note 5 to the consolidated financial statements in Part II, Item 8. -21- 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS
Page ---- Report of Independent Auditors.........................................................23 Consolidated Balance Sheet at December 31, 1998 and 1997...............................24 Consolidated Statement of Operations for the Years Ended December 31, 1998, 1997, and 1996....................................................26 Consolidated Statement of Stockholders' Deficit for the Years Ended December 31, 1998, 1997, and 1996....................................27 Consolidated Statement of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996....................................................28 Notes to Consolidated Financial Statements.............................................29
-22- 25 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Lexington Precision Corporation and Subsidiaries We have audited the accompanying consolidated balance sheet of Lexington Precision Corporation and subsidiaries at December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule contained in Part IV, Item 14, of the Company's report on Form 10-K. 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 subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, 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. The accompanying consolidated financial statements have been prepared assuming that Lexington Precision Corporation will continue as a going concern. As more fully described in Note 1, the Company has approximately $38 million of long-term debt that becomes current in the first and second quarters of 1999. Substantial doubt exists about the Company's ability to refinance, amend, or exchange such obligations on or prior to their maturity dates. As a result, there is substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to the amounts or classifications of assets or liabilities to reflect this uncertainty. ERNST & YOUNG LLP Cleveland, Ohio March 30, 1999 -23- 26 LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS)
DECEMBER 31 ------------------------------- 1998 1997 ---- ---- ASSETS: Current assets: Cash $ 103 $ 208 Accounts receivable 17,837 17,579 Inventories 10,170 9,031 Prepaid expenses and other assets 2,063 3,438 Deferred income taxes 2,025 1,572 ---------- ---------- Total current assets 32,198 31,828 ---------- ---------- Plant and equipment: Land 1,549 1,533 Buildings 23,753 23,426 Equipment 90,306 78,922 ---------- ---------- 115,608 103,881 Accumulated depreciation 52,871 44,451 ---------- ---------- Plant and equipment, net 62,737 59,430 ---------- ---------- Excess of cost over net assets of businesses acquired, net 8,778 9,094 ---------- ---------- Other assets, net 4,612 3,772 ---------- ---------- $ 108,325 $ 104,124 ========== ==========
See notes to consolidated financial statements. (continued on next page) -24- 27 LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEET (CONTINUED) (THOUSANDS OF DOLLARS)
DECEMBER 31 ------------------------------- 1998 1997 ---- ---- LIABILITIES AND STOCKHOLDERS' DEFICIT: Current liabilities: Trade accounts payable $ 11,291 $ 12,628 Accrued expenses 9,345 8,495 Short-term debt 12,995 8,840 Current portion of long-term debt 6,597 6,040 ---------- ---------- Total current liabilities 40,228 36,003 ---------- ---------- Long-term debt, excluding current portion 74,953 72,622 ---------- ---------- Deferred income taxes and other long-term liabilities 2,220 1,746 ---------- ---------- Redeemable preferred stock, $100 par value, at redemption value 750 840 Excess of redemption value over par value (375) (420) ---------- ---------- Redeemable preferred stock at par value 375 420 ---------- ---------- Stockholders' deficit: Common stock, $.25 par value, 10,000,000 shares authorized, 4,348,951 shares issued 1,087 1,087 Additional paid-in-capital 12,235 12,313 Accumulated deficit (22,556) (19,850) Cost of common stock in treasury, 85,915 shares (217) (217) ---------- ---------- Total stockholders' deficit (9,451) (6,667) ---------- ---------- $ 108,325 $ 104,124 ========== ==========
See notes to consolidated financial statements. -25- 28 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 ---------------------------------------- 1998 1997 1996 ---- ---- ---- Net sales $ 126,717 $ 118,631 $ 114,872 Cost of sales 108,513 99,422 95,051 ---------- ---------- ---------- Gross profit 18,204 19,209 19,821 Selling and administrative expenses 11,006 11,425 11,256 ---------- ---------- ---------- Income from operations 7,198 7,784 8,565 Interest expense 9,772 9,065 8,542 Other income - 425 - ---------- ---------- ---------- Income/(loss) before income taxes (2,574) (856) 23 Provision for income taxes 132 672 40 ---------- ---------- ---------- Net loss (2,706) (1,528) (17) Preferred stock dividends 33 37 41 Excess of redemption value over par value of preferred stock redeemed during year 45 45 45 ---------- ---------- ---------- Net loss attributable to common stockholders $ (2,784) $ (1,610) $ (103) ========== ========== ========== Net loss per common share: Basic $ (0.65) $ (0.38) $ (0.02) ========== ========== ========== Diluted $ (0.65) $ (0.38) $ (0.02) ========== ========== ==========
See notes to consolidated financial statements. -26- 29 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (THOUSANDS OF DOLLARS)
Additional Total Common Paid-in- Accumulated Treasury Stockholders' Stock Capital Deficit Stock Deficit ---------- --------- ---------- ---------- ---------- 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) ========== ========= ========== ========== ========== Net loss - - (1,528) - (1,528) Preferred stock dividends and redemptions - (82) - - (82) ---------- --------- ---------- ---------- ---------- Balance at December 31, 1997 $ 1,087 $ 12,313 $ (19,850) $ (217) $ (6,667) ========== ========= ========== ========== ========== Net loss - - (2,706) - (2,706) Preferred stock dividends and redemptions - (78) - - (78) ---------- --------- ---------- ---------- ---------- Balance at December 31, 1998 $ 1,087 $ 12,235 $ (22,556) $ (217) $ (9,451) ========== ========= ========== ========== ==========
See notes to consolidated financial statements. -27- 30 LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31 ---------------------------------------- 1998 1997 1996 ---- ---- ---- OPERATING ACTIVITIES: Net loss $ (2,706) $ (1,528) $ (17) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 10,001 8,558 7,129 Amortization included in operating expense 1,450 1,280 1,138 Amortization included in interest expense 198 171 429 Deferred income taxes - 585 (320) Changes in operating assets and liabilities that provided/(used) cash: Trade receivables (258) (759) (3,861) Inventories (1,139) (132) (794) Prepaid expenses and other assets 747 462 (971) Trade accounts payable (1,337) (1,706) 3,706 Accrued expenses 850 213 1,710 Other 207 385 44 --------- ---------- ---------- Net cash provided by operating activities 8,013 7,529 8,193 --------- ---------- ---------- INVESTING ACTIVITIES: Purchases of plant and equipment (14,877) (15,790) (15,708) Decrease/(increase) in equipment deposits 261 (147) 37 Proceeds from sales of equipment 913 142 211 Expenditures for tooling owned by customers (1,901) (791) (949) Other 570 (140) (851) --------- ---------- ---------- Net cash used by investing activities (15,034) (16,726) (17,260) --------- ---------- ---------- FINANCING ACTIVITIES: Net increase/(decrease) in short-term debt 4,155 1,514 (196) Proceeds from issuance of long-term debt 8,891 43,492 22,031 Repayment of long-term debt (6,003) (35,206) (12,257) Other (127) (582) (442) --------- ---------- ---------- Net cash provided by financing activities 6,916 9,218 9,136 --------- ---------- ---------- Net increase/(decrease) in cash (105) 21 69 Cash at beginning of year 208 187 118 --------- ---------- ---------- Cash at end of year $ 103 $ 208 $ 187 ========= ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 9,567 $ 8,684 $ 8,167 Income taxes paid $ 136 $ 689 $ 381
See notes to consolidated financial statements. -28- 31 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 subsidiaries (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 ----------------------- 1998 1997 ---- ---- Finished goods $ 4,272 $ 3,654 Work in process 2,834 1,658 Raw materials and purchased parts 3,064 3,719 --------- -------- $ 10,170 $ 9,031 ========= ========
PLANT AND EQUIPMENT 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 8 years for equipment). When property is retired or otherwise disposed of, the related cost and accumulated depreciation are eliminated. Maintenance and repair expenses are charged against income as incurred, while major improvements that increase the useful life of plant and equipment are capitalized. Maintenance and repair expenses were $5,169,000, $3,766,000, and $3,612,000 for 1998, 1997, and 1996, respectively. -29- 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED The excess of cost over net assets of businesses acquired (goodwill) is amortized on the straight-line method, principally over 40 years. At December 31, 1998 and 1997, accumulated amortization of goodwill was $3,211,000 and $2,895,000, respectively. During each of 1998, 1997, and 1996, 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," the carrying value of goodwill and other long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Based upon such review, the Company believes that no impairment of long-lived assets existed at December 31, 1998. DEFERRED FINANCING COSTS Deferred financing costs are amortized over the lives of the related debt instruments. NET INCOME OR LOSS PER COMMON SHARE During 1997, the Company adopted "Financial Accounting Standard No. 128, Earnings per Share" ("FAS 128"), which sets forth the procedures for reporting basic and diluted income or loss per share. The recalculation of income or loss per share data for 1996, using FAS 128 procedures, did not require a restatement of the income or loss per share data for either of those years. Basic net income or loss per common share is computed using the weighted-average number of common shares outstanding. Diluted net income or loss per share is calculated after giving effect to all potential common shares that were dilutive and outstanding, using the treasury stock method. Potential common shares are securities (such as stock options, convertible debt securities, and convertible preferred stock) that do not have a current right to participate in earnings but could do so in the future by virtue of their option or conversion rights. For purposes of the net income or loss per common share calculations, net income or loss has been reduced by preferred stock dividends and the amount by which payments made to redeem shares of preferred stock exceeded the par value of such shares. REVENUE RECOGNITION Substantially all of the Company's revenues result from the sale of rubber and metal component parts. The Company recognizes revenue from the sale of component parts upon shipment and passage of title to customers according to shipping schedules and terms of sale mutually agreed to by the Company and its customers. REPORTING COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued "Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income" ("FAS 130"), which is effective for fiscal periods beginning after December 15, 1997. This statement established standards for reporting and display of comprehensive income and its components (revenues, gains, and losses) in a full set of general-purpose financial statements. The adoption of FAS 130 by the Company during the first quarter of 1998 did not have a material effect on the results of operations or financial position of the Company. -30- 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RECLASSIFICATIONS Certain amounts in the consolidated financial statements for 1996 have been reclassified to conform to the 1998 presentation. BASIS OF PRESENTATION The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Indebtedness totaling $38,129,000 matures during the first and second quarters of 2000. The Company's operations will not generate cash sufficient to satisfy such obligations at their maturities. The Company may attempt to refinance all or a portion of these obligations (and possibly other indebtedness that has later maturity dates) by issuing new debt securities in the private or public market. The Company has commenced discussions with underwriters relating to the issuance of new debt securities to refinance substantially all of the Company's existing debt. Although there can be no assurance, based on the discussions to date, current market conditions in the high-yield debt markets, and the Company's historical and projected operating results, cash flows, and capital structure, the Company believes that it will be able to issue new debt securities with terms and interest rates reasonably satisfactory to the Company and in sufficient amounts to refinance substantially all of its outstanding debt securities prior to their maturity dates. In the alternative, the Company may attempt to reach agreements to amend the terms of its debt securities by extending the maturity dates thereof or to exchange new debt securities that have maturity dates later than 2000 for existing debt securities that mature in 2000. The Company's ability to refinance, amend, or exchange these securities on or before their maturity dates will depend on many factors, including, but not limited to, conditions in the high yield debt market. Accordingly, there can be no assurance that the Company will be successful in refinancing, amending, or exchanging such securities. To date the Company has not attempted to refinance, amend, or exchange the obligations maturing in 2000. In the event that the Company is not successful in refinancing, amending, or exchanging such obligations, defaults may occur under the agreements relating to such obligations. If a default occurs, it may trigger other defaults pursuant to cross-default provisions under other indebtedness of the Company. Holders of indebtedness on which defaults exist would be entitled to accelerate the maturity thereof, to cease making any further advances otherwise permitted under the related credit facilities, to seek to foreclose upon any assets securing such obligations, and to pursue other remedies. If any such actions were to be taken, the Company might be required to consider alternatives, including seeking relief from its creditors. Any such action by creditors could have a material adverse effect upon the Company. The consolidated financial statements do not include any adjustments that might result should the Company be unable to refinance, amend, or exchange these obligations on or before their maturity dates. NOTE 2 -- PREPAID EXPENSES AND OTHER ASSETS At December 31, 1998 and 1997, other current assets included $1,414,000 and $2,379,000, 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 is obligated to pay for the tooling in accordance with previously agreed-upon terms. -31- 34 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 shorter, the period during which the tooling is expected to produce components. At December 31, 1998 and 1997, other noncurrent assets included $2,043,000 and $1,276,000, respectively, representing the unamortized portion of such capitalized payments. During 1998, 1997, and 1996, the Company amortized $1,134,000, $964,000, and $822,000, respectively, of such capitalized payments. NOTE 4 -- ACCRUED EXPENSES Accrued expenses at December 31, 1998 and 1997, are summarized below (dollar amounts in thousands):
DECEMBER 31 --------------------- 1998 1997 ---- ---- Employee fringe benefits $ 3,196 $ 2,763 Interest 1,971 1,964 Salaries and wages 2,289 1,580 Taxes 989 1,040 Other 900 1,148 ------- -------- $ 9,345 $ 8,495 ======= ========
NOTE 5 -- DEBT At December 31, 1998 and 1997, short-term debt consisted of loans outstanding under the Company's revolving line of credit. Except for certain loans outstanding at December 31, 1998 in the amount of $3,850,000 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, 1998 and 1997, have been classified as short-term debt because the Company's cash receipts are automatically used to reduce such loans 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 approval of the Company. At December 31, 1998, availability under the revolving line of credit totaled $1,974,000, before outstanding checks of $1,402,000 were deducted. At December 31, 1998, loans outstanding under the revolving line of credit accrued interest at the prime rate plus 0.25% and the London Interbank Offered Rate ("LIBOR") plus 2.75%. At December 31, 1998, 1997, and 1996, the weighted-average interest rates on borrowings under the revolving line of credit were 8.00%, 8.74%, and 9.04%, respectively. In January 1999, the revolving line of credit was amended to extend the expiration date to April 1, 2002. -32- 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Long-term debt at December 31, 1998 and 1997, is set forth below (dollar amounts in thousands):
DECEMBER 31 --------------------------------- 1998 1997 ---- ---- Long-term secured debt: Revolving line of credit, prime rate plus 0.25% and LIBOR plus 2.75% (8% at December 31, 1998) $ 3,850(1) $ - Term loan payable in increasing monthly principal installments, final maturity in 2000, 12% - 1,573 Term loan, due 2000, 12% 1,370 - Term loans payable in equal monthly principal installments based on a 180-month amortization schedule, final maturities in 2001, 8.37% 2,921 3,153 Term loans payable in equal monthly principal installments, final maturities in 2002, LIBOR plus 2.75% (8.3% at December 31, 1998) 2,584 3,330 Term loan payable in equal monthly principal installments based on a 180-month amortization schedule, final maturity in 2002, 9.37% 1,404 1,511 Term loan payable in equal monthly principal installments based on a 180-month amortization schedule, final maturity in 2002, 9% 2,732 2,933 Term loan, interest only until March 1, 1998, then payable in equal monthly principal installments, final maturity in 2003, prime rate plus 0.25% (8% at December 31, 1998) 770 468 Term loan payable in equal monthly principal installments, final maturity in 2003, prime rate plus 0.25% and LIBOR plus 2.75% (8% at December 31, 1998) 492(2) 613(2) Term loan payable in equal monthly principal installments, final maturity in 2004, prime rate plus 0.25% and LIBOR plus 2.75% (average of 7.81% at December 31, 1998) 1,471 1,742 Term loans payable in equal monthly principal installments, final maturity in 2004, prime rate plus 0.25% and LIBOR plus 2.75% (8% at December 31, 1998) 18,967(2) 22,580(2) Term loan payable in equal monthly principal installments, final maturity in 2005, LIBOR plus 2.75% (8.31% at December 31, 1998) 1,388 - Term loan payable in equal monthly principal installments, final maturity in 2005, prime rate plus 0.25% and LIBOR plus 2.75% (8% at December 31, 1998) 1,579(2) - Term loan payable in equal monthly principal installments, final maturity in 2006, prime rate plus 0.25% and LIBOR plus 2.75% (8% at December 31, 1998) 1,300(2) - -------- --------- Total long-term secured debt 40,828 37,903 -------- ---------
(continued on next page) -33- 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued from previous page)
DECEMBER 31 --------------------------------- 1998 1997 ---- ---- Long-term unsecured debt: 10.5% senior note, due 2000 $ 7,500 $ 7,500 12.75% senior subordinated notes, due 2000 31,720 31,720 14% junior subordinated convertible notes, due 2000, convertible into 440,000 shares of common stock 1,000 1,000 14% junior subordinated nonconvertible notes, due 2000 347 347 Other unsecured obligations 155 192 -------- --------- Total long-term unsecured debt 40,722 40,759 -------- --------- Total long-term debt 81,550 78,662 Less current portion 6,597 6,040 -------- --------- Total long-term debt, excluding current portion $ 74,953 $ 72,622 ======== =========
(1) Refinanced under long-term agreements before the consolidated financial statements for the period were issued. Amounts classified as secured or unsecured and amounts reflected in current portion are based upon the terms of the new borrowings. (2) Maturity date can be accelerated by the lender if the Company's revolving line of credit expires prior to the stated maturity date of the term loan. The loans outstanding under the Company's revolving line of credit and the secured term loans listed above are collateralized by substantially all of the assets of the Company, including trade receivables, inventories, equipment, certain real estate, and the stock of Lexington Components, Inc., a subsidiary of the Company. During the first quarter of 1999, the Company obtained new term loans in the aggregate amount of $6,542,000. Proceeds from the new term loans refinanced $2,090,000 of existing term loans and $4,452,000 of loans outstanding under the revolving line of credit (including $3,850,000 of such loans which were outstanding at December 31, 1998). The new term loans are collateralized by substantially all of the assets of the Company, including trade receivables, inventories, equipment, certain real estate, and the stock of Lexington Components, Inc. -34- 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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): 1999 $ 6,597 2000 47,477 2001 8,872 2002 8,922 2003 and future years 9,682 -------- $ 81,550 ========
RESTRICTIVE COVENANTS Certain of the Company's financing arrangements contain covenants that set minimum levels of working capital, net worth, and cash flow coverage. The covenants also place certain restrictions and/or limitations on the Company's business and operations, including the incurrence or assumption of additional debt, the level of past-due trade accounts payable, the sale of all or substantially all of the Company's assets, the purchase of plant and equipment, the purchase of common stock, the redemption of preferred stock, and the payment of cash dividends. In addition, substantially all of the Company's financing agreements include cross-default provisions From time to time, certain of the financial covenants contained in the Company's various loan agreements have been amended in order to maintain or otherwise ensure current or future compliance by the Company. During the first quarter of 1998, a covenant that limited the Company's ratio of debt to tangible net worth was amended. During the third quarter of 1998, certain net worth covenants and the covenant that limited the Company's ratio of debt to tangible net worth were amended. During the first quarter of 1999, a net worth covenant was amended and the covenant that limited the Company's ratio of debt to tangible net worth was eliminated. Because certain of the Company's long-term indebtedness matures in the first half of 2000, those amounts will be classified as short-term liabilities of the Company during the first and second quarters of 1999. During July 1998, certain working capital and cash flow covenants were amended in order to avoid any defaults that would have been caused by such reclassification. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company believes that, at December 31, 1998, the fair values of the secured term loans and the loans outstanding under the revolving line of credit approximately equaled the principal amounts of such loans. Since August 1998, the Company believes that there has been minimal trading in the Company's 12.75% senior subordinated notes, except for the Company's repurchase in January 1999 of $3,808,000 principal amount of the notes for $1,980,000 plus accrued interest (See Note 15 - Subsequent Event). Notwithstanding its purchase of 12.75% senior subordinated notes in January 1999, the Company -35- 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS estimates, based upon discussion with several market makers, that, as of December 31, 1998, the 12.75% senior subordinated notes had a fair value in the range of 75% to 85% of their principal amount. Based on the estimated fair value of the 12.75% senior subordinated notes, the Company believes that, as of December 31, 1998, (1) the 14% junior subordinated nonconvertible notes had a fair value in the range of 75% to 85% of their principal amount, (2) the 14% junior subordinated convertible notes had a fair value in the range of 80% to 110% of their principal amount, and (3) the 10.5% senior note had a fair value approximately equal to its principal amount. Estimates of the fair values of the Company's indebtedness are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined definitively. Any change in the market for similar indebtedness, the financial performance of the Company, or interest rates could materially affect the fair value of all of the Company's indebtedness. 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 At December 31, 1998, there were outstanding 3,750 shares of the Company's $8 cumulative convertible redeemable preferred stock, series B, par value $100 ("Redeemable Preferred Stock"). Each share of Redeemable Preferred Stock is (1) entitled to one vote, (2) redeemable for $200 plus accumulated and unpaid dividends, (3) convertible into 14.8148 shares of common stock (subject to adjustment), and (4) 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, 1998, 450 shares of Redeemable Preferred Stock were redeemed for $90,000. Further redemptions of $90,000 are scheduled on November 30 of each year in order to retire 450 shares of Redeemable Preferred Stock annually. Scheduled redemptions for the years 1999 through 2003 aggregate $450,000. For accounting purposes, when Redeemable Preferred 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 1998, the Company paid dividends aggregating $33,000 on the Redeemable Preferred Stock. No dividends were in arrears at December 31, 1998. 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, 1998 and 1997, 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, 1998 and 1997, no shares of the $1 par value preferred stock were issued or outstanding. -36- 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 -- COMMON STOCK COMMON STOCK, $.25 PAR VALUE At December 31, 1998 and 1997, there were 4,263,036 shares of the Company's common stock outstanding, 440,000 shares reserved for issuance on the conversion of the Company's 14% junior subordinated convertible notes, 55,555 shares reserved for issuance on the conversion of the Redeemable Preferred Stock, and 350,000 shares reserved for issuance under the Company's restricted stock award plan. RESTRICTED STOCK AWARD PLAN During 1998, 1997, and 1996, no shares of restricted shares of common stock were awarded or outstanding. Unless otherwise amended, the restricted stock award plan will expire on December 31, 2001. STOCK OPTION PLAN Options to purchase shares of the Company's common stock were last granted in 1990. At December 31, 1996, the Company's stock option plan was no longer in effect because no options to purchase common stock were outstanding and no options were available for future grant. 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 (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 1998, 1997, and 1996, matching contributions made by the Company totaled $574,000, $474,000, and $443,000, 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 and is typically paid in March of the following year. Provisions for profit-sharing contributions totaled $650,000, $550,000, and $489,000 during 1998, 1997, and 1996, 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 an incentive compensation plan that provides for the payment of annual 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 plan and approves the cash bonus awards. Bonus awards for eligible divisional employees are based upon the attainment of predetermined profit targets at each division. Bonus awards for corporate officers are based upon the attainment of predetermined -37- 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS consolidated profit targets. The provisions for bonuses totaled $878,000, $387,000, and $858,000 during 1998, 1997, and 1996, respectively. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS On December 31, 1998, the Company adopted "Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS 132"). FAS 132 does not change the recognition or measurement of pension or postretirement benefit plans, but standardizes disclosure requirements for pensions and other postretirement benefits. 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, 1998, the Company's accumulated postretirement benefit obligation totaled $328,000. The Company is amortizing its transition obligation over the remaining life expectancy of the participants (i.e., an annual rate of $57,000). A reconciliation of the changes in the plan benefit obligations and a statement of the funded status of the plan at December 31, 1998 and 1997 is set forth below (dollar amounts in thousands):
DECEMBER 31 ------------------------- 1998 1997 ---- ---- Accumulated postretirement benefit obligation at beginning of year $ (370) $ (447) Service cost (2) (2) Interest cost (24) (32) Benefits paid 38 44 Actuarial gain 30 67 ------ ------- Accumulated postretirement benefit obligation at end of year (328) (370) Plan assets at fair market value - - ------ ------- Funded status (328) (370) Unrecognized transition obligation 350 407 Unrecognized prior service cost - - Unrecognized net gain (237) (230) ------ ------- Accrued benefit cost $ (215) $ (193) ====== =======
-38- 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net annual postretirement benefit costs for 1998, 1997, and 1996 are summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 --------------------------------- 1998 1997 1996 ---- ---- ---- Service cost $ 2 $ 2 $ 1 Interest cost 24 32 39 Net amortization and deferral 35 39 46 ------ ------ ------ Net annual postretirement benefit cost $ 61 $ 73 $ 86 ====== ====== ======
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 8% in 1999 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, 1998 and 1997, was 6.75% and 7%, respectively. The change in the discount rate at December 31, 1998, reflects lower prevailing interest rates. NOTE 9 -- INCOME TAXES The components of the provisions for income taxes in 1998, 1997, and 1996 are set forth below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 -------------------------------- 1998 1997 1996 ---- ---- ---- Current: Federal $ - $ 104 $ 255 State 132 (17) 105 ------ ------ ------ 132 87 360 Deferred: Federal - 585 (320) ------ ------ ------ Provision for income taxes $ 132 $ 672 $ 40 ====== ====== ======
During 1998, the provision for income taxes consisted of state income taxes. During 1997, the provision for income taxes consisted primarily of (1) federal alternative minimum taxes and (2) the reversal of a tax credit that had been recorded in 1996 based on the then-projected utilization of federal net operating loss carryforwards in 1997. -39- 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1996, the provision for income taxes consisted of (1) federal alternative minimum taxes, (2) state income taxes, (3) the reversal of a tax credit that had been recorded in 1995 based on the then-projected utilization of federal net operating loss carryforwards in 1996, and (4) a tax credit that had been based on the then-projected utilization of federal net operating loss carryforwards in 1997. The difference between the Company's recorded provision for income taxes in 1998, 1997, and 1996 and the income taxes that would have been payable at the federal statutory rate is reconciled as follows (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 --------------------------------- 1998 1997 1996 ---- ---- ---- Federal statutory income tax provision $ (875) $ (291) $ 8 Change in valuation allowance 1,164 1,216 53 Amortization of nondeductible goodwill 107 107 107 State income taxes, net of federal benefit 87 (71) 105 Other (351) (289) (233) ------- -------- ------ Recorded income tax provision $ 132 $ 672 $ 40 ======= ======== ======
The following table sets forth the deferred tax assets and the deferred tax liabilities of the Company at December 31, 1998 and 1997 (dollar amounts in thousands):
DECEMBER 31 --------------------- 1998 1997 ---- ---- Deferred tax assets: Tax carryforwards: Federal net operating losses $ 4,146 $ 3,308 State net operating losses 1,419 951 Federal alternative minimum taxes 1,046 1,059 Investment tax credit 101 101 Other tax credit 81 81 -------- -------- Total tax carryforwards 6,793 5,500 Asset loss reserves 379 250 Tax inventory over book 738 642 Deferred compensation liabilities 53 65 Vacation accruals 317 265 Other accruals 236 397 Deferred financing costs and other 65 100 -------- -------- Total deferred tax assets 8,581 7,219 Valuation allowance (5,315) (4,151) -------- -------- Net deferred tax assets 3,266 3,068 Deferred tax liabilities - tax over book depreciation 3,266 3,068 -------- -------- Net deferred taxes $ - $ - ======== ========
-40- 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1998 and 1997, the Company's valuation allowance increased by $1,164,000 and $1,216,000, respectively, primarily due to increased federal net operating loss carryforwards that the Company fully reserved for at December 31, 1998 and 1997. At December 31, 1998, the Company had net operating loss carryforwards for federal income tax purposes of $12,195,000, which expire in the years 2005 through 2013, and alternative minimum tax credits of $1,046,000, which can be used to offset future payments of regular federal income taxes, if any, without any time limitations. NOTE 10 -- SEGMENTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION At December 31, 1998, the Company adopted "Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way public enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports. FAS 131 also establishes standards for related disclosures about products, geographic areas, and major customers. FAS 131 superseded "Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise." FAS 131 requires financial information to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The adoption of FAS 131 by the Company during 1998 did not affect the results of operations or the financial position of the Company. DESCRIPTION OF PRODUCTS Lexington Precision Corporation has two operating segments, the Rubber Group and the Metals Group. The Rubber Group consists of four divisions, Lexington Connector Seals, Lexington Insulators, Lexington Medical, and Lexington Technologies. The Rubber Group produces seals used in automotive wiring systems and insulators for automotive ignition wire sets. The Rubber Group also produces components for medical devices. Lexington Technologies manufactures molds that are sold to customers of the other divisions of the Rubber Group. The molds are used by the other divisions to make components for their customers. The Metals Group consists of three divisions, Lexington Die Casting and the Arizona and New York Divisions of Lexington Machining. The Metals Group produces metal components for sale to automotive suppliers, industrial equipment manufacturers, and manufacturers of computer and office equipment. The Rubber Group and the Metals Group conduct substantially all of their business in the continental United States. MEASUREMENT OF SEGMENT PROFIT OR LOSS The Company evaluates performance based on several measures, including income from operations and earnings before interest, income taxes, depreciation, and amortization ("EBITDA"). (EBITDA is not a measure of performance under generally accepted accounting principles. While EBITDA should not be used as a substitute for net income, cash flows from operating activities, or other operating or cash flow statement data prepared in accordance with generally accepted accounting -41- 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS principles, management believes that it may be used by certain investors as supplemental information to evaluate a company's financial performance, including its ability to incur and/or service debt. In addition, the definition of EBITDA used in this Form 10-K may not be the same as the definition of EBITDA used by other companies.) The accounting policies of the Company's operating segments are the same as those described in Note 1 --Summary of Significant Accounting Policies, except that debt, interest expense, and income tax expense are recorded at the parent company level and not allocated to the segments. Expenses at the parent Company level that are not considered direct expenses of the operating segments, are not allocated to the segments for purposes of evaluating operating performance. FACTORS MANAGEMENT USED TO IDENTIFY REPORTABLE SEGMENTS Although all of the Company's production divisions are similar manufacturing operations, selling to similar customers, the Company presents financial data for two operating segments because of the significant difference in financial performance between operations that manufacture components from rubber (the "Rubber Group") and those operations that manufacture components from metal (the "Metals Group"). INDUSTRY CONCENTRATION; RELIANCE ON LARGE CUSTOMERS During 1998, 1997, and 1996, net sales to customers in the automotive industry totaled $103,052,000, $88,961,000, and $79,832,000, respectively, which represented 81.3%, 75.0%, and 69.5%, respectively, of the Company's net sales. At December 31, 1998 and 1997, accounts receivable from automotive customers totaled $15,047,000 and $13,649,000, 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, 1998 and 1997, the Company had reserves for credit losses of $197,000 and $211,000, respectively. During 1998, 1997, and 1996, net sales to Delphi Packard Electric Systems, a division of Delphi Automotive Systems Corporation, of which General Motors Corporation is the majority shareholder, totaled $26,233,000, $26,447,000, and $25,088,000, which represented 20.7%, 22.3%, and 21.8%, respectively, of the Company's net sales and 28.3%, 32.6%, and 33.4%, respectively, of the Rubber Group's net sales. Also in 1998, net sales to Prestolite Wire Corporation totaled $14,431,000, which represented 11.4% of the Company's net sales and 15.6% 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 1998, 1997, or 1996. In 1998, the three largest customers of the Rubber Group, including Delphi Packard and Prestolite Wire, accounted for 50.1% of the Rubber Group's net sales. In 1998, the three largest customers of the Metals Group accounted for 35.3% of the Metals Group's net sales. At December 31, 1998, accounts receivable from the Company's three largest customers totaled $5,769,000. The Company believes that there is limited credit risk in the accounts receivable from its three largest customers. Loss of a significant amount of business from Delphi Packard, Prestolite Wire, or any of the Company's other large customers could have a severe impact on the Company if such business were not substantially replaced by additional business from existing or new customers. -42- 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the first quarter of 1997, the Company and Delphi Packard 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. Under the terms of the agreement, (1) the Company agreed to sell and Delphi Packard agreed to purchase approximately 100% of Delphi Packard's requirements for all specified component parts, (2) the Company warranted that the specified components will remain competitive in terms of technology, design, and quality, (3) the selling prices of the specified components will be adjusted to reflect increases or decreases in material costs, and (4) the selling prices of the specified components will be reduced by certain specified amounts in each of the five years covered by the agreement. Although no assurance can be given, the Company currently believes that a portion of the price reductions granted to Delphi Packard will be offset through reductions in direct manufacturing costs and that a portion of the price reductions will be offset by greater absorption of manufacturing overhead as a result of volume increases. -43- 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEGMENT FINANCIAL DATA Information relating to the Company's operating segments and the corporate office for 1998, 1997, and 1996 is summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ---------------------------------------- 1998 1997 1996 ---- ---- ---- NET SALES: Rubber Group $ 92,610 $ 81,210 $ 75,122 Metals Group 34,107 37,421 39,750 ---------- ---------- ---------- Total net sales $ 126,717 $ 118,631 $ 114,872 ========== ========== ========== INCOME/(LOSS) FROM OPERATIONS: Rubber Group $ 13,301 $ 11,459 $ 10,822 Metals Group (4,074) (1,580) (219) ---------- ---------- ---------- Subtotal 9,227 9,879 10,603 Corporate office (2,029) (2,095) (2,038) ---------- ---------- ---------- Total income from operations $ 7,198 $ 7,784 $ 8,565 ========== ========== ========== ASSETS: Rubber Group $ 67,255 $ 64,782 $ 63,008 Metals Group 38,788 36,983 31,994 ---------- ---------- ---------- Subtotal 106,043 101,765 95,002 Corporate office 2,282 2,359 2,028 ---------- ---------- ---------- Total assets $ 108,325 $ 104,124 $ 97,030 ========== ========== ========== DEPRECIATION AND AMORTIZATION: Rubber Group $ 7,476 $ 6,676 $ 5,596 Metals Group 3,957 3,141 2,638 ---------- ---------- ---------- Subtotal 11,433 9,817 8,234 Corporate office 216 192 462 ---------- ---------- ---------- Total depreciation and amortization $ 11,649 $ 10,009 $ 8,696 ========== ========== ========== CAPITAL EXPENDITURES: Rubber Group $ 8,382 $ 6,835 $ 8,828 Metals Group 6,422 8,935 6,852 ---------- ---------- ---------- Subtotal 14,804 15,770 15,680 Corporate office 73 20 28 ---------- ---------- ---------- Total capital expenditures $ 14,877 $ 15,790 $ 15,708 ========== ========== ==========
-44- 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 -- OTHER INCOME In December 1997, the Company received a payment in the amount of $425,000 in settlement of litigation. NOTE 12 -- NET INCOME OR LOSS PER COMMON SHARE The calculations of basic and diluted net income or loss per common share for 1998, 1997, and 1996 are set forth below (in thousands, except per share amounts). Because the effect of the Company's dilutive securities (the 14% junior subordinated convertible notes, the $8 cumulative convertible redeemable preferred stock, series B, and in 1996, employee stock options) was antidilutive for 1998, 1997, and 1996, such conversion was not included in the calculation of diluted net loss per common share set forth below.
YEARS ENDED DECEMBER 31 -------------------------------- 1998 1997 1996 ---- ---- ---- Net loss $ (2,706) $ (1,528) $ (17) Preferred stock dividends (33) (37) (41) Excess of redemption value over par value of preferred stock redeemed during year (45) (45) (45) --------- -------- -------- Net loss attributable to common stockholders (numerator) (2,784) (1,610) (103) ========= ======== ======== Weighted-average common shares (denominator) 4,263 4,263 4,250 ========= ======== ======== Basic and diluted net loss per common share $ (0.65) $ (0.38) $ (0.02) ========= ======== ========
NOTE 13 -- COMMITMENTS AND CONTINGENCIES PURCHASE COMMITMENTS At December 31, 1998, the Company had commitments for the purchase of plant and equipment totaling approximately $2,462,000. LEASES The Company is lessee under various operating leases relating to storage and office space, temporary office units, and equipment. Total rent expense under operating leases aggregated $314,000, $298,000, and $263,000 for 1998, 1997, and 1996, respectively. At December 31, 1998, future minimum lease commitments under noncancelable 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 -45- 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as one of numerous potentially responsible parties under applicable environmental laws for restoration costs at waste-disposal sites, as a third-party defendant in cost-recovery actions pursuant to applicable environmental laws, and as a defendant or potential defendant in various other matters. It is the Company's policy to record accruals for such matters when a loss is deemed probable and the amount of such loss can be reasonably estimated. The various actions to which the Company is or may be a party in the future are at various stages of completion. Although there can be no assurance as to the outcome of existing or potential litigation, in the event such litigation were commenced, based upon the information currently available to the Company, the Company believes that the outcome of such actions would not have a material adverse effect upon its financial position. LETTERS OF CREDIT At December 31, 1998 and 1997, the Company had outstanding irrevocable letters of credit totaling $736,000 and $1,068,000, respectively. The letters of credit guaranteed certain payments that may be required under the Company's self-insured workers' compensation program. OTHER The Company maintains insurance coverage for certain aspects of its business and operations. Based on the Company's evaluation of the various risks that it may potentially be exposed to, the Company has elected to retain a portion of the potential losses that it could experience in the future through the use of various deductibles, limits, and retentions. These forms of self-insurance subject the Company to possible future liability for which it is partially or completely uninsured. Although there can be no assurance, the Company attempts to limit future liability through, among other things, the ongoing training and education of its employees, the use of safety programs, the ongoing testing and evaluation of the safety and suitability of its workplace environments, the development of sound business practices, and the exercise of care and judgment in the negotiation of contracts. NOTE 14 -- RELATED PARTIES The Chairman of the Board and the President of the Company are the two largest holders of the Company's common stock, the holders of the 14% junior subordinated notes, and 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 is retained by the Company to provide management and investment banking services. The annual fee for such services has been set at $500,000 for 1999. 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 each of 1998 and 1997, the Company paid the firm fees of $400,000 and reimbursed it for direct and indirect expenses of $200,000. During 1996, the Company paid the firm fees of $400,000 and incentive compensation of $150,000 as a result of the Company's operating performance during 1995 and reimbursed it for direct and indirect expenses of $200,000. -46- 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Secretary of the Company, who is also a member of the Company's Board of Directors, was a stockholder of a professional corporation that was, until December 31, 1997, a partner in a law firm that serves as general counsel to the Company. During 1997 and 1996, the Company made payments to the law firm for legal services in the amounts of $395,000 and $442,000, respectively. NOTE 15 -- SUBSEQUENT EVENT In January 1999, the Company repurchased $3,808,000 principal amount of its 12.75% senior subordinated notes for $1,980,000 plus accrued interest. Funds for the repurchase were provided by increased borrowings under the Company's revolving line of credit. The Company estimates that the extraordinary gain from the repurchase, net of estimated taxes, will total approximately $1,462,000. -47- 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -48- 51 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 1999 Annual Meeting of Stockholders and to be filed with the Securities and Exchange Commission (the "Commission") not later than 120 days after December 31, 1998. 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 1999 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1998. 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 1999 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1998. 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 1999 Annual Meeting of Stockholders and to be filed with the Commission not later than 120 days after December 31, 1998. -49- 52 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 subsidiaries, Lexington Components, Inc. ("LCI") and Lexington Precision GmbH, 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 58. All other schedules are omitted because the required information is not applicable, not material, or included in the consolidated financial statements or the 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 3-15 Certificate of Amendment of Restated Certificate of Incorporation dated September 26, 1984 -50- 53 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 3-31 Certificate of Retirement of Stock dated January 9, 1998 3-32 Certificate of Retirement of Stock dated January 13, 1999 4-1 Certificate of Designations, Preferences, Rights and Number of Shares of Redeemable 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 -51- 54 4-4 Recapitalization Agreement dated as of April 27, 1990, between the Company and L&D Woolens Limited Partnership ("L&D 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 4-9 Note Purchase Agreement dated October 27, 1997, between the Company and Nomura Holding America, Inc. ("Nomura") 4-10 Specimen of 10.5% Senior Unsecured Note due February 1, 2000, from the Company to Nomura 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 1998 Compensation Arrangements with Lubin, Delano, & Company 10-7 *Corporate Office 1998 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 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 -52- 55 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 L&D Woolens and exhibits thereto 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 Die Casting, Inc. 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 -53- 56 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 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 10-32 Amendment to Financing Agreements dated August 1,1995, from LCI in favor of Congress 10-33 Amendment to Financing Agreements dated January 16, 1996, from the Company in favor of Congress 10-34 Term Promissory Note dated January 16, 1996, in the amount of $375,000 from the Company in favor of Congress 10-35 Term Promissory Note dated January 16, 1996, in the amount of $450,000 from the Company in favor of Congress 10-36 Letter Agreement dated February 28, 1996, from the Company in favor of Congress amending certain financing agreements and consent thereto of Congress 10-37 Amendment to Financing Agreements and Consent dated March 14, 1996, from the Company in favor of Congress 10-38 Amendment to Financing Agreements and Consent dated March 14, 1996, from LCI in favor of Congress 10-39 Term Note dated May 31, 1996, from the Company in favor of Congress 10-40 Amendment to Financing Agreements dated August 21, 1996, from LCI in favor of Congress 10-41 Amendment to Financing Agreements dated August 21, 1996, from the Company in favor of Congress 10-42 Amendment to Financing Agreements dated January 31, 1997, from the Company in favor of Congress 10-43 Amendment to Financing Agreements dated January 31, 1997, from LCI in favor of Congress -54- 57 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 ("Bank One") 10-45 Promissory Note (Equipment Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One 10-46 Promissory Note (North Canton Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One 10-47 Promissory Note (Vienna Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One 10-48 Promissory Note (Casa Grande Note) dated January 31, 1997, from the Company and LCI in favor of Bank One 10-49 Promissory Note (LaGrange Term Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One 10-50 Promissory Note (North Canton Equipment Loan) dated January 31, 1997, from the Company and LCI in favor of Bank One 10-51 Fourth Amended and Restated Promissory Note dated March 11, 1997, from LCI in favor of Congress 10-52 Fourth Amended and Restated Promissory Note dated March 11, 1997, from the Company in favor of Congress 10-53 Amendment to Financing Agreements dated March 11, 1997, from LCI in favor of Congress 10-54 Amendment to Financing Agreements dated March 11, 1997, from the Company in favor of Congress 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. ("CIT") 10-56 Promissory Note dated March 19, 1997, from the Company in favor of CIT 10-57 **Additional Purchase Order Provisions Lifetime Contract Between Delphi Packard Electric Systems and Lexington Connector Seals 10-58 Amendment to Financing Agreements and Consent dated April 17, 1997, between the Company and Congress 10-59 Amendment to Financing Agreements and Consent dated April 17, 1997, between LCI and Congress -55- 58 10-60 First Amendment Agreement dated April 17, 1997, between the Company, LCI, and Bank One 10-61 Specimen of Amended and Restated Promissory Note dated April 17, 1997, of the Company and LCI to Bank One 10-62 Specimen of Promissory Note dated August 29, 1997, from the Company to CIT 10-63 Note Purchase Agreement dated October 27, 1997, between the Company and Nomura 10-64 Specimen of 10.5% Senior Unsecured Note due February 1, 2000, from the Company to Nomura 10-65 Amendment No. 1 to Credit Facility and Security Agreement dated December 31, 1997, between the Company, LCI, and Bank One 10-66 Amendment No. 2 to Credit Facility and Security Agreement dated March 20, 1998, between the Company, LCI, and Bank One 10-67 Promissory Note dated March 31, 1998, from the Company in favor of CIT 10-68 New Equipment Term Note dated June 26, 1998, from the Company in favor of Congress 10-69 Second Amendment Agreement dated May 1, 1998, from LCI in favor of Paul H. Pennell 10-70 Amendment No. 1 to Loan and Security Agreement dated June 30, 1998, between the Company and CIT 10-71 Amendment No. 3 to Credit Facility and Security Agreement dated June 30, 1998, between the Company, LCI, and Bank One 10-72 Amendment to Financing Agreements and Consent dated August 13, 1998, between the Company and Congress 10-73 Amendment to Financing Agreements and Consent dated August 13, 1998, between LCI and Congress 10-74 Amendment to Financing Agreements and Consent dated October 20, 1998, between the Company and Congress 10-75 Amendment to Financing Agreements and Consent dated October 20, 1998, between LCI and Congress 10-76 Amendment No. 2 to Loan and Security Agreement dated November 30, 1998, between the Company and CIT -56- 59 10-77 New Equipment Term Note dated December 16, 1998, between the Company and Congress 10-78 Amendment to Financing Agreements dated January 28, 1999, between the Company and Congress 10-79 Amendment to Financing Agreements dated January 28, 1999, between LCI and Congress 10-80 Term Promissory Note dated January 28, 1999, between LCI and Congress 10-81 Term Promissory Note dated January 28, 1999, between LPC and Congress 10-82 Fifth Amended and Restated Promissory Note dated January 28, 1999, between the Company and Congress 10-83 Amendment No. 6 to Credit Facility and Security Agreement dated January 31, 1999, between the Company, LCI, and Bank One 10-84 Fifth Amendment Agreement dated March 10, 1999, between the Company, LCI, and Bank One 10-85 Promissory Note (Additional Equipment Term Loan) dated March 10, 1999, between the Company, LCI, and Bank One 10-86 Promissory Note dated March 30, 1999, between the Company and CIT 10-87 Amendment No. 3 to Loan and Security Agreement dated March 30, 1999, between the Company and CIT 21-1 Significant 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). ** This Exhibit has been filed in redacted form pursuant to an order granting confidential treatment, issued by the Securities and Exchange Commission (the "Commission") dated October 6, 1997 *** 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 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, 1998. -57- 60 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, 1998 $ 211 $ 1 $ 15 $ 197 Year ended December 31, 1997 156 57 2 211 Year ended December 31, 1996 175 21 40 156 INVENTORY RESERVE ----------------- Year ended December 31, 1998 $ 450 $ 208 $ 67 $ 591 Year ended December 31, 1997 321 212 83 450 Year ended December 31, 1996 374 37 90 321
-58- 61 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 30, 1999 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 30, 1999: PRINCIPAL EXECUTIVE OFFICERS AND DIRECTORS: /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 -59- 62 EXHIBIT INDEX
Exhibit Number Exhibit Location - ------ ------- -------- 3-1 Articles of Incorporation and Incorporated by reference from Exhibit Restatement thereof 3-1 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 Filed with this Form 10-K 3-3 Certificate of Correction dated Incorporated by reference from Exhibit September 21, 1976 3-3 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 Incorporated by reference from Exhibit Merger dated May 24, 1977 3-4 to 1983 10-K 3-5 Certificate of Ownership and Incorporated by reference from Exhibit Merger dated May 31, 1977 3-5 to 1983 10-K 3-6 Certificate of Reduction of Incorporated by reference from Exhibit Capital dated December 30, 1977 3-6 to 1983 10-K 3-7 Certificate of Retirement of Incorporated by reference Preferred Shares dated from Exhibit 3-7 to 1983 December 30, 1977 10-K 3-8 Certificate of Reduction of Incorporated by reference from Exhibit Capital dated December 28, 3-8 to 1983 10-K 1978 3-9 Certificate of Retirement of Incorporated by reference from Exhibit Preferred Shares dated 3-9 to 1983 10-K December 28, 1978 3-10 Certificate of Reduction of Incorporated by reference from Exhibit Capital dated January 9, 3-10 to 1983 10-K 1979 3-11 Certificate of Reduction of Incorporated by reference from Exhibit 3-11 Capital dated December 20, 1979 to 1983 10-K 3-12 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-12 to 1983 Shares dated December 20, 1979 10-K 3-13 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-13 to 1983 December 16, 1982 10-K 3-14 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-14 to 1983 December 17, 1982 10-K
63 -2- 3-15 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-15 to the Certificate of Incorporation dated Company's Form 10-K for the year ended May 31, September 26, 1984 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 to the September 24, 1986 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 to the Certificate of Incorporation dated Company's Form 10-K for the year ended May 31, November 21, 1986 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 to January 15, 1987 Amendment No. 1 to 1933 Act Registration Statement 3-19 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-19 to the February 22, 1988 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 to Certificate of Incorporation dated May 31, 1989 10-K January 6, 1989 3-21 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-21 to August 17, 1989 May 31, 1989 10-K 3-22 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-22 to the January 9, 1990 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 to the Preferences and Relative Participating, Company's Form 10-Q for the quarter ended Optional and Other Special Rights of November 30, 1989 located under Securities and 12% Cumulative Convertible Exchange Commission File No. 0-3252 Exchangeable Preferred Stock, Series C, ("November 30, 1989 10-Q") and the Qualifications, Limitations and Restrictions thereof dated January 10, 1990 3-24 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-24 to dated April 25, 1990 December 31, 1989 10-K
64 -3- 3-25 Certificate of Elimination of 12% Incorporated by reference from Exhibit 3-25 to the Cumulative Convertible Exchangeable Company's Form 10-K for the year ended Preferred Stock, Series C, dated December 31, 1990 located under Securities and June 4, 1990 Exchange Commission File No. 0-3252 ("1990 10-K") 3-26 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-26 to 1990 March 6, 1991 10-K 3-27 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-27 to 1994 April 29, 1994 10-K 3-28 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-28 to 1994 January 6, 1995 10-K 3-29 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-29 to 1995 January 5, 1996 10-K 3-30 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-30 to 1996 January 6, 1997 10-K 3-31 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-31 to 1997 January 9, 1998 10-K 3-32 Certificate of Retirement of Stock dated Filed with this Form 10-K January 13, 1999 4-1 Certificate of Designations, Preferences, Incorporated by reference from Exhibit 3-3 to 1981 Rights and Number of Shares of 10-K Redeemable Preferred Stock, Series B 4-2 Purchase Agreement dated as of Incorporated by reference from Exhibit 4-1 to the February 7, 1985, between the Company Company's Form 8-K dated February 7, 1985 (date and L&D Precision Limited Partnership of earliest event reported) located under Securities ("L&D Precision") and exhibits thereto and Exchange Commission File No. 0-3252 4-3 Amendment Agreement dated as of Incorporated by reference from Exhibit 10-2 to 1990 April 27, 1990, between the Company and 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 to April 27, 1990, between the Company and December 31, 1989 10-K L&D Woolens Limited Partnership ("L&D Woolens") and exhibits thereto 4-5 Specimen of Junior Subordinated Incorporated by reference from Exhibit 4-11 to Convertible Increasing Rate Note, due December 31, 1989 10-K May 1, 2000
65 -4- 4-6 Specimen of 14% Junior Subordinated Incorporated by reference from Exhibit 10-2 to the Note, due May 1, 2000 Company's Form 8-K dated December 10,1993 (date of earliest event reported) located under Securities and Exchange Commission File No. 0-3252 4-7 Indenture dated as of August 1, 1993, Incorporated by reference from Exhibit 4-2 to the between the Company and IBJ Schroder Company's Form 8-K dated January 18, 1994 (date Bank & Trust Company, as Trustee of earliest event reported) located under Securities and Exchange Commission File No. 0-3252 4-8 Specimen of 12.75% Senior Subordinated Included in Exhibit 4-7 hereto Note, due February 1, 2000 4-9 Note Purchase Agreement dated Incorporated by reference from Exhibit 10-2 to the October 27, 1997, between the Company Company's Form 10-Q for the quarter ended and Nomura Holding America, Inc. June 30, 1997 located under Securities and ("Nomura") Exchange Commission File No. 0-3252 ("June 30, 1997 Form 10-Q") 4-10 Specimen of 10.5% Senior Unsecured Incorporated by reference from Exhibit 10-3 to Note due February 1, 2000, from the June 30, 1997 Form 10-Q Company to Nomura 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 to the Compensation Plan, as amended 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") 10-4 1986 Restricted Stock Award Plan, as Incorporated by reference from Exhibit 10-38 to amended December 31, 1989 10-K 10-5 Lexington Precision Corporation Filed with this Form 10-K Retirement and Savings Plan, as amended 10-6 Description of 1998 Compensation Filed with this Form 10-K Arrangements with Lubin, Delano, & Company
66 -5- 10-7 Corporate Office 1998 Management Cash Filed with this Form 10-K Bonus Plan 10-8 Consent and Amendment Letter Incorporated by reference from Exhibit 10-1 to the Agreement between Chemical Bank of Company's Form 8-K dated December 30, 1993 New Jersey and the Company dated as of (date of earliest event reported) located under December 29, 1993 Securities and Exchange Commission File No. 0-3252 10-9 Promissory Note dated November 30, Incorporated by reference from Exhibit 10-32 to 1988, of LCI payable to the order of Paul May 31, 1989 10-K H. Pennell in the original principal amount of $3,530,000 10-10 Guaranty dated as of November 30, Incorporated by reference from Exhibit 10-33 to 1988, from the Company to Paul H. May 31, 1989 10-K Pennell 10-11 Amendment Agreement dated as of Incorporated by reference from Exhibit 10-28 to November 30, 1991, between LCI and 1991 10-K Paul H. Pennell 10-12 Release and Notice Agreement dated as Incorporated by reference from Exhibit 10-40 to the of March 31, 1993, between LCI and Company's Form 10-K for the year ended Paul H. Pennell 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 L&D Woolens and exhibits thereto 10-14 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-2 to Agreement] dated as of January 11, November 30, 1989 10-Q 1990, between Congress Financial Corporation ("Congress") and the Company 10-15 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-3 to Agreement] dated as of January 11, November 30, 1989 10-Q 1990, between Congress and LCI 10-16 Covenants Supplement to Accounts Incorporated by reference from Exhibit 10-49 to Financing Agreement [Security 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 10-50 to Financing Agreement [Security 1990 10-K Agreement] dated as of January 11, 1990, between Congress and LCI
67 -6- 10-18 Letter dated April 11, 1990, from the Incorporated by reference from Exhibit 10-51 to Company and Wise Die Casting, Inc. to 1990 10-K Congress 10-19 Letter Agreement dated February 28, Incorporated by reference from Exhibit 10-54 to 1991, between the Company and 1990 10-K Congress amending certain financing agreements and consent thereto of LCI 10-20 Letter Agreement dated February 28, Incorporated by reference from Exhibit 10-56 to 1991, between LCI and Congress 1990 10-K amending certain financing agreements and consent thereto of the Company 10-21 Letter Agreement dated January 14, Incorporated by reference from Exhibit 10-26 to the 1994, between the Company and Company's Form 10-K for the year ended Congress amending certain financing December 31, 1993 located under Securities and agreements and consent thereto of LCI Exchange Commission File No. 0-3252 ("1993 10-K") 10-22 Letter Agreement dated January 14, Incorporated by reference from Exhibit 10-27 to 1994, between LCI and Congress 1993 10-K amending certain financing agreements and consent thereto of the Company 10-23 Letter Agreement dated March 25, 1994, Incorporated by reference from Exhibit 10-30 to between Congress and the Company, and 1993 10-K consent thereto of LCI 10-24 Letter Agreement dated March 25, 1994, Incorporated by reference from Exhibit 10-31 to between Congress and LCI, and consent 1993 10-K thereto of the Company 10-25 Letter Agreement dated as of Incorporated by reference from Exhibit 10-1 to the August 1, 1994, between the Company Company's Form 10-Q for the quarter ended and Congress amending certain financing September 30, 1994 located under Securities and agreements and consent thereto of LCI Exchange Commission File No. 0-3252 ("September 30, 1994 10-Q") 10-26 Letter Agreement dated as of Incorporated by reference from Exhibit 10-2 to August 1, 1994, between LCI and September 30, 1994 10-Q Congress amending certain financing agreements and consent thereto of the Company 10-27 Trade Financing Agreement Supplement Incorporated by reference from Exhibit 10-3 to to Accounts Financing Agreement September 30, 1994 10-Q [Security Agreement] dated as of July 19, 1994, between the Company and Congress
68 -7- 10-28 Letter Agreement dated January 13, Incorporated by reference from Exhibit 10-32 to 1995, between LCI and Congress 1994 Form 10-K amending certain financing agreements and consent thereto of the Company 10-29 Letter Agreement dated January 31, Incorporated by reference from Exhibit 10-34 to 1995, between the Company and 1994 Form 10-K Congress amending certain financing agreements and consent thereto of LCI 10-30 Letter Agreement dated January 31, Incorporated by reference from Exhibit 10-36 to 1995, between LCI and Congress 1994 Form 10-K amending certain financing agreements and consent thereto of the Company 10-31 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-1 to the dated August 1, 1995, from the Company Company's Form 10-Q for the quarter ended in favor of Congress 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 Incorporated by reference from Exhibit 10-2 to dated August 1,1995, from LCI in favor September 30, 1995 Form 10-Q of Congress 10-33 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-49 to the dated January 16, 1996, from the Company's Form 10-K for the year ended Company in favor of Congress December 31, 1995 located under Securities and Exchange Commission File No.0-3252 ("1995 Form 10-K") 10-34 Term Promissory Note dated Incorporated by reference from Exhibit 10-50 to January 16, 1996, in the amount of 1995 Form 10-K $375,000 from the Company in favor of Congress 10-35 Term Promissory Note dated Incorporated by reference from Exhibit 10-51 to January 16, 1996, in the amount of 1995 Form 10-K $450,000 from the Company in favor of Congress 10-36 Letter Agreement dated February 28, Incorporated by reference from Exhibit 10-62 to 1996, from the Company in favor of 1995 Form 10-K Congress amending certain financing agreements and consent thereto of Congress 10-37 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-63 to and Consent dated March 14, 1996, from 1995 Form 10-K the Company in favor of Congress
69 -8- 10-38 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-64 to and Consent dated March 14, 1996, from 1995 Form 10-K LCI in favor of Congress 10-39 Term Note dated May 31, 1996, from the Incorporated by reference from Exhibit 10-1 to the Company in favor of Congress Company's Form 10-Q for the quarter ended June 30, 1996 located under Securities and Exchange Commission File No. 0-3252 10-40 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-3 to the dated August 21, 1996, from LCI in favor Company's Form 10-Q for the quarter ended of Congress 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 Incorporated by reference from Exhibit 10-4 to dated August 21, 1996, from the September 30, 1996 Form 10-Q Company in favor of Congress 10-42 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-42 to the dated January 31, 1997, from the Company's Form 10-K for the year ended Company in favor of Congress December 31, 1996 located under Securities and Exchange Commission File No. 0-3252 ("1996 Form 10-K") 10-43 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-43 to dated January 31, 1997, from LCI in favor 1996 Form 10-K of Congress 10-44 Credit Facility and Security Agreement Incorporated by reference from Exhibit 10-44 to and Rider A to Credit Facility and 1996 Form 10-K Security Agreement dated January 31, 1997, from the Company and LCI in favor of Bank One, Akron, NA ("Bank One") 10-45 Promissory Note (Equipment Term Loan) Incorporated by reference from Exhibit 10-45 to dated January 31, 1997, from the 1996 Form 10-K Company and LCI in favor of Bank One 10-46 Promissory Note (North Canton Term Incorporated by reference from Exhibit 10-46 to Loan) dated January 31, 1997, from the 1996 Form 10-K Company and LCI in favor of Bank One 10-47 Promissory Note (Vienna Term Loan) Incorporated by reference from Exhibit 10-47 to dated January 31, 1997, from the 1996 Form 10-K Company and LCI in favor of Bank One 10-48 Promissory Note (Casa Grande Note) Incorporated by reference from Exhibit 10-48 to dated January 31, 1997, from the 1996 Form 10-K Company and LCI in favor of Bank One
70 -9- 10-49 Promissory Note (LaGrange Term Loan) Incorporated by reference from Exhibit 10-49 to dated January 31, 1997, from the 1996 Form 10-K Company and LCI in favor of Bank One 10-50 Promissory Note (North Canton Incorporated by reference from Exhibit 10-50 to Equipment Loan) dated January 31, 1997, 1996 Form 10-K from the Company and LCI in favor of Bank One 10-51 Fourth Amended and Restated Promissory Incorporated by reference from Exhibit 10-51 to Note dated March 11, 1997, from LCI in 1996 Form 10-K favor of Congress 10-52 Fourth Amended and Restated Promissory Incorporated by reference from Exhibit 10-52 to Note dated March 11, 1997, from the 1996 Form 10-K Company in favor of Congress 10-53 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-53 to dated March 11, 1997, from LCI in favor 1996 Form 10-K of Congress 10-54 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-54 to dated March 11, 1997, from the Company 1996 Form 10-K in favor of Congress 10-55 Loan and Security Agreement and Rider Incorporated by reference from Exhibit 10-55 to A to Loan and Security Agreement dated 1996 Form 10-K March 19, 1997, from the Company in favor of The CIT Group/Equipment Financing, Inc. ("CIT") 10-56 Promissory Note dated March 19, 1997, Incorporated by reference from Exhibit 10-56 to from the Company in favor of CIT 1996 Form 10-K 10-57 Additional Purchase Order Provisions Incorporated by reference in redacted form pursuant Lifetime Contract Between Delphi to Rule 24b-2 from Exhibit 10-57 to 1996 Form Packard Electric Systems and Lexington 10-K Connector Seals 10-58 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-1 to the and Consent dated April 17, 1997, Company's Form 10-Q for the quarter ended between the Company and Congress March 31, 1997 located under Securities and Exchange Commission File No. 0-3252 ("March 31, 1997 Form 10-Q") 10-59 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-2 to and Consent dated April 17, 1997, March 31, 1997 Form 10-Q between LCI and Congress
71 -10- 10-60 First Amendment Agreement dated Incorporated by reference from Exhibit 10-3 to April 17, 1997, among the Company, March 31, 1997 Form 10-Q LCI, and Bank One 10-61 Specimen of Amended and Restated Incorporated by reference from Exhibit 10-4 Promissory Note dated April 17, 1997, of March 31, 1997 Form 10-Q the Company and LCI to Bank One 10-62 Specimen of Promissory Note dated Incorporated by reference from Exhibit 10-1 to the August 29, 1997, from the Company to Company's Form 10-Q for the quarter ended CIT June 30, 1997 located under Securities and Exchange Commission File No. 0-3252 ("June 30, 1997 Form 10-Q") 10-63 Note Purchase Agreement dated Incorporated by reference from Exhibit 10-2 to October 27, 1997, between the Company June 30, 1997 Form 10-Q and Nomura 10-64 Specimen of 10.5% Senior Unsecured Incorporated by reference from Exhibit 10-3 to Note due February 1, 2000, from the June 30, 1997 Form 10-Q Company to Nomura 10-65 Amended No. 1 to Credit Facility and Incorporated by reference from Exhibit 10-65 to the Security Agreement dated December 31, Company's Form 10-K for the year ended 1997, between the Company, LCI, and December 31, 1997 located under Securities and Bank One Exchange Commission File No. 0-3252 ("1997 Form 10-K") 10-66 Amendment No. 2 to Credit Facility and Incorporated by reference from Exhibit 10-66 to Security Agreement dated March 20, 1997 Form 10-K 1998, between the Company, LCI, and Bank One 10-67 Promissory Note dated March 31, 1998, Incorporated by reference from Exhibit 10-1 to the from the Company in favor of CIT Company's Form 10-Q for the quarter ended March 31, 1998 located under Securities and Exchange Commission File No. 0-3252 ("March 31, 1998 Form 10-Q") 10-68 New Equipment Term Note dated Incorporated by reference from Exhibit 10-1 to the June 26, 1998, from the Company in Company's Form 10-Q for the quarter ended favor of Congress June 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("June 30, 1998 Form 10-Q") 10-69 Second Amendment Agreement dated Incorporated by reference from Exhibit 10-2 to the May 1, 1998, from LCI in favor of Paul Company's Form 10-Q for the quarter ended H. Pennell June 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("June 30, 1998 Form 10-Q")
72 -11- 10-70 Amendment No. 1 to Loan and Security Incorporated by reference from Exhibit 10-1 to the Agreement dated June 30, 1998, between Company's Form 10-Q for the quarter ended the Company and CIT September 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1998 Form 10-Q") 10-71 Amendment No. 3 to Credit Facility and Incorporated by reference from Exhibit 10-2 to the Security Agreement dated June 30, 1998, Company's Form 10-Q for the quarter ended between the Company, LCI, and Bank September 30, 1998 located under Securities and One Exchange Commission File No. 0-3252 ("September 30, 1998 Form 10-Q") 10-72 Amendment to Financing Agreements and Incorporated by reference from Exhibit 10-3 to the Consent dated August 13, 1998, between Company's Form 10-Q for the quarter ended the Company and Congress September 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1998 Form 10-Q") 10-73 Amendment to Financing Agreements and Incorporated by reference from Exhibit 10-4 to the Consent dated August 13, 1998, between Company's Form 10-Q for the quarter ended LCI and Congress September 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1998 Form 10-Q") 10-74 Amendment to Financing Agreements and Incorporated by reference from Exhibit 10-5 to the Consent dated October 20, 1998, between Company's Form 10-Q for the quarter ended the Company and Congress September 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1998 Form 10-Q") 10-75 Amendment to Financing Agreements and Incorporated by reference from Exhibit 10-6 to the Consent dated October 20, 1998, between Company's Form 10-Q for the quarter ended LCI and Congress September 30, 1998 located under Securities and Exchange Commission File No. 0-3252 ("September 30, 1998 Form 10-Q") 10-76 Amendment No. 2 to Loan and Security Filed with this Form 10-K Agreement dated November 30, 1998, between the Company and CIT 10-77 New Equipment Term Note dated Filed with this Form 10-K December 16, 1998, between the Company and Congress 10-78 Amendment to Financing Agreements Filed with this Form 10-K dated January 28, 1999, between the Company and Congress 10-79 Amendment to Financing Agreements Filed with this Form 10-K dated January 28, 1999, between LCI and Congress
73 -12- 10-80 Term Promissory Note dated January 28, Filed with this Form 10-K 1999, between LCI and Congress 10-81 Term Promissory Note dated January 28, Filed with this Form 10-K 1999, between LPC and Congress 10-82 Fifth Amended and Restated Promissory Filed with this Form 10-K Note dated January 28, 1999, between the Company and Congress 10-83 Amendment No. 6 to Credit Facility and Filed with this Form 10-K Security Agreement dated January 31, 1999, between the Company, LCI, and Bank One 10-84 Fifth Amendment Agreement dated Filed with this Form 10-K March 10, 1999, between the Company, LCI, and Bank One 10-85 Promissory Note (Additional Equipment Filed with this Form 10-K Term Loan) dated March 10, 1999, between the Company, LCI, and Bank One 10-86 Promissory Note dated March 30, 1999, Filed with this Form 10-K between the Company and CIT 10-87 Amendment No. 3 to Loan and Security Filed with this Form 10-K Agreement dated March 30, 1999, between the Company and CIT 21-1 Significant Subsidiary of Registrant Filed with this Form 10-K 27-1 Financial Data Schedule Filed with this Form 10-K
EX-3.2 2 EXHIBIT 3.2 1 Exhibit 3.2 BY-LAWS, AS AMENDED, OF LEXINGTON PRECISION CORPORATION (As Amended Through May 13, 1998) ARTICLE I OFFICES SECTION 1. The registered office of Lexington Precision Corporation, a Delaware corporation (hereinafter referred to as the "corporation"), within the State of Delaware is The Prentice-Hall Corporation System, Inc., 229 South State Street, Dover, Delaware 19901, County of Kent, and the name of its registered agent at that address is The Prentice-Hall Corporation System, Inc. SECTION 2. The corporation may also have offices at such places, either within or without the State of Delaware, as the board of directors may from time to time designate or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be stated in the notice of meeting or in a duly executed waiver thereof. SECTION 2. The annual meeting of stockholders shall be held on such date and at such hour as shall be designated each year by the board of directors. At such annual meeting, the stockholders shall elect a board of directors and transact such other business as may be properly brought before the meeting. SECTION 3. Special meetings of stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the corporation's certificate of incorporation, may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of a majority of the board of directors. Such request shall state the purpose of purposes of the proposed meeting. SECTION 4. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders, stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his 2 -2- address as it appears on the records of the corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 5. The officer who has charge of the stock transfer books of the corporation shall prepare and make, at the time and in the manner required by applicable law, a list of stockholders entitled to vote and shall make such list available for such purposes, at such places, at such times and to such persons as required by applicable law. The stock transfer books shall be the only evidence as to the identity of the stockholders entitled to examine the stock transfer books or to vote in person or by proxy at any meeting of stockholders. SECTION 6. The holders of a majority of the voting power of the issued and outstanding stock of the corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders, except as otherwise provided by statute or by the corporation's certificate of incorporation. The stockholders present and entitled to vote at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders entitled to vote to leave less than a quorum then present and represented provided that the action taken (other than an adjournment) is approved by at least a majority of the holders of stock required to constitute a quorum. Any stockholders' meeting, annual or special, whether or not a quorum is present or represented, may be adjourned from time to time by the vote of the holders of a majority of the stock entitled to vote thereat, the holders of which are either present in person or represented by proxy, or the chairman of the meeting, but in the absence of a quorum no other business may be transacted at such meeting. At any adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified, except for such business as was duly transacted at any earlier meeting. If the adjournment is for more than thirty days, or if after adjournment a new record date is set, a notice of the adjourned meeting shall be given as in the case of an original meeting to each stockholder of record entitled to vote at the meeting. SECTION 7. At each meeting of stockholders, the Chairman of the Board or, in his absence or inability to act, such other person as the board of directors may have designated shall call to order and act as chairman of the meeting. The Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 8. The order of business and the procedure at all meetings of the stockholders shall be as determined by title chairman of the meeting, unless otherwise prescribed by law or regulation. 3 -3- SECTION 9. Except as otherwise provided by statute or the corporation's certificate of incorporation, each stockholder of the corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the corporation standing in his name on the record of stockholders of the corporation (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these by-laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which, by express provision of statute or of the corporation's certificate of incorporation or of these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if represented by proxy, and shall state the number of shares voted. SECTION 10. The board of directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at, and make a written report of, such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or, if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the corporation outstanding and the voting power thereof, the number of shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, certify their determination of the number of shares represented at the meeting and shall receive votes or ballots, hear, determine and retain for a reasonable period a record of the disposition of, all challenges and questions arising in connection with the right to vote, count and tabulate all votes or ballots, determine the results and perform such acts as are proper to conduct the election or vote with fairness to all stockholders. If more than one inspector has been appointed, the decision, act or certificate of a majority of the inspectors is effective in all respects as the decision, act or certificate of all of the inspectors. On request of the chairman of the meeting, the inspector shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an 4 -4- inspector of election with respect to an election of directors. Inspectors need not be stockholders. ARTICLE III BOARD OF DIRECTORS SECTION 1. The number of directors that shall constitute the whole board shall be not less than three nor more than fifteen. Notwithstanding the foregoing, whenever the holders of any preferred stock, as provided in the certificate of incorporation or in any resolution or resolutions of the board of directors establishing any such preferred stock, shall have the right, voting as a single class, to elect directors at the annual or a special meeting of stockholders, the then-authorized number of directors of the corporation may be increased by such number as may be therein provided, and the additional directors so provided for shall be elected and hold office as provided therein. SECTION 2. The business and affairs of the corporation shall be managed by or under the direction of the board of directors. The board of directors may exercise all such authority and powers of the corporation and do all such lawful acts and things as are not by statute, the corporation's certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. SECTION 3. Meetings of the board of directors shall be held at such place or places, within or without the State of Delaware, as the board of directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. The board of directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the board of directors may be held at such other time or place, within or without the State of Delaware, as shall be specified in a notice thereof given as provided in Section 7 of this Article III. SECTION 5. Regular meetings of the board of directors shall be held at such time and place as the board of directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the board of directors need not be given. SECTION 6. Special meetings of the board of directors may be called by the Chairman of the Board or the President and shall be called by the Secretary on the written request of a majority of the members of the Board of Directors. SECTION 7. Notice of each special meeting of the board of directors shall be given by the President or the Secretary as hereinafter provided in this Section 7, in which notice 5 -5- shall be stated the time and place of the meeting. Except as otherwise required by these by-laws, such notice need not state the purpose or purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first class mail, at least four days before the time of the meeting, or shall be sent addressed to him at such place by telegraph, cable, telex, telefax, telecopier or other similar means, or be delivered to him personally or be given to him by telephone or other similar means, at least twelve hours before the time of the meeting. A written waiver of notice signed by a director, whether before or after the time stated therein, shall be deemed equivalent to notice to such director. Attendance of a director at meeting shall constitute a waiver of notice of such meeting by such director, except when such director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 8. At all meetings of the board of directors, a majority of the total number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and, except as otherwise expressly required by statute or the corporation's certificate of incorporation or these by-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors. In the absence of a quorum at any meeting of the board of directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a board and the individual directors shall have no power as such. SECTION 9. Any director of the corporation may resign at any time by giving written notice of his resignation to the corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its tender. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 10. Each director shall receive such fees and other compensation, along with reimbursement of expenses incurred on behalf of the corporation or in connection with attendance at meetings, as the board of directors may from time to time determine. No such payment of fees or other compensation shall preclude any director from serving the corporation in any other capacity and receiving fees or other compensation for such services. SECTION 11. Unless restricted by the corporation's certificate of incorporation, the board of directors may, by resolution passed by a majority of the entire board of directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, a member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously 6 -6- appoint another member of the board of directors to act at the meeting in the place or any such absent or disqualified member. Except to the extent restricted by statute or the corporation's certificate of incorporation, each such committee, to the extent-provided in the resolution creating it, shall have and may exercise all of the powers and authority of the board of directors, including, if such resolution so provides, the power to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to section 253 of Title 8 of the Delaware Code, and may authorize the seal of the corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the board of directors and have such name as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors. Members of either standing or special committees shall receive such fees and other compensation, along with reimbursement of expenses incurred on behalf of the corporation or in connection with attendance at meetings, as the board of directors may from time to time determine. No such payment of fees or compensation shall preclude any member of a committee from serving the corporation in any other capacity and receiving fees or other compensation for such services. SECTION 12. Any action required or permitted to be taken by the board of directors or any committee thereof may be taken without a meeting if all members of the board of directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the board of directors or such committee, as the case may be. SECTION 13. Any one or more members of the board of directors or any committee of the board of directors may participate in a meeting of the board of directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. SECTION 14. A director of the corporation who is present at a meeting of the board of directors or any committee thereof at which action is taken shall be presumed to have assented to the action taken unless his dissent or abstention therefrom shall be entered in the minutes of the meeting or unless he shall file a written dissent from such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE IV OFFICERS SECTION 1. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board held after each annual meeting of stockholders, or as soon thereafter as possible. The board of directors shall elect from among its number a Chairman of the Board. The board of directors shall also elect a President, one or more Vice Presidents, a Secretary and a Treasurer, who need not be directors. If the board of directors 7 -7- wishes, it may also elect such other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the corporation. Any two or more offices may be held by the same person, except the offices of President and Secretary. Each officer shall hold office until his successor shall have been duly elected and qualified, or until his death, resignation, or removal, as hereinafter provided. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, shall be filled only by a majority vote of the board of directors for the unexpired portion of the term. SECTION 2. Any officer of the corporation may resign at any time by giving written notice of his resignation to the corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its tender. Unless otherwise specified therein, the acceptance of any such registration shall not be necessary to make it effective. SECTION 3. Any officer of the corporation may be removed, either with or without cause, at any time, by the board of directors at any meeting thereof, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. The Chairman of the Board shall be the chief executive officer of the corporation and shall, if present, preside at each meeting of stockholders and of the board of directors. He shall perform all duties incident to the office of chief executive officer and such other duties as may from time to time be assigned to him by the board of directors. SECTION 5. The President shall be the chief operating officer of the corporation. He shall perform all duties incident to the office of the president and chief operating officer and such other duties as may from time to time be assigned to him by the board of directors or the Chairman of the Board. SECTION 6. Each Vice President shall perform all duties incident to his office and such other duties as from time to time may be assigned to him by the board of directors, the Chairman of the Board or the President. SECTION 7. The Treasurer shall (a) be the principal financial officer and principal accounting officer of the corporation; (b) have charge and custody of, and be responsible for, all the funds and securities of the corporation; (c) keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; (d) deposit all moneys and other valuables to the credit of the corporation in such depositaries as may be designated by the board of directors or pursuant to its direction; (e) receive, and give receipts for, moneys due and payable to the corporation from any source whatsoever; 8 -8- (f) disburse the funds of the corporation and supervise the investment of its funds, taking proper vouchers therefor; (g) render to the board of directors, whenever the board of directors may require, an accounting of the financial condition of the corporation; and (h) in general, perform all other duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the board of directors, the Chairman of the Board or the President. SECTION 8. Secretary. The Secretary shall (a) keep or cause to be kept, in one or more books provided for the purpose, the minutes of all meetings of the board of directors, the committees of the board of directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; (c) be custodian of the records and the seal of the corporation and affix and attest the seal to all certificates for shares of the corporation (unless the seal of the corporation on such certificates shall be facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the corporation under its seal; (d) see that the books, reports, statements certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the board of directors, the Chairman of the Board or the President. SECTION 9. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors (or, if there be no such determination, then in the order of their election), shall, at the request of the Chairman of the Board or the President or the Treasurer or in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties of the Treasurer (and when so acting, shall have the powers of and be subject to the restrictions placed upon the Treasurer in respect of the performance of such duties) and shall perform such other duties as from time to time may be assigned by the board of directors, the Chairman of the Board or the President. SECTION 10. The Assistant Secretary or if there be more than one, the Assistant Secretaries in the order determined by the board of directors (of, if there be no such determination, then in the order of their election), shall, at the request of the Chairman of the Board or the President or the Secretary or in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties of the Secretary (and when so acting, shall have the powers of and be subject to the restrictions placed upon the Secretary in respect of the performance of such duties) and shall perform such other duties as from time to time may be assigned by the board of directors, the Chairman of the Board or the President. 9 -9- SECTION 11. If required by the board of directors, any officer of the corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the board of directors may require. SECTION 12. The compensation of the officers of the corporation for their services as such officers shall be fixed from time to time by the board of directors. An officer of the corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the corporation. ARTICLE V STOCK CERTIFICATES AND THEIR TRANSFER SECTION 1. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preference and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth, on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issuance. SECTION 3. The board of directors may direct that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing the issuance of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the corporation a bond or other indemnity in such amount as it may direct sufficient to indemnify it against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. 10 -10- SECTION 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the corporation for transfer, both the transferor and the transferee request the corporation to do so. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent and vote such stock. SECTION 5. The board of directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. The board of directors may make such additional rules and regulations, not inconsistent with these by-laws, as it may deem expedient concerning the issuance, transfer and registration of certificates for shares of stock of the corporation. SECTION 7. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or any allotment of rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors fix a new record date for the adjourned meeting. SECTION 8. The corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or 11 -11- agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. Any indemnification under Sections I and 2 of this Article VI (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections 1 and 2. Such determination shall be made (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. SECTION 5. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit 12 -12- or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the corporation as authorized in this Article VI. SECTION 6. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, provision of the corporation's certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. SECTION 7. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. SECTION 8. For purposes of this Article VI, references to "the corporation" include all constituent corporations (including a constituent of a constituent) absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as lie would if he had served the resulting or surviving corporation in the same capacity; references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. SECTION 9. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 13 -13- ARTICLE VII GENERAL PROVISIONS SECTION 1. Subject to the provisions of law and the corporation's certificate of incorporation, dividends upon the shares of capital stock of the corporation may be declared by the board of directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the corporation, unless otherwise provided by law or the corporation's certificate of incorporation. SECTION 2. The seal of the corporation shall be in such form as shall be approved by the board of directors. SECTION 3. The fiscal year of the corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the board of directors. The corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. The appointment of such accountants shall be subject to annual ratification by the stockholders. SECTION 4. All checks, notes, drafts or other orders for the payment of money of the corporation shall be signed, endorsed or accepted in the name of the corporation by such officer, officers, person or persons as from time to time may be designated by the board of directors or by an officer or officers authorized by the board of directors to make such designation. SECTION 5. The board of directors may authorize any officer or officers, agent or agents, in the name and on behalf of the corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 6. Unless otherwise provided by resolution of the board of directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President, may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. 14 -14- ARTICLE VIII AMENDMENTS These by-laws may be amended, altered or repealed at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such amendment, alteration or repeal be contained in the notice of such special meeting, except that any amendment to Section 1 of Article III of these by-laws shall require the affirmative vote of 75% of all outstanding shares of all classes of capital stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Section as one class. EX-3.32 3 EXHIBIT 3.32 1 EXHIBIT 3.32 CERTIFICATE OF RETIREMENT OF STOCK LEXINGTON PRECISION CORPORATION, a corporation organized and existing 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 Chief Financial Officer, and attested to by Kelly L. MacMillan, its Treasurer, this 13th day of January, 1999. LEXINGTON PRECISION CORPORATION By: Dennis J. Welhouse ------------------------------- Dennis J. Welhouse Senior Vice President and Chief Financial Officer ATTEST: By: Kelly L. Macmillan --------------------------- Kelly L. MacMillan Treasurer EX-10.5 4 EXHIBIT 10.5 1 Exhibit 10.5 THE CORPORATE PLAN FOR RETIREMENT THE PROFIT SHARING/401(K) PLAN FIDELITY BASIC PLAN DOCUMENT NO. 07 ----------------------------------- 2 THE CORPORATE PLAN FOR RETIREMENT PROFIT SHARING/401(K) PLAN
ARTICLE 1 ADOPTION AGREEMENT ARTICLE 2 DEFINITIONS 2.01 - Definitions ARTICLE 3 PARTICIPATION 3.01 - Date of Participation 3.02 - Resumption of Participation Following Reemployment 3.03 - Cessation or Resumption of Participation Following a Change in Status 3.04 - Participation by Owner-Employee; Controlled Businesses 3.05 - Omission of Eligible Employee ARTICLE 4 CONTRIBUTIONS 4.01 - Deferral Contributions 4.02 - Additional Limit on Deferral Contributions 4.03 - Matching Contributions 4.04 - Limit on Matching Contributions and Employee Contributions 4.05 - Special Rules 4.06 - Fixed/Discretionary Employer Contributions 4.07 - Time of Making Employer Contributions 4.08 - Return of Employer Contributions 4.09 - Employee Contributions 4.10 - Rollover Contributions 4.11 - Deductible Voluntary Employee Contributions 4.12 - Additional Rules for Paired Plans ARTICLE 5 PARTICIPANTS' ACCOUNTS 5.01 - Individual Accounts 5.02 - Valuation of Accounts 5.03 - Code Section 415 Limitations ARTICLE 6 INVESTMENT OF CONTRIBUTIONS 6.01 - Manner of Investment 6.02 - Investment Decisions 6.03 - Participant Directions to Trustee
2 3 ARTICLE 7 RIGHT TO BENEFITS 7.01 - Normal or Early Retirement 7.02 - Late Retirement 7.03 - Disability Retirement 7.04 - Death 7.05 - Other Termination of Employment 7.06 - Separate Account 7.07 - Forfeitures 7.08 - Adjustment for Investment Experience 7.09 - Participant Loans 7.10 - In-Service Withdrawals 7.11 - Prior Plan In-Service Distribution Rules ARTICLE 8 DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE 8.01 - Distribution of Benefits to Participants and Beneficiaries 8.02 - Annuity Distributions 8.03 - Joint and Survivor Annuities/Preretirement Survivor Annuities 8.04 - Installment Distributions 8.05 - Immediate Distributions 8.06 - Determination of Method of Distribution 8.07 - Notice to Trustee 8.08 - Time of Distribution 8.09 - Whereabouts of Participants and Beneficiaries ARTICLE 9 TOP-HEAVY PROVISIONS 9.01 - Application 9.02 - Definitions 9.03 - Minimum Contribution 9.04 - Adjustment to the Limitation on Contributions and Benefits 9.05 - Minimum Vesting ARTICLE 10 AMENDMENT AND TERMINATION 10.01 - Amendment by Employer 10.02 - Amendment by Prototype Sponsor 10.03 - Amendments Affecting Vested and/or Accrued Benefits 10.04 - Retroactive Amendments 10.05 - Termination 10.06 - Distribution Upon Termination of the Plan 10.07 - Merger or Consolidation of Plan; Transfer of Plan Assets ARTICLE 11 AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS TO OR FROM OTHER QUALIFIED PLANS 11.01 - Amendment and Continuation of Predecessor Plan 11.02 - Transfer of Funds from an Existing Plan 11.03 - Acceptance of Assets by Trustee 3 4 11.04 - Transfer of Assets from Trust ARTICLE 12 MISCELLANEOUS 12.01 - Communication to Participants 12.02 - Limitation of Rights 12.03 - Nonalienability of Benefits and Qualified Domestic Relations Orders 12.04 - Facility of Payment 12.05 - Information Between Employer and Trustee 12.06 - Effect of Failure to Qualify Under Code 12.07 - Notices 12.08 - Governing Law ARTICLE 13 PLAN ADMINISTRATION 13.01 - Powers and Responsibilities of the Administrator 13.02 - Nondiscriminatory Exercise of Authority 13.03 - Claims and Review Procedures 13.04 - Named Fiduciary 13.05 - Costs of Administration ARTICLE 14 TRUST AGREEMENT 14.01 - Acceptance of Trust Responsibilities 14.02 - Establishment of Trust Fund 14.03 - Exclusive Benefit 14.04 - Powers of Trustee 14.05 - Accounts 14.06 - Approving of Accounts 14.07 - Distribution from Trust Fund 14.08 - Transfer of Amounts from Qualified Plan 14.09 - Transfer of Assets from Trust 14.10 - Separate Trust or Fund for Existing Plan Assets 14.11 - Voting; Delivery of Information 14.12 - Compensation and Expenses of Trustee 14.13 - Reliance by Trustee on other Persons 14.14 - Indemnification by Employer 14.15 - Consultation by Trustee with Counsel 14.16 - Persons Dealing with the Trustee 14.17 - Resignation or Removal of Trustee 14.18 - Fiscal Year of the Trust 14.19 - Discharge of Duties by Fiduciaries 14.20 - Amendment 14.21 - Plan Termination 14.22 - Permitted Reversion of Funds to Employer 14.23 - Governing Law 4 5 ARTICLE 1. ADOPTION AGREEMENT. ARTICLE 2. DEFINITIONS. 2.01. DEFINITIONS. (a) Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: (1) "Account" means an account established on the books of the Trust for the purpose of recording contributions made on behalf of a Participant and any income, expenses, gains or losses incurred thereon. (2) "Administrator" means the Employer adopting this Plan, or other person designated by the Employer in Section 1.01(c). (3) "Adoption Agreement" means Article 1, under which the Employer establishes and adopts, or amends, the Plan and Trust and designates the optional provisions selected by the Employer, and the Trustee accepts its responsibilities under Article 14. The provisions of the Adoption Agreement shall be an integral part of the Plan. (4) "Annuity Starting Date" means the first day of the first period for which an amount is payable as an annuity or in any other form. (5) "Beneficiary" means the person or persons entitled under Section 7.04 to receive benefits under the Plan upon the death of a Participant, provided that for purposes of Section 7.04 such term shall be applied in accordance with Section 401(a)(9) of the Code and the regulations thereunder. (6) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (7) "Compensation" shall mean (A) for purposes of Article 4 (Contributions), compensation as defined in Section 5.03(e)(2) excluding any items elected by the Employer in Section 1.04(a), reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits, but including amounts that are not includable in the gross income of the Participant under a salary reduction agreement by reason of the application of Sections 125, 402(a)(8), 402(h), or 403(b) of the Code; and (B) for purposes of Section 2.01(a)(16) (Highly Compensated Employees), Section 5.03 (Code Section 415 Limitations), and Section 9.03 (Top-Heavy Plan Minimum Contribution), compensation as defined in Section 5.03(e)(2). 6 Compensation shall generally be based on the amount actually paid to the Participant during the Plan Year or, for purposes of Article 4 if so elected by the Employer in Section 1.04(b), during that portion of the Plan Year during which the Employee is eligible to participate. Notwithstanding the preceding sentence, compensation for purposes of Section 5.03 (Code Section 415 Limitations) shall be based on the amount actually paid or made available to the Participant during the Limitation Year. Compensation for the initial Plan Year for a new plan shall be based upon eligible Participant Compensation, subject to Section 1.04(b), from the Effective Date listed in Section 1.01(g)(1) through the end of the first Plan Year. In the case of any Self-Employed Individual, Compensation shall mean the Individual's Earned Income. For years beginning after December 31, 1988, the annual Compensation of each Participant taken into account for determining all benefits provided under the plan for any determination period shall not exceed $200,000. This limitation shall be adjusted by the Secretary at the same time and in the same manner as under Section 415(d) of the Code, except that the dollar increase in effect on January 1 of any calendar year is effective for years beginning in such calendar year and the first adjustment to the $200,000 limitation is effected on January 1, 1990. If a plan determines Compensation on a period of time that contains fewer than 12 calendar months, then the annual Compensation limit is the amount equal to the annual Compensation limit for the calendar year in which the Compensation period begins multiplied by the ratio obtained by dividing the number of full months in the period by 12. If Compensation for any prior determination period is taken into account in determining an Employee's allocations or benefits for the current determination period, the Compensation for such prior year is subject to the applicable annual compensation limit in effect for that prior year. For this purpose, for years beginning before January 1, 1990, the applicable annual compensation limit is $200,000. In determining the Compensation of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. If the $200,000 limitation is exceeded as a result of the application of these rules, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this Section prior to the application of this limitation. 2 7 (8) "Earned Income" means the net earnings of a Self-Employed Individual derived from the trade or business with respect to which the Plan is established and for which the personal services of such individual are a material income-providing factor, excluding any items not included in gross income and the deductions allocated to such items, except that for taxable years beginning after December 31, 1989 net earnings shall be determined with regard to the deduction allowed under Section 164(f) of the Code, to the extent applicable to the Employer. Net earnings shall be reduced by contributions of the Employer to any qualified plan, to the extent a deduction is allowed to the Employer for such contributions under Section 404 of the Code. (9) "Eligibility Computation Period" means each 12-consecutive month period beginning with the Employment Commencement Date and each anniversary thereof or, in the case of an Employee who, before completing the eligibility requirements set forth in Section 1.03(a)(1), incurs a break in service for participation purposes and thereafter returns to the employ of the Employer or Related Employer, each 12-consecutive month period beginning with the first day of reemployment and each anniversary thereof. A "break in service for participation purposes" shall mean an Eligibility Computation Period during which the participant does not complete more than 500 Hours of Service with the Employer. (10) "Employee" means any employee of the Employer, any Self-Employed Individual or Owner-Employee. The Employer must specify in Section 1.03(a)(3) any Employee or class of Employees not eligible to participate in the Plan. If the Employer elects to exclude collective bargaining employees, the exclusion applies to any employee of the Employer included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers unless the collective bargaining agreement requires the employee to be included within the Plan. The term "employee representatives" does not include any organization more than half the members of which are owners, officers, or executives of the Employer. For purposes of the Plan, an individual shall be considered to become an Employee on the date on which he first completes an Hour of Service and he shall be considered to have ceased to be an Employee on the date on which he last completes an Hour of Service. The term also includes a Leased Employee, such that contributions or benefits provided by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. Notwithstanding the above, a Leased Employee shall not be considered an Employee if Leased Employees do not constitute more than 20 percent of the Employer's non-highly compensated work-force (taking into account all Related Employers) and the Leased Employee is covered by a money purchase pension plan maintained by the 3 8 leasing organization and providing (A) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined for purposes of Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from gross income under Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code, (B) full and immediate vesting, and (C) immediate participation by each employee of the leasing organization. (11) "Employer" means the employer named in Section 1.02(a) and any Related Employers required by this Section 2.01(a)(11). If Article 1 of the Employer's Plan is the Standardized Adoption Agreement, the term "Employer" includes all Related Employers. If Article 1 of the Employer's Plan is the Non-standardized Adoption Agreement, the term "Employer" includes those Related Employers designated in Section 1.02(b). (12) "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service. (13) "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. (14) "Fidelity Fund" means any Registered Investment Company or Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit Plans which is made available to plans utilizing the CORPORATEplan for Retirement. (15) "Fund Share" means the share, unit, or other evidence of ownership in a Fidelity Fund. (16) "Highly Compensated Employee" means both highly compensated active Employees and highly compensated former Employees. A highly compensated active Employee includes any Employee who performs service for the Employer during the determination year and who, during the "look-back year," (A) received compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code), (B) received compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year, or (C) was an officer of the Employer and received compensation during such year that is greater than 50 percent of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term "Highly Compensated Employee" also includes (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most compensation from the Employer during the determination year, and (ii) Employees who are 5-percent owners at any time during the look-back year or determination year. 4 9 If no officer has satisfied the compensation requirement of (C) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a highly compensated Employee. For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year. The Employer may elect to make the look-back year calculation for a determination on the basis of the calendar year ending with or within the applicable determination year, as prescribed by Section 414(q) of the Code and the regulations issued thereunder. A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a highly compensated active Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday. If an Employee is, during a determination year or look-back year, a family member of either a 5-percent owner who is an active or former Employee or a highly compensated Employee who is one of the 10 most highly compensated Employees ranked on the basis of compensation paid by the Employer during such year, then the family member and the 5-percent owner or top-ten highly compensated Employee shall be aggregated. In such case, the family member and 5-percent owner or top-ten highly compensated Employee shall be treated as a single Employee receiving compensation and plan contributions or benefits equal to the sum of such compensation and contributions or benefits of the family member and 5-percent owner or top-ten highly compensated Employee. For purposes of this Section, family member includes the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. The determination of who is a highly compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers, and the compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder. (17) "Hour of Service" means, with respect to any Employee, (A) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer or a Related Employer, each such hour to be credited to the Employee for the Eligibility Computation Period in which the duties were performed; 5 10 (B) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer or Related Employer (including payments made or due from a trust fund or insurer to which the Employer contributes or pays premiums) on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the Employee for the Eligibility Computation Period in which such period of time occurs, subject to the following rules: (i) No more than 501 Hours of Service shall be credited under this paragraph (B) on account of any single continuous period during which the Employee performs no duties; (ii) Hours of Service shall not be credited under this paragraph (B) for a payment which solely reimburses the Employee for medically-related expenses, or which is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws; and (iii) If the period during which the Employee performs no duties falls within two or more Eligibility Computation Periods and if the payment made on account of such period is not calculated on the basis of units of time, the Hours of Service credited with respect to such period shall be allocated between not more than the first two such Eligibility Computation Periods on any reasonable basis consistently applied with respect to similarly situated Employees; and (C) Each hour not counted under paragraph (A) or (B) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to be paid by the Employer or a Related Employer, shall be credited to the Employee for the Eligibility Computation Period to which the award or agreement pertains rather than the Eligibility Computation Period in which the award agreement or payment is made. For purposes of determining Hours of Service, Employees of the Employer and of all Related Employers will be treated as employed by a single employer. For purposes of paragraphs (B) and (C) above, Hours of Service will be calculated in accordance with the provisions of Section 2530.200b-2(b) of the Department of Labor regulations, which are incorporated herein by reference. Solely for purposes of determining whether a break in service for participation purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for 6 11 the hours of service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 hours of service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of a birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. The hours of service credited under this paragraph shall be credited (a) in the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period, or (b) in all other cases, in the following computation period. (18) "Leased Employee" means any individual who provides services to the Employer or a Related Employer (the "recipient") but is not otherwise an employee of the recipient if (A) such services are provided pursuant to an agreement between the recipient and any other person (the "leasing organization"), (B) such individual has performed services for the recipient (or for the recipient and any related persons within the meaning of Section 414(n)(6) of the Code) on a substantially full-time basis for at least one year, and (C) such services are of a type historically performed by employees in the business field of the recipient. (19) "Normal Retirement Age" means the normal retirement age specified in Section 1.06(a) of the Adoption Agreement. If the Employer enforces a mandatory retirement age, the Normal Retirement Age is the lesser of that mandatory age or the age specified in Section 1.06(a). (20) "Owner-Employee" means, if the Employer is a sole proprietorship, the individual who is the sole proprietor, or if the Employer is a partnership, a partner who owns more than 10 percent of either the capital interest or the profits interest of the partnership. (21) "Participant" means any Employee who participates in the Plan in accordance with Article 3 hereof. (22) "Plan" means the plan established by the Employer in the form of the prototype plan, as set forth herein as a new plan or as an amendment to an existing plan, by executing the Adoption Agreement, together with any and all amendments hereto. (23) "Plan Year" means the 12-consecutive-month period ending on the date designated by the Employer in Section 1.01(f). (24) "Prototype Sponsor" means Fidelity Management and Research Company or its successor. 7 12 (25) "Registered Investment Company" means any one or more corporations, partnerships or trusts registered under the Investment Company Act of 1940 for which Fidelity Management and Research Company serves as investment advisor. (26) "Related Employer" means any employer other than the Employer named in Section 1.02(a) if the Employer and such other employer are members of a controlled group of corporations (as defined in Section 414(b) of the Code) or an affiliated service group (as defined in Section 414(m)), or are trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c)), or such other employer is required to be aggregated with the Employer pursuant to regulations issued under Section 414(o). (27) "Self-Employed Individual" means an individual who has Earned Income for the taxable year from the Employer or who would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year. (28) "Trust" means the trust created by the Employer in accordance with the provisions of Section 14.01. (29) "Trust Agreement" means the agreement between the Employer and the Trustee, as set forth in Article 14, under which the assets of the Plan are held, administered, and managed. (30) "Trust Fund" means the property held in Trust by the Trustee for the Accounts of the Participants and their Beneficiaries. (31) "Trustee" means the Fidelity Management Trust Company, or its successor. (32) "Year of Service for Participation" means, with respect to any Employee, an Eligibility Computation Period during which the Employee has been credited with at least 1,000 Hours of Service. If the Plan maintained by the Employer is the plan of a predecessor employer, an Employee's Years of Service for Participation shall include years of service with such predecessor employer. In any case in which the Plan maintained by the Employer is not the plan maintained by a predecessor employer, service for such predecessor shall be treated as service for the Employer, to the extent provided in Section 1.08. (33) "Years of Service for Vesting" means, with respect to any Employee, the number of whole years of his periods of service with the Employer or a Related Employer (the elapsed time method to compute vesting service), subject to any exclusions elected by the Employer in Section 1.07(b). An Employee will receive credit for the aggregate of all time period(s) commencing with the Employee's Employment Commencement Date and ending on the date a break in service begins, unless any such years are excluded by Section 1.07(b). An Employee will also receive credit for any period of 8 13 severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days. In the case of a Participant who has 5 consecutive 1-year breaks in service, all years of service after such breaks in service will be disregarded for the purpose of vesting the Employer-derived account balance that accrued before such breaks, but both pre-break and post-break service will count for the purposes of vesting the Employer-derived account balance that accrues after such breaks. Both accounts will share in the earnings and losses of the fund. In the case of a Participant who does not have 5 consecutive 1-year breaks in service, both the pre-break and post-break service will count in vesting both the pre-break and post-break employer-derived account balance. A break in service is a period of severance of at least 12 consecutive months. Period of severance is a continuous period of time during which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the 12-month anniversary of the date on which the Employee was otherwise first absent from service. In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a break in service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (A) by reason of the pregnancy of the individual, (B) by reason of the birth of a child of the individual, (C) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (D) for purposes of caring for such child for a period beginning immediately following such birth or placement. If the Plan maintained by the Employer is the plan of a predecessor employer, an Employee's Years of Service for Vesting shall include years of service with such predecessor employer. In any case in which the Plan maintained by the Employer is not the plan maintained by a predecessor employer, service for such predecessor shall be treated as service for the Employer to the extent provided in Section 1.08. (b) Pronouns used in the Plan are in the masculine gender but include the feminine gender unless the context clearly indicates otherwise. ARTICLE 3. PARTICIPATION. 3.01. DATE OF PARTICIPATION. All Employees in the eligible class (as defined in Section 1.03(a)(3)) who are in the service of the Employer on the Effective Date will become Participants on the date elected by the Employer in Section 1.03(c). Any other Employee will become a 9 14 Participant in the Plan as of the first Entry Date on which he first satisfies the eligibility requirements set forth in Section 1.03(a). In the event that an Employee who is not a member of an eligible class (as defined in Section 1.03(a)(3)) becomes a member of an eligible class, the individual shall participate immediately if such individual had already satisfied the eligibility requirements and would have otherwise previously become a Participant. If an eligibility requirement other than one Year of Service is elected in 1.03(a)(1), an Employee may not be required to complete a minimum number of Hours of Service before becoming a Participant. An otherwise eligible Employee subject to a minimum months of service requirement shall become a Participant on the first Entry Date following his completion of the required number of consecutive months of employment measured from his Employment Commencement Date to the coinciding date in the applicable following month. For purposes of determining consecutive months of service, the Related Employer and predecessor employer rules contained in Sections 2.01(a)(17) and 2.01(a)(32) shall apply. 3.02. RESUMPTION OF PARTICIPATION FOLLOWING REEMPLOYMENT. If a Participant ceases to be an Employee and thereafter returns to the employ of the Employer he will be treated as follows: (a) he will again become a Participant on the first date on which he completes an Hour of Service for the Employer following his reemployment and is in the eligible class of Employees as defined in Section 1.03(a)(3), and (b) any distribution which he is receiving under the Plan will cease except as otherwise required under Section 8.08. 3.03. CESSATION OR RESUMPTION OF PARTICIPATION FOLLOWING A CHANGE IN STATUS. If any Participant continues in the employ of the Employer or Related Employer but ceases to be a member of an eligible class as defined in Section 1.03(a)(3), the individual shall continue to be a Participant for most purposes until the entire amount of his benefit is distributed; however, the individual shall not be entitled to receive an allocation of contributions or forfeitures during the period that he is not a member of the eligible class. Such Participant shall continue to receive credit for service completed during the period for purposes of determining his vested interest in his Accounts. In the event that the individual subsequently again becomes a member of an eligible class of Employees, the individual shall resume full participation immediately upon the date of such change in status. 3.04. PARTICIPATION BY OWNER-EMPLOYEE; CONTROLLED BUSINESSES. If the Plan provides contributions or benefits for one or more Owner-Employees who control both the trade or business with respect to which the Plan is established and one or more other trades or businesses, the Plan and any plan established with respect to such other trades or businesses must, when looked at as a single plan, satisfy Sections 401(a) and 401(d) of the Code with respect to the employees of this and all such other trades or businesses. If the Plan provides contributions or benefits for one or more Owner-Employees who control one or more 10 15 other trades or businesses, the Employees of each such other trade or business must be included in a plan which satisfies Sections 401(a) and 401(d) of the Code and which provides contributions and benefits not less favorable than provided for Owner-Employees under the Plan. If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which are not controlled and the individual controls a trade or business, then the contributions or benefits of the Employees under the plan of the trades or businesses which are controlled must be as favorable as those provided for him under the most favorable plan of the trade or business which is not controlled. For purposes of this Section, an Owner-Employee, or two or more Owner-Employees, shall be considered to control a trade or business if such Owner-Employee, or such Owner-Employees together, (a) own the entire interest in an unincorporated trade or business or (b) in the case of a partnership, own more than 50 percent of either the capital interest or the profits interest in such partnership. For this purpose, an Owner-Employee, or two or more Owner-Employees, shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership controlled by such Owner-Employee or such Owner-Employees. 3.05. OMISSION OF ELIGIBLE EMPLOYEE. If any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution, if necessary, so that the omitted Employee receives the total amount which the said Employee would have received had he not been omitted. For purposes of this Section 3.05, the term "contribution" shall not include Deferral Contributions and Matching Contributions made pursuant to Sections 4.01 and 4.03, respectively. ARTICLE 4. CONTRIBUTIONS. 4.01. DEFERRAL CONTRIBUTIONS. (a) 4.01. If so provided by the Employer in Section 1.05(b), each Participant may elect to execute a salary reduction agreement with the Employer to reduce his Compensation by a specified percentage not exceeding 15% per payroll period, subject to any exceptions elected by the Employer in Section 1.05(b)(2) and 1.05(b)(3) and equal to a whole number multiple of one (1) percent. Such agreement shall become effective on the first day of the first payroll period for which the Employer can reasonably process the request. The Employer shall make a Deferral Contribution on behalf of the Participant corresponding to the amount of said reduction, subject to the restrictions set forth below. Under no circumstances may a salary reduction agreement be adopted retroactively. 11 16 (b) A Participant may elect to change or discontinue the percentage by which his Compensation is reduced by notice to the Employer as provided in Section 1.05(b)(1). (c) No Participant shall be permitted to have Deferral Contributions made under the Plan, or any other qualified plan maintained by the Employer, during the taxable year, in excess of the dollar limitation contained in Section 402(g) of the Code in effect at the beginning of such taxable year. A Participant may assign to the Plan any Excess Deferrals made during the taxable year of the Participant by notifying the Plan Administrator on or before March 15 following the taxable year of the amount of the Excess Deferrals to be assigned to the Plan. A Participant is deemed to notify the Administrator of any Excess Deferrals that arise by taking into account only those Deferral Contributions made to the Plan and any other plan of the Employer. Notwithstanding any other provision of the Plan, Excess Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Deferrals were so assigned for the preceding year and who claims Excess Deferrals for such taxable year. "Excess Deferrals" shall mean those Deferral Contributions that are includable in a Participant's gross income under Section 402(g) of the Code to the extent such Participant's Deferral Contributions for a taxable year exceed the dollar limitation under such Code section. For purposes of determining Excess Deferrals, the term "Deferral Contributions" shall include the sum of all Employer Contributions made on behalf of such Participant pursuant to an election to defer under any qualified CODA as described in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement as described in Section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under Section 457 of the Code, any plan as described under Section 501(c)(18) of the Code, and any Employer Contributions made on the behalf of a Participant for the purchase of an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement. Deferral Contributions shall not include any deferrals properly distributed as excess annual additions. Excess Deferrals shall be treated as annual additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year. Excess Deferrals shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Deferrals is (1) income or loss allocable to the Participant's Deferral Contributions Account for the taxable year multiplied by a fraction, the numerator of which is such Participant's Excess Deferrals for the year and the denominator is the Participant's Account balance attributable to Deferral Contributions without regard to any income or loss occurring during such taxable year, or (2) such other amount determined under any reasonable method, provided that such method is used consistently for all Participants 12 17 in calculating the distributions required under this Section 4.01(c) and Sections 4.02(d) and 4.04(d) for the Plan Year, and is used by the Plan in allocating income or loss to Participants' Accounts. Income or loss allocable to the period between the end of the Plan Year and the date of distribution shall be disregarded in determining income or loss. (d) In order for the Plan to comply with the requirements of Sections 401(k), 402(g) and 415 of the Code and the regulations promulgated thereunder, at any time in a Plan Year the Administrator may reduce the rate of Deferral Contributions to be made on behalf of any Participant, or class of Participants, for the remainder of that Plan Year, or the Administrator may require that all Deferral Contributions to be made on behalf of a Participant be discontinued for the remainder of that Plan Year. Upon the close of the Plan Year or such earlier date as the Administrator may determine, any reduction or discontinuance in Deferral Contributions shall automatically cease until the Administrator again determines that such a reduction or discontinuance of Deferral Contributions is required. 4.02. ADDITIONAL LIMIT ON DEFERRAL CONTRIBUTIONS. (a) The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year and the ADP for participants who are Non-highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (1) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by 1.25; or (2) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for Participants who are Non-highly Compensated Employees by more than two (2) percentage points. (b) The following special rules apply for the purposes of this Section: (1) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Deferral Contributions (and Qualified Discretionary Contributions if treated as Deferral Contributions for purposes of the ADP test) allocated to his or her accounts under two or more arrangements described in Section 401(k) of the Code that are maintained by the Employer, shall be determined as if such Deferral Contributions (and, if applicable, such Qualified Discretionary Contributions) were made under a single arrangement. If a 13 18 Highly Compensated Employee participates in two or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under Section 401(k) of the Code. (2) In the event that this Plan satisfies the requirements of Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with this plan, then this Section shall be applied by determining the ADP of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy section 401(k) of the Code only if they have the same Plan Year. (3) For purposes of determining the ADP of a Participant who is a 5-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Deferral Contributions (and Qualified Discretionary Contributions if treated as Deferral Contributions for purposes of the ADP test) and Compensation of such Participant shall include the Deferral Contributions (and, if applicable, Qualified Discretionary Contributions) and Compensation for the Plan Year of Family Members (as defined in Section 414(q)(6) of the Code). Family Members, with respect to between the end of the Plan Year and the date of distribution shall be disregarded in determining income or loss. Excess Contributions shall be distributed from the Participant's Qualified Discretionary Contribution account only to the extent that such Excess Contributions exceed the balance in the Participant's Deferral Contributions account. (4) For purposes of determining the ADP test, Deferral Contributions and Qualified Discretionary Contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which contributions relate. (5) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Discretionary Contributions used in such test. (6) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (c) The following definitions shall apply for purposes of this Section: (1) "Actual Deferral Percentage" shall mean, for a specified group of Participants for a Plan Year, the average of the ratios 14 19 (calculated separately for each Participant in such group) of (A) the amount of Employer contributions actually paid over to the Trust on behalf of such Participant for the Plan Year to (B) the Participant's Compensation for such Plan Year. Employer contributions on behalf of any Participant shall include (i) any Deferral Contributions made pursuant to the Participant's deferral election, including Excess Deferrals of Highly Compensated Employees, but excluding (a) Excess Deferrals of Non-highly Compensated Employees that arise solely from Deferral Contributions made under the Plan or plans of the Employer and (b) Deferral Contributions that are taken into account in the Contribution Percentage test (provided the ADP test is satisfied both with and without exclusion of these Deferral Contributions) and (ii) at the election of the Employer, Qualified Discretionary Contributions. Matching Contributions, whether or not non-forfeitable when made, shall not be considered as Employer Contributions for purposes of this paragraph. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for the failure to make Deferral Contributions shall be treated as a Participant on whose behalf no Deferral Contributions are made. (2) "Excess Contributions" shall mean, with respect to any Plan Year, the excess of (a) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over (b) The maximum amount of such contributions permitted by the ADP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages). (3) "Qualified Discretionary Contributions" shall mean contributions made by the Employer as elected in Section 1.05(b)(4) and allocated to Participant Accounts of Non-highly Compensated Employees that such Participants may not elect to receive in cash until distributed from the Plan, that are nonforfeitable when made, and that are distributable only in accordance with the distribution provisions that are applicable to Deferral Contributions. Participants shall not be required to satisfy any hours of service or employment requirement in order to receive an allocation of such contributions. (d) Notwithstanding any other provision of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Contributions were allocated for the preceding Plan Year. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten- (10-) percent excise tax will be imposed on the Employer maintaining the Plan with respect to such amounts. Such 15 20 distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such employees. Excess Contributions of Participants who are subject to the family member aggregation rules of Section 414(q)(6) of the Code shall be allocated among the family members in proportion to the Deferral Contributions (and amounts treated as Deferral Contributions) of each family member that is combined to determine the combined ADP. Excess Contributions shall be treated as annual additions under the Plan. Excess Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Contributions is (1) income or loss allocable to the Participant's Deferral Contribution Account (and if applicable, the Qualified Discretionary Contribution Account) for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Contributions for the year and the denominator is the Participant's Account balance attributable to Deferral Contributions without regard to any income or loss occurring during such Plan Year, or (2) an amount determined under any reasonable method, provided that such method is used consistently for all Participants in calculating any distributions required under Section 4.02(d) and Sections 4.01(c) and 4.04(d) for the Plan Year, and is used by the Plan in allocating income or loss to the Participants' Accounts. Income or loss allocable to the period between the end of the Plan Year and the date of distibution shall be disregarded in determining income or loss. Excess Contributions shall be distributed from the Participant's Qualified Discretionary Contribution Account only to the extent that such Excess Contributions exceed the balance in the Participant's Deferral Contributions Account. 4.03 MATCHING CONTRIBUTIONS: If so provided by the Employer in Section 1.05(c), the Employer shall make a Matching Contribution on behalf of each Participant who had Deferral Contributions made on his behalf during the year and who meets the requirement, if any, of Section 1.05(c)(4). The amount of the Matching Contribution shall be determined in accordance with Section 1.05(c), subject to the limitations set forth in Section 4.04 and Section 404 of the Code. Matching Contributions will not be allowed to be made by the Employer on any voluntary non-deductible Employee Contributions. 4.04 LIMIT ON MATCHING CONTRIBUTIONS AND EMPLOYEE CONTRIBUTIONS: (a) The Average Contribution Percentage (hereinafter "ACP") for Participants who are Highly Compensated Employees for each Plan Year and the ACP for Participants who are Non-highly Compensated Employees for the same Plan Year must satisfy one of the following tests: 16 21 (1) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by 1.25; or (2) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by two (2), provided that the ACP for Participants who are Highly Compensated Employees does not exceed the ACP for Participants who are Non-highly Compensated Employees by more than two (2) percentage points. (b) The following special rules apply for purposes of this section: (1) If one or more Highly Compensated Employees participate in both a qualified cash or deferred arrangement described in Section 401(k) of the Code (hereafter "CODA") and a plan subject to the ACP test maintained by the Employer and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ACP of those Highly Compensated Employees who also participate in a CODA will be reduced (beginning with such Highly Compensated Employee whose ACP is the highest) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amounts is reduced shall be treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. Multiple use does not occur if either the ADP or ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-highly Compensated Employees. (2) For purposes of this section, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his or her account under two or more plans described in section 401(a) of the Code, or arrangements described in section 401(k) of the Code that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under Section 401(m) of the Code. (3) In the event that this Plan satisfies the requirements of Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only 17 22 if aggregated with this Plan, then this section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. For plan years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same Plan Year. (4) For purposes of determining the Contribution percentage of a Participant who is a five-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Contribution Percentage Amounts and Compensation of such Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of family members (as defined in Section 414(q)(6) of the Code). Family members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the Contribution Percentage both for Participants who are Non-highly Compensated Employees and for Participants who are Highly Compensated Employees. (5) For purposes of determining the Contribution Percentage test, Employee Contributions made pursuant to Section 1.05(d)(1) are considered to have been made in the Plan Year in which contributed to the Trust. Matching Contributions and Qualified Discretionary Contributions will be considered made for a Plan Year if made no later than the end of the twelve-month period beginning on the day after the close of the Plan Year. (6) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Discretionary Contributions used in such test. (7) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of Treasury. (c) The following definitions shall apply for purposes of this Section: (1) "Aggregate Limit" shall mean the greater of (A) or (B) where (A) is the sum of (i) 125 percent of the greater of the ADP of the Non-highly Compensated Employees for the Plan Year or the ACP of Non-highly Compensated Employees under the Plan subject to Section 401(m) of the Code for the Plan Year beginning with or within the Plan Year of the CODA and (ii) the lesser of 200% or two plus the lesser of such ADP or ACP and where (B) is the sum of (i) 125 percent of the lesser of the ADP of the Non-highly Compensated Employees for the Plan Year or the ACP of Non-highly Compensated Employees under the Plan subject to Section 401(m) of the Code for the Plan Year beginning with or within the Plan Year of the CODA and (ii) the lesser of 200% or two plus the greater of such ADP or ACP. 18 23 (2) "Average Contribution Percentage" or "ACP" shall mean the average of the Contribution Percentages of the Eligible Participants in a group. (3) "Contribution Percentage" shall mean the ratio (expressed as a percentage) of the Participant's Contribution Percentage Amounts to the Participant's Compensation for the Plan Year. (4) "Contribution Percentage Amounts" shall mean the sum of the Employee Contributions and Matching Contributions made under the plan on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions or Excess Aggregate Contributions. If so elected by the Employer in Section 1.05(b)(4), the Employer may include Qualified Discretionary Contributions in the Contribution Percentage Amounts. The Employer also may elect to use Deferral Contributions in the Contribution Percentage Amounts so long as the ADP test is met before the Deferral Contributions are used in the ACP test and continues to be met following the exclusion of those Deferral Contributions that are used to meet the ACP test. (5) "Deferral Contribution" shall mean any contribution made at the election of the Participant pursuant to a salary reduction agreement in accordance with Section 4.01(a). (6) "Eligible Participant" shall mean any Employee who is eligible to make an Employee Contribution, or a Deferral Contribution (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or to receive a Matching Contribution. (7) "Employee Contribution" shall mean any voluntary non-deductible contribution made to the plan by or on behalf of a Participant that is included in the Participant's gross income in the year in which made and that is maintained in a separate Account to which earnings and losses are allocated. (8) "Matching Contribution" shall mean an Employer contribution made to this or any other defined contribution plan on behalf of a Participant on account of a Participant's Deferral Contribution. (9) "Excess Aggregate Contributions" shall mean, with respect to any Plan Year, the excess of (A) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over 19 24 (B) The maximum Contribution Percentage Amounts permitted by the ACP test (determined by reducing contributions made on behalf of Highly Compensated Employees in the order of their Contribution Percentages beginning with the highest of such percentages). Such determination shall be made after first determining Excess Deferrals pursuant to Section 4.01 and then determining Excess Contributions pursuant to Section 4.02. (d) Notwithstanding any other provision of the Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions of Participants who are subject to the family member aggregation rules of Section 414(q)(6) of the Code shall be allocated among the family members in proportion to the Employee and Matching Contributions of each family member that is combined to determine the combined ACP. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the employer maintaining the Plan with respect to those amounts. Excess Aggregate Contributions shall be treated as annual additions under the Plan. Excess Aggregate Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Aggregate Contributions is (1) income or loss allocable to the Participant's Employee Contribution Account, Matching Contribution Account (if any, and if all amounts therein are not used in the ADP test) and if applicable, Qualified Non-elective Contribution Account for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Aggregate Contributions for the year and the denominator is the Participant's Account balance(s) attributable to Contribution Percentage Amounts without regard to income or loss occurring during such Plan Year, or (2) such other amount determined under any reasonable method, provided that such method is used consistently for all Participants in calculating any distributions required under Section 4.04(d) and Sections 4.01(c) and 4.02(d) for the Plan Year, and is used by the Plan in allocating income or loss to the Participants' Accounts. Income or loss allocable to the period between the end of the Plan Year and the date of distribution shall be disregarded in determining income or loss. Forfeitures of Excess Aggregate Contributions shall be applied to reduce Employer contributions; the forfeitures shall be held in the money market fund, if any, listed in Section 1.14(b) pending such application. Excess Aggregate Contributions shall be forfeited, if forfeitable, or distributed on a PRORATA basis from the 20 25 Participant's Employee Contribution Account, Matching Contribution Account and if applicable, the Participant's Deferral Contributions Account or Qualified Discretionary Contribution Account or both. 4.05. SPECIAL RULES. Deferral Contributions and Qualified Discretionary Contributions and income allocable to each are not distributable to a Participant or his or her Beneficiary or Beneficiaries, in accordance with such Participant's or beneficiary's or beneficiaries' election, earlier than upon separation from service, death, or disability, except as otherwise provided in Section 7.10, 7.11 or 10.06. Such amounts may also be distributed, but after March 31, 1988, in the form of a lump sum only, upon (a) Termination of the Plan without establishment of another defined contribution plan, other than an employee stock ownership plan (as defined in Section 4975(e) or Section 409 of the Code) or a simplified employee pension plan as defined in Section 408(k) of the Code. (b) The disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Section 409(d)(2) of the Code) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets. (c) The disposition by a corporation to an unrelated entity of such corporation's interest in a subsidiary (within the meaning of Section 409(d)(2) of the Code) if such corporation continues to maintain this Plan, but only with respect to Employees who continue employment with such subsidiary. The Participant's accrued benefit derived from Deferral Contributions, Qualified Discretionary Contributions and Employee Contributions (as defined in Section 4.09) is nonforfeitable. Separate Accounts for Deferral Contributions, Qualified Discretionary Contributions, Employee Contributions and Matching Contributions will be maintained for each Participant. Each Account will be credited with the applicable contributions and earnings thereon. 4.06. FIXED/DISCRETIONARY EMPLOYER CONTRIBUTIONS. If so provided by the Employer in Sections 1.05(a)(1) or 1.05(a)(2), for the Plan Year in which the Plan is adopted and for each Plan Year thereafter, the Employer will make Fixed or Discretionary Employer contributions to the Trust in accordance with Section 1.05 to be allocated as follows: (a) Fixed Employer contributions shall be allocated among eligible Participants (as determined in accordance with Section 1.05(a)(3)) in the manner specified in Section 1.05(a). (b) Discretionary Employer contributions shall be allocated among eligible Participants, as determined in accordance with Section 1.05(a)(3), as follows: 21 26 (1) If the Non-Integrated Formula is elected in Section 1.05(a)(2)(A), such contributions shall be allocated to eligible Participants in the ratio that each Participant's Compensation bears to the total Compensation paid to all eligible Participants for the Plan Year; or (2) If the Integrated Formula is elected in Section 1.05(a)(2)(B), such contributions shall be allocated in the following steps: (A) First, to each eligible Participant in the same ratio that the sum of the Participant's Compensation and Excess Compensation for the Plan Year bears to the sum of the Compensation and Excess Compensation of all Participants for the Plan Year. This allocation as a percentage of the sum of each Participant's Compensation and Excess Compensation shall not exceed 5.7%. (B) Any remaining Discretionary Employer Contribution shall be allocated to each eligible Participant in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. For purposes of this Section, "Excess Compensation" means Compensation in excess of the taxable wage base, as determined under Section 230 of the Social Security Act, in effect on the first day of the Plan Year. Further, this Section 4.06(b)(2) shall be modified as provided in Section 9.03 for years in which the Plan is top heavy under Article 9. 4.07. TIME OF MAKING EMPLOYER CONTRIBUTIONS. The Employer will pay its contribution for each Plan Year not later than the time prescribed by law for filing the Employer's federal income tax return for the fiscal (or taxable) year with or within which such Plan Year ends (including extensions thereof). The Trustee will have no authority to inquire into the correctness of the amounts contributed and paid over to the Trustee, to determine whether any contribution is payable under this Article 4, or to enforce, by suit or otherwise, the Employer's obligation, if any, to make a contribution to the Trustee. 4.08. RETURN OF EMPLOYER CONTRIBUTIONS. The Trustee shall, upon request by the Employer, return to the Employer the amount (if any) determined under Section 14.22. Such amount shall be reduced by amounts attributable thereto which have been credited to the Accounts of Participants who have since received distributions from the Trust, except to the extent such amounts continue to be credited to such Participants' Accounts at the time the amount is returned to the Employer. Such amount shall also be reduced by the losses of the Trust 22 27 attributable thereto, if and to the extent such losses exceed the gains and income attributable thereto, but will not be increased by the gains and income of the Trust attributable thereto, if and to the extent such gains and income exceed the losses attributable thereto. In no event will the return of a contribution hereunder cause the balance of the individual Account of any Participant to be reduced to less than the balance which would have been credited to the Account had the mistaken amount not been contributed. 4.09. EMPLOYEE CONTRIBUTIONS. If the Employer elected to permit Deferral Contributions in Section 1.05(b) and if so provided by the Employer in Section 1.05(d), each Participant may elect to make Employee Contributions to the Plan in accordance with the rules and procedures established by the Employer and in an amount not less than one percent (1%) and not greater than ten percent (10%) of such Participant's Compensation for the Plan Year. Such contributions and all Employee Contributions for Plan Years beginning after December 31, 1986, shall be subject to the nondiscrimination requirements of Section 401(m) of the Code as set forth in Section 4.04. For purposes of this Plan, "Employee Contributions" shall mean any voluntary non-deductible contribution made to a plan by or on behalf of a Participant that is or was included in the Participant's gross income in the year in which made and that is maintained under a separate account to which applicable earnings and losses are allocated. Excess Contributions may not be recharacterized as Employee Contributions. Employee Contributions shall be paid over to the Trustee not later than thirty (30) days following the end of the month in which the Participant makes the contribution. A Participant shall have a fully vested 100% nonforfeitable right to his Employee Contributions and the earnings or losses allocated thereon. Distributions of Employee Contributions shall be made in accordance with Section 7.10. 4.10. ROLLOVER CONTRIBUTIONS. (a)ROLLOVER OF ELIGIBLE ROLLOVER DISTRIBUTIONS (1) An Employee who is or was a distributee of an "eligible rollover distribution"(as defined in Section 402(c)(4) of the Code and the regulations issued thereunder) from a qualified plan may directly transfer all or any portion of such distribution to the Trust or transfer all or any portion of such distribution to the Trust within sixty (60) days of payment. The transfer shall be made in the form of cash or allowable Fund Shares only. (2) The Employer may refuse to accept rollover contributions or instruct the Trustee not to accept rollover contributions under the Plan. (b) TREATMENT OF ROLLOVER AMOUNT. 23 28 (1) An account will be established for the transferring Employee under Article 5, the rollover amount will be credited to the account and such amount will be subject to the terms of the Plan, including Section 8.01, except as otherwise provided in this Section 4.10. (2) The rollover account will at all times be fully vested in and nonforfeitable by the Employee. (c) ENTRY INTO PLAN BY TRANSFERRING EMPLOYEE. Although an amount may be transferred to the Trust Fund under this Section 4.10 by an Employee who has not yet become a Participant in accordance with Article 3, and such amount is subject to the terms of the Plan as described in paragraph (b) above, the Employee will not become a Participant entitled to share in Employer contributions until he has satisfied such requirements. (d) MONITORING OF ROLLOVERS. (1) The Administrator shall develop such procedures and require such information from transferring Employees as it deems necessary to insure that amounts transferred under this Section 4.10 meet the requirements for tax-free rollovers established by such Section and by Section 402(c) of the Code. No such amount may be transferred until approved by the Administrator. (2) If a transfer made under this Section 4.10 is later determined by the Administrator not to have met the requirements of this Section or of the Code or Treasury regulations, the Trustee shall, within a reasonable time after such determination is made, and on instructions from the Administrator, distribute to the Employee the amounts then held in the Trust attributable to the transferred amount. 4.11. DEDUCTIBLE VOLUNTARY EMPLOYEE CONTRIBUTIONS. The Administrator will not accept deductible Employee Contributions which are made for a taxable year beginning after December 31, 1986. Contributions made prior to that date will be maintained in a separate Account which will be nonforfeitable at all times and which will share in the gains and losses of the trust in the same manner as described in Section 5.02. No part of the deductible voluntary contribution Account will be used to purchase life insurance. Subject to Article 8, the Participant may withdraw any part of the deductible voluntary contribution Account upon request. 4.12. ADDITIONAL RULES FOR PAIRED PLANS. If the Employer has adopted a qualified plan under Fidelity Basic Plan Document No. 09 which is to be considered as a paired plan with this Plan, the elections in Section 1.03 must be identical to the Employer's corresponding elections for the other plan. When the paired plans are top-heavy or are deemed to be top-heavy as provided in Section 9.01, the plan paired with this Plan will provide a minimum contribution to each non-key Employee which is equal to 3 percent (or such other percent elected by the Employer in Section 1.12(c)) of such Employee's Compensation. Notwithstanding the 24 29 preceding sentence, the minimum contribution shall be provided by this Plan if contributions under the other plan paired with this Plan are frozen. ARTICLE 5. PARTICIPANTS' ACCOUNTS. 5.01. INDIVIDUAL ACCOUNTS. The Administrator will establish and maintain an Account for each Participant which will reflect Employer and Employee Contributions made on behalf of the Participant and earnings, expenses, gains and losses attributable thereto, and investments made with amounts in the Participant's Account. The Administrator will establish and maintain such other accounts and records as it decides in its discretion to be reasonably required or appropriate in order to discharge its duties under the Plan. 5.02. VALUATION OF ACCOUNTS. Participant Accounts will be valued at their fair market value at least annually as of a date specified by the Administrator in accordance with a method consistently followed and uniformly applied, and on such date earnings, expenses, gains and losses on investments made with amounts in each Participant's Account will be allocated to such Account. Participants will be furnished statements of their Account values at least once each Plan Year. 5.03. CODE SECTION 415 LIMITATIONS. Notwithstanding any other provisions of the Plan: Subsections (a)(1) through (a)(4)--(THESE SUBSECTIONS APPLY TO EMPLOYERS WHO DO NOT MAINTAIN ANY QUALIFIED PLAN, INCLUDING A WELFARE BENEFIT FUND, AN INDIVIDUAL MEDICAL ACCOUNT, OR A SIMPLIFIED EMPLOYEE PENSION IN ADDITION TO THIS PLAN.) (a)(1) If the Participant does not participate in, and has never participated in any other qualified plan, Welfare Benefit Fund, Individual Medical Account, or a simplified employee pension, as defined in section 408(k) of the Code, maintained by the Employer, which provides an annual addition as defined in Section 5.03(e)(1), the amount of Annual Additions to a Participant's Account for a Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. (a)(2) Prior to the determination of the Participant's actual Compensation for a Limitation Year, the Maximum Permissible Amount may be determined on the basis of a reasonable estimation of the Participant's compensation for such Limitation Year, uniformly determined for all Participants similarly situated. Any Employer contributions based on estimated annual compensation shall be reduced by any Excess Amounts carried over from prior years. 25 30 (a)(3) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for such Limitation Year shall be determined on the basis of the Participant's actual Compensation for such Limitation Year. (a)(4) If, pursuant to subsection (a)(3) or as a result of the allocation of forfeitures or a reasonable error in determining the total Elective Deferrals there is an Excess Amount with respect to a Participant for a Limitation Year, such Excess Amount shall be disposed of as follows: (A) Any nondeductible voluntary employee contributions ("employee contributions") or Elective Deferrals, to the extent they would reduce the Excess Amount, will be returned to the Participant. Any gains attributable to returned employee contributions will also be returned or will be treated as additional employee contributions for the Limitation Year in which the employee contributions were made. (B) If after the application of paragraph (A) an Excess amount still exists and the Participant is in the service of the Employer which is covered by the Plan at the end of the Limitation Year, then such Excess Amount shall be reapplied to reduce future Employer contributions under this Plan for the next Limitation Year (and for each succeeding year, as necessary) for such Participant, so that in each such Year the sum of actual Employer contributions plus the reapplied amount shall equal the amount of Employer contributions which would otherwise be made to such Participant's Account. (C) If after the application of paragraph (A) an Excess Amount still exists and the Participant is not in the service of the Employer which is covered by the Plan at the end of a Limitation Year, then such Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions for all remaining Participants in the next Limitation Year and each succeeding Limitation Year if necessary. (D) If a suspense account is in existence at any time during the Limitation Year pursuant to this subsection, it will not participate in the allocation of the Trust Fund's investment gains and losses. All amounts in the suspense account must be allocated to the Accounts of Participants before any Employer contribution may be made for the Limitation Year. Except as provided in paragraph (A), Excess Amounts may not be distributed to Participants or former Participants. Subsections (b)(1) through (b)(6)--(THESE SUBSECTIONS APPLY TO EMPLOYERS WHO, IN ADDITION TO THIS PLAN, MAINTAIN ONE OR MORE PLANS, ALL OF WHICH ARE QUALIFIED MASTER OR PROTOTYPE DEFINED CONTRIBUTION PLANS, ANY WELFARE BENEFIT FUND, ANY INDIVIDUAL MEDICAL ACCOUNT, OR ANY SIMPLIFIED EMPLOYEE PENSION.) 26 31 (b)(1) If, in addition to this Plan, the Participant is covered under any other qualified defined contribution plans (all of which are qualified Master or Prototype Plans), Welfare Benefit Funds, Individual Medical Accounts, or simplified employee pension Plans, maintained by the Employer, that provide an annual addition as defined in Section 5.03(e)(1), the amount of Annual Additions to a Participant's Account for a Limitation Year shall not exceed the lesser of (A) the Maximum Permissible Amount, reduced by the sum of any Annual Additions to the Participant's accounts for the same Limitation Year under such other qualified Master or Prototype defined contribution plans, and Welfare Benefit Funds, Individual Medical Accounts, and simplified employee pensions, or (B) any other limitation contained in this Plan. If the annual additions with respect to the Participant under other qualified Master or Prototype defined contribution Plans, Welfare Benefit Funds, Individual Medical Accounts, and simplified employee pensions maintained by the Employer are less than the maximum permissible amount and the Employer contribution that would otherwise be contributed or allocated to the Participant's account under this plan would cause the annual additions for the limitation year to exceed this limitation, the amount contributed or allocated will be reduced so that the annual additions under all such plans and funds for the limitation year will equal the maximum permissible amount. If the annual additions with respect to the Participant under such other qualified Master or Prototype defined contribution Plans, Welfare Benefit Funds, Individual Medical Accounts, and simplified employee pensions in the aggregate are equal to or greater than the maximum permissible amount, no amount will be contributed or allocated to the Participant's account under this plan for the limitation year. (b)(2) Prior to the determination of the Participant's actual Compensation for the Limitation Year, the amounts referred to in (b)(1)(A) above may be determined on the basis of a reasonable estimation of the Participant's compensation for such Limitation Year, uniformly determined for all Participants similarly situated. Any Employer contribution based on estimated annual compensation shall be reduced by any Excess Amounts carried over from prior years. (b)(3) As soon as is administratively feasible after the end of the Limitation Year, the amounts referred to in (b)(1)(A) shall be determined on the basis of the Participant's actual Compensation for such Limitation Year. (b)(4) If a Participant's Annual Additions under this Plan and all such other plans result in an Excess Amount, such Excess Amount shall be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a simplified employee 27 32 pension will be deemed to have been allocated first, followed by Annual Additions to a Welfare Benefit Fund or Individual Medical Account regardless of the actual allocation date. (b)(5) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of (A) the total Excess Amount allocated as of such date (including any amount which would have been allocated but for the limitations of Section 415 of the Code), and (B) the ratio of (i) the Annual Additions allocated to the Participant as of such date under this Plan, and (ii) the Annual Additions allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Section 415 of the Code). (b)(6) Any Excess Amounts attributed to this Plan shall be disposed of as provided in subsection (a)(4). Subsection (c)--(THIS SUBSECTION APPLIES ONLY TO EMPLOYERS WHO, IN ADDITION TO THIS PLAN, MAINTAIN ONE OR MORE QUALIFIED PLANS WHICH ARE QUALIFIED DEFINED CONTRIBUTION PLANS OTHER THAN MASTER OR PROTOTYPE PLANS.) (c) If the Employer also maintains another plan which is a qualified defined contribution plan other than a Master or Prototype Plan, Annual Additions allocated under this Plan on behalf of any Participant shall be limited in accordance with the provisions of (b)(1) through (b)(6), as though the other plan were a Master or Prototype Plan, unless the Employer provides other limitations in the Adoption Agreement. Subsection (d)--(THIS SUBSECTION APPLIES ONLY TO EMPLOYERS WHO, IN ADDITION TO THIS PLAN, MAINTAIN OR AT ANY TIME MAINTAINED A QUALIFIED DEFINED BENEFIT PLAN.) (d) If the Employer maintains, or at any time maintained, a qualified defined benefit plan, the sum of any Participant's Defined Benefit Fraction and Defined Contribution Fraction shall not exceed the combined plan limitation of 1.0 in any Limitation Year. The combined plan limitation will be met as provided by the Employer in the Adoption Agreement. SUBSECTIONS (e)(1) THROUGH (e)(11)--(DEFINITIONS.) (e)(1) "Annual Additions" means the sum of the following amounts credited to a Participant for a Limitation Year: (A) all Employer contributions, (B) all Employee Contributions, 28 33 (C) all forfeitures, (D) amounts allocated, after March 31, 1984, to an Individual Medical Account which is part of a pension or annuity plan maintained by the Employer are treated as Annual Additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee, as defined in Section 419A(d)(3) of the Code, under a Welfare Benefit Fund maintained by the Employer are treated as Annual Additions to a defined contribution plan, and (E) allocations under a simplified employee pension. For purposes of this Section 5.03, amounts reapplied to reduce Employer contributions under subsection (a)(4) shall also be included as Annual Additions. (e)(2) "Compensation" means wages as defined in Section 3401(a) of the Code and all other payments of compensation to an employee by the employer (in the course of the employer's trade or business) for which the employer is required to furnish the employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code. Compensation must be determined without regard to any rules under Section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code.) For any Self-Employed Individual compensation will mean Earned Income. For limitation years beginning after December 31, 1991, for purposes of applying the limitations of this article, compensation for a limitation year is the compensation actually paid or made available during such limitation year. (e)(3) "Defined Benefit Fraction" means a fraction, the numerator of which is the sum of the Participant's annual benefits (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) under all the defined benefit plans (whether or not terminated) maintained by the Employer, each such annual benefit computed on the assumptions that the Participant will remain in employment until the normal retirement age under each such plan (or the Participant's current age, if later) and that all other factors used to determine benefits under such plan will remain constant for all future Limitation Years, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the Limitation Year under Sections 29 34 415(b)(1)(A) and 415(d) of the Code or 140 percent of the Participant's highest average Compensation for 3 consecutive calendar years of service during which the Participant was active in each such plan, including any adjustments under Section 415(b) of the Code. However, if the Participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986 then the denominator of the Defined Benefit Fraction shall not be less than 125 percent of the Participant's total accrued benefit as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986, under all such defined benefit plans that met, individually and in the aggregate, the requirements of Section 415 of the Code for all Limitation Years beginning before January 1, 1987. (e)(4) "Defined Contribution Fraction" means a fraction, the numerator of which is the sum for the current and all prior Limitation Years of (A) all Annual Additions (if any) to the Participant's accounts under each defined contribution plan (whether or not terminated) maintained by the Employer and (B) all Annual Additions attributable to the Participant's nondeductible Employee Contributions to all defined benefit plans (whether or not terminated) maintained by the Employer, and the Participant's Annual Additions attributable to all Welfare Benefit Funds, Individual Medical Accounts, and simplified employee pensions, maintained by the Employer, and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years during which the Participant was an Employee (regardless of whether the Employer maintained a defined contribution plan in any such year). The maximum aggregate amount in any Limitation Year is the lesser of 125 percent of the dollar limitation in effect under Section 415(c)(1)(A) of the Code for each such year or 35 percent of the Participant's Compensation for each such year. If the Participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, then the numerator of the Defined Contribution Fraction shall be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment an amount equal to the product of (i) the excess of the sum of the fractions over 1.0 and (ii) the denominator of this fraction will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the plan made after May 6, 1986, but using the Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. 30 35 The annual addition for any limitation year beginning before January 1, 1987 shall not be recomputed to treat all employee contributions as annual additions. (e)(5) "Employer" means the Employer and any Related Employer that adopts this Plan. In the case of a group of employers which constitutes a controlled group of corporations (as defined in Section 414(b) of the Code as modified by Section 415(h)) or which constitutes trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code as modified by Section 415(h) of the Code) or which constitutes an affiliated service group (as defined in Section 414(m)of the Code) and any other entity required to be aggregated with the Employer pursuant to regulations issued under Section 414(o) of the Code, all such employers shall be considered a single employer for purposes of applying the limitations of this Section 5.03. (e)(6) "Excess Amount" means the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. (e)(7) "Individual Medical Account" means an individual medical account as defined in Section 415(l)(2) of the Code. (e)(8) "Limitation Year" means the Plan Year. All qualified plans of the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. (e)(9) "Master or Prototype Plan" means a plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. (e)(10) "Maximum Permissible Amount" means for a Limitation Year with respect to any Participant the lesser of (A) $30,000 or, if greater, 25 percent of the dollar limitation set forth in Section 415(b)(1) of the Code, as in effect for the Limitation Year, or (B) 25 percent of the Participant's Compensation for the Limitation Year. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive-month period, the Maximum Permissible Amount will not exceed the limitation in (e)(10)(A) multiplied by a fraction whose numerator is the number of months in the short Limitation Year and whose denominator is 12. The compensation limitation referred to in subsection (e)(10)(B) shall not apply to any contribution for medical benefits within the meaning of Section 401(h) or Section 419A(f)(2) of the Code after separation from service which is otherwise treated as an Annual Addition under Section 419A(d)(2) or Section 415(l)(1) of the Code. 31 36 (e)(11) "Welfare Benefit Fund" means a welfare benefit fund as defined in Section 419(e) of the Code. ARTICLE 6. INVESTMENT OF CONTRIBUTIONS. 6.01. MANNER OF INVESTMENT. All contributions made to the Accounts of Participants shall be held for investment by the Trustee. The Accounts of Participants shall be invested and reinvested only in eligible investments selected by the Employer in Section 1.14(b), subject to Section 14.10. 6.02. INVESTMENT DECISIONS. Investments shall be directed by the Employer or by each Participant or both, in accordance with the Employer's election in Section 1.14(a). Pursuant to Section 14.04, the Trustee shall have no discretion or authority with respect to the investment of the Trust Fund. (a) With respect to those Participant Accounts for which Employer investment direction is elected, the Employer has the right to direct the Trustee in writing with respect to the investment and reinvestment of assets comprising the Trust Fund in the Fidelity Fund(s) designated in Section 1.14(b) and as allowed by the Trustee. (b) If Participant investment direction is elected, each Participant shall direct the investment of his Account among the Fidelity Funds listed in Section 1.14(b). The Participant shall file initial investment instructions with the Administrator, on such form as the Administrator may provide, selecting the Funds in which amounts credited to his Account will be invested. (1) Except as provided in this Section 6.02, only authorized Plan contacts and the Participant shall have access to a Participant's Account. While any balance remains in the Account of a Participant after his death, the Beneficiary of the Participant shall make decisions as to the investment of the Account as though the Beneficiary were the Participant. To the extent required by a qualified domestic relations order as defined in Section 414(p) of the Code, an alternate payee shall make investment decisions with respect to a Participant's Account as though such alternate payee were the Participant. (2) If the Trustee receives any contribution under the Plan as to which investment instructions have not been provided, the Trustee shall promptly notify the Administrator and the Administrator shall take steps to elicit instructions from the Participant. The Trustee shall credit any such contribution to the Participant's Account and such amount shall be invested in the Fidelity Fund selected by the Employer for such purposes or, absent Employer selection, in the most conservative Fidelity Fund listed in Section 1.14(b), until investment instructions have been received by the Trustee. 32 37 (c) All dividends, interest, gains and distributions of any nature received in respect of Fund Shares shall be reinvested in additional shares of that Fidelity Fund. (d) Expenses attributable to the acquisition of investments shall be charged to the Account of the Participant for which such investment is made. 6.03. PARTICIPANT DIRECTIONS TO TRUSTEE. All Participant initial investment instructions filed with the Administrator pursuant to the provisions of Section 6.02 shall be promptly transmitted by the Administrator to the Trustee. A Participant shall transmit subsequent investment instructions directly to the Trustee by means of the telephone exchange system maintained by the Trustee for such purposes. The method and frequency for change of investments will be determined under the (a) rules applicable to the investments selected by the Employer in Section 1.14(b) and (b) the additional rules of the Employer, if any, limiting the frequency of investment changes, which are included in a separate written administrative procedure adopted by the Employer and accepted by the Trustee. The Trustee shall have no duty to inquire into the investment decisions of a Participant or to advise him regarding the purchase, retention or sale of assets credited to his Account. ARTICLE 7. RIGHT TO BENEFITS. 7.01. NORMAL OR EARLY RETIREMENT. Each Participant who attains his Normal Retirement Age or, if so provided by the Employer in Section 1.06(b), Early Retirement Age, will have a 100-percent nonforfeitable interest in his Account regardless of any vesting schedule elected in Section 1.07. If a Participant retires upon the attainment of Normal or Early Retirement Age, such retirement is referred to as a normal retirement. Upon his normal retirement the balance of the Participant's Account, plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.08, will be distributed to him in accordance with Article 8. If a Participant separates from service before satisfying the age requirements for early retirement, but has satisfied the service requirement, the Participant will be entitled to elect an early retirement distribution upon satisfaction of such age requirement. 7.02. LATE RETIREMENT. If a Participant continues in the service of the Employer after attainment of Normal Retirement Age, he will continue to have a 100-percent nonforfeitable interest in his Account and will continue to participate in the Plan until the date he establishes with the Employer for his late retirement. Until he retires, he has a continuing election to receive all or any portion of his Account. Upon the earlier of his late retirement or the distribution date required under Section 8.08, the balance of his Account, plus any amounts 33 38 thereafter credited to his Account, subject to the provisions of Section 7.08, will be distributed to him in accordance with Article 8 below. 7.03. DISABILITY RETIREMENT. If so provided by the Employer in Section 1.06(c), a Participant who becomes disabled will have a 100-percent nonforfeitable interest in his Account, the balance of which Account, plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.08, will be distributed to him in accordance with Article 8 below. A Participant is considered disabled if he cannot engage in any substantial, gainful activity because of a medically determinable physical or mental impairment likely to result in death or to be of a continuous period of not less than 12 months, and terminates his employment with the Employer. Such termination of employment is referred to as a disability retirement. Determinations with respect to disability shall be made by the Administrator who may rely on the criteria set forth in Section 1.06(c) as evidence that the Participant is disabled. 7.04. DEATH. Subject, if applicable, to Section 8.04, if a Participant dies before the distribution of his Account has commenced, or before such distribution has been completed, his Account shall become 100 percent vested and his designated Beneficiary or Beneficiaries will be entitled to receive the balance or remaining balance of his Account, plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.08. Distribution to the Beneficiary or Beneficiaries will be made in accordance with Article 8. A Participant may designate a Beneficiary or Beneficiaries, or change any prior designation of Beneficiary or Beneficiaries by giving notice to the Administrator on a form designated by the Administrator. If more than one person is designated as the Beneficiary, their respective interests shall be as indicated on the designation form. In the case of a married Participant, the Participant's spouse shall be deemed to be the designated Beneficiary unless the Participant's spouse has consented to another designation in the manner described in Section 8.03(d). A copy of the death notice or other sufficient documentation must be filed with and approved by the Administrator. If upon the death of the Participant there is, in the opinion of the Administrator, no designated Beneficiary for part or all of the Participant's Account, such amount will be paid to his surviving spouse or, if none, to his estate (such spouse or estate shall be deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies after benefits to such Beneficiary have commenced, but before they have been completed, and, in the opinion of the Administrator, no person has been designated to receive such remaining benefits, then such benefits shall be paid in a lump sum to the deceased Beneficiary's estate. 7.05. OTHER TERMINATION OF EMPLOYMENT. If a Participant terminates his employment for any reason other than death or normal, late, or disability retirement, he will be entitled to a termination benefit equal to the sum of (a) the vested percentage(s) of the value of the Matching and/or Fixed/Discretionary Contributions to his Account, as 34 39 adjusted for income, expense, gain, or loss, such percentage(s) determined in accordance with the vesting schedule(s) selected by the Employer in Section 1.07, and (b) the value of the Deferral, Employee, Qualified Discretionary and Rollover Contributions to his Account as adjusted for income, expense, gain or loss. The amount payable under this Section 7.05 will be subject to the provisions of Section 7.08 and will be distributed in accordance with Article 8 below. 7.06. SEPARATE ACCOUNT. If a distribution from a Participant's Account has been made to him at a time when he has a nonforfeitable right to less than 100 percent of his Account, the vesting schedule in Section 1.07 will thereafter apply only to amounts in his Account attributable to Employer contributions allocated after such distribution. The balance of his Account immediately after such distribution will be transferred to a separate account which will be maintained for the purpose of determining his interest therein according to the following provisions. At any relevant time prior to a forfeiture of any portion thereof under Section 7.07, a Participant's nonforfeitable interest in his Account held in a separate account described in the preceding paragraph will be equal to P(AB + (RxD))-(RxD), where P is the nonforfeitable percentage at the relevant time determined under Section 7.05; AB is the account balance of the separate account at the relevant time; D is the amount of the distribution; and R is the ratio of the account balance at the relevant time to the account balance after distribution. Following a forfeiture of any portion of such separate account under Section 7.07 below, any balance in the Participant's separate account will remain fully vested and nonforfeitable. 7.07. FORFEITURES. If a Participant terminates his employment, any portion of his Account (including any amounts credited after his termination of employment) not payable to him under Section 7.05 will be forfeited by him upon the complete distribution to him of the vested portion of his Account, if any, subject to the possibility of reinstatement as described in the following paragraph. For purposes of this paragraph, if the value of an Employee's vested Account balance is zero, the Employee shall be deemed to have received a distribution of his vested interest immediately following termination of employment. Such forfeitures will be applied to reduce the contributions of the Employer next payable under the Plan (or administrative expenses of the Plan); the forfeitures shall be held in a money market fund pending such application. If a Participant forfeits any portion of his Account under the preceding paragraph but again becomes an Employee after such date, then the amount so forfeited, without any adjustment for the earnings, expenses, or losses or gains of the assets credited to his Account since the date forfeited, will be recredited to his Account (or to a separate account as described in Section 7.06, if applicable) but only if he repays to the Plan before the earlier of five years after the date of his reemployment or the date he incurs 5 consecutive 1-year breaks in service following the date of the distribution the amount previously distributed to him, without interest, under Section 7.05. If an 35 40 Employee is deemed to receive a distribution pursuant to this Section 7.07, and the Employee resumes employment before 5 consecutive 1-year breaks in service, the Employee shall be deemed to have repaid such distribution on the date of his reemployment. Upon such an actual or deemed repayment, the provisions of the Plan (including Section 7.06) will thereafter apply as if no forfeiture had occurred. The amount to be recredited pursuant to this paragraph will be derived first from the forfeitures, if any, which as of the date of recrediting have yet to be applied as provided in the preceding paragraph and, to the extent such forfeitures are insufficient, from a special Employer contribution to be made by the Employer. If a Participant elects not to receive the nonforfeitable portion of his Account following his termination of employment, the non-vested portion of his Account shall be forfeited after the Participant has incurred five consecutive 1-year breaks in service as defined in Section 2.01(a)(33). No forfeitures will occur solely as a result of a Participant's withdrawal of Employee contributions. 7.08. ADJUSTMENT FOR INVESTMENT EXPERIENCE. If any distribution under this Article 7 is not made in a single payment, the amount retained by the Trustee after the distribution will be subject to adjustment until distributed to reflect the income and gain or loss on the investments in which such amount is invested and any expenses properly charged under the Plan and Trust to such amounts. 7.09. PARTICIPANT LOANS. If permitted under Section 1.09, the Administrator shall allow Participants to apply for a loan from the Plan, subject to the following: (a) Loan Application. All Plan loans shall be administered by the Administrator. Applications for loans shall be made to the Administrator on forms available from the Administrator. Loans shall be made available to all Participants on a reasonably equivalent basis. For this purpose, the term "Participant" means any Participant or Beneficiary, including an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, who is a party-in-interest (as determined under ERISA Section 3(14)) with respect to the Plan except no loans will be made to (1) an Employee who makes a rollover contribution in accordance with Section 4.10 who has not satisfied the requirements of Section 3.01 or (2) a shareholder-employee or Owner-Employee. For purposes of this requirement, a shareholder-employee means an employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of Section 318(a)(1) of the Code), on any day during the taxable year of such corporation, more than 5% of the outstanding stock of the corporation. A Participant with an existing loan may not apply for another loan until the existing loan is paid in full and may not refinance an existing loan or attain a second loan for the purpose of paying 36 41 off the existing loan. A Participant may not apply for more than one loan during each Plan Year. (b) Limitation of Loan Amount/Purpose of Loan. Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees. No loan to any Participant or Beneficiary can be made to the extent that such loan when added to the outstanding balance of all other loans to the Participant or Beneficiary would exceed the lesser of (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one-year period ending on the day before the loan is made over the outstanding balance of loans from the plan on the date the loan is made, or (2) one-half the present value of the nonforfeitable Account of the Participant. For the purpose of the above limitation, all loans from all plans of the Employer and Related Employers are aggregated. A Participant may not request a loan for less than $1,000. The Employer may provide that loans only be made from certain contribution sources within Participant Account(s) by notifying the Trustee in writing of the restricted source. Loans may be made for any purpose or if elected by the Employer in Section 1.09(a), on account of hardship only. A loan will be considered to be made on account of hardship only if made on account of an immediate and heavy financial need described in Section 7.10(b)(1). (c) Terms of Loan. All loans shall bear a reasonable rate of interest as determined by the Administrator based on the prevailing interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. The determination of a reasonable rate of interest must be based on appropriate regional factors unless the Plan is administered on a national basis in which case the Administrator may establish a uniform reasonable rate of interest applicable to all regions. All loans shall by their terms require that repayment (principal and interest) be amortized in level payments, not less than quarterly, over a period not extending beyond five years from the date of the loan unless such loan is for the purchase of a Participant's primary residence, in which case the repayment period may not extend beyond ten years from the date of the loan. A Participant may prepay the outstanding loan balance prior to maturity without penalty. (d) Security. Loans must be secured by the Participant's Accounts not to exceed 50 percent of the Participant's vested Account. A Participant must obtain the consent of his or her spouse, if any, to use a Participant Account as security for the loan, if the provisions of Section 8.03 apply to the Participant. Spousal consent shall be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan, and must be witnessed by a Plan representative 37 42 or notary public. Such consent shall thereafter be binding with respect to the consenting spouse or any subsequent spouse with respect to that loan. (e) Default. The Administrator shall treat a loan in default if (1) any scheduled repayment remains unpaid more than 90 days or (2) there is an outstanding principal balance existing on a loan after the last scheduled repayment date. Upon default or termination of employment, the entire outstanding principal and accrued interest shall be immediately due and payable. If a distributable event (as defined by the Code) has occurred, the Administrator shall direct the Trustee to foreclose on the promissory note and offset the Participant's vested Account by the outstanding balance of the loan. If a distributable event has not occurred, the Administrator shall direct the Trustee to foreclose on the promissory note and offset the Participant's vested Account as soon as a distributable event occurs. (f) Pre-existing loans. The provision in paragraph (a) of this Section 7.09 limiting a Participant to one outstanding loan shall not apply to loans made before the Employer adopted this prototype plan document. A Participant may not apply for a new loan until all outstanding loans made before the Employer adopted this prototype plan have been paid in full. The Trustee may accept any loans made before the Employer adopted this prototype plan document except such loans which require the Trustee to hold as security for the loan property other than the Participant's vested Account. As of the effective date of amendment of this Plan in Section 1.01(g)(2), the Trustee shall have the right to reamortize the outstanding principal balance of any Participant loan that is delinquent. Such reamortization shall be based upon the remaining life of the loan and the original maturity date may not be extended. Notwithstanding any other provision of this Plan, the portion of the Participant's vested Account used as a security interest held by the plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the Account payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's vested Account (determined without regard to the preceding sentence) is payable to the surviving spouse, then the Account shall be adjusted by first reducing the vested Account by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving spouse. No loan to any Participant or Beneficiary can be made to the extent that such loan when added to the outstanding balance of all 38 43 other loans to the Participant or Beneficiary would exceed the lesser of (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one-year period ending on the day before the loan is made over the outstanding balance of loans from the plan on the date the loan is made or (2) one-half the present value of the nonforfeitable Account of the Participant. For the purpose of the above limitation, all loans from all plans of the Employer and Related Employers are aggregated. 7.10. IN-SERVICE/HARDSHIP WITHDRAWALS. Subject to the provisions of Article 8, a Participant shall not be permitted to withdraw any Employer or Employee Contributions (and earnings thereon) prior to retirement or termination of employment, except as follows: (a) AGE 59 1/2. If permitted under Section 1.11(b), a Participant who has attained the age of 59 1/2 is permitted to withdraw upon request all or any portion of the Accounts specified by the Employer in 1.11(b). (b) HARDSHIP. If permitted under Section 1.10, a Participant may apply to the Administrator to withdraw some or all of his Deferral Contributions (and earnings thereon accrued as of December 31, 1988) and, if applicable, Rollover Contributions and such other amounts allowed by a predecessor plan, if such withdrawal is made on account of a hardship. For purposes of this Section, a distribution is made on account of hardship if made on account of an immediate and heavy financial need of the Employee where such Employee lacks other available resources. Determinations with respect to hardship shall be made by the Administrator and shall be conclusive for purposes of the Plan, and shall be based on the following special rules: (1) The following are the only financial needs considered immediate and heavy: expenses incurred or necessary for medical care (within the meaning of Section 213(d) of the Code) of the Employee, the Employee's spouse, children, or dependents; the purchase (excluding mortgage payments) of a principal residence for the Employee; payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Employee, the Employee's spouse, children or dependents; or the need to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee's principal residence. (2) A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if: (i) The Employee has obtained all distributions, other than the hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; (ii) The Employee suspends Deferral Contributions and Employee Contributions to the Plan for the 12-month period 39 44 following the date of his hardship distribution. The suspension must also apply to all elective contributions and Employee Contributions to all other qualified plans and non-qualified plans maintained by the Employer, other than any mandatory employer contribution portion of a defined benefit plan, including stock option, stock purchase and other similar plans, but not including health and welfare benefit plans (other than the cash or deferred arrangement portion of a cafeteria plan); (iii) The distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); and (iv) The Employee agrees to limit Deferral Contributions (elective contributions)to the Plan and any other qualified plan maintained by the Employer for the Employee's taxable year immediately following the taxable year of the hardship distribution to the applicable limit under Section 402(g) of the Code for such taxable year less the amount of such Employee's Deferral Contributions for the taxable year of the hardship distribution. (3) A Participant must obtain the consent of his or her spouse, if any, to obtain a hardship withdrawal, if the provisions of Section 8.03 apply to the Participant. (c) EMPLOYEE CONTRIBUTIONS. A Participant may elect to withdraw, in cash, up to one hundred percent of the amount then credited to his Employee Contribution Account. Such withdrawals shall be limited to one (1) per Plan Year unless this prototype plan document is an amendment of a prior plan document, in which case the rules and restrictions governing Employee Contribution withdrawals, if any, are incorporated herein by reference. 7.11. PRIOR PLAN IN-SERVICE DISTRIBUTION RULES. If designated by the Employer in Section 1.11(b), a Participant shall be entitled to withdraw at anytime prior to his termination of employment, subject to the provisions of Article 8 and the prior plan, any vested Employer Contributions maintained in a Participant's Account for the specified period of time. ARTICLE 8. DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE. 8.01. DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES. (a) Distributions from the Trust to a Participant or to the Beneficiary of the Participant shall be made in a lump sum in cash or, if elected by the Employer in Section 1.11, under a systematic withdrawal plan (installment(s)) upon retirement, death, 40 45 disability, or other termination of employment, unless another form of distribution is required or permitted in accordance with paragraph (d) of this Section 8.01 or Sections 1.11(c), 8.02, 8.03, 8.04 or 11.02. A distribution may be made in Fund Shares, at the election of the Participant, pursuant to the qualifying rollover of such distribution to a Fidelity Investments individual retirement account. (b) Distributions under a systematic withdrawal plan must be made in substantially equal annual, or more frequent, installments, in cash, over a period certain which does not extend beyond the life expectancy of the Participant or the joint life expectancies of the Participant and his Beneficiary, or, if the Participant dies prior to the commencement of his benefits the life expectancy of the Participant's Beneficiary, as further described in Section 8.04. (c) Notwithstanding the provisions of Section 8.01(b) above, if a Participant's Account is, and at the time of any prior distribution(s) was, $3,500 or less, the balance of such Account shall be distributed in a lump sum as soon as practicable following retirement, disability, death or other termination of employment. (d) This paragraph (d) applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article 8, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. The following definitions shall apply for purposes of this paragraph (d): (1) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover 41 46 distribution to a surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (4) Direct rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. 8.02. ANNUITY DISTRIBUTIONS. If so provided in Section 1.11(c), a Participant may elect distributions made in whole or in part in the form of an annuity contract subject to the provisions of Section 8.03. (a) An annuity contract distributed under the Plan must be purchased from an insurance company and must be nontransferable. The terms of an annuity contract shall comply with the requirements of the Plan and distributions under such contract shall be made in accordance with Section 401(a)(9) of the Code and the regulations thereunder. (b) The payment period of an annuity contract distributed to the Participant pursuant to this Section may be as long as the Participant lives. If the annuity is payable to the Participant and his spouse or designated Beneficiary, the payment period of an annuity contract may be for as long as either the Participant or his spouse or designated Beneficiary lives. Such an annuity may provide for an annuity certain feature for a period not exceeding the life expectancy of the Participant. If the annuity is payable to the Participant and his spouse such period may not exceed the joint life and last survivor expectancy of the Participant and his spouse, or, if the annuity is payable to the Participant and a designated Beneficiary, the joint life and last survivor expectancy of the Participant and such Beneficiary. If the Participant dies prior to the commencement of his benefits, the payment period of an annuity contract distributed to the Beneficiary of the Participant may be as long as the Participant's Beneficiary lives, and may provide for an annuity certain feature for a period not exceeding the life expectancy of the Beneficiary. Any annuity contract distributed under the Plan must provide for nonincreasing payments. 8.03. JOINT AND SURVIVOR ANNUITIES/PRERETIREMENT SURVIVOR ANNUITIES. (a) APPLICATION. The provisions of this Section supersede any conflicting provisions of the Plan; however, paragraph (b) of this Section shall not apply if the Participant's Account does not exceed or at the time of any prior distribution did not exceed 42 47 $3,500. A Participant is described in this Section only if (i) the Participant has elected distribution of his Account in the form of an Annuity Contract in accordance with Section 8.02, or (ii) the Trustee has directly or indirectly received a transfer of assets from another plan (including a predecessor plan) to which Section 401(a)(11) of the Code applies with respect to such Participant. (b) RETIREMENT ANNUITY. Unless the Participant elects to waive the application of this subsection in a manner satisfying the requirements of subsection (d) below, to the extent applicable to the Participant, within the 90-day period preceding his Annuity Starting Date (which election may be revoked, and if revoked, remade, at any time in such period), the vested Account due any Participant to whom this subsection (b) applies will be paid to him by the purchase and delivery to him of an annuity contract described in Section 8.02 providing a life annuity only form of benefit or, if the Participant is married as of his Annuity Starting Date, providing an immediate annuity for the life of the Participant with a survivor annuity for the life of the Participant's spouse (determined as of the date of distribution of the contract) which is 50 percent of the amount of the annuity which is payable during the joint lives of the Participant and such spouse. The Participant may elect to receive distribution of his benefits in the form of such annuity as of the earliest date on which he could elect to receive retirement benefits under the Plan. Within the period beginning 90 days prior to the Participant's Annuity Starting Date and ending 30 days prior to such Date, the Administrator will provide such Participant with a written explanation of (1) the terms and conditions of the annuity contract described herein, (2) the Participant's to make, and the effect of, an election to waive application of this subsection, (3) the rights of the Participant's spouse under subsection (d), and (4) the right to revoke and the period of time necessary to revoke the election to waive application of this subsection. (c) ANNUITY DEATH BENEFIT. Unless the Participant elects to waive the application of this subsection in a manner satisfying the requirements of subsection (d) below at any time within the applicable election period (which election may be revoked, and if revoked, remade, at any time in such period), if a married Participant to whom this Section applies dies before his Annuity Starting Date, then notwithstanding any designation of a Beneficiary to the contrary, 50 percent of his vested Account will be applied to purchase an annuity contract described in Section 8.02 providing an annuity for the life of the Participant's surviving spouse, which contract will then be promptly distributed to such spouse. In lieu of the purchase of such an annuity contract, the spouse may elect in writing to receive distributions under the Plan as if he or she had been designated by the Participant as his Beneficiary with respect to 50 percent of his Account. For purposes of this subsection, the applicable election period will commence on the first day of the Plan Year in which the Participant attains age 35 and will end on the date of the 43 48 Participant's death, provided that in the case of a Participant who terminates his employment the applicable election period with respect to benefits accrued prior to the date of such termination will in no event commence later than the date of his termination of employment. A Participant may elect to waive the application of this subsection prior to the Plan Year in which he attains age 35, provided that any such waiver will cease to be effective as of the first day of the Plan Year in which the Participant attains age 35. The Administrator will provide a Participant to whom this subsection applies with a written explanation with respect to the annuity death benefit described in this subsection (c) comparable to that required under subsection (b) above. Such explanation shall be furnished within whichever of the following periods ends last: (1) the period beginning with the first day of the Plan Year in which the Participant reaches age 32 and ending with the end of the Plan Year preceding the Plan Year in which he reaches age 35, (2) a reasonable period ending after the Employee becomes a Participant, (3) a reasonable period ending after this Section 8.04 first becomes applicable to the Participant in accordance with Section 8.04(a), (4) in the case of a Participant who separates from service before age 35, a reasonable period of time ending after separation from service. For purposes of the preceding sentence, the two-year period beginning one year prior to the date of the event described in clause (2), (3) or (4), whichever is applicable, and ending one year after such date shall be considered reasonable, provided, that in the case of a Participant who separates from service under (4) above and subsequently recommences employment with the Employer, the applicable period for such Participant shall be redetermined in accordance with this subsection. (d) REQUIREMENTS OF ELECTIONS. This subsection will be satisfied with respect to a waiver or designation which is required to satisfy this subsection if such waiver or designation is in writing and either (1) the Participant's spouse consents thereto in writing, which consent must acknowledge the effect of such waiver or designation and be witnessed by a notary public or Plan representative, or (2) the Participant establishes to the satisfaction of the Administrator that the consent of the Participant's spouse cannot be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary of Treasury may prescribe. Any consent by a spouse, or establishment that the consent of a spouse may not be obtained, will be effective only with respect to a specific Beneficiary (including any class of Beneficiaries or any contingent Beneficiaries) or form of benefits identified in the Participant's waiver or designation, unless the consent of the spouse expressly permits designations 44 49 by the Participant without any requirement of further consent by the spouse. A consent which permits such designations by the Participant shall acknowledge that the spouse has the right to limit consent to a specific Beneficiary and form of benefits and that the spouse voluntarily elects to relinquish both such rights. A consent by a spouse shall be irrevocable once made. Any such consent, or establishment that such consent may not be obtained, will be effective only with respect to such spouse. For purposes of subsections (b) and (c) above, no consent of a spouse shall be valid unless the notice required by whichever subsection is applicable has been provided to the Participant. (e) FORMER SPOUSE. For purposes of this Section 8.03, a former spouse of a Participant will be treated as the spouse or surviving spouse of the Participant, and a current spouse will not be so treated, to the extent required under a qualified domestic relations order, as defined in Section 414(p) of the Code. (f) VESTED ACCOUNT BALANCE. For purposes of this Section, vested Account shall include the aggregate value of the Participant's vested Account derived from Employer and Employee Contributions (including rollovers), whether vested before or upon death. The provisions of this Section shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee Contributions, or both, upon death or at the time of distribution. 8.04 INSTALLMENT DISTRIBUTIONS. This Section shall be interpreted and applied in accordance with the regulations under Section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the Proposed Treasury Regulations, or any successor regulations of similar import. (a)IN GENERAL. If a Participant's benefit may be distributed in accordance with Section 8.01(b), the amount to be distributed for each calendar year for which a minimum distribution is required shall be at least an amount equal to the quotient obtained by dividing the Participant's interest in his Account by the life expectancy of the Participant or Beneficiary or the joint life and last survivor expectancy of the Participant and his Beneficiary, whichever is applicable. For calendar years beginning before January 1, 1989, if a Participant's Beneficiary is not his spouse, the method of distribution selected must insure that at least 50 percent of the present value of the amount available for distribution is paid within the life expectancy of the Participant. For calendar years beginning after December 31, 1988, the amount to be distributed for each calendar year shall not be less than an amount equal to the quotient obtained by dividing the Participant's interest in his Account by the lesser of (1) the applicable life expectancy under Section 8.01(b), or (2) if a Participant's Beneficiary is not his spouse, the applicable divisor determined under Section 1.401(a)(9)-2, Q&A 4 of the Proposed Treasury Regulations, or any successor regulations of similar import. Distributions after the death of the Participant shall be made 45 50 using the applicable life expectancy under (1) above, without regard to Section 1.401(a)(9)-2 of such regulations. The minimum distribution required under this subsection (a) for the calendar year immediately preceding the calendar year in which the Participant's required beginning date, as determined under Section 8.08(b), occurs shall be made on or before the Participant's required beginning date, as so determined. Minimum distributions for other calendar years shall be made on or before the close of such calendar year. (b)ADDITIONAL REQUIREMENTS FOR DISTRIBUTIONS AFTER DEATH OF PARTICIPANT. (1) DISTRIBUTION BEGINNING BEFORE DEATH. If the Participant dies before distribution of his benefits has begun, distributions shall be made in accordance with the provisions of this paragraph. Distributions under Section 8.01(a) shall be completed by the close of the calendar year in which the fifth anniversary of the death of the Participant occurs. Distributions under Section 8.01(b) shall commence, if the Beneficiary is not the Participant's spouse, not later than the close of the calendar year immediately following the calendar year in which the death of the Participant occurs. Distributions under Section 8.01(b) to a Beneficiary who is the Participant's surviving spouse shall commence not later than the close of the calendar year in which the Participant would have attained age 70 1/2 or, if later, the close of the calendar year immediately following the calendar year in which the death of the Participant occurs. In the event such spouse dies prior to the date distribution to him or her commences, he or she will be treated for purposes of this subsection (other than the preceding sentence) as if he or she were the Participant. If the Participant has not designated a Beneficiary, or the Participant or Beneficiary has not effectively selected a method of distribution, distribution of the Participant's benefit shall be completed by the close of the calendar year in which the fifth anniversary of the death of the Participant occurs. Any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. For purposes of this subsection (b)(1), the life expectancy of a Beneficiary who is the Participant's surviving spouse shall be recalculated annually unless the Participant's spouse irrevocably elects otherwise prior to the time distributions are required to begin. Life expectancy shall be computed in accordance with the provisions of subsection (a) above. (2) DISTRIBUTION BEGINNING AFTER DEATH. If the Participant dies after distribution of his benefits has begun, distributions to the Participant's Beneficiary will be made at least as 46 51 rapidly as under the method of distribution being used as of the date of the Participant's death. For purposes of this Section 8.04(b), distribution of a Participant's interest in his Account will be considered to begin as of the Participant's required beginning date, as determined under Section 8.08(b). If distribution in the form of an annuity irrevocably commences prior to such date, distribution will be considered to begin as of the actual date distribution commences. (c) LIFE EXPECTANCY. For purposes of this Section, life expectancy shall be recalculated annually in the case of the Participant or a Beneficiary who is the Participant's spouse unless the Participant or Beneficiary irrevocably elects otherwise prior to the time distributions are required to begin. If not recalculated in accordance with the foregoing, life expectancy shall be calculated using the attained age of the Participant or Beneficiary, whichever is applicable, as of such individual's birth date in the first year for which a minimum distribution is required reduced by one for each elapsed calendar year since the date life expectancy was first calculated. For purposes of this Section, life expectancy and joint life and last survivor expectancy shall be computed by use of the expected return multiples in Table V and VI of section 1.72-9 of the income tax Regulations. A Participant's interest in his Account for purposes of this Section 8.04 shall be determined as of the last valuation date in the calendar year immediately preceding the calendar year for which a minimum distribution is required, increased by the amount of any contributions allocated to, and decreased by any distributions from, such Account after the valuation date. Any distribution for the first year for which a minimum distribution is required made after the close of such year shall be treated as if made prior to the close of such year. 8.05. IMMEDIATE DISTRIBUTIONS. If the Account distributable to a Participant exceeds, or at the time of any prior distribution exceeded, $3,500, no distribution will be made to the Participant before he reaches his Normal Retirement Age (or age 62, if later), unless the written consent of the Participant has been obtained. Such consent shall be made in writing within the 90-day period ending on the Participant's Annuity Starting Date. Within the period beginning 90 days before the Participant's Annuity Starting Date and ending 30 days before such Date, the Administrator will provide such Participant with written notice comparable to the notice described in Section 8.03(b) containing a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan and informing the Participant of his right to defer receipt of the distribution until his Normal Retirement Age (or age 62, if later). The consent of the Participant's spouse must also be obtained if the Participant is subject to the provisions of Section 8.03(a), unless the distribution will be made in the form of the applicable retirement 47 52 annuity contract described in Section 8.03(b). A spouse's consent to early distribution, if required, must satisfy the requirements of Section 8.03(d). Neither the consent of the Participant nor the Participant's spouse shall be required to the extent that a distribution is required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon termination of the Plan if it does not offer an annuity option (purchased from a commercial provider) and if the Employer or any Related Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) the Participant's Account will, without the Participant's consent, be distributed to the Participant. However, if any Related Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code) then the Participant's Account will be transferred, without the Participant's consent, to the other plan if the Participant does not consent to an immediate distribution. 8.06. DETERMINATION OF METHOD OF DISTRIBUTION. The Participant will determine the method of distribution of benefits to himself and may determine the method of distribution to his Beneficiary. Such determination will be made prior to the time benefits become payable under the Plan. If the Participant does not determine the method of distribution to his Beneficiary or if the Participant permits his Beneficiary to override his determination, the Beneficiary, in the event of the Participant's death, will determine the method of distribution of benefits to himself as if he were the Participant. A determination by the Beneficiary must be made no later than the close of the calendar year in which distribution would be required to begin under Section 8.04(b) or, if earlier, the close of the calendar year in which the fifth anniversary of the death of the Participant occurs. 8.07. NOTICE TO TRUSTEE. The Administrator will notify the Trustee in writing whenever any Participant or Beneficiary is entitled to receive benefits under the Plan. The Administrator's notice shall indicate the form of benefits that such Participant or Beneficiary shall receive and (in the case of distributions to a Participant) the name of any designated Beneficiary or Beneficiaries. 8.08. TIME OF DISTRIBUTION. In no event will distribution to a Participant be made latest than the earlier of the dates described in (a) and (b) below: (a) Absent the consent of the Participant (and his spouse, if appropriate), the 60th day after the close of the Plan Year in which occurs the later of the date on which the Participant attains age 65, the date on which the Participant ceases to be employed by the Employer, or the 10th anniversary of the year in which the Participant commenced participation in the Plan; and (b) April 1 of the calendar year first following the calendar year in which the Participant attains age 70 1/2 or, in the case of a Participant who had attained age 70 1/2 before January 1, 1988, 48 53 the required beginning date determined in accordance with (1) or (2) below: (1) The required beginning date of a Participant who is not a 5-percent owner is the first day of April of the calendar year following the calendar year in which the later of retirement or attainment of age 70 1/2 occurs. (2) The required beginning date of a Participant who is a 5-percent owner during any year beginning after December 31, 1979, is the first day of April following the later of (A) the calendar year in which the Participant attains age 70 1/2, or (B) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5-percent owner, or the calendar year in which the Participant retires. Notwithstanding the foregoing, in the case of a Participant who attained age 70 1/2 during 1988 and who had not retired prior to January 1, 1989, the required beginning date described in this paragraph shall be April 1, 1990. Notwithstanding (a) above, the failure of a Participant (and spouse) to consent to a distribution while a benefit is immediately distributable, within the meaning of Section 8.05, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy (a) above. Once distributions have begun to a 5-percent owner under (b) above, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year. For purposes of (b) above, a Participant is treated as a 5-percent owner if such Participant is a 5-percent owner as defined in Section 416(i) of the Code (determined in accordance with Section 416 but without regard to whether the Plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 66 1/2 or any subsequent Plan Year. The Administrator shall notify the Trustee in writing whenever a distribution is necessary in order to comply with the minimum distribution rules set forth in this Section. 8.09. WHEREABOUTS OF PARTICIPANTS AND BENEFICIARIES. The Administrator will at all times be responsible for determining the whereabouts of each Participant or Beneficiary who may be entitled to benefits under the Plan and will at all times be responsible for instructing the Trustee in writing as to the current address of each such Participant or Beneficiary. The Trustee will be entitled to rely on the latest written statement received from the Administrator as to such addresses. The Trustee will be under no duty to make any distributions under the Plan 49 54 unless and until it has received written instructions from the Administrator satisfactory to the Trustee containing the name and address of the distributee, the time when the distribution is to occur, and the form which the distribution will take. Notwithstanding the foregoing, if the Trustee attempts to make a distribution in accordance with the Administrator's instructions but is unable to make such distribution because the whereabouts of the distributee is unknown, the Trustee will notify the Administrator of such situation and thereafter the Trustee will be under no duty to make any further distributions to such distributee until it receives further written instructions from the Administrator. If a benefit is forfeited because the Administrator determines that the Participant or Beneficiary cannot be found, such benefit will be reinstated by the Sponsor if a claim is filed by the Participant or Beneficiary with the Administrator and the Administrator confirms the claim to the Sponsor. ARTICLE 9. TOP-HEAVY PROVISIONS. 9.01 APPLICATION. If the Plan is or becomes a Top-Heavy Plan in any Plan Year or is automatically deemed to be Top-Heavy in accordance with the Employer's election in Section 1.12(a)(1) of the Adoption Agreement, the provisions of this Article 9 shall supersede any conflicting provision in the Plan. 9.02 DEFINITIONS. For purposes of this Article 9, the following terms have the meanings set forth below: (a) KEY EMPLOYEE. Any Employee or former Employee (and the Beneficiary of any such Employee) who at any time during the determination period was (1) an officer of the Employer whose annual Compensation exceeds 50 percent of the dollar limitation under Section 415(b)(1)(A) of the Code, (2) an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's annual Compensation exceeds the dollar limitation under Section 415(c)(1)(A) of the Code, (3) a 5-percent owner of the Employer, or (4) a 1-percent owner of the Employer who has annual Compensation of more than $150,000. For purposes of this paragraph, the determination period is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee shall be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder. Annual Compensation means compensation as defined in Section 5.03(e)(2), but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the employee's gross income under Section 125, Section 402(a)(8), and Section 403(b) of the Code. (b) TOP-HEAVY PLAN. The Plan is a Top-Heavy Plan if any of the following conditions exists: (1) the Top-Heavy Ratio for the Plan exceeds 60 percent and the Plan is not part of any Required Aggregation Group or Permissive Aggregation Group, 50 55 (2) the Plan is a part of a Required Aggregation Group but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Required Aggregation Group exceeds 60 percent, or (3) the Plan is a part of a Required Aggregation Group and a Permissive Aggregation Group and the Top-Heavy Ratio for both Groups exceeds 60 percent. (c) TOP-HEAVY RATIO. (1) With respect to this Plan, or with respect to any Required Aggregation Group or Permissive Aggregation Group that consists solely of defined contribution plans (including any simplified employee pension plans) and the Employer has not maintained any defined benefit plan which during the 5-year period ending on the determination date(s) has or has had accrued benefits, the Top-Heavy Ratio is a fraction, the numerator of which is the sum of the account balances of all Key Employees under the plans as of the Determination Date (including any part of any account balance distributed in the 5-year period ending on the Determination Date), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the Determination Date) of all participants under the plans as of the Determination Date. Both the numerator and denominator of the Top-Heavy Ratio shall be increased, to the extent required by Section 416 of the Code, to reflect any contribution which is due but unpaid as of the Determination Date. (2) With respect to any Required Aggregation Group or Permissive Aggregation Group that includes one or more defined benefit plans which, during the 5-year period ending on the Determination Date, has covered or could cover a Participant in this Plan, the Top-Heavy Ratio is a fraction, the numerator of which is the sum of the account balances under the defined contribution plans for all Key Employees and the present value of accrued benefits under the defined benefit plans for all Key Employees, and the denominator of which is the sum of the account balances under the defined contribution plans for all participants and the present value of accrued benefits under the defined benefit plans for all participants. Both the numerator and denominator of the Top-Heavy Ratio shall be increased for any distribution of an account balance or an accrued benefit made in the 5-year period ending on the Determination Date and any contribution due but unpaid as of the Determination Date. (3) For purposes of (1) and (2) above, the value of Accounts and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The Account and accrued benefits of a Participant 51 56 (A) who is not a Key Employee but who was a Key Employee in a prior year, or (B) who has not been credited with at least one Hour of Service with the Employer at any time during the 5-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account, shall be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible employee contributions shall not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of Accounts and accrued benefits shall be calculated with reference to the Determination Dates that fall within the same calendar year. For purposes of determining if the Plan, or any other plan included in a Required Aggregation Group of which this Plan is a part, is a Top-Heavy Plan, the accrued benefit in a defined benefit plan of an Employee other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code. (d) PERMISSIVE AGGREGATION GROUP. The Required Aggregation Group plus any other qualified plans of the Employer or a Related Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (e) REQUIRED AGGREGATION GROUP. (1) Each qualified plan of the Employer or Related Employer in which at least one Key Employee participates, or has participated at any time during the determination period (regardless of whether the plan has terminated), and (2) any other qualified plan of the Employer or Related Employer which enables a plan described in (1) above to meet the requirements of Sections 401(a)(4) or 410 of the Code. (f) DETERMINATION DATE. For any Plan Year of the Plan subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that Plan Year. (g) VALUATION DATE. The Determination Date. (h) PRESENT VALUE. Present value shall be based only on the interest rate and mortality table specified in the Adoption Agreement. 9.03. MINIMUM CONTRIBUTION. 52 57 (a) Except as otherwise provided in (b) and (c) below, the Fixed/Discretionary Contributions made on behalf of any Participant who is not a Key Employee shall not be less than the lesser of 3 percent (or such other percent elected by the Employer in Section 1.12(c)) of such Participant's Compensation or, in the case where the Employer has no defined benefit plan which designates this Plan to satisfy Section 401 of the Code, the largest percentage of Employer contributions, as a percentage of the first $200,000 of the Key Employee's Compensation, made on behalf of any Key Employee for that year. If the Employer selected the Integrated Formula in Section 1.05(a)(2), the minimum contribution shall be determined under paragraph (e) of this Section 9.03. Further, the minimum contribution under this Section 9.03 shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive a contribution, or would have received a lesser contribution for the year, because (1) the Participant failed to complete 1,000 Hours of Service or any equivalent service requirement provided in the Adoption Agreement; or (2) the Participant's Compensation was less than a stated amount. (b) The provisions of (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (c) The Employer contributions for the Plan Year made on behalf of each Participant who is not a Key Employee and who is a participant in a defined benefit plan maintained by the Employer shall not be less than 5 percent of such Participant's Compensation, unless the Employer has provided in Section 1.12(c) that the minimum contribution requirement will be met in the other plan or plans of the Employer. (d) The minimum contribution required under (a) above (to the extent required to be nonforfeitable under Section 416(b) of the Code) may not be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code. (e) If the Employer elected an Integrated Formula in Section 1.05(a)(2), the allocation steps in Section 4.06(b)(2) shall be preceded by the following steps: (1) The Discretionary Employer Contributions will be allocated to each eligible Participant (as determined under this Section 9.03) in the ratio that the Participant's Compensation bears to all Participants' Compensation, but not in excess of 3%(or such other percent elected by the Employer in Section 1.12(c). (2) Any Discretionary Employer Contributions remaining after (e)(1) above will be allocated to each eligible Participant in the ratio that the Participant's Excess Compensation for the Plan Year bears to the Excess Compensation of all eligible Participants, but not in excess of 3%(or such other percent elected by the Employer in Section 1.12(c)). 53 58 9.04. ADJUSTMENT TO THE LIMITATION ON CONTRIBUTIONS AND BENEFITS. If this Plan is in Top-Heavy status, the number 100 shall be substituted for the number 125 in subsections (e)(3) and (e)(4) of Section 5.03. However, this substitution shall not take effect with respect to this Plan in any Plan Year in which the following requirements are satisfied: (a) The Employer contributions for such Plan Year made on behalf of each Participant who is not a Key Employee and who is a participant in a defined benefit plan maintained by the Employer is not less than 7 1/2 percent of such Participant's Compensation. (b) The sum of the present value as of the Determination Date of (1) the aggregate accounts of all Key Employees under all defined contribution plans of the Employer and (2) the cumulative accrued benefits of all Key Employees under all defined benefit plans of the Employer does not exceed 90 percent of the same amounts determined for all Participants under all plans of the Employer that are Top-Heavy Plans, excluding Accounts and accrued benefits for Employees who formerly were but are no longer Key Employees. The substitutions of the number 100 for 125 shall not take effect in any Limitation Year with respect to any Participant for whom no benefits are accrued or contributions made for such Year. 9.05. MINIMUM VESTING. For any Plan Year in which the Plan is a Top-Heavy Plan and all Plan Years thereafter, the Top-Heavy vesting schedule elected in Section 1.12(d) will automatically apply to the Plan. The Top-Heavy vesting schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code except those attributable to Employee Contributions or those already subject to a vesting schedule which vests at least as rapidly in all cases as the schedule elected in Section 1.12(d), including benefits accrued before the Plan becomes a Top-Heavy Plan. Further, no decrease in a Participant's nonforfeitable percentage may occur in the event the Plan's status as a Top-Heavy Plan changes for any Plan Year. However, this Section 9.05 does not apply to the Account of any Employee who does not have an Hour of Service after the Plan has initially become a Top-Heavy Plan and such Employee's Account attributable to Employer Contributions will be determined without regard to this Section 9.05. ARTICLE 10. AMENDMENT AND TERMINATION. 10.01 AMENDMENT BY EMPLOYER. The Employer reserves the authority, subject to the provisions of Article 1 and Section 10.03, to amend the Plan: (a) CHANGES TO ELECTIONS CONTAINED IN THE ADOPTION AGREEMENT. By filing with the Trustee an amended Adoption Agreement, executed by the Employer only, on which said Employer has indicated a change or changes in provisions previously elected by it. Such changes are to be effective on the effective date of such amended Adoption 54 59 Agreement except that retroactive changes to a previous election or elections pursuant to the regulations issued under Section 401(a)(4) of the Code shall be permitted. Any such change notwithstanding, no Participant's Account shall be reduced by such change below the amount to which the Participant would have been entitled if he had voluntarily left the employ of the Employer immediately prior to the date of the change. The Employer may from time to time make any amendment to the Plan that may be necessary to satisfy Sections 415 or 416 of the Code because of the required aggregation of multiple plans by completing overridingplan language in the Adoption Agreement. The Employer may also add certain model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated as an individually designed plan; or (b) OTHER CHANGES. By amending any provision of the Plan for any reason other than those specified in (a) above. However, upon making such amendment, including a waiver of the minimum funding requirement under Section 412(d) of the Code, the Employer may no longer participate in this prototype plan arrangement and will be deemed to have an individually designed plan. Following such amendment, the Trustee may transfer the assets of the Trust to the trust forming part of such newly adopted plan upon receipt of sufficient evidence (such as a determination letter or opinion letter from the Internal Revenue Service or an opinion of counsel satisfactory to the Trustee) that such trust will be a qualified trust under the Code. 10.02. AMENDMENT BY PROTOTYPE SPONSOR. The Prototype Sponsor may in its discretion amend the Plan or the Adoption Agreement at any time, subject to the provisions of Article 1 and Section 10.03, and provided that the Prototype Sponsor mails a copy of such amendment to the Employer at its last known address as shown on the books of the Prototype Sponsor. 10.03. AMENDMENTS AFFECTING VESTED AND/OR ACCRUED BENEFITS. (a) Except as permitted by Section 10.04, no amendment to the Plan shall be effective to the extent that it has the effect of decreasing a Participant's Account or eliminating an optional form of benefit with respect to benefits attributable to service before the amendment. Furthermore, if the vesting schedule of the Plan is amended, the nonforfeitable interest of a Participant in his Account, determined as of the later of the date the amendment is adopted or the date it becomes effective, will not be less than the Participant's nonforfeitable interest in his Account determined without regard to such amendment. (b) If the Plan's vesting schedule is amended, including any amendment resulting from a change to or from Top-Heavy Plan status, or the Plan is amended in any way that directly or indirectly affects the computation of a Participant's nonforfeitable interest in his Account, each Participant with at least three (3) Years of Service for Vesting with the Employer may elect, within a 55 60 reasonable period after the adoption of the amendment, to have the nonforfeitable percentage of his Account computed under the Plan without regard to such amendment. The Participant's election may be made within 60 days from the latest of (1) the date the amendment is adopted, (2) the date the amendment becomes effective, or (3) the date the Participant is issued written notice of the amendment by the Employer or the Administrator. 10.04. RETROACTIVE AMENDMENTS. An amendment made by the Prototype Sponsor in accordance with Section 10.02 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan and Trust to satisfy the applicable requirements of the Code or to conform the Plan to any change in federal law, or to any regulations or ruling thereunder. Any retroactive amendment by the Employer shall be subject to the provisions of Section 10.01. 10.05. TERMINATION. The Employer has adopted the Plan with the intention and expectation that contributions will be continued indefinitely. However, said Employer has no obligation or liability whatsoever to maintain the Plan for any length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee without any liability hereunder for any such discontinuance or termination. 10.06. DISTRIBUTION UPON TERMINATION OF THE PLAN. Upon termination or partial termination of the Plan or complete discontinuance of contributions thereunder, each Participant (including a terminated Participant with respect to amounts not previously forfeited by him) who is affected by such termination or partial termination or discontinuance will have a fully vested interest in his Account, and, subject to Section 4.05 and Article 8, the Trustee will distribute to each Participant or other person entitled to distribution the balance of the Participant's Account in a single lump sum payment. In the absence of such instructions, the Trustee will notify the Administrator of such situation and the Trustee will be under no duty to make any distributions under the Plan until it receives written instructions from the Administrator. Upon the completion of such distributions, the Trust will terminate, the Trustee will be relieved from all liability under the Trust, and no Participant or other person will have any claims thereunder, except as required by applicable law. 10.07. MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS. In case of any merger or consolidation of the Plan with, or transfer of assets and liabilities of the Plan to, any other plan, provision must be made so that each Participant would, if the Plan then terminated, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer if the Plan had then terminated. 56 61 ARTICLE 11. AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS TO OR FROM OTHER QUALIFIED PLANS. 11.01. AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN. In the event the Employer has previously established a plan (the "predecessor plan") which is a defined contribution plan under the Code and which on the date of adoption of the Plan meets the applicable requirements of section 401(a) of the Code, the Employer may, in accordance with the provisions of the predecessor plan, amend and continue the predecessor plan in the form of the Plan and become the Employer hereunder, subject to the following: (a) Subject to the provisions of the Plan, each individual who was a Participant or former Participant in the predecessor plan immediately prior to the effective date of such amendment and continuation will become a Participant or former Participant in the Plan; (b) No election may be made under the vesting provisions of the Adoption Agreement if such election would reduce the benefits of a Participant under the Plan to less than the benefits to which he would have been entitled if he voluntarily separated from the service of the Employer immediately prior to such amendment and continuation; (c) No amendment to the Plan shall decrease a Participant's accrued benefit or eliminate an optional form of benefit and if the amendment of the predecessor plan in the form of the Plan results in a change in the method of crediting service for vesting purposes between the general method set forth in Section 2530.200b-2 of the Department of Labor Regulations and the elapsed-time method in Section 2.01(a)(33) of the Plan, each Participant with respect to whom the method of crediting vesting service is changed shall be treated in the manner set forth by the provisions of Section 1.410(a)-7(f)(1) of the Treasury Regulations which are incorporated herein by reference; (d) The amounts standing to the credit of a Participant's Account immediately prior to such amendment and continuation which represent the amounts properly attributable to (1) contributions by the Participant and (2) contributions by the Employer and forfeitures will constitute the opening balance of his Account or Accounts under the Plan; (e) Amounts being paid to a former Participant or to a Beneficiary in accordance with the provisions of the predecessor plan will continue to be paid in accordance with such provisions; (f) Any election and waiver of the qualified pre-retirement annuity in effect after August 23, 1984, under the predecessor plan immediately before such amendment and continuation will be deemed a valid election and waiver of Beneficiary under Section 8.04 if such designation satisfies the requirements of Section 8.04(d), unless 57 62 and until the Participant revokes such election and waiver under the Plan; and (g) Unless the Employer and the Trustee agree otherwise, all assets of the predecessor trust will be deemed to be assets of the Trust as of the effective date of such amendment. Such assets will be invested by the Trustee as soon as reasonably practicable pursuant to Article 6. The Employer agrees to assist the Trustee in any way requested by the Trustee in order to facilitate the transfer of assets from the predecessor trust to the Trust Fund. 11.02. TRANSFER OF FUNDS FROM AN EXISTING PLAN. The Employer may from time to time direct the Trustee, in accordance with such rules as the Trustee may establish, to accept cash, allowable Fund Shares or participant loan promissory notes transferred for the benefit of Participants from a trust forming part of another qualified plan under the Code, provided such plan is a defined contribution plan. Such transferred assets will become assets of the Trust as of the date they are received by the Trustee. Such transferred assets will be credited to Participants' Accounts in accordance with their respective interests immediately upon receipt by the Trustee. A Participant's interest under the Plan in transferred assets which were fully vested and nonforfeitable under the transferring plan will be fully vested and nonforfeitable at all times. Such transferred assets will be invested by the Trustee in accordance with the provisions of paragraph (g) of Section 11.01 as if such assets were transferred from a predecessor plan. No transfer of assets in accordance with this Section may cause a loss of an accrued or optional form of benefit protected by Section 411(d)(6) of the Code. 11.03. ACCEPTANCE OF ASSETS BY TRUSTEE. The Trustee will not accept assets which are not either in a medium proper for investment under the Plan, as set forth in Section 1.14(b), or in cash. Such assets shall be accompanied by written instructions showing separately the respective contributions by the prior employer and by the Employee, and identifying the assets attributable to such contributions. The Trustee shall establish such accounts as may be necessary or appropriate to reflect such contributions under the Plan. The Trustee shall hold such assets for investment in accordance with the provisions of Article 6, and shall in accordance with the written instructions of the Employer make appropriate credits to the Accounts of the Participants for whose benefit assets have been transferred. 11.04. TRANSFER OF ASSETS FROM TRUST. The Employer may direct the Trustee to transfer all or a specified portion of the Trust assets to any other plan or plans maintained by the Employer or the employer or employers of a former Participant or Participants, provided that the Trustee has received evidence satisfactory to it that such other plan meets all applicable requirements of the Code. The assets so transferred shall be accompanied by written instructions from the Employer naming the persons for whose benefit such assets have been transferred, showing separately the respective contributions by the Employer and by each Participant, if any, and identifying the assets 58 63 attributable to the various contributions. The Trustee shall have no further liabilities with respect to assets so transferred. 59 64 ARTICLE 12. MISCELLANEOUS. 12.01. COMMUNICATION TO PARTICIPANTS. The Plan will be communicated to all Participants by the Employer promptly after the Plan is adopted. 12.02. LIMITATION OF RIGHTS. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to any Participant or other person any legal or equitable right against the Employer, Administrator or Trustee, except as provided herein; and in no event will the terms of employment or service of any Participant be modified or in any way affected hereby. It is a condition of the Plan, and each Participant expressly agrees by his participation herein, that each Participant will look solely to the assets held in the Trust for the payment of any benefit to which he is entitled under the Plan. 12.03. NONALIENABILITY OF BENEFITS AND QUALIFIED DOMESTIC RELATIONS ORDERS. The benefits provided hereunder will not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, either voluntarily or involuntarily, and any attempt to cause such benefits to be so subjected will not be recognized, except to such extent as may be required by law. The preceding sentence shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined by the Plan Administrator to be a qualified domestic relations order, as defined in Section 414(p) of the Code, or any domestic relations order entered before January 1, 1985. The Administrator must establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Administrator will promptly notify the Participant and any alternate payee named in the order, in writing, of the receipt of the order and the Plan's procedures for determining the qualified status of the order. Within a reasonable period of time after receiving the domestic relations order, the Administrator must determine the qualified status of the order and must notify the Participant and each alternate payee, in writing, of its determination. The Administrator must provide notice under this paragraph by mailing to the individual's address specified in the domestic relations order, or in a manner consistent with the Department of Labor regulations. If any portion of the Participant's Account is payable during the period the Administrator is making its determination of the qualified status of the domestic relations order, the Administrator must make a separate accounting of the amounts payable. If the Administrator determines the order is a qualified domestic relations order within 18 months of the date amounts first are payable following receipt of the order, the Administrator will direct the Trustee to distribute the payable amounts in accordance with the order. If the Administrator does not make his determination of the qualified status of the order within the 18-month determination period, the Administrator will direct the Trustee to distribute the payable amounts in the manner the Plan would distribute if the order did not exist and will apply the order 60 65 prospectively if the Administrator later determines the order is a qualified domestic relations order. A domestic relations order will not fail to be deemed a qualified domestic relations order merely because it requires the distribution or segregation of all or part of a Participant's Account with respect to an alternate payee prior to the Participant's earliest retirement age (as defined in Section 414(p) of the Code) under the Plan. A distribution to an alternate payee prior to the Participant's attainment of the earliest retirement age is available only if (a) the order specifies distribution at that time and (b) if the present value of the alternate payee's benefits under the Plan exceeds $3,500, and the order requires, and the alternate payee consents to, a distribution occurring prior to the Participant's attainment of earliest retirement age. 12.04. FACILITY OF PAYMENT. In the event the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may direct the Trustee to disburse such payments to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution otherwise having the legal authority under state law for the care and control of such recipient. The receipt by such person or institution of any such payments shall be complete acquittance therefore, and any such payment to the extent thereof, shall discharge the liability of the Trust for the payment of benefits hereunder to such recipient. 12.05. INFORMATION BETWEEN EMPLOYER AND TRUSTEE. The Employer agrees to furnish the Trustee, and the Trustee agrees to furnish the Employer, with such information relating to the Plan and Trust as may be required by the other in order to carry out their respective duties hereunder, including without limitation information required under the Code and any regulations issued or forms adopted by the Treasury Department thereunder or under the provisions of ERISA and any regulations issued or forms adopted by the Labor Department thereunder. 12.06. EFFECT OF FAILURE TO QUALIFY UNDER CODE. Notwithstanding any other provision contained herein, if the Employer fails to obtain or retain approval of the Plan by the Internal Revenue Service as a qualified Plan under the Code, the Employer may no longer participate in this prototype Plan arrangement and will be deemed to have an individually designed plan. 12.07. NOTICES. Any notice or other communication in connection with this Plan shall be deemed delivered in writing if addressed as provided below and if either actually delivered at said address or, in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified: 61 66 (a) If to the Employer or Administrator, to it at the address set forth in the Adoption Agreement, to the attention of the person specified to receive notice in the Adoption Agreement; (b) If to the Trustee, to it at the address set forth in the Adoption Agreement; or, in each case at such other address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor's then effective notice address. 12.08. GOVERNING LAW. The Plan and the accompanying Adoption Agreement will be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts. ARTICLE 13. PLAN ADMINISTRATION. 13.01. POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR. The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the requirements of ERISA. The Administrator's powers and responsibilities include, but are not limited to, the following: (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) To administer the claims and review procedures specified in Section 13.03; (e) To compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan; (f) To determine the person or persons to whom such benefits will be paid; (g) To authorize the payment of benefits and provide for the distribution of Code Section 402(f) notices; (h) To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; (i) To appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan; 62 67 (j) By written instrument, to allocate and delegate its fiduciary responsibilities in accordance with Section 405 of ERISA including the formation of an Administrative Committee to administer the Plan; (k) To provide bonding coverage as required under Section 412 of ERISA. 13.02. NONDISCRIMINATORY EXERCISE OF AUTHORITY. Whenever, in the administration of the Plan, any discretionary action by the Administrator is required, the Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. 13.03. CLAIMS AND REVIEW PROCEDURES. (a) CLAIMS PROCEDURE. If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will contain (1) specific reasons for the denial, (2) specific reference to pertinent Plan provisions, (3) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (4) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90-day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim. (b) REVIEW PROCEDURE. Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred), such person (or his duly authorized representative) may (1) file a written request with the Administrator for a review of his denied claim and of pertinent documents and (2) submit written issues and comments to the Administrator. The Administrator will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60-day period). If the decision on review is not made within such period, the claim will be considered denied. 63 68 13.04. NAMED FIDUCIARY. The Administrator is a "named fiduciary" for purposes of Section 402(a)(1) of ERISA and has the powers and responsibilities with respect to the management and operation of the Plan described herein. 13.05. COSTS OF ADMINISTRATION. Unless some or all are paid by the Employer, all reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator and the Trustee in administering the Plan and Trust will be paid first from the forfeitures (if any) resulting under Section 7.07, then from the remaining Trust Fund. All such costs and expenses paid from the Trust Fund will, unless allocable to the Accounts of particular Participants, be charged against the Accounts of all Participants on a PRORATA basis or in such other reasonable manner as may be directed by the Employer. ARTICLE 14. TRUST AGREEMENT. 14.01. ACCEPTANCE OF TRUST RESPONSIBILITIES. By executing the Adoption Agreement, the Employer establishes a trust to hold the assets of the Plan. By executing the Adoption Agreement, the Trustee agrees to accept the rights, duties and responsibilities set forth in this Article 14. 14.02. ESTABLISHMENT OF TRUST FUND. A trust is hereby established under the Plan and the Trustee will open and maintain a trust account for the Plan and, as part thereof, Participants' Accounts for such individuals as the Employer shall from time to time give written notice to the Trustee are Participants in the Plan. The Trustee will accept and hold in the Trust Fund such contributions on behalf of Participants as it may receive from time to time from the Employer. The Trust Fund shall be fully invested and reinvested in accordance with the applicable provisions of the Plan in Fund Shares or as otherwise provided in Section 14.10. 14.03. EXCLUSIVE BENEFIT. The Trustee shall hold the assets of the Trust Fund for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying the reasonable expenses of administering the Plan. No assets of the Plan shall revert to the Employer except as specifically permitted by the terms of the Plan. 14.04. POWERS OF TRUSTEE. The Trustee shall have no discretion or authority with respect to the investment of the Trust Fund but shall act solely as a directed trustee of the funds contributed to it. In addition to and not in limitation of such powers as the Trustee has by law or under any other provisions of the Plan, the Trustee will have the following powers, each of which the Trustee exercises solely as directed Trustee in accordance with the written direction of the Employer except to the extent a Plan asset is subject to Participant direction of investment and provided that no such power shall be exercised in any manner inconsistent with the provisions of ERISA: 64 69 (a) to deal with all or any part of the Trust Fund and to invest all or a part of the Trust Fund in investments available under the Plan, without regard to the law of any state regarding proper investment; (b) to retain uninvested such cash as it may deem necessary or advisable, without liability for interest thereon, for the administration of the Trust; (c) to sell, convert, redeem, exchange, or otherwise dispose of all or any part of the assets constituting the Trust Fund; (d) to enforce by suit or otherwise, or to waive, its rights on behalf of the Trust, and to defend claims asserted against it or the Trust, provided that the Trustee is indemnified to its satisfaction against liability and expenses; (e) to employ such agents and counsel as may be reasonably necessary in collecting, managing, administering, investing, distributing and protecting the Trust Fund or the assets thereof and to pay them reasonable compensation; (f) to compromise, adjust and settle any and all claims against or in favor of it or the Trust; (g) to oppose, or participate in and consent to the reorganization, merger, consolidation, or readjustment of the finances of any enterprise, to pay assessments and expenses in connection therewith, and to deposit securities under deposit agreements; (h) to apply for or purchase annuity contracts in accordance with Section 8.02; (i) to hold securities unregistered, or to register them in its own name or in the name of nominees; (j) to appoint custodians to hold investments within the jurisdiction of the district courts of the United States and to deposit securities with stock clearing corporations or depositories or similar organizations; (k) to make, execute, acknowledge and deliver any and all instruments that it deems necessary or appropriate to carry out the powers herein granted; and (l) generally to exercise any of the powers of an owner with respect to all or any part of the Trust Fund. The Employer specifically acknowledges and authorizes that affiliates of the Trustee may act as its agent in the performance of ministerial, nonfiduciary duties under the Trust. The expenses and compensation of such agent shall be paid by the Trustee. The Trustee shall provide the Employer with reasonable notice of any claim filed against the Plan or Trust or with regard to any related 65 70 matter, or of any claim filed by the Trustee on behalf of the Plan or Trust or with regard to any related matter. 14.05. ACCOUNTS. The Trustee will keep full accounts of all receipts and disbursements and other transactions hereunder. Within 60 days after the close of each Plan Year, within 60 days after termination of the Trust, and at such other times as may be appropriate, the Trustee will determine the then net fair market value of the Trust Fund as of the close of the Plan Year, as of the termination of the Trust, or as of such other time, whichever is applicable, and will render to the Employer and Administrator an account of its administration of the Trust during the period since the last such accounting, including all allocations made by it during such period. 14.06. APPROVING OF ACCOUNTS. To the extent permitted by law, the written approval of any account by the Employer or Administrator will be final and binding, as to all matters and transactions stated or shown therein, upon the Employer, Administrator, Participants and all persons who then are or thereafter become interested in the Trust. The failure of the Employer or Administrator to notify the Trustee within six (6) months after the receipt of any account of its objection to the account will, to the extent permitted by law, be the equivalent of written approval. If the Employer or Administrator files any objections within such six (6) month period with respect to any matters or transactions stated or shown in the account, and the Employer or Administrator and the Trustee cannot amicably settle the question raised by such objections, the Trustee will have the right to have such questions settled by judicial proceedings. Nothing herein contained will be construed so as to deprive the Trustee of the right to have judicial settlement of its accounts. In any proceeding for a judicial settlement of any account or for instructions, the only necessary parties will be the Trustee, the Employer and the Administrator. 14.07. DISTRIBUTION FROM TRUST FUND. The Trustee shall make such distribution from the Trust Fund as the Employer or Administrator may in writing direct, as provided by the terms of the Plan, upon certification by the Employer or Administrator that the same is for the exclusive benefit of Participants or their Beneficiaries, or for the payment of expenses of administering the Plan. 14.08. TRANSFER OF AMOUNTS FROM QUALIFIED PLAN. If the Plan provides that amounts may be transferred to the Plan from another qualified plan or trust under Section 401(a) of the Code, such transfer shall be made in accordance with the provisions of the Plan and with such rules as may be established by the Trustee. The Trustee will only accept assets which are in a medium proper for investment under this agreement or in cash. Such amounts shall be accompanied by written instructions showing separately the respective contributions by the prior employer and the transferring Employee, and identifying the assets attributable to such contributions. The Trustee shall hold such assets for investment in accordance with the provisions of this agreement. 14.09. TRANSFER OF ASSETS FROM TRUST. Subject to the provisions of the Plan, the Employer may direct the Trustee to transfer all or a specified 66 71 portion of the Trust assets to any other plan or plans maintained by the Employer or the employer or employers of a former Participant or Participants, provided that the Trustee has received evidence satisfactory to it that such other plan meets all applicable requirements of the Code. The assets so transferred shall be accompanied by written instructions from the Employer naming the persons for whose benefit such assets have been transferred, showing separately the respective contributions by the Employer and by each Participant, if any, and identifying the assets attributable to the various contributions. The Trustee shall have no further liabilities with respect to assets so transferred. 14.10. SEPARATE TRUST OR FUND FOR EXISTING PLAN ASSETS. With the consent of the Trustee, the Employer may maintain a trust or fund (including a group annuity contract) under this prototype plan document separate from the Trust Fund for Plan assets purchased prior to the adoption of this prototype plan document which are not Fidelity Funds listed in Section 1.14(b). The Trustee shall have no authority and no responsibility for the Plan assets held in such separate trust or fund. The duties and responsibilities of the trustee of a separate trust shall be provided by a separate trust agreement, between the Employer and the trustee. Notwithstanding the preceding paragraph, the Trustee or an affiliate of the Trustee may agree in writing to provide ministerial recordkeeping services for guaranteed investment contracts held in the separate trust or fund. The guaranteed investment contract(s) shall be valued as directed by the Employer or the Trustee of the separate trust. The trustee of the separate trust (hereafter referred to as "trustee") will be the owner of any insurance contract purchased prior to the adoption of this prototype plan document. The insurance contract(s) must provide that proceeds will be payable to the trustee; however the trustee shall be required to pay over all proceeds of the contract(s) to the Participant's designated Beneficiary in accordance with the distribution provisions of this plan. A Participant's spouse will be the designated Beneficiary of the proceeds in all circumstances unless a qualified election has been made in accordance with Article 8. Under no circumstances shall the trust retain any part of the proceeds. In the event of any conflict between the terms of this plan and the terms of any insurance contract purchased hereunder, the plan provisions shall control. Any life insurance contracts held in the Trust Fund or in the separate trust are subject to the following limits: (a) Ordinary life - For purposes of these incidental insurance provisions, ordinary life insurance contracts are contracts with both nondecreasing death benefits and nonincreasing premiums. If such contracts are held, less than 1/2 of the aggregate employer contributions allocated to any Participant will be used to pay the premiums attributable to them. 67 72 (b) Term and universal life - No more than 1/4 of the aggregate employer contributions allocated to any participant will be used to pay the premiums on term life insurance contracts, universal life insurance contracts, and all other life insurance contracts which are not ordinary life. (c) Combination - The sum of 1/2 of the ordinary life insurance premiums and all other life insurance premiums will not exceed 1/4 of the aggregate employer contributions allocated to any Participant. 14.11. VOTING; DELIVERY OF INFORMATION. The Trustee shall deliver, or cause to be executed and delivered, to the Employer or Plan Administrator all notices, prospectuses, financial statements, proxies and proxy soliciting materials received by the Trustee relating to securities held by the Trust or, if applicable, deliver these materials to the appropriate Participant or the Beneficiary of a deceased Participant. The Trustee shall not vote any securities held by the Trust except in accordance with the written instructions of the Employer, Participant or the Beneficiary of the Participant, if the Participant is deceased; however, the Trustee may, in the absence of instructions, vote "present" for the sole purpose of allowing such shares to be counted for establishment of a quorum at a shareholders' meeting. The Trustee shall have no duty to solicit instructions from Participants, Beneficiaries, or the Employer. 14.12. COMPENSATION AND EXPENSES OF TRUSTEE. The Trustee's fee for performing its duties hereunder will be such reasonable amounts as the Trustee may from time to time specify by written agreement with the Employer. Such fee, any taxes of any kind which may be levied or assessed upon or with respect to the Trust Fund, and any and all expenses, including without limitation legal fees and expenses of administrative and judicial proceedings, reasonably incurred by the Trustee in connection with its duties and responsibilities hereunder will, unless some or all have been paid by said Employer, be paid first from forfeitures resulting under Section 7.07, then from the remaining Trust Fund and will, unless allocable to the Accounts of particular Participants, be charged against the respective Accounts of all Participants, in such reasonable manner as the Trustee may determine. 14.13. RELIANCE BY TRUSTEE ON OTHER PERSONS. The Trustee may rely upon and act upon any writing from any person authorized by the Employer or Administrator to give instructions concerning the Plan and may conclusively rely upon and be protected in acting upon any written order from the Employer or Administrator or upon any other notice, request, consent, certificate, or other instructions or paper reasonably believed by it to have been executed by a duly authorized person, so long as it acts in good faith in taking or omitting to take any such action. The Trustee need not inquire as to the basis in fact of any statement in writing received from the Employer or Administrator. The Trustee will be entitled to rely on the latest certificate it has received from the Employer or Administrator as to any person or persons authorized to act for the Employer or Administrator hereunder 68 73 and to sign on behalf of the Employer or Administrator any directions or instructions, until it receives from the Employer or Administrator written notice that such authority has been revoked. Notwithstanding any provision contained herein, the Trustee will be under no duty to take any action with respect to any Participant's Account (other than as specified herein) unless and until the Employer or Administrator furnishes the Trustee with written instructions on a form acceptable to the Trustee, and the Trustee agrees thereto in writing. The Trustee will not be liable for any action taken pursuant to the Employer's or Administrator's written instructions (nor for the collection of contributions under the Plan, nor the purpose or propriety of any distribution made thereunder). 14.14. INDEMNIFICATION BY EMPLOYER. The Employer shall indemnify and save harmless the Trustee from and against any and all liability to which the Trustee may be subjected by reason of any act or conduct (except willful misconduct or negligence) in its capacity as Trustee, including all expenses reasonably incurred in its defense. 14.15. CONSULTATION BY TRUSTEE WITH COUNSEL. The Trustee may consult with legal counsel (who may be but need not be counsel for the Employer or the Administrator) concerning any question which may arise with respect to its rights and duties under the Plan and Trust, and the opinion of such counsel will, to the extent permitted by law, be full and complete protection in respect of any action taken or omitted by the Trustee hereunder in good faith and in accordance with the opinion of such counsel. 14.16. PERSONS DEALING WITH THE TRUSTEE. No person dealing with the Trustee will be bound to see to the application of any money or property paid or delivered to the Trustee or to inquire into the validity or propriety of any transactions. 14.17. RESIGNATION OR REMOVAL OF TRUSTEE. The Trustee may resign at any time by written notice to the Employer, which resignation shall be effective 60 days after delivery to the Employer. The Trustee may be removed by the Employer by written notice to the Trustee, which removal shall be effective 60 days after delivery to the Trustee. Upon resignation or removal of the Trustee, the Employer may appoint a successor trustee. Any such successor trustee will, upon written acceptance of his appointment, become vested with the estate, rights, powers, discretion, duties and obligations of the Trustee hereunder as if he had been originally named as Trustee in this Agreement. Upon resignation or removal of the Trustee, the Employer will no longer participate in this prototype plan and will be deemed to have adopted an individually designed plan. In such event, the Employer shall appoint a successor trustee within said 60-day period and the Trustee will transfer the assets of the Trust to the successor trustee upon receipt of sufficient evidence (such as a determination letter or opinion letter from the Internal Revenue Service or an opinion of 69 74 counsel satisfactory to the Trustee) that such trust will be a qualified trust under the Code. The appointment of a successor trustee shall be accomplished by delivery to the Trustee of written notice that the Employer has appointed such successor trustee, and written acceptance of such appointment by the successor trustee. The Trustee may, upon transfer and delivery of the Trust Fund to a successor trustee, reserve such reasonable amount as it shall deem necessary to provide for its fees, compensation, costs and expenses, or for the payment of any other liabilities chargeable against the Trust Fund for which it may be liable. The Trustee shall not be liable for the acts or omissions of any successor trustee. 14.18. FISCAL YEAR OF THE TRUST. The fiscal year of the Trust will coincide with the Plan Year. 14.19. DISCHARGE OF DUTIES BY FIDUCIARIES. The Trustee and the Employer and any other fiduciary shall discharge their duties under the Plan and this Trust Agreement solely in the interests of Participants and their Beneficiaries in accordance with the requirements of ERISA. 14.20. AMENDMENT. In accordance with provisions of the Plan, and subject to the limitations set forth therein, this Trust Agreement may be amended by an instrument in writing signed by the Employer and the Trustee. No amendment to this Trust Agreement shall divert any part of the Trust Fund to any purpose other than as provided in Section 2 hereof. 14.21. PLAN TERMINATION. Upon termination or partial termination of the Plan or complete discontinuance of contributions thereunder, the Trustee will make distributions to the Participants or other persons entitled to distributions as the Employer or Administrator directs in accordance with the provisions of the Plan. In the absence of such instructions and unless the Plan otherwise provides, the Trustee will notify the Employer or Administrator of such situation and the Trustee will be under no duty to make any distributions under the Plan until it receives written instructions from the Employer or Administrator. Upon the completion of such distributions, the Trust will terminate, the Trustee will be relieved from all liability under the Trust, and no Participant or other person will have any claims thereunder, except as required by applicable law. 14.22. PERMITTED REVERSION OF FUNDS TO EMPLOYER. If it is determined by the Internal Revenue Service that the Plan does not initially qualify under Section 401 of the Code, all assets then held under the Plan will be returned by the Trustee, as directed by the Administrator, to the Employer, but only if the application for determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted or such later date as may be prescribed by regulations. Such distribution will be made within one year after the date the initial qualification is denied. Upon such distribution the Plan will be considered to be rescinded and to be of no force or effect. 70 75 Contributions under the Plan are conditioned upon their deductibility under Section 404 of the Code. In the event the deduction of a contribution made by the Employer is disallowed under Section 404 of the Code, such contribution (to the extent disallowed) must be returned to the Employer within one year of the disallowance of the deduction. Any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one year of the contribution. 14.23. GOVERNING LAW. This Trust Agreement will be construed, administered and enforced according to ERISA and, to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts. 71 76 ADDENDUM TO CORPORATEPLAN FOR RETIREMENT THE PROFIT SHARING/401(K) PLAN FIDELITY BASIC PLAN DOCUMENT NO. 07 RE: RETROACTIVE EFFECTIVE DATES This Addendum is intended to clarify and set forth the effective dates of certain provisions of the Plan with respect to the adopting Employer. This Addendum applies only to the extent that the Employer has not amended the Plan with respect to the applicable provisions of the Tax Reform Act of 1986 ("TRA '86"). Unless otherwise specifically provided by the terms of the Plan, this amendment and restatement is effective with respect to each change made to satisfy the provisions of (i) TRA '86, (ii) any other change in the Code or ERISA, or (iii) regulations, rulings, or other published guidance issued under the Code, ERISA, or TRA '86, the first day of the first period (which may or may not be the first day of a Plan year) with respect to which such change became required because of such provision (including any day that became such as a result of an election or waiver by an Employer or a waiver or exemption issued under the Code, ERISA, or TRA `86), including, but not limited to, the following: (a) The following changes as required by TRA '86 are effective for Plan Years beginning after December 31, 1986, unless a delayed effective date applies because the Plan is collectively-bargained or because of an applicable exemption or waiver: (1) Changes in the definition of Employee in Section 2.01(a)(10) to reflect changes in the safe harbor exclusion for Leased Employees; (2) Changes in the definition of Highly Compensated Employee in Section 2.01(a)(16) (3) Addition of the aggregate deferral limit under Section 402(g) of the Code in Section 4.01(c); (4) Changes to the Code Section 401(k) discrimination test in Section 4.02; (5) Addition of the Code Section 401(m) discrimination test and application of the Aggregate Limit in Section 4.04; (6) Compliance with the Code Section 414(s) compensation definition requirements in Sections 5.03 and 9.03; (7) Changes in the Participant Loan provisions in Section 7.09; if applicable, to reflect new dollar limitations, repayment requirements, and restrictions applicable to Highly Compensated Employees under Section 72(p) of the Code; (8) Changes in the definition of Key Employee in Section 9.02(a); and 77 (9) Changes in the definition of Top-Heavy Ratio in Section 9.02(c)(3) to provide for ratable accrual. (b) Changes in the 415 limitations in Section 5.03 as required by TRA '86 are effective for limitation years beginning after December 31, 1986, unless a delayed effective date applies because the Plan is collectively-bargained or because of an applicable waiver or exemption; provided, however, that Annual Additions shall not be recalculated to take into account all Employee contributions for limitation years beginning before the effective date. (c) The following changes as required by TRA '86 are effective for Plan years beginning After December 31, 1987, unless a delayed effective date applies because the Plan is collectively-bargained or because of an applicable waiver or exemption: (1) Changes required to provide that allocations shall not be decreased or discontinued because of attainment of any age, if any; and (2) Changes in the definition of Normal Retirement Age in Section 1.06(a), if any, to reflect the five years of participation rule. (d) The following changes as required by TRA '86 are effective for Plan Years beginning after December 31, 1988, unless a delayed effective date applies because the Plan is collectively-bargained or because of an applicable waiver or exemption: (1) Changes in the vesting schedule specified in Section 1.07, if applicable; (2) Changes in the permitted disparity rules in Section 4.06(b)(2), if applicable; and (3) Changes in the requirements for electing a former vesting schedule in Section 10.03, if applicable. Notwithstanding the foregoing and subject to applicable law, with respect to Plan years beginning after December 31, 1986, and before the date of this restatement of the Plan, the Employer may elect to operate the Plan in accordance with any transitional rule published by the Internal Revenue Service or a reasonable, good faith interpretation of TRA '86 and related applicable law, in which event such transitional rule or good faith interpretation shall prevail over the provisions in this restatement of the Plan with respect to such Plan Year. Each other change made under the Plan is effective as of the date specified in Section 1.01(g) of the Adoption Agreement, unless otherwise specifically provided by the terms of the Plan. 2 78 CORPORATEPLAN FOR RETIREMENT(SM) PROFIT SHARING/401(K) PLAN FIDELITY BASIC PLAN DOCUMENT NO. 07 AMENDMENT ONE SECTION 2.01(a)(7) "COMPENSATION" is amended to include: In addition to other applicable limitations set forth in the plan, and notwithstanding any other provision of the plan to the contrary, for plan years beginning on or after January 1, 1994, the annual compensation of each Employee taken into account under the plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For plan years beginning on or after January 1, 1994, any reference in this plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. Notwithstanding 2.01(a)(7)(A), for purpose of Section 4.02 (Additional Limit on Deferral Contributions) and Section 4.04 (Limit on Matching Contributions), the Employer may use Compensation as defined in Section 5.03(e)(2) excluding reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits, but including amounts that are not includable in the gross income of the Participant under a salary reduction agreement by reason of the application of Section 125, 402(a)(8), 402(h) or 403(b) of the Code. If compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current plan year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first plan year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. SECTION 8.01(d) "DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES" is amended to include: (5) If a distribution is one to which sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and 3 79 the Participant, after receiving the notice, affirmatively elects a distribution. 4 80 MODEL AMENDMENT TO THE CORPORATEPLAN FOR RETIREMENT(SM) PROFIT SHARING / 401 (K) PLAN (DOCUMENT NO. 07) This amendment is effective for plan years beginning after December 11, 1994. Notwithstanding any provision of this plan to the contrary, to the extent any optional form of benefit under this plan permits a distribution prior to the employee's retirement, death, disability, or severance from employment, and prior to plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Section 414 (1) of the Internal Revenue Code, to this plan from a money purchase pension plan qualified under Section 401(a) of the Internal Revenue Code (other than any portion of those assets and liabilities attributable to voluntary employee contributions). 5 81 CORPORATEPLAN FOR RETIREMENT(SM) PROFIT SHARING/401(K) PLAN FIDELITY BASIC PLAN DOCUMENT NO. 07 AMENDMENT TWO Effective December 1, 1996, Section 2.01(a)(25) shall be amended to read as follows: (25) "Registered Investment Company" means any one or more corporations, partnerships or trusts registered under the Investment Company Act of 1940. 6 82 THE CORPORATEPLAN FOR RETIREMENT(SM) (PROFIT SHARING/401(K) PLAN) A FIDELITY PROTOTYPE PLAN NON-STANDARDIZED ADOPTION AGREEMENT 002 BASIC PLAN NO. 07 83 ADOPTION AGREEMENT ARTICLE 1 NON-STANDARDIZED PROFIT SHARING PLAN
1.01 PLAN INFORMATION (a) NAME OF PLAN: This is the LEXINGTON PRECISION CORPORATION RETIREMENT & SAVINGS PLAN (the "Plan"). --------------------------------------------------------- (b) TYPE OF PLAN: (1) |X| 401(k) and Discretionary Profit Sharing (2) |_| Profit Sharing Only (3) |_| 401(k) Only (c) NAME OF PLAN ADMINISTRATOR, IF NOT THE EMPLOYER: Name: LEXINGTON PRECISION CORPORATION ---------------------------------------------------------- Address: 30195 CHAGRIN BLVD., SUITE 208W, CLEVELAND, OH 44124-5703 ---------------------------------------------------------- Phone Number: (216) 591-1071 ---------------------------------------------------------- The Plan Administrator is the agent for service of legal process for the Plan. (d) LIMITATION YEAR (check one): (1) |X| Calendar Year (2) |_| Plan Year (3) |_| Other: (e) THREE DIGIT PLAN NUMBER: 016 --- (f) PLAN YEAR END (month/day):DECEMBER 31 ----------- (g) PLAN STATUS (check one): (1) |_| Effective Date of new Plan: -------------- (2) |X| Amendment Effective Date: 10/1/98 . This is (check one): ------- (A) |_| an amendment of The CORPORATEplan for Retirement(SM) Adoption Agreement previously executed by the Employer; or (B) |X| conversion from another plan document into The CORPORATEplan for Retirement(SM). The original effective date of the Plan: 1/1/90 ------
2 84 The substantive provisions of the Plan shall apply prior to the Effective Date to the extent required by the Tax Reform Act of 1986 or other applicable laws. 1.02 EMPLOYER (a) THE EMPLOYER IS: LEXINGTON PRECISION CORPORATION ------------------------------- Address: 767 THIRD AVE., 29TH FLOOR -------------------------- NEW YORK, NY 10017-2023 ------------------------ Contact's Name: KELLY MACMILLAN/DENNIS J. WELHOUSE ---------------------------------- Telephone Number: 216-591-1071 ------------ (1) Employer's Tax Identification Number: 22-1830121 ---------- (2) Business form of Employer (check one): (A) |X| Corporation (D) |_| Governmental (B) |_| Sole proprietor or partnership (E) |_| Tax exempt organization (C) |_| Subchapter S Corporation (F) |_| Rural Electric Cooperative (3) Employer's fiscal year end: 12/31 ------------ (4) Date business commenced: APRIL 25, 1966 --------------
3 85 (b) THE TERM "EMPLOYER" INCLUDES THE FOLLOWING RELATED EMPLOYER(S) (as defined in Section 2.01(a)(26)): 1.03 COVERAGE (a) ALL EMPLOYEES WHO MEET THE CONDITIONS SPECIFIED BELOW WILL BE ELIGIBLE TO PARTICIPATE IN THE PLAN: (1) SERVICE REQUIREMENT (check one): (A) |_| no service requirement. (B) |_| three consecutive months of service (no minimum number Hours of Service can be required). (C) |X| six consecutive months of service (no minimum number Hours of Service can be required). (D) |_| one Year of Service (1,000 Hours of Service is required during the Eligibility Computation Period.) (2) AGE REQUIREMENT (check one): (A) |_| no age requirement. (B) |X| must have attained age 19.0 (not to exceed 21).
4 86 (3) THE CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE IN THE PLAN (check one): (A) |_| includes all Employees of the Employer. (B) |X| includes all Employees of the Employer except for (check the appropriate box(es)): (I) |_| Employees covered by a collective bargaining agreement. (II) |_| Highly Compensated Employees as defined in Code Section 414(q). (III) |X| Leased Employees as defined in Section 2.01(a)(18). (IV) |_| Nonresident aliens who do not receive any earned income from the Employer which constitutes United States source income. (V) |X| Other ANY INDIVIDUAL THE EMPLOYER TREATS AS AN INDEPENDENT CONTRACTOR EVEN IF A GOVERNMENT AGENCY OR COURT CONSIDERS THE INDIVIDUAL AN EMPLOYEE FOR OTHER PURPOSES NOTE: No exclusion in this section may create a discriminatory class of employees. An Employer's Plan must still pass the Internal Revenue Code coverage and participation requirements if one or more of the above groups of Employees have been excluded from the Plan. (b) THE ENTRY DATE(S) SHALL BE (check one): (1) |_| the first day of each Plan Year (do not select if Section 1.03 (a)(1)(D) is elected or if there is an age requirement of greater than 20 1/2 in Section 1.03(a)(2)(B)). (2) |_| the first day of each Plan Year and the date six months later. (3) |X| the first day of each Plan Year and the first day of the fourth, seventh, and tenth months. (4) |_| the first day of each month.
5 87 (c) DATE OF INITIAL PARTICIPATION - AN EMPLOYEE WILL BECOME A PARTICIPANT UNLESS EXCLUDED BY SECTION 1.03(a)(3) ABOVE ON THE ENTRY DATE IMMEDIATELY FOLLOWING THE DATE THE EMPLOYEE COMPLETES THE SERVICE AND AGE REQUIREMENT(S) IN SECTION 1.03(a), IF ANY, EXCEPT (check one): (1) |X| No exceptions. (2) |_| Employees employed on the Effective Date in Section 1.01(g) will become Participants on that date. (3) |_| Employees who meet the age and service requirement(s) of Section 1.03(a) on the Effective Date in Section 1.01(g) will become Participants on that date. 1.04 COMPENSATION (a) FOR PURPOSES OF DETERMINING CONTRIBUTIONS UNDER THE PLAN, COMPENSATION SHALL BE AS DEFINED IN SECTION 2.01(a)(7), BUT EXCLUDING (check the appropriate box(es)): (1) |_| Overtime Pay. (2) |_| Bonuses. (3) |_| Commissions. (4) |X| The value of a qualified or a non-qualified stock option granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income. NOTE: These exclusions shall not apply for purposes of the "Top Heavy" requirements in Section 9.03 or for allocating Discretionary Employer Contributions if an Integrated Formula is elected in Section 1.05(a)(2). (5) |X| No exclusions.
6 88 (b) COMPENSATION FOR THE FIRST YEAR OF PARTICIPATION Contributions for the Plan Year in which an Employee first becomes a Participant shall be determined based on the Employee's Compensation (check one): (1) |X| For the entire Plan Year. (2) |_| For the portion of the Plan Year in which the Employee is eligible to participate in the Plan. 1.05 CONTRIBUTIONS (a) |X| EMPLOYER CONTRIBUTIONS : (1) |_| FIXED FORMULA - NONINTEGRATED FORMULA (check (A) or (B)): (A) |_| FIXED PERCENTAGE EMPLOYER CONTRIBUTION: For each Plan Year, the Employer will contribute for each eligible Participant an amount equal to ____ % (not to exceed 15%) of such Participant's Compensation. (B) |_| FIXED FLAT DOLLAR EMPLOYER CONTRIBUTION: For each Plan Year, the Employer will contribute for each eligible Participant an amount equal to $ ____ . (2) |X| DISCRETIONARY FORMULA The Employer may decide each Plan Year whether to make a discretionary Employer contribution on behalf of eligible Participants in accordance with Section 4.06. Such contributions shall be allocated to eligible Participants based upon the following (check (A) or (B)): (A) |X| Nonintegrated Allocation Formula: In the ratio that each eligible Participant's Compensation bears to the total Compensation paid to all eligible Participants for the Plan Year. (B) |_| Integrated Allocation Formula: In accordance with Section 4.06. NOTE: An Employer who maintains any other plan that provides for Social Security Integration (permitted disparity) may not elect (2)(B).
7 89 (3) ELIGIBILITY REQUIREMENT(S) A Participant shall be entitled to Employer Contributions for a Plan Year under this Subsection (a) if the Participant satisfies the following requirement(s) (Check the appropriate box(es) - Options (B) and (C) may not be elected together): (A) |X| is employed by the Employer on the last day of the Plan Year. (B) |_| earns at least 500 Hours of Service during the Plan Year. (C) |_| earns at least 1,000 Hours of Service during the Plan Year. (D) |_| no requirements. NOTE: If option (A), (B) or (C) above is selected then Employer contributions can only be FUNDED by the Employer AFTER Plan Year end. Employer contributions funded during the Plan Year shall not be subject to the eligibility requirements of this Section 1.05(a)(3). (b) |X| DEFERRAL CONTRIBUTIONS (1) REGULAR CONTRIBUTIONS The Employer shall make a Deferral Contribution in accordance with Section 4.01 on behalf of each Participant who has an executed salary reduction agreement in effect with the Employer for the payroll period in question, not to exceed 15.00% (NO MORE THAN 15%) of Compensation for that period. (A) A Participant may increase or decrease, on a prospective basis, his salary reduction agreement percentage (check one): (i) |_| As of the beginning of each payroll period. (ii) |X| As of the first day of each month. (iii) |_| As of the next Entry Date. (iv) |_| (Specify, but must be at least once per Plan Year) (B) A Participant may revoke, on a prospective basis, a salary reduction agreement at any time upon proper notice to the Administrator but in such case may not file a new salary reduction agreement until (check one): (i) |_| The first day of the next Plan Year. (ii) |X| Any subsequent Plan Entry Date. (iii) |_| (Specify, but must be at least once per Plan Year)
8 90 (2) |_| CATCH-UP CONTRIBUTIONS The Employer may allow Participants upon proper notice and approval to enter into a special salary reduction agreement to make additional Deferral Contributions in an amount up to 100% of their Compensation for the payroll period(s) in the final month of the Plan Year. (3) |_| BONUS CONTRIBUTIONS The Employer may allow Participants upon proper notice and approval to enter into a special salary reduction agreement to make Deferral Contributions in an amount up to 100% of any Employer paid cash bonuses made for such Participants during the Plan Year. The Compensation definition elected by the Employer in Section 1.04(a) must include bonuses if bonus contributions are permitted. NOTE: A Participant's contributions under (2) and/or (3) may not cause the Participant to exceed the percentage limit specified by the Employer in (1) after the Plan Year. The Employer has the right to restrict a Participant's right to make Deferral Contributions if they will adversely affect the Plan's ability to pass the actual deferral percentage and/or the actual contribution percentage test. (4) |X| QUALIFIED DISCRETIONARY CONTRIBUTIONS The Employer may contribute an amount which it designates as a Qualified Discretionary Contribution to be included in the actual deferral percentage or actual contribution percentage test. Qualified Discretionary Contributions shall be allocated to Non-highly Compensated Employees (check one): (A) |X| in the ratio which each such Participant's Compensation for the Plan Year bears to the total of all such Participants' Compensation for the Plan Year. (B) |_| as a flat dollar amount for each such Participant for the Plan Year.
9 91 (c) |X| MATCHING CONTRIBUTIONS (only if Section 1.05(b) is checked) (1) THE EMPLOYER SHALL MAKE A MATCHING CONTRIBUTION ON BEHALF OF EACH PARTICIPANT IN AN AMOUNT EQUAL TO THE FOLLOWING PERCENTAGE OF A PARTICIPANT'S DEFERRAL CONTRIBUTIONS DURING THE PLAN YEAR (check one): (A) |X| 50% (B) |_| 100% (C) |_| ___% (D) |_| (Tiered Match) ______% of the first________________________% of the Participant's Compensation contributed to the Plan, ______% of the next_________________________% of the Participant's Compensation contributed to the Plan, ______% of the next_________________________% of the Participant's Compensation contributed to the Plan. NOTE: THE PERCENTAGES SPECIFIED ABOVE FOR MATCHING CONTRIBUTIONS MAY NOT INCREASE AS THE PERCENTAGE OF COMPENSATION CONTRIBUTED INCREASES. (E) |_| The percentage declared for the year, if any, by a Board of Directors' Resolution (or by a Letter of Intent for a Sole Proprietor or Partnership). (2) |_| THE EMPLOYER MAY AT PLAN YEAR END MAKE AN ADDITIONAL MATCHING CONTRIBUTION EQUAL TO A PERCENTAGE DECLARED BY THE EMPLOYER, THROUGH A BOARD OF DIRECTORS' RESOLUTION (OR BY A LETTER OF INTENT FOR A SOLE PROPRIETOR OR PARTNERSHIP), OF THE DEFERRAL CONTRIBUTIONS MADE BY EACH PARTICIPANT DURING THE PLAN YEAR (ONLY IF AN OPTION IS CHECKED UNDER SECTION 1.05(c)(1)). (3) |X| MATCHING CONTRIBUTION LIMITS (check the appropriate box): (A) |X| Deferral Contributions in excess of 6.0% of the Participant's Compensation for the period in question shall not be considered for Matching Contributions. Note: If the Employer elects a percentage limit in (A) above and requests the Trustee to account separately for matched and unmatched Deferral Contributions, the Matching Contributions allocated to each Participant must be computed, and the percentage limit applied, based upon each payroll period. (B) |_| Matching Contributions for each Participant for each Plan Year shall be limited to $_______________ . (4) ELIGIBILITY REQUIREMENT(S) A Participant who makes Deferral Contributions during the Plan Year under Section 1.05(b) shall be entitled to Matching Contributions for that Plan Year if the Participant satisfies the following requirement(s) (Check the appropriate box(es). Options (B) and (C) may not be elected together): (A) |_| Is employed by the Employer on the last day of the Plan Year. (B) |_| Earns at least 500 Hours of Service during the Plan Year. (C) |_| Earns at least 1,000 Hours of Service during the Plan Year.
10 92
(D) |_| Is not a Highly Compensated Employee for the Plan Year. (E) |_| Is not a Partner of the Employer, if the Employer is a Partnership. (F) |X| No requirements. NOTE: If option (A), (B) or (C) above is selected then Matching Contributions can only be FUNDED by the Employer AFTER the Plan Year ends. Any Matching Contribution funded before Plan Year end shall not be subject to the eligibility requirements of this Section 1.05(c)(4)). If option (A), (B), or (C) is adopted during a Plan Year, such option shall not become effective until the first day of the next Plan Year. (d) |_| EMPLOYEE AFTER-TAX CONTRIBUTIONS (check one): (1) |_| Future Contributions Participants may make voluntary non-deductible Employee Contributions pursuant to Section 4.09 of the Plan. This option may only be elected if the Employer has elected to permit Deferral Contributions under Section 1.05(b). Matching Contributions by the Employer are not allowed on any voluntary non-deductible Employee Contributions. Withdrawals are limited to one per year unless Employee Contributions were allowed under a previous plan document which authorized more frequent withdrawals. (2) |_| Frozen Contributions Participants may not make voluntary non-deductible Employee Contributions, but the Employer does maintain frozen Participant voluntary non-deductible Employee Contribution Accounts.
11 93
1.06 RETIREMENT AGE(S) (a) THE NORMAL RETIREMENT AGE UNDER THE PLAN IS (check one): (1) |X| age 65. (2) |_| age______(specify between 55 and 64). (3) |_| later of the age________(can not exceed 65) or the fifth anniversary of the Participant's Employment Commencement Date. (b) |X| THE EARLY RETIREMENT AGE IS THE FIRST DAY OF THE MONTH AFTER THE PARTICIPANT ATTAINS AGE 55.0 (SPECIFY 55 OR GREATER) AND COMPLETES 0 YEARS OF SERVICE FOR VESTING. (c) |X| A PARTICIPANT IS ELIGIBLE FOR DISABILITY RETIREMENT IF HE/SHE (check the appropriate box(es)): (1) |_| satisfies the requirements for benefits under the Employer's Long-Term Disability Plan. (2) |X| satisfies the requirements for Social Security disability benefits. (3) |_| is determined to be disabled by a physician approved by the Employer.
12 94 1.07 VESTING SCHEDULE (a) THE PARTICIPANT'S VESTED PERCENTAGE IN EMPLOYER CONTRIBUTIONS (FIXED OR DISCRETIONARY) ELECTED IN SECTION 1.05(a) AND/OR MATCHING CONTRIBUTIONS ELECTED IN SECTION 1.05(c) SHALL BE BASED UPON THE SCHEDULE(S) SELECTED BELOW, EXCEPT WITH RESPECT TO ANY PLAN YEAR DURING WHICH THE PLAN IS TOP-HEAVY. THE SCHEDULE ELECTED IN SECTION 1.12(d) SHALL AUTOMATICALLY APPLY FOR A TOP-HEAVY PLAN YEAR AND ALL PLAN YEARS THEREAFTER UNLESS THE EMPLOYER HAS ALREADY ELECTED A MORE FAVORABLE VESTING SCHEDULE BELOW.
(1) EMPLOYER CONTRIBUTIONS (2) MATCHING CONTRIBUTIONS (check one): (check one): (A) |_| N/A - No Employer Contributions (A) |_| N/A - No Matching Contributions (B) |_| 100% Vesting immediately (B) |_| 100% Vesting immediately (C) |_| 3 year cliff (see C below) (C) |_| 3 year cliff (see C below) (D) |_| 5 year cliff (see D below) (D) |_| 5 year cliff (see D below) (E) |_| 6 year graduated (see E below) (E) |_| 6 year graduated (see E below) (F) |X| 7 year graduated (see F below) (F) |X| 7 year graduated (see E below) (G) |_| OTHER VESTING (complete G1 below) (G) |_| OTHER VESTING (COMPLETE G2 below)
YEARS OF VESTING SCHEDULE SERVICE FOR VESTING C D E F G1 G2 ------- - - - - -- -- 0 0% 0% 0% 0% ___% ___% 1 0% 0% 0% 0% ___% ___% 2 0% 0% 20% 0% ___% ___% 3 100% 0% 40% 20% ___% ___% 4 100% 0% 60% 40% ___% ___% 5 100% 100% 80% 60% ___% ___% 6 100% 100% 100% 80% ___% ___% 7 100% 100% 100% 100% 100% 100% NOTE: A schedule elected under G1 or G2 above must be at least as favorable as one of the schedules in C, D, E or F above. (b) |_| Years of Service for Vesting shall exclude: (1) |_| for new plans, service prior to the Effective Date as defined in Section 1.01(g)(1). (2) |_| for existing plans converting from another plan document, service prior to the original Effective Date as defined in Section 1.01(g)(2).
13 95 1.08 PREDECESSOR EMPLOYER SERVICE |_| SERVICE FOR PURPOSES OF ELIGIBILITY IN SECTION 1.03(a)(1) AND VESTING IN SECTION 1.07(a) OF THIS PLAN SHALL INCLUDE SERVICE WITH THE FOLLOWING EMPLOYER(S): 1.09 PARTICIPANT LOANS PARTICIPANT LOANS (check (a) or (b)): (a) |X| will be allowed in accordance with Section 7.09, subject to a $1,000 minimum amount and will be granted (check (1) or (2)): (1) |X| for any purpose. (2) |_| for hardship withdrawal (as defined in Section 7.10) purposes only. (b) |_| will not be allowed. 1.10 HARDSHIP WITHDRAWALS Participant withdrawals for hardship prior to termination of employment (check one): (a) |X| will be allowed in accordance with Section 7.10, subject to a $1,000 minimum amount. (b) |_| will not be allowed. 14 96 1.11 DISTRIBUTIONS (a) SUBJECT TO ARTICLES 7 AND 8 AND (b) BELOW, DISTRIBUTIONS UNDER THE PLAN WILL BE PAID (check the appropriate box(es)): (1) |X| as a lump sum. (2) |_| under a systematic withdrawal plan (installments). (b) |X| CHECK IF A PARTICIPANT WILL BE ENTITLED TO RECEIVE A DISTRIBUTION OF ALL OR ANY PORTION OF THE FOLLOWING ACCOUNTS WITHOUT TERMINATING EMPLOYMENT UPON ATTAINMENT OF AGE 59 1/2 (check one): (1) |_| Deferral Contribution Account (2) |X| All Accounts (c) |_| CHECK IF THE PLAN WAS CONVERTED (BY PLAN AMENDMENT) FROM ANOTHER DEFINED CONTRIBUTION PLAN, AND THE BENEFITS WERE PAYABLE AS (check the appropriate box(es)): (1) |_| a form of single or joint and survivor life annuity. (2) |_| an in-service withdrawal of vested Employer Contributions maintained in a Participant's Account (check (A) and/or (B)): (A) |_| for at least (24 or more) months. (B) |_| after the Participant has at least 60 months of participation. (3) |_| another distribution option that is a "protected benefit" under Section 411(d)(6) of the Internal Revenue Code. Please attach a separate page identifying the distribution option(s). These additional forms of benefit may be provided for such plans under Articles 7 or 8. NOTE: Under Federal Law, distributions to Participants must generally begin no later than April 1 following the year in which the Participant attains age 70 1/2. 15 97 1.12 TOP HEAVY STATUS (a) THE PLAN SHALL BE SUBJECT TO THE TOP-HEAVY PLAN REQUIREMENTS OF ARTICLE 9 (check one): (1) |_| for each Plan Year. (2) |X| for each Plan Year, if any, for which the Plan is Top-Heavy as defined in Section 9.02. (3) |_| Not applicable. (This option is available for plans covering only employees subject to a collective bargaining agreement and there are no Employer or Matching Contributions elected in Section 1.05.) (b) IN DETERMINING TOP-HEAVY STATUS, IF NECESSARY, FOR AN EMPLOYER WITH AT LEAST ONE DEFINED BENEFIT PLAN, THE FOLLOWING ASSUMPTIONS SHALL APPLY: (1) Interest rate:_______% per annum (2) Mortality table: (3) |X| Not Applicable. (c) IN THE EVENT THAT THE PLAN IS TREATED AS TOP-HEAVY FOR A PLAN YEAR, EACH NON-KEY EMPLOYEE SHALL RECEIVE AN EMPLOYER CONTRIBUTION OF AT LEAST 3 (3, 4, 5, OR 7 1/2) % OF --- COMPENSATION FOR THE PLAN YEAR IN ACCORDANCE WITH SECTION 9.03 (check one): (1) |X| under this Plan in any event. (2) |_| under this Plan only if the Participant is not entitled to such contribution under another qualified plan of the Employer. (3) |_| Not applicable. (This option is available for plans covering only employees subject to a collective bargaining agreement and there are no Employer or Matching Contributions elected in Section 1.05.) NOTE: Such minimum Employer contribution may be less than the percentage indicated in (c) above to the extent provided in Section 9.03(a). 16 98 (d) IN THE EVENT THAT THE PLAN IS TREATED AS TOP-HEAVY FOR A PLAN YEAR, THE FOLLOWING VESTING SCHEDULE SHALL APPLY INSTEAD OF THE SCHEDULE(S) ELECTED IN SECTION 1.07(a) FOR SUCH PLAN YEAR AND EACH PLAN YEAR THEREAFTER (check one): (1) |_| 100% vested after _____ (not in excess of 3) years of service for vesting. (2) |X| YEARS OF SERVICE FOR VESTING VESTING PERCENTAGE MUST BE AT LEAST 0 0.00% 0% ----- 1 0.00% 0% ----- 2 20.00% 20% ------ 3 40.00% 40% ------ 4 60.00% 60% ------ 5 80.00% 80% ------ 6 100.00% 100% -------
Note: If the schedule(s) elected in Section 1.07(a) is(are) more favorable in all cases than the schedule elected in (d) above, then the schedule(s) in Section 1.07(a) will continue to apply even in Plan Years in which the Plan is Top-Heavy. 1.13 TWO OR MORE PLANS - Code Section 415 limitation on annual additions If the Employer maintains or ever maintained another qualified plan in which any Participant in this Plan is (or was) a participant or could become a participant, the Employer must complete this section. The Employer must also complete this section if it maintains a welfare benefit fund, as defined in Section 419(e) of the Code, or an individual medical account, as defined in Section 415(l)(2) of the Code, under which amounts are treated as annual additions with respect to any Participant in this Plan. (a) IF THE EMPLOYER MAINTAINS, OR MAINTAINED, ANY OTHER DEFINED CONTRIBUTION PLAN WHICH IS NOT A MASTER OR PROTOTYPE PLAN, ANNUAL ADDITIONS FOR ANY LIMITATION YEAR TO THIS PLAN WILL BE LIMITED (check one): (1) |_| in accordance with Section 5.03 of this Plan. (2) |_| in accordance with another method set forth on an attached separate sheet. (3) |X| Not Applicable. 17 99 (b) IF THE EMPLOYER MAINTAINS, OR MAINTAINED, ANY DEFINED BENEFIT PLAN(S), THE SUM OF THE DEFINED CONTRIBUTION FRACTION AND DEFINED BENEFIT FRACTION FOR A LIMITATION YEAR MAY NOT EXCEED THE LIMITATION SPECIFIED IN CODE SECTION 415(e), MODIFIED BY SECTION 416(h)(1) OF THE CODE. THIS COMBINED PLAN LIMIT WILL BE MET AS FOLLOWS (check one): (1) |X| Annual Additions to this Plan are limited so that the sum of the Defined Contribution Fraction and the Defined Benefit Fraction does not exceed 1.0. (2) |_| another method of limiting Annual Additions or reducing projected annual benefits is set forth on an attached schedule. (3) |_| Not Applicable. 1.14 ESTABLISHMENT OF TRUST AND INVESTMENT DECISIONS (a) INVESTMENT DIRECTIONS Participant Accounts will be invested (check one): (1) |_| in accordance with investment directions provided to the Trustee by the Employer for allocating all Participant Accounts among the options listed in (b) below. (2) |X| in accordance with investment directions provided to the Trustee by each Participant for allocating his entire Account among the options listed in (b) below. (3) |_| in accordance with investment directions provided to the Trustee by each Participant for all contribution sources in a Participant's Account except the following sources shall be invested as directed by the Employer (check (A) and/or (B)): (A) |_| Fixed or Discretionary Employer Contributions (B) |_| Employer Matching Contributions The Employer must direct the applicable sources among the same investment options made available for Participant directed sources listed in (b) below. 18 100 (b) PLAN INVESTMENT OPTIONS The Employer hereby establishes a Trust under the Plan in accordance with the provisions of Article 14, and the Trustee signifies acceptance of its duties under Article 14 by its signature below. Participant Accounts under the Trust will be invested among the Fidelity Funds listed below pursuant to Participant and/or Employer directions.
FUND NAME FUND NUMBER 1 Fidelity Managed Income Portfolio 0632 2 Fidelity Intermediate Bond Fund 0032 3 Fidelity Equity-Income Fund 0023 4 Fidelity Magellan(R)Fund 0021 5 Fidelity Freedom Income Fund(SM) 0369 6 Fidelity Freedom 2000 Fund(SM) 0370 7 Fidelity Freedom 2010 Fund(SM) 0371 8 Fidelity Freedom 2020 Fund(SM) 0372 9 Fidelity Freedom 2030 Fund(SM) 0373 10 Franklin Small Cap Growth Fund - A 3392 11 American AAdvantage International Equity Fund 3161
NOTE: An additional annual recordkeeping fee will be charged for each fund in excess of seven funds. To the extent that the Employer selects as an investment option the Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit Plans (the "Group Trust"), the Employer hereby (A) agrees to the terms of the Group Trust and adopts said terms as a part of this Agreement and (B) acknowledges that it has received from the Trustee a copy of the Group Trust, the Declaration of Separate Fund for the Managed Income Portfolio of the Group Trust, and the Circular for the Managed Income Portfolio. NOTE: The method and frequency for change of investments will be determined under the rules applicable to the selected funds or, if applicable, the rules of the Employer adopted in accordance with Section 6.03. Information will be provided regarding expenses, if any, for changes in investment options. 19 101 1.15 RELIANCE ON OPINION LETTER An adopting Employer may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this Plan is qualified under Section 401 of the Code. If the Employer wishes to obtain reliance that his or her Plan(s) are qualified, application for a determination letter should be made to the appropriate Key District Director of the Internal Revenue Service. Failure to fill out the Adoption Agreement properly may result in disqualification of the Plan. This Adoption Agreement may be used only in conjunction with Fidelity Prototype Plan Basic Plan Document No. 07. The Prototype Sponsor shall inform the adopting Employer of any amendments made to the Plan or of the discontinuance or abandonment of the prototype plan document. 1.16 PROTOTYPE INFORMATION: Name of Prototype Sponsor: Fidelity Management & Research Co. Address of Prototype Sponsor: 82 Devonshire Street Boston, MA 02109 Questions regarding this prototype document may be directed to the following telephone number: 1-(800) 343-9184. 20 102 EXECUTION PAGE (FIDELITY'S COPY) IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be executed this 30 day of JUNE, 1998. -- ---- ---- Employer Lexington Precision Corporation ------------------------------- By Kelly L. MacMillan ------------------------------- Title Treasurer ------------------------------- Employer Lexington Precision Corporation ------------------------------- By Dennis J. Welhouse ------------------------------- Title Senior Vice President ------------------------------- Accepted by Fidelity Management Trust Company, as Trustee By ERIC L. WICHMANN Date AUGUST 17, 1998 ----------------------------- -------------------------- Title AUTHORIZED SIGNATORY ----------------------------- 21 EX-10.6 5 EXHIBIT 10.6 1 Exhibit 10.6 DESCRIPTION OF 1998 COMPENSATION ARRANGEMENTS WITH LUBIN, DELANO & COMPANY During 1998, 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 a basic fee of $400,000, and provided for a possible incentive fee based upon attaining an operating profit target for the Company and possible transaction fees as might be agreed upon by the Company and Lubin, Delano & Company in connection with acquisitions, divestitures, financings and other similar transactions. EX-10.7 6 EXHIBIT 10.7 1 Exhibit 10.7 LEXINGTON PRECISION CORPORATE OFFICE 1998 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 1998 MANAGEMENT CASH BONUS PLAN I. PURPOSE OF PLAN The "1998 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, 1998. 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 1998 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 1998 MANAGEMENT CASH BONUS PLAN AND ANY BONUSES GRANTED UNDER THE 1998 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 1998 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-10.76 7 EXHIBIT 10.76 1 Exhibit 10.76 AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT This Amendment No. 2 (the "Amendment") dated as of November 30, 1998 to Loan and Security Agreement by and between THE CIT GROUP/EQUIPMENT FINANCING, INC. ("Lender"), Lexington Precision Corporation ("LPC"). WHEREAS, Lender and LPC are parties to a Loan and Security Agreement dated as of March 19, 1997, including Rider A thereto (the "Agreement"). WHEREAS, LPC and Lender desire to amend the Agreement as provided herein. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: 1. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Agreement. 2. Section 4(d) of Rider A to the Agreement is hereby amended in its entirety to read as follows: (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, $16,000,000 in Debtor's fiscal year 1998 and $15,000,000 (on a non-cumulative basis) in any fiscal year thereafter. 3. Except as specifically amended herein, the Agreement remains in effect in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the day and year first written above. THE CIT GROUP/EQUIPMENT FINANCING, INC. By: Barry L. Blailock ---------------------------------- Title: Assistant Vice President/Credit -------------------------------- LEXINGTON PRECISION CORPORATION By: Warren Delano ---------------------------------- Title: President -------------------------------- EX-10.77 8 EXHIBIT 10.77 1 Exhibit 10.77 NEW EQUIPMENT TERM NOTE $1,300,000 December 16, 1998 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a Delaware corporation, as successor by merger to Congress Financial Corporation, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ONE MILLION THREE HUNDRED THOUSAND DOLLARS ($1,300,000) 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 February 1, 1999, of which the first eighty-three (83) installments shall each be in the amount of FIFTEEN THOUSAND FIVE HUNDRED DOLLARS ($15,500), 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 rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by First Union National Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall 2 have the meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate payable hereunder as to Prime Rate Loans shall increase or decrease by an amount equal to each increase or decrease, respectively, in such Prime Rate, effective on the first day of the month after any change in such Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of March 11, 1997 between Debtor and Payee, as amended by the letter agreement re: Amendment to Financing Agreements, dated October 20, 1998, between Debtor and Payee (collectively, 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, 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 -2- 3 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 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. -3- 4 This Note, the other Obligations and the Collateral shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of Debtor and inure to the benefit of Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Payee or the holder hereof. Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to include their respective successors and assigns. LEXINGTON PRECISION CORPORATION ATTEST: By: Warren Delano ---------------------------- Dennis J. Welhouse - --------------------------------- Secretary Title: President [Corporate Seal] ------------------------- -4- EX-10.78 9 EXHIBIT 10.78 1 Exhibit 10.78 January 28, 1999 Lexington Precision Corporation 767 Third Avenue New York, New York 10017 Re: AMENDMENT TO FINANCING AGREEMENTS --------------------------------- Gentlemen: Reference is made to certain financing agreements dated January 11, 1990 between Lexington Precision Corporation ("LPC") and Congress Financial Corporation ("Congress"), including, but not limited to, an Accounts Financing Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all supplements thereto and all other related financing and security agreements (collectively, all of the foregoing, as the same have heretofore or contemporaneously been or may be hereafter, amended, replaced, extended, modified or supplemented, the "Financing Agreements"). In connection with the financing arrangements pursuant to the Accounts Agreement and the other Financing Agreements, the parties hereto hereby agree to amend the Financing Agreements, as set forth below: 1. DEFINITIONS: (a) The definition of "Term Loans" contained in the letter agreement re: Amendment to Financing Agreements, dated January 31, 1995, between LPC and Congress (the "January 1995 Amendment"), as amended by the letter agreement re: Amendment to Financing Agreements, dated January 16, 1996, between LPC and Congress and the letter agreement re: Amendment to Financing Agreements, dated March 11, 1997, 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 January 1999 Additional LPC Term Note (as defined below), the LPC Fifth Restated Note (as defined below) and any and all New Equipment Term Notes heretofore or hereafter executed by LPC, as any such notes may hereafter be amended, renewed, extended, restated or replaced. (b) Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed thereto in the Accounts Agreement and the other Financing Agreements. 2. ADDITIONAL TERM LOAN. In order to evidence an additional one-time advance to LPC (the "January 1999 Additional LPC Term Loan"), which shall be made upon the effective date hereof, LPC is executing and delivering to Congress a Term 2 Promissory Note in the principal amount of $3,550,000 (the "January 1999 Additional LPC Term Note"). The Obligations evidenced by the January 1999 Additional LPC Term Note shall be payable, including interest and other amounts, as provided therein and, to the extent not inconsistent with the terms of the January 1999 Additional LPC Term Note, as provided in the other Financing Agreements, and shall be secured by all Collateral. 3. MAXIMUM AMOUNT OF NEW EQUIPMENT TERM LOANS. The first sentence of Section 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, the January 31, 1995 Amendment, and the March 11, 1997 Amendment, is hereby deleted in its entirety and replaced with the following: "(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 January 28, 1999, shall not exceed $5,000,000." 4. MAXIMUM AMOUNT OF TERM LOANS. The aggregate principal amount of all Term Loans and all "Term Loans" (as defined in the LCI Financing Agreements) made to LCI, at any one time outstanding, shall not exceed the amount of $28,000,000. 5. INVENTORY SUBLIMIT. Paragraph 3 of the letter agreement re: Inventory Loans, dated March 23, 1990, as heretofore amended, is hereby further amended by deleting the reference to "$7,000,000" and replacing it with "$8,000,000". 6. 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, 2002 (the "Renewal Date"), unless sooner terminated pursuant to the terms hereof." 7. EARLY TERMINATION FEE. Section 9.2 of the Accounts Agreement, as heretofore amended, is hereby further amended by deleting the reference to "April 1, 2000" and replacing it with "October 1, 1999". 8. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing representations, warranties and covenants -2- 3 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 and each instrument required to be executed and delivered by LPC hereunder, has been duly executed and delivered by LPC and is in full force and effect as of the date hereof, and the agreements and obligations of LPC contained herein and therein constitute the legal, valid and binding obligations of LPC enforceable against LPC in accordance with their terms. 9. USE OF PROCEEDS; AMENDED AND RESTATED NOTE. ------------------------------------------- The proceeds of the January 1999 Additional LPC Term Loan to be made by Congress pursuant to Paragraph 2 hereof shall be used as follows: (a) the amount of $2,090,175 shall be applied to the outstanding principal balance of the Fourth Amended and Restated Promissory Note, dated March 11, 1997, which, as of the date hereof, has an outstanding principal balance of $8,358,180, resulting in a remaining outstanding principal balance of $6,268,005. Such remaining outstanding principal balance will be evidenced by the execution and delivery by LPC to Congress of a Fifth Amended and Restated Promissory Note (as the same now exists or may hereafter be amended, supplemented, renewed, extended, restated or replaced, the "LPC Fifth Restated Note"). The Obligations evidenced by the LPC Fifth 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 Fifth Restated Note, as provided in the other Financing Agreements, and shall be secured by all Collateral; and (b) the amount of $1,459,825 shall be credited to LPC's Revolving Loan account maintained by Congress under the Financing Agreements. 10. 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 -3- 4 Amendment together with the following, each of which shall be in form and substance satisfactory to Congress: (i) the January 1999 Additional LPC Term Note; (ii) the LPC Fifth Restated Note; (iii) 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 (iv) an Amendment between LCI and Congress with respect to the LCI Financing Agreements and the documents and instruments required thereunder and the satisfaction of all conditions precedent to the effectiveness thereof. (b) All representations and warranties contained herein, in the Accounts Agreement and in the other Financing Agreements shall be true and correct in all material respects; and (c) No Event of Default shall have occurred and no event shall have occurred or condition be existing which, with notice or passage of time or both, would constitute an Event of Default. 11. 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. 12. FURTHER ASSURANCES. LPC shall execute and deliver such additional documents and take such additional actions as may reasonably be requested by Congress to effectuate the provisions and purposes of this Amendment, including, but not in limitation, the following: (a) At Congress' request, LPC shall execute and deliver to Congress such mortgage modification agreements or similar agreements with respect to any and all properties of LPC which are encumbered by a mortgage or deed of trust, as the case may be, in favor of Congress, to expressly secure, without limitation, the notes evidencing the then current Term Loans and -4- 5 other Financing Agreements evidencing the Obligations (it being agreed that the absence of any such agreement shall not deprive Congress of the benefit of the liens held by Congress on the real property covered by such mortgages or deeds of trust, which shall continue to secure all Obligations); and (b) In connection with such agreements under Section 12(a), LPC shall arrange for the delivery, at LPC's expense, of an updated title insurance policy and necessary endorsements thereto in favor of Congress, in form and substance satisfactory to Congress, for each property that is subject to such agreements. 13. 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: Laurence S. Forte --------------------------------- Title: First Vice President ------------------------------ AGREED AND ACCEPTED: LEXINGTON PRECISION CORPORATION By: Michael A. Lubin --------------------------------- Title: Chairman ------------------------------ -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 to CONGRESS FINANCIAL CORPORATION, including, without limitation, all indebtedness, liabilities and obligations under the Financing Agreements as amended hereby. LEXINGTON COMPONENTS, INC. By: Michael A. Lubin ----------------------- Title: Chairman -------------------- -6- EX-10.79 10 EXHIBIT 10.79 1 Exhibit 10.79 January 28, 1999 Lexington Components, Inc. 767 Third Avenue New York, New York 10017 Re: AMENDMENT TO FINANCING AGREEMENTS --------------------------------- Gentlemen: Reference is made to certain financing agreements dated January 11, 1990 between Lexington Components, Inc. ("LCI") and Congress Financial Corporation ("Congress"), including, but not limited to, an Accounts Financing Agreement [Security Agreement], as amended (the "Accounts Agreement"), and all supplements thereto and all other related financing and security agreements (collectively, all of the foregoing, as the same have heretofore or contemporaneously been or may be hereafter, amended, replaced, extended, modified or supplemented, the "Financing Agreements"). In connection with the financing arrangements pursuant to the Accounts Agreement and the other Financing Agreements, the parties hereto hereby agree to amend the Financing Agreements, as set forth below: 1. DEFINITIONS: ----------- (a) The definition of "Term Loans" contained in the letter agreement re: Amendment to Financing Agreements, dated January 31, 1995, between LCI and Congress (the "January 1995 Amendment"), as amended by the letter agreement re: Amendment to Financing Agreements, dated January 16, 1996, between LCI and Congress and the letter agreement re: Amendment to Financing Agreements, dated March 11, 1997, 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 term loan made by Congress to LCI evidenced by the January 1999 Additional LCI Term Note (as defined below), the Fourth Amended and Restated Promissory Note, dated March 11, 1997, and any and all New Equipment Term Notes heretofore or hereafter executed by LCI, as any such notes may hereafter be amended, renewed, extended, restated or replaced. (b) Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed thereto in the Accounts Agreement and the other Financing Agreements. 2. ADDITIONAL TERM LOAN. In order to evidence an additional one-time advance to LCI (the "January 1999 Additional LCI Term Loan"), which shall be made upon the effective date hereof, LCI is executing and delivering to Congress a Term Promissory Note in the principal amount of $1,190,000 (the 2 "January 1999 Additional LCI Term Note"). The Obligations evidenced by the January 1999 Additional LCI Term Note shall be payable, including interest and other amounts, as provided therein and, to the extent not inconsistent with the terms of the January 1999 Additional LCI Term Note, as provided in the other Financing Agreements, and shall be secured by all Collateral. 3. MAXIMUM AMOUNT OF NEW EQUIPMENT TERM LOANS. The first sentence of Section 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, the January 31, 1995 Amendment, and the March 11, 1997 Amendment, is hereby deleted in its entirety and replaced with the following: "(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 January 28, 1999, shall not exceed $5,000,000." 4. MAXIMUM AMOUNT OF TERM LOANS. The aggregate principal amount of all Term Loans and all "Term Loans" (as defined in the LPC Financing Agreements) made to LPC at any one time outstanding, shall not exceed the amount of $28,000,000. 5. INVENTORY/WORK-IN-PROCESS SUBLIMITS. Paragraph 3 of the letter agreement re: Inventory Loans, dated March 23, 1990, as heretofore amended, is hereby further amended by deleting the reference to "$7,000,000" and replacing it with "$8,000,000" and by deleting the reference to "$1,000,000" and replacing it with "$2,000,000". 6. 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, 2002 (the "Renewal Date"), unless sooner terminated pursuant to the terms hereof." 7. EARLY TERMINATION FEE. Section 9.2 of the Accounts Agreement, as heretofore amended, is hereby further amended by deleting the reference to "April 1, 2000" and replacing it with "October 1, 1999". -2- 3 8. 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, 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 and each instrument required to be executed and delivered by LCI hereunder, has been duly executed and delivered by LCI and is in full force and effect as of the date hereof, and the agreements and obligations of LCI contained herein and therein constitute the legal, valid and binding obligations of LCI enforceable against LCI in accordance with their terms. 9. USE OF PROCEEDS. The proceeds of the January 1999 Additional LCI Term Loan to be made by Congress pursuant to Paragraph 2 hereof shall be credited to LCI's Revolving Loan account maintained by Congress under the Financing Agreements. 10. 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 January 1999 Additional LCI Term Note; (ii) certified resolutions of the Board of Directors of LCI duly authorizing the execution and delivery of this Amendment and the instruments and transactions hereunder; and (iii) an Amendment between LPC and Congress with respect to the LPC Financing Agreements and the documents and instruments required thereunder and the satisfaction of all conditions precedent to the effectiveness thereof. -3- 4 (b) All representations and warranties contained herein, in the Accounts Agreement and in the other Financing Agreements shall be true and correct in all material respects; and (c) No Event of Default shall have occurred and no event shall have occurred or condition be existing which, with notice or passage of time or both, would constitute an Event of Default. 11. 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. 12. FURTHER ASSURANCES. LCI shall execute and deliver such additional documents and take such additional actions as may reasonably be requested by Congress to effectuate the provisions and purposes of this Amendment, including, but not in limitation, the following: (a) At Congress' request, LCI shall execute and deliver to Congress such mortgage modification agreements or similar agreements with respect to any and all properties of LCI which are encumbered by a mortgage or deed of trust, as the case may be, in favor of Congress, to expressly secure, without limitation, the notes evidencing the then current Term Loans and other Financing Agreements evidencing the Obligations (it being agreed that the absence of any such agreement shall not deprive Congress of the benefit of the liens held by Congress on the real property covered by such mortgages or deeds of trust, which shall continue to secure all Obligations); and (b) In connection with such agreements under Section 12(a), LCI shall arrange for the delivery, at LCI's expense, of an updated title insurance policy and necessary endorsements thereto in favor of Congress, in form and substance satisfactory to Congress, for each property that is subject to such agreements. 13. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without reference to its principles of conflicts of law. -4- 5 By the signatures hereto of the duly authorized officers, the parties hereto mutually covenant, warrant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: Laurence S. Forte ------------------------------ Title: First Vice President --------------------------- AGREED AND ACCEPTED: LEXINGTON COMPONENTS, INC. By: Michael A. Lubin -------------------------- Title: Chairman ----------------------- -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 COMPONENTS, INC. to CONGRESS FINANCIAL CORPORATION, including, without limitation, all indebtedness, liabilities and obligations under the Financing Agreements as amended hereby. LEXINGTON PRECISION CORPORATION By: Michael A. Lubin ------------------------------- Title: Chairman ---------------------------- -6- EX-10.80 11 EXHIBIT 10.80 1 Exhibit 10.80 TERM PROMISSORY NOTE $1,190,000 January 28, 1999 FOR VALUE RECEIVED, LEXINGTON COMPONENTS, INC., a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a Delaware corporation, as successor by merger to Congress Financial Corporation, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ONE MILLION ONE HUNDRED NINETY THOUSAND DOLLARS ($1,190,000) 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 March 1, 1999, of which the first eighty-three (83) installments shall each be in the amount of FOURTEEN THOUSAND TWO HUNDRED DOLLARS ($14,200), 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 February 1, 1999 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by First Union National Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall 2 have the meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate payable hereunder as to Prime Rate Loans shall increase or decrease by an amount equal to each increase or decrease, respectively, in such Prime Rate, effective on the first day of the month after any change in such Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of the date hereof, between Debtor and Payee (the "Amendment") to evidence the "January 1999 Additional LCI Term Loan" (as defined in the Amendment) made by Payee to Debtor. This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Financing Agreements (the "Obligations"), including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the then applicable rate stated above until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of -2- 3 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 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 -3- 4 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: Michael A. Lubin ------------------------------------- Carly Strelzik - -------------------------------- Title: Chairman Assistant Secretary --------------------------------- [Corporate Seal] -4- EX-10.81 12 EXHIBIT 10.81 1 Exhibit 10.81 TERM PROMISSORY NOTE $3,550,000 January 28, 1999 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a Delaware corporation, as successor by merger to Congress Financial Corporation, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of THREE MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS ($3,550,000) 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 March 1, 1999, of which the first eighty-three (83) installments shall each be in the amount of FORTY-TWO THOUSAND THREE HUNDRED DOLLARS ($42,300), 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 February 1, 1999 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by First Union National Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless otherwise defined herein, all capitalized terms used herein shall 2 have the meanings assigned thereto in the Accounts Agreement (as hereinafter defined) and the other Financing Agreements. The Interest Rate payable hereunder as to Prime Rate Loans shall increase or decrease by an amount equal to each increase or decrease, respectively, in such Prime Rate, effective on the first day of the month after any change in such Prime Rate, based on the Prime Rate in effect on the last day of the month in which any such change occurs. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of New York or other applicable law. This Note is issued pursuant to the terms and provisions of the letter agreement re: Amendment to Financing Agreements, dated as of the date hereof, between Debtor and Payee (the "Amendment") to evidence the "January 1999 Additonal LPC Term Loan" (as defined in the Amendment) made by Payee to Debtor. This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Financing Agreements (the "Obligations"), including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the then applicable rate stated above until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of -2- 3 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 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 -3- 4 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: Michael A. Lubin -------------------------------- Carly Strelzik - ---------------------------- Title: Chairman Assistant Secretary ----------------------------- [Corporate Seal] -4- EX-10.82 13 EXHIBIT 10.82 1 Exhibit 10.82 FIFTH AMENDED AND RESTATED PROMISSORY NOTE --------------- $6,268,005 January 28, 1999 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a Delaware corporation (the "Debtor"), hereby unconditionally promises to pay to the order of CONGRESS FINANCIAL CORPORATION, a Delaware corporation, as successor by merger to Congress Financial Corporation, a California corporation (the "Payee"), at the offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of SIX MILLION TWO HUNDRED SIXTY-EIGHT THOUSAND AND FIVE DOLLARS ($6,268,005) in lawful money of the United States of America and in immediately available funds, in sixty-two (62) consecutive monthly installments (or earlier as hereinafter referred to) on the first day of each month, commencing February 1, 1999, of which the first sixty-one (61) installments shall each be in the amount of ONE HUNDRED ONE THOUSAND ONE HUNDRED DOLLARS ($101,100), and the last (i.e. sixty-second (62nd)) 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 February 1, 1999 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements shall be payable upon demand. For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one-quarter of one (1/4%) percent per annum in excess of the Prime Rate, and as to Eurodollar Rate Loans, a rate of two and three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at Payee's option, the Interest Rate shall mean a rate of two and one-quarter (2 1/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and a rate of four and three-quarters (4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event of Default or following the effective date of termination or non-renewal of the Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from time to time publicly announced by First Union National Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. Unless 2 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 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 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 the "LPC Fifth 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 outstanding under that certain Fourth Amended and Restated Promissory Note, dated March 11, 1997, in the original principal sum of $11,324,000, made by Debtor to Payee (the "LPC Fourth Restated Note"). None of the outstanding indebtedness evidenced by the LPC Fourth Restated Note shall be deemed extinguished by Debtor's issuance or Payee's acceptance of this Note. This Note shall be deemed to substitute for, and to amend and restate in its entirety, the LPC Fourth Restated Note as to the indebtedness previously evidenced thereby, and the LPC Fourth Restated Note shall be so marked by Payee. This Note is secured by the "Collateral" described in the Accounts Financing Agreement [Security Agreement], dated January 11, 1990, by and between Payee and Debtor, as amended (the "Accounts Agreement") and any agreement, document or instrument now or at any time hereafter executed and/or delivered in connection therewith or related thereto (the foregoing, as the same now exist or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively referred to as the "Financing Agreements") and is entitled to all of the benefits and rights thereof and of the Financing Agreements. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account of Debtor maintained by Payee. If any principal or interest payment is not made when due hereunder, and such failure shall continue for three (3) days, or if any other Event of Default (as defined in the Accounts Agreement) shall occur for any reason, or if the Financing Agreements shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Financing Agreements, applicable -2- 3 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 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, -3- 4 Debtor shall appear in answer to such process or notice of motion or other application to said Courts, failing which Debtor shall be deemed in default and judgment may be entered by Payee against Debtor for the amount of the claim and other relief requested therein. The execution and delivery of this Note has been authorized by the Board of Directors of Debtor. This Note, the other Obligations and the Collateral shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of Debtor and inure to the benefit of Payee and its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Payee or the holder hereof. Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to include their respective successors and assigns. LEXINGTON PRECISION CORPORATION ATTEST: By: Michael A. Lubin ------------------------------ Carly Strelzik - ----------------------------- Title: Chairman Assistant Secretary --------------------------- [Corporate Seal] -4- EX-10.83 14 EXHIBIT 10.83 1 Exhibit 10.83 AMENDMENT NO. 6 TO CREDIT FACILITY AND SECURITY AGREEMENT This Amendment No. 6 (the "Amendment") dated as of January 31, 1999 to Credit Facility and Security Agreement by and between Bank One, NA ("Lender"), Lexington Precision Corporation ("LPC") and Lexington Components, Inc. ("LCI"). WHEREAS, Lender, LPC, and LCI are parties to a Credit Facility and Security Agreement dated as of January 31, 1997, including Rider A thereto (the "Agreement"). WHEREAS, LPC, LCI, and Lender desire to amend the Agreement as provided herein. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: 1. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Agreement. 2. Section 2.A of Rider A to the Agreement is hereby amended in its entirety to read as follows: (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 (i) TEN MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($10,400,000) from June 30, 1998 through June 30, 1999; (ii) ELEVEN MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($11,400,000) from July 1, 1999 through December 30, 1999; and (iii) TWELVE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($12,400,000) on and after December 31, 1999. 3. Section 2.E of Rider A to the Agreement is hereby deleted in its entirety. 4. Except as specifically amended herein, the Agreement remains in effect in accordance with its terms. [this space intentionally left blank] 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the day and year first written above. BANK ONE, NA By: Mark Corr -------------------------------- Title: Assistant Vice President ---------------------------- LEXINGTON PRECISION CORPORATION By: Warren Delano -------------------------------- Warren Delano President LEXINGTON COMPONENTS, INC. By: Warren Delano -------------------------------- Warren Delano President EX-10.84 15 EXHIBIT 10.84 1 Exhibit 10.84 FIFTH AMENDMENT AGREEMENT THIS FIFTH AMENDMENT AGREEMENT ("Agreement") is made as of the 10 day of March, 1999, by and between BANK ONE, NA (fka Bank One, Akron, NA) ("Lender"), LEXINGTON PRECISION CORPORATION, a Delaware corporation ("LPC"), and LEXINGTON COMPONENTS, INC., a Delaware corporation ("LCI", hereinafter LPC and LCI are referred to each as "Borrower" singularly and referred to jointly and severally as "Borrowers", which term shall mean each of the companies individually and both of the companies collectively). WHEREAS, Borrowers and Lender are parties to a certain Credit Facility and Security Agreement, including Rider A thereto, dated as of January 31, 1997, as amended and as it may from time to time be further amended, supplemented or otherwise modified, which provides for certain credit facilities all upon the terms and conditions set forth therein ("Credit and Security Agreement"); WHEREAS, Borrowers and Lender desire to amend the Credit and Security Agreement to add a new facility thereunder and to modify certain other provisions thereof; and WHEREAS, each term used herein shall be defined in accordance with the Credit and Security Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable considerations, Borrowers and Lender agree as follows: 1. Section 2 of the Credit and Security Agreement is hereby amended to add a new subpart K thereto as follows: K. FACILITY 6: ADDITIONAL EQUIPMENT TERM LOAN. 1. ADDITIONAL EQUIPMENT TERM LOAN. On March 10, 1999, Lender will make a term loan (the "Additional Equipment Term Loan") to Borrowers in a principal amount not to exceed FIVE HUNDRED EIGHTY THOUSAND AND NO/100 DOLLARS ($580,000.00). The Additional Equipment Term Loan shall be subject to repayment in accordance with, and bear interest as provided in, Section 2.K.2 of this Agreement and shall otherwise be evidenced by, and repayable in accordance with, the Additional Equipment Term Note. 2. PAYMENT TERMS OF ADDITIONAL EQUIPMENT TERM LOAN. (a) INTEREST. The Additional Equipment Term Loan shall bear interest on the unpaid principal balance until the date paid in full at a rate per annum equal to one-quarter percent (.25 %) in excess of the Base Rate (from time to time in effect) on the unpaid principal amount, such interest being payable monthly on the first day of each calendar month, commencing on April 1, 1999 and continuing on the first day of each 2 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 Additional Equipment Term Note, the principal balance of the Additional Equipment Term Loan shall be payable in eighty-three (83) consecutive equal monthly installments of SIX THOUSAND NINE HUNDRED DOLLARS ($6,900.00) each, commencing on April 1, 1999 and continuing on the first day of each calendar month thereafter and a final installment in the amount of the then remaining outstanding principal balance payable on March 1, 2006. 2. Section 2 of the Credit and Security Agreement is hereby amended to add a new subpart L thereto as follows: L. ADJUSTMENTS TO MAXIMUM LIABILITY. Anything in this Agreement to the contrary notwithstanding, in no event shall the liability of LCI exceed the maximum amount that, after giving effect to the incurring of the obligations hereunder and to any rights to contribution of LCI from LPC or any other affiliate of LPC, would not render Lender's rights to payment hereunder void, voidable or avoidable under any applicable fraudulent transfer law. 3. The Credit and Security Agreement is hereby amended by deleting Section 2.J thereof in its entirety and replacing it with the following: J. SECURITY. As security for the prompt and complete payment and performance when due of all the Obligations and in order to induce Lender to enter into this Agreement and make the Loans and to extend other credit from time to time to Borrower, whether under this Agreement or otherwise, (1) LPC hereby grants to Lender a first priority security interest in (a) all of LPC's right, title, and interest in and to the machinery, equipment and other items listed on the Collateral Schedule, (b) all currently owned or hereafter acquired accessories and parts for, all repairs, modifications, improvements, upgrades, accessions and attachments to, and all replacements and substitutions for, any of the property described in subpart (a) hereof, and (c) all Proceeds of the foregoing; (2) LCI hereby grants to Lender a first priority security interest in (a) all of LCI's right, title, and interest in and to the machinery, equipment and other items listed on the Collateral Schedule, (b) all currently owned or hereafter acquired accessories and parts for, all repairs, modifications, improvements, upgrades, accessions and attachments to, and all replacements and substitutions for, any of the property described in subpart (a) hereof, and (c) all Proceeds of the foregoing; and 2 3 (3) 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. 4. The Credit and Security Agreement is hereby amended by deleting subpart (1) from Section 5.B thereof in its entirety and replacing it with the following: (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 sell Collateral after obtaining the prior written consent of Lender; 5. The Credit and Security Agreement is hereby amended by deleting subpart (6) from Section 5.B thereof in its entirety and replacing it with the following: (6) As to the Equipment and 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; or 6. Rider A to the Credit and Security Agreement is hereby amended to delete the definitions of "ADDITIONAL NORTH CANTON EQUIPMENT", "LOANS", "LPC NORTH CANTON EQUIPMENT", "NORTH CANTON EQUIPMENT" and "NOTES" therefrom and to insert in place of such definitions the following: "ADDITIONAL NORTH CANTON EQUIPMENT": Specific machinery and equipment of LCI and/or LPC consisting of: lathes, machining centers, molding machines, grinders, ultrasonic cleaning tank, cabinets, drilling machines, bandsaw, vacuum pump, lift truck, scrubber, compressor/dryer, cutter grinder, computer, sweeper, vacuum tank, drill sharpener, monitor, bowl feeders and loaders, and feeder bowls now owned or hereafter acquired by LCI and/or LPC, as more particularly described on the Collateral Schedule; all currently owned or hereafter acquired accessories and parts for, and repairs, modifications, improvements, upgrades, accessions and attachments to any of the foregoing; and all replacements and substitutions for any of the foregoing. "LOANS": Collectively, the Additional Equipment Term Loan, the Casa Grande Loan, 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. "LPC NORTH CANTON EQUIPMENT": Specific machinery and equipment of LCI and/or LPC consisting of: lathes, transfer molding machines and injection molding machines, now owned or hereafter acquired by LCI and/or LPC, as more particularly described on the 3 4 Collateral Schedule; all currently owned or hereafter acquired accessories and parts for, and repairs, modifications, improvements, upgrades, accessions and attachments to any of the foregoing; and all replacements and substitutions for any of the foregoing. "NORTH CANTON EQUIPMENT": The LPC North Canton Equipment, the Additional North Canton Equipment and the Other North Canton Equipment. "NOTES": The Additional Equipment Term Note, 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. 7. Rider A to the Credit and Security Agreement is hereby amended to add the following new definitions thereto: "ADDITIONAL EQUIPMENT TERM LOAN": As defined in Section 2.K.2 of this Agreement. "ADDITIONAL EQUIPMENT TERM NOTE": The term promissory note to be executed by Borrowers in the form attached as Exhibit L to this Agreement (with such changes or modifications, if any, to which Lender may agree) evidencing the Additional Equipment Term Loan made by Lender pursuant to Section 2.K of this Agreement, together with all amendments thereto and all promissory notes issued in substitution therefor or replacement thereof. "COLLATERAL SCHEDULE": The schedule entitled "Schedule of Collateral to the Credit Facility and Security Agreement," which Schedule of Collateral to the Credit Facility and Security Agreement is incorporated herein by reference but is not attached hereto, and which is dated as of March 10, 1999 and signed by LPC, LCI and Lender, and each additional replacement to the foregoing schedule as may hereinafter be executed by LPC, LCI and Lender, with the written consent of Congress. "OTHER NORTH CANTON EQUIPMENT": Specific machinery and equipment of LCI and/or LPC consisting of the items set forth on the Collateral Schedule, now owned or hereafter acquired by LCI and/or LPC; all currently owned or hereafter acquired accessories and parts for, and repairs, modifications, improvements, upgrades, accessions and attachments to any of the foregoing; and all replacements and substitutions for any of the foregoing. 8. The Credit and Security Agreement is hereby amended to add a new Exhibit L thereto in the form of Exhibit L attached hereto. 9. Concurrently with the execution of this Agreement, or at such later date as specifically provided below, Borrowers shall: 4 5 (a) deliver to Lender certified copies of the resolutions of the board of directors of each Borrower evidencing approval of the execution of this Agreement; (b) execute and deliver to Lender such UCC financing statements as may be required by Lender, subject to the provisions of Section 5.A(7) of the Credit and Security Agreement; (c) execute and deliver to Lender the Collateral Schedule; (d) execute and deliver to Lender an Additional Equipment Term Note dated as of March 10, 1999 and such Additional Equipment Term Note shall be in the form of Exhibit L attached hereto; (e) cause Congress to execute and deliver to Lender an amendment to the Intercreditor Agreement, in form and substance satisfactory to Lender; (f) within the later of thirty (30) days after the date of this Agreement or receipt from Lender of the amendment, execute and deliver to Lender an amendment to each of the Mortgages to reflect the additional borrowings by Borrowers, in form and substance satisfactory to Lender; and (g) pay all reasonable legal fees and expenses of Bank in connection with this Agreement. 11. Borrowers hereby represent and warrant to Lender that (a) each Borrower has the legal power and authority to execute and deliver this Agreement; (b) this Agreement has been duly executed and delivered by each Borrower; (c) the execution and delivery hereof by each Borrower and the performance and observance by each Borrower of the provisions hereof do not violate or conflict with the organizational documents of such Borrower or any law applicable to such Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against such Borrower; (d) as of the date hereof, and after giving effect to the transactions contemplated by this Agreement, each Borrower is able to pay its debts as they mature and each Borrower's capital is sufficient and not unreasonably small for the business and transaction in which such Borrower is engaged or about to engage; (e) no Default or Event of Default exists under the Credit and Security Agreement, nor will a Default or Event of Default occur upon the execution and delivery of this Agreement; and (f) this Agreement has been duly authorized, executed, and delivered by each Borrower and constitutes a legal, valid and binding obligation of each Borrower, enforceable in accordance with its terms. 12. Each reference that is made in the Credit and Security Agreement or any other writing shall hereafter be construed as a reference to the Credit and Security Agreement as amended hereby. Except as herein otherwise specifically provided, all provisions of the Credit and Security Agreement shall remain in full force and effect in accordance with their terms and shall not be amended or modified hereby. 13. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts and by facsimile signature, each of which when so executed 5 6 and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 14. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OHIO. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR AS REQUIRED BY APPLICABLE LAW, BORROWER WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NONPAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE, (ii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES AND (iii) ITS RIGHT TO A JURY TRIAL IN THE EVENT OF ANY LITIGATION INSTITUTED IN RESPECT OF THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER CREDIT DOCUMENTS. BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT. BORROWER HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF OHIO, IN THE COUNTY OF STARK OR THE UNITED STATES COURTS FOR THE NORTHERN DISTRICT OF OHIO, AS LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH COURTS. BORROWER AND LENDER ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY NON-JURY TRIALS. BORROWER AND LENDER AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING, AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, BORROWER AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, OR THE TRANSACTIONS RELATED HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND BORROWER AND LENDER HEREBY AGREE AND CONSENT THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 6 7 LEXINGTON PRECISION CORPORATION By: Dennis J. Welhouse -------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary LEXINGTON COMPONENTS, INC. By: Dennis J. Welhouse -------------------------------- Name: Dennis J. Welhouse Title: Senior Vice President and Assistant Secretary BANK ONE, NA (fka as Bank One, Akron, NA) By Mark Corr -------------------------------- Name: Mark Corr Title: Assistant Vice President 7 EX-10.85 16 EXHIBIT 10.85 1 Exhibit 10.85 EXHIBIT L PROMISSORY NOTE --------------- (Additional Equipment Term Loan) $580,000.00 Cleveland, Ohio March 10, 1999 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, NA (formerly known as Bank One, Akron, NA) (hereinafter referred to as the "Bank"), the principal amount of FIVE HUNDRED EIGHTY THOUSAND AND NO/100 DOLLARS ($580,000.00) on March 1, 2006, 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 one-quarter percent (.25%) in excess of the Base Rate (from time to time in effect), as defined in the Agreement (as hereinafter defined). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace period 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 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 eight-three (83) consecutive, equal monthly installments of SIX THOUSAND NINE HUNDRED DOLLARS ($6,900.00) each, together with all accrued interest due at the time of payment of each such installment of principal, commencing on April 1, 1999, and continuing on the first day of each month thereafter and a final installment in the amount of the then remaining outstanding principal balance, together with all accrued interest due at the time of payment of such installment, on March 1, 2006. 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 2 payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated as of January 31, 1997, by and among the Borrowers and the Bank (as amended, and as the same may from time to time be further amended, restated or otherwise modified, 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' signatures 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 2 3 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 Cleveland, Cuyahoga County, Ohio. - -------------------------------------------------------------------------------- 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 ------------------------------------------------ 3 EX-10.86 17 EXHIBIT 10.86 1 Exhibit 10.86 PROMISSORY NOTE New York, New York $1,222,000.00 March 30, 1999 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 ONE MILLION TWO HUNDRED TWENTY-TWO THOUSAND AND NO/100 DOLLARS ($1,222,000.00) in sixty (60) consecutive monthly installments, commencing on May 1, 1999 with the following installments on the same day of each month thereafter until payment in full of this Note. The first fifty-nine (59) monthly installments shall be level payments of principal each in the amount of $20,366.67, and the sixtieth (60th) and final payment shall be a payment of principal in the amount of $20,366.47, Debtor shall pay interest together with 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 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 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 otherwise been waived pursuant to the Agreement. Page 1 of 2 2 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 as 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: Warren Delano ---------------------------- TITLE: President ---------------------------- Page 2 of 2 EX-10.87 18 EXHIBIT 10.87 1 Exhibit 10.87 AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT This Amendment No. 3 (the "Amendment") dated as of March 30, 1999 to Loan and Security Agreement by and between THE CIT GROUP/EQUIPMENT FINANCING, INC. ("Lender"), and Lexington Precision Corporation ("LPC"). WHEREAS, Lender and LPC are parties to a Loan and Security Agreement dated as of March 19, 1997 (the "Loan and Security Agreement"), including Rider A thereto, as amended (collectively, the "Agreement"). WHEREAS, LPC and Lender desire to amend the Agreement as provided herein. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: 1. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Agreement. 2. The Loan and Security Agreement is hereby amended as follows: (a) The last sentence of Section 2 is amended by deleting therein the words "first priority." (b) Section 3(e) is amended by deleting therein the words "first priority." (c) Section 4(h) is amended to read in its entirety as follows: "(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 the Priority Equipment being financed and a perfected Lien on the Equipment being financed." (d) Section 5(a)(viii) is amended by deleting therein the word "Collateral" and replacing it with "the Priority Equipment and Priority Proceeds and a perfected security interest in the Collateral." (e) Section 5(b)(ii) is amended by deleting therein the word "subordinate." (f) Section 5(b)(vi) is amended by deleting therein the words "first priority." 3. (a) Section 1 of Rider A to the Agreement is hereby amended to add the following: definitions: "PRIORITY EQUIPMENT": (i) any and all items of equipment which are listed on Supplements, all accessions, attachments and replacement parts thereto (other than any items removed from equipment not listed on a Supplement comprising part of the Congress Collateral (as defined in the Congress Subordination Agreement), and 2 (iii) all replacements for the equipment, accessions and attachments described in clauses (i) and (ii) above that are purchased with Priority Proceeds. "PRIORITY PROCEEDS": all proceeds of the Priority Equipment, including all amounts payable under any casualty insurance policy for damage to or destruction of any Priority Equipment, but excluding any such proceeds or amounts deposited in or transferred to any of the blocked accounts or other collateral proceeds accounts maintained under the Credit Agreement (as such term is defined in the Congress Subordination Agreement) that have not been claimed by CIT within a period of 60 days following the date of such deposit or transfer. "CONGRESS SUBORDINATION AGREEMENT": the Subordination Agreement dated as of March 19, 1997 between CIT and Congress, as amended, modified or supplemented. 4. Section 2 of Rider A to the Agreement is hereby amended in its entirety to read as follows: 2. LOAN AND COMMITMENT. The aggregate principal amount of all Loans shall not exceed the lesser of (a) $7,200,000 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 six (6) 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, 1999. The proceeds of each Loan shall be to finance the purchase of, or reimburse Debtor for the cost of, the Equipment. 5. Except as specifically amended herein, the Agreement remains in effect in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the day and year first written above. THE CIT GROUP/EQUIPMENT FINANCING, INC. By: Herb Ballard ---------------------------------- Title: Senior Credit Analyst ------------------------------- LEXINGTON PRECISION CORPORATION By: Warren Delano ---------------------------------- Title: President ------------------------------- EX-21.1 19 EXHIBIT 21.1 1 Exhibit 21.1 Significant Subsidiary of the Company ------------------------------------- Lexington Components, Inc., a Delaware corporation EX-27.1 20 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 103 0 17,837 197 10,170 32,198 115,608 52,871 108,325 40,228 74,953 375 0 1,087 (10,538) 108,325 126,717 126,717 108,513 108,513 0 1 9,772 (2,574) 132 (2,706) 0 0 0 (2,706) (.65) (.65)
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