-----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, Upfld9c0xJtBp6Qak2F2UyvVTtQh4wxWXD2XHBOc0GA52iJ+RWviAQu/w5ZMO0ET BxAq/HMNWN1nsVEZXy0RgA== 0000950152-02-004354.txt : 20020515 0000950152-02-004354.hdr.sgml : 20020515 20020515170356 ACCESSION NUMBER: 0000950152-02-004354 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03252 FILM NUMBER: 02653528 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-Q 1 l93923ae10-q.txt LEXINGTON PRECISION CORPORATION FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-3252 LEXINGTON PRECISION CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-1830121 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 767 THIRD AVENUE, NEW YORK, NY 10017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) (212) 319-4657 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT DATE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No_ COMMON STOCK, $0.25 PAR VALUE, 4,828,036 SHARES AS OF MAY 10, 2002 (INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE) ================================================================================ LEXINGTON PRECISION CORPORATION QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Item 1. Financial Statements............................................................................1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................................................15 Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................24 PART II. OTHER INFORMATION Item 3. Defaults on Senior Securities..................................................................25 Item 6. Exhibits and Reports on Form 8-K...............................................................25
- i - PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ----------------------------- 2002 2001 ---- ---- Net sales $ 30,244 $ 32,968 Cost of sales 27,276 28,549 -------- -------- Gross profit 2,968 4,419 Selling and administrative expenses 2,255 2,475 Plant closure costs 522 -- -------- -------- Income from operations 191 1,944 Interest expense 1,796 2,325 -------- -------- Loss before income taxes (1,605) (381) Income tax provision 21 -- -------- -------- Net loss $ (1,626) $ (381) ======== ======== Per share data: Basic and diluted net loss applicable to common stockholders $ (0.34) $ (0.08) ======== ========
See notes to consolidated financial statements. -1- LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS) (UNAUDITED)
MARCH 31, DECEMBER 31, 2002 2001 --------------- ---------------- ASSETS: Current assets: Cash $ 61 $ 189 Marketable securities 1,344 1,274 Accounts receivable 21,941 18,753 Inventories 8,210 8,493 Prepaid expenses and other current assets 3,513 3,523 Deferred income taxes 1,914 1,914 --------- --------- Total current assets 36,983 34,146 Property, plant, and equipment, net 53,025 55,324 Excess of cost over net assets of businesses acquired 7,831 7,831 Other assets 2,577 2,576 --------- --------- Total assets $ 100,416 $ 99,877 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT: Current liabilities: Accounts payable $ 13,384 $ 12,077 Accrued expenses 16,101 14,586 Short-term debt 77,699 77,794 Current portion of long-term debt 2,625 2,617 --------- --------- Total current liabilities 109,809 107,074 --------- --------- Long-term debt, excluding current portion 1,339 2,000 --------- --------- Deferred income taxes and other long-term liabilities 2,146 2,132 --------- --------- Series B preferred stock 330 330 --------- --------- Stockholders' deficit: Common stock, $0.25 par value, 10,000,000 shares authorized, 4,828,036 shares issued 1,207 1,207 Additional paid-in-capital 12,960 12,960 Accumulated deficit (27,445) (25,826) Accumulated other comprehensive income 70 -- --------- --------- Total stockholders' deficit (13,208) (11,659) --------- --------- Total liabilities and stockholders' deficit $ 100,416 $ 99,877 ========= =========
See notes to consolidated financial statements -2- LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ------------------------------ 2002 2001 ---- ---- OPERATING ACTIVITIES: Net loss $ (1,626) $ (381) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 2,866 3,068 Amortization included in operating expense 183 304 Amortization included in interest expense 36 45 Changes in operating assets and liabilities that provided (used) cash: Accounts receivable (3,188) (2,072) Inventories 283 1,387 Prepaid expenses and other current assets 204 236 Accounts payable 1,307 (3,074) Accrued expenses 1,515 1,577 Other 30 6 --------- --------- Net cash provided by operating activities 1,610 1,096 --------- --------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment (778) (1,226) Net decrease (increase) in equipment deposits 38 (181) Expenditures for tooling owned by customers (243) (194) Other 3 31 --------- --------- Net cash used by investing activities (980) (1,570) --------- --------- FINANCING ACTIVITIES: Net increase in loans under revolving line of credit 2,128 786 Proceeds from issuance of long-term debt -- 2,000 Repayment of long-term debt (2,876) (2,159) Other (10) (158) --------- --------- Net cash provided (used) by financing activities (758) 469 --------- --------- Net decrease in cash (128) (5) Cash at beginning of period 189 65 --------- --------- Cash at end of period $ 61 $ 60 ========= =========
See notes to consolidated financial statements. -3- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The unaudited interim consolidated financial statements include the accounts of Lexington Precision Corporation and its subsidiaries (collectively, the "Company"). The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the consolidated financial statements do not include all the information and footnotes included in the Company's annual consolidated financial statements. Significant accounting policies followed by the Company are set forth in Note 1 to the consolidated financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2001. Subject to the Company's ability to successfully restructure its indebtedness as discussed below, in the opinion of management, the unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at March 31, 2002, and the Company's results of operations and cash flows for the three-month periods ended March 31, 2002 and 2001. All such adjustments were of a normal, recurring nature. The results of operations for the three-month period ended March 31, 2002, are not necessarily indicative of the results to be expected for the full year or for any succeeding quarter. Certain amounts in the prior year financial statements have been reclassified to conform to the current year's 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. The Company has been in default on its 12 3/4% senior subordinated notes since February 1, 2000, when it did not make the payments of principal, in the amount of $27,412,000, and interest, in the amount of $1,748,000, that were due on that date. In April 2002, the Company reached an agreement in principle with the holders of over 80% of the senior subordinated notes on the terms of a restructuring of the notes. The Company plans to commence an exchange offer for the 12 3/4% senior subordinated notes reflecting the terms of the agreement in principle. If the exchange offer were consummated, the existing senior subordinated notes would be exchanged for new 11 1/2% senior subordinated notes due August 1, 2007, in a principal amount equal to the principal amount of the 12 3/4% senior subordinated notes being exchanged plus the accrued and unpaid interest thereon through April 30, 2002, which accrued interest totals $350.625 for each $1,000 principal amount of 12 3/4% senior subordinated notes exchanged. Interest on the 11 1/2% senior subordinated notes would accrue from May 1, 2002, and would be payable on each August 1, November 1, February 1, and May 1. Each $1,000 principal amount of 11 1/2% senior subordinated notes would be issued with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through August 1, 2007. If the exchange offer were consummated, the Company would pay a participation fee of 3% of the principal amount of 12 3/4% senior subordinated notes that were tendered for exchange. The consummation of the exchange offer is conditioned upon, among other things, the valid tender for exchange of at least 99% of the senior subordinated notes. The Company has also reached an agreement in principle with the holders of its 14% junior subordinated notes on the terms of a restructuring of those notes. If the restructuring were completed, the -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Company would exchange new 12 1/2% junior subordinated notes due November 1, 2007, for the $347,000 principal amount of existing 14% junior subordinated notes and the accrued interest thereon for the period November 1, 1999, through April 30, 2002, which accrued interest totals $156,000. Interest on the 12 1/2% junior subordinated notes would accrue from May 1, 2002, and would be payable on each August 1, November 1, February 1, and May 1. Each $1,000 principal amount of 12 1/2% junior subordinated notes would be issued together with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through November 1, 2007. If the restructuring were completed, the Company also would pay a participation fee of 3% of the principal amount of 14% junior subordinated notes. The completion of the proposed restructuring of the senior subordinated notes and the junior subordinated notes is subject to a number of conditions precedent, including the restructuring of the Company's outstanding $7,500,000 senior, unsecured note on satisfactory terms. The Company has proposed that the senior, unsecured note be restructured to provide for twenty equal quarterly principal payments of $375,000 beginning on November 1, 2002, with a final maturity date of August 1, 2007, interest at the rate of 10 1/2% per annum, payable quarterly, and a 2% participation fee. On April 30, 2002, the maturity date of the senior, unsecured note, the holder of the note rejected the Company's proposal for a restructuring and turned down the Company's request for an interim, three-month extension. The Company did not pay the principal of the note or the monthly interest payment of $78,000 that was due on April 30, 2002. The default on the senior, unsecured note has caused a cross default on the loans outstanding under the Company's revolving line of credit, the secured, amortizing term loans, the senior subordinated notes, and the junior subordinated notes. Another condition of the proposed restructuring of the senior subordinated notes and the junior subordinated notes is the refinancing of the Company's senior, secured debt on satisfactory terms. The Company was unable to refinance its senior, secured debt on satisfactory terms in order to complete earlier debt restructuring plans. The Company believes that the terms of the revised exchange offer for the 12 3/4% senior subordinated notes outlined above enhance the Company's ability to refinance its senior, secured debt on satisfactory terms. The Company is currently in discussions with several lenders regarding a refinancing of its senior, secured credit facilities. The Company can give no assurance that it will be able to consummate the exchange offer, restructure the senior, unsecured note, or renegotiate its senior, secured financing arrangements on terms satisfactory to the Company. If the Company is unable to do so, it may file a petition under the federal bankruptcy code in order to carry out a debt restructuring plan on terms substantially similar to those discussed above. Although the Company believes that such a restructuring could be accomplished quickly and without disruption to its operations, any such proceeding involves considerable risks and uncertainties and could have a material adverse effect on the Company's operations and financial position. The consolidated financial statements do not include any adjustments to the amounts or classifications of assets or liabilities to reflect those risks and uncertainties. -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2 -- INVENTORIES Inventories at March 31, 2002, and December 31, 2001, are set forth below (dollar amounts in thousands):
MARCH 31, DECEMBER 31, 2002 2001 ------------- ---------------- Finished goods $ 2,972 $ 3,727 Work in process 2,633 2,060 Raw materials and purchased parts 2,605 2,706 --------- --------- $ 8,210 $ 8,493 ========= =========
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at March 31, 2002, and December 31, 2001, are set forth below (dollar amounts in thousands):
MARCH 31, DECEMBER 31, 2002 2001 -------------- ---------------- Land $ 2,309 $ 2,309 Buildings 22,708 22,601 Equipment 109,807 111,206 --------- --------- 134,824 136,116 Accumulated depreciation 81,799 80,792 --------- --------- Property, plant, and equipment, net $ 53,025 $ 55,324 ========= =========
NOTE 4 -- ACCRUED EXPENSES At March 31, 2002, and December 31, 2001, accrued expenses included accrued interest expense of $9,617,000 and $8,738,000, respectively, of which $9,320,000 and $8,446,000, respectively, was accrued on the senior subordinated notes. -6- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 -- DEBT Debt at March 31, 2002, and December 31, 2001, is set forth below (dollar amounts in thousands):
MARCH 31, DECEMBER 31, 2002 2001 ------------- ---------------- Short-term debt: Revolving line of credit $ 18,313 $ 16,185 Secured, amortizing term loans 24,127 26,350 Senior, unsecured note 7,500 7,500 Senior subordinated notes 27,412 27,412 Junior subordinated notes 347 347 --------- --------- Subtotal 77,699 77,794 Current portion of long-term debt 2,625 2,617 --------- --------- Total short-term debt $ 80,324 $ 80,411 ========= ========= Long-term debt: 12% secured term note 1,284 1,336 Unsecured, amortizing term notes 2,296 2,868 Other 384 413 --------- --------- Subtotal 3,964 4,617 Less current portion (2,625) (2,617) --------- --------- Total long-term debt $ 1,339 $ 2,000 ========= =========
REVOLVING LINE OF CREDIT On March 29, 2002, the Company and the lenders providing loans under the Company's revolving line of credit agreed to extend the expiration date of the revolving line of credit from April 1, 2002, to July 1, 2002. At March 31, 2002, availability under the revolving line of credit totaled $2,743,000, before outstanding checks of $2,173,000 were deducted. At March 31, 2002, the interest rates on loans outstanding under the revolving line of credit were the London Interbank Offered Rate (LIBOR) plus 2.5% and the prime rate. The loans outstanding under the Company's revolving line of credit are collateralized by substantially all of the assets of the Company, including accounts receivable, inventories, equipment, certain real estate, and the stock of Lexington Rubber Group, Inc., a subsidiary of the Company. -7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SECURED, AMORTIZING TERM LOANS Secured, amortizing term loans outstanding at March 31, 2002, and December 31, 2001, are set forth below (dollar amounts in thousands):
MARCH 31, DECEMBER 31, 2002 2001 ------------ ---------------- Term loans payable in equal monthly principal installments based on a 180-month amortization schedule, final maturities in 2002, 8.37% $ 2,161 $ 2,221 Term loans payable in equal monthly principal installments, final maturities in 2002, LIBOR plus 2 3/4% 158 344 Term loan payable in equal monthly principal installments based on a 180-month amortization schedule, final maturity in 2002, 9.37% 1,058 1,084 Term loan payable in equal monthly principal installments based on a 180-month amortization schedule, final maturity in 2002, 9.0% 2,078 2,128 Term loans payable in equal monthly principal installments, final maturities in 2002, prime rate and LIBOR plus 2 1/2% 76(1) 305(1) Term loan payable in equal monthly principal installments, final maturity in 2003, prime rate 182 227 Term loan payable in equal monthly principal installments, final maturity in 2003, prime rate and LIBOR plus 2 1/2% 100(1) 131(1) Term loan payable in equal monthly principal installments, final maturities in 2003, LIBOR plus 2 3/4% 347 427 Term loans payable in equal monthly principal installments, final maturities in 2004, LIBOR plus 2 3/4% 727 810 Term loan payable in equal monthly principal installments, final maturity in 2004, prime rate and LIBOR plus 2 1/2% 589 657 Term loans payable in equal monthly principal installments, final maturities in 2004, prime rate and LIBOR plus 2 1/2% 5,622(1) 6,325(1) Term loan payable in equal monthly principal installments, final maturity in 2005, LIBOR plus 2 1/2% 746 802 Term loan payable in equal monthly principal installments, final maturity in 2005, prime rate and LIBOR plus 2 1/2% 791(1) 852(1) Term loan payable in equal monthly principal installments, final maturity in 2006, prime rate 332 352 Term loans payable in equal monthly principal installments, final maturities in 2006, prime rate and LIBOR plus 2 1/2% 5,735(1) 6,086(1) Term loans payable in equal monthly installments, final maturity in 2007, prime rate and LIBOR plus 2 1/2% 3,425(1) 3,599(1) ------- ------- $24,127 $26,350 ======= =======
(1) 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 revolving line of credit is currently scheduled to mature on July 1, 2002. -8- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The secured, amortizing term loans were classified as short-term debt because, effective April 30, 2002, a cross default occurred when the Company did not pay the senior, unsecured note when it matured. The secured, amortizing term loans are collateralized by substantially all of the assets of the Company, including accounts receivable, inventories, equipment, certain real estate, and the stock of Lexington Rubber Group, Inc. SENIOR, UNSECURED NOTE The senior, unsecured note, which matured on April 30, 2002, is senior in right of payment to the senior subordinated notes and the junior subordinated notes. The senior, unsecured note bore interest at 10 1/2% per annum until August 1, 2000, when the effective interest rate increased to 12 1/2%. On April 30, 2002, the Company did not make the payments of interest and principal then due on the senior, unsecured note in the amounts of $78,000 and $7,500,000, respectively. For a more detailed discussion of the status of the senior, unsecured note, refer to Note 1, "Basis of Presentation." SENIOR SUBORDINATED NOTES The senior subordinated notes, which matured on February 1, 2000, are unsecured obligations of the Company that are subordinated in right of payment to all of the Company's existing and future secured debt and to the payment of the senior, unsecured note. The senior subordinated notes currently bear interest at 12 3/4% per annum. On February 1, 2000, the Company did not make the payments of interest and principal then due on the senior subordinated notes in the amounts of $1,748,000 and $27,412,000, respectively. For a more detailed discussion of the status of the senior subordinated notes, refer to Note 1, "Basis of Presentation." JUNIOR SUBORDINATED NOTES The junior subordinated convertible notes and the junior subordinated nonconvertible notes are unsecured obligations of the Company. The $1,000,000 principal amount of junior subordinated convertible notes were converted into 440,000 shares of common stock on February 1, 2000. The junior subordinated nonconvertible notes are due on July 1, 2002, and are subordinated in right of payment to all existing and future secured debt of the Company, to the senior, unsecured note, and to the senior subordinated notes. The junior subordinated notes currently bear interest at 14% per annum. The holders of the junior subordinated notes have deferred until July 1, 2002, all interest payments that were due on or after February 1, 2000, and have waived their cross-default provisions with respect to the default on the senior subordinated notes. 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 limitations on the Company's business and operations, including the incurrence or assumption of additional debt, the level of past-due 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 -9- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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, the Company's lenders have agreed to waive or amend certain of the financial covenants contained in its various note agreements in order to maintain or otherwise ensure the Company's current or future compliance. In the event that the Company is not in compliance with any of its covenants in the future and its lenders do not agree to amend or waive those covenants, the lenders would have the right to declare the borrowings under their note agreements to be due and payable. NOTE 6 -- SERIES B PREFERRED STOCK At March 31, 2002, there were outstanding 3,300 shares of the Company's $8 cumulative convertible preferred stock, series B, par value $100 per share. As a result of the default on the senior subordinated notes, the Company has been prohibited from making any dividend payments on, or redemptions of, the series B preferred stock since February 2000. At March 31, 2002, the Company was in arrears in the payment of nine dividends on the series B preferred stock in the aggregate amount of $59,000 and in the redemption of 900 shares of series B preferred stock for $180,000. NOTE 7 -- INCOME TAXES At March 31, 2002, and December 31, 2001, the Company's net deferred income tax assets were fully offset by a valuation allowance. -10- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 8 -- NET INCOME (LOSS) PER COMMON SHARE The calculations of basic and diluted net income or loss per common share for the three months ended March 31, 2002 and 2001, are set forth below (in thousands, except per share amounts). The pro forma conversion of the Company's $8 cumulative convertible preferred stock, series B, was not dilutive for the three-month periods ended March 31, 2002 and 2001. As a result, the calculations of diluted net income or loss per common share set forth below do not reflect any pro forma conversion. For purposes of calculating earnings per share, earnings are reduced by (1) preferred stock dividends and (2) the amount by which payments made to redeem preferred stock exceeded the par value of such shares. During the three-month periods ended March 31, 2002 and 2001, the Company did not pay any dividends on, or redeem any shares of, the series B preferred stock.
THREE MONTHS ENDED MARCH 31 ------------------------- 2002 2001 ---- ---- Numerator: Net loss $ (1,626) $ (381) Preferred stock dividends - - Excess of redemption value over par value of preferred stock redeemed during year - - -------- -------- Numerator for basic and diluted net loss per share - loss applicable to common stockholders $ (1,626) $ (381) ======== ======== Denominator: Denominator for basic and diluted net loss per share - adjusted weighted average common shares 4,828 4,828 ======== ======= Per share data: Basic and diluted net loss applicable to common stockholders $ (0.34) $ (0.08 ) ======== =======
-11- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9 -- SEGMENTS Information relating to the Company's operating segments and its corporate office for the three-month periods ended March 31, 2002 and 2001, is summarized below (dollar amounts in thousands):
THREE MONTHS ENDED MARCH 31 ----------------------------- 2001 2000 ---- ---- NET SALES: Rubber Group $ 23,953 $ 22,932 Metals Group 6,291 10,036 --------- --------- Total net sales $ 30,244 $ 32,968 ========= ========= INCOME (LOSS) FROM OPERATIONS: Rubber Group $ 2,490 $ 1,869 Metals Group (1,716) 570 --------- --------- Subtotal 774 2,439 Corporate office (583) (495) --------- --------- Total income from operations $ 191 $ 1,944 ========= ========= ASSETS: Rubber Group $ 70,656 $ 71,637 Metals Group 25,675 34,526 --------- --------- Subtotal 96,331 106,163 Corporate office 4,085 2,890 --------- --------- Total assets $ 100,416 $ 109,053 ========= ========= DEPRECIATION AND AMORTIZATION (1): Rubber Group $ 2,000 $ 2,201 Metals Group 1,028 1,149 --------- --------- Subtotal 3,028 3,350 Corporate office 21 22 --------- --------- Total depreciation and amortization $ 3,049 $ 3,372 ========= ========= CAPITAL EXPENDITURES: Rubber Group $ 663 $ 1,067 Metals Group 115 159 --------- --------- Subtotal 778 1,226 Corporate office -- -- --------- --------- Total capital expenditures $ 778 $ 1,226 ========= =========
(1) Does not include amortization of deferred financing expenses, which totaled $36,000 and $45,000 during the three-month periods ended March 31, 2002 and 2001, respectively, and which is included in interest expense in the consolidated financial statements. -12- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 10 -- PLANT CLOSURE During the fourth quarter of 2001, the Company was notified that the Metal Group's largest customer would cease purchasing components from the Metals Group after December 31, 2001. During 2001, this customer purchased $5,937,000 of machined metal components, which were manufactured primarily at the Company's Casa Grande, Arizona, facility. As a result of the reduction in sales at the Arizona facility, the Company closed the facility during the first quarter of 2002. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company recorded, as of December 31, 2001, an impairment charge of $2,047,000 to reduce to fair market value the carrying value of the Arizona facility's land and building and certain metal machining equipment currently idled by the loss of this business. The land, building, and equipment idled by the loss of business is currently classified in property, plant, and equipment and is being depreciated at the rate of approximately $36,000 per month. These assets will be reclassified as assets held for sale if and when they meet the criteria set forth in Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which the Company adopted on January 1, 2002. During the first quarter of 2002, the Arizona facility recorded a loss from operations of $1,223,000. The first quarter operating loss included $522,000 of cost incurred to close the Arizona facility. Such plant closure costs are separately classified in the Company's consolidated statement of operations for the three months ended March 31, 2002. Plant closure costs consisted of $246,000 for severance and other employee termination costs, $166,000 of asset relocation costs, and other items totaling $110,000. At March 31, 2002, the Company had a reserve of $143,000 for the closure of the Arizona facility, primarily for unpaid severance benefits. The remainder of the first quarter operating loss, $701,000, resulted primarily from the underabsorption of operating costs incurred during the first quarter of 2002 due to minimal sales and poor operating efficiencies. Net sales at the Arizona facility during the first quarter of 2002 totaled $332,000, compared to $2,858,000 during the first quarter of 2001. In addition, the first quarter operating loss included the write off of certain inventory in the amount of $75,000. -13- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 11 -- OTHER COMPREHENSIVE INCOME During the first quarter of 2002, the Company's other comprehensive income consisted of a $70,000 unrealized gain on its marketable securities. No income tax expense is currently allocable to this unrealized gain. Comprehensive income for the three months ended March 31, 2002 and 2001, is set forth below:
THREE MONTHS ENDED MARCH 31 ------------------------ 2002 2001 ---- ---- Net loss $ (1,626) $ (381) Other comprehensive income: Unrealized gain on marketable securities 70 -- -------- --------- Comprehensive income $ (1,556) $ (381) ======== =========
NOTE 12-- EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED (GOODWILL) On January 1, 2002, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). The standard, among other things, prohibits the amortization of goodwill and other intangible assets with indefinite useful lives, and requires that goodwill and other intangible assets with indefinite useful lives be reviewed for impairment at least annually and written down to fair value if found to be impaired. The Company does not possess any intangible assets with indefinite lives other than goodwill. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. In accordance with the provisions of FAS 142, the Company will complete its initial impairment test of goodwill by June 30, 2002. Although the Company is currently in the process of performing the impairment testing, the Company has not yet determined the likelihood or amount of any goodwill impairment. Prior to the adoption of FAS No. 142, goodwill was amortized over forty years. The following table sets forth a reconciliation of net loss and net loss per share information adjusted for the non-amortization provisions of FAS No. 142.
THREE MONTHS ENDED MARCH 31 ------------------------ 2002 2001 ---- ---- Net loss as reported $ (1,626) $ (381) Amortization of goodwill, net of tax -- 79 -------- --------- Adjusted net loss $ (1,626) $ (302) ======== ========= Per share data: Reported loss per share $ (0.34) $ (0.08) Add back goodwill amortization, net of income tax -- 0.02 -------- --------- Adjusted basic and diluted net loss applicable to common stockholders $ (0.34) $ (0.06) ======== =========
-14- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Some of our statements in this Form 10-Q, including this item, are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements usually can be identified by our use of words like "believes," "expects," "may," "will," "should," "anticipates," "estimates," "projects," or the negative thereof. They may be used when we discuss strategy, which typically involves risk and uncertainty, and they generally are based upon projections and estimates rather than historical facts and events. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results or performance to be materially different from the future results or performance expressed in or implied by those statements. Some of those risks and uncertainties are: - increases and decreases in business awarded to us by our customers, - unanticipated price reductions for our products as a result of competition, - unanticipated operating results and cash flows, - increases or decreases in capital expenditures, - changes in economic conditions, - strength or weakness in the North American automotive market, - changes in the competitive environment, - changes in interest rates and the credit and securities market, - the possibility of product warranty claims, - labor interruptions at our facilities or at our customers' facilities, - the impact on our operations of the defaults on our indebtedness and the delays in paying our accounts payable, and - our inability to obtain additional borrowings or to refinance our existing indebtedness. Because we have substantial borrowings for a company our size and because those borrowings require us to make substantial interest and principal payments, any negative event may have a greater adverse effect upon us than it would have upon a company of the same size that has less debt. Our results of operations for any particular period are not necessarily indicative of the results to be expected for any one or more succeeding periods. The use of forward-looking statements should not be regarded as a representation that any of the projections or estimates expressed in or implied by those forward-looking statements will be realized, and actual results may vary materially. We cannot assure you that any of the forward-looking statements contained herein will prove to be accurate. All forward-looking statements are expressly qualified by the discussion above. -15- RESULTS OF OPERATIONS-- FIRST QUARTER OF 2001 VERSUS FIRST QUARTER OF 2000 The following table sets forth our consolidated operating results for the first quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED MARCH 31 -------------------------------------------- 2002 2001 --------------------- --------------------- Net sales $ 30,244 100.0% $ 32,968 100.0% Cost of sales 27,276 90.2 28,549 86.6 --------- --------- --------- --------- Gross profit 2,968 9.8 4,419 13.4 Selling and administrative expenses 2,255 7.5 2,475 7.5 Plant closure costs (1) 522 1.7 -- -- --------- --------- --------- --------- Income from operations 191 0.6 1,944 5.9 Add back depreciation and amortization (2) 3,049 10.1 3,372 10.2 --------- --------- --------- --------- Earnings before interest, taxes, depreciation, and amortization (EBITDA) (3) 3,240 10.7 5,316 16.1 Proforma adjustments for certain nonrecurring expenses: Plant closure costs (1) 522 1.8 -- -- --------- --------- --------- --------- Adjusted EBITDA (3) $ 3,762 12.4% $ 5,316 16.1% ========= ========= ========= ========= Net cash provided by operating activities (4) $ 1,610 5.3% $ 1,096 3.3% ========= ========= ========= =========
(1) During the first quarter of 2002, we closed our metal machining facility in Casa Grande, Arizona. As of December 31, 2001, we recorded a provision of $2,047,000 to write down the value of certain of the facility's assets to fair value, and during the first quarter of 2002, we incurred charges of $522,000 to close the facility. For more information, refer to the discussion of the results of operations of the Metals Group in this section. (2) Does not include amortization of deferred financing expenses, which totaled $36,000 and $45,000 during the first quarters of 2002 and 2001, respectively, and which is included in interest expense in the consolidated financial statements. (3) Earnings before interest, taxes, depreciation, and amortization, which is commonly referred to as EBITDA, is not a measure of performance under accounting principles generally accepted in the United States and should not be considered in isolation or used as a substitute -16- for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with generally accepted accounting principles. We use the term adjusted EBITDA to refer to EBITDA adjusted to exclude nonrecurring items of expense. During the first quarter of 2002, adjusted EBITDA excluded the nonrecurring charges incurred to close the Company's facility in Casa Grande, Arizona. We have presented EBITDA and adjusted EBITDA here and elsewhere in this Form 10-K because we believe that these measures are used by investors as supplemental information to evaluate the operating performance of a business, including its ability to incur and to service debt. In addition, our definition of EBITDA and adjusted EBITDA may not be the same as the definition of EBITDA and adjusted EBITDA used by other companies. (4) The calculation of net cash provided by operating activities is detailed in the consolidated statement of cash flows that is part of our consolidated financial statements in Part I, Item 1. Our net sales for the first quarter of 2002 were $30,244,000, compared to net sales of $32,968,000 for the first quarter of 2001, a decrease of $2,724,000, or 8.3%. The decrease in net sales was principally a result of a $2,526,000 reduction in sales at our Arizona facility, which we closed during the first quarter of 2002. EBITDA, excluding the $522,000 of plant closure costs, for the first quarter of 2002 was $3,762,000, or 12.4% of net sales, compared to $5,316,000, or 16.1% of net sales, for the first quarter of 2001. This reduction was principally a result of the expenses related to the closing of the Arizona facility and the transfer of certain equipment and business to our Rochester, New York, facility. Based upon the information available to us at this time, we currently project that, for the second quarter of 2002, our net sales will be approximately $32,000,000, and our EBITDA will be approximately $5,600,000, or 17.5% of net sales. During the second quarter of 2001, our net sales were $33,831,000, and our EBITDA was $6,246,000, or 18.5% of net sales. The discussion that follows sets forth our analysis of the operating results of the Rubber Group, the Metals Group, and the corporate office for the three-month periods ended March 31, 2002 and 2001. -17- RUBBER GROUP The Rubber Group manufactures silicone and organic rubber components primarily for automotive industry customers. Any material reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Rubber Group and on our company taken as a whole. The following table sets forth the operating results of the Rubber Group for the first quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED MARCH 31 ---------------------------------------------------- 2002 2001 ----------------------- ----------------------- Net sales $ 23,953 100.0% $ 22,932 100.0% Cost of sales 20,336 84.9 19,750 86.1 --------- --------- --------- --------- Gross profit 3,617 15.1 3,182 13.9 Selling and administrative expenses 1,127 4.7 1,313 5.7 --------- --------- --------- --------- Income from operations 2,490 10.4 1,869 8.2 Add back depreciation and amortization 2,000 8.3 2,201 9.6 --------- --------- --------- --------- Earnings before interest, taxes, depreciation, and amortization (EBITDA) $ 4,490 18.7% $ 4,070 17.7% ========= ========= ========= =========
During the first quarter of 2002, net sales of the Rubber Group increased by $1,021,000, or 4.5%, compared to the first quarter of 2001. This increase was primarily due to increased unit sales of connector seals for automotive wiring systems and increased sales of medical components, offset, in part by a slight reduction in sales of insulators for automotive ignition wire sets, and price reductions on certain automotive components. Cost of sales as a percentage of net sales decreased during the first quarter of 2002 to 84.9% of net sales from 86.1% of net sales during the first quarter of 2001, primarily because certain factory overhead expenses, employee benefit costs, and depreciation and amortization expense decreased compared to the first quarter of 2001. Selling and administrative expenses as a percentage of net sales decreased during the first quarter of 2002, compared to the first quarter of 2001, primarily because of reduced international selling expenses, and the elimination of the amortization of goodwill as required by Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which we adopted January 1, 2002. During the first quarter of 2002, income from operations totaled $2,490,000, an increase of $621,000, or 33.3%, compared to the first quarter of 2001. EBITDA increased to $4,490,000 from $4,070,000, while EBITDA as a percentage of net sales increased to 18.7% from 17.7%. -18- METALS GROUP The Metals Group manufactures aluminum die castings and machines components from aluminum, brass, and steel bars, primarily for automotive industry customers. Any material reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Metals Group and on our company taken as a whole. The following table sets forth the operating results of the Metals Group for the first quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED MARCH 31 -------------------------------------------------- 2002 2001 ----------------------- ----------------------- Net sales $ 6,291 100.0% $ 10,036 100.0% Cost of sales 6,940 110.3 8,799 87.7 --------- --------- --------- --------- Gross profit (649) (10.3) 1,237 12.3 Selling and administrative expenses 545 8.7 667 6.6 Plant closure costs 522 8.3 -- -- --------- --------- --------- --------- Income from operations (1,716) (27.3) 570 5.7 Add back depreciation and amortization 1,028 16.3 1,149 11.4 --------- --------- --------- --------- Earnings before interest, taxes, depreciation, and amortization (EBITDA) (688) (10.9) 1,719 17.1 Proforma adjustments for certain nonrecurring expenses: Plant closure costs 522 8.3 -- -- --------- --------- --------- --------- Adjusted EBITDA $ (166) (2.6)% $ 1,719 17.1% ========= ========= ========= =========
During the fourth quarter of 2001, we were notified that the Metal Group's largest customer would cease purchasing components from the Metals Group after December 31, 2001. During 2001, this customer purchased $5,937,000 of machined metal components, which were manufactured primarily at our Casa Grande, Arizona, facility. As a result of the reduction in sales at the Arizona facility, we closed the facility during the first quarter of 2002. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," we recorded, as of December 31, 2001, an impairment charge of $2,047,000 to reduce to fair market value the carrying value of the Arizona facility's land and building and certain metal machining equipment currently idled by the loss of this business. The land, building, and equipment idled by the loss of business is currently classified in property, plant, and equipment and is being depreciated at the rate of approximately $36,000 per month. These assets will be reclassified as assets held for sale if -19- and when they meet the criteria set forth in Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which we adopted on January 1, 2002. During the first quarter of 2002, the Arizona facility recorded a loss from operations of $1,223,000. The first quarter operating loss included $522,000 of costs incurred to close the Arizona facility. Such plant closure costs are separately classified in our consolidated statement of operations for the three months ended March 31, 2002. Plant closure costs consisted of $246,000 for severance and other employee termination costs, $166,000 of asset relocation costs, and other items totaling $110,000. At March 31, 2002, we had a reserve of $143,000 for the closure of the facility, primarily for unpaid severance benefits. The remainder of the first quarter operating loss, $701,000, resulted primarily from the under absorption of operating costs incurred during the first quarter of 2002 due to minimal sales and poor operating efficiencies. Net sales at the Arizona facility during the first quarter of 2002 totaled $332,000 compared to $2,858,000 during the first quarter of 2001. In addition, the first quarter operating loss included the write off of certain inventory in the amount of $75,000. During the first quarter of 2002, net sales of the Metals Group decreased by $3,745,000, or 37.3%, compared to the first quarter of 2001. The decrease resulted from reduced sales of machined metal components due to the departure, effective December 31, 2001, of the Metals Group's largest customer and reduced sales to certain customers who had accumulated excess amounts of inventory in prior periods. Cost of sales, as a percentage of net sales increased during the first quarter of 2002 to 110.3% of net sales from 87.7% of net sales during the first quarter of 2001, primarily due to the first quarter operating loss incurred at the Arizona facility, which resulted primarily from minimal sales and poor operating efficiencies, and excess costs and production inefficiencies caused by the transfer of certain business and equipment from Arizona to the Rochester, New York, facility. Selling and administrative expenses as a percentage of net sales increased during the first quarter of 2002 compared to the first quarter of 2001, primarily because of the dramatically reduced sales level. During the first quarter of 2002, the loss from operations was $1,716,000 compared to income from operations of $570,000 during the first quarter of 2001. Excluding the $522,000 of plant closure costs, the loss from operations during the first quarter of 2002, was $1,194,000. EBITDA, excluding the $522,000 of plant closure costs, decreased to negative $166,000, a decrease of $1,885,000, compared to the first quarter of 2001. CORPORATE OFFICE Corporate office expenses, which are not included in the operating results of the Rubber Group or the Metals Group, represent administrative expenses incurred primarily at our New York and Cleveland offices. Corporate office expenses are consolidated with the selling and administrative expenses of the Rubber Group and the Metals Group in our consolidated financial statements. -20- The following table sets forth the operating results of the corporate office for the first quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED MARCH 31 -------------------- 2002 2001 ---- ---- Loss from operations $ (583) $ (495) Add back depreciation and amortization 21 22 -------- -------- Earnings before interest, taxes, depreciation and amortization $ (562) $ (473) ======== =========
During the first quarter of 2002, corporate office expenses increased compared to the first quarter of 2001, primarily because a credit for a refund of state franchise taxes was recorded during the first quarter of 2001. INTEREST EXPENSE During the first quarters of 2002 and 2001, interest expense totaled $1,796,000 and $2,325,000, respectively, which included amortization of deferred financing expenses of $36,000 and $45,000, respectively. The decrease in interest expense was caused primarily by lower rates of interest on our floating rate indebtedness and a reduction in the average amount of outstanding indebtedness. INCOME TAX PROVISION At March 31, 2002, and December 31, 2001, our net deferred income tax assets were fully offset by a valuation allowance. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES During the first quarter of 2002, our operating activities provided $1,610,000 of cash. Accounts receivable increased by $3,188,000. The increase was caused primarily by an increase in net sales during March 2002 compared to December 2001 and a one-day delay in the receipt of the monthly payment from one of our largest customers. Accounts payable increased by $1,307,000, primarily as a result of increased purchases during March 2002 compared to December 2001. We rely on our suppliers to provide us credit for our purchases. In many cases, we extend our accounts payable beyond their stated terms. If our vendors were to reduce materially the amount of credit available to us, it could have a material adverse effect on our results of operations and financial position. Accrued expenses increased by $1,515,000 during the first quarter of 2002, primarily due to an increase in accrued interest of $879,000, reflecting unpaid interest on our senior subordinated notes and our junior subordinated notes. -21- INVESTING ACTIVITIES During the first quarter of 2002, our investing activities used $980,000 of cash, primarily for capital expenditures. Capital expenditures attributable to the Rubber Group and the Metals Group totaled $663,000 and $115,000, respectively. Capital expenditures for the first quarter of 2002 included $772,000 for equipment and $6,000 building improvements. We presently project that capital expenditures during 2002 will total approximately $4,900,000, substantially all of which will be for the purchase of equipment. Capital expenditures for the Rubber Group and the Metals Group are projected to total approximately $3,200,000 and $1,700,000, respectively, during 2002. At March 31, 2002, we had outstanding commitments to purchase plant and equipment of approximately $1,500,000. FINANCING ACTIVITIES During the first quarter of 2002, our financing activities used $758,000 of cash. During the first quarter of 2002, we made payments on our long-term debt totaling $2,876,000, and we increased the net borrowings under our revolving line of credit by $2,128,000. LIQUIDITY We finance our operations with cash from operating activities and a variety of financing arrangements, including term loans and loans under our revolving line of credit. Our ability to borrow under our revolving line of credit, which expires on July 1, 2002, is subject to certain availability formulas based on the levels of our accounts receivable and inventories. At May 13, 2002, availability under our revolving line of credit totaled $2,184,000 before outstanding checks of $1,689,000 were deducted. Substantially all of our assets are pledged as collateral for various of our borrowings. A number of our financing arrangements contain covenants with respect to the maintenance of minimum levels of working capital, net worth, and cash flow coverage and other covenants that place certain restrictions on our 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 our 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 our financing arrangements include cross-default provisions. From time to time, our lenders have agreed to waive or amend certain of the financial covenants contained in our various note agreements in order to maintain or otherwise ensure our current or future compliance. In the event that we are not in compliance with any of our covenants in the future and our lenders do not agree to amend or waive those covenants, the lenders would have the right to declare the borrowings under their note agreements to be due and payable. We are in default in the payment of our senior subordinated notes and our senior, unsecured note. In addition, during the last nine months of 2002, we have $5,163,000 of secured term notes and $347,000 of junior subordinated notes that mature. During the last nine months of 2002, we also have scheduled principal payments of $6,721,000 on our amortizing term loans. We estimate that, at existing contractual and market rates, the interest expense on all of our debt during 2002 will be approximately $7,400,000. -22- We had a net working capital deficit of $72,826,000 at March 31, 2002, compared to a net working capital deficit of $72,928,000 at December 31, 2001. The net working capital deficit exists primarily because the majority of our debt is in default or subject to cross defaults. As discussed in more detail below, we are in the process of negotiating extensions of all of our matured and maturing debt, although there can be no assurance that we will be successful in this effort. We have been in default on our 12 3/4% senior subordinated notes since February 1, 2000, when we did not make the payments of principal, in the amount of $27,412,000, and interest, in the amount of $1,748,000, that were due on that date. In April 2002, we reached an agreement in principle with the holders of over 80% of our senior subordinated notes on the terms of a restructuring. We plan to commence an exchange offer for the 12 3/4% senior subordinated notes reflecting the terms of the agreement in principle. If the exchange offer were consummated, the 12 3/4% senior subordinated notes would be exchanged for new 11 1/2% senior subordinated notes due August 1, 2007, in a principal amount equal to the principal amount of the existing senior subordinated notes being exchanged plus the accrued and unpaid interest on those notes through April 30, 2002, which accrued interest totals $350.625 for each $1,000 principal amount of 12 3/4% senior subordinated notes exchanged. Interest on the 11 1/2% senior subordinated notes would accrue from May 1, 2002, and would be payable on each August 1, November 1, February 1, and May 1. Each $1,000 principal amount of 11 1/2% senior subordinated notes would be issued together with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through August 1, 2007. If the exchange offer were consummated, we would pay a participation fee of 3% of the principal amount of 12 3/4% senior subordinated notes that were tendered for exchange. We have also reached an agreement in principle with the holders of our 14% junior subordinated notes on a restructuring of the terms of those notes. If the restructuring were completed, we would exchange new 12 1/2% junior subordinated notes due November 1, 2007, for the $347,000 principal amount of existing 14% junior subordinated notes and the accrued interest thereon for the period November 1, 1999, through April 30, 2002, which accrued interest totals $156,000. Interest on the 12 1/2% junior subordinated notes would accrue from May 1, 2002, and would be payable on each August 1, November 1, February 1, and May 1. Each $1,000 principal amount of 12 1/2% junior subordinated notes would be issued together with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through November 1, 2007. If the restructuring were completed, we also would pay a participation fee of 3% of the principal amount of 14% junior subordinated notes. The completion of the proposed restructuring of the senior subordinated notes and the junior subordinated notes is subject to a number of conditions precedent, including the restructuring of our outstanding $7,500,000 senior, unsecured note on satisfactory terms. We have proposed that the senior, unsecured note be restructured to provide for twenty equal quarterly principal payments of $375,000 beginning on November 1, 2002, with a final maturity date of August 1, 2007, interest at the rate of 10 1/2% per annum, payable quarterly, and a 2% participation fee. On April 30, 2002, the maturity date of the senior, unsecured note, the holder of the note rejected our proposal for a restructuring, and turned down our request for an interim three-month extension. We did not pay the principal amount of the note or the monthly interest payment of $78,000 that was due on April 30, 2002. The default on the senior, unsecured note has caused a cross default on the loans outstanding under our revolving line of credit, the secured, amortizing term loans, the senior subordinated notes, and the junior subordinated notes. Another condition to the proposed restructuring of the senior subordinated notes and the junior subordinated notes is the refinancing of our senior, secured debt on satisfactory terms. We were unable to refinance our senior, secured debt on satisfactory terms in order to complete earlier debt restructuring -23- plans. We believe that the terms of the revised exchange offer outlined above enhance our ability to refinance our senior, secured debt on satisfactory terms. We are currently in discussions with a number of lenders regarding a refinancing of our senior, secured credit facilities. If we do not refinance our secured debt by July 1, 2002, the expiration date of our existing revolving credit facility, we intend to request an extension of that facility. We can give no assurance that we will be able to consummate the exchange offer, restructure the senior, unsecured note, or renegotiate our senior, secured financing arrangements on terms satisfactory to us. If we are unable to do so, we may file a petition under the federal bankruptcy code in order to carry out a debt restructuring plan on terms substantially similar to those discussed above. Although we believe that such a restructuring could be accomplished quickly and without disruption to our operations, any such proceeding involves considerable risks and uncertainties and could have a material adverse effect on our operations and financial position. The consolidated financial statements do not include any adjustments to the amounts or classifications of assets or liabilities to reflect those risks and uncertainties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not invest in or trade market risk sensitive instruments. We also do not have any foreign operations or any significant amount of foreign sales and, therefore, we believe that our exposure to foreign currency exchange rate risk is minimal. At March 31, 2002, we had $39,439,000 of outstanding floating-rate debt at interest rates equal to either LIBOR plus 2 1/2%, LIBOR plus 2 3/4%, or the prime rate. Currently we do not purchase derivative financial instruments to hedge or reduce our interest rate risk. As a result, changes in either LIBOR or the prime rate affect the rates at which we borrow funds under these agreements. At March 31, 2002, we had outstanding $42,224,000 of fixed-rate, long-term debt with a weighted-average interest rate of 12.2%, of which $40,563,000 had matured or was scheduled to mature during 2002. If we were able to refinance or extend the matured or maturing debt, it might be at interest rates that are significantly higher than the weighted-average interest rate on the matured or maturing debt. We have reached an agreement in principle with the holders of over 80% of our 12 3/4% senior subordinated notes, to exchange the 12 3/4% senior subordinated notes for new 11 1/2% senior subordinated notes due August 1, 2007, in a principal amount equal to the principal amount of the existing 12 3/4% senior subordinated notes being exchanged plus the accrued and unpaid interest thereon through April 30, 2002, which accrued interest totals $350.625 for each $1,000 principal amount of 12 3/4% senior subordinated notes exchanged. With respect to our $7,500,000 senior unsecured note, we have proposed to extend the maturity date from April 30, 2002, to August 1, 2007, pay interest at the rate of 10 1/2% per annum, and to commence twenty equal quarterly principal payments in the amount of $375,000 beginning November 1, 2002. On April 30, 2002, the holder of the note rejected our proposal for a restructuring and turned down our request for an interim, three-month extension. If we negotiated extensions of our matured and maturing debt on the proposed terms discussed above and in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity" in Part II, Item 7, we estimate that our monthly interest expense would increase by approximately $61,000. For further information about our indebtedness, we recommend that you also read Notes 1 and 5 of our consolidated financial statements in Part I, Item 1. -24- PART II. OTHER INFORMATION ITEM 3. DEFAULTS ON SENIOR SECURITIES (a) We are in default in respect of our 12 3/4% senior subordinated notes because we did not make the payments of principal, in the amount of $27,412,000, and interest, in the amount of $1,748,000, that were due on February 1, 2000. For more information regarding the default in respect of the 12 3/4% senior subordinated notes, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity," in Part I, Item 2, which is incorporated by reference herein. We are in default in respect of our 10 1/2% senior, unsecured note because we did not make the payment of principal, in the amount of $7,500,000, and interest, in the amount of $78,000, that were due on that date. The default on the senior, unsecured note has caused a cross default on the loans outstanding under the Company's revolving line of credit, the secured amortizing term loans, the senior subordinated debt, and the junior subordinated debt. For more information regarding the default in respect of the 10 1/2% senior, unsecured note, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity," in Part I, Item 2, which is incorporated by reference herein. (b) We did not pay dividends on our $8 cumulative convertible preferred stock, series B, during the three-month period ended March 31, 2002, in the aggregate amount of $6,600. As of May 10, 2002, we were in arrears in the payment of dividends in the amount of $59,000 and in the making of mandatory redemptions in the amount of $180,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are filed herewith: 10-1 Agreement relating to 14% Junior Subordinated Notes dated as of April 30, 2002, between Lexington Precision Corporation ("LPC") and Michael A. Lubin 10-2 Agreement relating to Junior Subordinated Convertible Increasing Rate Note dated as of April 30, 2002, among LPC, Michael A. Lubin, and Warren Delano 10-3 Agreement dated as of April 30, 2002, among LPC, LRGI, and Bank One, NA 10-4 Sixth Amendment Agreement dated April 1, 2002, between LPC, Lexington Rubber Group, Inc. ("LRGI"), and Bank One, NA 10-5 Agreement dated as of April 30, 2002, between LPC and CIT Group/Equipment Financing, Inc. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the first quarter of 2002. -25- LEXINGTON PRECISION CORPORATION FORM 10-Q MARCH 31, 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEXINGTON PRECISION CORPORATION (Registrant) May 14, 2002 By: /s/ Michael A. Lubin - ------------ ------------------------------ Date Michael A. Lubin Chairman of the Board May 14, 2002 By: /s/ Warren Delano - ------------ ------------------------------ Date Warren Delano President May 14, 2002 By: /s/ Dennis J. Welhouse - ------------ ------------------------------ Date Dennis J. Welhouse Senior Vice President and Chief Financial Officer -26- EX-10.1 3 l93923aex10-1.txt EXHIBIT 10.1 Exhibit 10-1 AGREEMENT (14% Junior Subordinated Notes) This Agreement dated as of April 30, 2002 (the "Agreement"), between Lexington Precision Corporation, a Delaware corporation (the "Company"), and Michael A. Lubin ("Holder"). WHEREAS, Holder is the holder of certain 14% Junior Subordinated Notes due November 1, 2000, of the Company in the aggregate original principal amount of the U.S. $346,666.67 (individually, a "Note" and collectively, the "Notes"); WHEREAS, the Company and Holder desire to, among other things, extend the maturity date of the Notes, defer the payment of certain interest on the Notes, and provide for the waiver of certain events of default, all on and subject to the terms hereof; NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto intending to be legally bound, hereby agree as follows: 1. WAIVER. Subject to paragraph 2 hereof, the Holder hereby waives any Event of Default under the Notes resulting solely from the failure of the Company to pay any principal or interest due on February 1, 2000 in respect of the Company's 12 3/4% Senior Subordinated Notes due February 1, 2000 (the "Other Indebtedness"). 2. RESCISSION OF WAIVERS. The waivers in paragraph 1(b) hereof shall be automatically rescinded, without notice to the Company, in the event that the holders of the Other Indebtedness, or the trustee in respect thereof, seeks to enforce or exercise any remedies in respect thereof. 3. MODIFICATION OF NOTES. Notwithstanding anything to the contrary in the Notes, the Company and the Holder hereby agree that (a) the maturity date of the Notes is extended to July 1, 2002, and (b) the interest on the Notes that is due and payable on May 1, 2002 (the "May 2002 Interest Payment"), will be deemed to be Defaulted Interest but will be payable on July 1, 2002. 4. EFFECTIVE DATE; APPLICABILITY; LEGEND. This Agreement shall be deemed effective as of April 30, 2002. This Agreement shall modify each Note and any replacement note issued upon transfer of, in exchange for, or in lieu of any Note or any replacement note. Holder agrees that Holder will cause the following legend to be placed prominently on each Note and that any replacement note or notes issued by the Company upon transfer of, in exchange for, or in lieu of the Note or any replacement note shall have such legend placed thereon: THIS NOTE HAS BEEN MODIFIED PURSUANT TO THOSE CERTAIN AGREEMENTS DATED AS OF JANUARY 31, 2000, APRIL 30, 2000, JULY 31, 2000, OCTOBER 31, 2000, JANUARY 31, 2001, APRIL 30, 2001, JULY 31, 2001, OCTOBER 31, 2001, JANUARY 31, 2002, AND APRIL 30, 2002, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY AT 767 THIRD AVENUE, 29TH FLOOR, NEW YORK, NEW YORK, AND REFERENCE SHOULD BE MADE THERETO FOR THE TERMS THEREOF. 5. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and warrants that: (a) the execution, delivery and performance of this Agreement have been duly authorized by all requisite action on his or its part; and (b) this Agreement has been duly executed and delivered by him or it and constitutes his or its legal, valid, and binding agreement, enforceable against him or it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforceability of creditors' rights generally or general equitable principles. 6. NO OTHER AMENDMENTS. Except as expressly amended, waived, modified, and supplemented hereby, each Note shall remain in full force and effect in accordance with its terms. Without limiting the generality of the foregoing, except as set forth in Section 1, 2 or 3 of this Agreement, nothing herein shall constitute a waiver of any rights or remedies of the Holder upon the occurrence of any Event of Default. 7. GENERAL PROVISIONS. (a) DEFINED TERMS. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Notes. (b) COUNTERPARTS. This Agreement may be executed by the parties in any number of counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be signed by facsimile transmission of the relevant signature pages hereof. (c) GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the heirs, successors, and assigns of the parties hereto and any and all transferees and holders of the Notes or any replacement note. (e) HEADINGS. The paragraph headings of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. IN WITNESS WHEREOF, the Company and Holder have caused this Agreement to be duly executed and delivered as of the date first written above. LEXINGTON PRECISION CORPORATION By: Michael A. Lubin ---------------------------- Name: Michael A. Lubin ---------------------------- Title: Chairman of the Board ---------------------------- Michael A. Lubin ------------------------------------ Michael A. Lubin EX-10.2 4 l93923aex10-2.txt EXHIBIT 10.2 Exhibit 10-2 AGREEMENT (Junior Subordinated Convertible Increasing Rate Notes) This Agreement dated as of April 30, 2002 (the "Agreement"), among Lexington Precision Corporation, a Delaware corporation (the "Company"), Michael A. Lubin ("Lubin"), and Warren Delano ("Delano"; Lubin and Delano are sometimes referred to herein individually as "Holder" and collectively as the "Holders"). WHEREAS, Lubin and Delano were the holders of certain Junior Subordinated Convertible Increasing Rate Notes due May 1, 2000, of the Company in the aggregate original principal amounts of U.S. $505,000 and $495,000, respectively (individually, a "Note" and collectively, the "Notes"); WHEREAS, on January 31, 2000, the Holders agreed to defer the payment of certain Defaulted Interest to May 1, 2000; WHEREAS, on April 30, 2000, the Holders agreed to further defer the payment of such Defaulted Interest to August 1, 2000; WHEREAS, on July 31, 2000, the Holders agreed to further defer the payment of such Defaulted Interest to November 1, 2000; WHEREAS, on October 31, 2000, the Holders agreed to further defer the payment of such Defaulted Interest to February 1, 2001; WHEREAS, on January 31, 2001, the Holders agreed to further defer the payment of such Defaulted Interest to May 1, 2001; WHEREAS, on April 30, 2001, the Holders agreed to further defer the payment of such Defaulted Interest to August 1, 2001; WHEREAS, on July 31, 2001, the Holders agreed to further defer the payment of such Defaulted Interest to November 1, 2001; WHEREAS, on October 31, 2001, the Holders agreed to further delay the payment of such Defaulted Interest to February 1, 2002; WHEREAS, on January 31, 2002, the Holders agreed to further delay the payment of such Defaulted Interest to May 1, 2002; WHEREAS, on February 1, 2000, the Holders converted the Notes into shares of common stock, par value $.25 per share, of the Company; and WHEREAS, the Company and Holders desire to, among other things, further defer the payment of such Defaulted Interest and provide for the waiver of certain events of default, all on and subject to the terms hereof; NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto intending to be legally bound, hereby agree as follows: 1. WAIVER. Subject to paragraph 2 hereof, each Holder hereby waives any Event of Default under the Notes resulting solely from the failure of the Company to pay any principal or interest due on February 1, 2000, in respect of the Company's 12 3/4% Senior Subordinated Notes due February 1, 2000 (the "Other Indebtedness"). 2. RESCISSION OF WAIVERS. The waivers in paragraph 1(b) hereof shall be automatically rescinded, without notice to the Company, in the event that the holders of the Other Indebtedness, or the trustee in respect thereof, seeks to accelerate the maturity of any such Other Indebtedness or to enforce or exercise any remedies in respect thereof. 3. MODIFICATION OF ORIGINAL NOTES. Notwithstanding anything to the contrary in the Notes, the Company and each Holder hereby agree that the interest on the Notes that is due and payable on May 1, 2002 (the "May 2002 Interest Payment"), will be deemed to be Defaulted Interest but will be payable on July 31, 2002. 4. EFFECTIVE DATE; APPLICABILITY; LEGEND. This Agreement shall be deemed effective as of April 30, 2002. This Agreement shall modify each Note and each replacement note issued upon transfer of, in exchange for, or in lieu of any Note or any replacement note. Each Holder agrees that the Holder will cause the following legend to be placed prominently on each Note and that any replacement note or notes issued by the Company upon transfer of, in exchange for, or in lieu of the Note or any replacement note shall have such legend placed thereon: THIS NOTE HAS BEEN MODIFIED PURSUANT TO THOSE CERTAIN AGREEMENTS DATED AS OF JANUARY 31, 2000, APRIL 30, 2000, JULY 31, 2000, OCTOBER 31, 2000, JANUARY 31, 2001, APRIL 30, 2001, JULY 31, 2001, OCTOBER 31, 2001, JANUARY 31, 2002, AND APRIL 30, 2002, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY AT 767 THIRD AVENUE, 29TH FLOOR, NEW YORK, NEW YORK, AND REFERENCE SHOULD BE MADE THERETO FOR THE TERMS THEREOF. 5. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and warrants that: (a) the execution, delivery and performance of this Agreement have been duly authorized by all requisite action on his or its part; and (b) this Agreement has been duly executed and delivered by him or it and constitutes his or its legal, valid, and binding agreement, enforceable against him or it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforceability of creditors' rights generally or general equitable principles. 6. NO OTHER AMENDMENTS. Except as expressly amended, waived, modified, and supplemented hereby, each Note shall remain in full force and effect in accordance with its terms. Without limiting the generality of the - 2 - foregoing, except as set forth in Section 1, 2 or 3 of this Agreement, nothing herein shall constitute a waiver of any rights or remedies of any Holder upon the occurrence of any Event of Default. 7. GENERAL PROVISIONS. (a) DEFINED TERMS. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Notes. (b) COUNTERPARTS. This Agreement may be executed by the parties in any number of counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement may be signed by facsimile transmission of the relevant signature pages hereof. (c) GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the heirs, successors, and assigns of the parties hereto and any and all transferees and holders of the Notes or any replacement note. (e) HEADINGS. The paragraph headings of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. IN WITNESS WHEREOF, the Company and each Holder have caused this Agreement to be duly executed and delivered as of the date first written above. LEXINGTON PRECISION CORPORATION By: Michael A. Lubin ----------------------------- Name: Michael A. Lubin ----------------------------- Title: Chairman of the Board ----------------------------- Michael A. Lubin ------------------------------------- Michael A. Lubin Warren Delano ------------------------------------- Warren Delano - 3 - EX-10.3 5 l93923aex10-3.txt EXHIBIT 10.3 Exhibit 10-3 AGREEMENT This Agreement dated as of April 30, 2002 (the "Agreement"), among Lexington Precision Corporation, a Delaware corporation (the "LPC"), Lexington Rubber Group, Inc., a Delaware corporation formerly known as Lexington Components, Inc. ("LRG"; LPC and LRG are referred to individually as "Borrower" and collectively as the "Borrowers"), and Bank One, NA (formerly known as Bank One, Akron, NA) ("Lender"). WHEREAS, Lender and each of the Borrowers have entered into a certain Credit Facility and Security Agreement dated as of January 31, 1997, including Rider A thereto, as amended, modified, and supplemented, and certain mortgages, security agreements, deeds of trust and other documents, instruments, and agreements in connection therewith, and the Borrowers have executed certain promissory notes in connection therewith (all of the foregoing, as amended, modified, and supplemented, being referred to collectively as the "Loan Documents"). NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. WAIVER. Subject to paragraph 2 hereof, the Lender hereby waives, until July 31, 2002, any Default or Event of Default under any of the Loan Documents resulting solely from the failure of LPC to pay any principal or interest due on February 1, 2000, May 1, 2000, August 1, 2000, November 1, 2000, February 1, 2001, May 1, 2001, August 1, 2001, November 1, 2001, February 1, 2002, or May 1, 2002, in respect of (a) LPC's 14% Junior Subordinated Notes due February 1, 2002, (b) LPC's Junior Subordinated Convertible Increasing Rate Notes due May 1, 2000, and/or (c) LPC's 12 3/4% Senior Subordinated Notes due February 1, 2000 (the indebtedness referred to in clauses (a), (b) and (c) is referred to herein as the "Other Indebtedness"). 2. RESCISSION OF WAIVERS. The foregoing waivers shall be automatically rescinded, without notice to LPC or LRG, in the event that the holder of any Other Indebtedness or trustee in respect thereof seeks to accelerate the maturity of any such Other Indebtedness or to enforce or exercise any remedies in respect thereto. 3. EFFECTIVE DATE. This Agreement shall be deemed effective as of April 30, 2002. 4. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and warrants that: (a) the execution, delivery, and performance of this Agreement have been duly authorized by all requisite action on its part; and (b) this Agreement has been duly executed and delivered by it and constitutes its legal, valid, and binding agreement, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforceability of creditors' rights generally or by general equitable principles. 5. NO OTHER AMENDMENTS. Except as set forth herein, all terms and provisions of the Loan Documents among Lender, LPC and LRG shall remain in full force and effect. Except as expressly set forth herein, no other or further amendment, waiver or consent is implied by, and LPC and LRG shall not be entitled to, any other or further amendment, waiver or consent by virtue of the provisions of this Agreement. In addition, without limiting the foregoing, the waivers of Lender set forth herein do not constitute an agreement to, and LPC and LRG acknowledge that Lender may decline to, grant any other or further waivers with respect to the subject matter hereof or any other matters regardless of whether or not there occurs any change in facts or circumstances relating to LPC and/or LRG 6. GENERAL PROVISIONS. (a) DEFINED TERMS. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Loan Documents. (b) COUNTERPARTS. This Agreement may be executed by the parties in any number of counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement may be signed by facsimile transmission of the relevant signature pages hereof. (c) GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. (e) HEADINGS. The paragraph headings of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. - 2 - IN WITNESS WHEREOF, each Borrower and Lender have caused this Agreement to be duly executed and delivered as of the date first written above. LEXINGTON PRECISION CORPORATION By: Michael A. Lubin ------------------------------ Name: Michael A. Lubin ------------------------------ Title: Chairman of the Board ------------------------------ LEXINGTON RUBBER GROUP, INC. By: Michael A. Lubin ------------------------------ Name: Michael A. Lubin ------------------------------ Title: Chairman of the Board ------------------------------ BANK ONE, NA By: Randy Abrams ------------------------------ Name: Randy Abrams ------------------------------ Title: Assistant Vice President ------------------------------ - 3 - EX-10.4 6 l93923aex10-4.txt EXHIBIT 10.4 Exhibit 10-4 DRAFT OF 4/17/02 SIXTH AMENDMENT AGREEMENT THIS SIXTH AMENDMENT AGREEMENT ("Agreement") is made as of the ___ day of April, 2002, by and among BANK ONE, NA (fka Bank One, Akron, NA) ("Lender"), LEXINGTON PRECISION CORPORATION, a Delaware corporation ("LPC"), and LEXINGTON RUBBER GROUP, INC. (FKA LEXINGTON COMPONENTS, INC.), a Delaware corporation ("LRG", hereinafter LPC and LRG 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(B)(2)(a) and Section 2(B)(2)(b) are hereby amended by deleting them in their entirety and by inserting in place thereof the following: (a) INTEREST. The North Canton Term Loan shall bear interest at a rate on the unpaid principal balance until the date paid in full at a rate per annum equal to the Base Rate plus three-fourths of one percent (3/4%), such interest being payable monthly on the first day of each calendar month, commencing May 1, 2002 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the North Canton Term Note, the principal balance of the North Canton Term Loan shall be payable in two (2) consecutive, equal monthly installments of ELEVEN THOUSAND ONE HUNDRED ELEVEN AND 11/100 DOLLARS ($11,111.11) each, commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter with the balance thereof payable in full on July 1, 2002. 2. Section 2(C)(2)(a) and Section 2(C)(2)(b) are hereby amended by deleting them in their entirety and by inserting in place thereof the following: (a) INTEREST. The Vienna Term Loan shall bear interest at a rate on the unpaid principal balance until the date paid in full at a rate per annum equal to the Base Rate plus three-fourths of one percent (3/4%), such interest being payable monthly commencing May 1, 2002 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the Vienna Term Note, the principal balance of the Vienna Term Loan shall be payable in Two (2) consecutive, equal monthly installments of EIGHT THOUSAND THREE HUNDRED THIRTY THREE AND 33/100 DOLLARS ($8,333.33) each, commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter with the balance thereof payable in full on July 1, 2002. 3. Section 2(D)(2) is hereby amended by deleting it in its entirety and by inserting in place thereof the following: 2. CASA GRANDE TERM LOAN. At the end of the Casa Grande Commitment Period, the Casa Grande Construction Loans automatically converted to a term loan (the "Casa Grande Term Loan"). The Casa Grande Note shall evidence the Casa Grande Term Loan. The Casa Grande Term Loan shall be payable in two (2) consecutive, equal monthly principal installments of SIXTEEN THOUSAND SIX HUNDRED SIXTY-SIX AND 00/100 DOLLARS ($16,666.00) each, together with all accrued interest due at the time of payment of each such installment of principal, commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter with the balance thereof payable in full on July 1, 2002.. The Casa Grande Term Loan shall bear interest on the unpaid principal balance at a rate per annum equal to the Base Rate plus three-fourths of one percent (3/4%). Such interest is payable monthly commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360)-day basis based upon the actual number of days elapsed. 4. Section 2(E)(2)(a) and Section 2(E)(2)(b) are hereby amended by deleting them in their entirety and by inserting in place thereof the following: (a) INTEREST. The LaGrange Term Loan shall bear interest at a rate on the unpaid principal balance until the date paid in full at a rate per annum equal to the Base Rate plus three-fourths of one percent (3/4%), such interest being payable monthly commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter. Interest 2 shall be computed on a three hundred sixty (360)-day year basis based upon the actual number of days elapsed. (b) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the terms and provisions of the LaGrange Term Note, the principal balance of the LaGrange Term Loan shall be payable in two (2) consecutive, equal monthly installments of EIGHT THOUSAND EIGHT HUNDRED EIGHTY-EIGHT AND 89/100 DOLLARS ($8,888.89) each, commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter with the balance thereof payable in full on July 1, 2002. 5. Section 2(A) of Rider A is hereby amended by deleting it in its entirety and by inserting in place thereof the following: 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 SEVEN MILLION AND 00/100 DOLLARS ($7,000,000). 6. As a condition precedent to the effectiveness of this Agreement, Borrowers shall: (a) pay all reasonable legal fees and expenses of Lender incurred in connection with this Agreement; (b) execute and deliver to Lender a Promissory Note (North Canton Term Loan), dated of even date herewith, and such Promissory Note shall be in the form and substance of EXHIBIT 1 attached hereto; (c) execute and deliver to Lender a Promissory Note (Vienna Term Loan), dated of even date herewith, and such Promissory Note shall be in the form and substance of EXHIBIT 2 attached hereto; (d) execute and deliver to Lender a Promissory Note (Casa Grande Term Note), dated of even date herewith, and such Promissory Note shall be in the form and substance of EXHIBIT 3 attached hereto; (e) execute and deliver to Lender a Promissory Note (LaGrange Term Loan), dated of even date herewith, and such Revolving Loan Note shall be in the form and substance of EXHIBIT 4 attached hereto; and (f) pay to Lender an amendment fee in the amount of Two Thousand Dollars ($2,000). 7. The Loan Agreement is hereby amended by deleting Exhibit C in its entirety and by inserting in place thereof EXHIBIT 1 attached hereto. 8. The Loan Agreement is hereby amended by deleting Exhibit E in its entirety and by inserting in place thereof EXHIBIT 2 attached hereto. 3 9. The Loan Agreement is hereby amended by deleting Exhibit F in its entirety and by inserting in place thereof EXHIBIT 3 attached hereto. 10. The Loan Agreement is hereby amended by deleting Exhibit H in its entirety and by inserting in place thereof EXHIBIT 4 attached hereto. 11. Lender hereby waives Borrowers' failure to comply with the covenant contained in Section 2(A) of Rider A for the fiscal year ended December 31, 2001. The waiver of the aforementioned provision shall not operate as a waiver of any right, power or remedy of Lender under the Credit and Security Agreement, nor constitute a waiver of any provision of the Credit and Security Agreement, except as set forth herein. 12. 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. 13. 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. 14. 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 and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 15. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OHIO. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR AS REQUIRED BY APPLICABLE LAW, EACH 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 4 AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH ANY 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. EACH BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT. EACH 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, EACH 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. BORROWERS AND LENDER ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY NON-JURY TRIALS. BORROWERS 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, BORROWERS 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 BORROWERS AND LENDER HEREBY AGREE AND CONSENT THAT BORROWERS 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. LEXINGTON PRECISION CORPORATION By: Michael A. Lubin ------------------------------- Its: Chairman of the Board ------------------------------- LEXINGTON RUBBER GROUP, INC. (FKA LEXINGTON COMPONENTS, INC.) By: Michael A. Lubin ------------------------------- Its: Chairman of the Board ------------------------------- 5 BANK ONE, NA (fka as Bank One, Akron, NA) By: Randy Abrams ------------------------------- Its: Assistant Vice President ------------------------------- 6 EXHIBIT 1 EXHIBIT C PROMISSORY NOTE (North Canton Term Loan) $1,244,444.52 New York, New York April 1, 2002 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON RUBBER GROUP, INC. (FKA LEXINGTON COMPONENTS, INC.), a corporation organized and existing under the laws of the State of Delaware ("LRG") (hereinafter LPC and LRG 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 (fka Bank One, Akron, NA) (hereinafter referred to as the "Bank"), the principal amount of ONE MILLION TWO HUNDRED FORTY-FOUR THOUSAND FOUR HUNDRED FORTY-FOUR AND 52/100 DOLLARS ($1,244,444.52) pursuant to the repayment terms and dates set forth in Section 2(B)(2)(b) of the Agreement (as defined below), with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to the Base Rate (as defined in the Agreement) plus three-fourths of one percent (3/4%). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the rate of three percent (3.0%) per annum in excess of the Base Rate, as defined in the Agreement hereinafter referred to, as the same may from time to time be established but not to exceed the maximum rate allowed by law. Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note pursuant to the repayment terms and dates set forth in Section 2(B)(2)(b) of the Agreement. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. 7 This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated as of January 31, 1997, by and among the Borrowers and the Bank (as amended, the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default, as defined in said Agreement, shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option, of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrowers shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 8 This note is executed at New York, New York County, New York. - ------------------------------------------------------------------------------- WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - ------------------------------------------------------------------------------- LEXINGTON PRECISION CORPORATION ("Borrower") By: Michael A. Lubin ----------------------------- Its: Chairman of the Board ----------------------------- LEXINGTON RUBBER GROUP, INC. ("Borrower") By: Michael A. Lubin ----------------------------- Its: Chairman of the Board ----------------------------- 9 EXHIBIT 2 EXHIBIT E PROMISSORY NOTE (Vienna Term Loan) $898,200.24 New York, New York April 1, 2002 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON RUBBER GROUP, INC. (FKA LEXINGTON COMPONENTS, INC.), a corporation organized and existing under the laws of the State of Delaware ("LRG") (hereinafter LPC and LRG 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 (fka Bank One, Akron, NA) (hereinafter referred to as the "Bank"), the principal amount of EIGHT HUNDRED NINETY-EIGHT THOUSAND TWO HUNDRED AND 24/100 DOLLARS ($898,200.24), pursuant to the repayment terms and dates set forth in Section 2(C)(2)(b) of the Agreement (as defined below), or sooner as hereinafter provided, with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to the Base Rate (as defined in the Agreement) plus three-fourths of one percent (3/4%). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the rate of three percent (3.0%) per annum in excess of the Base Rate (as defined in the Agreement) as the same may from time to time be established but not to exceed the maximum rate allowed by law. Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note pursuant to the repayment terms and dates set forth in Section 2(B)(2)(b) of the Agreement. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. 10 This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (as amended, the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Company shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 11 This note is executed at New York, New York County, New York. - -------------------------------------------------------------------------------- WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - -------------------------------------------------------------------------------- LEXINGTON PRECISION CORPORATION ("Borrower") By: Michael A. Lubin ---------------------------- Its: Chairman of the Board ---------------------------- LEXINGTON RUBBER GROUP, INC. ("Borrower") By: Michael A. Lubin ---------------------------- Its: Chairman of the Board ---------------------------- 12 EXHIBIT 3 EXHIBIT F PROMISSORY NOTE (Casa Grande Note) $2,061,452.32 New York, New York April 1, 2002 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON RUBBER GROUP, INC. (FKA LEXINGTON COMPONENTS, INC.), a corporation organized and existing under the laws of the State of Delaware ("LRG") (hereinafter LPC and LRG 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 (fka Bank One, Akron, NA) (hereinafter referred to as the "Bank"), the principal amount of TWO MILLION SIXTY-ONE THOUSAND FOUR HUNDRED FIFTY-TWO AND 32/100 DOLLARS ($2,061,452.32), pursuant to the repayment terms and dates set forth in Section 2(D)(2) of the Agreement (as defined below), with interest on the unpaid principal balance from the date hereof at a rate per annum equal to The Base Rate (as defined in the Agreement) plus three-fourths of one percent (3/4%) as follows: Interest on the Casa Grande Term Loan is payable monthly commencing on May 1, 2002 and continuing on the first day of each calendar month thereafter. Interest shall be computed on a three hundred sixty (360) day basis based upon the actual number of days elapsed. If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the Default Rate (as defined in the Agreement). Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note pursuant to the repayment terms and dates set forth in Section 2(B)(2)(b) of the Agreement. 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 13 due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (as amended, the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. This Note evidences the obligations of Borrowers in respect of the Casa Grande Construction Loans and the Casa Grande Term Loan. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrowers shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 14 This note is executed at New York, New York County, New York. - -------------------------------------------------------------------------------- WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - -------------------------------------------------------------------------------- LEXINGTON PRECISION CORPORATION ("Borrower") By: Michael A. Lubin ------------------------------ Its: Chairman of the Board ------------------------------ LEXINGTON RUBBER GROUP, INC. ("Borrower") By: Michael A. Lubin ------------------------------ Its: Chairman of the Board ------------------------------ 15 EXHIBIT 4 EXHIBIT H PROMISSORY NOTE (LaGrange Term Loan) $1,048,888.82 New York, New York April 1, 2002 FOR VALUE RECEIVED, LEXINGTON PRECISION CORPORATION, a corporation organized under the laws of the State of Delaware ("LPC") and LEXINGTON RUBBER GROUP, INC. (FKA LEXINGTON COMPONENTS, INC.),, a corporation organized and existing under the laws of the State of Delaware ("LRG") (hereinafter LPC and LRG 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 (fka Bank One, Akron, NA) (hereinafter referred to as the "Bank"), the principal amount of ONE MILLION FORTY-EIGHT THOUSAND EIGHT HUNDRED EIGHTY-EIGHT AND 82/100 DOLLARS ($1,048,888.82), pursuant to the repayment terms and dates set forth in Section 2(e)(2)(b) of the Agreement (as defined below), or sooner as hereinafter provided, with interest on the unpaid balance of said principal amount from the date hereof at a rate per annum equal to the Base Rate (as defined in the Agreement) plus three-fourths of one percent (3/4%). If any installment of principal, interest or other amounts due and payable hereunder are not paid when due, or within any applicable grace periods set forth in the Agreement, the Borrowers shall pay interest thereon at the Default Rate (as defined in the Agreement). Bank shall have the right to assess a late payment processing fee in the amount of the greater of FIFTY AND NO/100 DOLLARS ($50.00) or five percent (5%) of the scheduled payment in the event of a default in payment that remains uncured for a period of at least ten (10) days. The Borrowers agree to pay the principal amount of this Note pursuant to the repayment terms and dates set forth in Section 2(B)(2)(b) of the Agreement. Monthly payments hereunder shall be applied first to interest due and the balance to reduction of the principal amount outstanding. Payments of both principal of and interest on this Note shall be made in lawful money of the United States of America, at 50 South Main Street, Akron, Ohio 44308-1888, or at such other place as the Bank or any subsequent holder hereof shall have designated to the Borrowers in writing. Interest payable on this Note shall be computed on a three hundred sixty (360) day per year basis counting the actual number of days elapsed. If any payment under this Note becomes due and payable on a day which is not a Business Day (as defined in this Agreement), payment thereof shall be made on the immediately succeeding Business Day. This Note is issued pursuant to and is entitled to the benefits of a Credit Facility and Security Agreement dated January 31, 1997, by and among the Borrowers and the Bank (as 16 amended, the "Agreement"), to which Agreement reference is hereby made for a statement of the rights and obligations of the Bank and the duties and obligations of the Borrowers in relation thereto; but neither this reference to said Agreement nor any provisions thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of or interest on this Note when due. The Borrowers may prepay all or any portion of this Note at any time and in any amount without penalty or premium, provided that all prepayments shall be applied to installments of principal in the inverse order of their maturities. If an Event of Default (as defined in the Agreement), shall occur and shall be continuing, the principal of this Note may be declared immediately due and payable at the option of the Bank. In the event that the Borrowers fail to pay any regularly scheduled principal or interest payment on this Note when due (other than as a result of acceleration thereof based on a default or event of default other than the failure to make any such regularly scheduled payments of principal or interest on the Note when due) which failure is not cured within the ten (10) day cure period provided in Section 6A of the Agreement (a "Payment Default"), or if an Event of Default occurs and is continuing, which arises from fraudulent act(s) or practice(s) of either Borrower which Event of Default is not cured within three (3) Business Days after the Borrowers' receipt of written notice thereof from the Bank (a "Fraud Default"), the Borrowers hereby authorize any attorney-at-law to appear in any court of record in the State of Ohio, or in any other state or territory of the United States, at any time or times after the above sum becomes due, and waive the issuance and service of process and confess judgment against it, in favor of any holder of this Note, for the amount then appearing due, together with the costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment be vacated for any reason, the foregoing warrant of attorney nevertheless may thereafter be used for obtaining an additional judgment or judgments. To the extent that the provisions of the cognovit warning set forth above the Borrowers' signature specifically contradict the provisions of this paragraph regarding the requirement of a Payment Default or a Fraud Default to take a cognovit judgment, the provisions of this paragraph control. No delay on the part of any holder hereof in exercising any power or rights hereunder shall operate as a waiver of any power or rights. Any demand or notice hereunder to the Borrower shall be deemed duly given or made when sent, if given by telecopier, when delivered, if given by personal delivery or overnight commercial carrier, or the fifth calendar day after deposit in the United States mail, certified mail, return receipt requested, addressed to the address (or telecopier number) set forth in Rider A of the Agreement or such other address or telecopier number as may be hereafter designated in writing by the Borrowers to the Bank. 17 This note is executed at New York, New York County, New York. - -------------------------------------------------------------------------------- WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - -------------------------------------------------------------------------------- LEXINGTON PRECISION CORPORATION ("Borrower") By: Michael A. Lubin ------------------------------ Its: Chairman of the Board ------------------------------ LEXINGTON RUBBER GROUP, INC. ("Borrower") By: Michael A. Lubin ------------------------------ Its: Chairman of the Board ------------------------------ 18 EX-10.5 7 l93923aex10-5.txt EXHIBIT 10.5 Exhibit 10-5 AGREEMENT This Agreement dated as of April 30, 2002 (the "Agreement"), between Lexington Precision Corporation, a Delaware corporation (the "LPC"), and The CIT Group/Equipment Financing, Inc. ("Lender"). WHEREAS, Lender and LPC have entered into a certain Loan and Security Agreement dated as of March 19, 1997, including Rider A thereto, as amended, and certain supplements, documents, instruments, and agreements in connection therewith and LPC has executed certain promissory notes in connection therewith (all of the foregoing, as amended, modified, and supplemented, being referred to collectively as the "Loan Documents"). NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. WAIVER. Subject to paragraph 2, hereof, the Lender hereby waives, until July 31, 2002, any Default or Event of Default under any of the Loan Documents, resulting solely from the failure of LPC to pay any principal or interest due on February 1, 2000, May 1, 2000, August 1, 2000, November 1, 2000, February 1, 2001, May 1, 2001, August 1, 2001, November 1, 2001, February 1, 2002, or May 1, 2002, in respect of (a) LPC's 14% Junior Subordinated Notes due February 1, 2002, (b) LPC's Junior Subordinated Convertible Increasing Rate Notes due May 1, 2000, and/or (c) LPC's 12 3/4% Senior Subordinated Notes due February 1, 2000 (the indebtedness referred to in clauses (a), (b) and (c) is referred to herein as the "Other Indebtedness"). 2. RESCISSION OF WAIVERS. The foregoing waivers shall be automatically rescinded, without notice to LPC, in the event that the holder of any Other Indebtedness or trustee in respect thereof seeks to accelerate the maturity of any such Other Indebtedness or to enforce or exercise any remedies in respect thereto. 3. EFFECTIVE DATE. This Agreement shall be deemed effective as of April 30, 2002. 4. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and warrants that: (a) the execution, delivery, and performance of this Agreement have been duly authorized by all requisite action on its part; and (b) this Agreement has been duly executed and delivered by it and constitutes its legal, valid, and binding agreement, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforceability of creditors' rights generally or by general equitable principles. 5. NO OTHER AMENDMENTS. Except as set forth herein, all terms and provisions of the Loan Documents among Lender and LPC shall remain in full force and effect. Except as expressly set forth herein, no other or further amendment, waiver or consent is implied by, and LPC shall not be entitled to, any other or further amendment, waiver or consent by virtue of the provisions of this Agreement. In addition, without limiting the foregoing, the waivers of Lender set forth herein do not constitute an agreement to, and LPC acknowledges that Lender may decline to, grant any other or further waivers with respect to the subject matter hereof or any other matters regardless of whether or not there occurs any change in facts or circumstances relating to LPC. 6. GENERAL PROVISIONS. (a) DEFINED TERMS. Capitalized terms used herein, unless otherwise defined herein, shall have the meaning ascribed thereto in the Loan Documents. (b) COUNTERPARTS. This Agreement may be executed by the parties in any number of counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement may be signed by facsimile transmission of the relevant signature pages hereof. (c) GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. (e) HEADINGS. The paragraph headings of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. IN WITNESS WHEREOF, LPC and Lender have caused this Agreement to be duly executed and delivered as of the date first written above. LEXINGTON PRECISION CORPORATION By: Michael A. Lubin --------------------------------- Name: Michael A. Lubin --------------------------------- Title: Chairman of the Board --------------------------------- THE CIT GROUP/EQUIPMENT FINANCING, INC. By: Lee R. McDermid --------------------------------- Name: Lee R. McDermid --------------------------------- Title: Vice President --------------------------------- - 2 - -----END PRIVACY-ENHANCED MESSAGE-----