10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended

September 30, 2001 Commission File Number

1-3574

HASTINGS MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-0633740 (I.R.S. Employer Identification No.)
325 North Hanover Street Hastings, Michigan (Address of Principal Executive Offices)	49058 (Zip Code)

Registrant's telephone number, including area code: 616-945-2491

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X   No       

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at October 22, 2001
Common stock, $2 par value	761,366 shares

Hastings Manufacturing Company and Subsidiaries

Contents

Part I - Financial Information
				Page
	Item 1 - Financial Statements:
		Report on Review by Independent Certified Public Accountants		3
		Condensed Consolidated Balance Sheets -
			September 30, 2001 and December 31, 2000	4-5
		Condensed Consolidated Statements of Income -
			Three Months and Nine Months Ended September 30, 2001 and 2000	6
		Condensed Consolidated Statements of Cash Flows -
			Nine Months Ended September 30, 2001 and 2000	7
		Notes to Condensed Consolidated Financial Statements		8-10
		Review by Independent Certified Public Accountants		11
	Item 2 - Management's Discussion and Analysis of Financial
			Condition and Results of Operations	12-18
	Item 3 - Quantitative and Qualitative Disclosures About Market Risk			18-19
Part II - Other Information
	Item 1 - Legal Proceedings			20
	Item 6 - Exhibits and Reports on Form 8-K			20-21

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Report on Review by Independent Certified Public Accountants

Board of Directors
Hastings Manufacturing Company
Hastings, Michigan

We have reviewed the accompanying condensed consolidated balance sheet of Hastings Manufacturing Company and subsidiaries as of September 30, 2001, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2001 and 2000, and cash flows for the nine-month periods ended September 30, 2001 and 2000, included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended September 30, 2001. These condensed consolidated financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

As described in Note 4, on January 24, 2000, a class action lawsuit was filed against the Company by its retirees with respect to the 1997 amendment of the Company's postretirement benefit plans. The outcome of the lawsuit is uncertain at this time.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein). In our report dated March 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/BDO Seidman, LLP

BDO Seidman, LLP
Grand Rapids, Michigan
October 22, 2001

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PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Balance Sheets

Assets	September 30, 2001		December 31, 2000
Current Assets
Cash	$	294,266	$	593,763
Accounts receivable, less allowance           for possible losses of $425,000           and $225,000		5,010,135		4,393,759
Refundable income taxes		-		72,295
Inventories:
Finished products		7,740,194		8,616,438
Work in process		568,786		622,897
Raw materials		1,350,950		1,686,435
Prepaid expenses and other assets		100,471		117,718
Future income tax benefits		1,130,469		1,420,469
Total Current Assets		16,195,271		17,523,774
Property and Equipment
Land and improvements		627,765		643,209
Buildings		5,307,599		5,349,185
Machinery and equipment		21,604,136		21,169,016
		27,539,500		27,161,410
Less accumulated depreciation		20,243,960		19,224,955
Net Property and Equipment		7,295,540		7,936,455
Prepaid Pension Asset		2,322,646		2,438,707
Intangible Pension Asset		188,315		188,315
Future Income Tax Benefits		5,509,768		5,477,040
Other Assets		159,931		136,957
	$	31,671,471	$	33,701,248

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Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Balance Sheets

Liabilities and Stockholders' Equity	September 30, 2001			December 31, 2000
Current Liabilities
Notes payable to banks	$	3,650,000		$	5,000,000
Accounts payable		1,327,265			2,008,666
Accruals:
Compensation		362,202			318,375
Income taxes		29,847			-
Taxes other than income		221,979			144,252
Miscellaneous		434,614			339,636
Current portion of postretirement benefit obligation		1,015,002			1,015,002
Current maturities of long-term debt		3,260,000			600,000
Total Current Liabilities		10,300,909			9,425,931
Long-Term Debt, less current maturities		-			3,060,000
Pension and Deferred Compensation Obligations, less   current portion		2,477,138			2,503,318
Postretirement Benefit Obligation, less current portion		12,526,204			12,752,246
Other Liabilities		71,533			-
Total Liabilities		25,375,784			27,741,495
Contingency (Note 4)
Stockholders' Equity
Preferred stock, $2 par value, authorized and           unissued 500,000 shares		- -			- -
Common stock, $2 par value, 1,750,000 shares authorized;           761,366 shares issued and outstanding		1,522,732			1,522,732
Additional paid-in capital		264,862			264,862
Retained earnings		7,049,951			6,497,125
Accumulated other comprehensive income (Note 3):
Cumulative foreign currency translation adjustment		(1,075,385	)		(905,705	)
Derivative adjustment		(47,212	)		-
Pension liability adjustment		(1,419,261	)		(1,419,261	)
Total accumulated other comprehensive income		(2,541,858	)		(2,324,966	)
Total Stockholders' Equity		6,295,687			5,959,753
	$	31,671,471		$	33,701,248

See accompanying independent accountants' review report and notes to condensed consolidated financial statements.

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Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Statements of Income

	Three months ended			Nine months ended
September 30,	2001	2000		2001		2000
Net Sales	$  8,243,101	$  8,194,947		$  26,874,147		$   27,072,204
Cost of Sales	5,848,661	5,810,040		18,738,008		18,944,164
Gross profit	2,394,440	2,384,907		8,136,139		8,128,040
Operating Expenses
Advertising	73,839	93,615		242,902		220,468
Selling	727,803	745,335		2,331,670		2,329,605
General and administrative	1,350,216	1,354,854		4,128,688		4,220,731
	2,151,858	2,193,804		6,703,260		6,770,804
Operating income	242,582	191,103		1,432,879		1,357,236
Other Expense (Income)
Interest expense	168,108	169,090		520,753		500,089
Other, net	3,380	(20,318	)	(52,700	)	(43,546	)
	171,488	148,772		468,053		456,543
Income before income tax expense	71,094	42,331		964,826		900,693
Income Tax Expense	36,000	17,000		412,000		364,000
Net Income	$    35,094	$   25,331		$   552,826		$   536,693
Basic and Diluted Net Income Per      Share of Common Stock (Note 2)	$.05	$.03		$.74		$.72
Dividends Per Share of Common Stock	$   -	$.08		$   -		$.24

See accompanying independent accountants' review report and notes to condensed consolidated financial statements.

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Hastings Manufacturing Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Nine months ended September 30,		2001			2000
Operating Activities
Net income	$	552,826		$	536,693
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation		1,076,766			1,152,369
Deferred income taxes		290,000			248,000
Gain on sale of property and equipment		(1,627	)		(14,529	)
Change in postretirement benefit obligation		(226,042	)		(812,075	)
Changes in operating assets and liabilities:
Accounts receivable		(658,066	)		(167,799	)
Refundable income taxes		71,280			23,945
Inventories		1,187,841			132,143
Prepaid expenses and other current assets		16,471			(8,772	)
Other assets		93,087			(134,058	)
Accounts payable and accruals		(436,611	)		(448,027	)
Net cash from operating activities		1,965,925			507,890
Investing Activities
Capital expenditures		(494,737	)		(737,728	)
Proceeds from sale of property and equipment		1,627			14,529
Investment in joint venture		-			(75,000	)
Net cash for investing activities		(493,110	)		(798,199	)
Financing Activities
Proceeds from issuance of notes payable to banks		5,700,000			6,700,000
Principal payments on notes payable to banks		(7,050,000	)		(6,200,000	)
Principal payments on long-term debt		(400,000	)		(720,000	)
Repurchase of common stock		-			(230,629	)
Dividends paid		-			(182,584	)
Net cash for financing activities		(1,750,000	)		(633,213	)
Effect of Exchange Rate Changes on Cash		(22,312	)		(13,453	)
Net Decrease in Cash		(299,497	)		(936,975	)
Cash, beginning of period		593,763			1,011,630
Cash, end of period	$	294,266		$	74,655
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	693,372		$	517,197
Income taxes, net of refunds		56,799			150,133

See accompanying independent accountants' review report and notes to condensed consolidated financial statements.

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Hastings Manufacturing Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

In the opinion of the management of Hastings Manufacturing Company and subsidiaries (the "Company"), the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position as of September 30, 2001, and the results of operations for the three months and nine months ended September 30, 2001 and 2000, and cash flows for the nine months ended September 30, 2001 and 2000.

The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the expected results for all of 2001.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances, transactions and stockholdings have been eliminated.

The accompanying consolidated financial statements are condensed and do not contain all of the information and footnote disclosures required by generally accepted accounting principles in a complete set of financial statements.

In accordance with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, the Company records as revenue all amounts billed to customers for shipping and handling and classifies the related costs in cost of sales. In previous years, shipping and handling revenues and costs were included in revenues on a net basis. For the three months and nine months ended September 30, 2000, $196,397 and $560,468, respectively, have been reclassified to increase sales and cost of sales over the amounts previously reported to conform with the current year presentation.

Note 2 - Earnings Per Share

A reconciliation of the numerators and denominators used in the "basic" and "diluted" earnings per share (EPS) calculations follows:

	Three months ended		Nine months ended
September 30,	2001	2000	2001	2000
Numerator:
Net income used for both basic and diluted      EPS calculation	$   35,094	$   25,331	$   552,826	$   536,693
Denominator:
Weighted average shares outstanding      for the period - used for basic EPS calculation	745,046	745,046	745,046	749,864
Dilutive effect of stock options and contingently      issuable shares	-	-	-	-
Weighted average shares outstanding      for the period - used for diluted EPS calculation	745,046	745,046	745,046	749,864

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Note 3 - Comprehensive Income

Comprehensive income and its components consist of the following:

	Three months ended				Nine months ended
September 30,	2001		2000		2001		2000
Net income	$     35,094		$    25,331		$  552,826		$  536,693
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(131,034	)	(45,203	)	(169,680	)	(133,073	)
Derivative adjustment	(16,385	)	-		(47,212	)	-
Minimum pension liability adjustment	-		-		-		-
Other comprehensive loss	(147,419	)	(45,203	)	(216,892	)	(133,073	)
Comprehensive income (loss)	$   (112,325	)	$   (19,872	)	$  335,934		$  403,620

The above $(16,385) and $(47,212) other comprehensive loss, net of tax related to the derivative adjustment for the three months and nine months ended September 30, 2001, are made up of the following components:

	Three months ended				Nine months ended
September 30, 2001	Before Tax		Net of Tax		Before Tax		Net of Tax
Cumulative effect of a change in accounting
principle, as of January 1, 2001	$                -		$               -		$      (6,569	)	$      (4,336	)
Change in fair value of derivative	(39,773	)	(26,250	)	(83,704	)	(55,244	)
Reclassification adjustment to expense	14,948		9,865		18,740		12,368
Other comprehensive loss	$     (24,825	)	$    (16,385	)	$   (71,533	)	$   (47,212	)

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Note 4 - Contingency

In early April 1997, the Company announced the amendment of its postretirement benefit plans, principally to adjust the cost-sharing provisions. As a result of the amendment, the Company's retirees filed a class action lawsuit in the Western District of Michigan on January 24, 2000, under the Employee Retirement Income Security Act of 1974 (ERISA) and the Labor Management Relations Act of 1947 (LMRA). The suit alleges that the Company denied retirees and their dependents certain health insurance benefits to which the retirees have "vested" rights pursuant to the terms of the Company's collective bargaining agreements (1964 to the present). Specifically, the retiree class disputes the increase in their health insurance deductibles, the elimination of their prescription drug card and the requirement that they pay a portion of their health insurance premiums. The Company has denied any wrongdoing in this suit, and intends to defend it and any related class certification vigorously. Minimal discovery has take n place to date in the lawsuit because the parties have been attempting to reach a settlement. As of the date of this report, the Company believes that it is close to reaching a settlement of this lawsuit, but there are still a number of contingencies to be satisfied before any settlement can be finalized, and ultimately any settlement must be approved by the court. Therefore, although the Company is hopeful that a settlement will soon be reached, there is still the possibility that the case will not be settled, and that this lawsuit will be tried. If this case is tried, the Company's ultimate chances of success are uncertain. If the retirees prevail, the Company anticipates that a requirement to provide postretirement benefits at the pre-amendment level would have a material adverse effect on the Company's future financial position, results of operations and cash flows.

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Hastings Manufacturing Company and Subsidiaries

Review by Independent Certified Public Accountants

The September 30, 2001 and 2000 condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been reviewed by BDO Seidman, LLP, Independent Certified Public Accountants, in accordance with established professional standards and procedures for such a review.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

NET SALES

2001 Compared to 2000

Net sales in the third quarter of 2001 increased $48,154, or 0.6%, from $8,194,947 in the third quarter of 2000 to $8,243,101. Net sales for the first nine months of 2001 decreased $198,057, or 0.7%, from $27,072,204 in the first nine months of 2000 to $26,874,147. The net sales increase in the third quarter of 2001 reflects volume increases in the export and original equipment markets, combined with the positive net sales impact from the March 2001 marketing and distribution agreement with Karl Schmidt Unisia relating to Zollner brand pistons, as described below. This net sales increase was slightly offset by a volume decrease in the domestic aftermarket. The volumes in the Canadian aftermarket and private brand market were relatively flat for the third quarter of 2001. The net sales increase in the export volume in the third quarter of 2001 reflects the broadening of the Company's customer base into new export markets. The increase in the original equipment volume reflects increased sales to the domesti c automotive and light-duty truck manufacturers. The decrease in the domestic aftermarket volume reflects an industry-wide softness in the replacement parts industry.

For the first nine months of 2001, net sales have increased in the export market and domestic aftermarket, and the Company has realized a positive net sales impact from the marketing and distribution of Zollner brand pistons. These increases, however, have been more than offset by decreases in the private brand and original equipment volumes. The increase in the export volume reflects the broadening of the Company's export customer base, as noted above. The increase in the domestic aftermarket volume reflects improved sales to a major customer as part of an expansion of the customer's product offerings. However, net of the sales to this major customer, the Company, as noted above, is experiencing a sales decrease in the domestic aftermarket due to an industry-wide softness in the replacement parts industry. The Company is currently evaluating the depth of this softness in the replacement parts market and is developing operating options to help offset this decline. The decrease in the private brand volume reflects reduced sales to a specific industry, while the decrease in the original equipment volume is consistent with the decreased production volume of the domestic automotive and light-duty truck manufacturers. As noted above, the Company experienced increased volume in the original equipment market during the third quarter of 2001 compared to the same period in 2000. However, the Company has observed deteriorating business conditions in the original equipment market during the latter part of the third quarter of 2001, through decreased orders from this market. The Company is developing operating options to help offset this reduction in orders. The volume in the Canadian aftermarket was relatively flat for the first nine months of this year.

In March 2001, the Company signed an agreement with Karl Schmidt Unisia to market and distribute Zollner brand pistons into the domestic and Mexican aftermarkets. Under the terms of the agreement, the Company will retain a portion of the net piston revenue in exchange for providing marketing and distribution services. The net proceeds from the piston sales are included in the Company's net sales.

In early November 2001, the Company signed an agreement with Automotive Components Limited (ACL) to market and distribute ACL brand engine bearings, gaskets and import pistons into the domestic and Mexican aftermarkets. Under the terms of the agreement, the Company will retain a portion of the

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net ACL product revenue in exchange for providing marketing and distribution services. The Company expects that the new venture will contribute positively to its profitability beginning in the first quarter of 2002.

2000 Compared to 1999

Net sales in the third quarter of 2000 decreased $983,487, or 10.7%, from the third quarter of 1999. For the first nine months of 2000, net sales decreased $1,207,291, or 4.3%, from the first nine months of 1999. The overall net sales decrease widened in the third quarter of 2000 which reflected year-to-date sales declines in the domestic aftermarket, private brand and original equipment markets and Canadian aftermarket, partially offset by a modest increase in the export market. The sales decreases in the domestic and Canadian aftermarket reflected an industry-wide softness in the replacement parts industry. The decreases in the private brand and original equipment markets were primarily due to the loss of certain customers through market consolidations. The improvement in the export market reflected a continued sales recovery by one of the Company's primary export customers.

COST OF SALES AND GROSS PROFIT

2001 Compared to 2000

Cost of sales in the third quarter of 2001 increased $38,621, or 0.7%, from the third quarter of 2000. For the first nine months of 2001, cost of sales decreased $206,156, or 1.1%, from the first nine months of 2000. The gross profit margin on net sales decreased slightly for the third quarter of 2001, from 29.1% for the third quarter of 2000, to 29.0%. The gross profit margin on net sales for the third quarter of 2001 decreased from the six-month level of 30.8%, primarily due to the sales mix change noted above. Export volume increased in the third quarter and on a year-to-date basis. This volume has traditionally carried a lower gross profit margin than domestic sales due to the lower level of operating expenses (not included in cost of sales) that are required to service that volume. Domestic aftermarket sales, on the other hand, decreased in the third quarter of 2001. Sales in this market have traditionally carried a higher gross profit margin in order to support the higher level of operating expenses (not included in cost of sales) associated with that volume. This change in sales mix resulted in the reduced gross profit margin on sales in the third quarter of 2001. For the first nine months of 2001, the gross profit margin on net sales increased, from 30.0% in the first nine months of 2000, to 30.3%. The decreased gross profit margin on sales from the export volume was more than offset by the gross profit margin generated on a nine-month total increase in domestic aftermarket sales, combined with the positive gross profit impact on the net sales generated from the marketing and distribution of Zollner brand pistons. Finally, the gross profit margin was positively affected by the reduction in some of the individual inventory cost factors (material, labor and overhead costs). While material costs remained relatively unchanged from the prior year average, labor costs continue to decrease modestly from the prior year average. This labor cost reduction reflects efficiencies gained through lean manufacturing and a decrease resulting from the work force reduction implemented in the first quarter of this year. Overhead costs also decreased, reflecting an increased effort by the Company to control the non-fixed portion of these costs.

2000 Compared to 1999

Cost of sales in the third quarter of 2000 decreased $997,012, or 14.6%, from the third quarter of 1999. For the first nine months of 2000, cost of sales decreased $1,735,135, or 8.4%, from the first nine months of 1999. The gross profit margin on net sales increased for the third quarter of 2000, from 25.8% for the third quarter of 1999, to 29.1%. For the first nine months of 2000, the gross profit margin on net sales also increased, from 26.9% in the first nine months of 1999, to 30.0%. The overall decrease in cost of

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sales and the improved gross profit margin on net sales for the first nine months of 2000 were both primarily the result of non-recurring costs that negatively affected the 1999 figures. Those 1999 costs were associated with the conversion and start-up of various production processes. As a result of that conversion, productivity levels were not at their anticipated needs. In order to cover the production deficiencies, and thus improve production levels, the Company incurred additional labor and overhead costs throughout 1999. The Company spent much of 1999 aggressively addressing the issues that caused the increased cost of sales and the resulting decreased gross profit margin in 1999.

OPERATING EXPENSES

2001 Compared to 2000

Total operating expenses for the third quarter of 2001 decreased $41,946, or 1.9%, from the third quarter of 2000. For the first nine months of 2001, total operating expenses decreased $67,544, or 1.0%, from the first nine months of 2000. Advertising costs for the third quarter of 2001 decreased $19,776, or 21.1%, from the third quarter of 2000. This decrease reflects a decline in co-op advertising claims and other advertising support costs. For the first nine months of 2001, advertising costs increased $22,434, or 10.2%, from the first nine months of 2000. This increase primarily reflects an increase in printed material costs relating to a one-time charge for the start-up of the marketing and distribution of Zollner brand pistons. Selling costs for the third quarter of 2001 decreased $17,532, or 2.4%, from the third quarter of 2000. This decrease reflects a decline in various selling support and sales personnel costs. For the first nine months of 2001, selling costs increased $2,065, or 0.1%, from the fi rst nine months of 2000. This slight increase reflects an increase in agents' commissions and salesmen's travel, largely offset by decreases in various selling support and sales personnel costs. General and administrative costs for the third quarter of 2001 decreased $4,638, or 0.3%, from the third quarter of 2000. For the first nine months of 2001, general and administrative costs decreased $92,043, or 2.2%, from the first nine months of 2000. These decreases reflect declines in various general support and personnel costs resulting from the cost containment measures implemented by the Company during the first quarter of 2001. These cost decreases were slightly offset by an increase in the provision for doubtful accounts receivable, which resulted from the Chapter 11 (reorganization) bankruptcy protection sought by several of the Company's customers. These customers service the Company's domestic aftermarket and original equipment market. The current allowance for doubtful accounts receivable ($425,000 at Se ptember 30, 2001) is considered adequate to cover any potential losses resulting from these bankruptcy proceedings.

2000 Compared to 1999

Total operating expenses for the third quarter of 2000 increased $74,388, or 3.5%, from the third quarter of 1999. For the first nine months of 2000, total operating expenses increased $193,096, or 2.9%, from the first nine months of 1999. Advertising expenses for the third quarter of 2000 increased $48,889, or 109.3%, from the third quarter of 1999. For the first nine months of 2000, advertising expenses increased $21,135, or 10.6%, from the first nine months of 1999. These increases reflected an influx of co-op advertising expenses in the third quarter of 2000, combined with the expenses related to a new piston ring catalog in 2000 that had been incurred throughout the year. Selling expenses for the third quarter of 2000 increased $32,409, or 4.5%, from the third quarter of 1999. For the first nine months of 2000, selling expenses increased $98,106, or 4.4%, from the first nine months of 1999. These increases reflected a slight decrease in volume-driven agents' commissions, offset by increases in variou s selling support and sales personnel expenses. General and administrative expenses for the third quarter of 2000 decreased $6,910, or 0.5%, from the third quarter of 1999. This decrease reflected the reversal of previously accrued performance-based personnel expenses, offset substantially by increases in general personnel support expenses and legal and professional fees. For the first nine months of 2000, general and

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administrative expenses increased $73,855, or 1.8%, from the first nine months of 1999. This increase reflected slight year-to-date increases in the aforementioned general personnel support expenses and legal and professional fees, combined with an increase in insurance expense. The increase in legal and professional fees was related to the Company retiree's class action lawsuit described in Note 4 to the accompanying Condensed Consolidated Financial Statements. The increased insurance expense represented the deductible portion of an insured fire loss that took place in the second quarter of 2000 within the finished goods storage area of the Company's production facility. The effect of this event on the Company's ability to service its customers, and its effect on earnings, was minimal.

OTHER EXPENSES

2001 Compared to 2000

Other expenses netted to $171,488 for the third quarter of 2001, compared to $148,772 for the third quarter of 2000. This increase primarily reflects the other, net expense, in 2001, derived from the Company's investment in its Casite brand products joint venture, combined with the inclusion, in the third quarter of 2000, of the income associated with a gain on the sale of excess production equipment. For the first nine months of 2001, other expenses netted to $468,053 versus a net expense of $456,543 in the first nine months of 2000. This increase reflects higher interest expense in 2001 related to the increased short-term line utilization during the first quarter of 2001. The interest expense was comparable to 2000 levels for the second and third quarters of 2001, as cash flow has improved during this time period, resulting in less reliance on the short-term lines of credit. This higher interest expense in 2001 was partially offset by other, net income derived from the year-to-date earnings from the Cas ite joint venture, combined with the income derived from the gain recognized on the sale of stock received from one of the Company's pension fund administrators. This stock was received when the administrator converted from a mutual to a stock ownership company.

2000 Compared to 1999

Other expenses netted to $148,772 for the third quarter of 2000, compared to $148,101 for the third quarter of 1999. For the first nine months of 2000, these expenses netted to $456,543, compared to a net expense of $407,708 for the first nine months of 1999. These increases primarily reflected a higher interest expense in 2000 related to increased utilization of the Company's short-term lines of credit. The other, net income for the third quarter and first nine months of 2000 reflected the income associated with the gain on the sale of excess production equipment, combined with the income derived from the Casite joint venture. There was no income or expense generated by this joint venture in 1999. The other, net income for 1999 primarily reflected a gain on the sale of obsolete equipment.

TAXES ON INCOME

The 2001 and 2000 effective tax rates of 42.7% and 40.4%, respectively, are higher than the domestic statutory federal tax rate of 34.0% due primarily to the impact of various state income taxes and the impact of a higher statutory rate applicable to the earnings of the Canadian subsidiary. The 2001 effective tax rate also reflects the tax effect of specific inter-company transactions. The effect of these transactions on the earnings and cash flows of the Company have been eliminated during consolidation.

As of September 30, 2001, the Company recorded net deferred income tax assets of $6,640,237. The major components of those assets are the tax effects of the net operating loss carryforwards and net accrued retirement and postretirement benefit obligations. The realization of these recorded benefits is dependent upon the generation of future taxable income. Management believes that it is more likely than

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not that adequate levels of future taxable income will be generated to absorb the net operating loss carryforwards, the deductible amounts related to the retirement and postretirement benefit obligations and the remaining net deductible temporary differences. However, based on the net operating loss carryforwards at September 30, 2001 (which must be utilized before foreign tax credit carryforwards can be utilized), management believes that it is more likely than not that the foreign tax credit carryforwards will go unutilized prior to their expiration. As a result, a valuation allowance has been recorded for the total foreign tax credits of $311,508 at September 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

On February 22, 2001, the Company announced that it had instituted a series of cost-containment measures in an effort to reduce its operating expenses and improve its profitability. The cost-containment measures were in response to a continued softness in the domestic piston ring aftermarket and a downturn in the original equipment market. The cost-containment measures consisted of reductions in the salaried and hourly workforces and identification of reductions in various non-payroll related expenses. The workforce reductions resulted in approximately $36,000 in severance payments. The Company also announced an indefinite suspension of its regular quarterly cash dividend and has identified certain assets for possible future sale in an effort to further improve its cash position. In early November 2001, the Company sold a piece of real property. The gain on the sale of this property is approximately $650,000, and will be recognized as other, net income in the fourth quarter. The results to date of these o n-going cost-containment measures and the asset sale event are encouraging, as each of these items should add to the profitability of the Company in future periods.

The Company's primary cash requirements continue to be for operating expenses such as labor costs, and for funding accounts receivable, capital expenditures and long-term debt service. Historically, the Company's primary sources of cash have been from operations and from bank borrowings. In late March 2001, the Company's loan agreement with its primary lender relating to its short-term and long-term borrowing was amended. The primary changes to the loan agreement are detailed in Note 13 to the Company's December 31, 2000 Consolidated Financial Statements. Total short-term lines available to the Company as of September 30, 2001 totaled $6,450,000, of which $2,800,000 was unused.

During the first nine months of 2001, the Company generated $1,965,925 of net cash from operating activities. The realized net income, depreciation and decreases in deferred income taxes and inventories were partially offset by an increase in accounts receivable and decreases in accounts payable and accruals and the postretirement benefit obligation. The decrease in deferred income taxes reflects the utilization of a portion of the net operating loss carryforward based on earnings for the first nine months, combined with the tax effect of the inter-company transactions discussed earlier. The decrease in inventories reflects a planned reduction in the Company's inventory to certain levels, combined with the shortfall of production output versus customer demand during the first half of 2001. Production output aligned with customer demand during the third quarter. The increase in accounts receivable reflects the timing of customer sales and the related payment terms associated with those sales. The decrease in accounts payable and accruals is due to several large payments being made over the first nine months of the year on year-end accruals for interest and general accounts payable, partially offset by increases in current year accruals for compensation, taxes other than income and miscellaneous payables. The decrease in the postretirement benefit obligation reflects the excess of actual postretirement benefit claims paid over the actuarially determined annual expense. The investing activities for the first nine months of 2001 primarily reflect the Company's continued support of its lean manufacturing environment. The financing activities for the first nine months of 2001 reflect the working capital requirements that were primarily needed to fund the operating activity items noted above. The financing activities also reflect the principal payments under the amended loan agreement, as well as the restriction of paying dividends and

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repurchasing the Company's common stock, as detailed in Note 13 to the Company's December 31, 2000 Consolidated Financial Statements.

During the first nine months of 2000, the Company generated $507,890 of net cash from operating activities. The realized net income, depreciation and decreases in deferred income taxes and inventories were partially offset by increases in accounts receivable and other assets, and decreases in accounts payable and accruals and the postretirement benefit obligation. The decrease in deferred income taxes reflected the utilization of a portion of the tax net operating loss carryforward based on earnings for the first nine months of the year. The decrease in inventories reflected a slight reduction in inventory requirements in relation to customer demand. The increase in accounts receivable reflected the timing of customer sales and the related payment terms associated with those sales. The increase in other assets reflected the additional funding of one of the Company's defined benefit pension plans to specified limits. The decrease in accounts payable and accruals was due to several large payments being made in the first nine months of 2000 related to workers' compensation and general accounts payable, offset slightly by an increase in the compensation accrual. The decrease in the postretirement benefit obligation reflected the excess of actual postretirement benefit claims paid over the actuarially determined annual expense. The investing activities for the first nine months of 2000 primarily reflected the Company's increased support if its lean manufacturing environment. The investing activities also reflected the Company's investment in the Casite joint venture. The financing activities for the first nine months of 2000 reflected the working capital requirements that were primarily needed to fund the operating activity items noted above. The financing activities also reflected the amortization of the Company's long-term debt obligation as well as the purchase and retirement of 30,000 shares of the Company's common stock.

As noted earlier in this discussion, the Company instituted cost-containment measures in February 2001 in order to reduce its operating expenses and improve its profitability and cash position. Through the first nine months of the year, the measures taken have had a positive impact on earnings and cash flow, and are expected to continue to have a positive impact for the remainder of the year, although the Company cannot assure you that this will happen. These cost-containment measures should help to offset the softness currently observed in the original equipment market and domestic aftermarket. The cost-containment measures have allowed the Company to improve the availability on its short-term lines of credit which, when combined with future anticipated earnings from operations (which will be subject to minimal current cash outflows for U.S. income taxes due to the utilization of the net operating loss carryforwards), will generate cash flows sufficient to fund the Company's working capital and capital e xpenditure requirements through 2001.

LITIGATION CONTINGENCY

As a result of the Company's amendment of its postretirement benefit plans, as disclosed in Note 6 to the December 31, 2000 Consolidated Financial Statements, the Company's retirees filed a class action lawsuit in the Western District of Michigan on January 24, 2000, under the Employee Retirement Income Security Act of 1974 (ERISA) and the Labor Management Relations Act of 1947 (LMRA). The suit alleges that the Company denied retirees and their dependents certain health insurance benefits to which the retirees have "vested" rights pursuant to the terms of the Company's collective bargaining agreements (1964 to the present). Specifically, the retiree class disputes the increase in their health insurance deductibles, the elimination of their prescription drug card and the requirement that they pay a portion of their health insurance premiums. The Company has denied any wrongdoing in this suit, and intends to defend it and any related class certification vigorously. Minimal discovery has taken place to date in the lawsuit because the parties have been attempting to reach a settlement. As of the date of this report, the Company believes that it is close to reaching a settlement of this lawsuit, but there are still a number of contingencies to be satisfied before any settlement can be finalized, and ultimately any settlement must be

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approved by the court. Therefore, although the Company is hopeful that a settlement will soon be reached, there is still the possibility that the case will not be settled, and that this lawsuit will be tried. If this case is tried, the Company's ultimate chances of success are uncertain. If the retirees prevail, the Company anticipates that a requirement to provide postretirement benefits at the pre-amendment level would have a material adverse effect on the Company's future financial position, results of operations and cash flows.

FORWARD-LOOKING STATEMENTS

With the exception of historical matters, the matters discussed in this commentary include forward-looking statements that describe the Company's plans, objectives, goals, expectations or projections. These forward-looking statements are identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "projects," "plans" or "believes" that a particular event "may occur" or "will likely occur" in the future, or similar statements. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this commentary, there were many important factors that could cause actual results to be materially different from the Company's current expectations.

Anticipated future sales are subject to competitive pressures from many sources. As an example, future sales could be affected by consolidation within the automotive replacement parts industry, whereby the Company could lose sales due to a competitor purchasing a current customer of the Company. Future sales could also be affected by current and future political and economic factors in the foreign markets where the Company conducts business.

Cost of sales and operating expenses may be adversely affected by unexpected costs associated with various issues. For example, future cost of sales could be affected by unexpected expenses related to the future maintenance of a lean manufacturing environment. Future operating expenses could be adversely affected, for example, by such items as unexpected large claims within the Company's self-funded group health insurance plan, increased retiree health insurance claim exposure as a result of an adverse court ruling on the current retiree health issue, or bad debt expenses related to deterioration in the credit worthiness of a customer or customers. Furthermore, the Company's cost-containment measures described above under the heading "Liquidity and Capital Resources" may not be as effective as the Company anticipates.

The Company may also be adversely affected by recent events relating to the terrorist attacks of September 11, 2001. These events, especially when coupled with weakening economic indicators prior to the tragedy, create considerable economic and political uncertainties which could adversely affect consumer buying behavior, automobile production, shipping and transportation costs, and other factors affecting the Company and the automotive industry generally.

The foregoing is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The foregoing should not be construed as an exhaustive list of all economic, competitive, governmental and technological factors that could adversely affect the Company's expected consolidated financial position, results of operations or liquidity. The Company disclaims any obligation to update its forward-looking statements to reflect subsequent events or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risks, which include changes in interest rates and changes in the foreign currency exchange rate as measured against the U.S. dollar.

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The Company's interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. The Company is exposed to interest rate changes primarily as a result of its variable rate lines of credit used to finance its short-term working capital needs and for general corporate purposes, and a portion of its variable rate long-term borrowings, as discussed below. Of the $6,450,000 total short-term lines available to the Company at September 30, 2001, $3,650,000 was outstanding. Management believes that the fluctuation in interest rates in the near future will not have a material impact on the Company's consolidated financial statements taken as a whole.

With respect to its variable rate long-term borrowings, the Company has entered into an interest swap agreement essentially to fix the interest rate on $2,310,000 of the total $3,260,000 outstanding borrowings at September 30, 2001. The Company does not use derivative financial instruments for trading purposes.

The Company has a manufacturing/distribution facility in Canada. That facility's sales are denominated in Canadian dollars, thereby creating exposures to changes in exchange rates. Changes in the Canadian/U.S. exchange rate may positively or negatively affect the Company's sales, gross margins and retained earnings. The Company attempts to minimize currency exposure through working capital management. The Company does not hedge its exposure to translation gains and losses relating to foreign currency net asset exposures.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of pending litigation involving the Company, see Note 4 to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q, which is here incorporated by reference.

Item 6. Exhibits and Reports on Form 8-K

          (a)          Exhibits

Exhibit Number	Document
3(a)	Amended Articles of Incorporation of Hastings Manufacturing Company, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended June 30, 1998, are here incorporated by reference.
3(b)	Bylaws of Hastings Manufacturing Company, as amended to date, filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 2000, are here incorporated by reference.
4(a)	NBD Bank Amended and Restated Letter Agreement for $6,600,000 Term Loan and $3,000,000 Credit Authorization to Make Revolving Credit Loans and Issue Letters of Credit dated August 28, 1998, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1998, is here incorporated by reference.
4(b)	First Amendment to Amended and Restated Letter Agreement, dated November 11, 1999 between Hastings Manufacturing Company and Bank One, Michigan (formerly NBD Bank), filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1999, is here incorporated by reference.
4(c)	Second Amendment to Amended and Restated Letter Agreement, dated March 30, 2000, between Hastings Manufacturing Company and Bank One (formerly NBD), filed as an exhibit to the Form 10-Q Quarterly Report for the period ended March 31, 2000, is here incorporated by reference.
4(d)	Third Amendment to Amended and Restated Letter Agreement, dated October 31, 2000, between Hastings Manufacturing Company and Bank One (formerly NBD), filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 2000, is here incorporated by reference.
4(e)	Fourth Amendment to Amended and Restated Letter Agreement, dated March 21, 2001, between Hastings Manufacturing Company and Bank One (formerly NBD), filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 2000, is here incorporated by reference.

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4(f)	Restated Master Agreement dated August 10, 1998, regarding an interest rate swap transaction between Hastings Manufacturing Company and NBD Bank, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1998, is here incorporated by reference.
4(g)	Business Loan Agreement, dated as of January 24, 2001, between Hastings Manufacturing Company and Hastings City Bank.
4(h)	Preferred Stock Purchase Rights Plan, filed as an exhibit to the Form 8-A filed with the Securities and Exchange Commission on February 15, 1996, is here incorporated by reference.
15	Letter Regarding Unaudited Interim Financial Information.

          (b)          The Company filed the following Current Report on Form 8-K during the quarter ended September 30, 2001.

Date of Report	Filing Date	Item(s) Reported
August 7, 2001	August 7, 2001	This Form 8-K included a press release that reported the Company's financial results for the quarter ended June 30, 2001. The press release included summary consolidated income statement data for the quarters and six-month periods ended June 30, 2001 and 2000.

          This Form 8-K was furnished pursuant to Regulation FD and is considered to have been "furnished" but not "filed" with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:  November 14, 2001 HASTINGS MANUFACTURING COMPANY



/s/Thomas J. Bellgraph Thomas J. Bellgraph
Its Vice-President, Finance

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EXHIBIT INDEX

Exhibit Number	Document
3(a)	Amended Articles of Incorporation of Hastings Manufacturing Company, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended June 30, 1998, are here incorporated by reference.
3(b)	Bylaws of Hastings Manufacturing Company, as amended to date, filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 2000, are here incorporated by reference.
4(a)	NBD Bank Amended and Restated Letter Agreement for $6,600,000 Term Loan and $3,000,000 Credit Authorization to Make Revolving Credit Loans and Issue Letters of Credit dated August 28, 1998, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1998, is here incorporated by reference.
4(b)	First Amendment to Amended and Restated Letter Agreement, dated November 11, 1999 between Hastings Manufacturing Company and Bank One, Michigan (formerly NBD Bank), filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1999, is here incorporated by reference.
4(c)	Second Amendment to Amended and Restated Letter Agreement, dated March 30, 2000, between Hastings Manufacturing Company and Bank One (formerly NBD), filed as an exhibit to the Form 10-Q Quarterly Report for the period ended March 31, 2000, is here incorporated by reference.
4(d)	Third Amendment to Amended and Restated Letter Agreement, dated October 31, 2000, between Hastings Manufacturing Company and Bank One (formerly NBD), filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 2000, is here incorporated by reference.
4(e)	Fourth Amendment to Amended and Restated Letter Agreement, dated March 21, 2001, between Hastings Manufacturing Company and Bank One (formerly NBD), filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 2000, is here incorporated by reference.
4(f)	Restated Master Agreement dated August 10, 1998, regarding an interest rate swap transaction between Hastings Manufacturing Company and NBD Bank, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1998, is here incorporated by reference.
4(g)	Business Loan Agreement, dated as of January 24, 2001, between Hastings Manufacturing Company and Hastings City Bank.
4(h)	Preferred Stock Purchase Rights Plan, filed as an exhibit to the Form 8-A filed with the Securities and Exchange Commission on February 15, 1996, is here incorporated by reference.
15	Letter Regarding Unaudited Interim Financial Information.

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EX-4

EXHIBIT 4(g)

BUSINESS LOAN AGREEMENT

Principal $1,500,000.00	Loan Date 01-24-2001	Maturity 01-24-2002	Loan No	Call/Collateral 18	Account	Officer DVK	Initials NA
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations.

Borrower: HASTINGS MANUFACTURING CO
325 N HANOVER
HASTINGS, MI 49058 Lender: Hastings City Bank
Main Office
150 W. Court St.
Hastings, MI 49058
(616) 945-2401

THIS BUSINESS LOAN AGREEMENT dated January 24, 2001, is made and executed between HASTINGS MANUFACTURING CO ("Borrower") and Hastings City Bank ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement, and (B) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of January 24, 2001, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.

ADVANCE AUTHORITY. The following person currently is authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of his or her authority: THOMAS J. BELLGRAPH, VP and Treasurer of HASTINGS MANUFACTURING CO.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.

Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.

Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.

Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists:

Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of Borrower's state of incorporation. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 325 N HANOVER, HASTINGS, MI 49058. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender of any change in the location of Borrower's principal office. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.

Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.

Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of Borrower's articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.

Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years.

Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of Borrower's Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispos e of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and hazardous substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becom es liable for cleanup or other costs under any such laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the properties. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.

Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good

BUSINESS LOAN AGREEMENT
(Continued) Page 2

faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.

Financial Statements. Furnish Lender such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request.

Additional Information. Furnish such additional information and statements, as Lender may request from time to time.

Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.

Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens. Pay and discharge when due all of its Indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which Penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and Provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.

Inspection. Permit employees or agents of lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.

Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds, with a Certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.

Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indeb tedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Capital Expenditures. Make or contract to make capital expenditures, including leasehold improvements, in any fiscal year in excess of $__________________ or incur liability for rentals of property (including both real and personal property) in an amount which, together with capital expenditures, shall in any fiscal year exceed such sum.

Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out

BUSINESS LOAN AGREEMENT
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of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however, that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right to setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement, the Note, or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. In the event of a death, Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default.

Change in Ownership. Any change in ownership of twenty-five (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.

Right to Cure. If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude purs uit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Michigan. This Agreement has been accepted by Lender in the State of Michigan.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Barry County, State of Michigan.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's

BUSINESS LOAN AGREEMENT
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obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.

Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind Borrower's successors and assigns and shall inure to the benefit of Lender its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.

Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.

Borrower. The word "Borrower" means HASTINGS MANUFACTURING CO, and all other persons and entities signing the Note in whatever capacity.

Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, chattel mortgage, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq,, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901. et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words ""Event of Default" mean any of the Events of Default set forth in this Agreement in the default section of this Agreement.

GAAP. The word "GAAP" means generally accepted accounting principles.

Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.

Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" means that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Lender. The word "Lender" means Hastings City Bank, its successors and assigns.

Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Note. The word "Note" means the Note executed by Borrower in the principal amount of $1,500,000.00 dated January 24, 2001, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

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BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED JANUARY 24, 2001.

BORROWER:

HASTINGS MANUFACTURING CO


By: /s/Thomas J. Bellgraph

      Thomas J. Bellgraph, Vice President/Treasurer of
      HASTINGS MANUFACTURING CO

LENDER:

HASTINGS CITY BANK



x /s/ Neil A. Gardner    Authorized Signer

EX-15

EXHIBIT 15

November 14, 2001

Hastings Manufacturing Company
Hastings, Michigan

We have reviewed, in accordance with standards established by the AICPA, the unaudited interim financial information of Hastings Manufacturing Company and subsidiaries for the periods ended September 30, 2001 and 2000 as indicated in our report dated October 22, 2001. Because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which was included in your quarterly report on Form 10-Q, is being incorporated by reference in a Registration Statement (File No. 333-74489).

We also are aware that our report referred to above, under Rule 436(c) under the Securities Act of 1933, is not considered a part of the registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.

/s/BDO Seidman, LLP

Grand Rapids, Michigan