10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the Period Ended March 31, 2007
	or
o	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 (State or other jurisdiction of incorporation or organization)	22-1830121 (I.R.S. Employer Identification No.)
800 Third Avenue, New York, NY (Address of principal executive office)	10022 (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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.     (Check one):

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of May 15, 2007, there were 4,981,767 shares of common stock of the Registrant outstanding.

(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	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22
PART II.  OTHER INFORMATION
Item 1A.	Risk Factors	24
Item 3.	Defaults upon Senior Securities	24
Item 6.	Exhibits	24
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

LEXINGTON PRECISION CORPORATION

Consolidated Statements of Operations
(thousands of dollars, except per share data)
(unaudited)

	Three Months Ended
	March 31
	2007			2006
Net sales	$	22,530		$	24,798
Cost of sales		19,477			21,059
Gross profit		3,053			3,739
Selling and administrative expenses		1,768			1,776
Income from operations		1,285			1,963
Interest expense		2,185			2,278
Loss from continuing operations before income taxes		(900	)		(315	)
Income tax provision		15			15
Loss from continuing operations		(915	)		(330	)
Loss from discontinued operations		(2	)		(70	)
Net loss	$	(917	)	$	(400	)
Basic and diluted loss per share of common stock:
Continuing operations	$	(0.19	)	$	(0.07	)
Discontinued operations		—			(0.01	)
Net loss	$	(0.19	)	$	(0.08	)

See notes to consolidated financial statements

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LEXINGTON PRECISION CORPORATION

Consolidated Balance Sheets
(thousands of dollars, except share and per share data)

	March 31,			December 31,
	2007			2006
	(unaudited)
Assets:
Current assets:
Cash	$	844		$	35
Accounts receivable, net		13,858			9,852
Inventories, net		9,175			8,787
Prepaid expenses and other current assets		1,054			1,073
Deferred income taxes		374			374
Current assets of discontinued operations		136			101
Total current assets		25,441			20,222
Plant and equipment, net		23,517			24,226
Plant and equipment of discontinued operations, net		1,399			1,418
Goodwill, net		7,623			7,623
Other assets, net		1,195			951
	$	59,175		$	54,440
Liabilities and stockholders’ deficit:
Current liabilities:
Accounts payable	$	7,698		$	6,370
Accrued expenses, excluding interest		3,780			3,789
Accrued interest expense		3,333			2,130
Debt in default		72,068			68,967
Current portion of long-term debt		746			734
Current liabilities of discontinued operations		193			221
Total current liabilities		87,818			82,211
Long-term debt, excluding current portion		403			406
Deferred income taxes		374			374
Other long-term liabilities		486			440
Stockholders’ deficit:
Common stock, $0.25 par value, 10,000,000 shares authorized, 4,981,767 shares issued and outstanding at March 31, 2007, and December 31, 2006		1,235			1,235
Additional paid-in-capital		13,183			13,181
Accumulated deficit		(44,324	)		(43,407	)
Total stockholders’ deficit		(29,906	)		(28,991	)
	$	59,175		$	54,440

See notes to consolidated financial statements.

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LEXINGTON PRECISION CORPORATION

Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)

	Three Months Ended
	March 31
	2007			2006
Operating activities:
Net loss	$	(917	)	$	(400	)
Adjustments to reconcile net loss to net cash provided (used) by continuing operations:
Loss from discontinued operations		2			70
Depreciation		1,587			1,776
Amortization included in cost of sales		98			89
Amortization included in interest expense		—			358
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable, net		(4,006	)		(1,437	)
Inventories, net		(388	)		(371	)
Prepaid expenses and other current assets		19			(317	)
Accounts payable		1,328			228
Accrued expenses, excluding interest		(9	)		223
Accrued interest expense		1,203			(108	)
Other long-term liabilities		2			(2	)
Other		1			4
Net cash provided (used) by continuing operations		(1,080	)		113
Net cash used by discontinued operations		(46	)		(70	)
Net cash provided (used) by operating activities		(1,126	)		43
Investing activities:
Purchases of plant and equipment		(852	)		(358	)
Expenditures for tooling owned by customers		(72	)		—
Other		28			6
Net cash used by investing activities		(896	)		(352	)
Financing activities:
Net increase in borrowings under revolving line of credit		3,908			1,457
Repayment of debt in default		(825	)		(964	)
Payment of financing expenses		(252	)		(182	)
Net cash provided by financing activities		2,831			311
Net increase in cash		809			2
Cash at beginning of year		35			13
Cash at end of period	$	844		$	15

See notes to consolidated financial statements.

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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”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the interim 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, 2006. In the opinion of management, the interim consolidated financial statements contain all adjustments, consisting only of adjustments of a normal, recurring nature, necessary to present fairly the Company’s financial position at March 31, 2007, the Company’s results of operations for the three-month periods ended March 31, 2007 and 2006, and the Company’s cash flows for the three-month periods ended March 31, 2007 and 2006. In preparing the interim consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amounts and disclosures; actual results could differ from those estimates.

     The results of operations for the three-month period ended March 31, 2007, are not necessarily indicative of the results to be expected for any succeeding quarter or for the full year.

     The Company did not make the scheduled interest payments due on its Senior Subordinated Notes on November 1, 2006, and February 1 and May 1, 2007. On May 25, 2007, the Company entered into a six-month forbearance agreement with certain holders of the Senior Subordinated Notes, holding $25,428,000 aggregate principal amount, or 74.4% of the Senior Subordinated Notes outstanding. An additional $7,772,000 aggregate principal amount, or 22.7% of the Senior Subordinated Notes outstanding, is held by affiliates of the Company or their relatives. As long as the forbearance agreement is in effect, the Company will not be required to make interest payments on the Senior Subordinated Notes and the forbearing noteholders may not take any action to collect any past due interest payments. The Company agreed to raise the interest rate on the Senior Subordinated Notes from 12% to 16% for the period from March 9, 2007, through the end of the forbearance period.

     The failure to make the scheduled interest payments on the Senior Subordinated Notes caused a cross-default under the agreements governing the Company’s secured debt. Additionally, the Company was not in compliance with a financial covenant related to fixed charge coverage on February 28, March 31, and April 30, 2007, or with a financial covenant related to leverage on March 31, 2007. The Company has remained current on all principal and interest payments owed to the secured lenders. Effective May 25, 2007, the Company entered into a forbearance agreement with the secured lenders. The forbearance agreement provides that the secured lenders will take no action, during the forbearance period, to accelerate or collect their loans as a result of any existing default or cross-default. The forbearance agreement modifies certain of the financial covenants effective March 31, 2007, through the end of the forbearance period, which is 120 days from May 25, 2007, and provides for extensions of 30 or 60 days in certain circumstances. As amended, the Company was in compliance with both its fixed charge coverage ratio and its leverage ratio as of March 31 and April 30, 2007.

     During the concurrent forbearance periods, the Company plans to pursue all available strategic alternatives to satisfy its outstanding debt, including (i) the refinancing of the Company’s indebtedness, (ii) the sale of the Company’s Rubber Group and (iii) the sale of the entire Company. The Company has

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

retained W. Y. Campbell and Company, a Detroit-based investment banking firm, to assist it in its efforts.

     If the Company is unable to restructure, refinance, or repay its secured debt and Senior Subordinated Notes during the respective forbearance periods and its secured lenders and the holders of the Senior Subordinated Notes do not agree to extend the forbearance periods, it may seek protection under chapter 11 of the federal Bankruptcy Code in order to permit it to continue to operate its business in an orderly fashion until a restructuring of the secured debt and Senior Subordinated Notes can be consummated.

     The Company’s consolidated financial statements have been presented on a “going concern” basis, as such term is used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to restructure, refinance, or repay its secured debt and Senior Subordinated Notes is subject to risks and uncertainties. As a result, there is substantial doubt about the Company’s ability to continue on a going concern basis. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect these risks and uncertainties.

     For information regarding discontinued operations, please refer to Note 8.

Note 2 — Inventories

     Inventories at March 31, 2007, and December 31, 2006, are set forth below (dollar amounts in thousands):

	March 31,		December 31,
	2007		2006
Finished goods	$	4,445	$	4,595
Work in process		2,792		2,279
Raw material		1,938		1,913
	$	9,175	$	8,787

Note 3 — Plant and Equipment

     Plant and equipment at March 31, 2007, and December 31, 2006, is set forth below (dollar amounts in thousands):

	March 31,		December 31,
	2007		2006
Land	$	1,776	$	1,776
Buildings		13,368		13,368
Equipment		111,858		110,980
		127,002		126,124
Accumulated depreciation		103,485		101,898
Plant and equipment, net	$	23,517	$	24,226

-5-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 4 — Debt

     Debt at March 31, 2007, and December 31, 2006, is set forth below (dollar amounts in thousands):

	March 31,			December 31,
	2007			2006
Debt in default:
Revolving line of credit	$	12,277		$	8,369
Equipment term loan		11,042			11,666
Real estate term loan		14,572			14,755
Senior Subordinated Notes		34,177			34,177
Total debt in default		72,068			68,967
Current portion of long-term debt		746			734
Long-term debt:
Junior Subordinated Note		347			347
Series B Preferred Stock (liquidation value $673)		658			657
Other		144			136
Subtotal		1,149			1,140
Less current portion		(746	)		(734	)
Total long-term debt		403			406
Total debt	$	73,217		$	70,107

  Secured Debt

     The failure to make the scheduled interest payments on the Senior Subordinated Notes on November 1, 2006, and February 1 and May 1, 2007, caused a cross-default under the agreements governing the Company’s secured debt. Additionally, the Company was not in compliance with a financial covenant related to fixed charge coverage on February 28, March 31, and April 30, 2007, or with a financial covenant related to leverage on March 31, 2007. The Company has remained current on all principal and interest payments owed to the secured lenders. Effective May 25, 2007, the Company entered into a forbearance agreement with the secured lenders. The forbearance agreement provides that the secured lenders will take no action, during the forbearance period, to accelerate or collect their loans as a result of any existing default or cross-default. The forbearance agreement modifies all of the financial covenants during the forbearance period, which is 120 days from May 25, 2007, and provides for extensions of 30 or 60 days if certain conditions are met. As amended, the Company was in compliance with both its fixed charge coverage ratio and its leverage ratio as of March 31 and April 30, 2007.

     At March 31, 2007, the Company had outstanding loans of $12,277,000 and reimbursement obligations with respect to letters of credit of $1,562,000 under the revolving line of credit and unused availability was $864,000. Under the revolving line of credit, loans and reimbursement obligations with respect to letters of credit are limited to the lesser of $17,500,000 or an amount equal to (1) 85% of eligible accounts receivable, plus (2) 65% of eligible inventories, minus (3) $500,000. Loans under the

-6-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

revolving line of credit bear interest at the London Interbank Offered Rate (“LIBOR”) plus 4.75%. At March 31, 2007, the interest rate on loans outstanding under the revolving line of credit was 10.07%. The Company’s obligations under the revolving line of credit are secured by a first priority lien on substantially all of the Company’s assets other than real estate and a second priority lien on the Company’s real estate.

     At March 31, 2007, the outstanding balance of the equipment term loan was $11,042,000. The equipment term loan is payable in monthly principal installments of $208,000 through May 1, 2009, with the unpaid balance payable on May 15, 2009. Interest on the equipment term loan is payable monthly at LIBOR plus 6.5%. At March 31, 2007, the interest rate on the equipment term loan was 11.82%. The equipment term loan is secured by a first priority lien on substantially all of the Company’s assets other than real estate and a second priority lien on the Company’s real estate.

     At March 31, 2007, the outstanding balance of the real estate term loan was $14,572,000. The real estate term loan is payable in monthly principal installments of $61,000 through May 1, 2009, with the unpaid balance payable on May 15, 2009. Additionally, if the balance outstanding on the real estate term loan is not reduced to $11,022,000 or less by December 31, 2007 (which would require principal prepayments aggregating $3,000,000 in addition to the scheduled monthly principal payments), interest payments on the Company’s subordinated debt may only be made if the unused availability under the Company’s revolving line of credit exceeds an amount equal to $3,000,000 minus any principal prepayments made to date. At March 31, 2007, interest on the real estate term loan was payable monthly at LIBOR plus 6.5% on $10,572,000 of the loan and (2) the prime rate plus 8% on $4,000,000 of the loan. At March 31, 2007, the weighted average interest rate on the real estate term loan was 13.04%. Principal payments made on the real estate term loan are allocable first to the portion of the loan that bears interest at LIBOR plus 6.5% and then to the portion of the loan that bears interest at the prime rate plus 8%. The real estate term loan is secured by a first priority lien on the Company’s real estate and a second priority lien on substantially all of the Company’s other assets.

     The agreements governing the revolving line of credit and the secured term loans contain covenants that (1) require the Company to maintain a maximum ratio of senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) and minimum levels of fixed charge coverage, revenue, and EBITDA, (2) prohibit the payment of interest on subordinated debt if there would not be unused availability under the revolving line of credit of $3,000,000 through November 19, 2006, $5,000,000 from November 20, 2006, through February 1, 2007, and $3,000,000 from February 2 through August 1, 2007, after giving effect to such payment, (3) limit the Company’s capital expenditures to $5,500,000 and $6,000,000 per annum during the years ending December 31, 2007 and 2008, respectively, (4) limit the amount of new secured financing that the Company can incur for the purchase of plant and equipment to $2,500,000 during the term of the revolving line of credit, and (5) place certain other restrictions on the Company’s business and operations, including limitations on the sale of all or substantially all of its assets, the repurchase of common stock, the redemption of preferred stock, and the payment of cash dividends.

  Senior Subordinated Notes

     The Senior Subordinated Notes mature on August 1, 2009, and are unsecured obligations of the Company that are subordinated in right of payment to all of the Company’s existing and future senior debt. The Company did not make the scheduled interest payments due on the Senior Subordinated

-7-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Notes on November 1, 2006, and February 1 and May 1, 2007. On May 25, 2007, the Company entered into a six-month forbearance agreement with certain holders of the Senior Subordinated Notes, holding $25,428,000 aggregate principal amount, or 74.4% of the Senior Subordinated Notes outstanding. An additional $7,772,000 aggregate principal amount, or 22.7% of the Senior Subordinated Notes outstanding, is held by affiliates of the Company or their relatives. As long as the forbearance agreement is in effect, the Company will not be required to make interest payments on the Senior Subordinated Notes and the forbearing noteholders may not take any action to collect any past due interest payments. The Company agreed to raise the interest rate on the Senior Subordinated Notes from 12% to 16% for the period from March 9, 2007, through the end of the forbearance period.

  Junior Subordinated Note

     The Junior Subordinated Note matures on November 1, 2009, and is an unsecured obligation of the Company that is subordinated in right of payment to all of the Company’s existing and future senior debt and the Senior Subordinated Notes. The Junior Subordinated Note bears interest at 13% per annum, payable quarterly on February 1, May 1, August 1, and November 1. The holder of the Junior Subordinated Note has deferred the interest payments due on November 1, 2006, and February 1, May 1, August 1, and November 1, 2007, to February 1, 2008, and eliminated the cross-default provision contained in the Junior Subordinated Note.

  Series B Preferred Stock

     At March 31, 2007, there were outstanding 3,300 shares of the Company’s $8 Cumulative Convertible Preferred Stock, Series B (the “Series B Preferred Stock”), par value $100 per share, with a carrying value of $658,000. Each share of Series B Preferred Stock is (1) entitled to one vote, (2) redeemable for $200 plus accumulated and unpaid dividends, (3) convertible into 14.8148 shares of common stock (subject to adjustment), and (4) entitled, upon voluntary or involuntary liquidation and after payment of all liabilities of the Company, to a liquidation preference of $200 plus accumulated and unpaid dividends. Redemptions of $90,000 are scheduled on November 30 of each year in order to retire 450 shares of Series B Preferred Stock annually. The Company did not make scheduled redemptions in the aggregate amount of $630,000 during the years 2000 through 2006. The Company did not make the scheduled dividend payments on the Series B Preferred Stock on December 15, 2006, and March 15, 2007.

     The Series B Preferred Stock is classified as debt in the consolidated financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”

  Fair Value of Financial Instruments

     The Company believes that, at March 31, 2007, the fair values of the loans outstanding under the revolving line of credit, the equipment term loan, and the real estate term loan approximated the principal amounts of such loans.

     Because of the limited trading in the Company’s various unsecured debt securities, the Company is unable to express an opinion as to the fair value of the Senior Subordinated Notes, the Junior Subordinated Note, or the Series B Preferred Stock.

-8-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

  Cash Interest Paid

     Cash interest paid during the three months ended March 31, 2007 and 2006, including amounts allocated to discontinued operations, totaled $1,023,000 and $2,076,000, respectively.

Note 5 — Income Taxes

     At March 31, 2007, and December 31, 2006, the Company’s net deferred income tax assets were fully reserved by a valuation allowance. The income tax provisions recorded during the three-month periods ended March 31, 2007 and 2006, consisted of estimated state income taxes payable.

Note 6 — Net Loss per Common Share

     The calculations of basic and diluted net loss per common share for the three-month periods ended March 31, 2007 and 2006, are set forth below (in thousands, except per share amounts). The assumed conversion of the Series B Preferred Stock and the assumed exercise of outstanding warrants to purchase the Company’s common stock were not dilutive. As a result, the weighted average number of outstanding common shares used in the calculation of net loss per common share set forth below does not reflect the assumed conversion of the Series B Preferred Stock or the assumed exercise of the warrants. In addition, awards of restricted common stock issued under the Company’s 2005 Stock Award Plan are not considered outstanding common shares for purposes of the calculation of basic or diluted net income or loss per share of common stock until such shares vest.

	Three Months Ended
	March 31
	2007			2006
Numerator — Loss:
Continuing operations	$	(915	)	$	(330	)
Discontinued operations		(2	)		(70	)
Net loss	$	(917	)	$	(400	)
Denominator — Weighted average shares outstanding		4,942			4,932
Basic and diluted loss per share of common stock:
Continuing operations	$	(0.19	)	$	(0.07	)
Discontinued operations		—			(0.01	)
Net loss	$	(0.19	)	$	(0.08	)

-9-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 7 — Segments

  Description of Segments and Products

     The Company has two operating segments, the Rubber Group and the Metals Group. The Rubber Group manufactures tight-tolerance rubber components, primarily connector seals used in automotive wiring systems, insulators used in both original equipment and aftermarket automotive ignition-wire sets, and molded rubber components used in a variety of medical devices, such as intravenous feeding systems, syringes, and surgical equipment. The Metals Group manufactures machined metal components from aluminum, brass, steel, and stainless steel bars, forgings, and cold-headed blanks. The Rubber Group and the Metals Group conduct substantially all of their business within the continental United States.

     The Corporate Office consists primarily of general administrative functions that are not a result of any activity carried on by either the Rubber Group or the Metals Group. Corporate Office expenses include the compensation and benefits of the Company’s executive officers and corporate staff, rent on the office space occupied by these individuals, general corporate legal fees, including fees related to financings, and certain insurance expenses. Assets of the Corporate Office are primarily cash, certain prepaid expenses and other miscellaneous current assets, deferred tax assets, and deferred financing expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

  Segment Financial Data

     Information relating to the Company’s operating segments and the Corporate Office for the three-month periods ended March 31, 2007 and 2006, is summarized below (dollar amounts in thousands):

	Three Months Ended
	March 31
	2007			2006
Net sales:
Rubber Group	$	19,176		$	21,709
Metals Group		3,354			3,089
Total net sales	$	22,530		$	24,798
Income (loss) from operations:
Rubber Group	$	2,074		$	2,876
Metals Group		(26	)		(274	)
Subtotal		2,048			2,602
Corporate Office		(763	)		(639	)
Total income from operations	$	1,285		$	1,963
Depreciation and amortization (1):
Rubber Group	$	1,504		$	1,632
Metals Group		178			224
Subtotal		1,682			1,856
Corporate Office		3			9
Total depreciation and amortization	$	1,685		$	1,865
Capital expenditures (2):
Rubber Group	$	630		$	295
Metals Group		198			63
Subtotal		828			358
Corporate Office		50			—
Total capital expenditures	$	878		$	358

	Mar. 31,		Dec. 31,
	2007		2006
Assets (3):
Rubber Group	$	47,556	$	45,056
Metals Group		8,477		7,381
Subtotal		56,033		52,437
Corporate Office		1,607		484
Total assets	$	57,640	$	52,921

(1) Excludes amortization and write-off of deferred financing expenses, which totaled $358,000 during the three-month period ended March 31, 2006. Amortization and write-off of deferred financing expenses is included in interest expense in the consolidated financial statements.

-11-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(2)	Capital expenditures during the three-month period ended March 31, 2007, include $26,000 of equipment purchased under capitalized lease obligations.
(3)	Excludes the assets of discontinued operations, which totaled $1,535,000 and $1,519,000, at March 31, 2007, and December 31, 2006, respectively.

Note 8 — Discontinued Operations

     The results of operations, assets, liabilities, and cash flows of the Company’s former die casting division have been classified as discontinued operations in the consolidated financial statements.

     In accordance with Financial Accounting Standards Board Emerging Issue Task Force Abstract No. 87-24, “Allocation of Interest to Discontinued Operations” (“EITF 87-24”), the Company has allocated interest to discontinued operations based on the amount and the terms of the debt that was or will be required to be repaid using management’s estimate of the proceeds realized or to be realized on the actual or possible sale of assets of discontinued operations. No allocation was made to discontinued operations for any other interest or for any Corporate Office expenses. The following table summarizes financial data of discontinued operations for the three-month periods ended March 31, 2007 and 2006 (dollar amounts in thousands):

	Three Months Ended
	March 31
	2007			2006
Net sales	$	—		$	—
Income (loss) from discontinued operations	$	40		$	(22	)
Allocated interest expense		42			48
Loss from discontinued operations before income taxes		(2	)		(70	)
Income tax provision		—			—
Loss from discontinued operations	$	(2	)	$	(70	)

-12-

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     Some of our statements in this Form 10-Q are “forward-looking statements.” 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:

• our ability to restructure, refinance, or repay our debt,

• increases and decreases in business awarded to us by our customers,

• unanticipated price reductions for our products as a result of competition,

• changes in the cost of raw materials,

• strength or weakness in the North American automotive market,

• financial difficulties encountered by our customers or suppliers,

• the filing by one or more of our customers or suppliers for protection under the federal bankruptcy code,

• changes in the competitive environment,

• labor interruptions at our facilities or at our customers’ or suppliers’ facilities,

• unanticipated operating results,

• changes in economic conditions, and

• changes in interest rates.

     Our results of operations for any particular period are not necessarily indicative of the results to be expected for any succeeding period. 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.

     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.

     For additional discussion about risks and uncertainties that may affect our business, please refer to “Risk Factors” in Part II, Item 1A, of our annual report on Form 10-K for the year ended December 31, 2006, and Part II, Item IA of this Form 10-Q.

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Results of Operations — First Quarter of 2007 Versus First Quarter of 2006

     Unless otherwise indicated, the data set forth below in this Item 2 relates solely to our continuing operations.

     The following table sets forth our consolidated operating results for the three-month periods ended March 31, 2007 and 2006, and the reconciliation of the loss from continuing operations to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for those periods (dollar amounts in thousands).

	Three Months Ended March 31
	2007					2006
Net sales	$	22,530		100.0	%	$	24,798		100.0	%
Cost of sales		19,477		86.4			21,059		84.9
Gross profit		3,053		13.6			3,739		15.1
Selling and administrative expenses		1,768		7.9			1,776		7.2
Income from operations		1,285		5.7			1,963		7.9
Interest expense		2,185		9.7			2,278		9.2
Loss from continuing operation before income taxes		(900	)	(4.0	)		(315	)	(1.3	)
Income tax provision		15		0.1			15		—
Loss from continuing operations		(915	)	(4.1	)		(330	)	(1.3	)
Add back:
Depreciation and amortization (1)		1,685		7.5			1,865		7.5
Interest expense		2,185		9.7			2,278		9.2
Income tax provision		15		0.1			15		—
EBITDA (2)	$	2,970		13.2	%	$	3,828		15.4	%
Net cash provided (used) by operating activities of continuing operations (3)	$	(1,080	)	(4.8	)%	$	113		0.5	%

(1) Does not include the amortization and write-off of deferred financing expenses, which totaled $358,000 during the three-month period ended March 31, 2006, and which is included in interest expense in the consolidated financial statements.

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(2)

EBITDA is not a measure of performance under U.S. generally accepted accounting principles and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with U.S. generally accepted accounting principles. We have presented EBITDA here and elsewhere in this Form 10-Q because this measure is used by investors, as well as our own management, to evaluate the operating performance of our business, including its ability to service debt, and because it is used by our lenders in setting financial covenants. Our definition of EBITDA is not exactly the same definition of EBITDA as used to calculate compliance with the financial covenants that are incorporated in our secured loan agreements and may not be the same as the definition of EBITDA used by other companies.

(3)

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 2007 were $22,530,000, compared to net sales of $24,798,000 for the first quarter of 2006, a decrease of $2,268,000 or 9.1%. The decrease in net sales was principally a result of decreased unit sales of automotive components offset, in part, by increased unit sales of medical components. EBITDA for the first quarter of 2007 was $2,970,000, or 13.2% of net sales, compared to EBITDA of $3,828,000, or 15.4% of net sales, for the first quarter of 2006. Administrative expenses for the first quarter of 2007, included $185,000 of expenses incurred in connection with our efforts to restructure, refinance, or repay our secured debt and Senior Subordinated Notes as more fully discussed in the section titled “Liquidity” in this Part 1, Item 2.

     Net cash used by our operating activities during the first quarter of 2007 totaled $1,080,000, compared to net cash provided by operating activities of $113,000 for the first quarter of 2006. For more information about the net cash provided or used by our operating activities, please refer to the consolidated statements of cash flows in Part I, Item 1, and to the section titled “Operating Activities” in this Part I, Item 2.

     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, 2007 and 2006.

  Rubber Group

     The Rubber Group manufactures tight-tolerance rubber components. The Rubber Group’s primary products are connector seals used in automotive wiring systems, insulators used in both original equipment and aftermarket automotive ignition-wire sets, and molded rubber components used in a variety of medical devices, such as intravenous feeding systems, syringes, and surgical equipment.

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     The following table sets forth the operating results of the Rubber Group for the three-month periods ended March 31, 2007 and 2006, and the reconciliation of the Rubber Group’s income from operations to its EBITDA (dollar amounts in thousands):

	Three Months Ended March 31
	2007				2006
Net sales	$	19,176	100.0	%	$	21,709	100.0	%
Cost of sales		16,215	84.6			17,909	82.5
Gross profit		2,961	15.4			3,800	17.5
Selling and administrative expenses		887	4.6			924	4.3
Income from operations		2,074	10.8			2,876	13.2
Add back: depreciation and amortization		1,504	7.9			1,632	7.5
EBITDA	$	3,578	18.7	%	$	4,508	20.8	%

     During the first quarter of 2007, total net sales of the Rubber Group decreased by $2,533,000, or 11.7%, compared to the first quarter of 2006. Net sales to automotive customers decreased by $3,820,000, or 20.5%, to $14,771,000, net sales to medical device manufacturers increased by $1,188,000, or 41.8%, to $4,032,000, and all other net sales increased by $99,000, or 36.1%, to $373,000.

     The decrease in net sales to automotive customers was primarily due to (1) decreased unit sales of connector seals for automotive wire harnesses, which we believe resulted primarily from production cutbacks by Detroit-based automakers, (2) reduced unit sales to original equipment manufacturers of insulators for automotive ignition-wire sets due to production cutbacks by Detroit-based automakers and the loss of certain parts to competitors, (3) reduced unit sales to manufacturers of aftermarket insulators for automotive ignition-wire sets, and to a lesser extent (4) price reductions on certain components. During the first quarter of 2007, the Rubber Group’s net sales to Delphi Corporation, its largest customer, totaled $2,082,000, a decrease of $1,308,000, or 38.6%, compared to net sales of $3,390,000 during the first quarter of 2006.

     Cost of sales as a percentage of net sales increased to 84.6% of net sales during the first quarter of 2007, compared to 82.5% of net sales during the first quarter of 2006, primarily due to underabsorption of fixed or partially fixed manufacturing overhead during a period of reduced sales volume, partially offset by lower depreciation and amortization expense.

     Selling and administrative expenses of the Rubber Group expressed as a percentage of net sales increased to 4.6% of net sales during the first quarter of 2007, compared to 4.3% during the first quarter of 2006.

     During the first quarter of 2007, income from operations totaled $2,074,000, a decrease of $802,000, or 27.9%, compared to the first quarter of 2006. EBITDA for the first quarter of 2007 was $3,578,000, or 18.7% of net sales, compared to $4,508,000, or 20.8% of net sales, for the first quarter of 2006.

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  Metals Group

     The Metals Group manufactures machined metal components from aluminum, brass, steel, and stainless steel bars, forgings, and cold-headed blanks. The Metals Group’s sales are primarily to automotive industry customers.

     The following table sets forth the operating results of the Metals Group for the three-month periods ended March 31, 2007 and 2006, and the reconciliation of the Metals Group’s loss from operations to its EBITDA (dollar amounts in thousands):

	Three Months Ended March 31
	2007					2006
Net sales	$	3,354		100.0	%	$	3,089		100.0	%
Cost of sales		3,262		97.3			3,150		102.0
Gross profit (loss)		92		2.7			(61	)	(2.0	)
Selling and administrative expenses		118		3.5			213		6.9
Loss from operations		(26	)	(0.8	)		(274	)	(8.9	)
Add back: depreciation and amortization		178		5.3			224		7.3
EBITDA	$	152		4.5	%	$	(50	)	(1.6	)%

     During the first quarter of 2007, net sales of the Metals Group increased by $265,000, or 8.6%, compared to the first quarter of 2006 primarily as a result of sales to a new automotive customer.

     Cost of sales as a percentage of net sales decreased to 97.3% of net sales during the first quarter of 2007 from 102.0% of net sales during the first quarter of 2006, primarily because of (1) improved production efficiencies, (2) lower depreciation expense, and (3) reduced material costs.

     During the first quarter of 2007, selling and administrative expenses decreased to $118,000 from $213,000 during the first quarter of 2006, primarily because of a reduction in salaried headcount.

     During the first quarter of 2007, the loss from operations was $26,000, compared to a loss from operations of $274,000 during the first quarter of 2006. EBITDA for the first quarter of 2007 was positive $152,000 compared to negative $50,000 for the first quarter of 2006.

  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 City 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.

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     The following table sets forth the operating results of the Corporate Office for the three-month periods ended March 31, 2007 and 2006, and the reconciliation of the Corporate Office’s loss from operations to its EBITDA (dollar amounts in thousands):

	Three Months Ended
	March 31
	2007			2006
Loss from operations	$	(763	)	$	(639	)
Add back: depreciation and amortization (1)		3			9
EBITDA	$	(760	)	$	(630	)

(1) Excludes the amortization and write-off of deferred financing expenses, which totaled $358,000, during the first quarter of 2006, and which is included in interest expense in the consolidated financial statements.

     During the first quarter of 2007, corporate administrative expenses increased to $763,000 from $639,000 during the first quarter of 2006, because we incurred expenses of $185,000 in connection with our efforts to refinance, restructure, or repay our secured debt and Senior Subordinated Notes as more fully discussed in the section titled “Liquidity” in this Part 1, Item 2.

  Interest Expense

     During the first quarters of 2007 and 2006, interest expense (excluding interest expense of $42,000 and $48,000, respectively, allocated to discontinued operations) totaled $2,185,000 and $2,278,000, respectively, which included amortization of deferred financing expenses of $358,000 during 2006. Effective December 31, 2006, we wrote off the remaining balance of unamortized deferred financing expense in the amount of $1,829,000. Excluding deferred financing expenses, interest expense during the first quarter of 2007 increased compared to the first quarter of 2006 because:

1.	We incurred $123,000 of default interest on our secured debt;
2.	We incurred $51,000 of interest on the interest payments that we failed to make on November 1, 2006, and February 1, 2007;
3.	We incurred $89,000 of additional interest expense on our Senior Subordinated Notes and on the quarterly interest payments that we failed to make on November 1, 2006 and February 1, 2007, because we agreed to increase the interest rate on the notes from 12% to 16% effective March 9, 2007; and
4.	The average amount of interest bearing debt outstanding increased to $71,898,000 in the first quarter of 2007 compared to $67,523,000 in the first quarter of 2006.

  Income Tax Provision

     At March 31, 2007, and December 31, 2006, our net deferred tax assets were fully reserved by a valuation allowance. The income tax provisions recorded during the three-month periods ended March 31, 2007 and 2006, consisted of estimated state income taxes.

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Liquidity and Capital Resources

  Operating Activities

     During the first quarter of 2007, operating activities of our continuing operations used net cash of $1,080,000. Accounts receivable increased by $4,006,000 during the first quarter of 2007, primarily because our net sales during February and March of 2007 were higher than our net sales during November and December of 2006. Trade accounts payable increased by $1,328,000 primarily because of increased production levels to support increased net sales. Accrued interest expense increased by $1,203,000, because of additional accruals of interest on our subordinated debt.

  Investing Activities

     During the first quarter of 2007, investing activities of our continuing operations used net cash of $896,000. Capital expenditures attributable to the Rubber Group and the Metals Group totaled $630,000 and $198,000, respectively, primarily for the purchase of equipment used in manufacturing. Capital expenditures for the Rubber Group, the Metals Group, and the Corporate Office are currently projected to total $3,103,000, $415,000, and $59,000, respectively, for the year ending December 31, 2007. At March 31, 2007, we had approximately $187,000 of commitments outstanding to purchase equipment.

  Financing Activities

     During the first quarter of 2007, our financing activities provided net cash of $2,831,000 due to additional borrowings.

  Liquidity

     During the third and fourth quarters of 2006, we experienced a significant decrease in sales of automotive components. We believe that this reduction was primarily a result of production cutbacks by the Detroit-based automakers and resultant production cutbacks and inventory adjustments by our customers, who are primarily tier-one suppliers to automobile manufacturers. Although we reduced expenses in an effort to offset the impact of the lower sales, our operating profit and cash flow during the third and fourth quarters of 2006 were adversely affected, as was the availability under our revolving line of credit. During the first quarter of 2007, net sales improved to $22,530,000 compared to $20,371,000 and $18,293,000 during the third and fourth quarters of 2006, respectively. We expect sales to automotive customers to improve during the remainder of 2007.

     We did not make the scheduled interest payments due on our Senior Subordinated Notes on November 1, 2006, and February 1 and May 1, 2007. On May 25, 2007, we entered into a six-month forbearance agreement with certain holders of the Senior Subordinated Notes, holding $25,428,000 aggregate principal amount, or 74.4% of the Senior Subordinated Notes outstanding. An additional $7,772,000 aggregate principal amount, or 22.7% of the Senior Subordinated Notes outstanding, is held by affiliates of ours or their relatives. As long as the forbearance agreement is in effect, we will not be required to make interest payments on the Senior Subordinated Notes and the forbearing noteholders may not take any action to collect any past due interest payments. We agreed to raise the interest rate on the Senior Subordinated Notes from 12% to 16% for the period from March 9, 2007, through the end of the forbearance period.

     The failure to make the scheduled interest payments on the Senior Subordinated Notes caused a cross-default under the agreements governing our secured debt. Additionally, we were not in compliance

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with a financial covenant related to fixed charge coverage on February 28, March 31, and April 30, 2007, or with a financial covenant related to leverage on March 31, 2007. We have remained current on all principal and interest payments owed to the secured lenders. Effective May 25, 2007, we entered into a forbearance agreement with the secured lenders. The forbearance agreement provides that the secured lenders will take no action, during the forbearance period, to accelerate or collect their loans as a result of any existing default or cross-default. The forbearance agreement modifies certain of the financial covenants effective March 31, 2007, through the end of the forbearance period, which is 120 days from May 25, 2007, and provides for extensions of 30 or 60 days in certain circumstances. As amended, we were in compliance with both our fixed charge coverage ratio and our leverage ratio as of March 31 and April 30, 2007.

     During the concurrent forbearance periods, we plan to pursue all available strategic alternatives to satisfy our outstanding indebtedness, including (i) the refinancing of our indebtedness, (ii) the sale of our Rubber Group and (iii) the sales of the entire Company. We have retained W. Y. Campbell and Company, a Detroit-based investment banking firm, to assist us in our efforts.

     The financial covenants contained in our revolving line of credit and our secured term loans as revised by the terms of the forbearance agreement with our secured lenders are as set forth below. At the end of the forbearance period the financial covenants will revert back to those in effect before the forbearance agreement became effective. For the purpose of determining compliance with the covenants set forth below certain expenses are excluded from the determination of EBITDA and fixed charges. Please refer to the financing documents for definitions of capitalized terms.

1.	Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio is calculated by dividing consolidated EBITDA, less Unfinanced Capital Expenditures, by consolidated Fixed Charges, and is required to be not less than 0.85 to 1.0 for the three- and four-month periods ended May 31, and June 30, 2007, respectively; 0.75 to 1.0 for the five-, six-, and seven-month periods ended July 31, August 31, and September 30, 2007, respectively; and 0.85 to 1.0 for each period commencing March 1, 2007, and ending on the last day of each month following September 30, 2007, until the forbearance period terminates. On March 31 and April 30, 2007, our Fixed Charge Coverage Ratio was 1.45 to 1.00.
2.	Leverage Ratio. The Leverage Ratio is calculated by dividing Senior Debt by consolidated EBITDA and is required to be not more than 3.5 to 1.0 for the three- and four-month periods ended May 31, and June 30, 2007, respectively; 3.75 to 1.0 for the five-, six-, and seven-month periods ended July 31, August 31, and September 30, 2007, respectively; and 3.5 to 1.0 for each period commencing March 1, 2007, and ending on the last day of each month following September 30, 2007, until the forbearance period terminates. As of March 31 and April 30, 2007, our Leverage Ratio was 2.28 to 1.0, and 2.45 to 1.0, respectively.
3.	Minimum Revenue. Revenue is required to be not less than 90% of specified amounts on a cumulative basis starting on March 1, 2007, through the last day of each month from May, 2007, through the end of the forbearance period. As of March 31 and April 30, 2007, our revenue exceeded the minimum revenue requirement by $800,000 and $2,087,000, respectively.
4.	Minimum EBITDA. EBITDA is required to be not less than 90% of specified amounts on a cumulative basis starting on March 1, 2007, through the last day of each month from May, 2007, through the end of the forbearance period. As of April 30, 2007, our EBITDA, which

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is to be measured starting with the two month period ending April 30, 2007, exceeded the minimum EBITDA requirement by $498,000.

     Although there can be no assurance, we currently believe that we will be able to restructure, refinance, or repay our secured debt and Senior Subordinated Notes and thereby remedy the defaults currently existing on the secured debt and Senior Subordinated Notes within the forbearance periods. If we are unable to restructure, refinance, or repay our secured debt and Senior Subordinated Notes within the forbearance periods and we are unable to extend the forbearance period, we likely would seek protection under chapter 11 of the federal Bankruptcy Code in order to permit us to continue to operate our business in an orderly fashion until a restructuring and/or refinancing of our indebtedness could be consummated.

     Our consolidated financial statements have been presented on a “going concern” basis, as such term is used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to restructure, refinance, or repay our secured debt and Senior Subordinated Notes is subject to risks and uncertainties. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect this uncertainty.

     Consolidated EBITDA totaled $2,970,000 during the first quarter of 2007. The Rubber Group reported EBITDA of $3,578,000, or 18.7% of net sales, the Metals Group reported EBITDA of $152,000, or 4.5% of net sales, and the Corporate Office recorded negative EBITDA of $760,000, which included $185,000 of expenses incurred in connection with our efforts to restructure, refinance, or repay our secured debt and Senior Subordinated Notes. For the second quarter, we project that the EBITDA of the Rubber Group will be approximately $4,000,000, or 20% of net sales, and that EBITDA of the Metals Group will be approximately $275,000, or 7% of net sales. We also project that consolidated EBITDA for all of 2007, excluding all expenses incurred in connection with our efforts to restructure, refinance, or repay our secured debt and Senior Subordinated Notes, will exceed $15,000,000.

     At March 31, 2007, our aggregate indebtedness was $75,268,000, (including $2,051,000 of past due interest,) compared to $71,132,000 at December 31, 2006 (including $1,025,000 of past due interest).

     At March 31, 2007, we had outstanding loans of $12,277,000 and reimbursement obligations with respect to letters of credit of $1,562,000 under our revolving line of credit, and unused availability and cash on hand of $1,708,000. Under the revolving line of credit, loans and reimbursement obligations with respect to letters of credit are limited to the lesser of $17,500,000 or an amount equal to (1) 85% of eligible accounts receivable, plus (2) 65% of eligible inventories, minus (3) $500,000. Loans under the revolving line of credit bear interest at the London Interbank Offered Rate (“LIBOR”) plus 4.75%. At March 31, 2007, the interest rate on loans outstanding under the revolving line of credit was 10.07%. Our obligations under the revolving line of credit are secured by a first priority lien on substantially all of our assets other than real estate and a second priority lien on our real estate.

     At March 31, 2007, the outstanding balance of the equipment term loan was $11,042,000. The equipment term loan is payable in monthly principal installments of $208,000 through May 1, 2009, with the unpaid balance payable on May 15, 2009. Interest on the equipment term loan is payable monthly at LIBOR, plus 6.5%. At March 31, 2007, the interest rate on the equipment term loan was 11.82%. The equipment term loan is secured by a first priority lien on substantially all of our assets other than real estate and a second priority lien on our real estate.

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     At March 31, 2007, the outstanding balance of the real estate term loan was $14,572,000. The real estate term loan is payable in monthly principal installments of $61,000 through May 1, 2009, with the unpaid balance payable on May 15, 2009. If the balance outstanding on the real estate term loan is not reduced to $11,022,000 or less by December 31, 2007 (which would require principal prepayments aggregating $3,000,000 in addition to the scheduled monthly principal payments), interest payments on our subordinated debt may only be made if the unused availability under our revolving line of credit exceeds an amount equal to $3,000,000 minus any principal prepayments made to date. At March 31, 2007, interest on the real estate term loan was payable monthly at LIBOR plus 6.5% on $10,572,000 of the loan and (2) the prime rate plus 8% on $4,000,000 of the loan. At March 31, 2007, the weighted average interest rate on the real estate term loan was 13.04%. Principal payments made on the real estate term loan are allocable first to the portion of the loan that bears interest at LIBOR plus 6.5% and then to the portion of the loan that bears interest at the prime rate plus 8%. The real estate term loan is secured by a first priority lien on our real estate and a second priority lien on substantially all of our other assets.

     In addition to the financial covenants discussed above, the agreements that govern our revolving line of credit and secured term loans contain covenants that (1) limit our capital expenditures to $5,500,000 and $6,000,000 per annum during the years ending December 31, 2007 and 2008, respectively, (2) limit the amount of new secured financing we can incur for the purchase of plant and equipment to $2,500,000 during the term of the new secured financing, and (3) place certain other restrictions on our business and operations, including limitations on the sale of all or substantially all of our assets, the repurchase of common stock, the redemption of preferred stock, and the payment of cash dividends.

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 insignificant.

     At March 31, 2007, we had outstanding $37,891,000 of floating-rate debt at interest rates equal to either LIBOR plus 4.75%, LIBOR plus 6.50%, or the prime rate plus 8.0%.

     At March 31, 2007, we had outstanding $35,326,000 of fixed-rate debt with a weighted-average interest rate of 15.7%.

     In the absence of a restructuring, refinancing, or repayment of our secured debt and Senior Subordinated Notes, we currently estimate that our monthly interest expense during the remaining nine months of 2007 will be approximately $921,000 and that a one percentage point increase or decrease in short-term interest rates would increase or decrease our monthly interest expense by approximately $29,000.

     For further information about our indebtedness, please refer to Note 4, “Debt,” to our consolidated financial statements in Part I, Item 1.

Item 4. CONTROLS AND PROCEDURES

     Our Chairman of the Board, President, and Chief Financial Officer, with the participation of the management of our operating divisions, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2007. Based on that evaluation, our principal executive officers and our principal financial officer concluded that our disclosure controls and procedures are effective to ensure

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that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. They also reviewed our internal controls and determined that there have been no changes in our internal controls or in other factors identified in connection with this evaluation that have materially affected, or are reasonably likely to materially affect, our internal controls.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

     The first risk factor in our Annual Report on Form 10-K for the period ended December 31, 2006, is replaced in its entirety by the following:

The Company Must Refinance its Secured Debt and its Senior Subordinated Notes or Undertake a Sale of the Rubber Group or of the Company.

     As more fully described in the “Liquidity” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Part I, Item 2, we are currently in default of our secured debt and our Senior Subordinated Notes and have entered into forbearance agreements with the secured lenders and holders of 74.5% of the Senior Subordinated Notes outstanding. The forbearance agreements are intended to allow us to attempt to remedy the payment defaults that now exist on our secured debt and Senior Subordinated Notes in an orderly fashion. During the concurrent forbearance periods, we plan to pursue all available strategic alternatives to satisfy our outstanding debt, including (i) the refinancing of our indebtedness, (ii) the sale of our Rubber Group and, (iii) the sale of the entire Company. We have retained W.Y. Campbell and Company, a Detroit-based investment banking firm, to assist us in our efforts. If we are unable to consummate any of these measures in the forbearance periods and the forbearance periods are not extended, we may seek protection under chapter 11 of the federal Bankruptcy Code in order to permit us to continue to operate our business in an orderly fashion until a restructuring of our secured debt and Senior Subordinated Notes can be consummated. Our consolidated financial statements have been presented on a “going concern” basis, as such term is used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to restructure, refinance, or repay our secured debt and Senior Subordinated Notes is subject to risks and uncertainties. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect theses risks and uncertainties.

Item 3. Defaults upon Senior Securities

     On November 1, 2006, and February 1 and May 1, 2007, we failed to pay the quarterly interest payments, each in the amount of $1,025,000, then due on our Senior Subordinated Notes.

Item 6. EXHIBITS

     The following exhibits are filed herewith:

10-1	Agreement, dated May 18, 2007, by and among Lexington Precision Corporation, Lexington Rubber Group, Inc., CapitalSource Finance LLC, Webster Business Credit Corporation, CSE Mortgage LLC and DMD Special Situation Funding, LLC.
10-2	Forbearance Agreement, dated May 25, 2007, by and among Lexington Precision Corporation and the holders of 12% Senior Subordinated Notes due August 1, 2009, signatory thereto.
10-3	First Supplemental Indenture, dated May 25, 2007, by and between Lexington Precision Corporation and Wilmington Trust Company, as Trustee.

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31-1	Rule 13(a) — 14(a) / 15(d) — 14(a) Certification of Michael A. Lubin, Chairman of the Board and Co-Principal Executive Officer of the registrant.
31-2	Rule 13(a) — 14(a) / 15(d) — 14(a) Certification of Warren Delano, President and Co-Principal Executive Officer of the registrant.
31-3	Rule 13(a) — 14(a) / 15(d) — 14(a) Certification of Dennis J. Welhouse, Chief Financial Officer and Principal Financial Officer of the registrant.
32-1	Certification of Michael A. Lubin, Chairman of the Board and Co-Principal Executive Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32-2	Certification of Warren Delano, President and Co-Principal Executive Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32-3	Certification of Dennis J. Welhouse, Chief Financial Officer and Principal Financial Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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LEXINGTON PRECISION CORPORATION

FORM 10-Q
March 31, 2007

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)
June 6, 2007	By:	/s/ Michael A. Lubin
Date		Michael A. Lubin
		Chairman of the Board
June 6, 2007	By:	/s/ Warren Delano
Date		Warren Delano
		President
June 6, 2007	By:	/s/ Dennis J. Welhouse
Date		Dennis J. Welhouse
		Senior Vice President and
		Chief Financial Officer

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EX-10.1

Exhibit 10-1

EXECUTION VERSION

AGREEMENT

          This AGREEMENT (“Agreement”) is made as of May 18, 2007 by and between Lexington Precision Corporation (“LPC”) and Lexington Rubber Group, Inc. (“LRG”) (collectively, the “Borrowers”), as borrowers under that certain Credit and Security Agreement with Borrower dated May 31, 2006 (as amended to date and as may be amended, restated or otherwise modified from time to time, the “Credit Agreement”), and CapitalSource Finance LLC (“CapitalSource”), as a lender, as collateral agent and administrative agent for itself and other lenders under the Credit Agreement (CapitalSource, when acting in such capacity, is herein called the “Revolver Agent”), and as Co-Documentation Agent, and Webster Business Credit Corporation (“Webster”) as a lender (CapitalSource and Webster, as lenders, collectively the “Revolver Lenders”) and as Co-Documentation Agent (CapitalSource and Webster in such capacity, collectively the “Co-Documentation Agents”), and by and among Borrowers as borrowers under that certain Loan and Security Agreement dated May 31, 2006 (as amended to date and as may be amended, restated or otherwise modified from time to time, the “Loan Agreement”) and CSE Mortgage LLC (“CSE”), as a lender and as collateral agent for itself and each other lender under the Loan Agreement (CSE, when acting in such capacity, is herein called the “Loan Agent”) (Revolver Agent and Loan Agent, collectively, the “Agents”), and DMD Special Situations Funding, LLC, (“DMD”), as a lender under the Loan Agreement (CSE and DMD collectively, the “Mortgage Loan Lenders”) (Revolver Lenders and Mortgage Loan Lenders collectively, the “Lenders”; those Lenders agreeing to this Agreement the “Forbearing Lenders”).

RECITALS:

     A. Revolver Lenders have loaned money and made credit available to Borrowers in accordance with the terms of the Credit Agreement. Mortgage Loan Lenders have loaned money and made credit available to Borrowers in accordance with the terms of the Loan Agreement.

     B. Borrowers and CapitalSource, Webster, CSE and DMD in their various capacities have entered into that certain First Amendment and Default Waiver Agreement dated as of November 20, 2006, (the “Former Forbearance Agreement”). Collectively the Credit Agreement, Loan Agreement and Former Forbearance Agreement may be referred to herein as the “Documents.”

     C. The Lenders have asserted that certain Defaults and Events of Default (each as defined in the Documents) have occurred under the Documents, as set forth in: (a) the Former Forbearance Agreement, (b) that Notice of Default and Notice of Termination letter issued to Borrowers by the Agents, dated February 2, 2007; (c) that certain Notice of Events of Default dated March 5, 2007; (d) that certain Notice of Events of Default dated April 4, 2007; and (e) those certain letters, the most recent of which is dated May 17, 2007, between Agent and the Borrowers related to amounts being borrowed by Borrowers under the Revolver (the “Discretionary Funding Letters” and, collectively with the correspondence identified in (b)-(e), the “Default Letters”). The Defaults and Events of Default set forth in the Former Forbearance Agreement and the Default Letters are hereby incorporated herein verbatim. The parties hereto agree that “Designated Defaults” as used herein include:

i. the Borrowers’ failure to meet the covenant set forth in Section 8.2 of the Credit Agreement and Loan Agreement as a result of their failure to meet their Fixed Charge Coverage requirement for the period ending January 31, 2007;

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ii.	the Borrowers’ failure to furnish, as required under Section 11.3 of the Credit Agreement, December 2006 covenant calculations pursuant to the request of Revolver Agent on or before February 15, 2007;
iii.	the Borrowers’ failure to obtain a landlord waiver for the Borrowers’ New York City location;
iv.	the Borrowers’ failure to make those certain interest payments arising under that certain Indenture dated as of November 18, 2003 (as supplemented or amended) in respect of LPC’s 12% Senior Subordinated Notes due August 1, 2009 (the “Subordinate Debt Issue”) due (1) November 1, 2006; (2) February 1, 2007; and (3) May 1, 2007 (or to cure such payment defaults within the applicable cure period);
v.	the Borrowers’ failure to meet the covenant set forth in Section 8.2 of the Credit Agreement and Loan Agreement as a result of their failure to meet their Fixed Charge Coverage requirements for the periods ending February 28, 2007, and March 31, 2007;
vi.	the Borrowers will fail, subsequent to the date of this Agreement, to make those certain interest payments on account of the Subordinate Debt Issue due (1) August 1, 2007 and (2) November 1, 2007 (and will not cure such payment defaults within the applicable cure period).

Borrowers contest that Designated Defaults i, ii, and iii are Defaults or Events of Default but acknowledge that Designated Defaults iv and v have occurred and are continuing to occur through the date of this agreement and that Designated Default vi will occur in the future. Borrowers acknowledge that the failure to list an alleged Default or Event of Default herein or in the Former Forbearance Agreement or Default Letters shall not impair Agents’ or Lenders’ abilities to pursue any rights or exercise any remedies related to such alleged Defaults or Events of Default upon an Event of Termination (as defined below).

     D. Borrowers acknowledge and agree that as a result of the occurrence of the Designated Defaults: (i) Agents and Lenders are entitled to accelerate the Obligations, to seek immediate payment in full of the Obligations and to exercise their rights and remedies under the Documents; and (ii) Lenders have no obligation to make further Loans or Advances or otherwise extend credit to Borrowers under the Documents or otherwise.

     E. On April 6, 2007, DMD sent a notice of acceleration to the Borrowers pursuant to which DMD made its election to accelerate the maturity of the Obligations owed to DMD. This acceleration commenced a 180-day standstill period pursuant to the Documents during which period DMD may not enforce its remedies (the “DMD Standstill Period”).

     F. Borrowers have requested that Agents and Lenders forbear from accelerating the Obligations and from taking present action to collect payment in full of the Obligations, and Lenders have agreed to do so under the terms and conditions set forth in this Agreement.

          NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, Agents, Lenders and Borrowers agree as follows:

     1. Incorporation of Recitals; Definitions. Each of the foregoing recitals is hereby acknowledged and affirmed as being accurate and complete and is hereby incorporated as part of this Agreement. Capitalized terms defined in the Recitals section of this Agreement are incorporated

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herein by this reference and are used herein as so defined. Capitalized terms used herein to the extent not otherwise defined herein, shall have the same meaning as provided in the Documents.

     2. Forbearance. Subject to the satisfaction of the terms and conditions set forth herein, until that date (the “Forbearance Termination Date”), which is the earliest to occur of (a) 4:00 p.m. (Eastern) on the one hundred twentieth day following the Effective Date (as defined herein) of this Agreement, plus an additional thirty (30) days (or sixty (60) days in the event of the execution of an LOI with a Deposit or an APA, as set forth in paragraph 3) should an Extending Event occur (as defined in the following paragraph), or (b) the consummation of a refinancing or a sale of the stock or assets of Borrowers (other than in the ordinary course), or (c) the date of the occurrence of any one or more Events of Termination (defined herein) (the “Forbearance Period”), Lenders will not exercise or enforce their rights or remedies against Borrowers which Agents or Lenders would be entitled to exercise or enforce under the terms of the Documents by reason of the occurrence or continuance of the Designated Defaults. This Agreement shall not act as a waiver of Agents or Lenders’ right to enforce any claims, rights or remedies, nor shall this Agreement act as a forbearance in the event Defaults or Events of Default (other than the Designated Defaults) occur at any time prior to the Forbearance Termination Date. Further, this forbearance shall not act as a waiver of Agents or Lenders’ right to enforce any claims, rights or remedies upon the occurrence of an Event of Termination. Nothing contained herein shall be construed as requiring the Forbearing Lenders to extend the Forbearance Termination Date, except pursuant to paragraph 3. On the Forbearance Termination Date, without notice, the Obligations shall be deemed automatically accelerated and immediately due and payable in full by Borrowers (unless Agents notify Borrowers otherwise in writing) to Lenders and the Borrowers’ ability to borrow additional amounts under any of the Documents shall be deemed terminated.

     3. Extending Events. An “Extending Event” shall be the delivery to Agents and Lenders of either of the following documents: (i) a letter conveying a financing proposal executed by Borrowers and an entity or person that has the financial capability to provide the proposed financing and which is not an affiliate or subsidiary in, or officer or director of, any Borrower (the “Refinancing Lender”), pursuant to which such Refinancing Lender commits to provide credit to the Borrowers, prior to the expiration of the Forbearance Period, in an amount equal to or in excess of the amount necessary to pay in full and in cash all Obligations owing on the date such amounts are remitted to the Lenders, provided that, as of such initial Forbearance Termination Date, such proposal or commitment letter does not have a contingency that makes the obligations of the Refinancing Lender subject to completing any due diligence (other than, with respect to any real estate, the completion of satisfactory surveys, title reports, environmental reports or other reports prepared by a governmental agency, engineer or attorney which such governmental agency or attorney advises the Borrowers will take more than thirty (30) days to complete) (the “Commitment Letter”); or (ii) one or more letters of intent (“LOI”) executed by Borrowers and entities or persons (the “Buyers”) pursuant to which the Borrowers, prior to the expiration of the Forbearance Period will sell such stock and/or assets and receive and tender the funds from such sale to Lenders at a price sufficient to repay in full and in cash all Obligations on the date the funds are remitted to the Lenders. In the event an LOI is executed during the initial Forbearance Period, the Forbearance Period shall be extended automatically to one hundred fifty (150) days from the Effective Date. In the event an LOI is executed which is accompanied by an earnest money deposit equal to at least three percent (3%) of the purchase price (the “Deposit”), or if an Asset Purchase Agreement or Stock Purchase Agreement (collectively the “APA”) is executed, or if the Deposit requirement of this Agreement is specifically waived by Agents, in writing, then the Forbearance Period (whether prior to the expiration of the initial Forbearance Period or during any extended Forbearance Period) will be extended, automatically, to a total of one hundred eighty (180) days from the Effective Date. The Deposit shall be remitted to an

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institutional Escrow Agent mutually satisfactory to the Borrowers, Buyers, Agents and Lenders.

     4. DMD Standstill. DMD agrees that the provisions of paragraphs 2 and 3 of this Agreement apply to the Obligations owed to DMD, provided, however, that the Standstill Period shall be deemed completed upon the Forbearance Termination Date.

     5. Fees, Costs, and Expenses of Lenders. All reasonable fees, costs, and expenses of Lenders (subject to any limitations provided to Agents’ Financial Advisor provided herein) shall be charged to the Borrowers when they become due during the Forbearance Period, in accordance with the Documents and this Agreement and Agents and Lenders shall not forbear from charging or collecting such amounts during the Forbearance Period.

     6. Interest Rate. Interest under all of the Documents shall be charged at the Default Rate and shall be paid to Lenders in accordance with the Documents. Agents and Lenders shall not forbear from charging or collecting such amounts during the Forbearance Period.

     7. Revolving Facility Prior to Forbearance Termination Date. During the period commencing on the Effective Date (defined below) and ending on the Forbearance Termination Date, Revolving Lenders shall make additional Advances under the Credit Agreement provided the conditions to such further Advances as set forth in this Agreement and in the Documents have been met, including but not limited to: availability, compliance with all covenants (as supplemented or amended), and that no Defaults or Events of Default other than the Designated Defaults and no Events of Termination have occurred. It is expressly acknowledged and agreed by Borrowers that upon an Event of Termination whether to make further Advances shall be solely within the discretion of the Revolving Agent or Revolving Lenders and that Revolving Agent’s or Revolving Lenders’ determination to extend Advances shall not in any manner be deemed to prejudice Revolving Agent or Revolving Lenders or act as a waiver of their otherwise applicable rights and remedies, including without limitation to cease making Advances without notice to Borrowers at any time, or to collect and enforce the full amount of the Obligations from and after the Forbearance Termination Date. As a condition to each Advance, Borrowers shall execute a form of Borrowing Base Certificate Agents will provide to the Borrowers which will represent that no Defaults or Events of Default exist under this Agreement, that there has been no material adverse event or change since the last Borrowing Base Certificate was submitted, and that reaffirms the terms of this Agreement (including the Releases provided to the Agents and Lenders hereunder) through the date of such borrowing.

     8. Forbearance Fee. A non-refundable forbearance fee in the amount equal to one percent of the Obligations outstanding on the Effective Date shall be charged on the Effective Date. The Forbearance Fee is deemed fully earned on the Effective Date and shall be paid as follows: Borrowers shall receive a credit of $130,140.64 against the Forbearance Fee for Default Interest charged during December 2006 and January 2007 on the Effective Date; the balance shall be due on the Forbearance Termination Date and Agent is directed to deduct such amount from the Revolving Credit Facility on the Forbearance Termination Date. If for any reason such amount is not paid on or before the Forbearance Termination Date, then the balance owing for such Forbearance Fee shall be added, pro rata (based upon the principal amounts then owing) to the Obligations outstanding under the Credit Agreement and Loan Agreements, all of which shall accrue interest at the rate or rates then being applied under the Credit Agreement and Loan Agreement from the Forbearance Termination Date until all Obligations are paid in full.

     9. Ratification of Existing Agreements and Amounts Owing. Borrowers hereby reaffirm all of the terms, conditions, representations and warranties of each of the Documents (except

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as expressly set forth herein with respect to the Designated Defaults which have occurred and are continuing) and acknowledge that all of the Obligations are, by Borrowers’ execution of this Agreement, ratified and confirmed in all respects by Borrowers. Borrowers acknowledge that, as of May 17, 2007 (prior to any borrowing May 17), Borrowers are obligated to repay the outstanding Obligations to Agents and Lenders, including without limitation $39,101,704.73 of outstanding principal, $1,562,000 of L/C Obligations, all accrued and unpaid interest, late charges, pre-payment premiums, and all reasonable fees, costs and expenses, including without limitation legal fees and expenses due pursuant to the Documents and this Agreement (whether incurred by outside or in-house legal counsel) (the “Balance”). The Balance, plus all additional advances and new Obligations incurred between May 1, 2007 and the Effective Date are subject to no offset, recoupment, claim, counterclaim or defense of any kind to their enforcement. Borrowers acknowledge and agree that they are unconditionally liable to Lenders on a joint and several basis under the Documents for the payment of all Obligations, plus all accrued and unpaid interest, late charges, pre-payment premiums, and all fees, costs and expenses incurred by Agents and Lenders, including without limitation reasonable legal fees and expenses, including in-house and outside attorneys’ fees and expenses, due pursuant to the Documents and this Agreement, the Agents’ Financial Advisor’s fees and expenses described below, and all other Obligations, each as set forth in the Documents or in this Agreement. Borrowers reaffirm that all Obligations are subject to the security interests previously granted under the Documents to the Lenders, that the Agents have, and will continue to have after execution of this Agreement, a continuing first (and second, as applicable) priority, perfected Lien on the Collateral, whether now owned or hereafter acquired, created or arising, as set forth in the Documents, subject to no Liens other than Liens expressly permitted under the Documents. Borrowers acknowledge and agree that nothing herein contained in any way impairs Lenders’ existing rights under the Documents or Agents’ first and second (as applicable) priority lien status in the Collateral.

     10. Effective Date and Conditions Precedent. The obligations of the parties hereunder shall become effective on the date when each of the following conditions are met (the “Effective Date”): (a) Borrowers shall have delivered to Agents this Agreement duly executed by an authorized officer of Borrowers; (b) the Forbearing Lenders shall have countersigned this Agreement; (c) Borrowers shall have delivered to Agents the Budget (as defined below); (d) the Borrowers and ninety-seven percent of the holders of the obligations evidencing the Subordinated Debt Issue (the “Holders”), or the indenture trustee on behalf of the Holders, shall have executed an agreement pursuant to which the Holders or the indenture trustee on behalf of the Holders agree not to take action to enforce any right or remedy related to the Subordinated Debt Issue during the Forbearance Period (the “Subordinate Debt Forbearance Agreement”); and (e) the secretary of Borrowers’ boards of directors shall have delivered to Agents a duly executed secretary’s and incumbency certificate identifying the current officers of Borrowers who are duly authorized by Borrowers’ board of directors to execute and deliver Documents, including without limitation this Agreement, and identifying the current members of the boards of directors of Borrowers. In the event condition precedent (d) of this paragraph is not satisfied by 5:00 p.m. (Eastern) May 25, 2007 (unless further extended by the Forbearing Lenders in writing), then the terms of this document shall be deemed to have been withdrawn, and the parties stipulate that none of the provisions of this Agreement shall be binding upon any party hereto.

     11. Representations and Warranties. Borrowers hereby represent and warrant that: (a) Borrowers are duly formed, validly existing and in legal good standing in the State of Delaware, that each of Borrowers has the power and authority to enter into this Agreement; (b) Borrowers have duly executed and delivered this Agreement and this Agreement constitutes the valid, binding and legal obligation of Borrowers; (c) this Agreement is not being entered into with the intent to hinder or

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defraud any person; and (d) the recitals set forth in the Recitals of this Agreement and all information and documents provided to Lenders in connection herewith are true, accurate and complete in all material respects. Further, Borrowers confirm, reaffirm and restate in all material respects to the Lenders, on and as of the Effective Date, the representations and warranties set forth in the Loan Agreement, the Credit Agreement, the Former Forbearance Agreement and the other Documents, except as may be set forth herein or to the extent that such representations and warranties solely relate to a specific earlier date in which case Borrowers confirm, reaffirm and restate in all material respects such representations and warranties as of such earlier date. Each request for an Advance under the Revolving Facility shall constitute Borrowers’ confirmation, reaffirmation and restatement in all material respects of the representations and warranties set forth in the this Agreement, the Loan Agreement, the Credit Agreement, the Former Forbearance Agreement and the other Documents as of the date of each such request, except as set forth herein or except to the extent that such representations and warranties relate to a specific earlier date in which case each such request shall constitute Borrowers’ confirmation, reaffirmation and restatement in all material respects of such representations and warranties as of such earlier date.

     12. Covenants. For purposes of this Agreement, EBITDA shall exclude expenses incurred by the Borrowers with their legal counsel and the I-Banker (as defined below) for professional services related directly to preparing for filing of a petition for relief under Chapter 11 of the Bankruptcy Code or the sale or refinancing of the business (the “Restructuring Charges”). For purposes of this Agreement, Fixed Charges shall exclude any charges in respect of the fees and expenses of legal counsel of the Agents and Lenders and the Agents’ Financial Advisor (as defined below). For the period commencing March 1, 2007 (the “Closing Date” for purposes of this Agreement only) and ending upon an Event of Termination, Borrowers and Lenders hereby amend Sections 8.2 of the Credit Agreement and Loan Agreement (Fixed Charge Coverage Ratio) to provide as follows: (A) Borrowers shall maintain a Fixed Charge Coverage Ratio as of the last day of each calendar month ending after the Closing Date of not less than (i) .85:1 for each month ending after the Closing Date through June 30, 2007; (ii) .75:1 for each month during the period July 1, 2007 through September 30, 2007; and (iii) .85:1 for each month during the period October 1, 2007 through an Event of Termination (if such Event of Termination occurs after October 1, 2007). For the period commencing on the Closing Date and ending upon an Event of Termination, Borrowers and Lenders hereby amend Sections 8.4 of the Credit Agreement and Loan Agreement (Leverage Ratio) to provide as follows: (B) Borrowers shall maintain a Leverage Ratio at the end of each month of not more than (i) 3.5:1 for each month after the Closing Date through June 30, 2007; (ii) 3.75:1 for each month after July 1, 2007 through September 30, 2007; and (iii) 3.5:1 for each month after October 1, 2007 through an Event of Termination (if such Event of Termination occurs after October 1, 2007). Measurement of the EBITDA component of the Leverage Ratio will be on a cumulative annualized basis beginning March 1, 2007 (consistent with what has previously been provided to the Agents’ Financial Advisor). Upon the occurrence of an Event of Termination, both the Fixed Charge Coverage Ratio and Leverage Ratio described above shall immediately revert, as of the Effective Date, to the ratios set forth in the Documents (as they existed prior to the amendments outlined in this Agreement).

     13. Financial Measurements/I-Banker. Borrowers agree to provide the following measurements to the Agents and Lenders during the Forbearance Period:

    a. Borrowers shall prepare a 13-week projection (in the form that has been previously provided since mid-February 2007) (the “Budget”). Every week, Borrowers will report actual results against the Budget and provide such information to Agents, Lenders and Agents’ Financial Advisor on or prior to the Status Call (as defined below). Borrowers

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	will also roll the Budget forward every two weeks to continue to project 13 weeks ahead. Borrowers agree to give Agents, Lenders and Agents’ Financial Advisor notice when they become aware of any customer intent to terminate or materially reduce any business. Borrowers will also provide an estimate of the impact of such event on monthly projections to the Agents’ Financial Advisor.
b.	Borrowers have provided to Agents’ Financial Advisor an updated revenue and EBITDA projection (the “Revenue and EBITDA Projection”). For purposes of compliance with this Agreement, the actual performance shall not be less than the Revenue and EBITDA Projection by more than ten percent (10%), on a cumulative basis from March 1, 2007. Actual results under the Revenue and EBITDA Projection shall be provided to the Agents, Lenders and Agents’ Financial Advisor monthly, twenty days after the end of the prior month, commencing June 20, 2007. For purposes of this Agreement, EBITDA shall exclude Restructuring Charges.
c.	Borrowers shall have delivered to Agents proof of execution of an engagement agreement with W.Y. Campbell, or such other financial advisor and/or investment banker selected by Borrowers and reasonably acceptable to Agents and Lenders (the “I-Banker”), in form and substance reasonably satisfactory to Agents and Lenders, by no later than May 31, 2007, for a period no less than the Forbearance Period and, pursuant to the terms of such engagement agreement, the I-Banker shall assist the Borrowers in their efforts to refinance the Obligations or effectuate a sale transaction of assets or stock sufficient to pay in full in cash all Obligations before the expiration of the Forbearance Period. Such I-Banker’s engagement shall outline the steps the I-Banker intends to take and also authorize the I-Banker to speak to Agents and Lenders as set forth in paragraph 14 herein, and to provide materials as provided in paragraph 14 herein by the dates specified. By no later than June 15, 2007, initial marketing materials shall be prepared, distributed to potential interested parties and provided to Agents and Lenders.

     14. Status Calls with Lender. Borrowers also agree that on every other Tuesday, commencing May 22, 2007, Agents, Agents’ Financial Advisor, Lenders, Borrowers (chief financial officer or co-chief executive officer) and I-Banker shall have a phone conference (the “Status Call”), commencing at a time set by agreement among the parties. During such calls, Borrowers and I-Banker shall update Agents, Agents’ Financial Advisor and Lenders as to (i) the Borrowers’ financial and operational status, including updates as to relations with vendors and suppliers, (ii) the occurrence of any litigation (pending or threatened) between Borrowers and any party where the amount in controversy exceeds $1,000,000, (iii) any change in status of any Material Agreements, any material matters or material occurrences (as required pursuant to Sections 10.1, 10.5 and 10.12 of the Credit Agreement and Loan Agreement), (iv) and updates as to efforts being undertaken and expressions of interest regarding refinancing proposals or any sale. Borrowers shall not be required to disclose to Agents, Agents’ Financial Advisor or Lenders the identities of any potential refinancing prospects or Buyers.

     15. Agents’ Financial Advisor. Agents have retained Bridge Associates, LLC (“Agents’ Financial Advisor” or “Bridge”) to assist them in evaluating the Borrowers’ financial and operational status and to assist them in connection with any legal proceedings that may arise. Agents have agreed that Borrowers shall be liable for Bridges’ fees of no more than $45,000, total, beginning on the Effective Date of this Agreement and for the months of June and July 2007, and no more than $50,000 for the period August through September 30, 2007. Should the Forbearance Period extend past September 30, 2007, Bridge’s fees shall not be subject to a cap, but will be limited by the terms

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of the Credit Agreement and Loan Agreement. Further, should an Event of Termination occur, then Borrowers acknowledge they shall be liable to Agents for all of Bridge’s reasonable fees and expenses, and Agents’ agreement to cap the fees as set forth herein shall not be deemed an admission by anyone that Bridge’s reasonable fees are the amount set forth in theses caps.

     16. Events of Termination. The occurrence of any one or more of the following events shall constitute an event of termination (each an “Event of Termination”) hereunder, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE: (a) a Default or Event of Default under the Documents (other than the Designated Defaults); (b) the failure of Borrowers to comply with the terms of this Agreement, including without limitation the failure of any covenant set forth in Paragraphs 11-13 of this Agreement; (c) the termination of the Subordinate Debt Forbearance Agreement; (d) the payment of any amount on account of the Subordinate Debt Issue or other Subordinated Debt; (e) the initiation of any federal or state bankruptcy, insolvency or similar proceeding by or against one or both Borrowers; (f) the claim, initiation or commencement of any claim or proceeding in favor of, through or by Borrowers against any Agent or Lender including any that alleges that the release of Agents and Lenders set forth herein or in any of the other Documents is invalid or unenforceable. Upon the occurrence and continuance of any Event of Termination, Agents may, at their option and with written notice to Borrowers, exercise any and all rights and remedies pursuant to the Documents.

     17. Release of Lenders. By execution of this Agreement, Borrowers acknowledge and confirm that they do not have any offsets, defenses or claims whatsoever against Agents, Lenders, or any of Agents or Lenders’ subsidiaries, affiliates, officers, directors, employees, agents, consultants, attorneys, predecessors, successors or assigns whether asserted or unasserted as of the Effective Date. To the extent that such offsets, defenses or claims may exist, Borrowers for each of themselves and their successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs and executors, as applicable (collectively, “Releasors”), jointly and severally, knowingly, voluntarily and intentionally release and forever discharge Agents, Lenders, their subsidiaries, affiliates, officers, directors, employees, agents, consultants, attorneys, predecessors, successors and assigns, both present and former (individually, a “Releasee” and collectively, the “Releasees”) of and from any and all manner of actions, causes of action, suits, debts, controversies, torts, damages, judgments, executions, claims and demands whatsoever, including, without limitation, any so-called “lender liability” claims or defenses which it has, asserted or unasserted, in law or in equity, which Releasors ever had or now have against the Releasees, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated based upon, or in any manner connected with (i) any transaction, event circumstance, action, omission, failure to act or occurrence of any sort or type, whether known or unknown, which occurred, existed, or was taken or permitted prior to the execution of this Agreement with respect to the Obligations, the Documents, including the Former Forbearance Agreement, or the administration thereof (ii) any discussions, commitments, negotiations, conversations or communications, whether oral or evidenced by a writing of any sort prior to the execution of this Agreement with respect to the Obligations, or (iii) any thing or matter related to any of the foregoing prior to the execution of this Agreement. Borrowers acknowledge and agree that the inclusion of this paragraph in this Agreement and the execution of this Agreement by the Agents and Lenders does not constitute an acknowledgment or admission by the Agents or Lenders of liability for any matter, or a precedent upon which any liability may be asserted. If Borrowers assert or commence any claim, counter-claim, demand, obligation, liability or cause of action in derogation of the foregoing release or challenges the enforceability of the foregoing release (in each case, a “Violation”), then the Borrowers jointly and severally agree to pay in addition to such other damages as any Releasee may sustain as a result of such Violation, all attorneys’ fees and expenses (including in-house and outside counsels’) incurred by such Releasee as a result of such

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Violation. Specifically covered by this Release are the claims or defenses arising on account of the allegations Borrowers made prior to their execution of this Agreement that Agents or Lenders improperly charged the Default Rate for any period, incorrectly asserted any covenant violation by Borrowers (including those identified in Paragraph C of the Recitals in this Agreement), or that Borrowers executed any of the Default Letters while under duress or without the advice of legal counsel.

     18. No Waiver by Agents or Lenders. Except as specifically set forth in this Agreement, nothing in this Agreement shall extend to or affect in any way any of the Obligations or any of the rights of Agents or Lenders and remedies of Agents or Lenders arising under the Documents. Agents and Lenders shall not be deemed to have waived any or all of such rights or remedies with respect to any default or event or condition which, with notice or the lapse of time, or both, would become a Default or Event of Default under the Documents and which upon Borrowers’ execution and delivery of this Agreement might otherwise exist or which might hereafter occur. The failure of Agents or Lenders at any time or times hereafter to require strict performance by Borrowers of any of the provisions, warranties, terms and conditions contained in this Agreement or in the Documents shall not waive, affect or diminish any right of Agents or Lenders at any time or times thereafter to demand strict performance thereof; and, no rights of Agents or Lenders hereunder shall be deemed to have been waived by any act or knowledge of Agents, Lenders, or either of their agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an authorized officer of each of the Agents and Lenders and directed to such Person specifying such waiver. No waiver by Agents or Lenders of any of their rights shall operate as a waiver of any other of their rights or any of their rights on a future occasion at any time and from time to time. All terms and conditions of the Documents remain in full force and effect except to the extent specifically modified by this Agreement.

     19. Acknowledgment/Waiver of Legal Counsel; Drafting of Agreement. Borrowers represent and warrant that: (a) they are represented by legal counsel of their choice, are fully aware of the terms contained in this Agreement and have voluntarily and without coercion or duress of any kind, entered into this Agreement and the documents executed in connection with this Agreement; or (b) they have knowingly and intentionally waived their right to have legal counsel of their choice review and represent them with respect to the negotiation and preparation of this Agreement. Borrowers further represent and warrant and acknowledge and agree that they have participated in the drafting of this Agreement.

     20. Entire Agreement; No Third-Party Beneficiaries; Binding Affect. This Agreement constitutes the entire and final agreement among the parties with respect to the subject matter hereof and there are no agreements, understandings, warranties or representations among the parties with respect to the subject matter hereof except as set forth herein. This Agreement will inure to the benefit and bind the respective heirs, administrators, executors, representatives, successors and permitted assigns of the parties hereto. Nothing in this Agreement or in the Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the Documents.

     21. Governing Law. This Agreement is executed and delivered in the State of New York (the “State”) and it is the desire and intention of the parties that it be in all respects interpreted according to the laws of the State, without reference to its conflicts of law principles. Borrowers specifically and irrevocably consent to the jurisdiction and venue of the federal and state courts of the State with respect to all matters concerning this Agreement or the Documents or the enforcement of any of the foregoing. The parties hereto agree that the execution and performance of this Agreement

-9-

shall have a State situs and accordingly, consent to personal jurisdiction in the State.

     22. Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original document, but all of which will constitute a single document. This document will not be binding on or constitute evidence of a contract between the parties until such time as a counterpart of this document has been executed by each of the parties and a copy thereof delivered to each party under this Agreement.

     23. WAIVER OF JURY TRIAL. THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF AGENTS OR LENDERS AND/OR BORROWERS WITH RESPECT TO THE DOCUMENTS, INCLUDING THIS AGREEMENT, OR IN CONNECTION WITH ANY DOCUMENT EXECUTED IN CONNECTION WITH THE DOCUMENTS OR THIS AGREEMENT OR THE EXERCISE OF ANY PARTIES’ RIGHTS AND REMEDIES UNDER THE DOCUMENTS OR THIS AGREEMENT (WHETHER SUCH EXERCISE WAS CORRECT OR IN ERROR) OR OTHERWISE, OR THE CONDUCT OF THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWERS AGREE THAT AGENTS AND LENDERS MAY FILE A COPY OF THIS DOCUMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED FOR AGREEMENT OF BORROWERS IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF AGENTS OR LENDERS TO ENTER INTO THIS AGREEMENT AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHERESOVER BETWEEN BORROWERS AND AGENTS OR ANY LENDER SHALL INSTEAD BY TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. BORROWERS CERTIFY THAT NEITHER THE AGENTS NOR LENDERS NOR ANY OF THEIR REPRESENTATIVES, AGENTS OR COUNSEL HAVE REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENTS AND LENDERS WOULD NOT IN THE EVENT OF ANY SUCH SUIT, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.

     24. Agreement Controls. In the event of any inconsistency between this Agreement and the Documents, the terms of this Agreement shall control.

[Signature page follows.]

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     IN WITNESS WHEREOF, the parties have executed this Forbearance Agreement under seal as of the day and year first written above.

BORROWER:
	Lexington Precision Corporation
	By: Name:	/s/ Warren Delano Warren Delano
	Its:	President
	Lexington Rubber Group, Inc.
	By: Name:	/s/ Warren Delano Warren Delano
	Its:	President
AGENTS AND FORBEARING LENDER:
	CapitalSource Finance LLC
	By: Name:	/s/ Joanne Fungaroli Joanne Fungaroli
	Its:	Authorized Signatory
	Webster Business Credit Corporation
	By: Name:	/s/ Alan F. McKay Alan F. McKay
	Its:	Vice President
	CSE Mortgage LLC
	By: Name:	/s/ Joanne Fungaroli Joanne Fungaroli
	Its:	Authorized Signatory
	DMD Special Situations Funding, LLC
	By: Name:	/s/ Hans C. Geyer Hans C. Geyer
	Its:	Director of Investments

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EX-10.2

Exhibit 10-2

FORBEARANCE AGREEMENT

          This FORBEARANCE AGREEMENT (the “Agreement”), dated as of May 25, 2007, by and among LEXINGTON PRECISION CORPORATION, a Delaware corporation (“Lexington”), and each of the undersigned holders (collectively, “Holders” and each, a “Holder”) of 12% Senior Subordinated Notes due August 1, 2009 (the “Notes”) issued by Lexington pursuant to the Indenture dated as of December 18, 2003 (the “Original Indenture” and, together with and after giving effect to the First Supplemental Indenture (as defined below), the “Indenture”).

WITNESSETH:

          WHEREAS, Lexington and the Holders are engaged in good faith negotiations with the objective of reaching an agreement with regard to a corporate and financial restructuring of Lexington and its subsidiaries, including indebtedness held by the Holders;

          WHEREAS, Lexington has failed to make the November 1, 2006 and the February 1, 2007 interest payments (the “Interest Payments”) due under the Indenture;

          WHEREAS, the Holders and Lexington are desirous of continuing good faith negotiations and in furtherance thereof, the Holders have agreed to forbear from the exercise of any rights or remedies under the Indenture as provided in this Agreement; and

          WHEREAS, Lexington and Wilmington Trust Company, a Delaware banking corporation, as trustee (the “Trustee”) under the Indenture, desire to supplement the Original Indenture with the supplemental indenture, attached hereto as Exhibit A (the “First Supplemental Indenture”).

          NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements as set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lexington and each Holder hereby agree as follows:

          1. Definitions. Each term used as a defined term in this Agreement but not defined herein has the meaning given to such term in the Indenture. In addition, the following terms shall have the meanings ascribed as follows:

     “CapitalSource Senior Facility” shall mean the Credit and Security Agreement by and among Lexington and Lexington Rubber Group, Inc. (“LRGI”) as borrowers, CapitalSource Finance LLC (“CapitalSource”) as a lender, as Agent, and as Co-Documentation Agent, and Webster Business Credit Corporation as a lender and as Co-Documentation Agent, dated May 31, 2006.

     “Refinancing” shall mean a refinancing of the Indebtedness of Lexington and LRGI in sufficient amount and on such terms as permit Lexington to repay in full the Notes (other than the Notes held by affiliates of Lexington).

     “Required Holders” shall mean those Holders who own a majority of the outstanding principal amount of the Notes.

     “Sale” shall mean a sale of either (i) Lexington; (ii) the stock of LRGI; or (iii) the assets and business of LRGI.

          2. Forbearance.

          (a) Generally. The Holders hereby agree that during the Forbearance Period (as defined below) each Holder will forbear from the exercise of any rights or remedies (including instructing the Trustee to take actions on its behalf) it may have under the Indenture, applicable law or otherwise, including joining or filing an involuntary petition under title 11 of the United States Code against Lexington or any of its subsidiaries, that arise solely as a result of (x) Lexington’s nonpayment of (i) the Interest Payments or (ii) any other interest payments due on the Notes during the Forbearance Period, or (y) the triggering of an event of default under Section 6.01(4) or (5) of the Indenture.

          (b) Forbearance Period. The period of forbearance (the “Forbearance Period”) shall commence on the date hereof and end on November 25, 2007, subject to earlier termination pursuant to the terms of Section 2(c) hereof.

          (c) Early Termination of Forbearance Period. Notwithstanding any provision of this Agreement to the contrary, the Required Holders, in their sole discretion, may terminate this Agreement at any time if:

               (i) Lexington is in violation of the terms of this Agreement; provided, however, that the Required Holders shall timely notify Lexington of such violation; and provided further, however, that the Required Holders may not terminate this Agreement if Lexington cures the violation within three (3) business days after receiving notice of such violation; or

               (ii) CapitalSource accelerates the Indebtedness under the CapitalSource Senior Facility or ceases to make loans available under the CapitalSource Senior Facility as a result of a default thereunder.

          (d) Conditions Precedent. This Agreement shall become effective only upon satisfaction or waiver by Lexington of the following conditions precedent:

               (i) Each Holder shall have consented to the execution and delivery by Lexington and the Trustee of the First Supplemental Indenture.

               (ii) Lexington and the Trustee shall have simultaneously herewith executed the First Supplemental Indenture.

          (e) Holders’ Rights and Remedies upon Expiration or Termination of Forbearance Period. Upon the expiration of the Forbearance Period as provided in Section 2(b) hereof or termination of the Forbearance Period pursuant to Section 2(c)

2.

hereof, each of the Holders shall have all rights and remedies available to it under the Indenture, applicable law or otherwise with respect to any default under the Indenture that may have occurred at any time prior to the expiration or termination of the Forbearance Period and which default has not been waived or otherwise cured.

          3. Forbearance Interest. Notwithstanding any provision in the Indenture to the contrary, the interest rate on the Notes shall be increased to 16% per annum from March 9, 2007 to the earlier of (i) the date of Redemption (as defined below) of the Notes held by the Holders or (ii) the filing of a voluntary or an involuntary petition by or against Lexington or any of its subsidiaries under title 11 of the United States Code or commencement of any similar proceeding under state law.

          4. Additional Covenants and Terms.

          (a) Lexington covenants and agrees as follows:

               (i) During the Forbearance Period, Lexington shall use commercially reasonable efforts to either conduct a Sale or consummate a Refinancing.

               (ii) Within ten (10) days after the date hereof, Lexington shall hire W.Y. Campbell & Company or another investment banker of recognized national standing in the sale of middle-market industrial companies (the “Investment Banker”) to conduct a Sale or consummate a Refinancing.

               (iii) Within forty-five (45) days after the date hereof, Lexington shall make a “marketing book” with respect to a Sale or a Refinancing available to qualified buyers or financing sources who execute appropriate (as determined by Lexington) confidentiality agreements.

               (iv) Throughout the Forbearance Period, Lexington and the Investment Banker shall have a semi-weekly status call with the Holders regarding Lexington’s business and the sale and refinancing process.

               (v) Throughout the Forbearance Period, Lexington shall provide the Holders with monthly financial statements similar to those provided under the CapitalSource Senior Facility.

               (vi) Within three (3) business days after the closing date of a Sale or a Refinancing, from the net cash proceeds of such Sale or Refinancing, Lexington shall pay in cash, in immediately available funds, the aggregate outstanding principal amount of the Notes (other than those Notes held by affiliates of Lexington), plus all accrued interest thereon through the date of such repayment pursuant to this Section 4(a)(vi) (the “Redemption”).

               (vii) Throughout the Forbearance Period, Lexington shall not incur any additional Indebtedness, except (i) debt pursuant to the CapitalSource Senior Facility (or any replacement or refinancing thereof); (ii) purchase money or similar

3.

financing for the purchase of property and equipment not in excess of $500,000 at any one time outstanding; and (iii) Indebtedness junior to the Notes.

          (b) Each Holder covenants and agrees as follows:

               (i) All existing confidentiality agreements between each Holder and Lexington are hereby extended until the expiration or termination of the Forbearance Period.

               (ii) Each Holder by executing this Agreement, hereby, (x) authorizes the Trustee to execute and deliver the First Supplemental Indenture and (y) agrees not to direct the Trustee to take any action during the Forbearance Period to enforce any rights or remedies the Trustee may have under the Indenture, including accelerating the Notes, as a result of the matters referred to in Section 2(a) hereof.

               (iii) No Holder may sell, assign or transfer its ownership interest in the Notes unless the purchaser, assignee or transferee agrees in writing to be bound by the terms of this Agreement.

          5. Representation as to Beneficial Ownership. Each of the Holders represents that, as of the date hereof, it is the beneficial owner of, and/or the investment adviser or manager (with the power to vote and dispose of such Notes issued pursuant to the Indenture on behalf of the beneficial owners) for the beneficial owners of, the Notes issued pursuant to the Indenture, in the amount set forth below its name on the signature pages hereto.

          6. Expenses. Lexington agrees that it shall continue to reimburse Andrews Kurth LLP, counsel to the Holders, pursuant to the terms of that certain Engagement Letter, dated December 26, 2006, by and between Lexington and Andrews Kurth LLP, through the expiration or termination of the Forbearance Period.

          7. Headings. The titles and headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

          8. Modification. This Agreement may not be altered, modified or amended except by a writing signed by each party hereto.

          9. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to any conflicts of law provision which would require the application of the law of any other jurisdiction.

          10. Successors and Assigns. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns and transferees.

4.

          11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement.

          12. Facsimile Signatures. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

          13. No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the parties hereto and no other person or entity shall be a third-party beneficiary hereof.

          14. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by express or overnight mail delivered by a nationally recognized air courier (delivery charges prepaid), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:

     if to Lexington:

Lexington Precision Corporation
800 Third Avenue, 15^th Floor
New York, New York 10022
Attention: Michael A. Lubin

     if to the Holders:

To the addresses listed on the signature
pages below the name of each Holder

or to such other address as the party to whom notice is given may have previously furnished to the others in writing.

          IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer as of the date first above written.

LEXINGTON PRECISION CORPORATION
By:	/s/ Warren Delano
	Name:	Warren Delano
	Title:	President

5.

Name of Holder:	Jefferies High Yield Trading, LLC
Address:	The Metro Center One Station Place, Three North Stamford, CT 06902

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $12,690,000

JEFFERIES HIGH YIELD TRADING, LLC

By:	/s/ Robert J. Welch
	Name:	Robert J. Welch
	Title:	Chief Financial Officer

6.

Name of Holder:	Wilfrid Aubrey Growth Fund, L.P.
Address:	100 William Street, Suite 1850 New York, NY 10038

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $1,621,000

WILFRID AUBREY GROWTH FUND, L.P.

By: WILFRID AUBREY ASSOCIATES LLC, a Delaware limited liability company,
       its General Partner

By:	/s/ Nicholas W. Walsh CFA
	Name:	Nicholas W. Walsh CFA
	Title:	Principal

Name of Holder:	Wilfrid Aubrey International Limited
Address:	100 William Street, Suite 1850 New York, NY 10038

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $2,856,000

WILFRID AUBREY INTERNATIONAL LIMITED

By: WILFRID AUBREY LLC, a Delaware limited liability company,
       its Investment Manager

By:	/s/ Nicholas W. Walsh CFA
	Name:	Nicholas W. Walsh CFA
	Title:	Principal

7.

Name of Holder:	First Trust Strategic High Income Fund
Address:	2527 Nelson Miller Parkway, Suite 207 Louisville, KY 40223

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $1,500,000

FIRST TRUST STRATEGIC HIGH INCOME FUND

By: VALHALLA CAPITAL PARTNERS LLC, its Sub-Advisor

By:	/s/ Rip Mecherle
	Name:	Rip Mecherle
	Title:	Managing Partner

Name of Holder:	First Trust Strategic High Income Fund II
Address:	2527 Nelson Miller Parkway, Suite 207 Louisville, KY 40223

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $1,500,000

FIRST TRUST STRATEGIC HIGH INCOME FUND II

By: VALHALLA CAPITAL PARTNERS LLC, its Sub-Advisor

By:	/s/ Rip Mecherle
	Name:	Rip Mecherle
	Title:	Managing Partner

8.

Name of Holder:	Cape Fund, LP
Address:	One Georgia Center, Suite 1560 600 West Peachtree Street Atlanta, GA 30308

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $1,556,000

CAPE FUND, LP

By: CAPE INVESTMENTS, LLC, its General Partner

By:	/s/ J. T. King
	Name:	J. T. King
	Title:

Name of Holder:	Cape Fund II, LP
Address:	One Georgia Center, Suite 1560 600 West Peachtree Street Atlanta, GA 30308

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $444,000

CAPE FUND II, LP

By: CAPE INVESTMENTS, LLC, its General Partner

By:	/s/ J. T. King
	Name:	J. T. King
	Title:

9.

Name of Holder:	Hedgehog Capital LLC
Address:	1117 E. Putnam Ave., #320 Riverside, CT 06878

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $1,761,000

HEDGEHOG CAPITAL LLC

By:	/s/ Robert Chung
	Name:	Robert Chung
	Title:

10.

Name of Holder:	Sandler Capital Structure Opportunities Master Fund, Ltd
Address:	711 Fifth Avenue, 15th Floor New York, NY 10022

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $1,271,000

SANDLER CAPITAL STRUCTURE OPPORTUNITIES MASTER FUND, LTD

By: SANDLER CAPITAL MANAGEMENT, its Investment Manager

     By: SERF CORP, a general partner

By:	/s/ Moira Mitchell
	Name:	Moira Mitchell
	Title:	President

Name of Holder:	Permal Capital Structure Opportunities, Ltd.
Address:	711 Fifth Avenue, 15th Floor New York, NY 10022

Amount of 12% Senior Subordinated Notes
due August 1, 2009 Beneficially Owned: $229,000

PERMAL CAPITAL STRUCTURE OPPORTUNITIES, LTD.

By: SANDLER CAPITAL MANAGEMENT, its Investment Manager

     By: SERF CORP, a general partner

By:	/s/ Moira Mitchell
	Name:	Moira Mitchell
	Title:	President

11.

EXHIBIT A

First Supplemental Indenture

12.

EX-10.3

Exhibit 10-3

FIRST SUPPLEMENTAL INDENTURE

between

LEXINGTON PRECISION CORPORATION

and

WILMINGTON TRUST COMPANY, as Trustee

Dated as of May 25, 2007

     FIRST SUPPLEMENTAL INDENTURE (this “First Supplemental Indenture”), dated as of May 25, 2007, between LEXINGTON PRECISION CORPORATION, a Delaware corporation (the “Company”), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the “Trustee”).

W I T N E S S E T H :

     WHEREAS, the Company and the Trustee have executed and delivered heretofore an Indenture, dated as of December 18, 2003 (the “Original Indenture” and, together with and after giving effect to this First Supplemental Indenture, the “Indenture”);

     WHEREAS, capitalized terms used in this First Supplemental Indenture that are not defined herein but are defined in the Original Indenture shall have the meaning ascribed to them in the Original Indenture;

     WHEREAS, pursuant to the Original Indenture, the Company has issued its 12% Senior Subordinated Notes due August 1, 2009;

     WHEREAS, the Company is in default with respect to the payment of interest under the Securities;

     WHEREAS, consent of the Holders of at least a majority in principal amount of the outstanding Securities having been received by the Company, the parties desire to supplement the Indenture as set forth herein; and

     NOW THEREFORE, for and in consideration of the premises, it is mutually covenanted and agreed, for the equal and ratable benefit of all Holders of the Securities as follows:

     SECTION 1.      DEFINITIONS

     Article One of the Original Indenture is hereby amended to add the following definitions in appropriate alphabetical order:

     “Forbearance Agreement” means that certain Forbearance Agreement, dated as of May 25, 2007, by and among the Company and the Holders listed on the signature pages thereto.

     “Refinancing” means a refinancing of the Indebtedness of the Company and LRGI, pursuant to a transaction contemplated in the Forbearance Agreement.

     “Restructuring Sale” means (i) a sale, whether by merger, consolidation, reorganization, stock sale, binding share exchange or sale of all or substantially all of the assets of the Company, or LRGI, pursuant to a transaction contemplated in the Forbearance Agreement, or (ii) a Change of Control, pursuant to a transaction contemplated in the Forbearance Agreement.

     SECTION 2. OTHER DEFINITIONS.

     Section 1.02 of the Original Indenture is hereby amended to add the following definition in the appropriate alphabetical location:

Term	Defined in Section
“Restructuring or Refinancing Redemption	4.13”

     SECTION 3.      REDEMPTION.

     (a) Section 3.01. The last sentence of Section 3.01 of the Original Indenture is hereby amended to read in its entirety as follows:

“The Company shall give such notice and Officer’s Certificate provided for in this Section at least 45 days, but not more than 60 days before the redemption date; provided, however, that upon a Restructuring or Refinancing Redemption the Company shall give such notice and Officer’s Certificate provided for in this Section at least two (2) Business Days before the applicable redemption date.”

     (b) Section 3.03. The first sentence of Section 3.03 of the Original Indenture is hereby amended to read in its entirety as follows:

“At least 30 days, but not more than 60 days before a redemption date, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at his address as it appears on the registration books of the Registrar, provided, however, that upon a Restructuring or Refinancing Redemption, the Company shall mail such notice of redemption at least one (1) Business Day before the applicable redemption date and shall also, in accordance with its obligations under Regulation FD under the Exchange Act, issue a press release describing the proposed transactions pursuant to such notice, and shall file a Current Report on Form 8-K under the Exchange Act, attaching such press release.”

     SECTION 4.      RESTRUCTURING SALE OR REFINANCING.

     A new Section 4.13 is hereby added after Section 4.12 of the Original Indenture, to read in its entirety as follows:

     “SECTION 4.13. Restructuring Sale or Refinancing.

     The Company shall redeem all outstanding Securities, pursuant to Section 5 of the Securities, within three (3) Business Days of the closing of a Restructuring Sale or Refinancing (a “Restructuring or Refinancing Redemption”).”

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     SECTION 5.      DEFAULT INTEREST

     Notwithstanding any provision of the Original Indenture or the Securities to the contrary, the Company shall pay interest on the outstanding Securities at the rate of 16% per annum from and after March 9, 2007 to the earlier of (i) the date of redemption of the Securities pursuant to a Restructuring or Refinancing Redemption, or (ii) the filing of a voluntary or an involuntary petition by or against the Company or any of its subsidiaries under Title 11 of the U.S. Code or commencement of any similar proceeding under state law.

     SECTION 6.      CONFIRMATION OF INDENTURE.

     Except as expressly supplemented hereby, the Original Indenture shall continue in full force and effect in accordance with the provisions thereof, and the Indenture is in all respects hereby ratified and confirmed. This First Supplemental Indenture and all its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided.

     SECTION 7.      GOVERNING LAW.

     This Fifth Supplemental Indenture shall be governed by the laws of New York without reference to its principles of conflicts of laws.

     SECTION 8.      DUPLICATE ORIGINALS.

     The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4

     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereto affixed and attested, all as of the date of execution.

SIGNATURES

LEXINGTON PRECISION CORPORATION
By: Name:	/s/ Warren Delano Warren Delano
Title:	President

Attest: /s/ Michael A. Lubin (Seal)

Dated: May 25, 2007

WILMINGTON TRUST COMPANY, as Trustee
By:	/s/ Joseph B. Feil
Name:	Joseph B. Feil
Title:	Assistant Vice President

Attest: /s/ I. A. Lennon (Seal)

Dated: May 25, 2007

EX-31.1

Exhibit 31-1

CERTIFICATION

I, Michael A. Lubin, certify that:

1.	I have reviewed this Form 10-Q of Lexington Precision Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 6, 2007

/s/ Michael A. Lubin Michael A. Lubin

Chairman of the Board

(Co-Principal Executive Officer)

EX-31.2

Exhibit 31-2

CERTIFICATION

I, Warren Delano, certify that:

1.	I have reviewed this Form 10-Q of Lexington Precision Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 6, 2007

/s/ Warren Delano

Warren Delano

President and Director

(Co-Principal Executive Officer)

EX-31.3

Exhibit 31-3

CERTIFICATION

I, Dennis J. Welhouse, certify that:

1.	I have reviewed this Form 10-Q of Lexington Precision Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 6, 2007

/s/ Dennis J. Welhouse

Dennis J. Welhouse
Senior Vice President,
Chief Financial Officer, and Secretary
(Principal Financial Officer)

EX-32.1

Exhibit 32-1

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Lexington Precision Corporation, a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chairman of the Board, hereby certifies pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the undersigned’s knowledge other than, with respect to clause (1) below, the timing of the Report:

     (1) the Report of the Company filed today pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), fully complies with the requirements of Section 13(a) of the Exchange Act; and

     (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael A. Lubin

Michael A. Lubin

Chairman of the Board

(Co-Principal Executive Officer)

June 6, 2007

A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Company’s Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32-2

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Lexington Precision Corporation, a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the President, hereby certifies pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the undersigned’s knowledge other than, with respect to clause (1) below, the timing of the Report:

     (1) the Report of the Company filed today pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), fully complies with the requirements of Section 13(a) of the Exchange Act; and

     (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Warren Delano

Warren Delano
President
(Co-Principal Executive Officer)

June 6, 2007

A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Company’s Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.3

Exhibit 32-3

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Lexington Precision Corporation, a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer, hereby certifies pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the undersigned’s knowledge other than, with respect to clause (1) below, the timing of the Report:

     (1) the Report of the Company filed today pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), fully complies with the requirements of Section 13(a) of the Exchange Act; and

     (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dennis J. Welhouse

Dennis J. Welhouse
Senior Vice President,
Chief Financial Officer, and Secretary
(Principal Financial Officer)

June 6, 2007

A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Company’s Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.