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
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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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 16, 2006
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
16, 2006, 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. The ratification of Ernst & Young LLP as independent auditors of the
Company for the year ending December 31, 2006; and
3. 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 7, 2006, 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 17, 2006
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 16, 2006
This Proxy Statement is being mailed to stockholders on or about April 17,
2006, 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 16,
2006 (the "Annual Meeting"). Accompanying this Proxy Statement are the Notice of
Annual Meeting of Stockholders, a form of proxy for the meeting, and a copy of
the Company's Annual Report for the year ended December 31, 2005, 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 7, 2006, are entitled to notice of, and to vote at, the Annual Meeting and
any adjournments thereof. As of the record date, there were outstanding
4,981,767 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
2007 and until his or her 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 annual meeting of stockholders to be held in 2007 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 73 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 55 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 76 Secretary of the Company from September 1979 to
April 2004. Consultant for more than five years.
Prior to becoming a consultant, 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.
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Michael A. Lubin 56 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.
Joseph A. Pardo 72 Consultant for more than five years. Chairman of
Phoenix Advisors, LLC for more than five years.
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 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 2002.
Elizabeth H. Ruml 53 Retired for more than five years. 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 (now known as
Deutsche Bank). From May 1993 through December
1997, she was Managing Director and Chief Credit
Officer at Salomon Brothers. Director of the
Company since 2002.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors met seven times during 2005. 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 2005. 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
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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's
Regulation S-K.
The Compensation Committee, which is comprised of two non-employee members
of the Board of Directors, met two times during 2005. 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 administers the Company's 2005 Stock
Award Plan.
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 meeting attended by telephone
and $750 for each 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 the past five years, all of the directors have attended each of the
Annual Meetings.
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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 56
Warren Delano President and Director 55
Dennis J. Welhouse Senior Vice President, Chief Financial Officer, 57
and Secretary
Florence T. Herst Treasurer 64
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 2004, Mr. Welhouse has also served
as Secretary of the Company. Prior to April 2004, for more than five years, Mr.
Welhouse was Assistant Secretary of the Company.
Ms. Herst has served as Treasurer of the Company since February 2005. From
January 2001, through January 2005, Ms. Herst served as Assistant Treasurer of
the Company, and, for more than five years prior to January 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. A paper copy of
the Code of Ethics may be obtained by 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 7, 2006, by (1) each director and director nominee,
(2) each of the named executive officers, (3) all directors and executive
officers as a group, and (4) 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
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respect to all shares of the 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.
SHARES OF COMMON STOCK PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS OWNED
------------------------ ---------------------- -----------
Michael A. Lubin 1,665,078 (1) 33.1%
Warren Delano 1,396,597 (2) 28.0
William B. Conner 358,194 (3) 7.2
Dennis J. Welhouse 90,000 1.8
Joseph A. Pardo 36,205 *
Kenneth I. Greenstein 35,636 (4) *
Florence T. Herst 1,078 *
Elizabeth H. Ruml -- --
Directors and executive
officers as a group (8 persons) 3,490,616 (5) 69.3%
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* Less than 1 percent.
(1) Includes (a) 70,000 shares and 840 warrants to purchase common stock
("Warrants") owned by a limited liability corporation of which Mr. Lubin is
the managing member, (b) 50,000 shares and 15,580 Warrants owned by
individual retirement accounts of Mr. Lubin, (c) 89,062 shares and 3,110
Warrants owned by a retirement benefit plan of which Mr. Lubin and Mr.
Delano are both beneficiaries, and (d) 22,510 Warrants owned jointly with
Mr. Lubin's wife. Also includes an aggregate of 7,230 Warrants that are
owned by members of Mr. Lubin's family, as to which Mr. Lubin shares
dispositive power but has no voting power.
(2) Includes (a) 110,750 shares owned by individual retirement accounts of Mr.
Delano and (b) 89,062 shares and 3,110 Warrants 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 4, above. Total includes 89,062 shares and 3,110
Warrants 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. For purposes of the calculation of
"Percent of Class Owned" for the directors and executive officers as a
group, the 89,062 shares and 3,110 Warrants owned by Messrs. Delano and
Lubin's retirement benefit plan are included in the numerator and the
denominator only once.
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EQUITY COMPENSATION PLAN INFORMATION
At the 2005 Annual Meeting the stockholders of the Company voted to adopt
the Lexington Precision Corporation 2005 Stock Award Plan (the "Plan"). The Plan
is administered by the Company's Compensation Committee and permits the
Compensation Committee to award to officers and other key employees of the
Company stock options, stock appreciation rights, restricted stock, performance
shares, or performance units. In January 2006, the Compensation Committee
awarded 50,000 shares of Common Stock to an employee of the Company.
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
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, 2005.
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 2005 364,500 (1) -- --
Chairman of the Board 2004 371,350 (1) -- --
(co-principal executive 2003 267,725 (1) -- --
officer)
Warren Delano 2005 364,500 (2) -- --
President and Director 2004 371,350 (2) -- --
(co-principal executive 2003 267,725 (2) -- --
officer)
Dennis J. Welhouse 2005 158,000 -- 4,715 (3)
Senior Vice President, 2004 157,250 -- 6,119 (3)
Chief Financial 2003 155,000 75,000 5,655 (3)
Officer, and Secretary
(1) Includes (a) compensation, paid indirectly to Mr. Lubin through Lubin,
Delano & Company, in the amount of $350,000 during each of 2005 and 2004
and $250,000 during 2003 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."
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(2) Includes (a) compensation, paid indirectly to Mr. Delano through Lubin,
Delano & Company, in the amount of $350,000 during each of 2005 and 2004
and $250,000 during 2003 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 $3,753, $5,130, and $4,650, made to
Mr. Welhouse's account under the Company's 401(k) Plan in 2005, 2004, and
2003, respectively, (b) insurance premiums of $965, $958, and $942 paid by
the Company in 2005, 2004, and 2003, respectively, for term life insurance
owned by Mr. Welhouse, and (c) imputed interest of $31 and $63 in 2004 and
2003, respectively.
No stock options, stock appreciation rights, restricted stock, performance
shares, or performance units were granted to or exercised by any of the persons
named in the summary compensation table above during 2005, 2004, or 2003. In
each of 2003, 2004, and 2005, 5,000 shares of restricted stock that had been
awarded in 2000 to Mr. Welhouse under the Company's 1984 Restricted Stock Award
Plan, vested.
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.
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 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 type of business, sales volume, cash flow, and market capitalization.
The companies that make up the comparable group are subject to change as
companies merge with, or are acquired by, other companies or because companies
cease publishing compensation data for other reasons. 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. The base
salaries of the named executive officers were last adjusted effective January 1,
2004. The increase in the
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compensation payable to Messrs. Delano and Lubin was made in order to adjust
their compensation to a level that the Compensation Committee considered
appropriate at that time and 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 2005, 2004, and 2003 salaries of the named executive
officers are shown in the "Salary" column of the summary compensation table in
the section entitled "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 plan. The Company also has a restricted stock plan (the
"2005 Stock Award Plan") that permits it to award nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance shares, or performance units to officers and key employees of the
Company. In January 2006, the Compensation Committee awarded 50,000 restricted
shares of Common Stock to an employee of the Company. No awards under the 2005
Stock Award Plan were granted to, exercised by, or held by any of the persons
named in the summary compensation table above during 2005, 2004, or 2003.
From time to time, the Company 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.
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 2005, 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 2005, 2004, or 2003 and no additional compensation for services
provided in connection with acquisitions, divestitures, financings, or similar
transactions during 2005, 2004, or 2003.
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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 2005 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
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,
2005, for filing with the Securities and Exchange Commission.
In 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.
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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 Mr. Conner nor Mr. 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.
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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
(PERFORMANCE GRAPH)
<Table>
<Caption>
12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 13/31/05
Lexington Precision Corporation
Shares of Common Stock 100.00 39.24 67.09 101.27 75.95 88.61
S&P 500 Index 100.00 86.96 66.64 84.22 91.79 94.55
NASDAQ Composite Index 100.00 78.95 54.06 81.09 88.06 89.27
</Table>
YEAR ENDED DECEMBER 31
At December 31, 2000, 2001, 2002, 2003, 2004, and 2005, the last trades
listed on the OTC Bulletin Board, provided by the National Association of
Securities Dealers, were $0.79, $0.31, $0.53, $0.80, $0.60, and $0.70 per share
of Common Stock, respectively. The Company believes that nine 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 28.0% and 33.1%,
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 2005, 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
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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 2005 and no additional
compensation for services provided in connection with acquisitions,
divestitures, financings, or similar transactions during 2005.
In April 2005, Mr. Lubin purchased from a third party 2,096 units
consisting of $2,096,000 aggregate principal amount of the Company's 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
granted the Company an option pursuant to which the Company could 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. The option
expired unexercised on August 1, 2005. Mr. Lubin and his family members own the
13% Junior subordinated Notes, $4,616,000 aggregate principal amount of the 12%
Senior Subordinated Notes, and 49,627 warrants to purchase Common Stock. The
Lubin & Delano Profit Sharing Plan, of which Messrs. Delano and Lubin are the
sole beneficiaries, owns $311,000 principal amount of the 12% Senior
Subordinated Notes and 3,110 warrants to purchase Common Stock.
PROPOSAL 2 -- 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, 2006. Ernst &
Young LLP has been employed by the Company as its independent auditor since the
Company's 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, 2005 and 2004:
2005 2004
-------- --------
Audit Fees $337,301 $309,182
Tax Fees 26,875(1) 15,500(1)
All Other Fees 44,262(2) 40,471(3)
-------- --------
$408,438 $365,153
======== ========
(1) Assistance with the preparation of federal and state income tax
returns.
(2) Comprised of fees for the audit of Lexington Rubber Group, Inc., a
wholly-owned subsidiary of Lexington Precision Corporation ($35,000),
and the audit of the Lexington Precision Corporation Retirement &
Savings Plan ($9,262).
(3) Comprised of (a) review of compliance with Sarbanes-Oxley Act of 2002
($13,571), (b) audit of Lexington Rubber Group, Inc., a wholly-owned
subsidiary of Lexington Precision Corporation ($20,000), and (c) audit
of the Lexington Precision Corporation Retirement & Savings Plan
($6,900).
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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 2007) must be received by the Secretary of the Company on
or before December 1, 2006, 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 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.
Accompanying this Proxy Statement is a copy of the Company's Annual Report,
which includes financial statements and related data.
According to the rules of the Securities and Exchange Commission, 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
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material" or filed with the Securities and Exchange Commission 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 17, 2006
New York, New York
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LEXINGTON PRECISION CORPORATION
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DESIGNATION (IF ANY) 000000000.000 ext
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C 1234567890 J N T
[ ] 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 [ ] [ ] 05 - Joseph A. Pardo [ ] [ ]
02 - Warren Delano [ ] [ ] 04 - Michael A. Lubin [ ] [ ]
03 - Kenneth I. Greenstein [ ] [ ] 06 - Elizabeth H. Ruml [ ] [ ]
B ISSUES
The Board of Directors recommends a vote FOR the following proposal.
FOR AGAINST ABSTAIN
2. Ratify the appointment of Ernst & Young LLP [ ] [ ] [ ]
as the Company's independent auditors.
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
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Signature 2 - Please keep signature within the box
- --------------------------------------------------
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Date (mm/dd/yyyy)
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/ /
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1 U P X 0 0 8 4 8 5
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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 16, 2006
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 7,
2006, at the Annual Meeting of Stockholders to be held on May 16, 2006, 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.