UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENTS
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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[ ] Preliminary Proxy Statement
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permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
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LEXINGTON PRECISION CORPORATION
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------
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LEXINGTON PRECISION CORPORATION
40 EAST 52ND STREET
NEW YORK, NEW YORK 10022
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2005
Notice is hereby given that the Annual Meeting of Stockholders of
LEXINGTON PRECISION CORPORATION (the "Company") will be held at the offices of
Nixon Peabody LLP, 437 Madison Avenue, 24th Floor, New York, New York, on
Tuesday, May 17, 2005, at 10:30 A.M., for the purpose of considering and acting
upon the following matters:
1. The election of six directors by the holders of Common Stock and $8
Cumulative Convertible Preferred Stock, Series B, as set forth in the
accompanying Proxy Statement;
2. Approval of the adoption by the Board of Directors of the 2005 Stock
Award Plan;
3. The ratification of Ernst & Young LLP as independent auditors of the
Company for the year ending December 31, 2005; and
4. The transaction of such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on April 8, 2005,
as the record date for determining the stockholders of the Company entitled to
receive notice of and to vote at the meeting and any adjournments thereof.
PLEASE SIGN, DATE, AND MAIL THE ENCLOSED PROXY PROMPTLY. A POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
Dennis J. Welhouse
Secretary
April 21, 2005
New York, New York
LEXINGTON PRECISION CORPORATION
40 EAST 52ND STREET
NEW YORK, NEW YORK 10022
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2005
This Proxy Statement is being mailed to stockholders on or about April 25,
2005, in connection with the solicitation by the Board of Directors of LEXINGTON
PRECISION CORPORATION, a Delaware corporation (the "Company"), of proxies to be
voted at the annual meeting of stockholders of the Company to be held on May 17,
2005 (the "Annual Meeting"). Accompanying this Proxy Statement are the Notice of
Annual Meeting of Stockholders, a form of proxy for such meeting, and a copy of
the Company's Annual Report for the year ended December 31, 2004, which contains
financial statements and related data.
All proxies that are properly completed, signed, and returned to the
Company in time will be voted in accordance with the instructions thereon.
Proxies may be revoked prior to the exercise thereof by filing with the
Secretary of the Company a written revocation or a duly executed proxy bearing a
later date, or by voting in person at the Annual Meeting. The cost of preparing
and mailing the accompanying form of proxy and related materials and the cost of
soliciting proxies will be borne by the Company. The Company has requested
brokers, custodians, and other like parties to distribute proxy materials to the
beneficial owners of shares and to solicit their proxies and will reimburse such
persons for their services in doing so. Without additional compensation,
officers and regular employees of the Company may solicit proxies personally or
by telephone. The cost of additional solicitation incurred other than by use of
the mails is estimated not to exceed $3,000.
Only stockholders of record at the close of business on the record date,
April 8, 2005, are entitled to notice of, and to vote at, the Annual Meeting and
any adjournments thereof. As of the record date, there were outstanding
4,931,767 shares of the Company's common stock, $0.25 par value (the "Common
Stock"), and 3,300 shares of its $8 Cumulative Convertible Preferred Stock,
Series B, $100 par value (the "Series B Preferred Stock"), each entitling the
holder thereof to one vote. The holders of a majority of the outstanding shares
of Common Stock and Series B Preferred Stock present in person or represented by
proxy, voting together, will constitute a quorum for all matters before the
Annual Meeting. The affirmative vote of a plurality of the shares of Common
Stock and Series B Preferred Stock present in person or represented by proxy and
entitled to vote at the Annual Meeting, voting together, is required for the
election of the six directors. All other matters require the affirmative vote of
a majority of the shares of Common Stock and Series B Preferred Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting.
With regard to the election of directors, votes may be cast in favor or
withheld. Votes withheld from the election of directors will be counted to
determine the presence or absence of a quorum for the transaction of business at
the Annual Meeting, but they have no legal effect under Delaware law and,
consequently, will not affect the outcome of the voting on such proposal. With
regard to other proposals, abstentions may be specified and will have the same
effect as votes against the subject proposal at the Annual Meeting. Broker
nonvotes (that is, proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owners or other persons
entitled to vote shares on a
particular matter as to which the brokers or nominees do not have discretionary
power) are counted for purposes of determining a quorum for the transaction of
business at the Annual Meeting but are not considered as votes for purposes of
determining the outcome of a vote.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Bylaws of the Company provide for the election of directors for one
year terms. The holders of Common Stock and Series B Preferred Stock, voting
together, will be asked to vote at the Annual Meeting for the election of six
directors, each to serve until the annual meeting of stockholders to be held in
2006 and until his successor has been elected and qualified. Unless authority to
vote for the election of a director is specifically withheld by appropriate
designation on the face of the proxy, it is the intention of the persons named
in the accompanying proxy to vote such proxy for the election of William B.
Conner, Warren Delano, Kenneth I. Greenstein, Michael A. Lubin, Joseph A. Pardo,
and Elizabeth H. Ruml as directors to be elected by the holders of Common Stock
and Series B Preferred Stock, voting together, to serve until the 2006 annual
meeting of stockholders and until their respective successors shall have been
elected and qualified. Messrs. Conner, Delano, Greenstein, Lubin, and Pardo and
Ms. Ruml are presently members of the Board of Directors. The proxies cannot be
voted for a greater number of persons than six in respect of Proposal 1.
Management has no reason to believe that the named nominees will be unable or
unwilling to serve, if elected. However, in such case, it is intended that the
individuals named in the accompanying proxy will vote for the election of such
substituted nominees as the Board of Directors may recommend.
Certain information concerning the nominees for election pursuant to
Proposal 1 is set forth in the following table. The Board of Directors
recommends that shareholders vote FOR the election of the named nominees.
PRINCIPAL OCCUPATION, BUSINESS
NAME AGE EXPERIENCE, AND DIRECTORSHIPS
---- --- ------------------------------
William B. Conner 72 Private Investor. President and director of Conner Holding Company, a holding company for aviation
companies, and Chairman of the Board of the subsidiaries thereof for more than five years. Director of
the Company since 1981.
Warren Delano 54 President of the Company for more than five years. Partner of Lubin, Delano & Company, an investment
banking and consulting firm, for more than five years. Director of the Company since 1985.
Kenneth I. Greenstein 75 Secretary of the Company from September 1979 to April 2004. Consultant for more than five years.
Prior thereto, stockholder of a professional corporation that was a partner in Nixon, Hargrave, Devans
& Doyle LLP (now known as Nixon Peabody LLP), a law firm for more than five years. Director of the
Company since 1978.
Michael A. Lubin 55 Chairman of the Board of the Company for more than five years. Partner of Lubin, Delano & Company, an
investment banking and consulting firm, for more than five years. Director of the Company since 1985.
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Joseph A. Pardo 71 Restructuring consultant. Chairman of Phoenix Advisors, LLC since July 2000. During the past
five years, Mr. Pardo has served as a financial consultant to a number of public and private companies,
including as Trustee of various creditor trusts in connection with reorganizations under Chapter 11 of
the federal bankruptcy code. Mr. Pardo has also served as Chairman of the Board of Brothers Gourmet
Coffee Co. from October 2000 through March 2004, and Director of Weblink Wireless, Inc., a wireless
communications company, from March 2001 through September 2002. Director of the Company since March
2002.
Elizabeth H. Ruml 52 Retired since 1999. From June 1999 through October 1999, Ms. Ruml was Managing Director and Co-Head
of the Group Market Risk Management function at Deutsche Bank. From March 1998 through June 1999, she
was Managing Director and Head of the Corporate Portfolio Management Group at Bankers Trust Company.
From May 1993 through December 1997, she was Managing Director and Chief Credit Officer at Salomon
Brothers. Ms. Ruml was a Director of Benjamin Moore & Company from July through December 2000.
Director of the Company since June 2002.
PROPOSAL 2 - APPROVAL OF 2005 STOCK AWARD PLAN
The Board of Directors has unanimously approved the Lexington Precision
Corporation 2005 Stock Award Plan (the "Plan"). The holders of Common Stock and
Series B Preferred Stock of the Company issued and outstanding on the record
date, voting together, will be asked to vote at the Annual Meeting to approve
the Plan. The affirmative vote of a majority of the shares of Common Stock and
Series B Preferred Stock, voting together, present in person or represented by
proxy and entitled to vote at the Annual Meeting is required for the approval of
the Plan.
The Board of Directors recommends that you vote in favor of the Plan. The
objectives of the Plan are to optimize the profitability and growth of the
Company through incentives that are consistent with the Company's goals and that
link the personal interests of the participants under the Plan to those of the
Company's stockholders, to provide participants with an incentive for excellence
in individual performance, and to promote teamwork among participants. The Plan
is further intended to provide flexibility to the Company and its subsidiaries
in motivating, attracting, and retaining the services of participants who make
significant contributions to the Company's success and to allow participants to
share in that success.
The market value of the Company's Common Stock, when the Plan was approved
by the Board of Directors on April 21, 2005, subject to stockholder approval,
was $0.75 per share.
The following summary of the Plan is qualified in its entirety by the full
text of the Plan that appears as Exhibit A to this Proxy Statement.
The Plan will be administered by the Compensation Committee of the Board
of Directors or any other committee of the Board of Directors as may be
designated by the Board from time to time (the "Committee"). For the purpose of
making awards intended to qualify for the performance based exception from the
tax deductibility limitations of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), the Committee will be comprised solely of two or
more individuals who are
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"outside directors," as that term is defined under Section 162(m) of the Code.
The Plan allows the Company to grant incentive stock options, nonqualified stock
options, stock appreciation rights, awards of nontransferable shares of
restricted common stock, performance shares, and performance units to directors,
employees, or consultants of the Company or the Company's subsidiary, who are
selected by the Committee for participation, except in the case of incentive
stock options which shall only be awarded to employees of the Company or its
subsidiaries. As of April 15, 2005, approximately twenty employees, four
non-officer directors, four officers, and no consultants were eligible for
participation in the Plan.
Under the Plan, the maximum number of shares of Common Stock that may be
granted or optioned to eligible participants is 400,000. The maximum aggregate
grant to any eligible participant in a fiscal year is as follows:
Stock Options - 50,000 shares
Stock Appreciation Rights - 50,000 shares
Restricted Stock - 50,000 shares
Performance Shares - fair market value of 50,000 shares
Performance Units - $100,000
The Plan provides for the appropriate adjustments to the aggregate number,
class, and/or price of shares of Common Stock subject to awards under the Plan
and to the limitations on the maximum number of shares of Common Stock reserved
under the Plan or that may be awarded to any one participant, as may be
determined to be appropriate and equitable by the Committee to prevent dilution
or enlargement of rights, upon a change in corporate capitalization, such as a
stock split or stock dividend, or a corporate transaction, such as a merger,
consolidation, combination, exchange of shares or the like, a separation,
including a spin-off or other distribution of stock or property of the Company,
a reorganization, or a partial or complete liquidation of the Company.
Nonqualified and Incentive Stock Options: Under the Plan, the Committee
may grant to eligible participants nonqualified or incentive stock options, or
both, to purchase shares of the Common Stock at no less than the fair market
value of the shares on the date of grant; provided, however, that if an
incentive stock option is granted to an employee possessing more than 10% of the
combined voting power of all classes of shares of the Company's stock, the
option price will be at least 110% of the fair market value of the stock subject
to the incentive stock option. No incentive stock option may be granted under
the Plan to purchase shares as to which the fair market value of the shares that
first become exercisable by the employee in any calendar year exceeds $100,000.
In the event that an option designated as an incentive stock option exceeds the
value limit, it will be deemed a nonqualified stock option. All awards of stock
options under the Plan will be evidenced by an agreement that specifies the
option price, the duration of the option, the number of shares to which the
option relates, and other terms determined by the Committee, except that no
incentive stock option will expire later than the tenth anniversary of its
grant.
All stock options granted under the Plan will be subject to the customary
prohibition on transferability, except by will or by the laws of descent and
distribution. All stock options will be exercisable only by the participant in
his or her lifetime, except as otherwise permitted in any award agreement
relating to nonqualified stock options.
Stock Appreciation Rights: The Plan permits the granting of stock
appreciation rights ("SARs") that permit a participant to receive Common Stock
in an amount equal to the difference between the fair market value of the Common
Stock on the date of grant and the fair market value of the Common Stock on the
date the right is exercised. All grants of stock appreciation rights will be
evidenced by an
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agreement that specifies the grant price, the term of the stock appreciation
right, and other provisions determined by the Committee.
SARs granted under the Plan will be subject to the same transfer
restrictions as those applicable to nonqualified stock options, as discussed
above.
Restricted Stock: Under the Plan, the Committee may also grant shares of
restricted stock to participants. The shares of restricted stock will become
freely transferable by the participant after the last day of the applicable
period of restriction or upon the satisfaction of other conditions, as specified
by the Committee or contained in the restricted stock agreement. A participant
holding shares of restricted stock may be granted the right to exercise full
voting rights with respect to those shares during the period of restriction, if
so determined by the Committee. The Committee may also allow participants
holding shares of restricted stock to be credited with any dividends paid during
the period of restriction. Each restricted stock grant will be evidenced by an
agreement that specifies the period of restriction, the number of shares of
restricted stock granted, and other provisions determined by the Committee.
Shares of restricted stock are not transferable during the period of restriction
specified by the Committee with respect to such grant. The Committee may also
impose other restrictions on transferability, including a requirement that
specified performance goals be achieved.
Performance Units and Performance Shares: The Plan permits the granting of
performance units or performance shares or both. Each performance unit shall
have an initial value that is established by the Committee at the time of grant
and each performance share shall have an initial value equal to the fair market
value of a share of Common Stock on the date of grant. The number and/or value
of performance units or performance shares that will be paid to out to the
participant will be determined by the extent to which performance goals
established by the Committee are met. Performance units and performance shares
awards may be evidenced by an agreement, at the Committee's discretion. Payments
with respect to earned performance units/shares shall be determined by the
Committee and may, at the discretion of the Committee, be in the form of cash or
shares of Common Stock, or a combination thereof, that have an aggregate fair
market value equal to the value of the earned performance units/shares at the
end of the performance period. Any shares delivered as payment of earned
performance units or performance shares may be subject to restrictions set by
the Committee. Except as otherwise specified in the agreement with the
participant, performance units/shares may not be transferred other than by will
or by the laws of descent and distribution.
Performance Measures: In order to qualify for the performance-based
exception from the tax-deductibility limitations of Section 162 of the Code, the
Plan sets forth the types of performance measures that may be used to determine
the degree of payout or vesting of awards. Performance measures may be chosen
from among earnings per share, net income (before or after taxes), cash flow
(including operating cash flow and free cash flow), gross revenues, gross
margins, and earnings before interest, taxes, depreciation, and amortization
("EBITDA"), and any of such measures compared to peer or other companies. The
performance measures established under the Plan may be changed by shareholder
vote. These measures may be set at the level of the Company, or a subsidiary,
division, or other business unit. Awards designed to qualify for the
performance-based exception may not be adjusted upward, although the Committee
can adjust the awards downward. If otherwise allowed by law, the Committee will
have the discretion to change the governing performance measure without
shareholder approval.
Termination of the Plan: The Plan will remain in effect, subject to
earlier amendment or termination, until all shares subject to it shall have been
purchased or otherwise acquired according to the Plan's provisions. However, in
no event will an award of an incentive stock option be granted under the Plan on
or after the tenth anniversary of the effective date of the Plan.
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Termination of Employment: Upon termination of the participant's
employment, directorship, or consultancy for any reason other than the
disability or death of the participant, all awards that are exercisable at the
date of termination may be exercised at any time on or before the earlier of the
expiration date of the award or the date that is three months after the date of
termination, and unvested awards (or awards as to which the period of
restriction has not expired) shall be forfeited.
If the participant's employment, directorship, or consultancy terminates
by reason of the participant's disability or death, unvested awards (or awards
as to which the period of restriction has not expired) shall become immediately
vested and/or exercisable on the date of termination and may be exercised at any
time on or before the earlier of the expiration date of the award or the first
anniversary of the date of disability or death.
Change in Control: The Plan gives the Board the discretion to make changes
to awards under the Plan in the event of a change in control of the Company. A
change in control is defined to include:
- Any person (other than a person who currently owns 10% or more of
the Company's Common Stock, or an affiliate of any such person)
becomes the beneficial owner of 50% or more of the voting power of
the Company;
- A merger of the Company in which the Company's stockholders
immediately before the transaction own less than 50% of the
successor corporation;
- A dissolution or liquidation of the Company approved by the
stockholders;
- A contested election, or a merger, sale of all or a substantial
portion of the Company's assets, or any similar transaction, that is
followed within one year by a change in the composition of the Board
of Directors in which directors on the Board immediately before the
transaction cease to constitute a majority;
- The current members of the Board of Directors (together with
directors subsequently selected by at least two-thirds of the
current Board of Directors) cease to represent at least two-thirds
of the Board of Directors.
In the event of a change of control, unless otherwise prohibited
by law or otherwise provided in the award agreement with a participant, the
Board may, in its discretion:
- accelerate the vesting of unvested awards and the exercisability of
options that have not yet become exercisable;
- terminate options or stock appreciation rights for a cash payment
equal to the amount by which the fair market value of the shares
underlying the vested options or stock appreciation rights exceeds
their exercise price;
- terminate options or stock appreciation rights, giving the
Participant at least 15 days to exercise vested options or stock
appreciation rights;
- permit awards to be assumed by a successor corporation or its parent
and replaced by a comparable award of the successor or parent;
- amend any award agreement or take any other action it deems
appropriate; or
- any combination of the above measures.
FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the Federal income tax consequences under the
Code of the issuance, exercise or maturity of non-qualified stock options,
incentive stock options ("ISOs"), SARs, restricted
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stock and performance units and performance shares under the Plan. The following
discussion is intended to be a summary and is not complete, and does not cover
state and local tax treatment of participation in the Plan. This summary is
based on an understanding of the Federal income tax laws as currently
interpreted and no representation is made regarding the continuation of such
laws or of such interpretations.
Nonqualified Stock Options ("NQSOs"). NQSOs will not have federal income
tax consequences when they are granted. Subject to Section 162(m) of the Code,
which limits the deductibility of compensation in excess of $1,000,000 for
certain executive officers, the Company will be entitled to a deduction on the
date of exercise of an NQSO equal to the amount of ordinary income recognized by
the option holder. On the date an option holder exercises the NQSO, the option
holder will generally recognize ordinary income in an amount equal to the excess
of the fair market value of the shares on the date of exercise over the exercise
price of the option. The holding period for capital gain and loss purposes will
begin on the date of exercise and the option holder's basis in the shares will
equal the fair market value of the shares on the date of exercise.
Incentive Stock Options. Incentive stock options will not have federal
income tax consequences when they are granted. The Company will generally not be
entitled to a federal income tax deduction with respect to the grant or exercise
of an ISO. However, in the event of a disqualifying disposition, discussed
below, the Company will be entitled to a federal income tax deduction in the
year of the disqualifying disposition in an amount equal to the ordinary income
realized by the option holder. An option holder receiving an ISO will not be
subject to income tax, assuming the ISO requirements are satisfied. However, for
the option holder's tax year in which he or she exercises the option, the spread
between the exercise price of the option and the fair market value of the shares
acquired on the date of exercise will be included in the option holder's
alternative minimum taxable income for purposes of determining the option
holder's liability, if any, for the alternative minimum tax. If the option
holder disposes of the shares before the first anniversary of the exercise or
the second anniversary of the grant, the option holder will be deemed to have
made a "disqualifying disposition" of the shares. This will require the option
holder to recognize ordinary income in the year of the disposition in an amount
equal to the lesser of: (1) the excess, if any, of the fair market value of the
shares on the date the ISO was exercised over the exercise price; or (2) the
excess, if any, of the amount realized on the sale or exchange of the shares
over the exercise price.
Exercise by Surrender of Shares. If the exercise price of an option is
paid by surrendering shares of Common Stock, the Internal Revenue Service treats
such exchange as if there were two transactions. The first transaction is
treated as a non-taxable exchange of the previously acquired Common Stock for an
equal number of shares of new Common Stock. The basis of the new shares will be
the same basis as the shares surrendered and the holding period of the new
shares will include the holding period of the shares surrendered. The second
transaction concerns the number of shares that the option holder receives upon
exercise of the option in excess of the number of surrendered shares, i.e., the
"additional shares." In the case of an NQSO, the option holder will recognize
ordinary income upon the exercise equal to the fair market value of these
additional shares on the date of exercise, less any cash paid towards the
exercise price. The basis of the additional shares will be equal to their fair
market value on the date of exercise, and their holding period will begin on
that date. In the case of ISOs, no income or gain is recognized on the receipt
of these additional shares. However, the basis of these additional shares will
equal zero (i.e., the option holder is treated as having paid nothing for these
shares). The holding period for the additional shares begins on the date of the
exchange. To utilize this rule, the option holder cannot surrender Common Stock
that has been acquired through the exercise of an ISO and unless it has been
held for the requisite period.
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Withholding Taxes -- Option Exercise. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan to a current
or former employee, the Company has the right to require the optionee to remit
to the Company an amount sufficient to satisfy any federal, state and/or local
income and employment withholding tax requirements prior to the delivery of any
certificate for such shares or to take any other appropriate action to satisfy
such withholding requirements. The Company may permit an optionee to satisfy
such obligation in whole or in part by electing to have the Company withhold
shares of Common Stock from the shares to which the option holder is otherwise
entitled.
Stock Appreciation Rights. The grant of a SAR will not result in a
deduction for the Company at the time of the grant or in the recognition of
gross income to the participant. Upon the exercise of the SAR, the participant
will recognize ordinary income for Federal income tax purposes in an amount
equal to the fair market value of any shares received by the participant upon
exercise of the SAR. The Company is required to withhold tax on the amount of
income recognized by the participant and is entitled to a tax deduction (subject
to Section 162(m) of the Code, which limits the deductibility of compensation in
excess of $1,000,000 for certain executive officers) equal to the amount of such
income for the Company's fiscal year which includes the end of the taxable year
of the participant in which such amount is included in the participant's gross
income. Subject to certain limitations on the deductibility of capital losses,
if a participant disposes of any shares received upon the exercise of a SAR, the
participant will recognize a capital gain or loss equal to the difference
between the fair market value of such shares at the time ordinary income was
recognized and the amount realized on disposition of such shares. The tax rate
on any gains will depend upon the length of the holding period.
Restricted Stock. The grant of restricted stock will not result in federal
income tax consequences to the Company or the recipient provided that the
restriction creates a substantial risk of forfeiture. A participant will be
subject to tax when the restricted stock is no longer subject to a substantial
risk of forfeiture. An award conditioned upon the passage of time or the
attainment of a performance goal whose attainment is substantially uncertain is
subject to a substantial risk of forfeiture. Vesting will not be delayed if the
only restrictions are non-substantial as defined in IRS regulations. The amount
includible in income by the participant is the fair market value of the shares
on the date all restrictions having a substantial risk of forfeiture lapse. The
Company is required to withhold tax on the amount of income recognized by the
participant and is entitled to a tax deduction (subject to Section 162(m) of the
Code, which limits the deductibility of compensation in excess of $1,000,000 for
certain executive officers) equal to the amount of such income for the Company's
fiscal year that includes the end of the taxable year of the participant during
which such amount is included in the participant's gross income. Subject to
certain limitations on the deductibility of capital losses, if a participant
disposes of any vested shares received in a restricted stock grant, the
participant will recognize a capital gain or loss equal to the difference
between the fair market value of such shares at the time ordinary income was
recognized and the amount realized on disposition of such shares. The tax rate
on any gains will depend upon the length of the holding period.
Performance Awards. The Company generally will not be entitled to a
deduction at the time a performance award is granted, and the participant who
has been granted a performance award generally will not recognize taxable income
at the time of grant. When an award is paid, whether in cash or common shares,
the participant will generally recognize ordinary income, and the Company will
be entitled to a corresponding deduction.
Section 409A of the Code. Any award granted under this Plan that is
subject to the rules of new Section 409A of the Code is intended to be in
compliance with Section 409A of the Code. Any award that is not in compliance
with Section 409A will result in the affected participant recognizing income as
previously discussed but at the time the award is vested (whether or not it is
exercised or actually received
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at that time) the compensation recognized will include all of his or her
deferred compensation not only as to this award but as to other deferred
compensation arrangements in which he or she participates. In addition, the
participant will be liable for an additional tax of 20% on such compensation,
plus enhanced interest.
The Board of Directors unanimously recommends a vote FOR this proposal.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors met five times during 2004. Each director attended
at least 75% of the meetings held by the Board of Directors and all meetings
held by the Committees of the Board of Directors on which such person served.
The Board of Directors has a standing Audit Committee and a standing
Compensation Committee. The members of those committees are as follows:
NAME OF COMMITTEE CHAIRMAN OTHER MEMBER(S)
- ---------------------- ----------------- ---------------------
Audit Committee Joseph A. Pardo Kenneth I. Greenstein
Elizabeth H. Ruml
Compensation Committee William B. Conner Kenneth I. Greenstein
The Audit Committee, which is comprised of three non-employee members of
the Board of Directors, met five times during 2004. The primary purpose of the
Audit Committee is to review the financial information provided to the Company's
stockholders and others, to oversee the system of internal financial controls,
and to monitor the independent audit process. Its functions include recommending
the independent auditors for appointment by the Board of Directors, consulting
periodically with the Company's independent auditors as to the nature, scope,
and results of their audit of the accounts of the Company, reviewing the
Company's internal accounting controls and procedures, and such other related
matters as the Audit Committee deems advisable. A paper copy of the Audit
Committee Charter may be obtained upon written request to the President,
Lexington Precision Corporation, 40 East 52nd Street, New York, NY 10022. The
Board of Directors has determined that each member of the Audit Committee is
independent, as defined by the rules of the National Association of Securities
Dealers. In addition, the Board of Directors has determined that Joseph A. Pardo
is qualified to serve as the "audit committee financial expert" of the Company
as defined in Item 401(h) of Securities and Exchange Commission ("SEC")
Regulation S-K.
The Compensation Committee, which is comprised of two non-employee members
of the Board of Directors, met two times during 2004. The meetings were held at
regularly scheduled Board meetings where other members of the Board could
participate. When appropriate, Executive Officers whose compensation was being
discussed excused themselves from the meetings. The functions of the
Compensation Committee include reviewing salaries, cash bonus awards, and
existing or potential compensation plans for the Company's executive officers
and other eligible employees and making recommendations to the Board of
Directors regarding such salaries, cash bonus awards, and compensation plans.
Additionally, the Compensation Committee administered the Company's 1986
Restricted Stock Award Plan, which expired on December 31, 2001. If the
Company's stockholders approve the Lexington Precision Compensation 2005 Stock
Award Plan, the Compensation Committee will administer that Plan.
- 9 -
The Board of Directors does not have a standing nominating committee. The
Board of Directors has determined that it is not necessary to have a nominating
committee because of the relatively small size of the Company and the Board of
Directors. The Board of Directors considers recommendations for director
nominees from directors and members of management. The Board of Directors is
also willing to consider stockholder recommendations for director nominees that
are properly received in accordance with all applicable rules and regulations,
although no such recommendations have ever been received. The Board of Directors
evaluates each prospective nominee on the basis of his or her qualifications.
Each member of the Board of Directors receives an annual fee of $12,000.
Each member of the Audit Committee receives an annual fee of $2,000. Directors
receive $1,500 for each Board or Committee meeting attended in person as well as
reasonable out-of-pocket expenses incurred in connection with attending such
meetings. Directors receive $350 for each Board or Committee meeting attended by
telephone. There are no other fees paid to directors for services rendered as
members of the Board.
The Company does not have a formal process in place for its stockholders
to communicate with its Board of Directors but is receptive to communications
from its stockholders, which may be made by writing to Michael A. Lubin,
Chairman of the Board, Lexington Precision Corporation, 40 East 52nd Street, New
York, NY 10022. For each of the past five years, the Company has scheduled a
meeting of the Board of Directors immediately following the Annual Meeting and
all of the directors have attended each of such Annual Meetings.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers of the Company.
NAME POSITION AND OFFICES AGE
- ------------------ -------------------------------- ---
Michael A. Lubin Chairman of the Board 55
Warren Delano President and Director 54
Dennis J. Welhouse Senior Vice President, Chief
Financial Officer, and Secretary 56
Florence T. Herst Treasurer 63
Mr. Lubin has been Chairman of the Board of the Company for more than five
years. For more than five years, Mr. Lubin has been a partner of Lubin, Delano &
Company, an investment banking and consulting firm.
Mr. Delano has been President of the Company for more than five years. For
more than five years, Mr. Delano has been a partner of Lubin, Delano & Company,
an investment banking and consulting firm.
Mr. Welhouse has been Senior Vice President and Chief Financial Officer of
the Company for more than five years. Since April 20, 2004, Mr. Welhouse has
also served as Secretary of the Company; prior to that date, for more than five
years Mr. Welhouse was Assistant Secretary of the Company.
- 10 -
Ms. Herst has served as Treasurer of the Company since February 1, 2005.
From January 1, 2001, through January 31, 2005, Ms. Herst served as Assistant
Treasurer of the Company, and for more than five years prior to January 1, 2001,
Ms. Herst served as Assistant Controller of Lexington Connector Seals, a
division of Lexington Rubber Group, Inc., a wholly-owned subsidiary of the
Company.
Each of the Company's executive officers serves at the pleasure of the
Board of Directors.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to its co-principal
executive officers and key financial and accounting personnel. The Company will
furnish a paper copy of the Code of Ethics free of charge, upon written request
to the President, Lexington Precision Corporation, 40 East 52nd Street, New
York, NY 10022..
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the Company's
Common Stock, as of April 8, 2005, by (i) each director and director nominee,
(ii) each of the named executive officers, (iii) all directors and executive
officers as a group, and (iv) each person known by the Company to be the
beneficial owner of more than 5% of its outstanding Common Stock. The business
address of each officer, director, or stockholder listed below is c/o Lexington
Precision Corporation, 40 East 52nd Street, New York, NY 10022. The persons
named in the table have sole voting and dispositive power with respect to all
shares of the Company's Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable, except as set forth in the
notes to the table.
NAME OF BENEFICIAL SHARES OF COMMON STOCK PERCENT OF
OWNER BENEFICIALLY OWNED CLASS OWNED
- ----------------------- ---------------------- -----------
Michael A. Lubin 1,612,341 (1) 32.7%
Warren Delano 1,393,487 (2) 28.3
William B. Conner 338,194 (3) 6.9
Dennis J. Welhouse 82,542 1.7
Kenneth I. Greenstein 35,636 (4) *
Joseph A. Pardo 36,205 *
Florence T. Herst 1,078 *
Elizabeth H. Ruml - -
Directors and executive
officers as a group (8
persons) 3,410,421 (5) 69.2
- -------------
* Less than 1 percent.
(1) Includes (a) 35,000 shares owned by each of Mr. Lubin's two minor
children, with respect to which Mr. Lubin acts as custodian under the New
York Uniform Gifts to Minors Act, (b) 50,000 shares owned by an individual
retirement account of Mr. Lubin, and (c) 89,062 shares owned by a
retirement benefit plan of which Mr. Lubin and Mr. Delano are both
beneficiaries.
- 11 -
(2) Includes 110,750 shares owned by individual retirement accounts of Mr.
Delano and 89,062 shares owned by a retirement benefit plan of which Mr.
Delano and Mr. Lubin are both beneficiaries.
(3) Includes 238,194 shares owned by Conner Holding Company, a Nevada
corporation, of which Mr. Conner is president, a director, and majority
stockholder.
(4) Includes 8,170 shares owned by a retirement benefit plan of which Mr.
Greenstein is the sole beneficiary.
(5) See footnotes 1 through 6, above. Total includes 89,062 shares owned by a
retirement benefit plan of which Messrs. Delano and Lubin are
beneficiaries that are reported in the shares beneficially owned by both
Mr. Delano and Mr. Lubin.
EQUITY COMPENSATION PLAN INFORMATION
The Company currently has no compensation plans under which it has equity
securities authorized for future issuance. The stockholders of the Company will
be asked at the 2005 Annual Meeting to adopt the Lexington Precision Corporation
2005 Stock Award Plan. See Proposal 2 for a description of the Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder require the Company's officers and directors and
persons who own more than 10 percent of the Common Stock to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(SEC) and to furnish to the Company copies of all such filings.
Based solely on its review of the copies of such reports and written
representations from certain reporting persons that certain reports were not
required to be filed by such persons, the Company believes that all of its
directors, officers, and beneficial owners complied with all of the filing
requirements applicable to them with respect to transactions during the year
ended December 31, 2004.
- 12 -
EXECUTIVE COMPENSATION
The following table summarizes, for the Company's past three fiscal years,
the compensation paid to each of the Company's co-principal executive officers
and to each of the Company's other executive officers whose total annual salary
and bonus exceeded $100,000.
ANNUAL
COMPENSATION
--------------------- ALL OTHER
NAME AND POSITION FISCAL YEAR SALARY($) BONUS($) COMPENSATION($)
- ------------------------------- ----------- ---------- ------- --------------
Michael A. Lubin 2004 371,350 (1) - -
Chairman of the Board 2003 267,725 (1) - -
(Co-Principal Executive 2002 267,750 (1) - -
Officer)
Warren Delano 2004 371,350 (2) - -
President and Director 2003 267,725 (2) - -
(Co-Principal Executive 2002 267,750 (2) - -
Officer)
Dennis J. Welhouse 2004 157,250 - 6,119 (3)
Senior Vice President, 2003 155,000 75,000 5,655 (3)
Chief Financial Officer, 2002 148,500 - 5,100 (3)
and Secretary
(1) Includes (a) compensation, paid indirectly to Mr. Lubin through Lubin,
Delano & Company, in the amount of $350,000 during 2004 and $250,000
during each of 2003 and 2002, for services rendered as an executive
officer of the Company and (b) fees paid to Mr. Lubin for serving as a
member of the Company's Board of Directors. Lubin, Delano & Company is an
investment banking and consulting firm of which Messrs. Lubin and Delano
are the only partners. See "Compensation Committee Report on Executive
Compensation" and "Certain Relationships and Transactions."
(2) Includes (a) compensation, paid indirectly to Mr. Delano through Lubin,
Delano & Company, in the amount of $350,000 during 2004 and $250,000
during each of 2003 and 2002, for services rendered as an executive
officer of the Company and (b) fees paid to Mr. Delano for serving as a
member of the Company's Board of Directors. See "Compensation Committee
Report on Executive Compensation" and "Certain Relationships and
Transactions."
(3) Includes (a) Company contributions of $5,130, $4,650, and $4,455, made to
Mr. Welhouse's account under the Company's 401(k) Plan in 2004, 2003, and
2002, respectively, (b) insurance premiums of $958, $942, and $477 paid by
the Company in 2004, 2003, and 2002, respectively, for term life insurance
owned by Mr. Welhouse, and (c) imputed interest of $31, $63, and $168 in
2004, 2003, and 2002, respectively.
No stock options or stock appreciation rights were granted to, exercised
by, or held by any of the persons named in the summary compensation table above
during 2004, 2003, or 2002.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of two non-employee members of the
Board of Directors. The Compensation Committee is responsible for reviewing
salaries, cash bonus awards, and existing or potential compensation plans for
the Company's executive officers and other eligible employees and making
recommendations to the Board of Directors regarding such salaries, cash bonus
awards, and compensation plans. The membership of the Compensation Committee is
determined by the Board.
- 13 -
COMPENSATION PHILOSOPHY AND POLICY
The Company's compensation program is designed to motivate and reward the
Company's executive officers for attaining financial, operational, and strategic
objectives that will contribute to the overall goal of enhancing stockholder
value and promote the Company's success in attracting, developing, and retaining
key executives and management personnel critical to its long term success. The
Compensation Committee believes that executive compensation should be based on
objective measures of performance at the individual, divisional, and corporate
levels, should be driven primarily by the long-term interests of the Company and
its stockholders, and should be linked to the enhancement of stockholder value.
In addition to reviewing compensation of executive officers , the Compensation
Committee also considers recommendations from the co-chief executive officers
regarding total compensation for those executives reporting directly to them.
The principal elements of the compensation plan include base salary and cash
bonus awards.
COMPONENTS OF EXECUTIVE COMPENSATION
The compensation program for executive officers consists of the following
components:
BASE SALARY. In determining the base pay levels for executive officers of
the Company, the Compensation Committee considers the compensation paid by a
group of industrial companies that are generally similar to the Company with
respect to sales volume, cash flow, and market capitalization, as well as with
the nature of its business. The group of companies with which the Company
compares itself for this purpose is subject to change as companies change size
or focus, merge, or are acquired. Base pay levels, prior to taking into account
other factors considered by the Compensation Committee, are at the mid-range of
base pay levels for such group of companies. In 2004, the base salaries of the
named executive officers were adjusted effective January 1, 2004. The increase
in the compensation payable to Messrs. Delano and Lubin was made in order to
adjust their compensation to a level that the Compensation Committee considered
appropriate under the circumstances. Messrs. Delano and Lubin had previously
been paid a base salary of $250,000 each, through Lubin, Delano & Company, since
1999. The Compensation Committee believes that the Company's most direct
competitors are private companies that do not publicly disclose information
regarding executive compensation, financial condition, or operating performance.
The Compensation Committee also believes that the companies with which the
Company compares itself for the purpose of determining executive compensation
are not necessarily included in the indices used to compare stockholder returns
that are contained elsewhere in this Proxy Statement. In determining the salary
component of compensation packages for executive officers, the Compensation
Committee also takes into consideration the recent performance of the individual
and the Company, the experience of the individual, and the scope and complexity
of the position. The Compensation Committee does not assign weights to these
factors and does not consider any one factor more important than another. The
2004 salaries of the named executive officers are shown in the "Salary" column
of the Summary Compensation Table under the heading "Executive Compensation"
above. Salaries for executive officers are reviewed on an annual basis, as well
as at the time of a promotion or other change in responsibilities. Increases in
salary are based on subjective evaluation of such factors as the individual's
level of responsibility and performance.
INCENTIVE COMPENSATION PLAN. To provide incentives to increase
profitability, the Company has an incentive compensation plan that provides for
the payment of cash bonus awards to executive officers and other eligible
employees of the Company. Bonus awards for eligible divisional employees are
usually based upon the attainment of predetermined targets for earnings before
interest, taxes, depreciation, and amortization (EBITDA) at each respective
division. Bonus awards for executive officers and other eligible corporate
employees are based upon the attainment of a predetermined consolidated EBITDA
target. The Compensation Committee is responsible for the supervision of the
incentive compensation
- 14 -
plan. The Company also had a restricted stock plan that permitted it to award
restricted shares of Common Stock to officers and key employees of the Company.
In January 2000, the Compensation Committee awarded 125,000 shares of restricted
Common Stock to key employees of the Company, which shares vest as provided in
the restricted stock plan. The restricted stock plan expired on December 31,
2001. The Company from time to time awards cash bonuses to key employees who
have provided unusual service to the Company. In 2003, Mr. Welhouse received
such an award in the amount of $75,000. If the Company's stockholders approve
the Lexington Precision Corporation 2005 Stock Award Plan, the Compensation
Committee will administer that plan, which will be available for the grant of
stock options, stock appreciation rights, restricted stock, performance units,
and performance shares to directors, employees, and consultants of the Company
and its subsidiaries
COMPENSATION OF MESSRS. DELANO AND LUBIN. Messrs. Delano and Lubin are
compensated indirectly by the Company through payments made to Lubin, Delano &
Company, an investment banking and consulting firm of which they are the only
partners. During 2004, the aggregate payments made to Lubin, Delano & Company
for services provided by Messrs. Delano and Lubin in their capacities as
President and Chairman of the Board, respectively, totaled $700,000. The
Company's arrangements with Lubin, Delano & Company also provide for an
incentive fee based upon the attainment of predetermined consolidated EBITDA
targets and additional compensation, as mutually agreed upon, for services
provided by Lubin, Delano & Company in connection with acquisitions,
divestitures, financings, or other similar transactions involving the Company.
Messrs. Delano and Lubin received no payments under the incentive compensation
plan for 2004 and no additional compensation for services provided in connection
with acquisitions, divestitures, financings, or similar transactions during
2004.
The Committee believes that the quality of executive leadership
significantly affects long term performance and that it is in the best interest
of the stockholders to compensate executive leadership fairly for achievements
that meet or exceed the standards set by the Committee, so long as there is
corresponding risk when performance falls short of such standards.
The compensation paid for the combined services of Messrs. Delano and
Lubin as President and Chairman of the Board of the Company, respectively, was
agreed to after considering the responsibilities of such positions and the
competitive marketplace for executive talent. The Compensation Committee
believes that the compensation paid to Lubin, Delano & Company during 2004 for
the combined services of Messrs. Delano and Lubin as executive officers of the
Company comports with the Compensation Committee's subjective perception of the
base compensation levels of chief executives employed by other industrial
companies, both public and private.
COMPENSATION COMMITTEE
William B. Conner, Chairman
Kenneth I. Greenstein, Member
- 15 -
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors and performs the other duties and
responsibilities set forth in the Audit Committee Charter. It is the
responsibility of the Company's independent auditors to perform an independent
audit of and express an opinion on the Company's financial statements. The Audit
Committee's responsibility is one of review and oversight. In fulfilling its
oversight responsibilities:
(1) The Audit Committee has reviewed and discussed with the Company's
management the audited financial statements.
(2) The Audit Committee has discussed with Ernst & Young LLP, the
Company's independent auditors, the matters required to be discussed
by Statement on Auditing Standards No. 61, "Codification of
Statements on Auditing Standards, AU Section 380."
(3) The Audit Committee has received the written disclosures and the
letter from Ernst & Young LLP required by Independence Standards
Board Standard No. 1, "Independence Discussions with Audit
Committees," and has discussed with Ernst & Young LLP the
independence of that firm as the Company's auditors.
(4) Based on the Audit Committee's review and discussions referred to
above, the Audit Committee recommended to the Board of Directors
that the Company's audited financial statements be included in the
Company's Annual Report on Form 10-K for the year ended December 31,
2004, for filing with the Securities and Exchange Commission.
On September 12, 2000, the Board of Directors adopted a written charter
for the Audit Committee, which sets forth the operating practices and
responsibilities of the Audit Committee. Each of the Audit Committee members is
independent, as defined in Rule 4200(a) of the listing standards of the National
Association of Securities Dealers.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting, auditing, or auditor independence. Members of the Committee rely
without independent verification on the information provided to them and on the
representations made by management and the independent auditors.
AUDIT COMMITTEE
Joseph A. Pardo, Chairman
Kenneth I. Greenstein, Member
Elizabeth H. Ruml, Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are William B. Conner
and Kenneth I. Greenstein. Neither of Messrs. Conner and Greenstein has ever
been an employee of the Company, and Mr. Conner, who is the Chairman of the
Compensation Committee, has never been an officer of the Company. Mr. Greenstein
served as Secretary of the Company from September 1979 to April 2004 (although
he received no compensation for acting in such capacity).
- 16 -
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the yearly cumulative total
return on the Company's Common Stock, based on the market price of the Common
Stock, with the yearly cumulative total return on the common stock of companies
in the Standard & Poors (S&P) 500 Index and the NASDAQ Composite Index.
COMPARISON OF FIVE-YEAR TOTAL RETURN FOR
LEXINGTON PRECISION CORPORATION, S & P 500 INDEX, AND NASDAQ COMPOSITE INDEX
[COMPARISON CHART]
CHART DATA:
Lexington Precision Corporation S&P 500 Index NASDAQ Composite Index
"1999" 100 100 100
"2000" 66.53 89.86 60.71
"2001" 26.11 78.14 47.93
"2002" 44.63 59.88 32.82
"2003" 67.37 75.68 49.22
"2004" 50.53 82.49 53.46
YEAR ENDED DECEMBER 31
At December 31, 1999, 2000, 2001, 2002, 2003, and 2004, the last trade
listed on the OTC Bulletin Board, provided by the National Association of
Securities Dealers, was $1.1875, $0.79, $0.31, $0.53, $0.80, and $0.60 per
share, respectively. The Company believes that ten brokerage firms currently
make a market in the Company's Common Stock, although both bid and asked
quotations may be limited.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Warren Delano and Michael A. Lubin beneficially own 28.3% and 32.7%,
respectively, of the Common Stock of the Company.
Messrs. Delano and Lubin are compensated indirectly by the Company through
payments made to Lubin, Delano & Company, an investment banking and consulting
firm of which they are the only partners. During 2004, the aggregate payments
made to Lubin, Delano & Company for services provided by Messrs. Delano and
Lubin in their capacities as President and Chairman of the Board, respectively,
were $700,000. The Company's arrangements with Lubin, Delano & Company also
provide for an incentive fee based upon the attainment of predetermined
consolidated EBITDA targets and additional compensation, as mutually agreed
upon, for services provided by Lubin, Delano & Company in connection with
acquisitions, divestitures, financings, or other similar transactions involving
the Company. Messrs. Delano and Lubin received no payments under the incentive
compensation plan for 2004 and no additional compensation for services provided
in connection with acquisitions, divestitures, financings, or similar
transactions during 2004.
- 17 -
In connection with the Company's refinancing of substantially all of its
debt completed on December 18, 2003, Messrs. Delano and Lubin and their
associates and affiliates exchanged 12-3/4% Senior Subordinated Notes held by
them for units consisting of 12% Senior Subordinated Notes due August 1, 2009
and warrants to purchase Common Stock, and exchanged 14% Junior Subordinated
Notes held by them and interest accrued thereon for 13% Junior Subordinated
Notes due November 1, 2009, warrants to purchase Common Stock, and 103,731
shares of Common Stock. Mr. Lubin and his affiliates and associates received in
the exchange units consisting of $2,831,000 aggregate principal amount of the
12% Senior Subordinated Notes, and 28,310 warrants to purchase Common Stock, and
units consisting of $347,000 aggregate principal amount of the 13% Junior
Subordinated Notes, and 3,467 warrants to purchase Common Stock. Of such
securities, Mr. Delano beneficially owns, through Lubin, Delano & Company Profit
Sharing Plan and Trust, units consisting of $311,000 principal amount of 12%
Senior Subordinated Notes and 3,110 warrants to purchase Common Stock. Each of
the warrants entitles the holder to purchase one share of Common Stock at a
price of $3.50 per share at any time during the period September 1, 2005,
through July 31, 2009.
In addition to the units described in the preceding paragraph, on April
13, 2005, Mr. Lubin purchased from a third party 2,096 units consisting of
$2,096,000 aggregate principal amount of the 12% Senior Subordinated Notes and
20,960 warrants to purchase Common Stock The purchase price for such units was
$628,800 plus accrued interest on the 12% Senior Subordinated Notes underlying
the units through the date of purchase.. Mr. Lubin has granted the Company an
option pursuant to which the Company may, at any time prior to August 1, 2005,
purchase from him the 2,096 units for $628,800 plus interest accrued on the
underlying 12% Senior Subordinated Notes.
PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of the Audit Committee, has
appointed the firm of Ernst & Young LLP, independent public accountants, to
audit the accounts of the Company for the year ending December 31, 2005. Ernst &
Young LLP has been employed by the Company as its independent auditor since the
fiscal year ended May 31, 1989. Set forth below is a breakdown of the fees
billed to the Company by Ernst & Young LLP for the twelve-month periods ended
December 31, 2004 and 2003:
2004 2003
----------- -----------
Audit Fees $ 288,000 $ 199,000
Tax Fees 15,000(a) 31,605(c)
All Other Fees 40,471(b) 52,853(d)
--------- ---------
$ 343,471 $ 283,458
========= =========
(a) Assistance with the preparation of federal and state income tax returns.
(b) Comprised of (i) audit of Lexington Rubber Group, Inc., a wholly-owned
subsidiary of Lexington Precision Corporation ($20,000), (ii) assistance
with the compliance requirements of the Sarbanes-Oxley Act of 2002
($13,571), and (iii) audit of the Lexington Precision Corporation
Retirement & Savings Plan ($6,900).
(c) Comprised of assistance with the preparation of federal and state income
tax returns and refund of alternative minimum taxes.
- 18 -
(d) Comprised of (i) review of compliance with Sarbanes-Oxley Act of 2002
($27,780), (ii) audit of Lexington Rubber Group, Inc., a wholly-owned
subsidiary of Lexington Precision Corporation ($18,173), and (iii) audit
of the Lexington Precision Corporation Retirement & Savings Plan ($6,900).
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee adopted a pre-approval policy in 2003 pursuant to
which the Audit Committee pre-approves each non-audit engagement or service
performed by the Company's independent auditor. Prior to pre-approving any such
non-audit engagement or service, it is the Committee's practice to first gather
information regarding the engagement or requested service that explains the
specific engagement or service and enables the Committee to make a well-reasoned
assessment of the impact of the engagement or service on the auditor's
independence. In addition, the Audit Committee may authorize the executive
officers of the Company to incur fees for non-audit services without the
specific approval of the Committee, provided that the fees for such services do
not exceed $15,000. As required by the Sarbanes-Oxley Act of 2002, the Audit
Committee pre-approved all non-audit engagements for services provided by our
independent auditor after May 6, 2003.
The Bylaws of the Company do not require that the stockholders ratify the
appointment of Ernst & Young LLP as our independent auditor; however, we are
seeking ratification because we believe it is a matter of good corporate
governance practice. It is intended that, unless any proxy is marked to the
contrary, the shares represented by such proxy shall be voted FOR the
ratification of such appointment. If the stockholders do not ratify the
appointment, the Audit Committee will reconsider whether to retain Ernst & Young
LLP, but may nevertheless retain Ernst & Young LLP as the Company's independent
auditor. If the appointment is ratified, the Audit Committee in its discretion
may change the appointment at any time during the year if it determines that a
change would be in the best interests of the Company and its stockholders.
It is expected that a representative of Ernst & Young LLP will be present
at the Annual Meeting to answer questions of stockholders and will have the
opportunity, if desired, to make a statement.
The Board of Directors recommends that shareholders vote FOR such
ratification.
STOCKHOLDER PROPOSALS
Proposals by stockholders intended to be presented at the next annual
meeting (to be held in 2006) must be received by the Secretary of the Company on
or before December 1, 2005, in order to be included in the proxy statement and
the proxy for that meeting. Proposals should be directed to the Secretary,
Lexington Precision Corporation, 40 East 52nd Street, New York, NY 10022, and
must comply with the applicable requirements of the federal securities laws and
the Company's Bylaws.
OTHER MATTERS
Management does not know of any other matters that are likely to be
brought before the Annual Meeting. However, in the event that any other matters
properly come before the Annual Meeting, the persons named in the enclosed proxy
will vote in accordance with their judgment on such matters.
- 19 -
Accompanying this Proxy Statement is a copy of the Company's Annual Report
on Form 10-K for the year ended December 31, 2004, as amended by Form 10-K/A
filed with the SEC on April 6, 2005, which includes financial statements and
related data.
According to SEC rules, the information presented in this Proxy Statement
under the captions "Audit Committee Report," "Compensation Committee Report on
Executive Compensation," and "Stock Price Performance" will not be deemed to be
"soliciting material" or to be filed with the SEC under the Securities Act of
1933 or the Securities Exchange Act of 1934, and nothing contained in any
previous filings made by the Company under such Acts shall be interpreted as
incorporating by reference the information presented under the specified
captions.
By Order of the Board of Directors,
Dennis J. Welhouse
Secretary
Dated: April 21, 2005
New York, New York
- 20 -
EXHIBIT A
LEXINGTON PRECISION CORPORATION
2005 STOCK AWARD PLAN
EFFECTIVE APRIL 21, 2005 (SUBJECT TO
STOCKHOLDER APPROVAL)
TABLE OF CONTENTS
PAGE
Article 1. Establishment, Objectives, and Duration......................... 1
Article 2. Definitions..................................................... 1
Article 3. Administration.................................................. 5
Article 4. Shares Subject to the Plan and Maximum Awards................... 5
Article 5. Eligibility and Participation................................... 7
Article 6. Stock Options................................................... 7
Article 7. Stock Appreciation Rights....................................... 9
Article 8. Restricted Stock................................................ 10
Article 9. Performance Units and Performance Shares........................ 11
Article 10. Performance Measures............................................ 12
Article 11. Rights of Participants.......................................... 13
Article 12. Termination of Employment/Directorship.......................... 13
Article 13. Change in Control............................................... 14
Article 14. Amendment, Modification, and Termination........................ 14
Article 15. Withholding..................................................... 15
Article 16. Successors...................................................... 15
Article 17. General Provisions.............................................. 15
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Lexington Precision Corporation hereby
adopts the "Lexington Precision Corporation 2005 Stock Award Plan" (hereinafter
referred to as the "Plan") as set forth in this document. The Plan permits the
grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares, and Performance Units.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of APRIL 21, 2005 (the "Effective Date"). Awards may be granted
under the Plan prior to such stockholder approval; provided the effectiveness of
such Awards shall be contingent on such stockholder approval being obtained.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives that are consistent
with the Company's goals and that link the personal interests of Participants to
those of the Company's stockholders, to provide Participants with an incentive
for excellence in individual performance, and to promote teamwork among
Participants.
The Plan is further intended to provide flexibility to the Company and its
Subsidiaries in motivating, attracting, and retaining the services of
Participants who make significant contributions to the Company's success and to
allow Participants to share in that success.
1.3 DURATION OF THE PLAN. The Plan shall remain in effect, subject to the
right of the Committee to amend or terminate the Plan at any time pursuant to
Article 14 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions; provided, however, that in no event
may an Award of an Incentive Stock Option be granted under the Plan on or after
the tenth (10th) anniversary of the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and, when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "AWARD" means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares or Performance Units.
2.2 "AWARD AGREEMENT" means a written agreement entered into by the
Company and a Participant setting forth the terms and provisions applicable to
an Award granted under the Plan.
2.3 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5 "CHANGE IN CONTROL" shall be deemed to have occurred under any one or
more of the following conditions:
i. if, within one year of any merger, consolidation, sale
of all or a substantial part of the Company's assets, or
contested election, or any combination of the foregoing
transactions (a "Transaction") (x) the persons who were
Directors of the Company immediately before the
Transaction shall cease to constitute a majority of the
Board of Directors of the Company or any successor to
the Company, or (y) the Company becomes a subsidiary of
or is merged into or consolidated with another
corporation (the Company shall be deemed a subsidiary of
such other corporation if such other corporation owns or
controls, directly or indirectly, a majority of the
combined voting power of the outstanding shares of the
capital stock of the Company entitled to vote generally
in the election of directors ("Voting Stock"));
ii. if, as a result of a Transaction, the Company does not
survive as an entity, or its shares are changed into the
shares of another corporation, unless the stockholders
of the Company immediately prior to the Transaction own
a majority of the outstanding shares of such other
corporation immediately following the Transaction;
iii. if any Person becomes, after the date the Plan is
adopted, a beneficial owner directly or indirectly of
securities of the Company representing 50% or more of
the combined voting power of the Company's Voting Stock,
other than a Person who, as of the date of approval of
the Plan by the Company's stockholders, is the
beneficial owner of 10% or more of the Company's common
stock or an affiliate of any such Person;
iv. the dissolution or liquidation of the Company is
approved by its stockholders; or
v. if the Directors as of the date the Plan is adopted (the
"Incumbent Board") cease to represent at least
two-thirds of the Board; provided, that any person
becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
stockholders, was approved by at least two-thirds of the
members comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement in
which such person is named as a nominee for director
without objection to such nomination) shall be, for
purposes of this paragraph (v), treated as though such
person were a member of the Incumbent Board.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 "COMMITTEE" means the Compensation Committee of the Board of Directors
of the Company or any other committee appointed from time to time by the
Company's Board of Directors to administer the Plan. The full Board of
Directors, in its discretion, may act as the
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Committee under the Plan, whether or not a Committee has been appointed, and
shall do so with respect to grants of Awards to non-employee Directors. The
Committee may delegate to one or more members of the Committee or officers of
the Company, individually or acting as a committee, any portion of its
authority, except as otherwise expressly provided in the Plan. In the event of a
delegation to a member of the Committee, an officer, or a committee thereof, the
term "Committee" as used herein shall include the member of the Committee,
officer, or committee with respect to the delegated authority. Notwithstanding
any such delegation of authority, the Committee comprised of members of the
Board of Directors and appointed by the Board of Directors shall retain overall
responsibility for the operation of the Plan.
2.8 "COMPANY" means Lexington Precision Corporation, a Delaware
corporation, and any successor thereto as provided in Article 16 hereof.
2.9 "COVERED EMPLOYEE" means a Participant who, as of the date of vesting
and/or payout of an Award, or the date the Company or any of its Subsidiaries is
entitled to a tax deduction as a result of the Award, as applicable, is one of
the group of "covered employees," as defined in the regulations promulgated
under Code Section 162(m), or any successor statute.
2.10 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company; provided, however, that any Director who is employed
by the Company shall be treated as an Employee under the Plan.
2.11 "DISABILITY" shall mean a condition whereby the Participant is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical impairment that can be expected to result in death or that
is or can be expected to last for a continuous period of not less than twelve
months, all as verified by a physician acceptable to, or selected by, the
Company.
2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "EMPLOYEE" means any employee of the Company or any of its
Subsidiaries.
2.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.15 "FAIR MARKET VALUE" as of any date and in respect of any Share means
the then most recent closing price of a Share reported by the exchange or other
trading system on which Shares are primarily traded or, if deemed appropriate by
the Committee for any reason, the fair market value of Shares shall be as
determined by the Committee in such other manner as it may deem appropriate;
provided, that in no event shall the fair market value of any Share be less than
its par value.
2.16 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 hereof and that is designated as an Incentive Stock
Option and that is intended to meet the requirements of Section 422 of the Code.
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2.17 "INSIDER" shall mean an individual who is, on the relevant date, an
executive officer of the Company, a Director, or a ten percent (10%) beneficial
owner of any class of the Company's equity securities that is registered
pursuant to Section 12 of the Exchange Act, all within the meaning used under
Section 16 of the Exchange Act and the rules thereunder.
2.18 "KEY EMPLOYEE" shall mean an individual who is a "key employee," as
defined in Section 416(i) of the Code (without regard to paragraph (5) thereof)
of the Company.
2.19 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 hereof that is not intended to meet the
requirements of Section 422 of the Code, or that otherwise does not meet such
requirements.
2.20 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.21 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.22 "PARTICIPANT" means an Employee, Director, or consultant who has been
selected to receive an Award or who has an outstanding Award granted under the
Plan.
2.23 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Section 162(m) of the Code.
2.24 "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 hereof.
2.25 "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 hereof.
2.26 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or the occurrence of other events as
determined by the Committee, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, pursuant to the Restricted Stock Award
Agreement, as provided in Article 8 hereof.
2.27 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof and the
rules promulgated thereunder, including a "group" as defined in Section 13(d)
thereof and the rules promulgated thereunder.
2.28 "RESTRICTED STOCK" means an Award granted to a Participant pursuant
to Article 8 hereof.
2.29 "SHARES" means shares of the Company's common stock, par value $0.25
per share.
2.30 "STOCK APPRECIATION RIGHT" or "SAR" means an Award granted pursuant
to the terms of Article 7 hereof.
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2.31 "SUBSIDIARY" means any corporation, partnership, joint venture, or
other entity in which the Company, directly or indirectly, has a majority voting
interest. With respect to Incentive Stock Options, "Subsidiary" means any
entity, domestic or foreign, whether or not such entity now exists or is
hereafter organized or acquired by the Company or by a Subsidiary that is a
"subsidiary corporation" within the meaning of Section 424(d) of the Code and
the rules thereunder.
2.32 "TEN PERCENT STOCKHOLDER" means an Employee who at the time an ISO is
granted owns Shares possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Subsidiary, within
the meaning of Section 422 of the Code.
ARTICLE 3. ADMINISTRATION
3.1 GENERAL. Subject to the terms and conditions of the Plan, the Plan
shall be administered by the Committee. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors. The Committee shall have the authority to delegate administrative
duties to officers of the Company. For purposes of making Awards intended to
qualify for the "Performance-Based Exception" under Section 162(m) of the Code,
to the extent required under such Section, the Committee shall be comprised
solely of two or more individuals who are "outside directors," as that term is
defined in Section 162(m) of the Code and the regulations thereunder.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions hereof, the Committee shall have full power to select Employees,
Directors, and consultants who shall be offered the opportunity to participate
in the Plan; determine the sizes and types of Awards; determine the terms and
conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan's administration;
and amend the terms and conditions of any outstanding Award as provided in the
Plan. Further, the Committee shall make all other determinations that it deems
necessary or advisable for the administration of the Plan. As permitted by law
and the terms of the Plan, the Committee may delegate its authority hereunder.
No member of the Committee shall be liable for any action taken or decision made
in good faith relating to the Plan or any Award granted hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee shall be final, conclusive, and binding on all
persons, including the Company, its stockholders, Directors, Employees,
Participants, and their estates and beneficiaries, unless changed by the Board.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 hereof, the number of Shares hereby reserved for
issuance to Participants under the
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Plan shall equal 400,000. Any Shares covered by an Award (or portion of an
Award) granted under the Plan that is forfeited or canceled or expires shall be
deemed not to have been delivered for purposes of determining the maximum number
of Shares available for delivery under the Plan. Shares may be authorized,
unissued shares or treasury shares. The Committee shall determine the
appropriate methodology for calculating the number of Shares issued pursuant to
the Plan.
The following limitations shall apply to the grant of any Award to a
Participant in a fiscal year:
(a) OPTIONS: The maximum aggregate number of Shares that may be
granted in the form of Options pursuant to Awards granted in
any one fiscal year to any one Participant shall be 50,000.
(b) STOCK APPRECIATION RIGHTS: The maximum aggregate number of
Shares that may be granted in the form of SARs pursuant to
Awards granted in any one fiscal year to any one Participant
shall be 50,000.
(c) RESTRICTED STOCK: The maximum aggregate of Shares that may be
granted with respect to Awards of Restricted Stock granted in
any one fiscal year to any one Participant shall be 50,000.
(d) PERFORMANCE SHARES AND PERFORMANCE UNITS: The maximum
aggregate grant with respect to Awards of Performance Shares
made in any one fiscal year to any one Participant shall be
equal to the Fair Market Value of 50,000 Shares (measured on
the date of grant); the maximum aggregate amount awarded with
respect to Performance Units to any one Participant in any one
fiscal year may not exceed $100,000.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. Upon a change in corporate
capitalization, such as a stock split or stock dividend, or a corporate
transaction, such as a merger, consolidation, combination, exchange of shares or
the like, separation, including a spin-off, or other distribution of stock or
property of the Company, a reorganization (whether or not such reorganization
comes within the definition of such term in Section 368 of the Code) or a
partial or complete liquidation of the Company, such adjustment shall be made in
the number and class of Shares that may be delivered under Section 4.1, in the
number, class of and/or price of Shares subject to outstanding Awards granted
under the Plan, and in the Award limits set forth in Section 4.1, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights.
4.3 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that, unless the
Committee determines otherwise at the time
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such adjustment is considered, no such adjustment shall be authorized to the
extent that such authority would be inconsistent with the intent that the Plan
or any Award meet the requirements of Section 162(m) of the Code, as amended
from time to time.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in the Plan include all
Employees, Directors, and consultants of the Company and its Subsidiaries.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, Directors,
and consultants, those to whom Awards shall be granted and shall determine the
nature and amount of each Award, provided that Incentive Stock Options shall
only be awarded to Employees of the Company or its Subsidiaries.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each grant of an Option shall be evidenced by an
Award Agreement that shall specify the Option Price, the duration of the Option,
the number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine that are not inconsistent with the terms of the
Plan.
6.3 OPTION PRICE. The Option Price for each grant of an Option under the
Plan shall be as determined by the Committee; provided, however, the per-share
exercise price shall not be less than the Fair Market Value of the Shares on the
date of grant.
If an ISO is granted to a Ten Percent Stockholder, the Option Price shall
be at least one hundred ten percent (110%) of the Fair Market Value of the stock
subject to the ISO.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant shall expire
at such time as the Committee shall determine at the time of grant, provided
that no ISO shall expire later than the tenth (10th) anniversary of the date the
ISO was granted; provided, however, that no ISO granted to a Ten Percent
Stockholder shall be exercisable later than the fifth anniversary of the date
such ISO was granted.
6.5 EXERCISE OF OPTIONS. Options shall be exercisable at such times and
subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or for each
Participant.
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Company or its designated agent, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment of the Option Price for the Shares.
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Upon the exercise of any Option, the Option Price for the Shares being
purchased pursuant to the Option shall be payable to the Company in full either:
(a) in cash or its equivalent; or (b) subject to the Committee's approval, by
delivery of previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price (provided that the Shares
that are delivered must have been held by the Participant for at least six (6)
months prior to their delivery to satisfy the Option Price); or (c) by a
combination of (a) and (b); or (d) by any other method approved by the Committee
in its sole discretion. Unless otherwise determined by the Committee, the
delivery of previously acquired Shares may be done through attestation. No
fractional shares may be tendered or accepted in payment of the Option Price.
Unless otherwise determined by the Committee, cashless exercises are
permitted pursuant to Federal Reserve Board Regulation T, subject to applicable
securities law restrictions, or by any other means that the Committee determines
to be consistent with the purpose of the Plan and applicable law.
Subject to any governing rules or regulations, as soon as practicable
after receipt of notification of exercise and full payment, the Company shall
deliver to the Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased pursuant to the
Option(s).
Unless otherwise determined by the Committee, all payments upon the
exercise of an Option shall be calculated and made in United States dollars.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, or under any blue sky or state securities laws applicable
to such Shares.
6.8 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, encumbered, or otherwise
alienated or hypothecated, other than by will or by the laws
of descent and distribution. Further, all ISOs granted to a
Participant under the Plan shall be exercisable during such
Participant's lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in
the applicable Award Agreement, no NQSO may be sold,
transferred, pledged, assigned, encumbered, or otherwise
alienated or hypothecated, other than by will or by the laws
of descent and distribution. Further, except as otherwise
provided in the applicable Award Agreement, all NQSOs granted
to a Participant shall be exercisable during such
Participant's lifetime only by such Participant.
6.9 SPECIAL LIMITATION ON GRANTS OF INCENTIVE STOCK OPTIONS. No ISO shall
be granted to an Employee under the Plan or any other ISO plan of the Company or
its Subsidiaries to purchase Shares as to which the aggregate Fair Market Value
(determined as of the date of
- 8 -
grant) of the Shares that first become exercisable by the Employee in any
calendar year exceeds $100,000. To the extent an Option initially designated as
an ISO exceeds the value limit of this Section 6.9 or otherwise fails to satisfy
the requirements applicable to ISOs, it shall be deemed a NQSO and shall
otherwise remain in full force and effect.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee.
Subject to the terms and conditions of the Plan, the Committee shall have
complete discretion in determining the number of SARs granted to each
Participant and, consistent with the provisions of the Plan, determining the
terms and conditions pertaining to such SARs.
The grant price of an SAR shall equal the Fair Market Value of a Share on
the date of grant.
7.2 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine that are not inconsistent with the
terms of the Plan.
7.3 TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion.
7.4 EXERCISE OF SARS. SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, determines.
7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The amount by which the Fair Market Value of a Share on the
date of exercise exceeds the grant price of the SAR; by
(b) The number of Shares with respect to which the SAR is
exercised.
The payment upon exercise of an SAR shall be in Shares. Any Shares
delivered in payment shall be deemed to have a value equal to the Fair Market
Value on the date of exercise of the SAR.
7.7 NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, encumbered, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided in a Participant's Award Agreement, all
SARs granted to a Participant under the Plan shall be exercisable during such
Participant's lifetime only by such Participant.
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ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine that are not inconsistent with the
terms of the Plan.
8.3 TRANSFERABILITY. Except as provided in the Award Agreement, the Shares
of Restricted Stock granted hereunder may not be sold, transferred, pledged,
assigned, encumbered, or otherwise alienated or hypothecated until the end of
the applicable Period of Restriction established by the Committee and specified
in the Restricted Stock Award Agreement, or upon earlier satisfaction of any
other conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Award Agreement. Prior to the end of the Period of
Restriction, all rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available, during such Participant's
lifetime, only to such Participant.
8.4 OTHER RESTRICTIONS. The Committee may impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted pursuant to the
Plan as it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals,
time-based restrictions on vesting following the attainment of the performance
goals, time-based restrictions, and/or restrictions under applicable federal or
state securities laws.
To the extent deemed appropriate by the Committee, the Company may retain
in its possession the certificates representing Shares of Restricted Stock until
such time as all conditions and/or restrictions applicable to such Shares have
been satisfied.
Except as otherwise provided in the Award Agreement, Shares of Restricted
Stock covered by any Restricted Stock grant made under the Plan shall become
freely transferable by the Participant after the last day of the applicable
Period of Restriction.
8.5 VOTING RIGHTS. If the Committee so determines, Participants holding
Shares of Restricted Stock granted hereunder may be granted the right to
exercise full voting rights with respect to those Shares during the Period of
Restriction.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder (whether or
not the Company holds the certificate(s) representing such Shares) may, if the
Committee so determines, be credited with dividends paid with respect to the
underlying Shares while they are so held. The Committee may apply any
restrictions to the dividends that the Committee deems appropriate. Without
limiting the generality of the preceding sentence, if the grant or vesting of
Restricted Shares granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based
- 10 -
Exception, the Committee may apply any restrictions it deems appropriate to the
payment of dividends declared with respect to such Restricted Shares, such that
the dividends and/or the Restricted Shares remain eligible for the
Performance-Based Exception.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS AND/OR PERFORMANCE SHARES. Subject to the
terms of the Plan, Awards of Performance Units and/or Performance Shares may be
granted to Participants in such amounts and upon such terms, and at any time and
from time to time, as shall be determined by the Committee.
9.2 AWARD AGREEMENT. At the Committee's discretion, each grant of
Performance Units and/or Performance Shares may be evidenced by an Award
Agreement that shall specify the initial value, the duration of the Award, the
performance measures, if any, applicable to the Award, and such other provisions
as the Committee shall determine that are not inconsistent with the terms of the
Plan.
9.3 VALUE OF AWARDS OF PERFORMANCE UNITS AND/OR PERFORMANCE SHARES. Each
Performance Unit shall have an initial value that is established by the
Committee at the time of grant. Each Performance Share shall have an initial
value equal to the Fair Market Value of a Share on the date of grant. The
Committee shall set performance goals in its discretion that, depending on the
extent to which they are met, will determine the number and/or value of
Performance Units and/or Performance Shares that will be paid out to the
Participant. For purposes of this Article 9, the time period during which the
performance goals must be met shall be called a "Performance Period."
9.4 EARNING OF PERFORMANCE UNITS AND/OR PERFORMANCE SHARES. Subject to the
terms of the Plan, after the applicable Performance Period has ended, the holder
of Performance Units and/or Performance Shares shall be entitled to receive a
payout based on the number and value of Performance Units and/or Performance
Shares earned by the Participant over the Performance Period, to be determined
as a function of the extent to which the corresponding performance goals have
been achieved.
9.5 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS AND/OR PERFORMANCE
SHARES. Payment of earned Performance Units and/or Performance Shares shall be
as determined by the Committee and, if applicable, as evidenced in the related
Award Agreement. Subject to the terms of the Plan, the Committee, in its sole
discretion, may pay earned Performance Units and/or Performance Shares in the
form of cash or in Shares (or in a combination thereof) that have an aggregate
Fair Market Value equal to the value of the earned Performance Units and/or
Performance Shares at the close of the applicable Performance Period. Such
Shares may be delivered subject to any restrictions deemed appropriate by the
Committee. No fractional shares will be issued. The determination of the
Committee with respect to the form of payout of such Awards shall be set forth
in the Award Agreement pertaining to the grant of the Award or the resolutions
establishing the Award.
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Unless otherwise provided by the Committee, Participants holding
Performance Units and/or Performance Shares shall be entitled to receive
compensation equivalent to the dividends declared with respect to the Shares
represented by such Performance Units and/or Performance Shares. Such
compensation may be subject to the same accrual, forfeiture, and payout
restrictions as apply to dividends earned with respect to Shares of Restricted
Stock, as set forth in Section 8.6 hereof, as determined by the Committee.
9.6 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units and/or Performance Shares may not be sold,
transferred, pledged, assigned, encumbered, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
ARTICLE 10. PERFORMANCE MEASURES
Unless and until the Committee proposes for stockholder vote and the
Company's stockholders approve a change in the general performance measures set
forth in this Article 10, the attainment of which may determine the degree of
payout and/or vesting with respect to Awards to Covered Employees that are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Cash flow (including, but not limited to, operating cash flow
and free cash flow);
(d) Gross revenues;
(e) Gross margins;
(f) Earnings before interest, taxes, depreciation, and
amortization (EBITDA); and
(g) Any of the above measures compared to peer or other companies.
Performance measures may be set at the corporate, subsidiary, division, or
business unit level.
Awards that are designed to qualify for the Performance-Based Exception,
and that are held by Covered Employees, may not be adjusted upward. The
Committee shall retain the discretion to adjust such Awards downward.
If applicable tax and/or securities laws change to permit Committee
discretion to alter the governing performance measures without obtaining
stockholder approval of such changes, the Committee shall have sole discretion
to make such changes without obtaining stockholder approval.
- 12 -
ARTICLE 11. RIGHTS OF PARTICIPANTS
11.1 EMPLOYMENT. Nothing in the Plan shall confer upon any Participant any
right to continue in the employ of the Company or its Subsidiaries, or as a
Director, or interfere with or limit in any way the right of the Company or its
Subsidiaries to terminate any Participant's employment or directorship at any
time.
11.2 PARTICIPATION. No Employee, Director, or consultant shall have the
right to be selected to receive an Award under the Plan, or, having been so
selected, to be selected to receive a future Award.
11.3 RIGHTS AS A STOCKHOLDER. Except as provided in Sections 8.5, 8.6, and
9.5 or in applicable Award Agreement consistent with such Sections, a
Participant shall have none of the rights of a stockholder with respect to
Shares covered by any Award until the Participant becomes the record holder of
such Shares, or the Period of Restriction has expired, as applicable.
ARTICLE 12. TERMINATION OF EMPLOYMENT/DIRECTORSHIP
Upon termination of the Participant's employment or directorship for any
reason other than Disability or death, an Award granted to the Participant may
be exercised by the Participant or permitted transferee at any time on or prior
to the earlier of the expiration date of the Award or the expiration of three
(3) months after the date of termination but only if, and to the extent that,
the Participant was entitled to exercise the Award at the date of termination.
All Awards or portions thereof not yet vested or exercisable or whose Period of
Restriction has not expired as of the date of termination (other than a
termination by reason of Disability or death) shall terminate and be forfeited
immediately on the date of termination. If the employment or directorship of a
Participant terminates by reason of the Participant's Disability or death, all
Awards or portions thereof not yet vested or exercisable or whose Period of
Restriction has not expired as of the date of the Participant's Disability or
death shall become immediately vested and/or exercisable on the date of
termination due to Disability or death. If the employment or directorship of a
Participant terminates by reason of the Participant's Disability or death, the
Participant (or, if appropriate, the Participant's legal representative or
permitted transferee) may exercise such Participant's rights under any
outstanding Award at any time on or prior to the earlier of the expiration date
of the Award or the first anniversary of Disability or death.
Unless otherwise determined by the Committee, an authorized leave of
absence pursuant to a written agreement or other leave entitling an Employee to
reemployment in a comparable position by law or rule shall not constitute a
termination of employment for purposes of the Plan unless the Employee does not
return at or before the end of the authorized leave or within the period for
which re-employment is guaranteed by law or rule. For purposes of this Article,
a "termination" includes an event that causes a Participant to lose his
eligibility to participate in the Plan (e.g., an individual is employed by a
company that ceases to be a Subsidiary). In the case of a consultant, the
meaning of "termination" or "termination of employment" includes the date that
the individual ceases to provide services to the Company or its Subsidiaries. In
the case of a nonemployee director, the meaning of "termination" includes the
date that the individual ceases to be a director of the Company or its
Subsidiaries.
- 13 -
Notwithstanding the foregoing, the Committee has the authority to
establish different rules that apply upon the termination of employment of a
particular Participant, which shall be memorialized in the Participant's Award
Agreement at any time.
An Award that remains unexercised or unvested after the latest date it
could have been exercised or vested under any of the foregoing provisions or
under the terms of the Award shall be forfeited.
ARTICLE 13. CHANGE IN CONTROL
In the event of a Change in Control, unless otherwise specifically
prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchange or trading
system, or unless the Committee shall otherwise specify in the Award Agreement,
the Committee, in its sole discretion, may:
(a) cause any Award that has not become exercisable or been vested
to be exercisable or vested immediately;
(b) elect to terminate Options or SARs in exchange for a cash
payment equal to the amount by which the Fair Market Value of
the Shares subject to such Option or SAR to the extent the
Option or SAR has vested exceeds the exercise price with
respect to such Shares;
(c) elect to terminate Options or SARs provided that each
Participant is first notified of and given the opportunity to
exercise his/her vested Options or SARs for a specified period
of time (of not less than 15 days) from the date of
notification and before the Option or SAR is terminated;
(d) permit Awards to be assumed by a new parent corporation or a
successor corporation (or its parent) and replaced with a
comparable Award of the parent corporation or successor
corporation (or its parent);
(e) amend an Award Agreement or take such other action with
respect to an Award that it deems appropriate; or
(f) implement any combination of the foregoing.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of the
Plan, the Board may at any time and from time to time, alter, amend, suspend, or
terminate the Plan in whole or in part.
14.2 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of the
Plan to the contrary, no termination, amendment, or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Participant holding such Award.
- 14 -
14.3 STOCKHOLDER APPROVAL REQUIRED FOR CERTAIN AMENDMENTS. Stockholder
approval will be required for any amendment of the Plan that does any of the
following: (a) increases the maximum number of Shares subject to the Plan; (b)
changes the designation of the class of persons eligible to receive ISOs under
the Plan; or (c) modifies the Plan in a manner that requires stockholder
approval under applicable law or the rules of a stock exchange or trading system
on which Shares are traded.
ARTICLE 15. WITHHOLDING
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable taxes (including social security or social charges), domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan. The Participant may satisfy,
totally or in part, such Participant's obligations pursuant to this Article 15
by electing to have Shares withheld, to redeliver Shares acquired under an
Award, or to deliver previously owned Shares that have been held for at least
six (6) months, provided that the election is made in writing on or prior to (i)
the date of exercise, in the case of Options and SARs, (ii) the date of payment,
in the case of Performance Units and/or Performance Shares, and (iii) the
expiration of the Period of Restriction in the case of Restricted Stock. Any
election made under this Article 15 may be disapproved by the Committee at any
time in its sole discretion. If an election is disapproved by the Committee, the
Participant must satisfy his obligations pursuant to this paragraph in cash.
ARTICLE 16. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
through merger, consolidation, or otherwise, of all or substantially all of the
business, stock, and/or assets of the Company.
ARTICLE 17. GENERAL PROVISIONS
17.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
17.2 SEVERABILITY. If any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
17.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the
- 15 -
Exchange Act, unless determined otherwise by the Board. To the extent any
provision of the Plan or any action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Board.
17.5 LISTING. The Company may use reasonable efforts to register Shares
issued pursuant to Awards with the United States Securities and Exchange
Commission or to effect compliance with the registration, qualification, and
listing requirements of any state or foreign securities laws, stock exchange, or
trading system.
17.6 INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17.7 NO ADDITIONAL RIGHTS. Neither any Award nor any benefits arising
under the Plan shall constitute part of an employment contract between the
Participant and the Company or any Subsidiary, and accordingly, subject to
Section 14.2, the Plan and the benefits hereunder may be terminated at any time
in the sole and exclusive discretion of the Committee without giving rise to
liability on the part of the Company for severance payments.
17.8 NONCERTIFICATED SHARES. To the extent that the Plan provides for
issuance of certificates to reflect the transfer of Shares, the transfer of such
Shares may be effected on a noncertificated basis, to the extent not prohibited
by applicable law or the rules of any stock exchange or trading system.
17.9 GOVERNING LAW. The Plan and each Award Agreement shall be governed by
the laws of the State of Delaware, excluding any conflicts or choice of law rule
or principle that might otherwise refer construction or interpretation of the
Plan to the substantive law of another jurisdiction. Unless otherwise provided
in the Award Agreement, each recipient of an Award under the Plan is deemed to
submit to the exclusive jurisdiction and venue of the federal or state courts
whose jurisdiction covers Delaware, to resolve any and all issues that may arise
out of or relate to the Plan or any related Award Agreement.
17.10 COMPLIANCE WITH CODE SECTION 409A. No Award that is subject to
Section 409A of the Code shall provide for deferral of compensation that does
not comply with Section 409A of the Code, unless the Board, at the time of
grant, specifically provides that the Award is not intended to comply with
Section 409A of the Code. Notwithstanding any provision in the Plan to the
contrary, with respect to any Award subject to Section 409A of the Code,
distributions on account of a separation from service may not be made to a Key
Employee before the date which is six (6) months after the date of separation
from service (or, if earlier, the date of death of the employee).
- 16 -
Dated as of April 21, 2005 LEXINGTON PRECISION CORPORATION
By: /s/ Michael A. Lubin
-------------------------------------
Chairman of the Board
Date of Stockholder Approval: May 17, 2005
- 17 -
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[BARCODE]
[ ] Mark this box with an X if you have made
changes to your name or address details above.
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- ------------------------------------------------------------------------------------------------------------------------------------
A ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD FOR WITHHOLD
01 - William B. Conner [ ] [ ] 04 - Michael A. Lubin [ ] [ ]
02 - Warren Delano [ ] [ ] 05 - Joseph A. Pardo [ ] [ ]
03 - Kenneth I. Greenstein [ ] [ ] 06 - Elizabeth H. Ruml [ ] [ ]
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
FOR AGAINST ABSTAIN
2. Approve the adoption by the Board of Directors [ ] [ ] [ ]
of the 2005 Stock Award Plan.
3. Ratify the appointment of Ernst & Young LLP as [ ] [ ] [ ]
the Company's independent auditors.
4. Proxies may vote on such other matters as may properly come
before the meeting and any adjournments thereof.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy. All joint holders must sign. When signing as
attorney, trustee, executor, administrator, guardian or corporate officer, please provide your FULL title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
- -------------------------------------------------- -------------------------------------------------- -------------------------
/ /
- -------------------------------------------------- -------------------------------------------------- -------------------------
1 U P X H H H P P P P 005382 +
001CD40001 00F8GD
</Table>
- --------------------------------------------------------------------------------
PROXY - LEXINGTON PRECISION CORPORATION
- --------------------------------------------------------------------------------
40 EAST 52ND STREET, NEW YORK, NEW YORK 10022
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON MAY 17, 2005
The undersigned hereby appoints as Proxies, each of WARREN DELANO and DENNIS J.
WELHOUSE, each with full power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of capital stock
of Lexington Precision Corporation held of record by the undersigned on April 8,
2005, at the Annual Meeting of Stockholders to be held on May 17, 2005, and any
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. YOU ARE ENCOURAGED
TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOXES ON THE REVERSE SIDE OF
THIS CARD, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. IF NO DIRECTION IS GIVEN WITH
RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.