-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qs6rGhNe70uuvdZkGYidBjKrZ9yGjKh/mJKp32QliA4DLRT58iCheJxDcqz7fRIv qISXZikiJmR9Rmq6lH0kng== 0000950152-97-006059.txt : 19970815 0000950152-97-006059.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950152-97-006059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWK CORP CENTRAL INDEX KEY: 0000849240 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 341610236 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-18433 FILM NUMBER: 97663377 BUSINESS ADDRESS: STREET 1: 200 PUBLIC SQUARE STREET 2: STE 29-2500 CITY: CLEVELAND STATE: OH ZIP: 44114-2301 BUSINESS PHONE: 2167367216 MAIL ADDRESS: STREET 1: 200 PUBLIC SQUARE STREET 2: STE 29-2500 CITY: CLEVELAND STATE: OH ZIP: 44114-2301 FORMER COMPANY: FORMER CONFORMED NAME: HAWK GROUP OF COMPANIES INC DATE OF NAME CHANGE: 19950417 10-Q 1 HAWK CORPORATION 10-Q 1 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 QUARTERLY PERIOD ENDED JUNE 30, 1997 Commission file number 333-18433 HAWK CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 34-1608156 - ------------------------ ------------------------------------ (State of incorporation) (I.R.S. Employer Identification No.) 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (216)861-3553 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 (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. As of the date of this report, the Registrant had the following number of shares of common stock outstanding: Class A Common Stock, $0.01 par value: 1,443,978 Class B Non-Voting Common Stock, $0.01 par value: None (0) 1 2 INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURES 25 2 3 (this page intentionally left blank.) 3 4 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (Unaudited) HAWK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, 1997 DECEMBER 31, 1996 (UNAUDITED) (NOTE) ------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 13,586 $ 25,774 Accounts receivable, less allowance of $180 and $182, respectively 23,043 16,783 Inventories 23,322 20,864 Deferred income taxes 2,483 2,432 Other current assets 425 935 -------- -------- Total current assets 62,859 66,788 Property, plant and equipment: Land 1,195 1,080 Buildings and improvements 8,119 7,615 Machinery and equipment 50,738 45,766 Furniture and fixtures 1,647 1,611 Construction in progress 4,604 2,825 -------- -------- 66,303 58,897 Less accumulated depreciation 17,886 14,755 -------- -------- Total property, plant and equipment 48,417 44,142 Other assets: Intangible assets 46,772 39,939 Net assets held for sale 3,604 3,604 Shareholder notes 1,775 1,838 Other 1,474 2,130 -------- -------- Total other assets 53,625 47,511 -------- -------- Total assets $164,901 $158,441 ======== ========
4 5 HAWK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (DOLLARS IN THOUSANDS)
JUNE 30, 1997 DECEMBER 31, 1996 LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) (NOTE) ------------- ----------------- Current liabilities: Accounts payable $ 10,087 $ 8,194 Accrued compensation 6,189 6,775 Other accrued expenses 3,129 2,405 Current portion of long-term debt 791 714 -------- -------- Total current liabilities 20,196 18,088 Long-term liabilities: Long-term debt 130,543 128,469 Deferred income taxes 4,711 4,090 Other 1,963 2,004 -------- -------- Total long-term liabilities 137,217 134,563 Detachable stock warrants, subject to put option 4,600 4,600 Shareholders' equity: Series A preferred stock, $.01 par value and an aggregate liquidation value of $1,375,000, plus any accrued or unpaid dividends, with 10% cumulative dividend (2,625 shares authorized, 1,375 shares issued and outstanding); Series B preferred stock, $.01 par value and an aggregate liquidation value of $702,000, plus any accrued or unpaid dividends, with 9% cumulative dividend (702 shares authorized, issued and outstanding); Series C preferred stock, $.01 par value and an aggregate liquidation value of$1,190,000, plus any accrued or unpaid dividends with 10% cumulative dividend (1,190 shares authorized, issued and outstanding) 1 1 Class A common stock, $.01 par value; 2,200,000 shares authorized, 1,443,978 issued and outstanding 14 14 Class B common stock, $.01 par value, 375,000 shares authorized, none issued or outstanding Additional paid-in capital 1,964 1,964 Retained earnings (deficit) 1,509 (974) Other equity adjustments (600) 185 -------- -------- Total shareholders' equity 2,888 1,190 -------- -------- Total liabilities and shareholders' equity $164,901 $158,441 ======== ========
Note: the balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 5 6 HAWK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1997 1996 1997 1996 --------- --------- --------- --------- Net sales $ 76,981 $ 62,923 $ 40,097 $ 31,501 Cost of sales 54,045 46,349 27,677 23,293 --------- --------- --------- --------- Gross profit 22,936 16,574 12,420 8,208 Selling, technical and administrative expenses 9,447 7,655 4,893 3,986 Amortization of intangibles 1,626 1,583 797 932 Plant consolidation expense 2,139 1,539 --------- --------- --------- --------- Total expenses 11,073 11,377 5,690 6,457 Income from operations 11,863 5,197 6,730 1,751 Interest expense 7,059 4,974 3,380 2,461 Other expense, net 30 10 280 5 --------- --------- --------- --------- Income (loss) before income taxes 4,774 213 3,070 (715) Income taxes 1,989 422 1,183 6 --------- --------- --------- --------- Net income (loss) $ 2,785 $ (209) $ 1,887 $ (721) ========= ========= ========= ========= Preferred stock dividend requirements $ (160) $ (163) $ (80) $ (82) Net income (loss) applicable to common shareholders $ 2,625 $ (372) $ 1,807 $ (803) Net income (loss) per share applicable to common shareholders $ 1.49 $ (0.21) $ 1.03 $ (.46) Number of shares used to compute per share data 1,760,946 1,760,946 1,760,946 1,760,946
See notes to condensed consolidated financial statements. 6 7 HAWK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30. --------------------- 1997 1996 -------- ------- Net cash provided by (used in) operating activities $ 2,398 $ (966) Cash flows from investing activities Purchase of Hutchinson (10,638) Purchases of property, plant and equipment (3,793) (6,856) Payments received on shareholder notes 63 96 -------- ------- Net cash used in investing activities (14,368) (6,760) Cash flows from financing activities (Payments) proceeds from borrowings on long-term debt (203) 7,931 Deferred financing costs 112 Payments of preferred stock dividends (160) (163) Other 33 224 -------- ------- Net cash (used in) provided by financing activities (218) 7,992 -------- ------- Net (decrease) increase in cash and cash equivalents (12,188) 266 Cash and cash equivalents at beginning of period 25,774 771 -------- ------- Cash and cash equivalents at end of period $ 13,586 $ 1,037 ======== =======
See notes to condensed consolidated financial statements. 7 8 HAWK CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the condensed consolidated financial statements and footnotes thereto included in the Form S-4 (Registration No. 333-18433) for Hawk Corporation (the "Company") for the year ended December 31, 1996. Net income per share is based on the weighted average number of common shares and common share equivalents (warrants) outstanding during the respective periods. Earnings available to common shareholders includes an adjustment for preferred stock dividends paid during the respective periods. The Company's principal business is the design, engineering, manufacturing and marketing of friction products and precision-engineered components for aerospace, industrial and other specialty applications. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and also include, effective January 2, 1997, the accounts of Hutchinson Products Corporation. (See Note 3). All significant inter-company accounts and transactions have been eliminated in the accompanying financial statements. NOTE 2 -- INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. The major components of inventories are as follows (dollars in thousands):
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ Raw materials and work-in-process $ 19,440 $ 17,239 Finished products 4,807 4,226 Inventory reserves (925) (601) -------- -------- $ 23,322 $ 20,864 ======== ========
8 9 NOTE 3 -- ACQUISITION Effective January 2, 1997, the Company acquired all of the outstanding capital stock of Houghton Acquisition Corporation and merged it into the newly formed Hutchinson Products Corporation (Hutchinson) for (1) $10.6 million in cash; (2) $1.5 million in 8.0% two-year convertible notes; and (3) contingent payments to be made by the Company if Hutchinson meets certain earnings targets. The acquisition has been accounted for as a purchase. The excess of the purchase price over the estimated fair value of the capital stock acquired in the amount of $7.7 million is being amortized over 30 years and is included in intangible assets. The results of operations of Hutchinson are included in the Company's consolidated statements of income since the date of acquisition. Hutchinson's principal business is the production and sale of rotors for use in small horsepower motors and, to a lesser extent, the machining and sale of aluminum extrusions and castings, principally fan spacers used by engine manufacturers and gas nozzles used in gasoline pumping units. The pro forma unaudited consolidated results of operations for the period ended June 30, 1996 give effect to the above acquisition as though it had occurred on January 1, 1996 and include certain adjustments, such as additional amortization expense as a result of goodwill and deferred financing costs, increased depreciation expense as a result of the write-up of certain machinery and equipment to its fair value and increased interest expense related to debt incurred for the acquisition.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1996 ------------------ ---------------- (IN THOUSANDS) (IN THOUSANDS) Net sales $2,155 $4,310 ====== ====== Net income $ 137 $ 274 ====== ======
Pro forma net sales and net income are not necessarily indicative of the net sales and net income that would have occurred had the acquisition been made at the beginning of the year or the results which may occur in the future. NOTE 4 -- LONG-TERM DEBT In November 1996, the Company issued $100,000,000 in Senior Notes due on December 1, 2003, unless previously redeemed, at the Company's option, in accordance with the terms of the Notes. Interest is payable semi-annually on June 1 and December 1 of each year commencing June 1, 1997, at a fixed rate of 10.25%. Substantially all of the Senior Notes were exchanged for the Exchange Notes on April 21, 1997. The terms of the Exchange Notes are identical in all material respects to the terms of the Senior Notes, except that the Exchange Notes are freely transferable with certain limited exceptions by their holders. The Exchange Notes are fully and unconditionally guaranteed on a joint and several basis by each of the direct or indirect wholly-owned domestic subsidiaries of the Company (Guarantor Subsidiaries). (See Note 7). 9 10 NOTE 5 -- CONTINGENCIES The Company has wage continuation agreements with two of its officers/shareholders. In the event the officer/shareholder dies or becomes permanently disabled while employed by the Company, each agreement provides for payments to be made annually to the officer/shareholder's spouse based on a compensation formula, until the spouse's death. NOTE 6 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. The overall objective of SFAS is to simplify the calculation of earnings per share (EPS) and achieve comparability with international accounting standards. SFAS No.128 is effective in the fourth quarter ended December 31, 1997 for the Company. Subsequent to the effective date, all prior period EPS amounts are required to be restated to conform to the provisions of Statement 128. The adoption of SFAS No.128 is not anticipated to have a material effect on the Company's financial statements or results of operations. NOTE 7 -- SUPPLEMENTAL GUARANTOR INFORMATION As discussed in Note 4, each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and several basis the obligation to pay principal, premium, if any, and interest with respect to the Notes. The Guarantor Subsidiaries are direct, wholly-owned subsidiaries of the Company. The following supplemental unaudited consolidating condensed financial statements present (in thousands): 1. Consolidating condensed balance sheets as of June 30, 1997 and December 31, 1996, consolidating condensed statements of income for the three and six-month periods ended June 30, 1997 and 1996 and consolidating condensed statements of cash flows for the six months ended June 30, 1997 and 1996. 2. Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries (consisting of the Company's subsidiaries in Canada and Italy) with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. Management does not believe that separate financial statements of the Guarantor Subsidiaries of the Notes are material to investors. Therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented. The Revolving Credit Facility contains covenants that, among other things, would prohibit the payment of any dividends to the Company by the subsidiaries of the Company (including Guarantor Subsidiaries) in the event of a default under the terms of the Revolving Credit Facility. 10 11 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997 -------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 13,426 $ 36 $ 124 $ 13,586 Accounts receivable, net 130 16,861 6,517 $ (465) 23,043 Inventories, net 18,710 4,612 23,322 Deferred income taxes 1,390 1,093 2,483 Other current assets 67 (542) 900 425 --------- --------- --------- --------- --------- Total current assets 15,013 36,158 12,153 (465) 62,859 Other assets: Investment in subsidiaries 780 5,640 (6,420) Inter-company advances, net 120,630 4,437 21 (125,088) Property, plant and equipment 42,755 5,662 48,417 Intangible assets 242 46,530 46,772 Other 1,675 4,764 414 6,853 --------- --------- --------- --------- -------- Total other assets 123,327 104,126 6,097 (131,508) 102,042 --------- --------- --------- --------- -------- Total assets $ 138,340 $ 140,284 $ 18,250 $(131,973) $164,901 ========= ========= ========= ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,607 $ 3,480 $ 10,087 Accrued compensation 5,146 1,043 6,189 Other accrued expenses $ (2,313) 5,227 215 3,129 Current portion of long-term debt 377 414 791 --------- --------- --------- --------- -------- Total current liabilities (2,313) 17,357 5,152 20,196 Long-term liabilities: Long-term debt 129,686 215 642 130,543 Deferred income taxes 4,090 350 271 4,711 Other 953 1,010 1,963 Inter-company advances, net 121,100 5,233 $(126,333) --------- --------- --------- --------- -------- Total long-term liabilities 133,776 122,618 7,156 (126,333) 137,217 --------- --------- --------- --------- -------- Total liabilities 131,463 139,975 12,308 (126,333) 157,413 Detachable stock warrants, subject to put option 4,600 4,600 Shareholders' equity 2,277 309 5,942 (5,640) 2,888 --------- --------- --------- --------- -------- Total liabilities and shareholders' equity $ 138,340 $ 140,284 $ 18,250 $(131,973) $164,901 ========= ========= ========= ========= ========
11 12 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996 -------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 25,187 $ 5 $ 582 $ 25,774 Accounts receivable, net 189 10,884 5,710 16,783 Inventories, net 16,120 4,744 20,864 Deferred income taxes 1,390 1,042 2,432 Other current assets 67 373 495 935 --------- --------- --------- --------- --------- Total current assets 26,833 28,424 11,531 66,788 Other assets: Investment in subsidiaries 775 6,457 $ (7,232) Inter-company advances, net 108,607 19,543 (128,150) Property, plant and equipment 38,394 5,748 44,142 Intangible assets 504 39,435 39,939 Other 1,838 5,318 416 7,572 --------- --------- --------- --------- -------- Total other assets 111,724 109,147 6,164 (135,382) 91,653 --------- --------- --------- --------- -------- Total assets $ 138,557 $ 137,571 $ 17,695 $(135,382) $158,441 ========= ========= ========= ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ (157) $ 5,167 $ 3,184 $ 8,194 Accrued compensation 100 5,856 819 6,775 Other accrued expenses (719) 2,728 396 2,405 Current portion of long-term debt 289 425 714 --------- --------- --------- --------- -------- Total current liabilities (776) 14,040 4,824 18,088 Long-term liabilities: Long-term debt 126,375 1,290 804 128,469 Deferred income taxes 2,729 1,057 304 4,090 Other 1,272 732 2,004 Inter-company advances, net 3,532 120,819 4,574 $(128,925) --------- --------- --------- --------- -------- Total long-term liabilities 132,636 124,438 6,414 (128,925) 134,563 --------- --------- --------- --------- -------- Total liabilities 131,860 138,478 11,238 (128,925) 152,651 Detachable stock warrants, subject to put option 4,600 4,600 Shareholders' equity (deficit) 2,097 (907) 6,457 (6,457) 1,190 --------- --------- --------- --------- -------- Total liabilities and shareholders' equity $ 138,557 $ 137,571 $ 17,695 $(135,382) $158,441 ========= ========= ========= ========= ========
12 13 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 -------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ Net sales $ 68,065 $10,478 $ (1,562) $ 76,981 Cost of sales 47,199 8,408 (1,562) 54,045 -------- ------- -------- -------- ------- Gross profit 20,866 2,070 22,936 Selling, technical and administrative expenses 8,066 1,381 9,447 Amortization of intangibles $ 5 1,591 30 1,626 -------- ------- -------- -------- ------- Total expenses 5 9,657 1,411 11,073 -------- ------- -------- -------- ------- Income (loss) from operations (5) 11,209 659 11,863 Interest expense 326 6,528 205 7,059 Income from equity investees 2,704 343 (3,047) Other (income) expense, net (466) 437 59 30 -------- ------- -------- -------- ------- Income before income taxes 2,839 4,587 395 (3,047) 4,774 Income taxes 54 1,883 52 1,989 -------- ------- -------- -------- ------- Net Income $ 2,785 $ 2,704 $ 343 $ (3,047) $ 2,785 ======== ======= ======== ======== =======
13 14 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 -------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ Net sales $ 72 $ 53,517 $ 10,369 $ (1,035) $ 62,923 Cost of sales 39,470 7,842 (963) 46,349 -------- -------- -------- --------- -------- Gross profit 72 14,047 2,527 (72) 16,574 Selling, technical and administrative expenses 89 6,683 955 (72) 7,655 Amortization of intangibles 1,582 1 1,583 Plant consolidation expense 2,139 2,139 -------- -------- -------- --------- -------- Total expenses 89 10,404 956 (72) 11,377 Income (loss) from operations (17) 3,643 1,571 5,197 Interest (income) expense (222) 5,057 139 4,974 Income (loss) from equity investees (408) 859 (451) Other expense, net 6 4 10 -------- -------- -------- --------- -------- Income (loss) before income taxes (209) (559) 1,432 (451) 213 Income taxes (151) 573 422 -------- -------- -------- --------- -------- Net income (loss) $ (209) $ (408) $ 859 $ (451) S(209) ======== ======== ======== ========= ========
14 15 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997 ---------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ -------------- ------------ ------------ Net sales $ 35,244 $ 5,466 $ (613) $ 40,097 Cost of sales 23,998 4,292 (613) 27,677 -------- -------- -------- -------- -------- Gross profit 11,246 1,174 12,420 Selling, technical and administrative expenses 4,269 624 4,893 Amortization of intangibles $ 3 794 797 -------- -------- -------- -------- -------- Total expenses 3 5,063 624 5,690 Income (loss) from operations (3) 6,183 550 6,730 Interest expense 164 3,107 109 3,380 Income from equity investees 1,872 234 (2,106) Other (income) expense, net (192) 299 173 280 -------- -------- -------- -------- -------- Income before income taxes 1,897 3,011 268 (2,106) 3,070 Income taxes 10 1,139 34 1,183 -------- -------- -------- -------- -------- Net income $ 1,887 $ 1,872 $ 234 $ (2,106) $ 1,887 ======== ======== ======== ======== ========
15 16 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1996 ---------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ -------------- ------------ ------------ Net sales $ 36 $ 26,713 $ 5,200 $ (448) $ 31,501 Cost of sales 19,809 3,896 (412) 23,293 -------- -------- -------- -------- -------- Gross profit 36 6,904 1,304 (36) 8,208 Selling, technical and administrative expenses 129 3,402 491 (36) 3,986 Amortization of intangibles 932 932 Plant consolidation expense 1,539 1,539 -------- -------- -------- -------- -------- Total expenses 129 5,873 491 (36) 6,457 Income (loss) from operations (93) 1,031 813 1,751 Interest (income) expense (156) 2,534 83 2,461 Income (loss) from equity investees (781) 438 343 Other expense, net 3 2 5 -------- -------- -------- -------- -------- Income (loss) before income taxes (721) (1,067) 730 343 (715) Income taxes (286) 292 6 -------- -------- -------- -------- -------- Net income (loss) $ (721) $ (781) $ 438 $ 343 $ (721) ======== ======== ======== ======== ========
16 17 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 ---------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ Net cash provided by operating activities $ 264 $ 1,195 $ 939 $ 2,398 Cash flows from investing activities: Purchase of Hutchinson (10,638) (10,638) Purchase of property, plant and equipment (3,208) (585) (3,793) Payments received on shareholder loans 63 63 -------- -------- ------- -------- ------- Net cash used in investing activities (10,575) (3,208) (585) (14,368) Cash flows from financing activities: (Payments) proceeds on long-term debt (1,283) 1,892 (812) (203) Deferred financing costs (7) 119 112 Payment of preferred stock dividend (160) (160) Other 33 33 -------- -------- ------- -------- ------- Net cash (used in) provided by financing activities (1,450) 2,044 (812) (218) -------- -------- ------- -------- ------- Net (decrease) increase in cash and cash equivalents (11,761) 31 (458) (12,188) Cash and cash equivalents at beginning of period 25,187 5 582 25,774 -------- -------- ------- -------- ------- Cash and cash equivalents at end of period $ 13,426 $ 36 $ 124 $ 13,586 ======== ======== ======= ======== =======
17 18 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 ---------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------- ------------ ------------ Net cash (used in) provided by operating activities $ 2,336 $(3,484) $ 182 $ (966) Cash flows from investing activities: Purchase of property, plant and equipment (5,811) (1,045) (6,856) Other 96 96 ------- ------- ------- ------- ------- Net cash provided by (used in) investing activities 96 (5,811) (1,045) (6,760) Cash flows from financing activities: Proceeds (payments) from borrowings of long-term debt (2,239) 8,993 1,177 7,931 Payment of preferred stock dividend (163) (163) Other 224 224 ------- ------- ------- ------- ------- Net cash provided by (used in) financing activities (2,402) 9,217 1,177 7,992 ------- ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents 30 (78) 314 266 Cash and cash equivalents at beginning of period 408 78 285 771 ------- ------- ------- ------- ------- Cash and cash equivalents at end of period $ 438 $ 0 $ 599 $ 1,037 ======= ======= ======= ======= =======
18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's condensed consolidated financial statements and notes thereto appearing elsewhere in this report. GENERAL Hawk designs, engineers, manufactures and markets friction products (77.4% of sales in the first six months of 1997) and precision-engineered components (22.6%). The Company is a leading worldwide supplier of friction products for brakes, clutches and transmissions used in aerospace, industrial and specialty applications. The Company is also a leading supplier of precision engineered components primarily made from powder metals, including pump elements, gears, transmission plates, pistons and anti-lock brake sensor rings, used in industrial applications. The Company focuses on manufacturing products requiring sophisticated engineering and production techniques for applications in aerospace and specialty industrial markets where it has achieved a major market position. Since 1989, Hawk has pursued a strategic plan of fostering growth by making complementary acquisitions and broadening its customer base. All of Hawk's acquisitions were accounted for under the purchase method of accounting, with the purchase price allocated to the estimated fair market value of the assets acquired and liabilities assumed. In the acquisitions, any excess of the purchase price paid over the estimated fair value of the net assets acquired was allocated to goodwill, which resulted in approximately $29.7 million of goodwill reflected on the June 30, 1997 balance sheet. The annual amortization of goodwill will result in non-cash charges to future operations of approximately $1.5 million per year (of which the majority of such amortization is deductible for tax purposes) based on amortization periods ranging from 15 to 40 years. RECENT EVENTS On August 1, 1997, Sinterloy Corporation ("Sinterloy"), a recently incorporated subsidiary of the Company, acquired substantially all the assets of Sinterloy, Inc. ("Old Sinterloy"), a privately-held Illinois corporation, and assumed certain of Old Sinterloy's liabilities. The Company paid Old Sinterloy $15.0 million, subject to adjustment based on Old Sinterloy's net equity at closing. Sinterloy, located in Solon Mills, Illinois, is a powder metal component manufacturer primarily serving the business equipment and automotive replacement markets. Sinterloy has annual revenues of approximately $15.0 million. Old Sinterloy was founded in 1969 and purchased by Robert G. Sierks in 1988. Mr. Sierks will serve as President of Sinterloy. SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996 Net Sales - --------- Net sales increased $8.6 million or 27.3% to $40.1 million in the second quarter of 1997 from $31.5 million in the comparable quarter of 1996. 19 20 The increase in net sales reflects the impact of the Hutchinson acquisition, as well as increased sales in friction products and precision-engineered components. Sales of friction products increased $4.0 million or 16.7% to $28.0 million in the second quarter of 1997 from $24.0 million in the comparable quarter of 1996. The growth was driven by strong demand in the aerospace, construction and agricultural markets. Sales of precision engineered components, exclusive of Hutchinson, increased $1.9 million or 37.3% to $7.0 million in the second quarter of 1997 from $5.1 million in the comparable quarter of 1996. The increase was attributable to the addition of a new customer in the truck market, as well as increased demand in the fluid power markets served by the Company. Gross Profit - ------------ Gross profit increased $4.2 million or 51.3% to $12.4 million in the second quarter of 1997 from $8.2 million in the comparable quarter of 1996. The gross profit margin increased to 31.0% in the second quarter of 1997 from 26.1% in the comparable period in 1996. The increase is attributable to cost savings, a result of the closing of one of the Company's manufacturing facilities during 1996 and the consolidation of its operations into an existing Company facility and increased sales from the Company's higher margin aerospace friction products. Selling, Technical and Administrative Expenses - ---------------------------------------------- Selling, technical and administrative ("ST&A") expenses increased $0.9 million or 22.8% to $4.9 million in the second quarter of 1997 compared to the comparable quarter of 1996. As a percentage of sales, ST&A expenses decreased to 12.2% of sales in the second quarter of 1997 compared to 12.7% in the comparable quarter of 1996, primarily as a result of increased sales volumes covering the additional administrative overhead and personnel costs. Plant Consolidation Expense - --------------------------- All costs associated with the closure and consolidation of a manufacturing facility were incurred in 1996. Income from Operations - ---------------------- Income from operations increased by $5.0 million or 284.4% to $6.7 million in the second quarter of 1997, as compared to the comparable quarter of 1996. Income from operations as a percent of net sales increased to 16.8% in the second quarter of 1997 from 5.6% in the comparable quarter of 1996, reflecting cost savings from the closed facility, product mix and margin improvement. Interest Expense - ---------------- Interest expense increased $0.9 million or 37.3% to $3.4 million in the second quarter of 1997 from the comparable quarter of 1996. The increase is attributable to higher debt levels, a result of the issuance of the Senior Notes in the fourth quarter of 1996. Income Taxes - ------------ The provision for income taxes increased to $1.2 million in the second quarter of 1997, reflecting the increase in pre-tax income. 20 21 Net Income - ---------- As a result of the factors noted above, net income increased $2.6 million to $1.9 million in the second quarter of 1997 as compared to a loss of $0.7 million in the second quarter of 1996. FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996 Net Sales - --------- Net sales increased by $14.1 million or 22.3% to $77.0 million during the first six months of 1997 from $62.9 million during the first six months of 1996. The net sales increase in the first six months of 1997 was attributable to the acquisition of Hutchinson and strong customer demand in all product lines served by the Company. Gross Profit - ------------ Gross profit increased $6.3 million to $22.9 million during the first six months of 1997, a 38.0% increase over gross profit of $16.6 million during the first six months of 1996. The gross profit margin increased to 29.8% during the first six months of 1997 from 26.3% during the comparable period in 1996. The increase is attributable to cost savings, a result of the closing of one of the Company's manufacturing facilities during 1996 and the consolidation of its operations into an existing Company facility and increased sales from the Company's higher margin aerospace friction products. Selling, Technical and Administrative Expenses - ---------------------------------------------- Selling, technical and administrative ("ST&A") expenses increased $1.8 million or 23.4% to $9.4 million during the first six months of 1997 compared to the comparable period in 1996. ST&A increased to 12.3% of sales during the first six months of 1997 from 12.2% during the comparable period of 1996. Plant Consolidation Expense - --------------------------- For the first six months of 1997 there were no plant consolidation expenses, compared to $2.1 million during the first six months of 1996. The closure and consolidation of the facility took place in 1996. Income from Operations - ---------------------- Income from operations increased by $6.7 million or 128.3% to $11.9 million, compared to the comparable period of 1996. Income from operations as a percent of net sales increased to 15.4% in the first six months of 1997 from 8.3% in the comparable six month period of 1996, reflecting cost savings from the closed facility, increased sales activity, product mix and margin improvement. Interest Expense - ---------------- Interest expense increased $2.1 million or 42.0% to $7.1 million in the first six months of 1997 from the comparable six month period in 1996. The increase is attributable to higher debt levels, a result of the issuance of the Senior Notes in the fourth quarter of 1996. 21 22 Income Taxes - ------------ The provision for income taxes increased to $2.0 million in the first six months of 1997 from $0.4 million in the comparable period in 1996, reflecting the increase in pre-tax income. Net Income - ---------- As a result of the factors noted above, net income increased $3.0 million to $2.8 million in the first six months of 1997 from a loss of $0.2 million in the comparable period of 1996. LIQUIDITY AND CAPITAL RESOURCES As a result of the recent acquisitions by the Company and the issuance of the Senior Notes, the Company has, and will continue to have, substantial indebtedness. The Company will therefore be required to use a substantial portion of its cash flow from operations for the payment of interest expense on indebtedness. The Company's primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations and borrowings under its $25.0 million Revolving Credit Facility (subject to a borrowing base of a portion of the eligible accounts receivable and inventory). As of June 30, 1997, there are no amounts outstanding under the Revolving Credit Facility. As of June 30, 1997 the Company was in compliance with the terms of its indebtedness. Net cash from operating activities was $2.4 million for the six month period ended June 30, 1997 as compared to net cash used of $1.0 million in the comparable period of 1996. The $3.0 million increase in net income, non-cash charges and an improved working capital position at June 30, 1997 accounted for the increased operating cash flow. Net cash used in investing activities was $14.4 million and $6.8 million for the six month periods ending June 30, 1997 and 1996, respectively. The cash used in investing activities consisted of $10.6 million attributable to the acquisition of Hutchinson and $3.8 million for the purchases of property, plant and equipment. In the comparable period of 1996, cash used in investing activities consisted primarily of capital expenditures. Net cash used in financing activities was $0.2 million for the six month period of 1997 used primarily for payment of capital lease obligations of the Company. In the comparable six month period of 1996 net cash provided by financing activities of $8.0 was primarily attributable to an increase in borrowing under the Company's previous credit facilities. The primary uses of capital by the Company are (1) to pay interest on, and to repay principal of; indebtedness, (2) for capital expenditures for maintenance, replacement and acquisitions of equipment, expansion of capacity, productivity improvements and product development, and (3) making additional strategic acquisitions of complementary businesses. The Company believes that cash flow from operating activities and additional funds available under the Revolving Credit Facility will be sufficient to meet its currently anticipated operating and capital expenditure requirements and service its indebtedness for the next 12 months. 22 23 FORWARD LOOKING STATEMENTS Statements that are not historical facts, including statements about the Company's confidence in its prospects and strategies and its expectations about expansion into new markets and growth in existing markets, are forward looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to (1) the Company's substantial leverage, which requires significant cash flows to service debt, reducing funds for operations and other business opportunities and increasing the Company's vulnerability to competition and to adverse general economic and industry conditions; (2) the ability of the Company to continue to meet the terms of the Company's credit facilities which contain a number of significant financial covenants and other restrictions; (3) the Company's reliance on significant customers; (4) supplies and prices of raw materials used by the Company; (5) whether the Company's aerospace friction products will be able to continue to meet stringent Federal Aviation Administration criteria and testing requirements; (6) whether the Company will be able to successfully integrate Hutchinson and Sinterloy into its operations; and (7) the Company's continued expansion into international markets, with all the risks inherent in doing business internationally, including unexpected changes in regulatory requirements, export restrictions, currency controls, tariffs and other trade barriers, potential instability, fluctuation in currency exchange rates and potential adverse tax consequences. Any investor or potential investor in the Company must consider these risks and others that are detailed in the Company's Form S-4 (333-18433). 23 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various lawsuits arising in the ordinary course of business. In the Company's opinion, the outcome of these matters is not anticipated to have a material adverse effect on the Company's financial condition, liquidity or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of the stockholders of the Registrant held on May 29, 1997, the board of directors of the Registrant, as previously reported to the Commission, was re-elected in its entirety. ITEM 5. OTHER INFORMATION On August 1, 1997, Sinterloy Corporation ("Sinterloy"), a recently incorporated subsidiary of the Company, acquired substantially all the assets of Sinterloy, Inc. ("Old Sinterloy"), a privately-held Illinois corporation, and assumed certain of Old Sinterloy's liabilities. The Company paid Old Sinterloy $15.0 million, subject to adjustment based on Old Sinterloy's net equity at closing. Sinterloy, located in Solon Mills, Illinois, is a powder metal component manufacturer primarily serving the business equipment and automotive replacement markets. Sinterloy has annual revenues of approximately $15.0 million. Old Sinterloy was founded in 1969 and purchased by Robert G. Sierks in 1988. Mr. Sierks will serve as President of Sinterloy. Sinterloy is a guarantor of the Senior Notes, and is a party to the Revolving Credit Facility and will become a guarantor to the Senior Subordinated Notes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: -------- 10.29 Lease dated August 1, 1997 between Robert Sierks, Trustee and Sinterloy Corporation 10.30 Assumption and Joinder Agreement dated August 1, 1997 between Sinterloy Corporation and BT Commercial Corporation 10.31 $25 million Substituted and Restated Revolving Note payable to BT Commercial Corporation, as agent 27 Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K for the three months ended June 30, 1997. 24 25 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: August 14, 1997 HAWK CORPORATION By: /s/ Ronald E. Weinberg ------------------------------------ Ronald E. Weinberg, Vice-Chairman of the Board and Treasurer By: /s/ Thomas A. Gilbride ------------------------------------ Thomas A. Glibride, Vice President- Finance (Chief Accounting Officer) 25 EX-10.29 2 EXHIBIT 10.29 1 Exhibit 10.29 LEASE AGREEMENT WITH OPTION TO PURCHASE THIS LEASE AGREEMENT ("Lease") is made and entered into as of the 1st day of August, 1997, by and between ROBERT SIERKS, TRUSTEE U/T/D June 21, 1995 ("Lessor") and SINTERLOY CORPORATION, a Delaware corporation ("Lessee"). WITNESSETH: 1 PREMISES. Lessor, for and in consideration of the covenants hereinafter contained and made on the part of the Lessee, does lease to the Lessee certain premises located at 8104 North Solon Road, Solon Mills, Illinois 60080, as more particularly described in Exhibit "A" attached hereto (the "Premises"), consisting of an approximate 3.7 acre lot improved with a one-story masonry building containing approximately 41,586 square feet (as may be further expanded or improved, the "Building"). 2 INITIAL TERM. The initial term of this Lease shall be for a period of five (5) years, commencing as of August 1, 1997 (the "Commencement Date"), and ending July 31, 2002 (the "Initial Term"). 3 OPTIONS FOR RENEWAL TERMS. Lessee shall have the option to renew this Lease for two (2) consecutive renewal terms of five (5) years each, on the same terms and conditions as herein provided, except that (a) the Base Rent shall be adjusted as provided below, and (b) there shall be no purchase option available during the renewal terms. If Lessee desires to exercise a renewal option granted herein it must deliver written notice to Lessor not less than one hundred and twenty (120) days prior to the expiration of the Initial Term or the then current renewal term of Lessee's intent to renew. The Initial Term and any renewal terms are hereinafter referred to herein as the "Term." The Base Rent for the first renewal term shall be increased by the lesser of (a) the percentage change in the Consumer Price Index during the Initial Term, or (b) 17.5%. The Base Rent for the second renewal term shall be increased by the percentage change in the Consumer Price Index from the Commencement Date through the end of the first renewal term. As used in this Lease, the "Consumer Price Index" shall mean the Consumer Price Index Detailed Report, All Items, Chicago, Illinois-Northwestern Indiana, published by the Bureau of Labor Statistics of the United States Department of Labor. 4 BASE RENT. For the Initial Term, Lessee shall pay to Lessor as and for Base Rent the sum of $114,361.50 per annum ($2.75 per square foot) payable in equal monthly installments of $9,530.13 payable in advance on the Commencement Date and on the same day of each month thereafter. Lessee shall cause payment of the Base Rent and all other charges due hereunder to be made without offset or deduction to Lessor at its address stated herein or to such 1 2 other person or at such other address as Lessor may from time to time designate in writing to Lessee. Any amounts not paid within five (5) days of the date the same is due hereunder shall bear interest from the date due until the date received by Lessor at the rate of twelve percent (12%) per annum. The parties agree that such late charges represent a fair and reasonable estimate of the cost Lessor will incur by reason of late payment by Lessee. 5 CONDITION OF PREMISES. Lessor shall deliver the Premises to Lessee in good condition with all mechanical components in good operating condition and all structural components sound. If the Premises do not comply with the foregoing described condition on the Commencement Date, Lessee shall so notify Lessor in writing setting forth with specificity the nature and extent of such non-compliance. Lessor, at its expense, shall promptly rectify any such non-compliance. If Lessee does not give Lessor written notice of non-compliance within thirty (30) days after the Commencement Date, Lessee shall be conclusively deemed to have accepted the Premises as satisfying the above described condition, and any correction of any non-compliance shall be the obligation of Lessee at Lessee's cost and expense. Notwithstanding any provision herein to the contrary, Lessor shall be responsible to promptly repair, at Lessor's sole expense, any damage to or defect in the structural portions of the Building including the roof, the foundation, and interior and exterior walls, which damage or defect existed at the time this Lease was entered into, and was not caused by the acts or omissions of Lessee. 6 USE OF PREMISES. Lessee shall use and occupy the Premises only for the purpose of engaging in the manufacture of friction and powdered metal products and activities incidental thereto and any other activities to which Lessor may agree in writing, which agreement will not be unreasonable withheld. 7 NET LEASE. It is the understanding and agreement of the parties that this is a net lease. Lessee shall be responsible for and pay all charges for Real Property Taxes, utilities used upon or furnished to the Premises and all costs of operating, maintaining and repairing the Premises. Without limiting the foregoing: 7.1 Lessee's Obligations. Subject to the provisions of Section 5, Lessee shall at Lessee's sole cost and expense and at all times keep the Premises and every part thereof in good order, condition and repair, structural and non-structural (whether or not the need for such repairs occurs as a result of Lessee's use or any prior use, the elements or the age of the Premises or any other cause), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired and un-fired pressure vessels, 2 3 fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, signs, sidewalks and parkways located in, on or about the Premises. Lessee shall not cause or permit any Hazardous Substance (as hereinafter defined) to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended whether or not formally ordered or required for the cleanup of any contamination of and for the maintenance, security and/or monitoring of the Premises, the elements surrounding same, or neighboring properties, that was caused or materially contributed to by Lessee or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. As used in this Lease, the term "Hazardous Substances" has the meanings assigned to it in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended and, in addition, will include fuel oil and petroleum and any constituent thereof and any petroleum-based product. 7.2 Lessor's Obligations. Except for the undertakings of Lessor contained in Section 5, it is intended by the parties hereto that Lessor shall have no obligation in any manner whatsoever to repair and maintain the Premises, the improvements located thereon, or the equipment therein, whether structural or non-structural, all of which obligations are intended to be that of Lessee. It is the intention of the parties that the terms of this Lease govern the respective obligations of the parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs. 8. REAL PROPERTY TAXES. As used herein the term "Real Property Taxes" shall include any form of real estate taxes or assessments, general, special, ordinary or extraordinary, and any license fees, commercial rent taxes, improvement bonds, levy or tax (other than inheritance, income or estate taxes) accruing during the Term of this Lease and imposed upon the Premises for any reason by any authority having the power to levy such assessments or taxes. Lessee shall pay to Lessor an amount equal to all Real Property 3 4 Taxes within ten (10) days of notice from Lessor of the amount of such Real Property Taxes coming due. 9 INSURANCE. Lessee shall maintain, with responsible licensed companies reasonably satisfactory to Lessor: (i) commercial general liability insurance insuring Lessee and naming Lessor as an additional insured, against all claims, demands, or actions for injury to or death of one or more than one person arising from any one occurrence with limits during the Initial Term of not less than $1,000,000 single occurrence and $2,000,000 aggregate; and (ii) fire and extended coverage insurance on the Building, including vandalism and malicious mischief, which fire and extended coverage insurance shall be in an amount not less than $1,000,000, and shall name Lessor as a loss payee and additional insured. For each renewal term the insurance coverage specified above shall be increased or decreased by the percentage change in the Consumer Price Index from the commencement date of the Initial Term or previous renewal term through the last month of the fifth year of such Initial Term or renewal term. Lessee, at Lessee's sole option and expense, may also obtain a replacement cost endorsement insuring furniture, furnishings, contents, merchandise, and any other personal property of Lessee located within the Premises. 10 CAPITAL REPAIRS AND IMPROVEMENTS - UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. Subject to the provisions of this Section, Lessee may, at Lessee's sole expense, install and construct such fixtures and improvements in and to the Premises as Lessee deems necessary or desirable to facilitate the operation of Lessee's business ("Lessee's Improvements"). 10.1 Definitions: 10.1.0.1 "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, wiring and cabling, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing, in, on or about the Premises. 10.1.0.2 "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. 10.1.0.3 "Alterations" shall mean any modification of the improvements on the Premises made by Lessee other than Utility Installations or Trade Fixtures, whether by addition or deletion. 10.2 Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent, which consent shall not be unreasonably withheld. Lessee may, however, make non-structural Utility Installations and Alterations to the interior of the Premises 4 5 (excluding the roof), as long as they do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. 10.3 Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alterations or Utility Installations to Lessor prior to commencement of the work thereon; and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Laws (as hereinafter defined). Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. 10.4 Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand then Lessee shall at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgement that may be rendered thereon before the enforcement thereof against Lessor or the Premises. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 10.5 All Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessor. 11 COMPLIANCE WITH LAWS. During the term of this Lease, Lessee shall comply in all material respects with all present and future laws, acts, rules, requirements, orders, directions of proper public officers, ordinances and regulations concerning Lessee's occupancy of the Premises or any part thereof, or the use thereof (collectively, "Applicable Laws"). 12 LESSEE'S COVENANTS. In addition to its other covenants 5 6 contained herein, Lessee covenants and agrees as follows: 12.1 Lessee, upon the expiration or termination of this Lease, shall remove its goods and effects and those of all persons claiming under it, shall repair any damage caused by such removal, and shall yield up the same peaceably to Lessor in good order and repair and otherwise in the same condition as at the commencement of the Term, except for reasonable wear and tear. "Reasonable wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligations of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of any Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee or those claiming through it, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee or those claiming through it, all as may then be required by applicable law and/or good service practice. 12.2 Lessee shall permit Lessor and its agents on reasonable notice and at reasonable times to examine the Premises. 12.3 Lessee shall use and occupy the Premises in a careful, safe and proper manner and shall keep the Premises in a clean, safe and healthy condition in accordance, in all material respects, with all Applicable Laws. Lessee shall not permit the Premises to be used for any unlawful purpose, commit any waste thereof or commit any nuisance. 12.4 Lessee shall not cause or permit the creation or filing of any lien upon the Premises or any portion thereof which is not released, satisfied or otherwise removed of record within ninety (90) days after its filing. 12.5 If Lessee shall fail to perform any of its obligations hereunder, Lessor may thereafter, without thereby waiving any obligation of Lessee or any default, make the payment or perform or comply with the agreement, the nonpayment, nonperformance or noncompliance with which constituted such failure by Lessee, and the amount of such payment and the amount of the reasonable expenses of Lessor incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, shall be payable by Lessee upon demand. 13 SUBLETTING AND ASSIGNMENT. Lessee shall not sublet the Premises or any part thereof, or assign this Lease, without in each case having first obtained the written consent of Lessor, which consent shall not be unreasonably withheld. Any consent by 6 7 Lessor to any assignment or subletting shall not constitute waiver of the necessity of such consent to any subsequent assignment or subletting and shall not relieve Lessee of any of its obligations or liability hereunder. 14 DAMAGE OR DESTRUCTION OF THE PREMISES. In the event of partial damage to or destruction of the Premises, Lessor shall proceed with all reasonable speed to repair such damage or 7 8 destruction and to restore the Premises as nearly as practicable to their condition immediately preceding such damage or destruction, provided that such damage or destruction: (a) does not exceed fifty percent (50%) of the replacement cost of the Premises; (b) does not, in Lessee's reasonable judgment, interfere with the operation of Lessee's business; and (c) could, in Lessor's reasonable judgment, reasonably be repaired within ninety (90) days from the occurrence thereof from the proceeds of insurance required to be carried by Lessee as required by this Lease. Absent any of the conditions set forth in (a), (b) or (c) of this paragraph, this Lease may be terminated at the option of either party. If this Lease is terminated as herein provided, both parties shall be released from further liability hereunder, without prejudice, however, to any rights accruing to either party prior to the date of such termination; provided, however, that if Lessee fails to insure the Premises as herein required, Lessee shall be obligated at its expense to restore the Premises to the condition required by this Lease in the event of any whole or partial damage to or destruction thereof. 15 APPROPRIATION. If the Premises or any part thereof shall be taken for any public use or purpose through eminent domain or condemnation proceedings, and such taking will materially interfere with Lessee's use and enjoyment of the Premises, this Lease shall, at the election of Lessee, terminate effective as of the date that possession of the Premises, or any portion thereof, shall be taken by such public authority, and Lessee shall pay rent up to that date, with an appropriate refund by Lessor of any rent paid in advance for a period subsequent to such date. All compensation awarded for any taking under power of eminent domain or condemnation, whether for the whole or part of the Premises, shall be the sole property of Lessor, and Lessee hereby assigns to Lessor all of Lessee's right, title and interest in and to all of such compensation, provided, however, that Lessor shall not be entitled to any award made directly to Lessee for loss of business or depreciation of and cost of removal of fixtures. In the event of a partial taking of the Premises following which neither Lessor nor Lessee elects to terminate this Lease, this Lease shall continue in full force and effect with respect to the portion of the Premises not so taken and a proportionate allowance shall be made in the rents due hereunder. 16 INDEMNIFICATION. Lessee shall indemnify, defend and hold harmless Lessor from and against any and all costs, expenses, fines, suits, proceedings, claims, demands and actions of any kind or nature of anyone whomsoever, including without, limitation, any accident, injury or damage to any person or property, arising out of, occasioned by or in any way connected with the occupation or use of the Premises by Lessee, including without limitation actual or alleged violations of any environmental laws by Lessee affecting the Premises. Lessor shall indemnify, defend and hold harmless Lessee from and against any and all costs, expenses, fines, suits, proceedings, claims, demands and actions of any kind or nature of anyone whomsoever, 8 9 including, without limitation, any accident, injury or damage to any person or property, arising out of, occasioned by or in any way connected with actions and/or conduct of Lessor prior to the date of this Lease, including without limitation actual or alleged violations of any environmental laws regarding the Premises. 17 DEFAULT BY LESSEE. If (a) Lessee shall fail to pay rent or any other charges hereunder within ten (10) days after written notice that same is past due; (b) Lessee shall at any time be in default of any other non-monetary terms, obligation or provisions of this Lease and shall fail to remedy such default within thirty (30) days after receipt of written notice thereof (but Lessee shall not be deemed in default if such default in the performance of such terms or provisions cannot be cured in thirty (30) days and Lessee commences to remedy such default within said thirty (30) day period and proceeds therewith with due diligence until completion); (c) Lessee shall file or have filed against it a petition under the U.S. Bankruptcy Code or state insolvency laws or shall make an assignment for the benefit of creditors, or if a receiver of any property of Lessee be appointed in any action, suit or proceeding by or against Lessee and not removed within thirty (30) days after appointment; (d) the interest of Lessee in the Premises shall be sold under execution or other legal process, or if the Premises are sublet or this Lease is assigned without Lessor's consent in violation of this Lease; (e) Lessee shall commit waste; (f) Lessee shall vacate or abandon the Premises; or (g) any governmental agency shall commence any forfeiture proceedings against Lessee, then, in any such event, Lessor may, in addition to all other legal and equitable remedies which it may be entitled to enforce, terminate this Lease, re-enter the Premises by summary proceedings, commence proceedings in forcible entry and detainer, eviction, or otherwise, and dispossess Lessee, in which event all rents and additional charges due hereunder for the remainder of the Term shall be accelerated and become immediately due. 18 OPTION TO PURCHASE. Lessor hereby grants to Lessee the exclusive option to purchase the Premises during the Initial Term so long as no event of default by Lessee has occurred and is continuing. Lessee may exercise the option at any time during the Initial Term by giving Lessor ninety (90) days written notice of intent to exercise the option to purchase granted herein. The Purchase Price for the Premises shall be Nine hundred thousand dollars ($900,000), increased by the percentage change in the Consumer Price Index from the date hereof through the last day of the calendar month next preceding the month in which the closing of the sale and purchase of the Premises takes place. Notwithstanding the foregoing, however, in no event shall the Purchase Price of the Premises increase by more than three and one half percent (3.5%) per annum. Closing shall occur at the offices of Lessor's counsel within ninety days of Lessor's receipt of Lessee's notice of exercise of the Purchase Option or at such other time and place as the parties may mutually agree. At closing the Lessee shall be entitle to a credit against the 9 10 Purchase Price in an amount equal to thirty percent (30%) of the total Base Rent paid by Lessee to Lessor under this Lease as of the date of closing. At closing Lessor shall convey title to the Premises to Lessee or its designee free and clear of all liens and encumbrances except those caused by the acts or omissions of Lessee or those acting through or under Lessee, and Lessee shall pay Lessor the Purchase Price in immediately available funds. Lessor and Lessee shall each pay one-half (1/2) of all title, survey and escrow fees associated with Lessee's purchase of the Premises. 19 NOTICES. If at any time it shall become necessary for one of the parties hereto to serve any notice, demand or communication upon the other party it shall be in writing, sent by certified mail, return receipt requested, and addressed to such party as follows or at such other address as may be subsequently designated in writing: If to Lessor: Robert Sierks 448 West Hawthorne Court Lake Bluff, Illinois 60044 If to Lessee: Sinterloy, Corporation. 200 Public Square, Suite 30-5000 Cleveland, Ohio 44114 20 MEMORANDUM OF LEASE. Lessor and Lessee shall execute a recordable Memorandum of Lease, in the form attached hereto as Exhibit "B". 21 SUCCESSORS AND ASSIGNS. This Lease shall inure to the benefit of and be binding upon the heirs, administrators, successors and permitted assigns of the respective parties hereto. 22 LESSOR'S COVENANTS. Lessor covenants with Lessee that so long as Lessee shall perform its obligations hereunder: 22.1 Lessee shall have and enjoy the exclusive, quiet and peaceful enjoyment of the Premises, free of any claim by anyone claiming by, through, or under Lessor; and 22.2 Lessor shall not cause or permit the creation or filing of any lien upon the Premises or any portion thereof which interferes with Lessee's use and enjoyment of the Premises in accordance with the terms hereof. 23 REPRESENTATIVE CAPACITY. Each person executing this instrument in a representative capacity personally warrants that he and or she is duly authorized to execute and deliver this instrument on behalf of such entity and that the same constitutes a binding obligation of such entity, enforceable in accordance with its terms against such entity. 24 HOLDING OVER. If Lessee retains possession of the Premises 10 11 or any part thereof after the expiration or termination of the Term by lapse of time or otherwise, then Lessor may, at Lessor's option at any time after the expiration or termination of the Term, serve written notice upon Lessee that such holding over constitutes either (a) renewal of this Lease for one year, and from year to year thereafter, at double the Base Rent then applicable for such period, or (b) creation of a month to month tenancy, upon the terms of this Lease except at double the monthly Base Rent then in effect, or (c) creation of a tenancy at sufferance, at a daily rental determined by dividing the then current annual Base Rent by 365 and multiplying the result by two. If no such written notice is served then a tenancy at sufferance with a daily rental rate as stated at (c) above shall have been created. In addition to the foregoing, Lessee shall also pay to Lessor all damages sustained by Lessor resulting from retention of possession by Lessee. If a tenancy at suffrage is created pursuant to the provisions of this Section, it shall be in addition to any other rights or remedies that Lessor may have under this Lease or at law or in equity and shall not act as a bar to Lessor immediately enforcing all such rights and remedies. 25 NONWAIVER. Waiver by a party of any breach of any provision of this Lease shall not be considered as a waiver of any other or subsequent breach. 26 GOVERNING LAW. This Lease shall be governed and construed under the laws of the State of Illinois. 27 MISCELLANEOUS. 27.1 Entire Agreement and Amendments. This Lease is and shall be considered to be the only agreement between the parties hereto and their representatives and agents. All negotiations and oral and written agreements acceptable to both parties have been merged herein and are included herein. There are no other representations or warranties between the parties and all reliance with respect to representations is solely upon the representations and agreements contained in this document. No agreement shall be effective to change, modify or terminate this Lease in whole or in part unless such agreement is in writing and duly signed by both Lessor and Lessee. 27.2 Interpretation. The necessary grammatical changes required to make the provisions of this Lease apply to the plural sense where there is more than one Lessee and to either corporations, associations, partnerships, or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. 27.3 Severability. No provision of this Lease shall be construed or interpreted in any manner which would render such provision invalid. If any provision of this Lease is held to be invalid, such invalid provision shall be deemed to be severable from and shall not affect the validity of the remainder of this 11 12 Lease. 27.4 Terms Binding. All covenants, promises, conditions, representations, and agreements herein contained shall be binding upon, apply and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns; provided, however, that this provision shall not give Lessee any greater rights of assignment or transfer than are contained in other provisions of this Lease. 27.5 Parties to Act in Commercially Reasonable Manner. Unless expressly otherwise provided in this Lease, both the parties shall act in a commercially reasonable manner and shall provide approvals or consents in a timely and prompt manner. 27.6 Effect of Expiration and Termination. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises and shall not effect any other rights or obligations of the parties resulting from acts or omissions prior to such expiration or termination, including without limitation, Lessee's obligation to pay to Lessor any Real Property Taxes. 27.7 Other Agreements. Nothing contained in this Lease, and no action taken under this Lease, shall affect the rights or obligations of the parties under any other agreement between the parties. 27.8 Counterparts. For the convenience of the parties, any number of counterparts of this Lease may be executed by any one or more of the parties hereto and each such executed counterpart shall be, and shall be deemed to be, an original, but all of the counterparts shall constitute, and shall be deemed to constitute, in the aggregate but one and the same instrument. IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to be signed in duplicate as of the date first above written. Signed and Acknowledged "Lessor" in the Presence of: /s/ Robert Sierks - ------------------------------- ------------------------------------- Robert Sierks, Trustee u/t/d "Lessee" Sinterloy, Corporation, a Delaware corporation By: /s/ Thomas A. Gilbride - ------------------------------- -------------------------------- Title: Vice President - Finance - ------------------------------- ------------------------------ 12 13 STATE OF __________________ ) ) SS: COUNTY OF _________________ ) The foregoing instrument was acknowledged before me by Robert Sierks, Trustee u/t/d, who acknowledged that the foregoing was his true signature and his free act and deed. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at this day of , 1997. NOTARY PUBLIC - ------------------------------ STATE OF __________________ ) ) SS: COUNTY OF _________________ ) The foregoing instrument was acknowledged before me by _______________ __________ the ____________________________________ of Sinterloy, Corporation., a Delaware corporation, who acknowledged that the foregoing was his true signature and his free act and deed individually, and on behalf of said corporation. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at this __ day _______ of , 1997. NOTARY PUBLIC - ---------------------------- 13 14 EXHIBIT A TO LEASE AGREEMENT WITH OPTION TO PURCHASE BETWEEN ROBERT SIERKS, TRUSTEE u/t/d/ AND SINTERLOY CORPORATION DATED AUGUST 1, 1997 PART OF THE SOUTHWEST QUARTER OF SECTION 23, TOWNSHIP 46 NORTH, RANGE 8 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION; THENCE EAST ALONG THE SOUTH LINE OF SAID SECTION, 870.7 FEET; THENCE NORTH ON A LINE PARALLEL WITH THE WEST LINE OF SAID SECTION TO THE SOUTHWESTERLY LINE OF THE RIGHT OF WAY OF THE CHICAGO, MILWAUKEE, AND ST. PAUL RAILWAY; THENCE NORTHWESTERLY ALONG SAID LAST DESCRIBED LINE TO THE WEST LINE OF SAID SECTION; THENCE ALONG SAID WEST LINE TO THE PLACE OF BEGINNING, IN MCHENRY COUNTY, ILLINOIS. COMMONLY KNOWN AS: 8104 North Solon Road, Solon Mills, Illinois 14 15 B - Memorandum of Lease as agreed upon by counsel. 15 EX-10.30 3 EXHIBIT 10.30 1 Exhibit 10.30 ASSUMPTION AND JOINDER AGREEMENT THIS ASSUMPTION AND JOINDER AGREEMENT ("AGREEMENT") is dated as of August 1, 1997, by and among SINTERLOY CORPORATION, a Delaware corporation (the "NEW BORROWER"), and BT COMMERCIAL CORPORATION, a Delaware corporation (in its individual capacity, hereinafter referred to as "BTCC"), acting in its capacity as agent (in such capacity as agent, hereinafter referred to as the "AGENT") under the "CREDIT AGREEMENT" (as hereinafter defined). Capitalized terms used herein but not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. WITNESSETH: ----------- WHEREAS, pursuant to that certain Credit Agreement dated as of November 27, 1996 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the "CREDIT AGREEMENT"), among Friction Products Co., an Ohio corporation ("FRICTION PRODUCTS"), Hawk Brake, Inc., an Ohio corporation ("HAWK BRAKE"), Helsel, Inc., a Delaware corporation ("HELSEL"), Hutchinson Products Corporation, a Delaware corporation ("HUTCHINSON"), Logan Metal Stampings, Inc., an Ohio corporation ("LOGAN"), S.K. Wellman Holdings, Inc., a Delaware corporation ("WELLMAN HOLDINGS"), S.K. Wellman Corp., a Delaware corporation ("WELLMAN CORP.") and Wellman Friction Products U.K. Corp., a Delaware corporation ("WELLMAN FRICTION") (Friction Products, Hawk Brake, Helsel, Hutchinson, Logan, Wellman Holdings, Wellman Corp. and Wellman Friction each sometimes hereinafter referred to individually as an "EXISTING BORROWER" and collectively as the "EXISTING BORROWERS"); BTCC and certain other financial institutions from time to time parties thereto (each hereinafter referred to individually as a "LENDER" and collectively as the "LENDERS"); the Agent and Hawk Corporation, a Delaware corporation, formerly known as The Hawk Group of Companies, Inc. ("HAWK"), acting in its capacity as borrowing agent thereunder for the Existing Borrowers (Hawk, in such capacity, the "HAWK FUNDS ADMINISTRATOR"), the Agent and Lenders have agreed to make certain extensions of credit for the joint and several account of the Existing Borrowers; WHEREAS, the Hawk Funds Administrator and the Existing Borrowers have requested that New Borrower be joined as a Borrower under the Credit Agreement and as a party to each of the other Credit Documents; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the respective parties hereto hereby agree as follows: 1. JOINDER TO CREDIT AGREEMENT AND CREDIT DOCUMENTS; ASSUMPTION OF OBLIGATIONS. Effective as of the date hereof, upon satisfaction of the conditions precedent set forth in SECTION 3 below, and in reliance upon the representations and warranties of New Borrower set 2 forth herein, New Borrower hereby: (A) acknowledges and agrees that for all purposes New Borrower shall be joined as a "Borrower" party to the Credit Agreement, as a "Grantor" party to the Security Agreement and as a party in each of such capacities, as the case may be, to all of the other Credit Documents, including, without limitation, those expressly set forth on SCHEDULE 1 attached hereto and by this reference made a part hereof; and (B) assumes and becomes liable with all of the Existing Borrowers on a joint and several basis for the prompt payment, observance and performance of all Obligations to the same extent and with the same force and effect as if New Borrower had been one of the Existing Borrowers under and an original signatory to the Credit Agreement, the Security Agreement and each of the other Credit Documents. 2. DISCLOSURE SCHEDULES. Schedule B to the Credit Agreement is hereby supplemented by the information set forth on SCHEDULE 2 to this Agreement. 3. CONDITIONS PRECEDENT. This Agreement shall become effective as of the date hereof, upon receipt by Agent of a copy of this Agreement and a copy of each of the other agreements, documents and instruments set forth in the List of Closing Documents attached as EXHIBIT A hereto, where applicable duly executed by New Borrower and/or the Existing Borrowers. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. 4.1 New Borrower hereby represents and warrants to the Agent and each of the Lenders that, after giving effect to this Agreement: (A) All representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on and as of the date of this Agreement, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties remain true and accurate on and as of such earlier date); (B) No Default or Event of Default has occurred which has not been waived pursuant to the terms of the Credit Agreement; (C) this Agreement, and the Credit Agreement and the other Credit Documents as modified hereby, constitute legal, valid and binding obligations of New Borrower and are enforceable against New Borrower in accordance with their respective terms; and (D) the execution and delivery by New Borrower of this Agreement does not require the consent or approval of any Person, except such consents and 3 approvals as have been obtained. 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS. 5.1 Upon the effectiveness of this Agreement, each reference in the Credit Agreement, the Security Agreement and each of the other Credit Documents to "Borrower," "Grantor," "Credit Party" or words of like import shall in each case mean and include a reference to New Borrower in addition to each of the Existing Borrowers. 5.2 Except as expressly set forth herein, (I) the execution and delivery of this Agreement shall in no way affect any of the respective rights, powers or remedies of the Agent or any of the Lenders with respect to any Event of Default nor constitute a waiver of any provision of the Credit Agreement or any of the other Credit Documents and (II) all of the respective terms and conditions of the Credit Agreement, the other Credit Documents and all other documents, instruments, amendments and agreements executed and/or delivered by the Hawk Funds Administrator and/or the Existing Borrowers pursuant thereto or in connection therewith shall remain in full force and effect and are hereby ratified and confirmed in all respects. 5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. 7. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 8. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. [SIGNATURE PAGES FOLLOW] 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first set forth above. SINTERLOY CORPORATION, a Delaware corporation By: /s/ Thomas A. Gilbride ----------------------------- Thomas A. Gilbride Vice President-Finance BT COMMERCIAL CORPORATION, in its capacity as Agent By: /s/ Wayne D. Hillock ----------------------------- Wayne D. Hillock Senior Vice President 5 SCHEDULE 1 TO ASSUMPTION AND JOINDER AGREEMENT DATED AS OF AUGUST 1, 1997 CREDIT DOCUMENTS ---------------- 1. Agency and Contribution Agreement, among the Existing Borrowers and the Hawk Funds Administrator. 2. Appointment of Agent for Service of Process, among the Existing Borrowers, the Hawk Funds Administrator and CIT Corporation System. SCHEDULE 2 TO ASSUMPTION AND JOINDER AGREEMENT DATED AS OF AUGUST 1, 1997 SUPPLEMENT TO DISCLOSURE SCHEDULES ---------------------------------- Schedule B (Disclosure Schedules) to the Credit Agreement is hereby supplemented by adding thereto the following information: A. PART 6.10(A) (CHIEF EXECUTIVE OFFICES; PRINCIPAL PLACES OF BUSINESS): Sinterloy Corporation 8104 North Solon Road Solon Mills, Illinois 60080 B. PART 6.11 (SUBSIDIARIES): Sinterloy Corporation is a 100% owned Subsidiary of Hawk Corporation. EXHIBIT A TO ASSUMPTION AND JOINDER AGREEMENT DATED AS OF AUGUST 1, 1997 LIST OF CLOSING DOCUMENTS ------------------------- Attached. 6 JOINDER OF SINTERLOY CORPORATION AS A BORROWER UNDER SENIOR SECURED CREDIT FACILITY with BT COMMERCIAL CORPORATION, as Agent August 1, 1997 LIST OF CLOSING DOCUMENTS A. ASSUMPTION AND JOINDER DOCUMENTS -------------------------------- 1. Assumption and Joinder Agreement between Sinterloy Corporation, a Delaware corporation ("NEW BORROWER") and Agent: SCHEDULE 1 Credit Documents SCHEDULE 2 Supplement to Disclosure Schedules EXHIBIT A List of Closing Documents 2. Substitute and Restated Revolving Note in the principal amount of up to $25,000,000 executed by each of the Borrowers, including New Borrower, and payable to the order of Agent. 3. Corporate Documents of New Borrower: a. Secretary's Certificate (including incumbency) EXHIBIT A Resolutions EXHIBIT B Certificate of Incorporation EXHIBIT C Bylaws b. Good Standing Certificate(s): (1) Delaware (2) Illinois 4. Lien Search Reports of filings against "SINTERLOY, INC." in the respective offices indicated on Annex 1 hereto. 5. UCC Financing Statements naming Agent as Secured Party and filed against New Borrower in the respective offices indicated on Annex 2 hereto. 7 6. Post-filing Lien Search Reports of filings against New Borrower in the respective offices indicated on Annex 2 hereto. 7. Opinion of counsel to New Borrower: Kohrman Jackson & Krantz P.L.L. B. SINTERLOY ACQUISITION DOCUMENTS ------------------------------- [SEPARATELY BOUND] 8 ANNEX 1 TO LIST OF CLOSING DOCUMENTS LIEN SEARCHES DEBTOR: SINTERLOY, INC.
================================================================================ Jurisdiction Search Type - -------------------------------------------------------------------------------- Illinois - Secretary of State UCC, FTL - -------------------------------------------------------------------------------- Illinois - McHenry County UCC, FXT, FTL, STL, PSJ ================================================================================
A/1-1 9 ANNEX 2 TO LIST OF CLOSING DOCUMENTS FINANCING STATEMENTS DEBTOR: SINTERLOY CORPORATION
================================================================================ Jurisdiction Date of Filing Filing Number - -------------------------------------------------------------------------------- Ohio - Secretary of State 08/__/97 - -------------------------------------------------------------------------------- Ohio - Cuyahoga County 08/__/97 - -------------------------------------------------------------------------------- Illinois - Secretary of State 08/__/97 ================================================================================
A/2-1 EX-10.31 4 EXHIBIT 10.31 1 Exhibit 10.31 SUBSTITUTED AND RESTATED REVOLVING NOTE $25,000,000.00 ORIGINALLY EXECUTED NOVEMBER 27, 1996 SUBSTITUTED AND RESTATED AUGUST 1, 1997 FOR VALUE RECEIVED, each of the undersigned, (collectively, the "BORROWERS") jointly and severally promises to pay to the order of BT COMMERCIAL CORPORATION, a Delaware corporation, in its capacity as "AGENT" for the "LENDERS" (as each such term is defined in the Credit Agreement referred to below), at c/o BT Commercial Corporation, as Agent, 233 South Wacker Drive, 84th Floor, Chicago, Illinois 60606 (the "AGENT'S OFFICE") in lawful money of the United States of America and in immediately available funds, the principal amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or such lesser amount as may then constitute the unpaid aggregate principal amount of the Revolving Loans made by the Lenders, on the Expiration Date or such earlier date as this Revolving Note may become due in accordance with the terms of the Credit Agreement referred to below. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned thereto in the Credit Agreement. Each of the Borrowers further agrees to pay, on a joint and several basis, interest at the Agent's Office, in like money, on the unpaid principal amount owing hereunder from time to time from the date hereof on the dates and at the rates specified in and calculated pursuant to ARTICLE 4 of the Credit Agreement. If any payment on this Revolving Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. It is expressly understood and agreed by each of the Borrowers that this Revolving Note (A) is given in substitution for, and not in payment of that certain Revolving Note dated November 27, 1996, in the original principal amount of up to $25,000,000.00 (the "ORIGINAL NOTE"), executed by each of the Borrowers and payable to BT Commercial Corporation, in its individual capacity, and (B) is in no way intended to constitute a novation of the Original Note. This Revolving Note is one of the Revolving Notes referred to in and executed and delivered pursuant to that certain Credit Agreement dated as of November 27, 1996 (as the same may be amended, restated, supplemented or otherwise modified and in effect from time to time, the "CREDIT AGREEMENT"), among the Borrowers, Hawk Corporation, a Delaware corporation, as borrowing agent for the Borrowers, the Agent and the Lenders, to which reference is hereby made for a statement of the terms and conditions under which the Revolving Loans evidenced hereby are to be 2 made and repaid. This Revolving Note is secured by certain Collateral Documents. Reference is made to such Collateral Documents and to the Credit Agreement for the terms and conditions governing the Collateral which secures the Obligations. Each Borrower (and each endorser, guarantor or surety hereof) hereby waives presentment, demand, protest and notice of any kind. No failure to exercise and no delay in exercising any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS. IN WITNESS WHEREOF, each Borrower has caused this Revolving Note to be executed and delivered by such Borrower's duly authorized officer as of the date first set forth above. FRICTION PRODUCTS CO., an Ohio corporation HAWK BRAKE, INC., an Ohio corporation HELSEL, INC., a Delaware corporation HUTCHINSON PRODUCTS CORPORATION, a Delaware corporation LOGAN METAL STAMPINGS, INC., an Ohio corporation S.K. WELLMAN HOLDINGS, INC., a Delaware corporation S.K. WELLMAN CORP., a Delaware corporation SINTERLOY CORPORATION, a Delaware corporation WELLMAN FRICTION PRODUCTS U.K. CORP., a Delaware corporation By: /s/ Thomas A. Gilbride ------------------------------------ Thomas A. Gilbride Vice President - Finance EX-27 5 EXHIBIT 27
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 13,586 0 23,223 180 23,322 62,859 66,303 17,886 164,901 20,196 130,543 14 0 1 2,873 164,901 76,981 76,981 54,045 11,073 30 0 7,059 4,774 1,989 2,785 0 0 0 2,785 1.49 0
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