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Strategic Actions

The Company completed a number of strategic actions during

2015

and

2016

in response to the nonrenewal of supply agreements with certain Tier I automotive customers primarily due to global pricing constraints, the downturn in the commercial vehicle market beginning in the

fourth

quarter of

2015

and other market and economic factors impacting the Company. Strategic actions taken during

2015

and

2016

included: (i) initiation of the Company’s exit from the Broadway Plant (defined below) (see Note

), (ii) the CSS Sale (defined below) (see Note

), (iii) the Toluca Sale-Leaseback (defined below) (see Note

), (iv) the sale of the Company’s manufacturing facility in Morganton, North Carolina in

2015,

(v) the relocation of its Sypris Electronics operation to a new facility (see discussion below), (vi) reductions in workforce at all locations, and (vii) other reductions in employment costs through reduced work schedules, senior management pay reductions and deferral of merit increases and certain benefit payments. Using a portion of the proceeds generated from the asset sales noted above, the Company paid off all of its most senior secured debt consisting of a “Term Loan” and “Revolving Credit Facility” in

August 2016.

During this period, the Company also received the benefit of cash infusions from Gill Family Capital Management, Inc. (“GFCM”) in the form of secured promissory note obligations totaling

$6,500,000

in principal, scheduled to mature in

2019.

During

2016,

the Company also initiated the process of qualifying production for certain oil and gas industry components in Mexico that were previously produced solely in the U.S. Qualification of production for the

first

group of these components was completed for the Mexico facility during

2016.

During the

fourth

quarter of

2016,

the Company completed the relocation of its operations for Sypris Electronics to a

50,000

square foot leased facility in Tampa, Florida. Sypris Electronics previously leased a facility also located in Tampa of approximately

300,000

square feet for its operations which also included its CSS product lines. All manufacturing operations for Sypris Electronics are now performed in the new facility, which has resulted in a significant reduction in rent and related operating expenses effective

January 1, 2017

as compared to

2016.

The Company has embraced a repositioning away from certain of its traditional Tier

customers that represent the primary suppliers to the original equipment manufacturers (“OEMs”) in the commercial vehicle markets, while targeting to replace these customers with longer-term relationships, especially among the heavy truck, off-highway and automotive OEMs and others who place a higher value on the Company’s innovation, flexibility and core commitment to lean manufacturing principles. Among the customer programs

not

being renewed was a supply agreement with Meritor Inc. (“Meritor”), which expired on

January 1, 2017,

which was produced at the Company’s Louisville, Kentucky automotive and commercial vehicle manufacturing plant (the “Broadway Plant”). The Company similarly has experienced a reduction in certain portions of its business with Eaton

Corporation (“Eaton”). As a result of these decisions, the Company anticipates a significant reduction in its commercial vehicle revenues in

2017

(See Note